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State of SMB Q1 2018 report

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Mark MacLeod
Mark MacLeod

This report summarizes all the venture, private equity + merger & acquisition transactions in the SMB software space in Q1 2018.

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THE STATE OF SMB SOFTWARE A look at Q1 2018 fundraising and exit trends among North American software companies that serve the SMB market Q1 2018
Private & Confidential | A g e n d a 01 Introduction 02 Methodology and Scope 03 Venture Capital (VC) deals 04 Private Equity (PE) deals 05 Mergers & Acquisitions (M & A) 06 Initial Public Offerings (IPOs) surepathcapital.com
Private & Confidential | Every year we publish our annual State of SMB Software Report, looking at fundraising and exit activity in the Small and Mid-Sized Business (SMB) software space in North America. This report has been well received by CEOs, CFOs, investors and buyers. So we thought we would keep the party going with quarterly updates. We track SMB software companies across three broad categories: Grow my Business (front office), Run my Business (middle office) and Track my Business (back office). For VCs, most activity was in front office. For PE firms, the middle office was most popular. While there are some pure-play companies that just serve small business, most companies serve small and mid- market customers. This mirrors our deal practice at SurePath where we work with software companies serving freelancers all the way up to mid-market enterprise. Similarly, despite the intense fragmentation in marketing technology, new fundings and exits remain strong. Marketing is an increasingly complex and technical challenge. Small business owners are getting more sophisticated in their online marketing needs. Q1 saw many deals and several bigger deals that what we saw in 2017. Hopefully, this is a sign of things to come. We hope you find this report useful and invite you to get in touch to discuss it with us. The SurePath team April, 2018 T h e S t a t e o f S M B S o f t w a r e surepathcapital.com
S H U B H A M D A T T A D A N I A L S H A I K H M A R K M A C L E O D F O U N D E R D I R E C T O R S E N I O R A N A L Y S T J O S H S C H E R M A N V I C E - P R E S I D E N T T h e S u r e P a t h T e a m The SurePath team has over 30 years of experience in operating, growing, investing, buying, and selling SMB software companies. surepathcapital.com
Q1 2018 SMB Software Deals
Q 1 ‘ 1 8 S M B S o f t w a r e D e a l L a n d s c a p e 1. Source: Pitchbook 2. Deal count excludes deals involving accelerators, incubators, crowdfunding and deals with undisclosed values Over $3.8B of capital was invested across 122 deals over the first quarter of 2018. The biggest deal was the acquisition of payment technology provider Cayan by TSYS. Both M & A and funding deal volumes were high. surepathcapital.com $17M $25M $27M$96M $151M $198M $240M $13M $367M$70M $62M $65M $1,225M $117M $300M $756M - $200M $400M $600M $800M $1,000M $1,200M $1,400M $1,600M $1,800M $2,000M January February March TotalCapitalInvested(inmillions,$USD) Capital Invested by Deal Type IPO Merger/Acquisition Corporate PE Growth/Expansion Later Stage VC Early Stage VC Angel/Seed 11 13 13 13 16 13 12 2 12 3 3 1 3 3 3 1 - 5 10 15 20 25 30 35 40 45 50 January February March DealCount Deal Count by Type
Q 1 ‘ 1 8 S M B V e n t u r e F u n d i n g 1. Source: Pitchbook 2. Deal count excludes deals involving accelerators, incubators, and crowdfunding and deals with undisclosed values 106 SMB software companies raised venture capital in Q1 of 2018. The bulk of the VC dollars invested in the sector went into accelerating 42 early stage and 26 growth stage companies. surepathcapital.com $23M $46M $445M $621M $65M 18 19 42 26 1 - 5 10 15 20 25 30 35 40 45 - $100M $200M $300M $400M $500M $600M $700M Angel Seed Round Early Stage VC Later Stage VC Corporate DealCount CapitalRaised(inmillions,$USD) Capital Raised by Venture Deal Type Capital Raised Deal Count
$125M KPCB $75M Generation Investment Management $65M CIBC Innovation Banking $62M Battery Ventures $53M Stripes Group $50M Accel $45M Undisclosed $40M FirstMark Capital $33M Menlo Venures $31M Top Tier Capital Partners Q 1 ‘ 1 8 ’ s T o p S M B S o f t w a r e R a i s e s Source: Pitchbook surepathcapital.com
V e n t u r e D e a l s b y C a t e g o r y SMB software companies raised ~ $1.2B across 106 deals in Q1 2018. Of those, companies that helped SMBs run their business attracted nearly 50% of the venture capital Outer ring represents total capital invested by category and inner ring represents total deal count by category Source: Pitchbook We track SMB software companies across three broad categories: • Grow my Business: marketing / front office • Run my Business: typically vertical apps to help operate (business management, ERP, etc). • Track my Business: Billing, accounting, etc. surepathcapital.com 53 32 21 $559M $406M $234M Run My Business Grow My Business Keep Track of My Business
Combined, companies in the Business management/ERP software and Marketing Tech categories attracted 56% of total venture capital funding in Q1 2018. However, all front, middle, and back office sectors saw deal activity. Source: Pitchbook V e n t u r e D e a l s b y C a t e g o r y ( c o n t . ) surepathcapital.com 38 25 12 12 9 2 3 4 1 $378M $298M $150M $123M $84M $67M $59M $40M $1M Business Management/ERP Marketing Tech Accounting & Invoicing HR Tech Payments Ad Tech Security/IT CRM E-Commerce
V e n t u r e D e a l s b y T a r g e t C u s t o m e r Over 85% of venture funding in Q1 2018 went to companies with a broad offering for both the small and medium segments of the SMB software space. Relatively few companies served either only the small or medium segments explicitly. This makes sense as it enables software vendors to reach a larger market. Source: Pitchbook surepathcapital.com 81 20 5 $1,034M $133M $33M Both Small Medium
V e r t i c a l - S p e c i f i c V e n t u r e D e a l s Q1 2018 saw nearly $256M in capital invested across 34 vertical-specific deals. Home services software companies attracted $66M (26% of total capital) across 3 deals. Vertical-specific companies tend to achieve higher valuation multiples than horizontal peers. Source: Pitchbook surepathcapital.com 3 6 3 4 1 4 2 1 1 2 3 1 1 1 1 $66M $61M $38M $28M $13M $12M $12M $7M $6M $4M$4M $2M $2M $2M $0.3M Home Services Real Estate Legal Restaurants Interior Design Construction Financial Services Media Insurance Logistics Health Breweries Manufacturing Fashion Cannabis
$2.5M Undiscosed $2M Visionary Private Equity Group ? GI Partners $65M Great Hill Partners $30M LLR Partners $26M Aldrich Capital Partners $6M Lyrical Partners Q 1 ‘ 1 8 ’ s T o p P r i v a t e E q u i t y S M B D e a l s Source: Pitchbook Togetherwork/GI Partners deal size was not disclosed + Growth Round; * Buyout + + + + + + surepathcapital.com *
P E D e a l s b y C a t e g o r y Source: Pitchbook Private equity investors deployed nearly $132M in capital into software companies serving the SMB space in Q1 2018. Deals in the Grow My Business and Track My Business categories attracted similar amounts of capital. surepathcapital.com 2 3 1 $67M$62M $3M Grow My Business Keep Track of My Business Run My Business
P E D e a l s b y C a t e g o r y ( c o n t . ) Marketing tech companies attracted the most private equity funding during the quarter, followed closely by payments companies. Source: Pitchbook surepathcapital.com 2 3 1 $67M$62M $3M Marketing Tech Payments Business Management/ERP
P E D e a l s b y T a r g e t C u s t o m e r Over 95% of private equity capital in Q1 2018 went to companies with a broad offering for both the small and medium segments of the SMB software space. Only one company served only the small segment explicitly and none served only the medium segment. This is similar to what we saw with VC funding. Source: Pitchbook surepathcapital.com 5 1 $126M $6M Small Both
$1.05B TSYS $175M GoDaddy $150M MINDBODY Online $146M Carbonite $49M Bynder $35M Houzz $32M Descartes Software $4M New Media Investments $0.2M Grom Social Q 1 ‘ 1 8 ’ s T o p S M B S o f t w a r e M & A D e a l s Source: Pitchbook surepathcapital.com
M & A D e a l s b y C a t e g o r y The cumulative deal size for all mergers and acquisitions in the SMB software space in in Q1 2018 was north of $1.6B. Source: Pitchbook surepathcapital.com 1 5 3 $1,050M $378M $213M Keep Track of My Business Grow My Business Run My Business
M & A D e a l s b y C a t e g o r y ( c o n t . ) 64% of M&A deal value was attributable to Total System Services’ $1.05B acquisition of payment technology and merchant services company, Cayan. 23% of M&A deals during the quarter were related to martech. Source: Pitchbook surepathcapital.com 1 5 1 2 $1,050M $378M $146M $67M Payments Marketing Tech Security/IT Business Management/ERP
M & A D e a l s b y T a r g e t C u s t o m e r Similar to the trend seen in the venture capital and private equity deal landscape, the vast majority of capital deployed in M&A deals went to companies with a broad offering for both the small and medium segments of the SMB software space. Source: Pitchbook surepathcapital.com 7 2 $1,603M $39M Both Small
NYSE: DBX IPO Date March 23, 2018 Amount Raised $756M at $8.23B valuation Age at IPO 11 years Revenue at IPO ~$1.1B (December 31, 2017) Headcount at IPO 1,800+ Pre-IPO Investors Sequoia Capital, Accel Partners, T. Row Price Q 1 ‘ 1 8 ’ s S M B S o f t w a r e I P O s Source: Pitchbook Dropbox is not a pure play SMB company, however, it does have a meaningful number of SMB customers. surepathcapital.com
Our Purpose
To help fund, grow, and exit SMB software companies SurePath maximizes your optionality: We ensure our clients are always in a position to raise more capital or exit profitably Preparing you to raise the right amount of capital from the right investors on the right terms Growth Funding Leveraging our deep operating expertise to ensure your business is on the right plan to create the most value Strategic Guidance Our unparalleled access to SMB buyers helps us position you for an intentional, profitable exit Exits S u r e P a t h : O u r P u r p o s e surepathcapital.com
We have been part of some the most successful SMB software companies We have deep relationships with SMB investors and buyers SurePath is committed to becoming the leading strategic financial advisor to the global SMB software market S u r e P a t h a n d S M B surepathcapital.com
served as advisor to R e c e n t S u r e P a t h D e a l s served as the exclusive strategic and financial advisor to on its sale to an operating group of surepathcapital.com
The Leading Financial Advisor in SMB Software EXPERIENCE Funding, growing & exiting tech companies PEDIGREE Alumni of Constant Contact, FreshBooks, Shopify… ACCESS To Tier 1 investors & strategic partners FOCUS The only advisor with a dedicated focus on SMB Software COMMITMENT Helping our clients and their investors succeed T h e S u r e P a t h D i f f e r e n c e surepathcapital.com
Shubham Datta Director shubham@surepathcapital.com 647.972.6834 Danial Shaikh Senior Analyst danial@surepathcapital.com 647.876.5453 Mark MacLeod Founder & President mark@surepathcapital.com 416.843.6004 Josh Scherman Vice-President josh@surepathcapital.com 646.420.0074 Toronto • San Francisco

More Related Content

State of SMB Q1 2018 report

  • 1. THE STATE OF SMB SOFTWARE A look at Q1 2018 fundraising and exit trends among North American software companies that serve the SMB market Q1 2018
  • 2. Private & Confidential | A g e n d a 01 Introduction 02 Methodology and Scope 03 Venture Capital (VC) deals 04 Private Equity (PE) deals 05 Mergers & Acquisitions (M & A) 06 Initial Public Offerings (IPOs) surepathcapital.com
  • 3. Private & Confidential | Every year we publish our annual State of SMB Software Report, looking at fundraising and exit activity in the Small and Mid-Sized Business (SMB) software space in North America. This report has been well received by CEOs, CFOs, investors and buyers. So we thought we would keep the party going with quarterly updates. We track SMB software companies across three broad categories: Grow my Business (front office), Run my Business (middle office) and Track my Business (back office). For VCs, most activity was in front office. For PE firms, the middle office was most popular. While there are some pure-play companies that just serve small business, most companies serve small and mid- market customers. This mirrors our deal practice at SurePath where we work with software companies serving freelancers all the way up to mid-market enterprise. Similarly, despite the intense fragmentation in marketing technology, new fundings and exits remain strong. Marketing is an increasingly complex and technical challenge. Small business owners are getting more sophisticated in their online marketing needs. Q1 saw many deals and several bigger deals that what we saw in 2017. Hopefully, this is a sign of things to come. We hope you find this report useful and invite you to get in touch to discuss it with us. The SurePath team April, 2018 T h e S t a t e o f S M B S o f t w a r e surepathcapital.com
  • 4. S H U B H A M D A T T A D A N I A L S H A I K H M A R K M A C L E O D F O U N D E R D I R E C T O R S E N I O R A N A L Y S T J O S H S C H E R M A N V I C E - P R E S I D E N T T h e S u r e P a t h T e a m The SurePath team has over 30 years of experience in operating, growing, investing, buying, and selling SMB software companies. surepathcapital.com
  • 5. Q1 2018 SMB Software Deals
  • 6. Q 1 ‘ 1 8 S M B S o f t w a r e D e a l L a n d s c a p e 1. Source: Pitchbook 2. Deal count excludes deals involving accelerators, incubators, crowdfunding and deals with undisclosed values Over $3.8B of capital was invested across 122 deals over the first quarter of 2018. The biggest deal was the acquisition of payment technology provider Cayan by TSYS. Both M & A and funding deal volumes were high. surepathcapital.com $17M $25M $27M$96M $151M $198M $240M $13M $367M$70M $62M $65M $1,225M $117M $300M $756M - $200M $400M $600M $800M $1,000M $1,200M $1,400M $1,600M $1,800M $2,000M January February March TotalCapitalInvested(inmillions,$USD) Capital Invested by Deal Type IPO Merger/Acquisition Corporate PE Growth/Expansion Later Stage VC Early Stage VC Angel/Seed 11 13 13 13 16 13 12 2 12 3 3 1 3 3 3 1 - 5 10 15 20 25 30 35 40 45 50 January February March DealCount Deal Count by Type
  • 7. Q 1 ‘ 1 8 S M B V e n t u r e F u n d i n g 1. Source: Pitchbook 2. Deal count excludes deals involving accelerators, incubators, and crowdfunding and deals with undisclosed values 106 SMB software companies raised venture capital in Q1 of 2018. The bulk of the VC dollars invested in the sector went into accelerating 42 early stage and 26 growth stage companies. surepathcapital.com $23M $46M $445M $621M $65M 18 19 42 26 1 - 5 10 15 20 25 30 35 40 45 - $100M $200M $300M $400M $500M $600M $700M Angel Seed Round Early Stage VC Later Stage VC Corporate DealCount CapitalRaised(inmillions,$USD) Capital Raised by Venture Deal Type Capital Raised Deal Count
  • 8. $125M KPCB $75M Generation Investment Management $65M CIBC Innovation Banking $62M Battery Ventures $53M Stripes Group $50M Accel $45M Undisclosed $40M FirstMark Capital $33M Menlo Venures $31M Top Tier Capital Partners Q 1 ‘ 1 8 ’ s T o p S M B S o f t w a r e R a i s e s Source: Pitchbook surepathcapital.com
  • 9. V e n t u r e D e a l s b y C a t e g o r y SMB software companies raised ~ $1.2B across 106 deals in Q1 2018. Of those, companies that helped SMBs run their business attracted nearly 50% of the venture capital Outer ring represents total capital invested by category and inner ring represents total deal count by category Source: Pitchbook We track SMB software companies across three broad categories: • Grow my Business: marketing / front office • Run my Business: typically vertical apps to help operate (business management, ERP, etc). • Track my Business: Billing, accounting, etc. surepathcapital.com 53 32 21 $559M $406M $234M Run My Business Grow My Business Keep Track of My Business
  • 10. Combined, companies in the Business management/ERP software and Marketing Tech categories attracted 56% of total venture capital funding in Q1 2018. However, all front, middle, and back office sectors saw deal activity. Source: Pitchbook V e n t u r e D e a l s b y C a t e g o r y ( c o n t . ) surepathcapital.com 38 25 12 12 9 2 3 4 1 $378M $298M $150M $123M $84M $67M $59M $40M $1M Business Management/ERP Marketing Tech Accounting & Invoicing HR Tech Payments Ad Tech Security/IT CRM E-Commerce
  • 11. V e n t u r e D e a l s b y T a r g e t C u s t o m e r Over 85% of venture funding in Q1 2018 went to companies with a broad offering for both the small and medium segments of the SMB software space. Relatively few companies served either only the small or medium segments explicitly. This makes sense as it enables software vendors to reach a larger market. Source: Pitchbook surepathcapital.com 81 20 5 $1,034M $133M $33M Both Small Medium
  • 12. V e r t i c a l - S p e c i f i c V e n t u r e D e a l s Q1 2018 saw nearly $256M in capital invested across 34 vertical-specific deals. Home services software companies attracted $66M (26% of total capital) across 3 deals. Vertical-specific companies tend to achieve higher valuation multiples than horizontal peers. Source: Pitchbook surepathcapital.com 3 6 3 4 1 4 2 1 1 2 3 1 1 1 1 $66M $61M $38M $28M $13M $12M $12M $7M $6M $4M$4M $2M $2M $2M $0.3M Home Services Real Estate Legal Restaurants Interior Design Construction Financial Services Media Insurance Logistics Health Breweries Manufacturing Fashion Cannabis
  • 13. $2.5M Undiscosed $2M Visionary Private Equity Group ? GI Partners $65M Great Hill Partners $30M LLR Partners $26M Aldrich Capital Partners $6M Lyrical Partners Q 1 ‘ 1 8 ’ s T o p P r i v a t e E q u i t y S M B D e a l s Source: Pitchbook Togetherwork/GI Partners deal size was not disclosed + Growth Round; * Buyout + + + + + + surepathcapital.com *
  • 14. P E D e a l s b y C a t e g o r y Source: Pitchbook Private equity investors deployed nearly $132M in capital into software companies serving the SMB space in Q1 2018. Deals in the Grow My Business and Track My Business categories attracted similar amounts of capital. surepathcapital.com 2 3 1 $67M$62M $3M Grow My Business Keep Track of My Business Run My Business
  • 15. P E D e a l s b y C a t e g o r y ( c o n t . ) Marketing tech companies attracted the most private equity funding during the quarter, followed closely by payments companies. Source: Pitchbook surepathcapital.com 2 3 1 $67M$62M $3M Marketing Tech Payments Business Management/ERP
  • 16. P E D e a l s b y T a r g e t C u s t o m e r Over 95% of private equity capital in Q1 2018 went to companies with a broad offering for both the small and medium segments of the SMB software space. Only one company served only the small segment explicitly and none served only the medium segment. This is similar to what we saw with VC funding. Source: Pitchbook surepathcapital.com 5 1 $126M $6M Small Both
  • 17. $1.05B TSYS $175M GoDaddy $150M MINDBODY Online $146M Carbonite $49M Bynder $35M Houzz $32M Descartes Software $4M New Media Investments $0.2M Grom Social Q 1 ‘ 1 8 ’ s T o p S M B S o f t w a r e M & A D e a l s Source: Pitchbook surepathcapital.com
  • 18. M & A D e a l s b y C a t e g o r y The cumulative deal size for all mergers and acquisitions in the SMB software space in in Q1 2018 was north of $1.6B. Source: Pitchbook surepathcapital.com 1 5 3 $1,050M $378M $213M Keep Track of My Business Grow My Business Run My Business
  • 19. M & A D e a l s b y C a t e g o r y ( c o n t . ) 64% of M&A deal value was attributable to Total System Services’ $1.05B acquisition of payment technology and merchant services company, Cayan. 23% of M&A deals during the quarter were related to martech. Source: Pitchbook surepathcapital.com 1 5 1 2 $1,050M $378M $146M $67M Payments Marketing Tech Security/IT Business Management/ERP
  • 20. M & A D e a l s b y T a r g e t C u s t o m e r Similar to the trend seen in the venture capital and private equity deal landscape, the vast majority of capital deployed in M&A deals went to companies with a broad offering for both the small and medium segments of the SMB software space. Source: Pitchbook surepathcapital.com 7 2 $1,603M $39M Both Small
  • 21. NYSE: DBX IPO Date March 23, 2018 Amount Raised $756M at $8.23B valuation Age at IPO 11 years Revenue at IPO ~$1.1B (December 31, 2017) Headcount at IPO 1,800+ Pre-IPO Investors Sequoia Capital, Accel Partners, T. Row Price Q 1 ‘ 1 8 ’ s S M B S o f t w a r e I P O s Source: Pitchbook Dropbox is not a pure play SMB company, however, it does have a meaningful number of SMB customers. surepathcapital.com
  • 23. To help fund, grow, and exit SMB software companies SurePath maximizes your optionality: We ensure our clients are always in a position to raise more capital or exit profitably Preparing you to raise the right amount of capital from the right investors on the right terms Growth Funding Leveraging our deep operating expertise to ensure your business is on the right plan to create the most value Strategic Guidance Our unparalleled access to SMB buyers helps us position you for an intentional, profitable exit Exits S u r e P a t h : O u r P u r p o s e surepathcapital.com
  • 24. We have been part of some the most successful SMB software companies We have deep relationships with SMB investors and buyers SurePath is committed to becoming the leading strategic financial advisor to the global SMB software market S u r e P a t h a n d S M B surepathcapital.com
  • 25. served as advisor to R e c e n t S u r e P a t h D e a l s served as the exclusive strategic and financial advisor to on its sale to an operating group of surepathcapital.com
  • 26. The Leading Financial Advisor in SMB Software EXPERIENCE Funding, growing & exiting tech companies PEDIGREE Alumni of Constant Contact, FreshBooks, Shopify… ACCESS To Tier 1 investors & strategic partners FOCUS The only advisor with a dedicated focus on SMB Software COMMITMENT Helping our clients and their investors succeed T h e S u r e P a t h D i f f e r e n c e surepathcapital.com
  • 27. Shubham Datta Director shubham@surepathcapital.com 647.972.6834 Danial Shaikh Senior Analyst danial@surepathcapital.com 647.876.5453 Mark MacLeod Founder & President mark@surepathcapital.com 416.843.6004 Josh Scherman Vice-President josh@surepathcapital.com 646.420.0074 Toronto • San Francisco