David Cummings on Startups

Category: SaaS

  • The Real-Time Entrepreneur

    As I was switching through different web apps and reports today, it struck me how real-time information is today as an entrepreneur. I had just published a new post on the Kevy blog titled Managing a SaaS Metrics Dashboard With Pardot (check it out for an example on how to use a marketing automation system to feed the top-of-the-funnel SaaS metrics). Right after hitting publish and sending out a couple tweets about it, I was immediately able to see clicks and prospects interacting with it. As an entrepreneur that loves results, it doesn’t get much better than that!

    Think about information from the most common apps:

    • Salesforce.com – Watch sales rep activities, opportunities, and deals
    • Pardot – Watch anonymous visitors, leads, and digital fingerprints
    • Google Analytics – Watch information on macro hits and visitors
    • GitHub – Watch pull requests and progress on the current sprint
    • Zendesk – Watch support tickets and customer interaction

    Of course, a dashboard with all the critical data in one place would be cool (like Geckoboard), but the fact that each system is there and can be left open in a browser tab makes it readily accessible. It’s great to be a real-time entrepreneur.

    What else? What are your thoughts on the real-time entrepreneur?

  • 5 Challenges for Automation in the API Economy

    TechCrunch has a piece up today by Alex Williams titled Speed and Automating the Connections Between Humans and Machines in the API Economy. In the article, Williams argues that speed of an API, especially under large load, is a real challenge, just like scaling a large website (they are in fact very similar with APIs potentially having more write load than read load, in some cases). In addition to speed, he highlights automating the connections between APIs as a challenge, where automating means integration and connection of disparate systems.

    Peeling back API automation to a more detailed level, here are five challenges I see:

    • Data Interoperability – Synchronizing data between different systems is challenging due to different standards in types of data allowed (e.g. challenges with date/time stamps, number of characters allowed, translating fields like ‘GA’ to ‘Georgia’, etc)
    • API Authentication – While there are standards like OAuth and OAuth 2.0, many APIs were built before the standards were established and have their own form of authentication, requiring more effort to integrate as well as more ongoing maintenance
    • Recent Data Polling / Ping Backs – To connect disparate systems there’s a requirement to constantly check for recent data, or set up a ping back to be notified of new data, only many systems are still immature when it comes to this functionality by simply returning all data or only returning data in a paginated form (instead of being able to query against a specific data/time)
    • Bidirectional Syncing – It’s fairly straightforward to set up one-way syncing where one system is the master and the other system only takes, but doesn’t give data. Things become much more complicated when true bidirectional syncing is required and data can flow either way between system.
    • Custom Fields / Ad Hoc Customizations – Many of the more powerful systems, including Salesforce.com, allow for infinite customization, which makes for more complexity when trying to integrate products.

    The API economy is going to be a major driver of innovation over the next 5 – 10 years, and getting the automation piece right is a big opportunity.

    What else? What are some other challenges for automation in the API economy?

  • Thoughts on Salesforce.com Acquiring ExactTarget/Pardot

    Wow! Earlier today Salesforce.com announced it was buying ExactTarget (which includes Pardot) for $2.5 billion in cash (yes, cash). This is a great acquisition for Salesforce.com as they have a strong sales and service cloud but a weak marketing cloud (Buddy Media and Radian6 are social media marketing but not core marketing). Way back in 2009, I was pitching VCs to invest in Pardot (we didn’t raise money) and one of the most common questions was “What’s the exit strategy for Pardot?” My immediate response was that Salesforce.com was the most logical acquirer and that every CRM customer should also be a marketing automation customer. Well, the idea will finally come true.

    Here are a few thoughts on Salesforce.com acquiring ExactTarget/Pardot:

    • ExactTarget has an amazing culture (called “Orange”) with strong mid-western values whereas as Salesforce.com is typical Silicon Valley
    • Email marketing has been the #1 most requested feature for Salesforce.com on their idea exchange for as long as I can remember (ExactTarget is more for the mid-market and enterprise, but will finally allow Salesforce.com to check off that feature)
    • Marketing automation vendors like Marketo and others have real challenges ahead of them since over 80% of their customers use Salesforce.com (Salesforce.com will keep integrating with all the marketing automation vendors but now Pardot becomes the default standard)
    • Cloud marketing software as a fast-growing opportunity has really been validated lately with all the large acquisitions
    • Pardot has an opportunity to be a billion dollar a year business for Salesforce.com within 5 – 7 years due to how complimentary it is to their core sales offering

    Overall, it’s been amazing to be part of the marketing automation industry and I’m excited that Pardot ended up with the cloud leader.

    What else? What are some other thoughts on Salesforce.com acquiring ExactTarget/Pardot?

  • Notes from the Textura S-1 IPO Filing

    Curiously, I recently saw a report of a Chicagoland Software-as-a-Service (SaaS) company called Textura filing their S-1 to go public with only $21.7 million in sales for fiscal 2012. ChannelAdvisor just had a successful IPO with only $53.6 million in trailing twelve months revenue, which is considered low by IPO standards, but it was well received nonetheless. Now, $21.7 million in sales in significantly lower than other SaaS IPO filings, so I had to dive and learn more.

    Here are notes from the Textura S-1 IPO filing:

    • Provides on-demand business collaboration software to the commercial construction industry (pg. 1)
    • Specific modules for payment management, document management, project bid management, contractor qualification, and environmental certification processes (pg. 1)
    • 12,000 commercial construction projects have been managed with the system (pg. 2)
    • Revenues (pg. 2)
      2010 – $6.0 million
      2011 – $10.5 million
      2012 – $21.7 million
    • Losses (pg. 2)
      2010 – $15.9 million
      2011 – $18.9 million
      2012 – $18.8 million
    • Accumulated deficit of $146.2 million (pg. 12) (Note: Take ~$40 million in losses from 2011 and 2012 out of the accumulated deficit and that leaves you with ~$100 million being burned to get to the point where the business generated $6 million in revenue in 2010)
    • Ten largest clients represented 41.5% of 2012 revenue (pg. 13)
    • Largest client represented 10.8% of 2012 revenue (pg. 13)
    • Sales cycle of a year or longer to secure a new client (pg. 15)
    • $8.1 million of the new proceeds will be used to repay debt (pg. 29)
    • Already built their own 63,000 sq ft corporate headquarters with a $11.9 million loan and tripped their mortgage covenant (pg. 67)
    • 287 employees (pg. 92)
    • CEO/co-founder 2012 cash compensation was $1,145,000 (pg. 100)
    • CEO/co-founder owns 9.1% of the company (pg. 120)

    Overall, this SaaS IPO filing is unusual due to the small amount of overall revenue and high revenue concentration among a small number of clients. Add in the fact that the company already built their own corporate headquarters and it doesn’t feel like the usual SaaS IPO. Textura has a big market opportunity and a great growth rate, so it’ll be interesting to see how it does in the public markets.

    What else? What are some more thoughts on the Textura S-1 IPO filing?

  • Public Company SaaS Valuations

    Periodically I like to take a quick snapshot of the public company SaaS valuations (see 2012 and 2010). With Marketo having a big IPO last week and ChannelAdvisor just pricing their IPO today, it’s a good time to see where things stand compared to my last SaaS valuations post 13 months ago.

    • salesforce.com (NYSE:CRM) – customer relationship management SaaS company.
      Market cap: $26.82 billion
      Last reported quarter’s revenues: $834.7 million
      Employees: 9,800
    • NetSuite (NYSE:N) – enterprise resource planning (accounting, inventory, etc) SaaS company.
      Market cap: $6.58 billion
      Last reported quarter’s revenues: $91.6 million
      Employees:  1,953
    • Constant Contact (NASDAQ:CTCT) – email marketing for small business SaaS company.
      Market cap: $456.9 million
      Last reported quarter’s revenues: $68.2 million
      Employees: 1,162
    • LogMeIn (NASDAQ:LOGM) – remote machine access SaaS company.
      Market cap: $601.3 million
      Last reported quarter’s revenues: $37.4 million
      Employees: 565
    • LivePerson (NASDAQ:LPSN) – live chat SaaS company.
      Market cap: $505.6 million
      Last reported quarter’s revenues: $42.5 million
      Employees: 748
    • Responsys (NASDAQ:MKTG) – email marketing SaaS company.
      Market cap: $478.8 million
      Last reported quarter’s revenues: $48.5 million
      Employees: 866
    • Demandware (NYSE:DWRE) – ecommerce SaaS company.
      Market cap: $887.5 million
      Last reported quarter’s revenues: $20.5 million
      Employees:  298
    • ExactTarget (NASDAQ:ET) – email marketing SaaS company.
      Market cap: $1.6 billion
      Last reported quarter’s revenues: $88.9 million
      Employees: 1,673
    • Marketo (NASDAQ:MKTO) – marketing automation SaaS company.
      Market cap: $882.8 million
      Last reported quarter’s revenues: $19.7 million
      Employees: 373
    • ServiceNow (NYSE:NOW) – IT asset management SaaS company.
      Market cap: $4.9 billion
      Last reported quarter’s revenues: $85.9 million
      Employees: 1,077
    • Workday (NYSE:WDAY) – HR and financial management SaaS company.
      Market cap: $10.9 billion
      Last reported quarter’s revenues: $81.5 million
      Employees: 1,750

    SaaS shows no signs of slowing down as a growth sector and the market valuations reflect it. Salesforce.com continues to dominate in terms of size and scale with two of the newer entrants, ServiceNow and Workday, having massive revenue multiples and expectations of amazing growth.

    What else? What are some other thoughts on public company SaaS valuations?

  • Key Data from the Last 12 SaaS IPOs

    PandoDaily has a great piece up on how hard it is to build an enterprise Software-as-a-Service (SaaS) business that includes key data from the last 12 SaaS IPOs. Of the 12 SaaS companies, most have been profiled here including Eloqua, Rally Software, ExactTarget, ServiceNow, Marin Software, Marketo, and Bazaarvoice.

    Here are some key takeaways from the article on the last 12 SaaS IPOs:

    • Company Age at IPO: Average of 9.5 years with median of 8 years
    • Rounds of Financing: Average of 4.5
    • Amount Raised: Average of $109 million with median of $75 million
    • Revenue: Average of $71 million with median of $61 million
    • Sales and Marketing Employees: Average of 35% of the workforce
    • Employees: Average of 532 with median of 363
    • Professional Services Revenue Percentage: Average of 20% with median of 17%
    • Compounded Annual Growth Rate: Average of 59% with median of 55%
    • Gross Margin: Average of 65% with a median of 66%

    The moral of the story is that SaaS companies require substantial capital, scale, and growth to have a successful IPO.

    What else? What are some other thoughts on the data from the last 12 SaaS IPOs?

  • Marketo IPO Priced

    As a follow up to the Notes from the Marketo S-1 IPO Filing, Marketo priced their IPO at $13/share earlier today. At the $13/share price, Marketo has an enterprise value of $435 million and a market cap of $540 million (the enterprise value plus cash on hand). Of course, the stock is likely to have a nice run up tomorrow when the markets open due to the high demand for fast-growing Software-as-a-Service companies.

    Here are a few thoughts and some speculation:

    • Raising $107 million in venture capital and having an enterprise value of $435 million at time of IPO feels low
    • With an $80 million run rate, and a fast growth rate, my guess is that the stock goes up 20 – 30% tomorrow (~$17/share)
    • Existing investor Battery Ventures bought 500,000 more shares at the IPO price, showing a belief that the stock has significant upside (source)
    • Within 18 months a large tech company will buy the company for north of a billion (e.g. Adobe, Salesforce.com, SAP, etc)

    It’s great to see that Marketo successfully went public and further validated the marketing automation space. I look forward to tracking their progress.

    What else? What are your thoughts on Marketo going public and their future?

  • Notes from the Marketo S-1 IPO Filing

    I enjoy reading S-1 IPO filings. They’re just about the nerdiest, and most honest, documents you’ll find that spill all the darkest secrets of a company (salaries, equity ownership positions, valuations at each financing round, etc). So, when I read that Marketo’s S-1 filing is finally public, I jumped right in. Marketo’s the arch-enemy of Pardot, so over the years we’d debate things like how many customers do they really have (vs claimed to have), how much were they valued at each time they raised money, etc. Well, now we know.

    Here are some notes from the Market S-1 IPO filing:

    • Over 2,000 customers (pg. 1)
    • In 2011, one client paid over $324k that year – (pg. 1)
    • Revenues (pg. 1):
      2010 – $14mm
      2011 – $32.4mm
      2012 – $58.4mm
    • Losses (pg. 1):
      2010 – $11.8mm
      2011 – $22.6mm
      2012 – $34.4mm
    • Key benefits (pg. 3):
      – Drives faster revenue growth
      – Enables organizations to better build and retain long-term customer relationships
      – Streamlines the marketer’s world
      – Increases efficiency and speed of marketing execution
      – Provides deep analytical insight
    • Accumulated deficit of $82.2mm (pg. 10)
    • 79% of customers integrate with Salesforce.com (pg. 11)
    • 12.8% of revenue comes from outside the U.S. (pg. 17)
    • They define the SMB market as companies under 1,500 employees, with 80% of their customers in the SMB market (pg. 48)
    • Raised $107.1mm in financings (pg. 49)
    • Crowd Factory acquisition was for $13mm (pg. 72)
    • Five employees sold $2.5mm of their equity to a preferred shareholder in March 2012 (pg. 72)
    • Employees (pg. 96):
      Total: 339
      Research and development: 84
      Sales and marketing: 124
      Operations, customer support, and professional services: 98
      General and administrative: 30
    • Equity ownership (pg. 128):
      Venture capitalists: 85.5%
      CEO/co-founder: 6.6%
      Other co-founders: Not listed

    Overall, the Marketo S-1 IPO filing is as expected and follows the Silicon Valley SaaS playbook: find a market with huge growth opportunities, burn a ton of cash to be a market leader, go public, and likely get rolled up by one of the behemoths technology companies.

    The marketing automation market is enormous and Marketo is in a great position to capitalize on it.

    What else? What are some other thoughts on the Marketo S-1 IPO filing?

  • Will the Next Major CRM Player Please Stand Up

    Customer Relationship Management (CRM) has been around for decades. Over the past 10 years, Salesforce.com has risen to prominence as both the largest Software as a Service (SaaS) company in the world and the largest CRM company in the world. Salesforce.com has an incredibly powerful product that is now geared towards the enterprise and over time has moved away from the small and even low mid market segments. Also, at a price point of $65 – $125/user/month (retail), the pricing is more inline with what larger organizations can afford to spend. The product is the most robust and most well integrated with other applications.

    Market wise, there exists an opportunity for a lighter weight, more end-user friendly CRM that’s in the $5 – $15/user/month for the small to mid-sized business segment of the market. It doesn’t need to be as comprehensive as Salesforce.com, but it does need to be fairly customizable, and just as important, integrate with a large number of third-party apps (one of the most challenging things). SugarCRM, NetSuite, and Microsoft Dynamics CRM have strong products, but all target the enterprise with products that are north of $30/user/month.

    Here are some of the current contenders in the SMB market:

    So, the SMB market is clearly healthy with a number of competitors, but talking to other entrepreneurs, no system dominates. I believe over the next 2-3 years another CRM player will emerge as the leading SMB provider, and it’s only a matter of time before the winner becomes apparent.

    What else? Do you use any of these products and who do you think will be the next major CRM player?

  • Notes from the Rally Software S-1 IPO Filing

    Rally Software Development Corp., makers of tools to help software engineers be more productive (agile software development lifecycle tools to be exact), just filed their S-1 to go public. S-1 IPO filings are a great way to really dig into a company and read about all the nitty gritty stuff that isn’t usually covered in such detail. Rally is interesting on a number of levels: it’s based on Boulder, CO which has a good tech startup brand but few public software companies, it’s been around for over 10 years (that’s how long overnight successes take), and it’s riding the trend in software development going from a waterfall to agile methodology.

    Here are notes from the Rally Software S-1 IPO filing:

    • 154,982 paid users and more than 1,000 customers, including 36 of the Fortune 100 companies (pg. 1)
    • Customer renewal rate of 129%, taking into account paid seat nonrenewals, upgrades, and downgrades (pg. 1)
    • Agile, as a software development methodology, was introduced in 2001 (pg. 2)
    • 13% of revenue derived from international customers (pg. 4)
    • Growth strategy (pg. 4)
      Increase sales to existing customers
      Acquire new customers
      Continue to innovate
      Expand international presence
      Increase market awareness and drive adoption of Agile
      Strategic acquisitions
    • Incorporated in Delaware in July 2001 under the name F4 Technologies, Inc. (pg. 5)
    • Revenues (pg. 8):
      2010 – $18.4M
      2011 – $29.7M
      2012 – $41.3M
    • Losses (pg. 8):
      2010 – $9.7M
      2011 – $9.9M
      2012 – $11.6M
    • Accumulated deficit of $71.5M (pg. 11)
    • Primary competitors are Atlassian, CollabNet, and VersionOne (pg. 13)
    • 343 employees (pg. 15)
    • $12M line of credit with Square 1 Bank (pg. 54)
    • Venture capitalists own 76.5% (pg. 106)

    Rally has all the makings of a successful IPO with strong recurring revenue and a high growth rate.    Losses are high but growth rate is more important at this stage of their lifecycle.

    What else? What are your thoughts on the Rally Software S-1 IPO filing?