Tuesday, January 19, 2016

Why do I invest in SaaS?

I was recently interviewed by the team of eFounders, the new Parisian SaaS start-up incubator founded by Thibaud Elzière (Fotolia) and Quentin Nickmans. They are running a series of interviews of European VCs investing in SaaS and I was lucky to be the first one.

Accel SaaS portfolio
  • Europe: Algolia, Doctolib, PeopleDoc, Qubit, CartoDB, Prezi, KDS
  • US: Slack, Dropbox, Docusign, Squarespace, Cloudera, Qualtrics, SumoLogic, RelateIQ, Dealer.com, Responsys, Coremetrics, HasOffers, Airwatch, Xero, Invoice2Go
  • Asia: Freshdesk, Atlassian
SaaS trends I like 
  • “SMB Operating System”
  • API-driven products
  • Vertical SaaS
  • Enterprise mobile-driven services (like Docusign)

What I look for in SaaS companies
  • Passionate founders
  • Differentiated product addressing a very large market opportunity
  • SaaS metrics, → the “5C” of SaaS finance (CMRR, CAC, Churn, Cashburn and CLTV) completed by an additional “3Cs”: Cohorts, Clients concentration, and Country breakdown
Why do I invest in SaaS?
I began my career at McKinsey and when the Internet bubble burst in 2001, I made a shift towards online software (ASP at the time). From then on, I remained convinced that SaaS was a much more efficient model, for both ISVs and customers — although many people remained skeptical on the viability of the model for a long time. Even in 2006, when I joined Bessemer Venture Partners, there was still a lot of skepticism in the Silicon Valley around SaaS (one of my first blog post in 2006 was titled: “Why I disagree with Tony Zingale — CEO of Mercury Interactive — on the future of SaaS"). My SaaS focus at Accel Partners is the natural continuity of this path. Today is a very interesting time for the SaaS industry: Europe has shown it was capable of creating successful SaaS businesses, and it’s only the beginning.

What makes a good VC for a SaaS startup?
SaaS startups need to have a VC that understands the SaaS model, including market development strategies, upsell dynamics, sales incentive plan, etc. They also need VCs capable of financing their entire life cycle — on average, SaaS startups raise between $80 and $100 million before an IPO. Lastly, SaaS startups can only thrive if they become leaders in the US. As a consequence, they need a VC that has a strong international network and can help them develop their go to market successfully in the US.

What investment trends do I foresee for 2020 in the SaaS industry?
  • More and more champions will be built out of Europe.
  • The SaaS infrastructure will become increasingly more driven by APIs: developers will use more API driven services like Algolia or Segment to reduce time to market and focus their dev resources on the part of their product which differentiate them.
  • Mobile will drive new use cases.

Do you consider yourself as competing with US VCs for SaaS startups?
We are a global VC, therefore we’re competing — and at the same time partnering! — with VCs everywhere in the world.

What’s the n°1 startup that you wish you had in your portfolio?
Zendesk — the 1st SaaS EU company to be listed on the Nasdaq