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Twilio CEO Jeff Lawson might have breathed a sigh of relief when the leader of tech investing at Legion Partners, an activist hedge fund that had agitated for change at Lawson’s software company, left for another fund.

But the investor picked up where he left off, leading his new employer, Anson Funds, to buy a stake in Twilio. Now Anson is urging the company to sell itself or divest its data and applications business, according to a letter Anson sent to Twilio’s board of directors that The Information viewed.

THE TAKEAWAY

• Anson Funds has built a $50 million stake in Twilio

• Anson is seeking a sale of the company or a divestiture of its data and applications business

• Anson’s investment comes after Sagar Gupta, who had been a key part of Legion’s activist campaign against Twilio, moved to Anson

The stake is worth about $50 million, and the activist met with members of Twilio’s board earlier this month, according to the letter, which was sent Nov. 20. The hedge fund also hinted it could launch a proxy fight if Twilio didn’t act.

A Twilio spokesperson didn't immediately have a comment.

Toronto-based Anson, which has $1.7 billion in assets under management, recently hired tech-focused investor Sagar Gupta from Legion. Including his work for Legion and now Anson, Gupta has met with Twilio’s board and management team nine times in the past year, the letter said.

The Information reported in May that Legion, which has a position of about $40 million in Twilio, according to the latest public disclosures, had urged the company to consider board changes and divestitures. Gupta was key in that process, according to people familiar with the matter.

Once a hot initial public offering with rapid revenue growth, Twilio has been punished on the public markets over the past couple of years as investors have shied away from loss-making companies. Twilio’s stock trades in the low $60s today, far off its highs of more than $435 in early 2021. (Still, the stock has rebounded 25% this year.) Twilio posted a $650 million net loss in the first nine months of this year, compared with a $1.03 billion loss during the same period a year earlier. Over that same period, its year-over-year revenue growth slowed to 9.9% from 40%.

The push also comes after Twilio, a communication software company with an $11.4 billion market capitalization, lost the protection of its supervoting shares earlier this year. Until June, CEO Lawson’s 3.7% ownership stake at the time had voting power of nearly 22%, which insulated the company against the threat of an activist lobbying enough votes to oust directors. But that supervoting power recently expired as the share classes collapsed into one.

Twilio, meanwhile, has been remaking itself. To cut costs, it sold off two business lines and cut 1,500 jobs earlier this year, a second round of layoffs after it made initial cuts in 2022. The company also said it would buy back $1 billion worth of shares. (In the same month, Twilio ended its employee sabbatical program, introduced just a year before, plus its book purchase and wellness allowances for employees.) The company has started to generate free cash flow in the past two quarters, but that has come with slowing revenue growth.

Anson is urging Twilio to sell its data and applications business, which makes up about 12% of its revenue and helps Twilio’s users better know their customers. Anson wants it to use the proceeds to repurchase stock or buy other communications platforms, like publicly traded Sinch or Vonage, according to the letter. (Sinch and Vonage didn’t immediately respond to requests for comment.)

A big part of an activist investor's typical playbook is to buy up shares in a company and push it to sell itself at a premium. Given a sluggish merger market, though, activists have instead had to lean more toward pushing companies to sell off pieces of themselves or return cash to shareholders, according to activist defense advisers and investors.

In private meetings with the company’s management, representatives from Anson have said a change in Twilio’s leadership may be necessary, according to a person familiar with the matter.

When asked whether Lawson’s diminished voting share left him exposed to activist investors in an August interview with Bloomberg television, he said, “Without dual class shares, we are in the category of nearly every public company that exists, so I don’t think it’s really a newsworthy story.” He also said the company’s management has been “active participants” with investors and has “taken the company from really focused on growth and never making a substantive profit to a company that’s now throwing off more than 10% non–[generally accepted accounting principles] operating margins in just the course of six months.”

Three board members at Twilio are up for reelection at its coming annual meeting, typically held in June, including Lawson.

Twilio develops programming tools for creating and receiving communications like phone calls and text messages. If a business sends a text to a customer about the delivery of an order or an advertising campaign, for example, chances are Twilio’s software is powering that message.

Founded in 2008, Twilio drew investments from Silicon Valley venture capitalists Bessemer Venture Partners, Redpoint Ventures and DFJ before going public seven years later. Its rapid growth excited investors, but appetite for the company’s stock has waned as growth has slowed and profit hasn’t materialized.

In February, Twilio reorganized itself into two pieces: communications, which develops software for businesses to communicate with their customers through messaging, voice or email, and a smaller data and analytics arm, which helps clients analyze customer data.

In addition to making job cuts and promising stock buybacks, Twilio divested assets that weren’t central to its core communications business. This year it sold off its Internet of Things business, which builds software connecting everyday items, and its India-based ValueFirst arm, which it bought two years earlier in 2021. Twilio sold its IoT business for $15 million and its India business for $45 million, according to securities filings.

In November, Elena Donio, president of the data and applications arm, which Anson wants Twilio to divest, said she would resign. Twilio has said Lawson will run the unit until it finds her replacement.

On an earnings call earlier this month, Lawson said he expected the business to grow, partially due to its new artificial intelligence tools, which analyze customer data.

"While this is a very small portion of our business today, only 12% of our revenue in Q3, we believe [the data and analytics business] overall and the foundations for AI in particular are key assets for our future."