SurePath Capital - State of SMB Software Report - Q3 2019
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The Q3 2019 report on SMB software highlights a decline in fundraising and exit activity, revealing over 960 global deals with North America accounting for 875 of them. Key findings include a record quarter for legal software funding and continued dominance of the restaurant tech sector, though overall deal value and volume dropped significantly compared to previous quarters. The report provides insights into capital raised, deal types, and recent trends in the SMB software market.
SurePath Capital - State of SMB Software Report - Q3 2019
- 1. THE STATE OF SMB SOFTWARE A l ook at Q3 2019’s fundrai si ng and exi t t rends among Nort h Ameri can SM B soft ware compani es Q3 2019
- 2. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com T a b l e o f C o n t e n t s 01 Introduction 02 Lessons and Takeaways 03 Methodology and Scope 04 Venture Capital (VC) Deals 05 Private Equity (PE) Deals 06 Mergers & Acquisitions (M&A) 07 IPOs 08 Public Market Activity 2
- 3. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com S u r e P a t h : O u r P u r p o s e Hel ping fund, grow, and exit SMB software companies SurePath maximizes your optionality: We make sure you know what it takes to build a market leader and capitalize you towards that goal. We ensure you are always in the minds of strategic buyers so that if they decide to make a move in your space, you are in the conversation. You can then decide; Keep going or exit? The process of raising growth capital is very different from raising early stage capital. It is cheaper than ever to start companies, but more expensive than ever to build market leaders. If that’s your aspiration, you need growth capital. We help you prepare for growth stage and help you raise the capital needed to become a market leader. Growth Funding We have sat on both sides of the table. We have funded, grown and exited many companies. We remain in touch with our clients between transactions to provide ongoing advice and intros. A low touch, high impact way to help you grow. Strategic Guidance Most investment banks are generalists that take the same approach to every sale. We work with you to facilitate the BD and Corp Dev intros that pave the way to inbound interest. No other investment banking firm has the depth of our relationships in the SMB world. Exits 3
- 4. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com S u r e P a t h a n d S M B Business Management E-Commerce CRMMarketing Tech Payments We havebeen part of somethe mostsuccessfulSMBSaaS companies We havedeep relationships withSMBinvestors andbuyers SurePath is committedto becomingthe leading strategic financial advisor to the global SMB software market 4
- 5. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com T h e S u r e P a t h T e a m The SurePath team has over 30 years of experience in operating, growing, investing, buying, and selling SMB software companies. MARK MACLEOD FOUNDER JOSH SCHERMAN VICE PRESIDENT DANIAL SHAIKH ASSOCIATE SARA DEFINA ANALYST ERIK MOSNEY ANALYST KJ LEE ANALYST 5
- 6. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com R e c e n t S u r e P a t h D e a l s served as the exclusive strategic and financial advisor to on its growth financing led by USD $60,000,000 served as the exclusive strategic and financial advisor to on its growth financing led by CAD $115,000,000 served as the exclusive strategic and financial advisor to on its sale to served as the exclusive strategic and financial advisor to on its growth financing led by USD $11,800,000 served as the exclusive strategic and financial advisor to a wholly-owned subsidiary of on its sale to served as the exclusive strategic and financial advisor to on its growth financing led by USD $32,000,000 served as the exclusive strategic and financial advisor to on its sale to 6 served as the exclusive strategic and financial advisor to on its sale to served as the exclusive strategic and financial advisor to on its growth financing from & existing investors AUD $26,000,000
- 7. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com T h e S t a t e o f S M B S o f t w a r e i n Q 3 2 0 1 9 7 Welcome to our Q3 2019 State of SMB Software Report, looking at fundraising and exit activity in the Small and Mid-Sized Business (SMB) software space in North America. To isolate the SMB deal activity, we analyzed over 960 deals narrowing them down to 162 venture deals, 4 PE Growth and Buyout/LBO deals, 7 M&A deals, and 3 IPOs representing ~$7B in deal proceeds to SMB software companies. We track SMB software companies across three broad categories: Grow my Business (front office), Run my Business (middle office) and Track my Business (back office). We recently expanded on our usual coverage to go deeper on deal trends. The highlights for Q3 include a record high quarter for the Legal vertical,continueddominanceof the Restaurant Tech vertical,and mixedperformance on this year's SMB IPOs. Our SurePath SMB Index continuedto outperform the major indices in Q3 2019, growing >50% since the start of 2019 compared to ~20% for the major indices. We hope you find this report useful and invite you to get in touch to discuss it with us. The SurePath team October 2019
- 9. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com Q3 2019 total deal value was down ~60% from Q2 2019. The total deal volume was ~35% lower compared to the two previous quarters. The lack of ≥ $1B deals combined with the summer slowdown in July and August caused Q3 2019 to be the lowest quarter of 2019, in terms of total deal value and volume. 56% of total Q3 2019 VC deal value was from September. Average monthly VCdeal value in July and August was ~$800M, which was ~55% of the average VC deal value in Q2 2019. Summer slowdown was in full effect during the first two months of Q3 2019. M&A deal value was down 80% from Q2 2019. Acquisition of First Data ($22B) and InstaMed($600M) was completed in Q3 2019 but was excludedfrom this quarter’s data as they were captured at their announcement dates earlier this year. A record-setting quarter for SMB Legal software: Clio’s $250M Series D funding round was the largest in that industry since we have started trackingdeals. Digital transformation in the legal vertical is accelerating and VCs are investingto create a clear winner in this vertical. Restaurant Tech continues to assert its dominance in Q3 2019: Despite the general decrease in deal value and volume this quarter, the Restaurant Tech vertical saw a $121M round from TouchBistro, which ranked in the top 5 largest deals in the Restaurant Tech space since Q1 2018. Post IPO performance is mixed as of Q3 2019: Out of the 8 SMB IPOs in 2019, 4 of them are tracking below their IPO price. Money-burning unicorns with low margins and high valuation suffered the most. 9 K e y T a k e a w a y s
- 10. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com The Legal vertical attracted ~5x more capital in Q3 vs. Usual quarterly $. This is from Clio’s $250M Series D raise in September. Legal practices that serve SMBs are demanding software solutions to drive efficiency and VCs are rapidly deploying capital to create a dominant player in this vertical. 1. Source: Pitchbook 2. Deal count excludes deals involving accelerators, incubators, crowdfunding and deals with undisclosed values. 10 L e g a l v e r t i c a l s e t s a n e w r e c o r d $29M $46M $69M $9M $118M $60M $250M 2 3 3 2 7 2 1 0 1 2 3 4 5 6 7 8 - $50M $100M $150M $200M $250M Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 DealCount CapitalRaised(inmillions,$USD) CapitalRaised by Quarter for Legal Capital Raised Deal Count $250.M $83.M $50.M $23.M $10.3M $6.9M $4.5M $0.4M $0.3M $0.1M 2019 YTD Capital Raiseby Legal Clio Disco Litify Ironclad Casetext Filevine Evisort PROOF BlackBoiler Mayfair Project
- 11. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com $2,674M $4,280M $813M $1,193M - $1,000M $2,000M $3,000M $4,000M $5,000M $6,000M FY 2018 YTD 2019 CapitalRaised(inmillions,$USD) Venture CapitalRaised for Restaurant Tech Other Restaruant Tech R e s t a u r a n t T e c h ’ s d o m i n a n c e c o n t i n u e d i n Q 3 2 0 1 9 11 $2,674M $2,882M $2,550M $2,600M $2,650M $2,700M $2,750M $2,800M $2,850M $2,900M CapitalRaised(inmillions,$USD) Largest Restaurant Tech Raises since Q1 2018 $400M Q1 2019 Series F $250M Q3 2018 Series E $250M Q1 2019 Series E $150M Q2 2019 Series D1 $121M Q3 2019 Series E $115M Q3 2018 Series D $100M Q2 2018 Series D $88M Q2 2019 Series C $70M Ritual Q2 2018 Series C $55M Ritual Q2 2018 Series D $50M Good Eggs Q2 2018 Series BB 12.3% 21.8% Total capital raised for Restaurant Tech grew 47% YTD 2019 compared to FY 2018. In Q3 2019, TouchBistro raised a $121M Series E round, ranking in the top 5 in the largest Restaurant Tech raises since Q1 2018. Despite a quiet Q3, the Restaurant Tech vertical still leads the charge in terms of total capital raised, accounting for >20% of all vertical- specific VC $.
- 12. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com As of September 30th 2019, 4 out of 8 SMB companies that IPOed in 2019 are performing above their IPO closing day price. Lightspeed (TSE:LSPD) is the biggest gainer, performing 65% higher than its IPO price. The worst performer to- date is Slack (NYSE:WORK), which has lost over 39% of its value since debuting through direct listing in June. 1. Source: Pitchbook 2. Graph compares the closing stock price with IPO closing stock price 12 P o s t I P O P e r f o r m a n c e 0.5 1 1.5 2 2.5 NYSE:WORK TSE:LSPD NYSE:PD NYSE:PINS NAS:ZM NYSE:MDLA ASX:SZL NASDAQ:DDOG
- 13. Q3 2019 SMB Software Deals
- 14. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com In Q3 2019, there were over 960 deals in the B2B software space, globally. 875 deals were in North America 176 deals (162 venture deals, 7 M&A deals, 4 PE/Buyout/LBO deals, and 3 IPOs) involved companies with a clear SMB software offering 1. Source: Pitchbook 2. Deal count excludes deals involving accelerators, incubators, crowdfunding and deals with undisclosed values. 14 M e t h o d o l o g y
- 15. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com Beginning in 2019, we updated our approach for tracking SMB software companies.While we continue to track SMB software companies across three broad categories of Grow my Business (front office), Run my Business (middle office) and Track my Business (back office),we have re-assessedand expanded our sub-categories within each them as follows: 2 0 1 9 C h a n g e s t o S M B C a t e g o r i z a t i o n Grow My Business Sales Tech Marketing Tech Advertising Tech E-Commerce Social Media Management Marketplace Run My Business HR Tech Security / IT Business Management / ERP Practice Management Productivity Reputation Management Booking Customer Support Websites Member Management Keep Track of My Business Accounting & Invoicing Payments Analytics 15
- 16. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com Q 3 2 0 1 9 S M B S o f t w a r e D e a l L a n d s c a p e 16 1. Source: Pitchbook 2. Deal count excludes deals involving accelerators, incubators, crowdfunding and deals with undisclosed values. ~$6.8B of capital was deployed across 176 deals in Q3 2019, which was ~40% of the deal value realized in Q2 2019. There was a significant decrease in capital investment from M&A/PE/IPO exit activity, which decreased to $3.2B in Q3 2019 from $12.9B in Q2 2019. There was only 1 deal with ≥$1.0B deal size in Q3 2019, compared to 3 in Q2 2019, and 6 in Q1 2019. $1,123M $3,466M $1,065M $1,004M $141M $51M Total Capital Invested by Deal Type Merger/Acquisition Early/Late Stage VC Buyout/LBO IPO Angel/Seed PE Growth/Expansion $2M $35M $25M $991M $180M $533M 63 99 2 3 6 2 0 20 40 60 80 100 $0M $200M $400M $600M $800M $1,000M DealCount AverageDealSize(inmillions,USD) AverageDeal Size by Deal Type Average Deal Size Deal Count
- 17. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com17 1. Source: Pitchbook 2. Deal count excludes deals involving accelerators, incubators, crowdfunding and deals with undisclosed values. Q 3 2 0 1 9 S M B S o f t w a r e D e a l s b y S t a t e California saw the most deal activity representing ~36% of all deals, followed by New York which represented ~11% of all deal. Colorado, Washington and Texas combined have been consistently contributing ~17% of total deal volume over the past few quarters.
- 18. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com Q 3 2 0 1 9 ’ s T o p S M B S o f t w a r e R a i s e s $200M Generation Investment Management / Fidelity Management & Research / others $200M SoftBank Vision Fund / others $160M T. Rowe Price / others $150M Koch Disruptive Technologies / others $121M OMERS Growth Equity/ others $326M Allianz X / MUFG Innovation Partners / GMO Internet Group / others $300M Salesforce Ventures $250M Andreessen Horowitz / General Catalyst / Sequoia Capital $250M JMI Equity / TCV $225M GPI Capital / others 18 1. Source: Pitchbook 2. Deal count excludes deals involving accelerators, incubators, crowdfunding and deals with undisclosed values.
- 19. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com S M B V e n t u r e F u n d i n g i n Q 3 2 0 1 9 162 SMB software companies raised venture capital in Q3 2019 – average deal size was 26% higher compared to Q2 2019. ~61% of the deal volume and ~96% of deal value was in early and later stage VC investments, consistent with Q2 2019. The average round was ~$11M for early stage and ~$68M for later stage. 19 1. Source: Pitchbook 2. Deal count excludes deals involving accelerators, incubators, crowdfunding and deals with undisclosed values. $37M $104M $613M $2,853M 30 33 57 42 0 10 20 30 40 50 60 - $500M $1,000M $1,500M $2,000M $2,500M $3,000M Angel Seed Round Early Stage VC Later Stage VC DealCount CapitalRaised(inmillions,$USD) CapitalRaised by Venture Deal Type Capital Raised Deal Count
- 20. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com 52 14 96 $1,332M $424M $1,851M Grow My Business Keep Track of My Business Run My Business V e n t u r e D e a l s b y C a t e g o r y Outer ring representstotal capital invested by categoryand inner ring representstotal deal count by category We track SMB software companies across three broad categories: • Grow my Business: Marketing / front office • Run my Business: Typically vertical apps to help operate (business management, ERP, etc.) • Track my Business: Billing, accounting, etc. 1. Source: Pitchbook 2. Deal count excludes deals involving accelerators, incubators, crowdfunding and deals with undisclosed values. 20 SMB software companies raised ~$3.6B across 162 deals in Q3 2019. Of those, companies that helped SMBs grow and run their business attracted ~88% of deal value ~91% of deal volume in the SMB software space.
- 21. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com 41 4 19 3 9 15 11 14 20 3 2 2 5 3 1 2 3 2 3 $799M $583M $445M$374M $354M $308M $258M $158M $148M $66M $29M $27M $24M $19M $5M $4M $3M$2M$1M Business Management/ERP Financing HR Tech Websites Payments Marketplace Sales Tech Mar Tech Productivity Accounting/Invoicing Booking Practice Management Ad Tech Security/IT Member Management Analytics Reputation Management Customer Support E-Commerce V e n t u r e D e a l s b y C a t e g o r y ( c o n t . ) 1. Source: Pitchbook 2. Deal count excludes deals involving accelerators, incubators, crowdfunding and deals with undisclosed values. 21 Amongst our 19 SMB software categories, Business Management/ERP companies attracted the highest amount of VC in Q3 2019. Financing companies had the second highest amount of capital raised due to the $326M Gusto deal in September 2019.
- 22. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com 109 31 22 $2,759M $698M $150M Both Medium Small V e n t u r e D e a l s b y T a r g e t C u s t o m e r 1. Source: Pitchbook 2. Deal count excludes deals involving accelerators, incubators, crowdfunding and deals with undisclosed values. 22 ~67% of venture funding in Q3 2019 went to companies with a broad offering for both the small and medium segments of the SMB software space – a similar proportion to that realized throughout 2017, 2018 and Q1 and Q2 2019. Having offerings for both small and larger businesses gives vendors the ability to satisfy the needs of a broader market and grow with their customers.
- 23. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com 1 5 8 4 6 2 4 8 5 2 25 $250M $186M $157M $73M $64M $49M $43M $37M $37M $15M $59M Legal Retail Restaurants Hospitality Cannabis Salons & Spas Creatives Real Estate Healthcare Home Services Other V e r t i c a l - S p e c i f i c V e n t u r e D e a l s 1. Source: Pitchbook 2. Deal count excludes deals involving accelerators, incubators, crowdfunding and deals with undisclosed values. 23 Across 23 disctinct verticals, we saw 70 deals with a total of ~$970M raised in Q3 2019. Top 10 verticals represented ~94% of vertical-specific deal value and ~64% of volume, largely consistent with what we saw in Q1 2019. The $250M investment in Clio put the Legal vertical in the top category.
- 24. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com Q 3 2 0 1 9 P E S M B D e a l s 1. Source: Pitchbook 2. Deal count excludes deals involving accelerators, incubators, crowdfunding and deals with undisclosed values. 24 $41M Caisse de dépôt et placementdu Québec Growth/Expansion $10M Boathouse Capital Growth/Expansion $1B Vista Equity Partners Buyout/LBO $65M Realtime Electronic Payments Buyout/LBO
- 25. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com 2 1 1 $1,041M $65M $10MRun My Business Keep Track of My Business Grow My Business P E G r o w t h / B u y o u t D e a l s b y C a t e g o r y 1. Source: Pitchbook 2. Deal count excludes deals involving accelerators, incubators, crowdfunding and deals with undisclosed values. 25 In Q3 2019, private equity investors deployed ~$1.1B of capital into companies serving the SMB space, an increase of 223% compared to the deal value in Q2 2019. ~90% of total deal value was from the $1.0B Acquia Buyout/LBO.
- 26. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com 1 11 1 $1,000M $65M $41M $10M Websites/CMS Payments HR Tech Mar Tech P E G r o w t h / B u y o u t D e a l s b y C a t e g o r y ( c o n t . ) 4 SMB software companies that received funding or was acquired by private equity investors in Q3 2019 was evenly split between 4 different categories. In terms of deal proceeds, Websites/CMS category took the lead this quarter, from the $1B buyout of Acquia. 1. Source: Pitchbook 2. Deal count excludes deals involving accelerators, incubators, crowdfunding and deals with undisclosed values. 26
- 27. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com 3 1 $1,106M $10MBoth Medium P E G r o w t h / B u y o u t D e a l s b y T a r g e t C u s t o m e r 1. Source: Pitchbook 2. Deal count excludes deals involving accelerators, incubators, crowdfunding and deals with undisclosed values. 27 75% of total private equity deal volume in Q3 2019 was from companies with offering for both the small and medium segments. Consistent with the previous quarters, PEs continue to focus on mature companies with wide offerings across the SMB spectrum.
- 28. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com 1. Source: Pitchbook 2. Deal count excludes deals involving accelerators, incubators, crowdfunding and deals with undisclosed values. Q 3 2 0 1 9 S M B S o f t w a r e M & A D e a l s $450M Acquired by Shopify Announced $410M Acquired by DoorDash Announced $118M Acquired by Logitech Completed $92M Acquired by StepStone Completed $42M Acquired by Medallia Completed $15M Acquired by IAC Completed $10M Acquired by Endurance International Group Announced 28
- 29. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com M & A D e a l s b y C a t e g o r y 1. Source: Pitchbook 2. Deal count excludes deals with undisclosed values. 29 The cumulative value of all mergers and acquisitions (with disclosed proceeds) in the SMB software space in Q3 was ~$1.1B across 7 deals. Fiserv’s $22B acquisition of First Data was completed in Q3 2019. However, since the deal was announced in Q1 2019, it was not captured in this quarter. 3 4 $870M $254M Grow My Business Run My Business
- 30. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com M & A D e a l s b y C a t e g o r y ( c o n t . ) 30 1. Source: Pitchbook 2. Deal count excludes deals with undisclosed values. Companies that provide Business Management/ERP and HR Tech had the largest deal volume in Q3 2019. From deal value perspective, the E-Commerce category showed the highest proceeds, driven by the 6 River Systems acquisition. 2 1 1 2 1 $460M $410M $118M $94M $42M E-Commerce Marketplace Business Management/ERP HR Tech Customer Support
- 31. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com M & A D e a l s b y T a r g e t C u s t o m e r 31 1. Source: Pitchbook 2. Deal count excludes deals with undisclosed values. Consistent with the previous quarters, ~86% of M&A activity in Q3 2019 involved companies with a broad offering for both the small and medium segments of the SMB software space. 6 1 $1,045M $79M Both Medium
- 32. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com IPO/Filing Date July 19 July 30 September 19 Status Complete Complete Complete Amount Raised/Expected $326M $30M $648M Age at IPO 18 Years 3 Years 9 Years Annual Revenue at IPO $337M $4M $266M Headcount at IPO 1,258 47 1,212 Pre-IPO Investors Saints Capital, Sequoia Capital, TriplePoint Venture Growth Bastion Capital, Continental Investors, CSC UpShot Ventures, E- Merge, Hone Capital, Securian Financial Group, Target + METRO Retail Accelerator Amplify Partners, Battery Ventures, Bob Pasker, Comcast Ventures, Contour Venture Partners, Genacast Ventures, IA Ventures, ICONIQ Capital, Index Ventures, IVP, Jerry Neumann, Meritech Capital Partners, Neu Venture Capital, NYC Seed, NYC SeedStart, OpenView Venture Partners, Polaris Partners, Raju Rishi, RRE Ventures, RTP Ventures Q 3 2 0 1 9 ’ s S M B S o f t w a r e I P O s (NASDAQ:DDOG) 32 (NYSE:MDLA) 1. Source: Pitchbook 2. Deal count excludes deals with undisclosed values. (ASX: SZL)
- 33. The SurePath SMB Index
- 34. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com Introduced in 2016, the SurePath SMB Index originally tracked 35 publicly traded companies that serve the SMB market and their performance against other benchmark indices. Over time, as companies in the index have been acquired, and other relevant companies have publicly listed, the current number of constituents is 37. Examined280+ Annual Reports of Publicly Traded Companies Selection of Companies for SMB Focus SurePath SMB Index T h e S u r e P a t h S M B I n d e x Final Selection of 37 Companies 34
- 35. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com 2 0 1 9 C h a n g e s t o S M B I n d e x During the first quarter of 2019 we added 6 relevant companies that IPOed. These are companies that are making it easier for SMBs to move faster (Dropbox and DocuSign), gather feedback from customers and employees (SurveyMonkey), improve the current and prospective employee experience (Ceridian), sell to customers easier and more efficiently (Lightspeed), and more. 8 of the original constituents of our SMB Software Index were removed during this period following the completion of their acquisition. ShoreTel (acquired by Mitel), Web.com (acquired by Sirus Capital), FirstData (acquired by Fiserv), and Mindbody (acquired by Vista Equity Partners). 35
- 36. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com I n d e x C o n s t i t u e n t s 36
- 37. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com 80% 100% 120% 140% 160% 180% 200% 220% 240% 260% 1/4/2016 3/4/2016 5/4/2016 7/4/2016 9/4/2016 11/4/2016 1/4/2017 3/4/2017 5/4/2017 7/4/2017 9/4/2017 11/4/2017 1/4/2018 3/4/2018 5/4/2018 7/4/2018 9/4/2018 11/4/2018 1/4/2019 3/4/2019 5/4/2019 7/4/2019 9/4/2019 SurePath SMB Index S&P 500 Nasdaq Dow Jones S u r e P a t h S M B S o f t w a r e I n d e x S u m m a r y 37 SurePath SMB index continues to outperform the general market - appreciating by 55% in 2019 vs. an average of 20% for the benchmark indices Company Ticker Market Cap (billions) Automatic Data Processing, Inc. ADP $70.01 Intuit Inc. INTU $69.16 Shopify Inc. SHOP $35.92 Atlassian Corporation Plc TEAM $30.36 Paychex, Inc. PAYX $29.64 Square, Inc. SQ $26.46 Paycom Software, Inc. PAYC $12.24 GoDaddy Inc. GDDY $11.78 DocuSign DOCU $10.90 RingCentral, Inc. RNG $10.43 Sage Group plc LON:SGE $9.26 Dropbox DBX $8.34 Zendesk, Inc. ZEN $8.09 Ceridian CDAY $7.07 HubSpot, Inc. HUBS $6.44 Xero Limited. ASX:XRO $5.97 Wix.com Ltd. WIX $5.97 GrubHub Inc. GRUB $5.13 H&R Block, Inc. HRB $4.74 LendingTree, Inc. TREE $4.03 Cimpress N.V. CMPR $3.98 ANGI Homeservices Inc. ANGI $3.60 New Relic, Inc. NEWR $3.59 AppFolio, Inc. APPF $3.24 Qualys, Inc. QLYS $2.97 Yelp Inc. YELP $2.47 SurveyMonkey SVMK $2.28 Deluxe Corp. DLX $2.11 LightSpeed POS LSPD $1.95 Groupon, Inc. GRPN $1.51 Eventbrite EB $1.47 Stamps.com Inc. STMP $1.28 Shutterstock, Inc. SSTK $1.27 LendingClub Corporation LC $1.14 Endurance International Group Holdings, Inc. EIGI $0.55 Carbonite, Inc. CARB $0.54 Marchex, Inc. MCHX $0.14 $1bn Market Cap Club (in Grey) Market Cap by Index Constituents (in US$ b)
- 38. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com Q 3 2 0 1 9 P e r f o r m a n c e b y C o n s t i t u e n t 38 Stamps.com made a big comeback in Q3 2019. The company shared encouraging quarterly results and increased its full-year outlook, which increased their stock price by 64.9% in Q3. Cimpress and DocuSign followed suit, appreciating 45.9% and 22.3% respectively. ANGI Homeservices struggled to meet the analyst estimates and slashed its full-year adjusted EBITDA, which depreciated its stock by 44.8% in this quarter.
- 39. SUREPATH INSIGHTS STATE OF SMB SOFTWARE – Q3 2019 surepathcapital.com The Leading Financial Advisor in SMB Software EXPERIENCE Funding, growing & exiting tech companies PEDIGREE Alumni of Constant Contact, FreshBooks, Shopify… ACCESS To Tier 1 investors & strategic partners FOCUS The only advisor with a dedicated focus on SMB Software COMMITMENT Helping our clients and their investors succeed T h e S u r e P a t h D i f f e r e n c e
- 40. Toronto • San Francisco Mark MacLeod Founder & President mark@surepathcapital.com 416.843.6004 Josh Scherman Vice-President josh@surepathcapital.com 646.420.0074 Danial Shaikh Associate danial@surepathcapital.com 647.876.5453 Sara Defina Analyst sara@surepathcapital.com 416.689.2474 KJ Lee Analyst KJ@surepathcapital.com 647.500.3457 Erik Mosney Analyst erik@surepathcapital.com 519.239.5759 40