VC firm Oxx says SaaS startups should avoid high-risk growth models

Oxx, a European venture capital firm co-founded by Richard Anton and Mikael Johnsson, this month announced the closing of its debut fund of $133 million to back “Europe’s most promising SaaS companies” at Series A and beyond.

Launched in 2017 and headquartered in London and Stockholm, Oxx pitches itself as one of only a few European funds focused solely on SaaS, and says it will invest broadly across software applications and infrastructure, highlighting five key themes: “data convergence & refinery,” “future of work,” “financial services infrastructure,” “user empowerment” and “sustainable business.”

However, its standout USP is that the firm says it wants to be a more patient form of capital than investors who have a rigid Silicon Valley SaaS mindset, which, it says, often places growth ahead of building long-lasting businesses.

I caught up with Oxx’s co-founders to dig deeper into their thinking, both with regards to the firm’s remit and investment thesis, and to learn more about the pair’s criticism of the prevailing venture capital model they say often pushes SaaS companies to prioritize “grow at all costs.”

TechCrunch: Oxx is described as a B2B software investor investing in SaaS companies across Europe from Series A and beyond. Can you be more specific regarding the size of check you write and the types of companies, geographies, technologies and business models you are focusing on?

Richard Anton: We will lead funding rounds anywhere in the range $5-20 million in SaaS companies. Some themes we’re especially excited about include data convergence and the refining and usage of data (think applications of machine learning, for example), the future of work, financial services infrastructure, end-user empowerment and sustainable business.

To measure sales efficiency, SaaS startups should use the 4×2

Once you’ve found product/market fit, scaling a SaaS business is all about honing go-to-market efficiency.

Many extremely helpful metrics and analytics have been developed to provide instrumentation for this journey: LTV (lifetime value of a customer), CAC (customer acquisition cost), Magic Number and SaaS Quick Ratio are all very valuable tools. But the challenge in using derived metrics such as these is that there are often many assumptions, simplifications and sampling choices that need to go into these calculations, thus leaving the door open to skewed results.

For example, when your company has only been selling for a year or two, it is extremely hard to know your true lifetime customer value. For starters, how do you know the right length of a “lifetime?”

Taking one divided by your annual dollar churn rate is quite imperfect, especially if all or most of your customers have not yet reached their first renewal decision. How much account expansion is reasonable to assume if you only have limited evidence?

LTV is most helpful if based on gross margin, not revenue, but gross margins are often skewed initially. When there are only a few customers to service, cost of goods sold (COGS) can appear artificially low because the true costs to serve have not yet been tracked as distinct cost centers as most of your team members wear multiple hats and pitch in ad hoc.

Likewise, metrics derived from sales and marketing costs, such as CAC and Magic Number, can also require many subjective assumptions. When it’s just founders selling, how much of their time and overhead do you put into sales costs? Did you include all sales-related travel, event marketing and PR costs? I can’t tell you the number of times entrepreneurs have touted having a near-zero CAC when they are just starting out and have only handfuls of customers — which were mostly sold by the founder or are “friendly” relationships.

Even if you think you have nearly zero CAC today, you should expect dramatically rising sales costs once professional sellers, marketers, managers, and programs are put in place as you scale.

One alternative to using derived metrics is to examine raw data, which is less prone to assumptions and subjectivity. The problem is how to do this efficiently and without losing the forest for the trees. The best tool I have encountered for measuring sales efficiency is called the 4×2 (that’s “four by two”) which I credit to Steve Walske, one of the master strategists of software sales, and the former CEO of PTC, a company renowned for its sales effectiveness and sales culture. [Here’s a podcast I did with Steve on How to Build a Sales Team.]

The 4×2 is a color-coded chart where each row is an individual seller on your team and the columns are their quarterly performance shown as dollars sold. [See a 4×2 chart example below].

Sales are usually measured as net new ARR, which includes new accounts and existing account expansions net of contraction, but you can also use new TCV (total contract value), depending on which number your team most focuses. In addition to sales dollars, the percentage of quarterly quota attainment is shown. The name 4×2 comes from the time frame shown: trailing four quarters, the current quarter, and the next quarter.

Color-coding the cells turns this tool from a dense table of numbers into a powerful data visualization. Thresholds for the heatmap can be determined according to your own needs and culture. For example, green can be 80% of quota attainment or above, yellow can be 60% to 79% of quota, and red can be anything below 60%.

Examining individual seller performance in every board meeting or deck is a terrific way to quickly answer many important questions, especially early on as you try to figure out your true position on the Sales Learning Curve. Publishing such leaderboards for your Board to see also tends to motivate your sales people, who are usually highly competitive and appreciate public recognition for a job well done, and likewise loathe to fall short of their targets in a public setting.

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A sample 4×2 chart.

Some questions the 4×2 can answer:

Overall performance and quota targets

How are you doing against your sales plan? Lots of red is obviously bad, while lots of green is good. But all green may mean that quotas are being set too low. Raising quotas even by a small increment for each seller quickly compounds to yield big difference as you scale, so having evidence to help you adjust your targets can be powerful. A reasonable assumption would be annual quota for a given rep set at 4 to 5 times their on-target earnings potential.

Samsung ramps up its B2B partner and developer efforts

Chances are you mostly think of Samsung as a consumer-focused electronics company, but it actually has a very sizable B2B business as well, which serves over 15,000 large enterprises and hundreds of thousands of SMB entrepreneurs via its partners. At its developer conference this week, it’s putting the spotlight squarely on this side of its business — with a related hardware launch as well. The focus of today’s news, however, is on Knox, Samsung’s mobile security platform and Project AppStack, which will likely get a different name soon, and which provides B2B customers with a new mechanism to deliver SaaS tools and native apps to their employees’ devices, as well as new tools for developers that make these services more discoverable.

At least in the U.S., Samsung hasn’t really marketed its B2B business all that much. With this event, the company is clearly thinking to change that.

At its core, Samsung is, of course, a hardware company, and as Taher Behbehani, the head of its U.S. mobile B2B division, told me, Samsung’s tablet sales actually doubled in the last year and most of these were for industrial deployments and business-specific solutions. To better serve this market, the company today announced that it is bringing the rugged Tab Active Pro to the U.S. market. Previously, it was only available in Europe.

The Active Pro, with its 10.1″ display, supports Samsung’s S Pen, as well as Dex for using it on the desktop. It’s got all of the dust and water resistance you would expect from a rugged device, is rated to easily support drops from about four feet high, and promises up to 15 hours of battery life. It also features LTE connectivity and has an NFC reader on the back to allow you to badge into a secure application or take contactless payments (which are quite popular in most of the world but are only very slowly becoming a thing in the U.S.), as well a programmable button to allow business users and frontline workers to open up any application they select (like a barcode scanner).

“The traditional rugged devices out there are relatively expensive, relatively heavy to carry around for a full shift,” Samsung’s Chris Briglin told me. “Samsung is growing that market by serving users that traditionally haven’t been able to afford rugged devices or have had to share them between up to four co-workers.”

Today’s event is less about hardware than software and partnerships, though. At the core of the announcements is the new Knox Partner Program, a new way for partners to create and sell applications on Samsung devices. “We work with about 100,000 developers,” said Behbehani. “Some of these are developers are inside companies. Some are outside independent developers and ISVs. And what we hear from these developer communities is when they have a solution or an app, how do I get that to a customer? How do I distribute it more effectively?”

This new partner program is Samsung’s solution for that. It’s a three-tier partner program that’s an evolution of the existing Samsung Enterprise Alliance program. At the most basic level, partners get access to support and marketing assets. At all tiers, partners can also get Knox validation for their applications to highlight that they properly implement all of the Knox APIs.

The free Bronze tier includes access to Knox SDKs and APIs, as well as licensing keys. At the Silver level, partners will get support in their region, while Gold-level members get access to the Samsung Solutions Catalog, as well as the ability to be included in the internal catalog used by Samsung sales teams globally. “This is to enable Samsung teams to find the right solutions to meet customer needs, and promote these solutions to its customers,” the company writes in today’s announcement. Gold-level partners also get access to test devices.

The other new service that will enable developers to reach more enterprises and SMBs is Project Appstack.

“When a new customer buys a Samsung device, no matter if it’s an SMB or an enterprise, depending on the information they provide to us, they get to search for and they get to select a number of different applications specifically designed to help them in their own vertical and for the size of the business,” explained Behbehani. “And once the phone is activated, these apps are downloaded through the ISV or the SaaS player through the back-end delivery mechanism which we are developing.”

For large enterprises, Samsung also runs an algorithm that looks at the size of the business and the vertical it is in to recommend specific applications, too.

Samsung will run a series of hackathons over the course of the next few months to figure out exactly how developers and its customers want to use this service. “It’s a module. It’s a technology backend. It has different components to it,” said Behbehani. “We have a number of tools already in place we have to finetune others and we also, to be honest, want to make sure that we come up with a POC in the marketplace that accurately reflects the requirements and the creativity of what the demand is in the marketplace.”

The SaaS gold rush will become the ‘Hunger Games’

SaaS has been the motherlode of enterprise software investing for two decades now. Venture investors, entrepreneurs, and Wall Street have all learned to pile on, leading to a shared consensus that cloud investing is “a sure thing.” Nothing is more destructive to investors over the long term than a sure thing, so I began to wonder, “what could cause the wonderful economics of cloud investing to unravel?”

My conclusion is that while the cloud is obviously here to stay, the next five years in cloud investing will neither be the same nor as easy as the last 10. My reason for writing this post is not to be a party pooper, but to provide a context for startups to navigate this potentially harsher environment. This post identifies three different startup strategies, all of which can work even in the more competitive cloud economy that I envisage. More on that below.

Big picture, the summary points are as follows:

First, cloud company valuations are at all-time highs which cannot be justified by improved company operating performance but can explained by 20 years of consistent 30% growth in the cloud software market. This has given investors the comfort to “pay up.”

Second, within the next two to three years, there will be a “growth crunch” as many cloud markets saturate. At that point the Gold Rush will become the Hunger Games, as cloud companies large and small compete against each other for survival.

Third, there will be three winning strategies for a startup when this happens: fight, or compete head on in an existing cloud market; focus, or find those parts of the cloud market where there is still low competition and good growth; fly, which is to build a company based on more than just the move to the cloud.

Fourth, “beyond the cloud” means “assume the cloud” and build on top of that stack using newer technologies and a design approach where instead of the user working for the software, the software works for (or instead of) the user. At Scale, we think of this as building the Intelligent Connected World (ICW).

Let’s walk through the details.

How did we get here?

We got here because the cloud model works. It works as a computer architecture, and there is no clear replacement architecture on the horizon. It works for customers by aligning incentives with vendors to keep their software working. And it works – brilliantly – as a financial model. In a world of low growth and low interest rates, SaaS looks like a perpetual motion machine and the valuations show it. Today the median SaaS multiple is 8.5x run rate versus an all-time average of 5.6x. Higher growth companies trade at even loftier multiples of 20x and 30x.

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Are cloud companies performing better than ever?

The short answer is no. The four charts below show growth rate, profitability, Sales Efficiency and the Rule of 40 (a combination of growth and profitability) for the entire public SaaS universe from 2004 to today. Each chart also shows separately the median for three sub-periods within this time period: pre-crash (2004 to 2008), the crash period (2009 to 2011), and post-crash (2011 to today).

The story is the same in every case. Pre-crash operating performance was stellar in what was then a new uncrowded market. The crash was brutal on growth and forced companies to get profitable fast. But since 2011, growth rates, EBITDA, Sales Efficiency and Rule of 40 measures have all been roughly flat and provide no justification for almost a doubling of valuations in the last two years.

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So why are these companies trading so richly?

It’s all about the growth

Sometimes the answer is in plain sight. The big picture in all the above numbers is that public companies in this sector have been growing at 30% plus for 15 years now, since the Salesforce IPO in 2004. Growth has not gone up but, far more importantly, it has not gone down.

Why per-seat pricing needs to die in the age of AI

Pricing is the most important, least-discussed element of the software industry. In the past, founders could get away with giving pricing short shrift under the mantra, “the best product will ultimately win.” No more.

In the age of AI-enabled software, pricing and product are linked; pricing fundamentally impacts usage, which directly informs product quality. 

Therefore, pricing models that limit usage, like the predominant per-seat per month structure, limit quality. And thus limit companies.

For the first time in 20 years, there is a compelling argument to make for changing the way that SaaS is priced. For those selling AI-enabled software, it’s time to examine new pricing models. And since AI is currently the best-funded technology in the software industry — by far — pricing could soon be changing at a number of vendors.

Why per-seat pricing needs to die in the age of AI

Per-seat pricing makes AI-based products worse. Traditionally, the functionality of software hasn’t changed with usage. Features are there whether users take advantage of them or not — your CRM doesn’t sprout new bells and whistles when more employees log in; it’s static software. And since it’s priced per-user, a customer incurs more costs with every user for whom it’s licensed.

AI, on the other hand, is dynamic. It learns from every data point it’s fed, and users are its main source of information; usage of the product makes the product itself better. Why, then, should AI software vendors charge per user, when doing so inherently disincentivizes usage? Instead, they should design pricing models that maximize product usage, and therefore, product value.

Per-seat pricing hinders AI-based products from capturing value they create

AI-enabled software promises to make people and businesses far more efficient, transforming every aspect of the enterprise through personalization. Software tailored to the specific needs of the user has been able to command a significant premium relative to generic competitors; for example, Salesforce offers a horizontal CRM that must serve users from Fortune 100s to SMBs across every industry. Veeva, which provides a CRM optimized for the life sciences vertical, commands a subscription price many multiples higher, in large part because it has been tailored to the pharma user’s end needs.

AI-enabled software will be even more tailored to the individual context of each end-user, and thus, should command an even higher price. Relying on per-seat pricing gives buyers an easy point of comparison ($/seat is universalizable) and immediately puts the AI vendor on the defensive. Moving away from per-seat pricing allows the AI vendor to avoid apples-to-apples comparisons and sell their product on its own unique merits. There will be some buyer education required to move to a new model, but the winners in the AI era will use these discussions to better understand and serve their customers.

Per-seat pricing will ultimately cause AI vendors to cannibalize themselves

Probably the most important upsell lever software vendors have traditionally used is tying themselves to the growth of their customers. As their customers grow, the logic goes, so should the vendors’ contract (presumably because the vendor had some part in driving this growth). 

Tethering yourself to per-seat pricing will make contract expansion much harder.

However, effective AI-based software makes workers significantly more efficient. As such, seat counts should not need to grow linearly with company growth, as they have in the era of static software. Tethering yourself to per-seat pricing will make contract expansion much harder. Indeed, it could result in a world where the very success of the AI software will entail contract contraction.

How to price software in the age of AI

Here are some key ideas to keep top of mind when thinking about pricing AI software:

  • Start by using ROI analysis to figure out how much to charge

This is the same place to start as in static software land. (Check out my primer on this approach here.) Work with customers to quantify the value your software delivers across all dimensions. A good rule of thumb is that you should capture 10-30% of the value you create. In dynamic software land, that value may actually increase over time as the product is used more and the dataset improves. It’s best to calculate ROI after the product gets to initial scale deployment within a company (not at the beginning). It’s also worth recalculating after a year or two of use and potentially adjusting pricing. Tracking traditionally consumer usage metrics like DAU/MAU becomes absolutely critical in enterprise AI, as usage is arguably the core driver of ROI.

While ROI is a good way to determine how much to charge, do not use ROI as the mechanism for how to charge. Tying your pricing model directly to ROI created can cause lots of confusion and anxiety when it comes time to settle up at year-end. This can create issues with establishing causality and sets up an unnecessarily antagonistic dynamic with the customer. Instead, use ROI as a level-setting tool and other mechanisms to determine how to arrive at specific pricing.

Pan-European VC fund Target Global is opening an office in Barcelona

Hola Barcelona. Target Global, a pan-European VC firm with €700 million under management and a broad investment canvas spanning SaaS, marketplaces, fintech, insurtech and mobility, is opening an office in the Catalan capital.

Investor director, Lina Chong, will lead the expansion into Spain, having relocated to Barcelona from the fund’s Berlin headquarters. They’re setting up in a co-working space on Avenue Diagonal in the center of the city. 

Target Global backs early and growth stages startups, as well as doing some seed investing. The firms tells us it’s expecting to do between one and three deals per year out of the Barcelona office, envisaging the same mix of investments in terms of early and growth stage.

“We’ve been seeing decent deals in both stages. Definitely. Across Spain,” says Chong. “There is just more — by numbers — way more early stage seed than A. I think that’s just the maturity of the ecosystem here.”

Dialling up a local presence across Europe means Target Global can pitch founders on being able to connect talent and expertise across key regional startup hubs, while also plugging into a wider international network. (It also has offices in London, Tel Aviv and Moscow.)

From a VC perspective opening local offices is of course about deal flow. Being on the ground to take more meetings widens the pipe, increasing the chance of an early shot at the next high growth business.

That’s important because Europe’s startups have many more options for early stage funding than in years past, and founders are getting smarter about choosing their investors. Boots on the ground means more time for all important relationship building.

Target Global describes itself as something of a startup — it was founded in 2012 — which means it’s competing for deals with VCs that have more established brands and networks. Becoming a familiar face in the room looks like a solid strategy to growth hack its own network.

We are a global or a pan-European fund but for an entrepreneur here we want them to feel that we’re local; we understand the ecosystem; that we have deep rooted connections; that we’re committed; that we show up,” general partner Shmuel Chafets tells TechCrunch.

“It’s all a function of time and effort. Just being here and having breakfast with people, lunch with people and helping out even the people we don’t invest. You get more connected and then you start to see more deal flow.”

This is the second local office it’s opened in Europe this year, after adding a London base in April — making it a flattering pick for Barcelona. Plenty of other European hubs are being passed over in the city’s favor this time, be it Madrid, Lisbon, Paris or Stockholm. 

Chafets says the firm looked at five or six other cities but settled on Barcelona for now, though he won’t rule out opening more offices in future. “Never say never,” he quips. 

Having been a regular visitor to Barcelona for a number of years he talks enthusiastically about the creative energy motivating entrepreneurs — saying the city’s ecosystem reminds him of how Berlin felt a few years ago. “It looks like it’s just about to happen,” he reckons. 

“From what I’ve seen Barcelona is sort of strong in creative. It’s a very creative city. It’s always pretty strong in mobile, historically. It had more mobile successes… SaaS, particular smb SaaS, is pretty good here. I think it would be harder to find enterprise sales companies and companies building these very deep tech stuff right now. But definitely in the marketplace, smb SaaS space, mobile space you see great stuff here. 

“That ties into the creativity, because it’s a product driven environment — not a tech driven environment. I think Berlin is a very operationally driven environment, Tel Aviv is a very tech driven environment, this is a very product driven environment — which actually complements well our other hubs.”

“There’s some pent-up energy here,” agrees Chong, who says they’ve already come across a “surprising” amount of deal flow. “Again it’s very similar to Berlin where there’s a lot of willingness and there’s a lot of dreaming but there’s not a lot going on. So I think the younger people here they’re creating that.”

Target Global has been testing the water prior to formalizing its commitment to Barcelona, and has four local portfolio companies which it’s ploughed around €20M into over the past 12 months.

Its biggest regional investment to date is in business trip booking SaaS, TravelPerk. It’s also backed flatmate matching platform Badi; online doctor booking platform, Doc Planner (which relocated from Warsaw, Poland after merging with local startup Doctoralia); and medical chat app MediQuo.

From a wider perspective, Barcelona’s tech ecosystem has been gathering momentum for years, helped by the annual presence of the world’s biggest mobile tradeshow (MWC) — as well as more specific pull factors for startups such as a relatively low cost of living and an attractive Mediterranean location. 

“It’s a great place to live and you can’t ignore that,” says Chafets. “In Europe if you’re a team and you’re an international team there are very few places you can live.”

This combination means Barcelona is now home to a growing number of high growth startups, including Target Global’s portfolio firm TravelPerk — as well as the likes of on-demand delivery platform Glovo; and RedPoints, which sells a SaaS to brands for detecting and acting against the sale of fake goods online, to name two other notable examples.

Other local startups grabbing attention and investment in recent years include 21Buttons, Holded, Housfy, Typeform and Verse. While hyper local mobile marketplace startup Wallapop — which was on a growth tear in an earlier wave of ecoystem growth — remains the go-to classified app on every local’s phone (though it merged with a US rival back in 2015).

The city even has its own youthful scooter startup (Reby) which has refused to be put off by some tough regulations controlling rentals — and has recently been applying AI to try to make like a good citizen by automatically detect poor parking.  

Mobility is a major area of focus for Target Global — which last year announced a dedicated fund (with an initial raise of $100M) for startups working to disrupt transportation. Although, when it comes to stand-up e-scooters the firm is already invested in Berlin-based Circ so will presumably be looking to spend elsewhere on that front.

“Barcelona is the perfect city for scooters,” says Chafets. “Scooters can really change the way the city works. It’s also small and has relatively good public transportation from outwards in — but they need to be regulated. You need to really make sure that [they aren’t a misused nuisance].”

He notes that European regulators have been relatively quick to spot the risks of shared mobility, and close off the antisocial expansionist playbook that played out in some US cities during the first wave of scooter startups — when people trolled Bird by hanging scooters in trees (or, well, worse) — but he sees that as good news for building a sustainable future for alternative mobility. 

“It’s a great challenge and it will be a huge money maker — that’s where we want to be right, multiple trillion dollar businesses!”

Away from disruptive developments on the ground in Barcelona and the other local tech hubs that Target Global is intending to explore from its new base in Catalonia, it also views Spain as a low risk gateway to opportunities on the other side of the Atlantic. 

“There’s a decent local domestic market and there is a natural second market in South America,” says Chafets. “Actually in the US too — because Spanish is the second most commonly spoken language in America so when you start a company here you have that second market built in. Which is very important — you can scale it.”

“Latin America is a fascinating market right now, it’s a fascinating time,” he adds. “So in a way it’s a way for us to make a side bet on Latin America without going out of Europe and investing far.”

We’ll share a full interview with Chafets and Chong on Extra Crunch.

APIs are the next big SaaS wave

While the software revolution started out slowly, over the past few years it’s exploded and the fastest-growing segment to-date has been the shift towards software as a service or SaaS.

SaaS has dramatically lowered the intrinsic total cost of ownership for adopting software, solved scaling challenges and taken away the burden of issues with local hardware. In short, it has allowed a business to focus primarily on just that — its business — while simultaneously reducing the burden of IT operations.

Today, SaaS adoption is increasingly ubiquitous. According to IDG’s 2018 Cloud Computing Survey, 73% of organizations have at least one application or a portion of their computing infrastructure already in the cloud. While this software explosion has created a whole range of downstream impacts, it has also caused software developers to become more and more valuable.

The increasing value of developers has meant that, like traditional SaaS buyers before them, they also better intuit the value of their time and increasingly prefer businesses that can help alleviate the hassles of procurement, integration, management, and operations. Developer needs to address those hassles are specialized.

They are looking to deeply integrate products into their own applications and to do so, they need access to an Application Programming Interface, or API. Best practices for API onboarding include technical documentation, examples, and sandbox environments to test.

APIs tend to also offer metered billing upfront. For these and other reasons, APIs are a distinct subset of SaaS.

For fast-moving developers building on a global-scale, APIs are no longer a stop-gap to the future—they’re a critical part of their strategy. Why would you dedicate precious resources to recreating something in-house that’s done better elsewhere when you can instead focus your efforts on creating a differentiated product?

Thanks to this mindset shift, APIs are on track to create another SaaS-sized impact across all industries and at a much faster pace. By exposing often complex services as simplified code, API-first products are far more extensible, easier for customers to integrate into, and have the ability to foster a greater community around potential use cases.

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Graphics courtesy of Accel

Billion-dollar businesses building APIs

Whether you realize it or not, chances are that your favorite consumer and enterprise apps—Uber, Airbnb, PayPal, and countless more—have a number of third-party APIs and developer services running in the background. Just like most modern enterprises have invested in SaaS technologies for all the above reasons, many of today’s multi-billion dollar companies have built their businesses on the backs of these scalable developer services that let them abstract everything from SMS and email to payments, location-based data, search and more.

Simultaneously, the entrepreneurs behind these API-first companies like Twilio, Segment, Scale and many others are building sustainable, independent—and big—businesses.

Valued today at over $22 billion, Stripe is the biggest independent API-first company. Stripe took off because of its initial laser-focus on the developer experience setting up and taking payments. It was even initially known as /dev/payments!

Stripe spent extra time building the right, idiomatic SDKs for each language platform and beautiful documentation. But it wasn’t just those things, they rebuilt an entire business process around being API-first.

Companies using Stripe didn’t need to fill out a PDF and set up a separate merchant account before getting started. Once sign-up was complete, users could immediately test the API with a sandbox and integrate it directly into their application. Even pricing was different.

Stripe chose to simplify pricing dramatically by starting with a single, simple price for all cards and not breaking out cards by type even though the costs for AmEx cards versus Visa can differ. Stripe also did away with a monthly minimum fee that competitors had.

Many competitors used the monthly minimum to offset the high cost of support for new customers who weren’t necessarily processing payments yet. Stripe flipped that on its head. Developers integrate Stripe earlier than they integrated payments before, and while it costs Stripe a lot in setup and support costs, it pays off in brand and loyalty.

Checkr is another excellent example of an API-first company vastly simplifying a massive yet slow-moving industry. Very little had changed over the last few decades in how businesses ran background checks on their employees and contractors, involving manual paperwork and the help of 3rd party services that spent days verifying an individual.

Checkr’s API gives companies immediate access to a variety of disparate verification sources and allows these companies to plug Checkr into their existing on-boarding and HR workflows. It’s used today by more than 10,000 businesses including Uber, Instacart, Zenefits and more.

Like Checkr and Stripe, Plaid provides a similar value prop to applications in need of banking data and connections, abstracting away banking relationships and complexities brought upon by a lack of tech in a category dominated by hundred-year-old banks. Plaid has shown an incredible ramp these past three years, from closing a $12 million Series A in 2015 to reaching a valuation over $2.5 billion this year.

Today the company is fueling an entire generation of financial applications, all on the back of their well-built API.

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Graphics courtesy of Accel

Then and now

Accel’s first API investment was in Braintree, a mobile and web payment systems for e-commerce companies, in 2011. Braintree eventually sold to, and became an integral part of, PayPal as it spun out from eBay and grew to be worth more than $100 billion. Unsurprisingly, it was shortly thereafter that our team decided to it was time to go big on the category. By the end of 2014 we had led the Series As in Segment and Checkr and followed those investments with our first APX conference in 2015.

Plaid, Segment, Auth0, and Checkr had only raised Seed or Series A financings! And we are even more excited and bullish on the space. To convey just how much API-first businesses have grown in such a short period of time, we thought it would be useful perspective to share some metrics over the past five years, which we’ve broken out in the two visuals included above in this article.

While SaaS may have pioneered the idea that the best way to do business isn’t to actually build everything in-house, today we’re seeing APIs amplify this theme. At Accel, we firmly believe that APIs are the next big SaaS wave — having as much if not more impact as its predecessor thanks to developers at today’s fastest-growing startups and their preference for API-first products. We’ve actively continued to invest in the space (in companies like, Scale, mentioned above).

And much like how a robust ecosystem developed around SaaS, we believe that one will continue to develop around APIs. Given the amount of progress that has happened in just a few short years, Accel is hosting our second APX conference to once again bring together this remarkable community and continue to facilitate discussion and innovation.

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Graphics courtesy of Accel

Box CEO Aaron Levie is coming to TC Sessions: Enterprise

Box co-founder, chairman and CEO Aaron Levie took his company from a consumer-oriented online storage service to a publicly-traded enterprise powerhouse. Launched in 2005, Box today has over 41 million users and the vast majority of Fortune 500 companies use its service. Levie will join us at TC Sessions: Enterprise for a fireside chat about the past, present and future of Box, as well as the overall state of the SaaS and cloud space.

Levie, who also occasionally contributes to TechCrunch, was a bit of a serial entrepreneur before he even got to college. Once he got to the University of Southern California, the idea for Box was born. In hindsight, it was obviously the right idea at the right time, but its early iterations focused more on consumers than business users. Like so many other startups, though, the Box team quickly realized that in order to actually make money, selling to the enterprise was the most logical — and profitable — option.

Before going public, Box raised well over $500M from some of the most world’s most prestigious venture capital firms. Box’s market cap today is just under $2.5 billion, but more than four years after going public, the company like many Silicon Valley unicorns both private and public still regularly loses money. 

Early Bird Tickets are on sale today for just $249 – book here before prices go up by $100!

Polyrize raises $4M for its next-gen authorization platform

In enterprise security, there’s been a slow but steady move toward implementing zero trust security models and moving away from trusting anybody solely based on the fact that they have access to the company VPN, for example. That, to some degree, shifts the line of defense to the authentication service, which has to ensure that the users who try to log on are really who they say they are.

Tel Aviv-based Polyrize, which is coming out of stealth today, is tackling this problem by providing enterprises with a secure, proxyless authorization platform that gives enterprises the ability to better manage how its employees can access third-party SaaS services. The company also today announced that it has raised a $4 million seed round led by Glilot Capital Partners .

polyrize

“Today’s enterprise security teams fly blind post login,” said Kobi Samboursky, co-Founder & Managing Partner at Glilot Capital Partners. “They simply lack the tools to understand who has access to what, and why. As emphasis is moving toward cloud and Zero Trust, access becomes the last defense line. When we first met Nati and the team, we were immediately aligned with their vision and mission of securing authorization. We are thrilled to have the company join our portfolio and to play a role in its growth and success for years to come.”

The service continuously authorizes identities across SaaS and IaaS platforms ranging from Google’s G Suite and Office 365 to Box, Slack and GitHub .

Using its own proprietary engine, augmented by machine learning, the service constantly watches for unusual behavior. What’s maybe just as important, though, is that it also provides security teams with the ability to provide granular access privileges — and instantly revoke those of users who leave the company.

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.