SurePath State of SMB SaaS Report - Feb 2017
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The SurePath SMB Index tracks publicly traded companies focused on serving small and mid-sized businesses. In 2016, SurePath analyzed over 280 annual reports to select 35 companies for the index. The index is weighted based on total market capitalization and tracked against other benchmarks. In 2016, the top gaining companies in the index included Hubspot, Anthropic, and Bill.com. Meanwhile, the top losing companies were Demandware, Marketo, and Constant Contact. Overall, the SMB index showed positive growth, indicating the market opportunities for software companies targeting the SMB sector.
SurePath State of SMB SaaS Report - Feb 2017
- 1. S T A T E O F S M B2 0 1 6 A look at fundraising and exit trends of North American SaaS companies serving the SMB market in 2016
- 2. 2 Ta b l e o f C o n t e n t s Introduction The State of SMB Software SMB Fundraising Activity SMB Exit Activity SurePath SMB public Index 01 07 10 18 25
- 3. 3 S u r e P a t h : O u r P u r p o s e Helping you fund, grow and exit your company 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 will need growth capital We help you prepare for growth stage and help you raise the capital needed to become a market leader We have sat on both sides of the table. We have funded, grown and exited many companies We offer up that experience to help our clients prepare for funding and exits There are few credible advisors to facilitate sub $100M exits. We fill that gap We work with you to facilitate the intros that pave the way to an eventual exit If you decide to exit, we manage the process for you from start to finish SurePath maximizes your optionality: We make sure you know what it takes to build a market leader and help you fund 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? Growth Funding Strategic Guidance Exits
- 4. Welcome to our first annual State of SMB Software Report, looking at fundraising and exit activity in the Small and Mid-Sized Business (SMB) software space. We decided to start small: For our first edition we focused on SaaS companies based in North America that serve the SMB market. Over time, we will expand our scope both in terms of geography and delivery method / business model. To find the North American SMB SaaS companies that completed a transaction last year, we analyzed over 4,800 deals, narrowing them down to 234 fundraising transactions and 68 exits. These companies raised over $1.9B in 2016. In addition, the SMB exits with disclosed valuations generated total sales proceeds of over $8.6B. The companies in this report are diverse. Some are purely focused SMB while others sell to both small and large customers. While many vertical markets were covered, back office solutions and marketing tech solutions were dominant segments. We see back office as a growing market category. The growth in back office software is being driven by a change in demographics. Previous generations of entrepreneurs ran their business on pen and paper or spreadsheets. The new generation does not. Similarly, despite the intense fragmentation in marketing technology, new fundings and exits remain strong. Marketing is an increasingly complex and technical challenge. Small business owners are getting more sophisticated in their online marketing needs. We hope you find this report useful and invite you to get in touch to discuss it with us. The SurePath team February, 2017 4 T h e S t a t e o f S M B S o f t w a r e
- 5. 5 S u r e P a t h & S M B •We have been part of some the most successful SMB SaaS companies •We have deep relationships with SMB investors and buyers •SurePath is committed to becoming the leading strategic financial advisor to the global SMB software market
- 6. 6 S u r e P a t h Te a m S H U B H A M D AT TA R E N A WA N G M A R K M A C L E O D F O U N D E R & P R E S I D E N T D I R E C T O R S E N I O R A N A LY S T Mark has over 14 years experience as a CFO for leading companies such as FreshBooks, Shopify, Tungle and more. He was a Founding Partner at Real Ventures, Canada’s most active seed stage venture fund. Shubham is a CPA and prior M&A experience as an Investment Banking Associate at KPMG Corporate Finance, advising mid-market FinTech and SaaS companies. He co-founded North Pine Ventures, an advisory firm for university founders. Rena has a background in management consulting at a boutique strategy firm specializing in tech and telecom. She co-founded PIQ Pass, a lifestyle subscription service in Canada.
- 7. in its Series B financing from served as the exclusive strategic and financial advisor to 7 R e c e n t D e a l s * in its Series B financing from served as the exclusive strategic and financial advisor to in its Series A financing from served as the exclusive strategic and financial advisor to on its sale to served as the exclusive strategic and financial advisor to * Excluding deals that have closed but not yet announced
- 8. The State of SMB
- 9. 9 M e t h o d o l o g y 1,054 Raises 378 Exits 234 Raises 68 Exits 302 SMB SaaS Deals in 9 Verticals in the B2B SaaS space in North America Out of the 1,432 deals, we filtered down to for companies that serve the SMB sector 4,817 deals In 2016, there were in the B2B SaaS space globally We filtered through thousands of deals to get to a list of 302 companies that either raised a venture round or exited in 2016. We assessed each company for its SMB offering, and determined whether to include it in the analysis. The final list only includes North American software-as-a-service companies that have a clear SMB offering. Out of the 4817, there was a total of
- 11. 11 S M B S a a S F u n d r a i s e s i n 2 0 1 6 $0.7 M $2.2 M $8.4 M $11.0 M $22.6 M $29.6 M 4 57 72 27 15 13 0 10 20 30 40 50 60 70 80 $0 M $5 M $10 M $15 M $20 M $25 M $30 M Angel Seed Series A Series B Series C Series D+ NumberofDeals AverageDealSize Deals and Average Deal Size Avg Deal Size Number of Deals * *46 companies either did not disclose stage of raise, or raised a bridge round $445.1M $599.0M $639.8M $307.8M 65 75 64 52 0 10 20 30 40 50 60 70 80 $0M $100M $200M $300M $400M $500M $600M $700M 2016 Q1 2016 Q2 2016 Q3 2016 Q4 NumberofDeals TotalCapitalRaised Deals By Quarter Total Capital Invested Deal Count 234 rounds for $1.95B in aggregate funding
- 12. 12 I n v e s t m e n t s B y T y p e The most funded segment in 2016 was marketing tech, representing almost 1/4 of all deals. This segment includes solutions such as CRM, marketing automation, SEO/SEM, and content management. The second most active segment was business management solutions. This includes back office tools and productivity software to allow SMBs to track and improve their performance. The data shows that companies serving the full stack of small business owners’ technology needs are being funded. SMB software is a large and growing market. AdTech 3% Business Management 20% FinTech 13% HR Tech 7%Industry Specific 7% IT/Infrastructure 19% Marketing Tech 21% Marketplace 3% Retail Tech 7% Investments by Total Funding
- 13. 13 B r e a k i n g D o w n t h e t o p t w o s e g m e n t s Business management tools have expanded from accounting software to more sophisticated business intelligence tools for SMBs. While the largest sub-segment funded is back-office SaaS. Productivity and business analytics are also growing sub-segments. CRM continues to be a hot area for funding in the SMB marketing tech space. Marketing analytics tools and content management solutions are quickly gaining speed, as more SMBs are looking for DIY solutions to control their digital marketing performance.
- 14. 14 I n d u s t r y S p e c i f i c S a a S C o m p a n i e s F u n d e d 2 1 2 2 7 8 3 2 3 0 2 4 6 8 Auto Construction Finance Healthcare Hospitality Legal Logistics Real Estate Other Industry Specific SaaS Solutions Vertical market solutions used to be reserved for large enterprises. However, we are now seeing them come down to the SMB market. 30 industry-specific SaaS vendors serving SMBs were funded in 2016.
- 15. 15 M o s t A c t i v e I n v e s t o r s i n S M B 1 2 3 4 5 6 7 8 9 1 0 5 of its 12 investments (42%) in 2016 are in SMB 4/10 Investments are in SMB 4/226 investments are in SMB4/108 investments are in SMB 4/8 investments are in SMB 4/54 investments are in SMB4/44 investments are in SMB 4/53 investments are in SMB 4/66 investments are in SMB 4/36 investments are in SMB
- 16. IT/Infrastructure HR Tech Business Management Marketing Tech FinTech FinTech Business Management Business Management Marketing Tech IT/Infrastructure 16 To p 1 0 S M B R o u n d s i n 2 0 1 6 $180M $90M $55M $50M $40M $96M $75M $50M $42M $35M
- 17. FinTech Retail Tech IT/Infrastructure Retail Tech Marketing Tech AdTech Business Management HR Tech Business Management AdTech 17 M o s t F u n d e d S M B S o f t w a r e C o m p a n i e s $395M $190M $180M $155M $96M $344M $184M $176M $150M $93M
- 19. 19 A c q u i s i t i o n s B y T y p e AdTech 6% Business Management 26% Education Tech 2% FinTech 2% Industry 10% IT/Infrastructure 3% Marketing Tech 25% Marketplace 13% Retail Tech 13% Exits By Type 17% 29% 18% 18% 18% Marketing Tech Content Customer Engagement Marketing Automation CRM Analytics 61%17% 11% 11% Business Management Back Office Collaboration File Management Business Intelligence As with venture funding, the most frequent acquisitions were in the business management and marketing tech markets, representing just over half of all deals in 2016. Most of the acquisitions for business management software are for SMB back office solutions. SMB back office is a growing market as business owners migrate from Word/ Excel to specific software solutions to serve their back office needs.
- 20. 20 W h e r e a r e t h e a c q u i r e r s c o m i n g f r o m ? P R O V I N C E E X I T S U N I T E D S TAT E S 5 7 C A N A D A 4 U K 1 G E R M A N Y 1 S W E D E N 1 J A PA N 1 5 7 4 1 1 1 1 The vast majority of acquirers for North American based SMB focused companies in 2016 were based in the US. Larger players are acquiring within their borders, while a handful of overseas acquirers made moves to acquire North American companies in 2016.
- 21. 21 E x i t s B y S i z e & F u n d i n g The majority of SMB acquisitions do not have disclosed deal sizes (56 out of 68). This pattern is not limited to SMB. We see this in other markets as well. Despite the fact that most deals did not have disclosed values, only 11 of the deals were smaller ‘acqui-hire’ transactions. 56 3 4 1 4 $0 M $10 M $20 M $30 M $40 M $50 M $60 M Undisclosed <$50M 50-500M 500M - $1B $1B + Exits By Size 11 37 6 4 4 <10 10-100 100-500 500-2000 2000+ Number of Employees in Acquired Companies 4 Publicly Traded 7 No Backing 8 48 1 7 VC PE Financial Backing of Acquired Companies
- 22. Acquired by Private Equity Acquired by Private Equity Acquired by Salesforce Acquired by Web.com Acquired by stamps.com Acquired by Private Equity Acquired by EIGI Acquired by Salesforce Acquired by Gannett Acquired by Propel Marketing 22 To p 1 0 E x i t s i n 2 0 1 6 $3B $1.2B $750M $342M $55M $1.65B $1.1B $360M $156M $12M
- 23. 2 Deals in 2016 23 M o s t A c t i v e B u y e r s i n S M B $4.2B $1.1B $N.D. Total 2016 Spend Buyer # Deals Purchases 2 Deals in 2016 2 Deals in 2016 $3 billion $1.2 billion $750 million $360 million
- 24. 24 P u b l i c C o m p a n i e s Ta k e n P r i v a t e Company Acquired Acquisition Price Buyer $3 billion $156 million $1.65 billion $1.1 billion
- 25. The SurePath SMB Index
- 26. 26 T h e S u r e P a t h S M B I n d e x SurePath SMB Index Final Selection of 35 Companies Selection of Companies for SMB Focus Examined 280+ Annual Reports of Publicly Traded Companies SCP loves SMBs Our clients serve SMBs Many Other Indices The First To See The Trends In 2016, SurePath introduced the SMB Index, which tracks 35 publicly traded companies and their performance against other benchmark indices.
- 27. 27 S C P S M B I n d e x - T h e P l a y e r s
- 28. 28 S u r e P a t h S M B I n d e x SCP SMB Index Total Market Cap $195B • All 35 companies are weighted based on Market Cap and indexed at January 4, 2016 • 30 of the 35 companies are part of the $1 billion market cap club (a club we expect will grow over time)
- 29. 29 M o v e m e n t o f t h e I n d e x i n 2 0 1 6
- 30. 30 To p 5 G a i n e r s i n 2 0 1 6
- 31. 31 To p 5 L o s e r s i n 2 0 1 6
- 32. Shubham Datta Director shubham@surepathcapital.com 647.972.6834 Rena Wang Analyst rena@surepathcapital.com 416.897.8922 Mark MacLeod Founder & President mark@surepathcapital.com 416.843.6004