Salesforce at 20 offers lessons for startup success

Salesforce is celebrating its 20th anniversary today. The company that was once a tiny irritant going after giants in the 1990s Customer Relationship Management (CRM) market, such as Oracle and Siebel Systems, has grown into full-fledged SaaS powerhouse. With an annual run rate exceeding $14 billion, it is by far the most successful pure cloud application ever created.

Twenty years ago, it was just another startup with an idea, hoping to get a product out the door. By now, a legend has built up around the company’s origin story, not unlike Zuckerberg’s dorm room or Jobs’ garage, but it really did all begin in 1999 in an apartment in San Francisco, where a former Oracle executive named Marc Benioff teamed with a developer named Parker Harris to create a piece of business software that ran on the internet. They called it Salesforce .com.

None of the handful of employees who gathered in that apartment on the company’s first day in business in 1999 could possibly have imagined what it would become 20 years later, especially when you consider the start of the dot-com crash was just a year away..

Party like it’s 1999

It all began on March 8, 1999 in the apartment at 1449 Montgomery Street in San Francisco, the site of the first Salesforce office. The original gang of four employees consisted of Benioff and Harris and Harris’s two programming colleagues Dave Moellenhoff and Frank Dominguez. They picked the location because Benioff lived close by.

It would be inaccurate to say Salesforce was the first to market with Software as a Service, a term, by the way, that would not actually emerge for years. In fact, there were a bunch of other fledgling enterprise software startups trying to do business online at the time including NetLedger, which later changed its name NetSuite, and was eventually sold to Oracle for $9.3 billion in 2016.

Other online CRM competitors included Salesnet, RightNow Technologies and Upshot. All would be sold over the next several years. Only Salesforce survived as a stand-alone company. It would go public in 2004 and eventually grow to be one of the top 10 software companies in the world.

Co-founder and CTO Harris said recently that he had no way of knowing that any of that would happen, although having met Benioff, he thought there was potential for something great to happen. “Little did I know at that time, that in 20 years we would be such a successful company and have such an impact on the world,” Harris told TechCrunch.

Nothing’s gonna stop us now

It wasn’t entirely a coincidence that Benioff and Harris had connected. Benioff had taken a sabbatical from his job at Oracle and was taking a shot at building a sales automation tool that ran on the internet. Harris, Moellenhoff and Dominguez had been building salesforce automation software solutions, and the two visions meshed. But building a client-server solution and building one online were very different.

Original meeting request email from Marc Benioff to Parker Harris from 1998. Email courtesy of Parker Harris.

You have to remember that in 1999, there was no concept of Infrastructure as a Service. It would be years before Amazon launched Amazon Elastic Compute Cloud in 2006, so Harris and his intrepid programming team were on their own when it came to building the software and providing the servers for it to scale and grow.

“I think in a way, that’s part of what made us successful because we knew that we had to, first of all, imagine scale for the world,” Harris said. It wasn’t a matter of building one CRM tool for a large company and scaling it to meet that individual organization’s demand, then another, it was really about figuring out how to let people just sign up and start using the service, he said.

“I think in a way, that’s part of what made us successful because we knew that we had to, first of all, imagine scale for the world.” Parker Harris, Salesforce

That may seem trivial now, but it wasn’t a common way of doing business in 1999. The internet in those years was dominated by a ton of consumer-facing dot-coms, many of which would go bust in the next year or two. Salesforce wanted to build an enterprise software company online, and although it wasn’t alone in doing that, it did face unique challenges being one of the early adherents.

“We created a software that was what I would call massively multi-tenant where we couldn’t optimize it at the hardware layer because there was no Infrastructure as a Service. So we did all the optimization above that — and we actually had very little infrastructure early on,” he explained.

Running down a dream

From the beginning, Benioff had the vision and Harris was charged with building it. Tien Tzuo, who would go on to be co-founder at Zuora in 2007, was employee number 11 at Salesforce, starting in August of 1999, about five months after the apartment opened for business. At that point, there still wasn’t an official product, but they were getting closer when Benioff hired Tzuo.

As Tzuo tells it, he had fancied a job as a product manager, but when Benioff saw his Oracle background in sales, he wanted him in account development. “My instinct was, don’t argue with this guy. Just roll with it,” Tzuo relates.

Early prototype of Salesforce.com. Photo: Salesforce

As Tzuo pointed out, in a startup with a handful of people, titles mattered little anyway. “Who cares what your role was. All of us had that attitude. You were a coder or a non-coder,” he said. The coders were stashed upstairs with a view of San Francisco Bay and strict orders from Benioff to be left alone. The remaining employees were downstairs working the phones to get customers.

“Who cares what your role was. All of us had that attitude. You were a coder or a non-coder.” Tien Tzuo, early employe

The first Wayback Machine snapshot of Salesforce.com is from November 15, 1999, It wasn’t fancy, but it showed all of the functionality you would expect to find in a CRM tool: Accounts, Contacts, Opportunities, Forecasts and Reports with each category represented by a tab.

The site officially launched on February 7, 2000 with 200 customers, and they were off and running.

Prove it all night

Every successful startup needs visionary behind it, pushing it, and for Salesforce that person was Marc Benioff. When he came up with the concept for the company, the dot-com boom was in high gear. In a year or two, much of it would come crashing down, but in 1999 anything was possible and Benioff was bold and brash and brimming with ideas.

But even good ideas don’t always pan out for so many reasons, as many a failed startup founder knows only too well. For a startup to succeed it needs a long-term vision of what it will become, and Benioff was the visionary, the front man, the champion, the chief marketer. He was all of that — and he wouldn’t take no for an answer.

Paul Greenberg, managing principal at The 56 Group and author of multiple books about the CRM industry including CRM at the Speed of Light (the first edition of which was published in 2001), was an early user of Salesforce, and says that he was not impressed with the product at first, complaining about the early export functionality in an article.

A Salesforce competitor at the time, Salesnet, got wind of Greenberg’s post, and put his complaint on the company website. Benioff saw it, and fired off an email to Greenberg: “I see you’re a skeptic. I love convincing skeptics. Can I convince you?” Greenberg said that being a New Yorker, he wrote back with a one-line response. “Take your best shot.” Twenty years later, Greenberg says that Benioff did take his best shot and he did end up convincing him.

“I see you’re a skeptic. I love convincing skeptics. Can I convince you?” Early Marc Benioff email

Laurie McCabe, who is co-founder and partner at SMB Group, was working for a consulting firm in Boston in 1999 when Benioff came by to pitch Salesforce to her team. She says she was immediately impressed with him, but also with the notion of putting enterprise software online, effectively putting it within reach of many more companies.

“He was the ringmaster I believe for SaaS or cloud or whatever we want to call it today. And that doesn’t mean some of these other guys didn’t also have a great vision, but he was the guy beating the drum louder. And I just really felt that in addition to the fact that he was an exceptional storyteller, marketeer and everything else, he really had the right idea that software on prem was not in reach of most businesses,” she said.

Take it to the limit

One of the ways that Benioff put the company in the public eye in the days before social media was guerrilla marketing techniques. He came up with the idea of “no software” as a way to describe software on the internet. He sent some of his early employees to “protest” at the Siebel Conference, taking place at the Moscone Center in February, 2000. He was disrupting one of his major competitors, and it created enough of a stir to attract a television news crew and garner a mention in the Wall Street Journal. All of this was valuable publicity for a company that was still in its early stages.

Photos: Salesforce

Brent Leary, who had left his job as an industry consultant in 2003 to open his current firm, CRM Essentials, said this ability to push the product was a real differentiator for the company and certainly got his attention. “I had heard about Salesnet and these other ones, but these folks not only had a really good product, they were already promoting it. They seemed to be ahead of the game in terms of evangelizing the whole “no software” thing. And that was part of the draw too,” Leary said of his first experiences working with Salesforce.

Leary added, “My first Dreamforce was in 2004, and I remember it particularly because it was actually held on Election Day 2004 and they had a George W. Bush look-alike come and help open the conference, and some people actually thought it was him.”

Greenberg said that the “no software” campaign was brilliant because it brought this idea of delivering software online to a human level. “When Marc said, ‘no software’ he knew there was software, but the thing with him is, that he’s so good at communicating a vision to people.” Software in the 90s and early 2000s was delivered mostly in boxes on CDs (or 3.5 inch floppies), so saying no software was creating a picture that you didn’t have to touch the software. You just signed up and used it. Greenberg said that campaign helped people understand online software at a time when it wasn’t a common delivery method.

Culture club

One of the big differentiators for Salesforce as a company was the culture it built from Day One. Benioff had a vision of responsible capitalism and included their charitable 1-1-1 model in its earliest planning documents. The idea was to give one percent of Salesforce’s equity, one percent of its product and one percent of its employees’ time to the community. As Benioff once joked, they didn’t have a product and weren’t making any money when they made the pledge, but they have stuck to it and many other companies have used the model Salesforce built.

Image: Salesforce

Bruce Cleveland, a partner at Wildcat Ventures, who has written a book with Geoffrey Moore of Crossing the Chasm fame called Traversing the Traction Gap, says that it is essential for a startup to establish a culture early on, just as Benioff did. “A CEO has to say, these are the standards by which we’re going to run this company. These are the things that we value. This is how we’re going to operate and hold ourselves accountable to each other,” Cleveland said. Benioff did that.

Another element of this was building trust with customers, a theme that Benioff continues to harp on to this day. As Harris pointed out, people still didn’t trust the internet completely in 1999, so the company had to overcome objections to entering a credit card online. Even more than that though, they had to get companies to agree to share their precious customer data with them on the internet.

“We had to not only think about scale, we had to think about how do we get the trust of our customers, to say that we will protect your information as well or better than you can,” Harris explained.

Growing up

The company was able to overcome those objections, of course, and more. Todd McKinnon, who is currently co-founder and CEO at Okta, joined Salesforce as VP of Engineering in 2006 as the company began to ramp up becoming a $100 million company, and he says that there were some growing pains in that time period.

Salesforce revenue growth across the years from 2006-present. Chart: Macro Trends

When he arrived, they were running on three mid-tier Sun servers in a hosted co-location facility. McKinnon said that it was not high-end by today’s standards. “There was probably less RAM than what’s in your MacBook Pro today,” he joked.

When he came on board, the company still had only 13 engineers and the actual infrastructure requirements were still very low. While that would change during his six year tenure, it was working fine when he got there. Within five years, he said, that changed dramatically as they were operating their own data centers and running clusters of Dell X86 servers — but that was down the road.

Before they did that, they went back to Sun one more time and bought four of the biggest boxes they sold at the time and proceeded to transfer all of the data. The problem was that the Oracle database wasn’t working well, so as McKinnon tells it, they got on the phone with Larry Ellison from Oracle, who upon hearing about the setup, asked them straight out why they were doing that? The way they had it set up simply didn’t work.

They were able to resolve it all and move on, but it’s the kind of crisis that today’s startups probably wouldn’t have to deal with because they would be running their company on a cloud infrastructure service, not their own hardware.

Window shopping

About this same time, Salesforce began a strategy to grow through acquisitions. In 2006, it acquired the first of 55 companies when it bought a small wireless technology company called Sendia for $15 million. As early as 2006, the year before the first iPhone, the company was already thinking about mobile.

Last year it made its 52nd acquisition, and the most costly so far, when it purchased Mulesoft for $6.5 billion, giving it a piece of software that could help Salesforce customers bridge the on-prem and cloud worlds. As Greenberg pointed out, this brought a massive change in messaging for the company.

“With the Salesforce acquisition of MuleSoft, it allows them pretty much to complete the cycle between back and front office and between on-prem and the cloud. And you notice, all of a sudden, they’re not saying ‘no software.’ They’re not attacking on-premise. You know, all of this stuff has gone by the wayside,” Greenberg said.

No company is going to be completely consistent as it grows and priorities shift,  but if you are a startup looking for a blueprint on how to grow a successful company, Salesforce would be a pretty good company to model yourself after. Twenty years into this, they are still growing and still going strong and they remain a powerful voice for responsible capitalism, making lots of money, while also giving back to the communities where they operate.

One other lesson that you could learn is that you’re never done. Twenty years is a big milestone, but it’s just one more step in the long arc of a successful organization.

Let’s block ads! (Why?)

Link to original source

How open source software took over the world

It was just 5 years ago that there was an ample dose of skepticism from investors about the viability of open source as a business model. The common thesis was that Redhat was a snowflake and that no other open source company would be significant in the software universe.

Fast forward to today and we’ve witnessed the growing excitement in the space: Redhat is being acquired by IBM for $32 billion (3x times its market cap from 2014); Mulesoft was acquired after going public for $6.5 billion; MongoDB is now worth north of $4 billion; Elastic’s IPO now values the company at $6 billion; and, through the merger of Cloudera and Hortonworks, a new company with a market cap north of $4 billion will emerge. In addition, there’s a growing cohort of impressive OSS companies working their way through the growth stages of their evolution: Confluent, HashiCorp, DataBricks, Kong, Cockroach Labs and many others. Given the relative multiples that Wall Street and private investors are assigning to these open source companies, it seems pretty clear that something special is happening.

So, why did this movement that once represented the bleeding edge of software become the hot place to be? There are a number of fundamental changes that have advanced open source businesses and their prospects in the market.

David Paul Morris/Bloomberg via Getty Images

From Open Source to Open Core to SaaS

The original open source projects were not really businesses, they were revolutions against the unfair profits that closed-source software companies were reaping. Microsoft, Oracle, SAP and others were extracting monopoly-like “rents” for software, which the top developers of the time didn’t believe was world class. So, beginning with the most broadly used components of software – operating systems and databases – progressive developers collaborated, often asynchronously, to author great pieces of software. Everyone could not only see the software in the open, but through a loosely-knit governance model, they added, improved and enhanced it.

The software was originally created by and for developers, which meant that at first it wasn’t the most user-friendly. But it was performant, robust and flexible. These merits gradually percolated across the software world and, over a decade, Linux became the second most popular OS for servers (next to Windows); MySQL mirrored that feat by eating away at Oracle’s dominance.

The first entrepreneurial ventures attempted to capitalize on this adoption by offering “enterprise-grade” support subscriptions for these software distributions. Redhat emerged the winner in the Linux race and MySQL (thecompany) for databases. These businesses had some obvious limitations – it was harder to monetize software with just support services, but the market size for OS’s and databases was so large that, in spite of more challenged business models, sizeable companies could be built.

The successful adoption of Linux and MySQL laid the foundation for the second generation of Open Source companies – the poster children of this generation were Cloudera and Hortonworks. These open source projects and businesses were fundamentally different from the first generation on two dimensions. First, the software was principally developed within an existing company and not by a broad, unaffiliated community (in the case of Hadoop, the software took shape within Yahoo!) . Second, these businesses were based on the model that only parts of software in the project were licensed for free, so they could charge customers for use of some of the software under a commercial license. The commercial aspects were specifically built for enterprise production use and thus easier to monetize. These companies, therefore, had the ability to capture more revenue even if the market for their product didn’t have quite as much appeal as operating systems and databases.

However, there were downsides to this second generation model of open source business. The first was that no company singularly held ‘moral authority’ over the software – and therefore the contenders competed for profits by offering increasing parts of their software for free. Second, these companies often balkanized the evolution of the software in an attempt to differentiate themselves. To make matters more difficult, these businesses were not built with a cloud service in mind. Therefore, cloud providers were able to use the open source software to create SaaS businesses of the same software base. Amazon’s EMR is a great example of this.

The latest evolution came when entrepreneurial developers grasped the business model challenges existent in the first two generations – Gen 1 and Gen 2 – of open source companies, and evolved the projects with two important elements. The first is that the open source software is now developed largely within the confines of businesses. Often, more than 90% of the lines of code in these projects are written by the employees of the company that commercialized the software. Second, these businesses offer their own software as a cloud service from very early on. In a sense, these are Open Core / Cloud service hybrid businesses with multiple pathways to monetize their product. By offering the products as SaaS, these businesses can interweave open source software with commercial software so customers no longer have to worry about which license they should be taking. Companies like Elastic, Mongo, and Confluent with services like Elastic Cloud, Confluent Cloud, and MongoDB Atlas are examples of this Gen 3.  The implications of this evolution are that open source software companies now have the opportunity to become the dominant business model for software infrastructure.

The Role of the Community

While the products of these Gen 3 companies are definitely more tightly controlled by the host companies, the open source community still plays a pivotal role in the creation and development of the open source projects. For one, the community still discovers the most innovative and relevant projects. They star the projects on Github, download the software in order to try it, and evangelize what they perceive to be the better project so that others can benefit from great software. Much like how a good blog post or a tweet spreads virally, great open source software leverages network effects. It is the community that is the source of promotion for that virality.

The community also ends up effectively being the “product manager” for these projects. It asks for enhancements and improvements; it points out the shortcomings of the software. The feature requests are not in a product requirements document, but on Github, comments threads and Hacker News. And, if an open source project diligently responds to the community, it will shape itself to the features and capabilities that developers want.

The community also acts as the QA department for open source software. It will identify bugs and shortcomings in the software; test 0.x versions diligently; and give the companies feedback on what is working or what is not.  The community will also reward great software with positive feedback, which will encourage broader use.

What has changed though, is that the community is not as involved as it used to be in the actual coding of the software projects. While that is a drawback relative to Gen 1 and Gen 2 companies, it is also one of the inevitable realities of the evolving business model.

Linus Torvalds was the designer of the open-source operating system Linux.

Rise of the Developer

It is also important to realize the increasing importance of the developer for these open source projects. The traditional go-to-market model of closed source software targeted IT as the purchasing center of software. While IT still plays a role, the real customers of open source are the developers who often discover the software, and then download and integrate it into the prototype versions of the projects that they are working on. Once “infected”by open source software, these projects work their way through the development cycles of organizations from design, to prototyping, to development, to integration and testing, to staging, and finally to production. By the time the open source software gets to production it is rarely, if ever, displaced. Fundamentally, the software is never “sold”; it is adopted by the developers who appreciate the software more because they can see it and use it themselves rather than being subject to it based on executive decisions.

In other words, open source software permeates itself through the true experts, and makes the selection process much more grassroots than it has ever been historically. The developers basically vote with their feet. This is in stark contrast to how software has traditionally been sold.

Virtues of the Open Source Business Model

The resulting business model of an open source company looks quite different than a traditional software business. First of all, the revenue line is different. Side-by-side, a closed source software company will generally be able to charge more per unit than an open source company. Even today, customers do have some level of resistance to paying a high price per unit for software that is theoretically “free.” But, even though open source software is lower cost per unit, it makes up the total market size by leveraging the elasticity in the market. When something is cheaper, more people buy it. That’s why open source companies have such massive and rapid adoption when they achieve product-market fit.

Another great advantage of open source companies is their far more efficient and viral go-to-market motion. The first and most obvious benefit is that a user is already a “customer” before she even pays for it. Because so much of the initial adoption of open source software comes from developers organically downloading and using the software, the companies themselves can often bypass both the marketing pitch and the proof-of-concept stage of the sales cycle. The sales pitch is more along the lines of, “you already use 500 instances of our software in your environment, wouldn’t you like to upgrade to the enterprise edition and get these additional features?”  This translates to much shorter sales cycles, the need for far fewer sales engineers per account executive, and much quicker payback periods of the cost of selling. In fact, in an ideal situation, open source companies can operate with favorable Account Executives to Systems Engineer ratios and can go from sales qualified lead (SQL) to closed sales within one quarter.

This virality allows for open source software businesses to be far more efficient than traditional software businesses from a cash consumption basis. Some of the best open source companies have been able to grow their business at triple-digit growth rates well into their life while  maintaining moderate of burn rates of cash. This is hard to imagine in a traditional software company. Needless to say, less cash consumption equals less dilution for the founders.

Photo courtesy of Getty Images

Open Source to Freemium

One last aspect of the changing open source business that is worth elaborating on is the gradual movement from true open source to community-assisted freemium. As mentioned above, the early open source projects leveraged the community as key contributors to the software base. In addition, even for slight elements of commercially-licensed software, there was significant pushback from the community. These days the community and the customer base are much more knowledgeable about the open source business model, and there is an appreciation for the fact that open source companies deserve to have a “paywall” so that they can continue to build and innovate.

In fact, from a customer perspective the two value propositions of open source software are that you a) read the code; b) treat it as freemium. The notion of freemium is that you can basically use it for free until it’s deployed in production or in some degree of scale. Companies like Elastic and Cockroach Labs have gone as far as actually open sourcing all their software but applying a commercial license to parts of the software base. The rationale being that real enterprise customers would pay whether the software is open or closed, and they are more incentivized to use commercial software if they can actually read the code. Indeed, there is a risk that someone could read the code, modify it slightly, and fork the distribution. But in developed economies – where much of the rents exist anyway, it’s unlikely that enterprise companies will elect the copycat as a supplier.

A key enabler to this movement has been the more modern software licenses that companies have either originally embraced or migrated to over time. Mongo’s new license, as well as those of Elastic and Cockroach are good examples of these. Unlike the Apache incubated license – which was often the starting point for open source projects a decade ago, these licenses are far more business-friendly and most model open source businesses are adopting them.

The Future

When we originally penned this article on open source four years ago, we aspirationally hoped that we would see the birth of iconic open source companies. At a time where there was only one model – Redhat – we believed that there would be many more. Today, we see a healthy cohort of open source businesses, which is quite exciting. I believe we are just scratching the surface of the kind of iconic companies that we will see emerge from the open source gene pool. From one perspective, these companies valued in the billions are a testament to the power of the model. What is clear is that open source is no longer a fringe approach to software. When top companies around the world are polled, few of them intend to have their core software systems be anything but open source. And if the Fortune 5000 migrate their spend on closed source software to open source, we will see the emergence of a whole new landscape of software companies, with the leaders of this new cohort valued in the tens of billions of dollars.

Clearly, that day is not tomorrow. These open source companies will need to grow and mature and develop their products and organization in the coming decade. But the trend is undeniable and here at Index we’re honored to have been here for the early days of this journey.

Let’s block ads! (Why?)

Link to original source

Putting the band back together, ExactTarget execs reunite to launch MetaCX

Scott McCorkle has spent most of his professional career thinking about business to business software and how to improve it for a company’s customers.

The former President of ExactTarget and later chief executive of Salesforce Marketing Cloud has made billions of dollars building products to help support customer service and now he’s back at it again with his latest venture MetaCX.

Alongside Jake Miller, the former chief engineering lead at Salesforce Marketing Cloud and chief technology officer at ExactTarget, and David Duke, the chief customer officer and another ExactTarget alumnus, McCorkle has raised $14 million to build a white-labeled service that offers a toolkit for monitoring, managing and supporting customers as they use new software tools.

If customers are doing the things i want them to be doing through my product. What is it that they want to achieve and why did they buy my product.

“MetaCX sits above any digital product,” McCorkle says. And its software monitors and manages the full spectrum of the customer relationship with that product. “It is API embeddable and we have a full user experience layer.”

For the company’s customers, MetaCX provides a dashboard that includes outcomes, the collaboration, metrics tracked as part of the relationship and all the metrics around that are part of that engagement layer,” says McCorkle.

The first offerings will be launching in the beginning of 2019, but the company has dozens of customers already using its pilot, McCorkle said.

The Indianapolis -based company is one of the latest spinouts from High Alpha Studio, an accelerator and venture capital studio formed by Scott Dorsey, the former chief executive officer of ExactTarget. As one of a crop of venture investment firms and studios cropping up in the Midwest, High Alpha is something of a bellwether for the viability of the venture model in emerging ecosystems. And, from that respect, the success of the MetaCX round speaks volumes. Especially since the round was led by the Los Angeles-based venture firm Upfront Ventures.

“Our founding team includes world-class engineers, designers and architects who have been building billion-dollar SaaS products for two decades,” said McCorkle, in a statement. “We understand that enterprises often struggle to achieve the business outcomes they expect from SaaS, and the renewal process for SaaS suppliers is often an ambiguous guessing game. Our industry is shifting from a subscription economy to a performance economy, where suppliers and buyers of digital products need to transparently collaborate to achieve outcomes.”

As a result of the investment, Upfront partner Kobie Fuller will be taking a seat on the MetaCX board of directors alongside McCorkle and Dorsey.

“The MetaCX team is building a truly disruptive platform that will inject data-driven transparency, commitment and accountability against promised outcomes between SaaS buyers and vendors,” said Fuller, in a statement. “Having been on the journey with much of this team while shaping the martech industry with ExactTarget, I’m incredibly excited to partner again in building another category-defining business with Scott and his team in Indianapolis.”

Let’s block ads! (Why?)

Link to original source

The SaaS VC gap: China & other markets trail the US

Chinese startups rule the roost when it comes to total reported venture dollars raised so far in 2018. That is, mostly. In one key category at least — software-as-a-service, better known as SaaS — they do not.

Ant Financial raised the largest-ever VC round in June, a mind-boggling $14 billion in Series C funding. And nearly a dozen privately held Chinese companies, including SenseTimeDu Xiaoman FinancialJD Finance and ELEME, raised $1 billion (yes, with a “b”) or more in single venture rounds thus far in 2018.

But if there’s one thing to note from that shortlist of 2018’s largest China venture rounds, it’s this: almost all of them involve consumer apps and services. Despite being one of the largest economies in the world and currently holding the top spot in the national venture dollar ranks, China doesn’t seem to have too much in the way of enterprise-focused software funding.

But why trust your gut when the trend is borne out in the numbers? In the chart below, we show the top five global markets for SaaS investment (plus the rest of the world). We compare each market’s share of SaaS-earmarked funding against their share of total venture dollars raised in 2018 so far.

As of mid-October (when we pulled the data for the above chart), Chinese companies accounted for about 39.3 percent of venture funding raised in 2018. Compare that to 38.4 percent for U.S.-based companies, overall. In this respect, the venture markets in the U.S. and China are running neck-and-neck.

Yet for SaaS funding, the China-U.S. gap is about as wide as the Pacific Ocean. The U.S. — top ranked by this measure — accounted for approximately 70.1 percent of known SaaS startup funding. China, by contrast, accounted for just 11.7 percent. No even matchup here. It’s not even close.

This asymmetry goes beyond just aggregate dollar figures. The contrast is starker when we use a slightly more exotic measure for the market.

One of our favorite (if somewhat arbitrary) metrics at Crunchbase News is the count of supergiant venture rounds. These VC deals weigh in at $100 million or more, and they’re reshaping both sides of the venture market for founders and funders alike.

Whereas the United States played host to at least 15 supergiant SaaS VC rounds so far this year, just four rounds raised by three different Chinese SaaS companies crossed the nine-figure mark:

Keep in mind that, in general, U.S. and Chinese markets are fairly even in their output of supergiant venture rounds. However, that’s not the case when we look specifically at SaaS rounds, where the counts and dollar volumes involved are so different.

These disparities suggest a structural difference, not just between the U.S. and Chinese markets, but between the U.S. and the rest of the world when it comes to building and backing SaaS businesses.

At this point it’s unclear, apart from funding metrics, what differentiates the U.S. SaaS market from the rest of the world’s. What conditions exist in this market that don’t exist elsewhere? And are those conditions replicable in a local market with a still-nascent SaaS ecosystem? These are questions meriting a follow-up. Even though its cause might be unclear, for now, it’s nonetheless important to mind the gap. 🚇

Let’s block ads! (Why?)

Link to original source