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SaaS in NYC: 2015 Overview, Primary Venture Partners

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Primary Venture Partners 2015 Overview of the New York City Sofware-as-a-Service Landscape

As the enterprise SaaS market continues to mature, and as we watch a blossoming of SaaS activity in New York City, we believe NYC is poised to become a true leader in the formation of companies leading the next wave of enterprise transformation, ultimately challenging even the Bay Area for SaaS leadership.

Primary Venture Partners took a deep look at the existing NYC SaaS landscape, seeking a clear understanding of the reality behind our anecdotal sense of our home market’s strengths. What we found is exciting and bodes awfully well for Primary and our friends who are focused on NYC SaaS investing. There is much more to come!

Published in: Software
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SaaS in NYC: 2015 Overview, Primary Venture Partners

  1. 1. 1 SaaS in NYC June 2015
  2. 2. 2015-2025: The NYC SaaS Decade? 2 As the enterprise SaaS market continues to mature, and as we watch a blossoming of SaaS activity in New York City, we believe NYC is poised to become a true leader in the formation of companies leading the next wave of enterprise transformation, ultimately challenging even the Bay Area for SaaS leadership. Primary Venture Partners took a deep look at the existing NYC SaaS landscape, seeking a clear understanding of the reality behind our anecdotal sense of our home market’s strengths. What we found is exciting and bodes awfully well for Primary and our friends who are focused on NYC SaaS investing. There is much more to come! Key Findings: SaaS company formation and investing has been rapidly accelerating in recent years, and growing much more quickly than in the Bay Area We’ve already seen a bunch of early exit successes, but with a growing pipeline of extremely well-funded, high growth successes, we can expect many, many more NYC is particularly well positioned to lead as vertical SaaS applications continue to grow in importance vs. the historic horizontal paradigm
  3. 3. We are living in a SaaS economy 3 Nationally, >$200B of public market value created in the last decade 2004 CA-based Salesforce.com becomes the first true SaaS company to go public with a $1.3Bn valuation (now >$40B) Today SaaS companies make up over $200Bn of public market value* *includes companies that have switched to a cloud-based subscription software model since 2004 and acquisition values of acquired public SaaS companies
  4. 4. NYC SaaS Activity Rapidly Accelerating 4 Measured by rounds or $$, the last 5 years have seen rapid growth 0 350 700 1,050 1,400 1,750 0 75 150 225 300 2009 2010 2011 2012 2013 2014 rounds dollars Source: Crunchbase; Internal Analysis Rounds CAGR (rounds): 31% CAGR (dollars): 40% $ millions NYC SaaS Financings, by # rounds and $ invested
  5. 5. NYC beginning to over-index on SaaS 5 While SaaS has stayed steady in relative importance nationally, it is steadily growing in share of overall startup activity in NYC 20% 24% Bay Area NYC 2014 While not historically thought of as a SaaS stronghold, NYC now 20% over-indexes on SaaS financings vs Bay Area 21% 21% Bay Area NYC 2009 SaaS represented an equal share of total financings amongst Bay Area-based and NYC-based companies Source: Crunchbase; Internal Analysis
  6. 6. New York is closing the gap 6 NYC SaaS investments are growing at a faster rate than the Bay Area Investment Dollars Similarly, the growth of $$ invested in NYC SaaS companies has been more than double the pace of growth of Investment dollars in the Bay. While on average still smaller than Bay Area financings, NYC deals are getting bigger fast.. Number of Rounds Five years ago, NYC had only 25% as many SaaS deals as the Bay Area. The NYC SaaS market has grown 2x as fast as the Bay’s, and last year had half the new SaaS deals of the Bay Area. Source: Crunchbase ; Internal Analysis 2009 2014 50% 15% 33% 25% bay area nyc NYC as % of Bay Area
  7. 7. With some notable successes 7 Top exits for NYC-based SaaS companies $745 million A social media marketing platform, acquired by Salesforce June 2012 $675 million* $2.75 billion* $230 million $100 million+** $200 million+** Data governance software platform for unstructured data, went public in March 2014 Cloud platform for clinical trials used by pharmaceutical industry went public in June 2009 Data management platform for programmatic ads, acquired by Rocketfuel August 2014 Helps organizations implement BYOD mobile policies, acquired by Google May 2014 Payment processing technology for financial services, acquired by Google April 2012 * Market capitalization in March 2015 ** Financial terms not disclosed; these price ranges widely reported Source: Crunchbase ; CB Insights; Internal Analysis
  8. 8. and more potential in the pipeline 8 Recent large financings suggest a pipeline of potential future unicorns Platform enabling SMBs to sell their services online $77 million funding Monitoring service producing unified metrics and events from IT infrastructure $53 million funding Modular desktop and API products for integrating datasets / back-testing services $180 million funding Simple and fast cloud hosting service built for developers $90 million funding Cloud-based technology platform dedicated to improving cancer care $140 million funding Equity trading platform for mutual funds, hedge funds and family offices $100 million funding SaaS-based recruiting technology solutions to the Global Fortune 1000 $41 million funding Next-generation database technology for enterprise customers $311 million funding Automated patient check-in process for healthcare providers $73 million funding Aggregates and analyzes disparate user data to provide personalized marketing $48 million funding Cloud-based translation management platform $63 million funding Complete social media management platform for enterprise brands $123 million funding Low-latency market data and exchange connectivity solutions for financial firms $53 million funding Small business digital presence management platform $116 million funding Automated platform for managing online offers, reviews and email campaigns $40 million funding Source: Crunchbase ; Internal Analysis *includes NYC enterprise / SaaS companies that have raised over $40 million
  9. 9. 9 Leveraging New York City Why will NYC lead the next generation of SaaS?
  10. 10. Rapidly changing SaaS Landscape 10 A collection of fundamental changes are reshaping the SaaS landscape and redefining keys to success in building the next generation of winners Consumerization of IT Simplification of development Verticalized solutions Mobilization Generational transition Simplified applications, sold from the bottom up to empowered end-users Standardized, low cost, off- the-shelf infrastructure Ubiquitous SaaS adoption creates sufficient scale for industry- specific solutions Extends enterprise IT into the field and redefines UX; billions of new end points Enterprise tech buyers are increasingly net & mobile natives • Success is increasingly domain expertise & customer access-driven; a marked shift from SaaS 1.0, which was infrastructure & engineering-driven • With access to unparalleled density of talent and customers, NYC is positioned to thrive
  11. 11. The domain expertise capital of the world 11 NYC’s breadth of sector clusters is unparalleled and a critical asset 520,000small businesses* make NYC the largest hub for small businesses in the U.S., nearly 2x the size of second place LA Real Estate Finance Healthcare / Pharma Insurance Fashion Law Advertising / Marketing Consumer / CPG Media / Publishing Retail / SMB Source: S&P, Business Journal * Defined as businesses with 1-99 employees 19%of all S&P 500 companies are headquartered in the tri-state area of NY-NJ-CT NYC LA Chicago Miami Philadelphia Washington Dallas Atlanta Boston Houston San Francisco
  12. 12. 12 Sample Regional Vertical Market Strengths Real Estate Finance Customer Base: Top NYC-based Firms Market Size & Trends NYC Disruptors $72bn Global software spend by Banking & Securities firms IT spending in the finance sector is high, with firms spending 6.3% of revenue on IT solutions on average Disruptable market? Strength of NYC disruptors? Source: Crunchbase; Gartner; Frontline Partners; BCG; Internal Analysis Customer Base: NYC’s Real Estate Market is Huge Market Size & Trends NYC Disruptors $17bn Global software spend by Real Estate firms Disruptable market? Strength of NYC disruptors? Largest global CBD Midtown New York City 68% Highest percentage of residential renters in the U.S. Current real estate online consumer experiences lag other industries, scoring only 52% of the cross-industry average Domain expertise capital of the world
  13. 13. 13 Sample Regional Vertical Market Strengths (cont’d) Healthcare / Pharma Insurance Customer Base: Top NYC-based Firms Market Size & Trends NYC Disruptors $31bn Global software spend by Insurance firms Current insurance online consumer experiences lag other industries, scoring only 55% of the cross-industry average Disruptable market? Strength of NYC disruptors? Customer Base: Top NYC-based Firms Market Size & Trends NYC Disruptors $19bn Global software spend by Pharmaceutical firms Disruptable market? Strength of NYC disruptors? (ImClone) Source: Crunchbase, Gartner, Informa Ovum, BCG; Internal Analysis Spending likely to increase as firms use BI to incorporate data from social media, electronic medical records and genetic sequencing Domain expertise capital of the world
  14. 14. 14 Law Advertising / Marketing Source: Crunchbase, Gartner; Internal Analysis Customer Base: Top NYC-based Firms Market Size & Trends NYC Disruptors $2.3bn Global spend on eDiscovery software by Legal firms Spending on eDiscovery software is growing strongly and is expected to double by 2018 Disruptable market? Strength of NYC disruptors? Customer Base: Top NYC-based Firms Market Size & Trends NYC Disruptors $5bn Global software spend by Marketing / Advertising firms As more marketing driven spend moves online, it will be important for large marketing firms to keep pace Disruptable market? Strength of NYC disruptors? COUNSELYTICS Domain expertise capital of the world Sample Regional Vertical Market Strengths (cont’d)
  15. 15. 15 Media / Publishing Source: Crunchbase, Gartner, Internal Analysis Customer Base: Top NYC-based Firms Market Size & Trends NYC Disruptors $17bn Global software spend by Publishing, Broadcasting and Entertainment firms Disruptable market? Strength of NYC disruptors? Domain expertise capital of the world Consumer / CPG Customer Base: Top NYC-based firms Market Size & Trends NYC Disruptors $14bn Global software spend by consumer goods manufacturers Disruptable market? Strength of NYC disruptors? CPG companies expected to focus software tools for managing real-time KPIs and supply chain integration Sample Regional Vertical Market Strengths (cont’d)
  16. 16. 16 Small Retail & Other SMBs Source: Crunchbase, Gartner, Business Journal, Internal Analysis Customer Base: NYC as an SMB hub Market Size & Trends NYC Disruptors $23bn Global Software spend by Retailers alone SMB expected to increase IT spending by 38% in 2015, focusing on CRM tools, BI tools and security Disruptable market? Strength of NYC disruptors? 520,000 Small businesses with 1-99 employees located in NYC 58,000 Jobs added by the retail sector in NYC since 2009 Domain expertise capital of the world NYC LA Chicago Miami Philadelphia Washington Dallas Atlanta Boston Houston San Francisco 5xas many SMBs in NYC versus San Francisco / the Bay Area HONEY NYC also offers an unparalleled opportunity for SMB platforms
  17. 17. A magnet for talent 17 NYC acts as a strong funnel for talent to tech startups Feeder Industries A steady stream of business and technical candidates freshly trained by top tier banks, consultants and tech firms Strong Schools Technical and general candidates from top schools like Columbia, NYU (and Cornell’s tech campus to come ) Tech Community With the major tech titans as anchor tenants, the largest meetup group in the world, and a robust group of accelerators, the NYCTech community continues to grow Demographics The city is a magnet for a diverse inflow of young college grads looking to live amongst their peers in the most dynamic city in the world TALENT 0 40 80 120 2009 2010 2011 2012 2013 Tech Jobs in NYC Since the financial crisis, tech jobs in NYC have increased by 33% versus 8% job growth in the city as a whole +33% Average NYC Tech Salaries Technology jobs can be among the best paying in the city $79,500 $65,400 $118,600 Average (all jobs)Average (excl. securities)Tech industry Source: New York State Comptroller's Office
  18. 18. NYC investors are leading the charge 18 A new growing base of native capital adds to NYC’s strength Source: Crunchbase; Internal Analysis otherNYC-based Most active investors in NYC SaaS companies (by total financings in the past five years)
  19. 19. What Next? 19 NYC’s SaaS ecosystem has arrived, and is poised for growth. So what now? We are catching up to the Bay Area, and the growing importance of vertical SaaS should help us further close the gap in the coming years With a strong and growing pipeline of budding unicorns, we can expect Medidata to have plenty of company in the NYC SaaS Unicorn Club by 2020 Look for a couple of sectors to really flourish – early promising candidates are real estate, finance, healthcare/pharma, and small business The big question: will we build standalone, anchor tenants in the community, or a steady stream of M&A fodder for the big SaaS titans?
  20. 20. Thank You Brad Svrluga, Co-Founder & General Partner brad@primary.vc @bradsvrluga

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