Tuesday, October 21, 2014

European Unicorns (or not!) @ TC Disrupt London

Exciting couple of days at TC Disrupt London: I had the chance of starting my Monday morning with an interview at Bloomberg TV "On The Move" with Jonathan Ferro and my Tuesday Morning with a panel at the conference led by Ryan Lawler.

Both discussions addressed the theme of European Unicorns  - ie can Europe produce large venture outcomes. A few years ago, the potential was real. Today, it has been realised as Europe has demonstrated its ability to generate multi-billion outcomes with companies like Supercell ($3B), Qlik ($2.5B), Criteo ($2B), Just Eat ($2.4B), King ($3.6B), Zoopla ($1B), Waze ($1B) among others...The questions is now turning into whether Europe can create $20B+ outcomes. Time will tell but all pointers are in the right directions. Unicorn are not supposed to exist but we are seeing a lot of them in Europe these days with the maturation of the European tech ecosystem. May be we should stop calling them Unicorns!

Tuesday, June 17, 2014

Sharing economy: it is not about cost but value

Short interview on Bloomberg by Caroline Hyde on the sharing economy and the London ecosystem during the London Tech Week. It was fun!

Here is a quick summary of my discussion on the sharing economy and wider changes in the European technology scene.
Sharing economy is not about cost but value
Accel has made a few investments into sharing economy businesses. More than simply offering customers a chance to save on cost, the sharing economy revolves around the value of innovation – marketplace services change people’s way of living by granting them access to a new service. For example, BlaBlaCar, the long-distance ride-sharing network, connects drivers with paying passengers, and is now carrying more people per month than the Eurostar for much less investment. Another example, Vinted, the social marketplace for second-hand clothes, allows users to chat about fashion and swap clothes on their mobiles, and is seeing more than one item listed each second 24/7.
Europe is a collection of tech hubs...hard to know where the next big things is coming to come from
Having worked in Silicon Valley, I can say that, while both the US and Europe are full of innovation, the European tech scene is much more fragmented, as it is spread across a collection of hubs, including London, Paris, Tel Aviv, Berlin, Moscow and the Nordic countries. As a result, you never know where the next big innovation will come from. We’ve backed Funding Circle and Mind Candy in London, BlaBlaCar and Vente-Privee in Paris, Supercell in Helsinki and Avito in Moscow.
The flourishing of these hubs has been a really big development for the region. When Accel first came to Europe 15 years ago, most of our investments were concentrated in the UK and Israel. Now we invest across these hubs. As they grow in number and size, it is beneficial for each individual hub, too, as their businesses can leverage them to extend their network and expand across Europe and around the world.
Another important regional development is the number of billion-dollar-plus exits over the last few years, such as Supercell’s partial sale to Softbank, which have been really additive to the ecosystem. We have companies like Spotify and Rovio in the pipeline as well, so there are plenty more exciting things to come.  Europe has reached a truly interesting time for innovation and we are excited to see what’s next.

Tuesday, April 15, 2014

The next frontier of digital services

Six secular trends will shape the future of ecommerce in the coming decade: mobile becoming a dominant channel, emergence of one click services, rise of the sharing economy, deep personalization, instant delivery and Asia becoming a major market.

I remember when the first ecommerce sites launched in the late 90’s with poor dial up connectivity and everyone thinking that a few years down the road everything would be bought online. Fifteen years later, ecommerce has gone a long way and changed our way of life, representing a $1.3T market globally. However, ecommerce represents only 8-12% of total retail sales and there is still a lot of room to grow from here. The fact that companies like Amazon or eBay are still growing at 20-30% annually despite their massive scale illustrates this untapped potential. Looking forward, we are seeing 6 trends that will fuel this growth and shape the future of online commerce:

Mobile supremacy: coming as no surprise, the main trend that is changing ecommerce today is the relentless growth of mobile. Mobile represents 15% of internet traffic, growing at 150% per year but users spend 87% of their time on mobile on applications (vs. mobile internet), so this underestimates the actual penetration. In addition, consumers are spending a lot of time searching for information that they use to buy in retail stores and mobile is a very powerful tool for this use case. The level of engagement on mobile is changing the game of online commerce and already on the path to becoming the dominant channel: Etsy is seeing close to half of traffic and 30% of GMV on mobile. Showroomprive is experiencing similar numbers. Supercell reached 10m mobile users in less than 4 months (it took 27 months for Facebook). HotelTonight is selling last minute hotel rooms exclusively on mobile with more than 6.5m users, growing 300% year over year and the list goes on…

One click services: have you tried to find a cleaner for your home or a sitter for your dog? Today, the process is cumbersome, including multiple phone calls, quotes, sometimes onsite visits…Tomorrow, you will be able to go online and book the service at a convenient time in just one click. Companies like Homejoy, Handybook, Dogvacay or Rover.com are already making this future a reality in the US and we should expect to see these services developing in Europe soon.

The rise of the sharing economy: when Rachel Botsman published “Collaborative consumption” in 2011, many peer to peer services were emerging but eventually many of them did not reach scale as the friction to deliver the service or product often offset the value received. However,  peer to peer had proven to work and is getting massive scale in several areas: home sharing with Airbnb (10m “guest stays” since launch) and Housetrip, ride sharing with Blablacar (close to 7m members in 10 countries), fashion with Vinted (14m listings) and lending with Lending Club and Funding Circle. Peer to peer marketplaces are here to stay and redefining several areas of online commerce.

Personalize or die: the day of a “one size fits all” for ecommerce are counted. The development of new business intelligence platforms is now making the analysis of large amount of data possible in real time and this intelligence can be used effectively to personalize user experience. Criteo pioneered this field with ad retargeting and we are now seeing a new breed of companies like Monetate or Sailthru pushing personalization further to content, search and email.

Instant delivery: ecommerce has reduced delivery time from a week to next day but to continue eating into retail sales, the limit needs to be pushed further down while keeping shipping price low. Tough challenge that is hard to overcome with traditional courier services but technology is here to help and new services are emerging even though it is very early days. Companies like Uber are floating the idea of using their car fleet to deliver goods, Amazon is experimenting with drones and Netflix is making fun
of it (this may not happen in the near future!) and online/ mobile delivery services like Postmates are starting to grow in the US. Who knows what the future holds but there is a lot of investments and creativity working on this problem.
Asian Tigers turning digital: In 2014, for the first time, consumers in Asia-Pacific will spend more on ecommerce purchases than those in North America, making it the largest regional ecommerce market in the world. China represents 60% of this market with companies like JD.com (212m orders and $14B GMV in the first 9 months of 2013), Alibaba ($160B sales in 2012) and IQiyi ($2.6B revenues in 2014) expected to go public in the US in 2014.  India is following with companies like Flipkart which grew its revenues 5x last year. The e-gold rush is happening in Far East!

Tuesday, January 14, 2014

CAC 2.0: How SaaS businesses can refine their customer acquisition costs

Happy new year 2014! It has been a while since my last blog post but with the new year comes new resolutions and a new design layout for Cracking-the-code. I hope you will enjoy the read

Simple CAC ratio
As many companies are finalizing their 2014 financial plan (feel free to use the Accel template), I thought it could be a good time to write a short post on the CAC ratio - a simple metric that I defined in a blog post in 2008 (time flies!) to measure the sales ramp; marketing productivity of Cloud businesses. This metric measures the ratio of the annualized additional recurring revenue generated by your sales and marketing investments. The simple formula is based on traditional GAAP financials, available for public companies. The target for this ratio should be close to 1 (1 year payback) but for companies with low churn (5 year+ lifetime) and growing fast, anything above 0.5 (2 year payback) warrants further investments.

CAC ratio = [GM (Q4 13)- GM(Q3 13)] x 4/ S&M costs (Q3 13)
(GM: Gross Margin; S&M: sales and marketing)

CAC ratio based on CMRR
While very easy to calculate and benchmark, this formula can be refined at different levels. Firstly, this formula assumes that the revenue recognition time starts one quarter after the actual sale (time to implement the solution and go live) - hence the allocation of Q3 and not Q4 S&M costs in the formula. This is a rough approximation. Secondly, the total revenue also includes, most of the time, non recurring revenue like implementation services or training which are independent of the sales productivity. To have a first level of refinement, it is best to include only the net new contracted recurring revenue in the given quarter or CMRR (see blog post on SaaS metrics). The resulting CAC ratio becomes:

CAC ratio = [Net New CMRR (Q4 13) x GM (%)] x 12/ S&M quarterly costs (Q4 13)

CAC and Renewal ratio separating New Sales and Renewals
The ratio can now compare accurately the new recurring business generated in Q4 2013 with the relevant sales and marketing costs incurred. This is the most standard CAC ratio for early stage SaaS businesses. However, as companies mature, the sales organization usually is broken down between the Hunters (new sales) and the Farmers (account management for renewals and upsells). Each team can be measured separately. While the CAC ratio will measure the effectiveness of the Hunting team, the Renewal ratio will measure the effectiveness of the renewal and upsells team. The challenge is to allocate the marketing spent towards one team vs. the other. I usually assumes that everything regarding lead generation goes to the hunters, while general marketing and branding is split 2/3 for Hunters and 1/3 for Farmers (one short cut is to assign 100% of marketing costs to the Hunters). The two metrics become:

CAC ratio = [Gross New CMRR generated by the Hunters  x GM] x 12/ S&M quarterly costs for the Hunters

Renewal ratio = [Net CMRR (renewals + upsells) from the Farmers x GM] x 12/ S&M quarterly costs for the Farmers

For the CAC ratio, the benchmark needs now to be closer to 1 (or more!) as the noise of the renewals and churn is now eliminated. For the renewal ratio, the benchmark that I use typically is around 5, meaning that it costs 20 cents to renew 1 dollar of recurring GM equivalent to a steady state (flat revenue) where the S&M costs represents around 20% of the recurring gross margin

CAC ratio taking into account sales force quota ramp-up
Finally, for fast growing companies that are hiring many new sales people every quarter, the CAC ratio can be further refined to take into account the sales ramp-up. Let's take an example: if you have 10 sales people active in a quarter with only 6 fully ramped up (100% quota) and 4 of them just starting with a quota of 25% of the full quota, your are only getting an effective team of 7 people (6x100% + 4x25%) = 7 but you will be paying for 10 people. To take into account this ramp-up effect, you can adjust your S&M costs in the formula accordingly and multiply them by 7/10 = 0.7 or 70%. In this case, your effective S&M costs = S&M costs x 70%. The adjusted CAC ratio becomes:

CAC ratio = [Gross New CMRR generated by the hunters  x GM] x 12/ [S&M quarterly costs for the hunters x avg. quota ramp-up (%)]

When using the ramp-up formula, the benchmark should now be 1.0 (1 year payback) given that all the noise has been removed. The same ramp-up factor could be calculated to refine the renewal ratio

So which number to pick? I think it depends on the stage of the company. The simple ratio based on GAAP revenue should be used primarily for benchmarking public companies as it is fairly inaccurate. For most early stage companies (up to $10m annual revenue), the CAC ratio based on CMRR should be the most important one, with the option of refining it with the quota ramp-up. Above $10-15m in annual revenues, it probably make sense to separate new sales from renewal, as both teams have different leaders which would benefit from being measured with different metrics


Finally, to close this post, here is something to make you feel better about your new year resolutions...or the lack of!

Wednesday, October 24, 2012

Eastern European Champions & the 4 V’s of Big Data

Eastern European Champions
I had the opportunity to do a keynote at the IDCEE conference in Kiev last week. It was my first time in the city and I must say that I was immediately taken by the energy of the city and of the entrepreneurs that I met at the conference.

It took me some time to figure out a title and I eventually settled for “Building European Champions” as the region has proven its ability to generate very successful venture outcomes and will continue to be the birthplace of many successful technology companies. I would categorize these champions in two camps: the “Local Champions” and the “Global Champions”. The first category includes companies that have a dominant position in their national market and are often internet or ecommerce companies. This category would include among others Yandex, Mail.ru, KupiVIP and Avito in Russia as well as Allegro in Poland. The second category is composed of companies that have developed a unique IP locally and marketed it worldwide - typically in the gaming, software, security or mobile sectors. Skype is probably the most famous of them, but there are a lot of other examples including Game Insights, Kaspersky and Parallels in Russia, LogMeIn and Prezi in Hungary and Avast and AVG in the Czech Republic.

Why Eastern Europe?
Looking forward, Eastern Europe has several assets and macro trends that will contribute to foster more innovation and create successful technology companies:
  • 400m+ people in the region
  • GDP of $3T+ with most countries growing 2-5%+
  • “Runet” (Russia Internet) is the largest market in Europe with 53m internet users and given its under-penetration (37%) it is still growing at double digits, increasing the gap with Germany which is currently number two and growing at 2% per annum. Out of these 53m internet users, 15m are shopping online, creating a fast growing $11B ecommerce market in Russia alone (expected to reach $19B by 2015)
  • The mobile penetration is among the highest in the world with 1.7 mobile phone per person for the Top 4 EE countries (vs. 1.2 in GE, 1.3 in Brazil and 0.8 in India and China)
  • The region has an exceptional talent pool: Eastern Europe was the first country to send a man into space in 1961 and has a very strong network of universities. It is not by chance than a Moscow team won the 2012 FB Hackathon with Boostmate, a tool to analyze social interactions and rank your closest friends.

In addition, the availability of cloud and open source technologies has further reduced the cost to get a technology business started as now anyone can get computing and storage capacity in the cloud or build a LAMP stack for a few hundred dollars. This low entry barrier should accelerate the pace of innovation.

A few facts on Big Data
I took advantage of this keynote to highlight a few areas where we see a lot of opportunities globally and in particular for Eastern European start-ups: Big Data, Cloud Computing and Mobile. I will elaborate a bit on the first one – Big Data.

Big Data is a key area of focus for our firm to the point that we even created a $100m “Big Data Fund” recently. Going through several reports, I found a few mind-blowing stats on the growth of structured and mostly unstructured data. Here are a few examples:
  • 247B emails are sent every day (and the scary bit is that 80% is spam!) 
  • It costs $600 to buy a disk drive that can store all of the world’s music
  • 30B pieces of content are shared on Facebook every month
  • Projected growth in global data generated annually is 40%. By 2020, the production of data will be 44 times what we produced in 2009
  • 15 out of 17 sectors in the United States have more data stored per company than the US Library of Congress
Big Data is indeed…big! And getting bigger and bigger.

The 4 V’s of Big Data
Big Data is different from "large amount" of data. We have tried to define Big Data around a framework of four V’s that explain the essence of the concept: Volume, Variety, Velocity and Value:
  • Volume: the first V is easy to grasp as it is about quantity. The proliferation of mobile phones, social media, machine data, web logs has led to large amounts of data being generated, stored and processed and this volume is increasing exponentially with the growth of new computing platforms and the shift of activities from offline to online
  • Variety: this is where big data starts to differ from “a lot of data”. Big Data is not only about volume but also about the type of data. Large volume of structured data can stored in relational databases and accessed quickly by queries. Big Data contains structured data but mostly unstructured data (which is the key driver of growth as shown in the graph above). And this unstructured data contains valuable information that can now be extracted if the right infrastructure is in place (e.g., sentiment, preference, mood, purchasing intent)
  • Velocity: Time is of the essence with Big Data. Business users need faster and faster response rate to derive the most value from information. Sometimes it needs to be in real time. The more data to analyze and the more challenging this becomes as all the pieces of the infrastructure needs to be perfectly tuned
  • Value: This last V’s characterize the underlying purpose of storing Big Data – to derive business value. This means that on top of the technical aspect of storing and managing Big Data, there is a need for a strong BI and visualization engine to drive insights beyond data scientists

Looking at these four V’s helps define the underlying opportunities around Big Data: there is a need for larger and cheaper storage, fast access, data management tools, platforms (like Hadoop), BI and visualisation engines and new business applications that can help businesses capture, organize and derive the most value from Big Data.

I will finish this post with one example that came out of a discussion with the IT executive of a large US bank. One of the big data team collected and analyzed all the data of accidents on Route 101 linking San Francisco to San Jose. They found that a large part of the accidents were due to random objects falling from trucks on the road. Digging deeper, they found that a large part of these objects were real estate signs and they were able to correlate spikes in the number of accidents on route 101 with a shift in the real estate market in the bay area in quasi real time. Impressive! 

And this is just the beginning.

Friday, October 12, 2012

French Tax Law for Start-ups: Ringing the Alarm Bell

Accel has already invested over $60 million in French start-ups and we would like to invest more – but will there be enough entrepreneurs left if the new Tax laws are voted in? 

This post is a translation of the article: « Pigeons » : le cri d'alarme d'un fonds américain published on LaTribune (12/10/2012) and is a response to the proposed tax law proposed by the government of Francois Hollande, suggesting to tax all capital gain at the same level than salaries or 60%.


While France has been a fertile ground for innovative start-ups, the new fiscal law threatens to disrupt an ecosystem that has slowly emerged over the past 12 years. Instead of increasing the tax burden on these companies driving job creation, why not take full advantage of this evolution of the tax law to position France as the most attractive country for entrepreneurs in Europe?

France has proven its ability to develop innovative internet models

Over the past three years, we have invested over $60 million in French technology start-ups with Showroomprive (number 2 in Europe for online private sales), BlaBlaCar (Covoiturage.fr the European leader in ride-sharing) and Shopmium (offering coupons via a mobile app) and as a result have contributed to creating close to 600 jobs. While our investment focus covers all of Europe, we consider France to be a very important market for our business and we are actively seeking new investment opportunities.
France is indeed a country with a proven track record of developing innovative business models.
Here are a few examples: the “flash sales” model was launched by VentePrivee and Showroomprive, the two European leaders and has been copied in the US by several companies such as Gilt Groupe; “online retargeting” was invented by Criteo, who currently operates in 30 countries with over 3,000 customers and whose success relies, among other things, on its 10,000m2 R&D centre located downtown Paris. Since its launch, Criteo has created 800 jobs, 40% of those in R&D; France has also been a pioneer in the space of ride-sharing with the creation of covoiturage.fr, a company that has built a strong community of over 2 million members and transporting a number of passengers equivalent of 1,000 high speed trains every month. And the list of success stories continues with companies such as Free, Meetic, AuFeminin.com, PriceMinister, SeLoger…
The second strength of France resides in its talent pool of entrepreneurs. With the experience accumulated during the first internet boom, this talent pool has grown considerably and gained in strength over the past few years. Those who have enjoyed success have given back to the community as business angels, through the creation of seed funds such as ISAI, Kima Ventures or Jaina Capital, or by sharing their personal experience through forums, conferences or teaching. A good example is the creation of École Européenne des Métiers de l'Internet (EEMI) in September 2011, founded by Marc Simoncini (Meetic), Jacques Antoine Granjon (Vente-privee.com) and Xaviel Niel (FREE).
Finally, another notable strength of France resides in its Telecom infrastructure. Indeed, France enjoys the highest penetration rate for broadband in Europe (32.7% for France vs. 26.5% on average in Europe according to Eurostat, Jan. 2011).

Amendments proposed to the 2013 Tax law are insufficient and threaten to destabilize the ecosystem

I will not go over the initial regulation proposal, which recommended a 60% tax rate on profits made by entrepreneurs after an exit (basic idea is to apply same tax rate on salary and capital gains). Instead, I will focus the discussion on the recent amendments suggested by the minister of economy and explain why these amendments are insufficient and threaten the growth of a booming ecosystem that has already proven to be and should remain a source of job creation.
The first amendment relies on the definition of « founder » and imposes a minimal ownership of 10% of the company and a holding period of two to five years to benefit from a lower tax rate. Let’s examine first the ownership constraint proposed by the amendment: the ownership level of a founder in his / her company depends on two key factors: the number of founders in the start-up and the potential dilution that occurs with fund raising (needed to sustain the company’s growth). Imposing a minimum ownership threshold on founders penalizes teams with several co-founders, while the combination of talents and skill sets coming from having several co-founders is usually core to the success of a start-up. This proposal also penalizes companies that have struggled to grow and had to raise several round of funding before reaching a critical mass, and have therefore been diluted more than they would have liked. Finally, it puts a break on the fast growing start-ups that could benefit from an additional injection of capital to fuel their growth but won’t do it to avoid further dilution. In our portfolio, we have companies with founding CEOs who own less than 10% of their companies for some of the reasons I just listed. Why should they be penalised in such an arbitrary way? The duration criterion is also very punitive for start-ups playing in the dynamic technology market. Let’s take an example in our portfolio: Playfish, a “social gaming” company, was launched in London in 2007. It enjoyed explosive growth, created 200 jobs in two years, and was acquired in 2009 by the American giant Electronic Arts. If that company had had to comply with the proposed regulation, its founding partners would have faced the following dilemma: either forfeit 60% of their gains in tax, or … ask Electronic Arts to come back later. Why should rapid success stories be penalised more than companies whose success is slower to come?
The second amendment proposes to apply tax rebates on capital gains applicable over a six years period for those who cannot meet the founder status. While this measure also relies on an arbitrary duration, which does not account for the dynamic environment in which start-ups operate, it will also create inequalities among start-up teams by dividing them into three “classes”: the “founders” who will be protected in some instances, the employees who have received stock options (and will fortunately not be impacted by this regulation) and the employees who have received shares and will be subject to a complex tax waiver scheme. Is this the “social justice” announced by the government?
To conclude, the ecosystem of internet start-ups is based on three key stakeholders: the entrepreneurs, who create the start-ups, the employees, who contribute to their success and the investors (business angels and venture capitalists), who invest capital to fuel growth. Those three constituents share the risks and play a key role in the development of start-ups. The proposed law, instead of bringing more cohesion to the ecosystem and aligning stakeholders’ interests, will in fact introduce inequalities that will ultimately lead to disequilibrium and conflicts… in addition to adding unnecessary complexity to the model. 

Why not take advantage of this law to make France the champion of Entrepreneurship in Europe?

Instead of introducing extra layers of complexity and penalising both start-ups and entrepreneurs, why not going back to simplicity and proposing positive changes that would position France as a beacon for innovation and entrepreneurship in Europe?
If we all agree that start-ups need to be protected given they are a unique vector of economic growth and job creation, why not take a step further and give them an attractive tax rate that could apply equally to all shareholders independently of any ownership level or duration? Why not apply a 15% tax rate on all capital gains coming from start-ups? Not only would such a measure boost the French technology ecosystem, but it would also attract entrepreneurs and investors to France.
One way to create boundaries for this proposal, would be to apply it only to shares acquired during the first twelve years of a start-up’s existence, after this date all transactions would be taxed at the current capital gain tax rate (regardless what the rate is – although I personally do not agree with the tax rate currently proposed by the government).  So why twelve years? While that threshold should be thought through, it would apply well to our current portfolio: among the 250+ active companies we have funded, the proportion of those founded before 2000 is minimal.
Such a change would play to France’s advantage and give a boost to the start-up ecosystem. Why not take a chance?


Friday, October 05, 2012

The Accel 5 Mantras of Ecommerce in Turkey

I was lucky to enjoy the sun, warmth and excitement of Istanbul in the past couple of days to attend the Webrazzi Summit, which is the poster child of Turkey’s vibrant start-up scene. I have been to Turley several times in the past 18 months, and find the region very exciting. There is a lot to like in this country with a large and fast growing internet market still very underpenetrated:
  • Strong macroeconomic trends with a 2011 GDP growth of 8.1% and a GDP per capita which grew from $6k in 2001 to $14k in 2011
  • Good infrastructure with 38m internet users (5th European country), mobile penetration above 90% and a very strong logistics and payment networks (45m+ credit cards)
  • Very attractive demographics with half of the population below 30 year-old and very active online (5th country on Facebook, 8th on Twitter)
As you can see, I am Istanbul-lish!

Being invited to speak at the conference, I decided to present some of the things that Accel learned after speaking to dozens of internet and ecommerce companies in the region. I summarized these learnings into 5 “Mantras” that are developed in the presentation embedded below:
  1. “Me too” is not enough: don’t be the 50th private shopping club or Groupon clone. There is no room for you in the market. Think “differentiation”
  2. eCommerce is not a cheap journey: be prepared! Most successful ecommerce companies raise more than $50m during their lifetime, so watch every penny you spend and pay specific attention to (1) Inventory and working capital and (2) marketing costs (in particular a repeat basket is not free!)
  3. Run your business with numbers: eCommerce is all about numbers and doing a 100 small things right
  4. Build your brand by focusing on user experience: a strong brand is necessary to reduce your CAC and increase your profitability and the best way to build it is to focus on providing a great user experience (product, service and payments)
  5. Mobile will be bigger than you think: mobile will represent 20%+ of you sales before you realize it!

Thursday, July 19, 2012

Tired of paper and pen?

Who is not tired of having to sign a document on paper and then send a copy by fax or scanner? Or even worse, have to travel for a signture: last month, I had to sign a notarised document for a family matter and the only way to make this happen was to travel to Paris and show up at the notary's office to sign one single document. Very expensive signature both in terms of time and travel costs....Isn't this crazy XXIst century?

Hopefully, this will be over soon as Docusign expands its network of 20m users, who have already signed more than 150m documents in 188 countries. Venture is all about investing in disrupting technology and Docusign is disrupting a very basic process: signing a document. It sounds very simple but the complexity is to make this service as easy and simple as is a signature on paper, while being able to manage the flow of the document and provide the required security to make signatures reliables.

This technology is impacting nearly all the areas of a company: from human resouces employment contracts and onboarding documents, to procurement, sales, legal and finance. Signatures are everywhere and with a digitized workflow, documents can travel across department, subsidiaries and countries within seconds, shortening the execution cycles from days to minutes. In addition, the rise of tablets and mobile devices will accelerate the growth by making the signature process ubiquitous.

Facebook is your social network, LinkedIn your professional network and Docusign will be your identity network.

As several sites announced last week, Docusign raised a large $50m round to fuel its growth, in particular in Europe and Accel participated alongside Kleiner Perkins and existing investors. I look forward to work with Keith Krach, Mike Dinsdale, Tom Gonser and the rest of the Docusign team on this great adventure!

Wednesday, July 18, 2012

Apple in numbers

Apple posted some interesting numbers that I thought I would share with you, as some of them are mind-boggling:

400m card accounts linked to iTunes (this is now more than any other store on the planet, larger than the US population and close to 6% of the worldwide population!)

There are over 650,000 apps on the iOS app store, of which 225,000 are iPad only apps (this is an amazing stat show developers are now just focusing on iPad instead of iPhone)

Over 30B apps have been downloaded – with consumers downloading more than 50M apps a day. This represents more than 4 app per person on the planet

Over its lifetime, Apple has paid $5B to iOS developers compared to $12B to music labels – Apple now pays more to developers than music labels and will generate $5B in gross income this year.

By Q1’2012, there were 365M iOS devices in the market

Amazingly, apps are sending 7B notifications a day! Close to 20 per device...

SMS businesses are hurting – of the 365M devices, 140M use iMessage (Apple free messaging platform), sending 1B messages a day or close to 3 per device

130M devices now connect to GameCenter (which is basically Apple’s attempt to harmonize leader boards/stats across games

So, does this justifie a $560B market cap?

Perspective on gaming and mobile apps on Bloomberg

I was invited for the second time by Maryam Nemaze to talk about investing trends in technology. It was a but surprising to see the first question starting with Apple earnings but that's part of the game! It was a fun session. I did talk about software but unfortunately this part was cut in the online video. I guess the gaming and mobile sectors are more consumer friendly.

Monday, January 16, 2012

BlablaCar - Travel Revolution

Some countries in Europe may have lost their AAA ratings, but they have not lost their appetite to innovate and create new online services. Blablacar is one such example of innovation: with a fast growing community of 1.6m members in France (www.covoiturage.fr), the UK (www.blablacar.com) and Spain (www.comuto.es), this company is changing the way people travel on the old continent, becoming a very compelling alternative to trains and planes.

The website connects drivers and passengers who are willing to share a journey in their car. While the site addresses all kind of trips, from short commuting to long distance, most of the activity is around trips of 150+ miles. The passengers compensate the driver for the gas and toll costs, making it a fair trade. For example, a trip from Paris to Lyon (290 miles) would cost €25-30 compared to €100+ for the train. On top of being cheaper (cost is of course an important driver), people are also using the service because it is more social (a lot of people don't like to drive alone), more granular (with the scale, you can find a driver closer than the nearest train station!), and of course more environmentally friendly.

Blablacar is to cars what Airbnb is to houses: a way for people to monetise their unused assets on one hand and to consume differently on the other hand. This trend, described by Rachel Botsman in her book "The Rise of Collaborative Consumption" is growing as people becomes more and more inclined to use things rather than to own things. This explains the success of companies like Netflix or Zipcar, but like Airbnb, Blablacar is pushing the concept further with the assets being owned by the consumer instead of the company.

It is interesting to note that this model has been invented in Europe (Blablacar started in 2006) and while there have been some similar and more recent initiatives in the US (e.g., Zimride, Ridejoy), they have not yet seen the explosive growth that the service has observed in Europe with more than 1 Billion miles shared by the community and more than 8m passengers transported!

As Techcrunch announced earlier today, Accel led a $10m round in the company to help them develop their service across all Europe. We are happy to jump on board this rocket ship and help the company change the lives of millions more people!

Wednesday, August 03, 2011

Wednesday, February 23, 2011

SaaS Multiples: Recovery or Bubble?

With companies like Saleforce and SuccessFactors trading north of 8 times 2011 revenues, SaaS valuations are just back to the 2007 peak, but what is remarkable however, is that, after a period of strong correlation in 2008/2009, SaaS companies (represented by the SaaS 13 Index) have massively outperformed the overall technology sector (Nasdaq) in the past 12 months, creating a gap of more than 60%!

What happened? It would have been easy to explain the difference by changes in the 2010/2011 revenue growth projections but unfortunately that is not the case. SaaS companies projected to grow 18% over this period in January 2010 and this projection moved up only to 20% today. In comparison, the overall technology sector growth was projected at 9-10% in early 2010 and this forecast did not change significantly today.

So if the difference cannot be explained by short term projections, we need to look over an extended period. To justify a 60pts difference, we have to believe that the current growth rates of 10% for technology and 20% for SaaS will continue to hold for the next 9 years before converging. So the question becomes: "Can SaaS outperform technology growth by 2x over the next decade?" Not unreasonable.

Scale matters

To drill down further and better understand how public markets value SaaS companies, I split the SaaS 13 Index into two groups: companies above $1B in market cap (large cap) and below $1B (small cap) and compared the performance of both indices to the Nasdaq:

The result is very interesting: small caps are highly correlated to the Nasdaq but the large caps have taken off sharply, and on average, small caps are trading at 3.5x revenues while large caps are trading at 6.4x. The relative growth rates partially explain the difference as large caps are growing on average 3-5pts faster, but they do not seem to account for the entire gap.

The sales productivity ratio (measured with the Customer Acquisition Cost or CAC ratio) are also fairly similar for the two groups (except for a small cap dip in Q4 09) and therefore do not explain the difference

Why is scale so much rewarded by public markets? Scale is usually correlated with market leadership and large market size, and Wall Street is rewarding with a premium multiple these large SaaS companies because (1) their growth is supported by a secular trend (now it is clear that Cloud Computing is here to stay!) and (2) their leadership position in multi-billion dollar markets will likely make them dominant players in the software landscape, even though they are still small today (SuccessFactors $2.5B market cap or even Salesforce at $17.5B seem tiny compared to the $223B of Microsoft). Unreasonable? Time will tell!

Sunday, November 07, 2010

Tuesday, May 25, 2010

"10 Things Every CEO Needs to Know About Product Design" unveiled at the Bessemer Annual Cloud CEO Conference

For the third year in a row, Bessemer hosted its Cloud CEO Conference, assembling roughly 100 CEOs/CxOs of our cloud and rich internet applications portfolio companies (Yelp, LinkedIn, Playdom, Zoosk, Smule, Wix, Eloqua, Teamviewer, Cornerstone OnDemand, Intacct, Criteo, Bizo and many others) as well as a few leading public cloud executives (Josh James from Omniture, Jeff Jordan from OpenTable, Adam Selipsky from Amazon Web Services, Grieg Coppe, CSO of Intuit, Michael Simon from LogMeIn...). The event was very well received by the group with our survey showing a rating of 4.4 out of 5! The full agenda of the event can be seen at the following link

The event started with an optional golf round on May 11th afternoon at the
Palo Alto Golf and Country Club with a wonderful weather to welcome the participants. The golf was followed by cocktail, dinner and poker: a very fun start to prepare the full day of content and networking on May 12th at the Rosewood SandHill.

Unveiling of the "10 Things Every CEO Needs to Know About Product Design"

The best rated session of the day was the presentation by Jason Putorti on product design. Jason is the design Czar who designed the Mint user experience and we are incredibly lucky to have him as our first Designer In Residence!

Jason's presentation was focused on the "10 Things Every CEO Needs to Know About Product Design and User Experience". The full presentation is available at the bottom of the post but here are the key highlights:
  1. Design can change businesses: little things can have a great impact. A simple example: the difference between "I am on Twitter" and "You should follow me on Twitter here" increased the registration rate by 173%!
  2. Design is more than pretty picture: it is all about the user experience and the brand you are trying to build
  3. Talk benefits not features: It is much better to write "Understand your money" than "20 colorful configurable charts and graphs". Another way to think about it is Microsoft vs. Apple packaging :+)
  4. Think in flows, not screens
  5. Do not make the user think: Make obvious what is clickable, minimize noise, omit needless words
  6. Start with a great story: Make the value obvious and present it first in the user flow
  7. User design as a lever: The best marketing tool you can have is a well designed application
  8. Get out of the office: Watch people experience your product or service
  9. Have your bible: Synthesize your design guidelines in a company style guide
  10. Repeat & refine: Allot product cycles to improvement

A few highlights from the different keynotes and speakers

On top of Jason, we also had the chance of having many great speakers at the event and here are a few quotes and notes that I have taken during the different keynotes and panels:
  • Joe Payne, CEO of Eloqua moderated the panel on Revenue Performance Management. One of his secret: "Incentivize your marketing team on sales not leads"
  • Jeff Jordan, CEO of OpenTable speaking about his IPO process: "Build relationships with key public investors 2-3 years before going public (Morgan Stanley, Fidelity and T. Rowe). It is enough to meet them 1-2 times a year and it helps a lot during the roadshow"..."don't expect the IPO to boost your consumer brand, it does not help a lot"
  • From the panel on the "Consumerization of Software" that I was moderating: "integrate your user flow from landing page to payment and usage into one single flow", "test, test, and test: user feedback is key"..."Use the 1/60 rule: less than one minute to understand the value and less than 60mn to experience it"
  • Sarah Friars, lead software analyst for Goldman Sachs on IPO timing: "Go when you can"
  • Michael Simon, CEO of LogMeIn on the Exit/IPO panel: "Pick the bankers you really like as you will spend a LOT of time with them!"..."1 out 25 company going public is bought in the process, ...the likelihood is fairly low"
  • Bob Goodman, Bessemer on the same panel: "Bankers are good negotiators, that's why you hire them: the only way to get something out of them is to adopt a 'take it or leave it' stance!"..."having a large VC on your board helps keep the bankers honest and they are less likely to walk on your toes"
Looking forward to the fourth edition next year!

Friday, March 12, 2010

State of the SaaS 13: Q1 2010 Sentiment

As we are entering a new year, I thought it would be interesting to publish every quarter an update on the state of the 13 public SaaS/Cloud companies in the Index. So, here is the first edition, including the recent Q4 2009 earnings and the updated 2010 forecast.

1) Slightly improved sentiment for 2010, but companies are still planning for a long recovery

The following chart compares the median growth rate for the SaaS 13 group both in November 2009 after the Q3 reporting season and in March 2010 after the Q4 reporting season. Given the predictability of SaaS GAAP revenues on a quarterly basis, the fact that the 08/09 projections were unchanged is not a surprise. However, despite healthy Q4 results (most companies were at or above plans) few have increased their 2010 guidance and the median moved only from 15% (same as 2009) to 17%. If we consider that 2009 was probably the worst year in the past 5 years, forecasting the same growth for 2010 is not very encouraging. You could argue that it takes some time to restart the SaaS flywheel after a slow year, but an acceleration in 2010 should at least translate into a stronger 2011 guidance, which is not really the case (10/11 growth median is 18%, so barely above 2010). The SaaS growth recovery does not seem to take a "V" shape

2) Sales productivity is ramping up: bottom was hit in the first half of 2009

However, the sales and productivity of the group, measured by the median "Customer Acquisition Cost ratio" or "CAC ratio", seems to be recovering more steeply. Given the lag in GAAP revenue recognition, the Q4 09 revenues are indicating an increased productivity in Q3 2009 (we have unfortunately to look backward due to the GAAP revenue recognition model), but the trend is very encouraging. Given that the revenues are not growing very fast, this means that most of the companies have reduced their sales force and focused on productivity improvement. Also, even if the productivity is increasing, it is still far from the 0.75-1.0 range where you would expect companies to start pumping more investment in sales and marketing to drive growth

3) Focus on profitability

It is interesting to see that the improving sales and marketing productivity is not pushing companies to be more optimistic on their top line but on their bottom line. While the group sentiment for 2010 did not improve significantly vs. November 2009, the projections for 2011 are now a lot more optimistic - 42% higher 2011 aggregated EBITDA announced in March 2010 vs. the November 09! This is a significant guidance revision, which shows the current focus and mindset of the management of these companies. A sign that the SaaS industry is already maturing or a reflection of the public investors expectations?

4) Cash balance increase indicates a focus on M&A to drive further growth

The past few months have also been marked by a few high profile equity and debt announcements - most notably SuccessFactors, Taleo and Saleforce.com. In total, the cumulative cash balance of the group increased by 64%, or more than $1B! As this cash will not be used to fund organic growth initiatives, we can expect several acquisitions in the coming 24 months. To date, Salesforce has been focused on small tuck-in technology acquisitions, so it is an interesting move for them. There aren't any companies at scale built on Force.com that would justify such a raise, so either Salesforce will have to buy a light technology at scale (email marketing?) that can easily be ported to Force or they will have to breach their platform credo.

All in all, an interesting start for the year!

Thursday, January 14, 2010

Tuesday, December 01, 2009

Cloudonomics and 2010 Planning for your SaaS and Cloud Computing business

As we get close to the end of the year, I thought it would be interesting to put together a post on how to approach the 2010 planning. I was fortunate to be invited to present at Dreamforce a few weeks ago to tackle this topic on stage, so if you want more color, fell free to watch the video below, but here is a quick summary:

1) Be more than ever metrics driven: as we get into a period of recovery, but with still a lot of uncertainty, it is critical to base your plan around the 6 C's of Cloud Finance (CMRR, Cash, Churn, CAC ratio, CLTV and CMRR Pipeline):

  • Make sure than your CMRR (Committed Monthly Recurring Revenue) line will cross your MRE (monthly recurring expenses)

  • Calculate your CAC ratio in the past quarters to see if it is capital efficient to spend more in S&M in 2010

  • Focus on customer retention and make sure you allocate enough resources to your account management and product team

  • Measure you CMRR Pipeline carefully: this is the only metric giving you forward visibility onto the future performance of your business (see slide 18 for more details)

2) Manage your cash carefully but don't underinvest: capital is available but your metrics will tell you if you can raise outside capital or not in good terms

3) Watch for cheap revenue: you may be able to buy failing competitors for their customer base or interesting technology at a very interesting price. The recession created opportunities!

You can download the PDF by clicking here

To help you build and assess your plan, I thought you might also be interested in this recent benchmarking of public SaaS companies that Steve Klei, a veteran SaaS CFO put together (Click on the picture to see the full slide show) :

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Tuesday, November 10, 2009

New SaaS 13 Index: Welcome to LogMeIn (Nasdaq: LOGM)!

While poised with a limited number of transactions this year, the world of public Cloud Computing and SaaS companies has been marked by two events in the past few months: the acquisition of Omniture by Adobe and the high profile IPO of LogMeIn, a leading provider of PC remote access and support with a very interesting freemium model.

The acquisition of Omniture by Adobe for $1.8B was a great outcome for the company (kudos to Josh James, their visionary founder & CEO!) and the second SaaS public transaction in history behind the acquisition of Webex by Cisco in 2007 for $3.2B. After Google buying Postini, the SaaS M&A market continues to be full of surprises. Who would have thought that Adobe would acquire Omniture? It is intriguing to see the M&A dynamics in the space, highlighting the interest of tech companies for recurring revenue streams - even SAP announced in their analyst call earlier this month that they were moving from perpertual licenses to five year term licences. Hopefully this trend will continue (and accelerate!) in 2010.

On the IPO front, LogMeIn made the news, being one of the few tech IPO on the NASDAAQ in 2009. The stock was very well received, jumping 25% on its first day of trading. Today, the stock is still up 22% and the company is trading at a very healthy 4.2 EV/09 rev. multiple, with 43% 08/09 growth rate and double digit free cash flow margin. Congrats to Jim Kelliher, CFO and Michael Simon, CEO, for a successful IPO!

These events led me to redesign the SaaS 13 Index. I have changed the composition of the Index with LogMeIn officially replacing Omniture and Dealer Trak and AthenaHealth replacing Salary.com and LivePerson. The Index has also been reset to start at 100.00 on January 1st 2008. All the multiples and CAC ratio have been adjusted to reflect this update.

As you can see on the graph below, the Index made a nice come back this year and we are just at 11% down since Jan. 2008 after flirting with the lows in March 09 at -65%.

Unveilling of the Bessemer's 10 laws of Cloud Computing and SaaS - Winter 2010 Release

When we first published the Bessemer’s Top 10 Laws for Being “SaaS-y" on Sandhill.com almost two years ago in conjunction with our annual Cloud/SaaS CEO Summit, we were overwhelmed with the positive response and feedback we received. We have heavily modified many of the best elements that we believe are still relevant, and have added several entirely new concepts for this update publication on Cloud Computing and SaaS.

The Cloud computing stack is currently defined by three levels: SaaS, PaaS, and IaaS. Software as a Service (SaaS), the most mature of these segments, is comprised of end user applications like Salesforce.com. Platform as a Service (PaaS) is the service and management layer of the cloud platform, and is evolving dynamically to include things such as intelligent provisioning, as well as application and network management. Infrastructure-as-a-Service (IaaS) is the foundational layer of cloud computing, and includes raw storage, compute, backup, disaster recovery, databases, and security. As the first segment to emerge in scale and the most application oriented, SaaS has lead the market to date with the largest market size, highest gross margins, and highest per-seat pricing. Recently, however, we have seen the rapid emergence of hyper-growth businesses in the PaaS and IaaS markets demonstrating that these will soon be independent, multi-billion dollar segments in their own rights with the potential for massive sales volume and attractive cash flow characteristics.

Here is the new version of the 10 Laws of Cloud Computing and SaaS:

  1. Less is more! Leverage the cloud everywhere you practically can (more...)

  2. Get instrument rated, and trust the 6C's of Cloud Finance (more...)

  3. Study the Sales Learning Curve and Only Invest behind Success (more...)

  4. Forget everything you learned about software channels. The internet is your new channel and Technology Enabled Service providers are among the few partners that actually care if you succeed (more...)

  5. Build Employee Software. Employees are now powerful customers, not just their managers! We are witnessing the “Consumerization of Software” so focus on ease of use (more...)

  6. By definition, your sales prospects are online - Savvy online marketing is a core competence (sometimes the only one) of every successful Cloud business (more...)

  7. The most important part of Software-as-a-Service isn’t "Software" its "Service"! Support, support, support! (more...)

  8. Leverage and monetize the data asset (more...)

  9. Mind the GAAP! Cloud accounting is all about matching revenue and costs to consumption…well, except for professional services! (more...)

  10. Cloudonomics requires that you plan your fuel stops very carefully (more...)

BONUS LAW: You can ignore one or two of these rules, but not more - Great companies innovate, but pick your battles! (more...)

You can download the full white paper at www.bvp.com/cloud or click here