• Andy Vitus also contributed to this post
    Posted by Gregory Silva on June 10, 2015

    It’s surprising to learn that, despite how inundated we’ve been with news of the Internet of Things over the past few years, the stack that’s powering so many of the applications and devices that have emerged remains nebulous. So nebulous in fact that PubNub’s recently-held IoT Stream Conference was dedicated to breaking down the confusion and clarifying the technology underlying IoT. Fresh with perspective from the conference panels at Stream and the exhibition halls at IoT World, we’ve decided to offer our own thoughts on the stack.  

     

    In its current state, IoT has two predominant use cases: control and analysis, each deserving of their own discrete stack.

    Control

    IOT1

    As the name implies, the control use case exists to govern a given set devices, sensors and things. Data flow in this use case is most often bi-directional and the controller-device count is finite; data flow therefore is generally of smaller scale. Consider the irrigation management system Sprinkl. Sprinkl embeds sensors (silicon) in soil to measure moisture and temperature and then relays that information via a low rate WPAN (network protocols and connectivity) to a control unit (silicon/enablement). The control unit uses that data to determine whether individual sprinklers should be watering on any given data at any given time. Simultaneously, the control unit uses 802.11 (network protocols and connectivity) and PubNub (messaging) to relay data from the control unit to Sprinkl’s cloud and the end user’s mobile device in real time. This allows the user to control and check the status of their system from their mobile devices as well.

     

    Analysis

    IOT2

    The analytics use case is dedicated to providing an understanding of what is happening across what is typically a vast sensor or device implementation. Data flow in this use case is often high volume and one-way, traveling from many sensors to one data store. Consider the Japanese automobile electronics manufacturer Pioneer. Pioneer builds OEM diagnostic sensors (silicon) to be embedded in automobiles in order to provide manufacturers, drivers, dealers and insurers with insights into service needs, navigation data, traffic data and incident information at massive scale. Pioneer gathers data from these on-board sensors and, using a wireless connectivity standard and FluentD (queuing and collection) streams it into a TreasureData data warehouse (data store). Pioneer can then query it or layer any of a variety of analytics tools on top of the data warehouse to determine which cars are prone to failure, what problems are covered by warranty or any of a variety of other insights.

    As PubNub CEO Todd Greene mentioned in his recent article, the need for a single, codified stack is pressing. We couldn’t agree more; interoperability and security demand it. Indeed, as the technologies that serve each further develop and evolve, the lines between use cases will begin to blur and a single stack will emerge at scale. Until that time however, the stack duopoly will continue to predominate.

  • Number of companies in Scale Venture Partners SaaS Index up 100% in four years
    Posted by Alex Niehenke on May 12, 2015

    Scale has been investing in SaaS since 1999 with over 40 SaaS investments including four billion+ dollar IPOs (Omniture, RingCentral, Hubspot, and Box). The industry is now over fifteen years old having morphed out of Application Service Providers in the late 90s. Not since the move from mainframe to client-server has anything had such an impact on the software industry and it continues to rise. While we have evolved beyond SaaS’ infancy, we are now seeing the vast rewards in the amount of wealth these companies are creating in the public markets. Below outlines the Scale SaaS Index comprised of public SaaS companies we use to benchmark the industry.

     

    Public Companies in the Scale SaaS Index

    saasindex

    Accelerating Growth for SaaS IPOs

    Salesforce went public in 2004 when the only three other public SaaS companies: Concur, LivePerson, and Ultimate Software. Today there are 44 public SaaS companies in our index and another 14 public SaaS companies have been acquired in the past decade. What is even more impressive is that a lot of this growth has come in the last three years. There was only 25 public SaaS companies our index at the beginning of 2012, highlighting how popular the public markets have been recently.

    Digging through the data, other stats we uncovered:

    • The collective Enterprise Value (EV) of all of the companies in the index is an impressive $127B
    • The collective current quarter annualized revenue (CQAR) of all the companies in the index is $17B, which suggests an average revenue multiple of 7.5x
    • The median EV is $1B; in other words, there are over 22 SaaS companies with a EV greater than $1B (half the Scale SaaS Index)
    • Salesforce is both the largest in terms of EV and CQAR at $43B and $5.6B, respectively
    • Castlight Health is the smallest company in terms of revenue at $58M most recent quarter annualized but has a very impressive growth rate (growing at >180% year over year)
    • Of the 44 companies in the index, one was founded in the 80’s, 15 were founded in the 90’s, and 28 were founded in the 00’s
    • Scale has invested in four companies in the index each of which has at +$1B outcomes: Omniture, RingCentral, Hubspot, and Box

    Who’s on the List

    For criteria, we focus on those that use SaaS as a business model, ignoring candidates that derive the majority of their revenue from non-recurring revenue, on premise installations, or professional services. The companies in the index are:

    athenahealth(ATHN)Bazaarvoice (BV)

    Benefitfocus (BNFT)

    Box (BOX)

    Brightcove (BCOV)

    Castlight Health (CSLT)

    ChannelAdvisor (ECOM)

    Constant Contact (CTCT)

    Cornerstone OnDemand (CSOD)

    Cvent (CVT)

    Dealertrack (TRAK)

    Demandware (DWRE)

    Five9 (FIVN)

    Fleetmatics (FLTX)

    HubSpot (HUBS)

    IntraLinks (IL)

    Jive (JIVE)

    LivePerson (LPSN)

    LogMeIn (LOGM)

    Marin Software (MRIN)

    Marketo (MKTO)

    Medidata Solutions (MDSO)

    MobileIron (MOBL)NetSuite (N)

    New Relic (NEWR)

    OPOWER (OPWR)

    Proofpoint (PFPT)

    Q2 Holdings (QTWO)

    Rally Software (RALY)

    RealPage (RP)

    RingCentral (RNG)

    salesforce.com (CRM)

    SciQuest (SQI)

    ServiceNow (NOW)

    SPS Commerce (SPSC)

    Textura (TXTR)

    Ultimate Software (ULTI)

    Upland Software (UPLD)

    Veeva (VEEV)

    Wix.com (WIX)

    Workday (WDAY)

    Xero (XRO)

    Yodlee (YDLE)

    Zendesk (ZEN)

    Companies that were in the index historically and have since gotten acquired are:

    Concur
    Convio
    DemandTec
    E2open
    Eloqua
    ExactTarget
    Kenexa
    Omniture
    Responsys
    RightnowSalary.com
    Success Factors
    Taleo
    Vocus

    In the coming months we will be releasing a string of content on SaaS metrics based on our portfolio companies and public comparables. Bookmark this page and come back from time to time. We’ll update this list as new listings occur or listed companies get acquired.

  • The next generation of work management is Wrike
    Posted by Rory O'Driscoll on May 6, 2015

    We are excited to announce our investment today in Wrike, the next generation work management platform for the enterprise. As is always the case at Scale, our investment is driven by our excitement and belief in the long-term upside of the market Wrike is serving, and our awe around the execution of the team in that market right now. Put another way, our two big questions are always 1) Is this market big enough to support a billion dollar plus company? 2) Is this team the team that can get us that prize?

    The Evolution of Work Management

    First the big picture. How and where work gets done has changed a lot in the past decade driven by technology and societal changes. Cloud services and mobile endpoints have eroded the productivity monopoly that was the Office Suite, and the plethora of SaaS best of breed products from Salesforce to Workday is replacing the ERP oligopoly of the 1990’s. People work all over the place and the result can be effective but sprawling and chaotic. This is amplified by the impact of a millennial workforce and, a wider embrace of a “Silicon Valley style workplace”, that allows individual workers much more autonomy around day-to-day workload. However, work is still called work for a reason and there is still a need for planning and tracking of that work, especially with longer duration projects.

    Delight and Deliver

    In meeting that need for “work management” too often the choice is between software that delights and software that delivers. Some newer project management services are a delight to use for individuals and small teams, but when the chips are down in corporate America and a manager has to take ownership for the execution of a complex project, across multiple teams and over time, out comes the Microsoft Project Gantt chart and the interminable meetings to fill in the data. Wrike breaks this pattern by meeting the needs of both constituencies. For an end user the product is easy to use, and allows easy collaboration either in Wrike or in any cloud service. For managers, the seamless integration between “doing work” and “tracking work” as well as the ability to create templates and workflows, means detailed projects can be managed in a very concrete, granular level.

    In all our customer references the strong pull was not just individuals saying, I can really plan my work in this, but also managers saying in effect “I come in and look at my dashboard, not only can I see what is going on, but it is up to date, without anyone having to do a specific data entry process”. This was an added unexpected bonus

    Execution

    The company is firing on all cylinders and knows how to make their customers happy. Having been bootstrapped for year by the founders led by Andrew Filev, the company knows how to manage both the high volume, lite touch of a freemium model to drive initial adoption as well as the complex product needs of enterprise customers. This is the combined model that we have seen be so successful at Scale for investments like Box and Docusign. The freemium model validates the need and allows for the land part of “land and expand”, but it is the relentless focus on the product needs of the enterprise that builds a sustaining valuable company. Wrike has seen enterprise revenue grow 20% month over month as they have added features like enterprise workflow, customizable templates, single sign on and all the other corporate needs that are – honestly – not nearly as sexy as the freemium part of the product, but that bring home the customer bacon. Today the company has 8,000 customers, 1 MM users, is adding $1.5 M in new annualized recurring revenue every month.

    We believe this is only the beginning. The company appears to have found the sweet spot in this market, half way between the dead hand of Microsoft project and the elegant but non scalable plethora of small team task management tools out there. We are excited to be investors in Wrike.

     

     

     

     

  • .
    Posted by Kate Mitchell on May 5, 2015

    The lack of diversity in our industry has become a national conversation. It’s being actively covered in the media from venture press to the national publications. Large tech companies from Intel to Apple are setting public goals to aggressively increase the diversity of their employee base, in part to get their share of the best employees, but also because it better reflects their customer base. Policymakers from both sides of the aisle are focused on economic equality across all populations. And of course, there was the Pao/Kleiner case. The verdict may have been a Rorschach test for some observers, but it is a benefit to everyone in the industry that both parties walked out of the courtroom reaffirming the importance of and their commitment to improving diversity.

    Before a public conversation at last year’s NVCA annual VentureScape conference with Kara Swisher and Vivek Wadhwa about our lack of diversity, a number of us joined a “Deep Dive” session to develop ongoing efforts that lead to real, measurable results. That room was filled to capacity—and importantly, not just with women and minorities. We all began asking ourselves—what can we do to change? Deep Dive panelist Jeff Bussgang of Flybridge Capital Partners outlined some of the key challenges and potential answers to that question on his blog after the event.

    When I joined the industry in 1996, these questions were asked in small rooms with equally small groups of women and minorities. Today, these conversations have expanded. We’ve been joined by the traditional leaders in our industry: white men. Furthermore, the leading venture firms are taking a role and have a stake in the outcome.

    Diversity & Why It Matters

    I’m encouraged that this issue is front and center. Diversity plays right to the core goals of venture firms since it is not only good for the venture industry, it is the smartest approach to investing. Studies have shown that having a diverse team encourages different perspectives, creates better decision making, and is correlated with better performance. Most recently a Scientific American article noted that “in the presence of diversity, [people] were more diligent and open-minded.” Having a broader circle from which to draw for deals, contacts and business experience makes us more effective as investors. Our objective is to work with the best and brightest innovators so we will succeed only when we cast our net for talent as wide as possible.

    My Role

    Gender is only one variable of diversity, but the one I can speak to best.  During my career, I’ve evolved from not wanting to talk about being a woman in business, to today, when I feel it is my responsibility to do so.

    It might be an awkward conversation to have but now is the time to have it … and to be prepared to talk about different aspects of diversity including: What it is like to be African American or Latino in our business? What would I encounter as a military veteran wanting to find a place in this ecosystem? What is the experience of being LGBT, and deciding to build a career in the innovation economy? It isn’t easy, so let’s figure out how to change that.

    The Work of the NVCA Diversity Task Force

    I jumped in with both feet when I was asked to return to the NVCA board last Fall and then later asked to co-chair the NVCA Diversity Task Force alongside Ashton Newhall of Greenspring Associates. In our first meeting early this year, we signaled to the NVCA Board that we wanted to expand the Task Force. We felt strongly that our work would be incomplete without the insights and expertise of people of diverse races and ethnicities. The board was supportive and they took our goal one step further, suggesting that diverse candidates for the Task Force should also be considered for the NVCA Board of Directors itself.

    The slate of 10 board candidates, the most diverse ever, being proposed to the membership includes women and people of color who will be inducted on the anniversary of last year’s conversation on diversity. A Catalyst study showed that having diverse leaders at the top of an organization is one of the critical factors for increasing diversity in the overall workforce. While we are gratified by this development right out of the gate, we also know it is only the first of many necessary steps to demonstrable progress.

    The task force meets regularly and has set three goals:

    1. To increase the ratio of women and minorities in venture firms and startups, particularly in the key roles of investing partner or senior line leadership.
    2. To increase the connections between experienced investors and women and minorities.
    3. To share and advocate for best practices that will foster a more diverse ecosystem at all levels and across the industry.

    We acknowledge that it will take time to change the ratio of investing partners since the career path is a long one, but we won’t achieve it if we don’t start now. The venture ecosystem is based on the value of innovation and change. This is the perfect opportunity to be innovative inside our organizations and our boardrooms.

    Our Roadmap

    In January, we started on a “listening tour.” The Task Force itself is only the nucleus of our activity since the power and great ideas come from a much larger community, from whom we have a lot to learn. We are meeting with NVCA members, non-profits, educators, incubators and limited partners on a weekly basis. Borrowing from the software playbook, we are building this effort on an “open source” model. Rather than creating yet another initiative that dilutes the efforts of the many excellent ones that exist, we are connecting and leveraging the best of what already exists.

    The NVCA is partnering with Dow Jones on a research study that will be distributed widely this spring to VCs and their portfolio companies asking for data on their current levels of diversity across a number of dimensions. We know that the ratio of diverse employees in venture is too low, and well below that of corporate America. What we need is a deeper understanding of where we are today so we can build an effective roadmap that addresses the key issues identified by the research. We will be sharing our results publicly.

    This summer, we will begin to develop the first set of initiatives to roll out in the fall. This is just the beginning of a long-term commitment.   We are planning a public event to discuss our initiatives and to introduce the connections we are establishing with the broader community. Since venture is a business that is spread across the country, we will offer solutions and conversations that are “virtual,” so everyone can access them easily.

    How can you help? The focus for the Task Force is to generate solutions and expand our network. What we need are ideas that have worked for you. We are interested in the connections or resources that you find valuable and that can help us develop the first set of recommendations.

    Please join us in the conversation and in this effort to change our industry for the better.

  • Predictive Analytics for Sales and our investment in Aviso
    Posted by Stacey Bishop on April 9, 2015

    Marketing has experienced tremendous technology expansion to provide better insight into the customer, target the right message and drive demand. This trend is now extending to the sales function.  Sales forecasting has long been a manual process involving tons of guesswork. Sales leaders rely as much on intuition as they do on a complex sales roll-up of Excel documents. Not unexpectedly, these same sales leaders typically don’t have an accurate view into where the quarter is headed and whether their teams will miss or meet revenue goals.

    Like it did for marketing, predictive analytics is leveraging machine learning and big data to transform sales forecasting.  We like to call this Automation by Algorithm.  And this is why I’m excited to announce our latest investment in Aviso, which optimizes sales performance through real-time insights delivered by predictive analytics.

    Aviso pulls in CRM data and calculates their own proprietary forecast based on historical deal data. Sales leaders can drill into this forecast in real time to see the underlying data behind the prediction and to know where they need to take action. Aviso gives sales leaders an objective informed view into their sales forecast.

    Co-founded by former Zuora founder, K.V. Rao, and data scientist, Andrew Abrahams, Aviso was born out of a shared realization that people make better decisions armed with tools that can properly account for risk.

    Aviso is transforming the sales landscape, as seen by early adoption from some notable public companies, and promises further transformation as it enters its next phase of growth.

     

     

  • The team at Realm has built a database that has several critical advantages over SQLite.
    Posted by Andy Vitus on March 24, 2015

    Anyone who has written an iOS mobile application knows that using Core Data and SQLite is not for the fainthearted. And anyone who has read through the documentation for Apple’s ‘NSPersistentStoreCoordinator’ was likely asleep before they had figured out how to retrieve any information from the database. Why is it, then, that SQLite became the default database for both iOS and Android?

    It is probable that no one anticipated the increasing complexity of mobile applications and, more importantly, there was no alternative at the time. It was natural that Apple would reach for the mature, embedded SQLite database and that Google would follow in their footsteps. SQLite, though, was never built for mobile applications or the needs of the millions of mobile developers who would gravitate to the new platforms. SQLite was designed over 15 years ago for use on board the US Navy’s guided missile destroyers. The phrase ‘platform shift’ does not begin to adequately capture the difference between that environment and a modern cell phone. Nevertheless, there has been almost no investment in mobile databases since the design of SQLite 15 years ago[1]. And that is one of the reasons we are happy to announce our new investment in Realm. The team at Realm has built a database that has several critical advantages over SQLite:

    1. Simple and Concise API

    Compare the following two code snippets:

    Realm

    func saveRealmName(name: String) {

    let realm = RLMRealm.defaultRealm()

    realm.transactionWithBlock {

    let person = Person()

    person.name = name

    realm.addObject(person)

    }

    }

    SQLite

    func saveCoreDataName(name: String) {

    let appDelegate = UIApplication.sharedApplication().delegate as AppDelegate

    let managedContext = appDelegate.managedObjectContext!

    let entity = NSEntityDescription.entityForName(“Person”,

    inManagedObjectContext: managedContext)

    let person = NSManagedObject(entity: entity!,

    insertIntoManagedObjectContext:managedContext)

    person.setValue(name, forKey: “name”)

    var error: NSError?

    if !managedContext.save(&error) {

    println(“Could not save \(error), \(error?.userInfo)”)

    }

    }

    Developers want to be productive and write code that is simple yet expressive. Database functionality is well understood and represents a perfect opportunity to abstract away unnecessary complexity. Realm has solved this. Realm also has better support for native objects. Preserving the structure of objects as they move in and out of the database is a boon.

    Usually, compact code is associated with higher-level languages (like Ruby & Python) that lose in performance what they gain in simplicity. But that leads one to Realm’s second big advantage.

    2. 10-100x Faster

    Realm is significantly faster than SQLite as the benchmark below shows:

    RealmBenchmark

    As the storage available in mobile phones increases, databases will grow in both size and complexity. The drive to eliminate cellular network latency and improve the user experience on mobile devices will result in larger, local databases. Fast and responsive catalog search requires every product to be in database on the user’s phone. Once that happens, query performance will be critical.

    3. Cross-Platform Consistency

    The same Realm database can be used across both iOS and Android. This allows the same data model to be shared across both platforms and allows for greater code ‘reuse’ across the major mobile platforms, a huge advantage over the platform-specific frameworks that usually sit on top of SQLite.

    Conclusion

    We are very enthusiastic about our investment in Realm. In the short time since they launched the product it has already been widely adopted by mobile developers who relish an opportunity to improve the performance of their application while simultaneously improving code readability and scrapping a ton of boilerplate code. The team at Realm has tackled the long-neglected problem of building a better mobile database and we are excited to be partnering with them.

    Notes

    [1] Despite an explosion of investment in server side databases over the past decade, the timeline below shows the dearth of investment on the mobile side.

    DatabaseTimeline

  • Five Motivators Driving the Shift
    Posted by Cack Wilhelm on February 18, 2015

    At Scale we focus our investing on enterprise software companies. Unpacking that one step:

    Enterprise (B2B) = non-consumer (B2C)

    Software = non-hardware

    Scale Partner, Rory O’Driscoll, wrote a blog post last year explaining that Scale uses the buyers of technology to divide the landscape, and within enterprise software there are two: the IT buyer and the Line of Business (LOB) buyer. Historically, these have been distinct categories but more and more often we are seeing companies deliberately target the LOB buyer in preference to the IT buyer and articulate that choice as a competitive advantage.

    Under the old model, corporate IT departments purchased all goods and services related to ‘technology’ on behalf of all users and departments. As a result, sales reps were let loose on IT departments, not unlike what I practiced as a sales rep at Oracle and Cloudera. Technology purchases involved everything from the data center to function-specific business applications. Some products were intended for universal consumption – say, the data center infrastructure powering company-wide usage – and some were department specific, such as Netsuite for finance teams and Oracle Siebel CRM for sales teams. Traditional LOB software packages required extensive customization and implementation and consequently were motivated by pains experienced by business units but purchased by corporate IT.

    This line has blurred and we think several trends are prompting purchasing decisions to move to the business buyer:

    Time to Insight: Today, the goal for many technology startups is to get insights into the hands of the business users quickly and to improve consumption of data, whether it be mobile application crash reports (Crittercism) or indications that a project running on Amazon Web Services may be running over-budget (CloudHealth). The goal for modern software companies is different than it has been historically and is more focused on abstracting the technicalities and details and putting design and agility first. Abstraction allows for users to be less familiar with the technology and entirely divorced from implementation cycles, but still extract value quickly. Some think of this as the ‘consumerization’ of IT.

    The Spectacular Rise of Software Delivery -aaS: Software is moving to the cloud and, as a result, the delivery model is moving from packaged software to consumption as-a-service (-aaS). IT no longer has to install the software, nor do they have to operate and monitor on-premise. Employees and teams can now deploy a system without explicit approval from IT because software vendors commit to operating their product and delivering an always-on service directly to the end-users. LOB users can directly consume software without help from IT. The new delivery model has positives (a new source for innovation) and negatives (raises concerns about security and control, new challenges of building multi-tenancy) but in either case it removes IT as a gatekeeper. In some case, this move to the cloud is akin to outsourcing core responsibilities that were once owned by IT.

    Critical Mass: Freemium business models (those practiced by Evernote, Box) have become a well-adopted sales strategy. Freemium was once unthinkable in corporate IT where security and governance were top of mind. That governance focus has not changed at the IT level but start-ups are making their tools freely available to individuals and teams, in hopes that when adoption takes off department-wide, revenue will follow. This is especially true in developer communities, with software like Slack or languages like node.js and Swift.

    Self-Service: For new software vendors the easier path to market is with a business model that minimizes sales touch-points and puts the process in the hands of the end-user. SaaS has enabled this, monthly payment by credit card has reduced friction, online software downloads have expedited the time to value, and open source downloads have created an inexpensive lead generation channel. Startups never used to post pricing pages on their websites but this is changing; companies want to supply end-users with the requisite information for making a final decision.

    Chief Data Officer / Chief Revenue Officer: Corporate IT has always been an enabler by using technology to allow the business to be more efficient and competitive and to make employees more effective and productive. With the rise of the CDO and CRO, internal data is being seen as a competitive advantage. These executives have a clear understanding of business drivers and a technical knowledge of the data assets at the company. When start-ups can articulate tools that will reduce churn, improve data analysis across disparate data sets for a more holistic business view, or real-time insights, that becomes a business imperative, worthy of CDO or CRO attention.

    In this era of IT becoming ‘consumerized’ and less centralized, the IT department becomes only the enabler and not the decision-maker, responding to requests from the business, instead of the reverse. Ultimately, start-ups are finding that their message resonates more clearly with teams looking for results from their data, and these individuals double as their internal champion to help close the deal.

  • Proud to be an investor in the next great enterprise software company
    Posted by Rory O'Driscoll on January 28, 2015

    Box Podium

    Last Friday Box completed their long awaited  IPO. What a wild ten-year journey it has been. It has all the elements of a great Silicon Valley win, starting with a founding team led by Aaron Levie dropping out of college in 2005 to chase a vision, financed by the poker winnings of his high school friend, co-founder and CFO, Dylan Smith and some early angel investors. Then came the inevitable but terrifying walk in the woods; the vision did not change but the go to market had to evolve to find a set of viable paying customers in the funding desert of 2008/2009. The company survived several near death experiences, kept alive by the guts of the founding team and the support of a great first institutional investor Josh Stein at DFJ (and later Mamoon Hamid at USVP).

    OLYMPUS DIGITAL CAMERA

    We were lucky enough to meet Box in late 2009 and invest in early 2010 after the company had just cracked the code on selling to business. The average deal size was still tiny, there were only a few sales reps at the company but it was clear that the company had found a compelling use case and that it was time to start to scale. We led a $15M round and said we felt the company should invest more aggressively in sales and marketing. Aaron clearly agreed! From trailing revenues of less than $ 5 MM when we invested, the team has built a company with revenue of over $150 MM for the nine months ended October 31, 2014 and has gone from small departmental sales of $1,000 to signing million dollar investments with Fortune 500 companies.

    It has been both a joy and an honor to work with this team. The four original founders, Aaron, Dylan, Sam and Jeff are all still with the company, and have been the heart and soul of the last ten years. They have been complemented by an experienced management team led by Dan Levin and including Sam Schillace, the original developer of Google docs, Whitney Bouck the former CMO of Documentum and Graham Younger the former EVP Sales from Successfactors. The company has managed the hard task of becoming “professionally managed” without becoming corporate, we are all still Boxers and glad to be that.

    founders

    I am sure at the next board meeting someone, possibly me, will remind the team that the IPO is an event not an ending and how we have to get back to deliver at least ten more years of great execution to make our customers and our investors happy. All that is true but an IPO is still a significant milestone for any company. Being private has its virtues, much talked about in Silicon Valley of late, but with rare exceptions, successful enduring technology companies go public as a part of the process of growing. Customers want it. They like the visibility and transparency it shows, employees want it and even detractors of the process have come around. As I settle back from NYC and as all Boxers head back to work, we can say well done on achieving a major step in our journey to being the enterprise platform for how tomorrow works.

     

  • The Road from 2014 to 2015
    Posted by Kate Mitchell on January 27, 2015

    2014 was undeniably a productive year for Scale…but it’s in our DNA to regularly ask ourselves, “Can we do better?”  Particularly when the market is as competitive — and potentially frothy — as it is now.  The first thing we do is go back to our principles. While our job is to buy low and sell high on behalf of our limited partners, the real value is created by the fundamental high growth generated by our portfolio companies. That is why we spend our energy looking at company go-to-market strategies, customer traction and sales productivity rather than stock prices. A transformative category leader with skilled execution in a growing sector will be able to exit successfully in almost any market.

    We’ve had the good fortune to invest in and partner with a number of best-in-class entrepreneurs who strategically grew their startups into dominant market leaders.These are teams that begin with an understanding of how to consistently delight their customers in large and globally expanding markets. The Scale model is to complement that vision with the experience and knowledge we’ve developed after 15+ years helping early-in-revenue enterprise software companies successfully grow.

    In 2015, we’re “productizing” that scaling expertise to make it more accessible to entrepreneurs. The ScaleVP team is doing that by investing in our own best-in-class “Scaler,” Dale Chang, who joined us this month as VP of Portfolio Operations. Dale has incredible depth of knowledge on how to successfully scale market-leading software companies.Dale formerly was a partner with the Alexander Group, the premier independent group for sales execution in Silicon Valley. Our team and our portfolio companies are lining up outside Dale’s door to tap into his expertise and network. Given our focus on investing in companies early in their commercial lives, our ability to help them travel up that learning curve and execute quickly can make a difference between dominating a market and being the runner up.

    As my partner Rory notes in a recent blog post , “… our objective is to compress the sales learning curve and … the whole scaling process in our portfolio.  We don’t mind paying to learn an expensive lesson once, but we see no value for us, or for our CEOs, in having multiple companies pay for the same lesson.“

    Dale is the most recent in a string of strategic hires and promotions we made this past year to help us accelerate our own growth. Cack Wilhelm and Rose Yuan joined us in the summer, and in the early fall, Ariel Tseitlin was promoted to Partner and Susan Liu was promoted to Senior Associate. And we continued to expand our network of successful operating executives with our most recent Executive-in-Residence, Bill Burns, who shared his expertise in the security issues that are increasingly plaguing large companies and governments, and helped us run a recent survey of Chief Information Security Officers (CISOs).  His insight helped refine our approach to investing in the security sector. This collaboration resulted in our September investment in Agari.

    Today’s momentum is built on a series of recent successes. We were thrilled to see the teams at BrightRoll, Everyday Health, Hubspot, Healogics & Jaspersoft realize strong exits in 2014 and congratulate Box on its successful IPO last week, the first large tech IPO for 2015.

    • Brightroll’s online digital advertising platform was acquired in December 2014 by Yahoo (NASDAQ: YHOO) for $640M in an all-cash transaction.
    • Everyday Health (NYSE: EVDY), a leading provider of digital health and wellness solutions, went public March 28, 2014 on the NYSE, raising $100 million.
    • Hubspot (NYSE: HUBS) also had a successful IPO in October, raising $125 million to fuel the continued growth of its inbound marketing software platform.
    • Healogics, a legacy health care services company in our portfolio, was acquired by Clayton, Dubilier & Rice for $910M in July 2014.
    • Jaspersoft’s business intelligence software solution was sold to TIBCO in April 2014 for $185 million in an all-cash transaction.
    • Box has been in our portfolio since 2010 and went public last Friday (NYSE: Box) raising $175M to continue the growth of its content collaboration business.

    It is a great time to exit, but a tricky time to invest given the high-priced environment. Our experience with more than 20 companies who have scaled successfully has improved our deal flow significantly, both in quantity and quality. It also gives us increasing confidence based on the common patterns we find in early-stage companies who are best positioned to lead in their markets and achieve successful exits. We continued to be disciplined about investing, selecting real gems to add to our Fund IV portfolio last year. These include:

    • Agari Putting an end to advanced email cyberthreats
    • Bizible Marketing  analytics to align sales and marketing to maximize revenue
    • Crittercism Mobile app performance monitoring
    • CloudHealthPioneering the next generation of IT Service Management for the cloud
    • ExtoleReferral marketing platform to build brand value and acquire new customers
    • OneLogIn Enterprise identity management
    • Pantheon Web management platform to build, launch and run WordPress or Drupal sites
    • Treasure Data Cloud-based Data-as-a-Service
    • WalkMe  Online guidance platform for web and software applications

    We have never felt better about how the Scale team and our portfolio companies are performing – everyone is firing on all cylinders – but we remain attentive to the market forces around us. The venture industry raised more capital last year than it did in the previous seven years. Given our long-held beliefs about the dangers of an oversupply of capital, that puts us on our guard. That oversupply coupled with high private valuations means our investing, and that being done by our portfolio companies, need to take into account that enterprise valuations will return to normal levels sooner rather than later.  At that stage, there will likely be a greater gap between the best companies and the merely good companies. This is why we have sharpened our team, our focus and our execution. Our eyes remain fixed on working with transformative companies that can be positioned to scale successfully for years to come.

  • Dale Chang has joined us as VP Portfolio Operations
    Posted by Rory O'Driscoll on January 27, 2015

    compressingBooks

    Scale invests in technology companies that have established product market fit and are just starting to scale. When we invest, revenue is often in the low single digit millions, and the go to market team consists of a couple of newly hired sales reps, and a CEO who is doing double duty as the company’s best sales person. That CEO is looking to quadruple, triple and then double the company, year on year, to get to $100 MM as quickly as possible. What we want to do is help.

    What we have seen is that, while every technology product is different, the challenges of scaling an enterprise software company are remarkably consistent across companies

    Growth requires distribution & distribution requires money

    For a software company, once product market fit is established, the vast majority of the additional investment dollars and headcount go into sales and marketing. A great distribution deal can change this dynamic (example Microsoft and the IBM deal) but for the most part software growth is about distribution and distribution is expensive. This is even more the case, in the SaaS/subscription era, where the costs still come up front but the revenue only comes slowly over time.

    Smaller businesses and departments are early adopters and are willing to buy online or via telesales. A typical Scale investment will start with a simple predictable sales model based on some variation of web visits, conversions to leads and a “same quarter” pipeline close rate. It’s simple math. Large customers have much bigger budgets but require in person meetings, and extensive and expensive sales cycles. No one spends $1.0M by credit card. Unless the company wants to remain SMB focused, scaling usually involves taking this simple proven go to market model and making it more complex and thus harder to predict over time.

    It’s choreography

    Call it what you like, choreography, or logistics, but growth is all about getting all the details right such that all parts of the company show up at the same time ready to dance and sing in unison.  A software company doing $50 MM in revenue and looking to double this year faces some or all of the following issues, all of which have to be resolved and executed in year.

    How do we double sales capacity while maintaining efficiency?

    Do we start to “sell high” or keep doing what we are doing? If we start to sell to larger enterprises does our product really fill the need?

    Is this the year for international? How do you decide and if international, where ?

    $50 MM in new revenue means $150 MM in new pipeline assuming a 33% close ratio. With a conversation rate of 10% this means we need $1.5BN of raw interest. Is that level of demand even out there?

    This is a list of four, I could make it a list of twenty but you get the point. The challenge is not making each individual decision but in ensuring that the sum of all the decisions adds up to a coherent overall plan.

    When we look across our portfolio companies we see the same set of go to market questions being asked over and over again with an almost insatiable need for CEO’s to know “what have other companies like us done”.  Answering these questions is what a partner should bring to the table and we all do this as board members. However there are limits to this approach.

    Bring in the market expertise

    Therefore, we decided to hire an executive who was experienced both in 1) go to market execution, knowing what works and 2) consulting, knowing how to assess each companies needs and explain what works. Dale Chang comes to us from the Alexander Group, the premier independent consulting group on sales execution in the valley, and has worked on many of our portfolio companies including Box and DocuSign as well as other great companies like New Relic and LinkedIn. He has already helped many of our companies scale and we look forward to having him drive this systemically across the portfolio.

    He will focus on delivering answers to the most asked questions around go to market execution leveraging blinded data from our portfolio. We want to be able to tell a CEO this is what equivalent companies have done that works, and this is what has failed.  We are realistic about what this will achieve. It will not create product market fit, and it will not make a bad business good. What it can do is allow CEOs to judge their Go To Market effectiveness against a realistic benchmark of the possible, based on peer companies.

    Beyond this, we hope to compress the sales learning curve and more broadly the whole scaling process in our portfolio.

    Welcome Dale to the Scale family, we are delighted to have him on board.