A talk I gave at the Small Business Web Summit on how to achieve big exits for startups that serve the SMB market

1. A C H I E V I N G B I G E X I T S F O R S M B -
F O C U S E D S T A R T U P S
M A R K M A C L E O D , F O U N D E R A N D P R E S I D E N T
S U R E PAT H C A P I TA L PA R T N E R S
@startupcfo |#SMBindex

2. Private & Confidential | 2
A g e n d a
Introduction
Our SMB Focus
2 Paths to Exit
Success in SMB
The SurePath SMB Index
01
02
03
04
05

3. Private & Confidential | 3
I n t r o d u c i n g S u r e P a t h
Funding, growing and exiting venture-backed startups since 1999
Raised over $100M in
VC in the US,
Canada and Asia
◆
3 years as a VC
(Real Ventures)
Worked corporate
development and
exited many
companies
◆
Airbnb
Blackberry
Rackable Systems
Return Path
& others
14 years as CFO for
some of Canada’s
leading technology
companies
◆
FreshBooks
Shopify
Tungle
& many others

4. Private & Confidential | 4
O u r P u r p o s e
Helping you fund, grow and exit your startup
The process of raising growth capital is very different from raising early stage capital
It is cheaper than ever to start companies, but more expensive than ever to build market leaders. If that’s your
aspiration, you need growth capital
We help startups prepare for growth stage and help them raise the capital needed to become market leaders
We have sat on both sides of the table. We have funded, grown and exited many companies
We offer up that experience through ongoing coaching and mentoring.
A low touch, high impact way to help you grow
There are few credible choices for advisors to facilitate sub $100M exits. We fill that gap
We work with you to facilitate the BD and Corp Dev intros that pave the way to an eventual exit
If you decide to exit, we manage the process for you from start to finish
SurePath maximizes your optionality:
We make sure you know what it takes to build a market leader and capitalize you towards that goal.
We ensure you are always in the minds of strategic buyers so that if they decide to make a move in your
space, you are in the conversation. You can then decide; Keep going or exit?
Growth
Funding
Strategic
Guidance
Exits

5. Why SMB?

6. Private & Confidential |
0-10 employees
27 million
91%
6
T h e S M B M a r k e t
Source: US Census, US Small Business Administration
400K new business establishments are opened every quarter in the United States.
SMBs account for 99.9% of businesses, and 56% of the workforce.
11-100 employees
1.7 million
6%
100+ employees
1 million
3%

7. Private & Confidential | 7
T h e S M B M a r k e t
SMBs are the
backbone of
the economy
Businesses
are moving
to apps
There is always
room for new
players

8. Private & Confidential | 8
S M B F u n d i n g / E x i t R e a l i t y
Consumer SMB Enterprise

9. 2 Paths to Exit

10. Private & Confidential | 10
T w o P a t h s t o E x i t
$21M
$32M $18M
$45M $47M $50M
$21M $25M
$35M $37M
$130M
$119M
$253M
$103M $100M
$54M
$108M
$127M
$88M
$98M $100M
$233M
105
122
133
171 170
187
195
185 182 180
157
8 10 12 11
3
8
4
8
4
8
2
$0.00M
$50.0M
$100.0M
$150.0M
$200.0M
$250.0M
$300.0M
0
50
100
150
200
250
2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1
MedianDealSize
NumberofDeals
North American SaaS IPO vs M&A
M&A Median Valuation IPO Median Valuation M&A IPO

11. Private & Confidential | 11
I P O s s i n c e 2 0 1 3
Company IPO Date
Atlassian (TEAM) Dec-15
Square (SQ) Nov-15
AppFolio (APPF) Jun-15
MINDBODY (MB) Jun-15
Shopify (SHOP) May-15
GoDaddy (GDDY) Apr-15
New Relic (NEWR) Dec-14
Lending Club (LC) Dec-14
HubSpot (HUBS) Oct-14
Zendesk (ZEN) May-14
Paycom Software (PAYC) Apr-14
Wix.com (WIX) Nov-13
Endurance International
Group (EIGI)
Oct-13
RingCentral (RNG) Sep-13
Cvent (CVT) Aug-13
GrubHub (GRUB) May-13
• Of the 42 public companies that serve the SMB
market, 16 companies have gone public since
2013

12. Private & Confidential |
13
27
48
32
49
70
24
50
105
149
215
320
203
552
850
49%
54%
80%
44%
109%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
1 2 3
RevenueGrowthYoY
RevenueinUSDMillions
AppFolio (APPF) MINDBODY (MB) Shopify (SHOP) Atlassian (TEAM)
Square (SQ) Atlassian (TEAM) Growth Square (SQ) Growth AppFolio (APPF) Growth
MINDBODY (MB) Growth Shopify (SHOP) Growth
12
A c l o s e r l o o k a t t h e 5 m o s t r e c e n t I P O s
• All companies had ~50M+
in annual revenues the
most recent fiscal year prior
to its IPO
• YoY Revenue growth rates
were at least 44%+ with
Shopify achieving 109%
YoY Revenue Growth
• At the time of their IPO,
only Atlasssian was
profitable. All others were
not.

13. Private & Confidential | 13
T h e P a t h t o I P O
•Of the 42 companies
examined, the
average time since
founding to IPO is
11.6 years
•A handful of
companies were
able to IPO within the
first 5 years of being
founded
How long does it typically take after the company has been founded?
2
3
21
12
4
0
5
10
15
20
25
1-2 years 3-5 years 6-10 years 11-20 years 21+ years
NumberofCompanies
Number of Years till IPO

14. Private & Confidential | 14
A c q u i s i t i o n s - W h a t ’ s b e e n g o i n g o n ?
• 146 SMB acquisitions
since Q1 2013
• $450M average SMB
acquisition activity per
quarter
• Q1 2016 saw the $1.1B
acquisition of Constant
Contact by Endurance
Group
$15 $11
$45
$71
$117
$890
$459
$332
$394
$309
$177
$454
$575
$1,100
6 6
11
8
16
12
13
16
19
14
7
11
6
0
2
4
6
8
10
12
14
16
18
20
$-
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016
Total$SpentonM&A(inUSDMillions)
Total Deal Volume ($) Constant Contact Total Number of Deals

15. Private & Confidential | 15
H o w m u c h a r e t h e s e c o m p a n i e s w o r t h ?
• Average valuations in
SMB are rising
• 8 quarter average - $55M
• Excluding Constant Contact
the average valuation was
$115M
$15 $11 $9
$24 $19
$111
$77
$41
$36 $34
$59
$65
$335
$-
$50
$100
$150
$200
$250
$300
$350
$400
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016
AverageValuationofDisclosedDeals(inUSDMillions)

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W h e r e a r e t h e b u l k o f d e a l s ?
73
51
7
14
1
0
10
20
30
40
50
60
70
80
Undisclosed $1-49M $50-99M $100-500M $500M +
NumberofDeals
• 50% - no disclosed value
• The vast majority of deals that
are disclosed (35% of all deals)
fall between $1-49M
• Constant Contact is the only
SMB deal in the last few years,
over $500M

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C o n s t a n t C o n t a c t - A C a s e S t u d y
$15
$28
$50
$87
$129
$174
$214
$252
$285
$332
-$1 -$6 -$3 $1 $7
$14
$24
$35 $30
$44
73%
16%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
-$50
$0
$50
$100
$150
$200
$250
$300
$350
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Growth%
iinUSDMillions
Total Revenue EBITDA Gross Margin Revenue Growth
IPO - October 2007

18. Private & Confidential | 18
H o w d i d C o n s t a n t C o n t a c t g e t t h e r e ?
Constant Contact Key Metrics
• 650,000 unique paying customers
• ARPU: $47.12
• Revenue Growth from 87M (2008) to
332M (2014): CAGR — 25%

19. Private & Confidential |
Intuit, 17, 12%
Groupon, 14, 10%
Deluxe, 9, 6%
Endurance
International Group, 9,
6%
Square,
8, 6%
Cimpress, 8, 5%
Cvent, 6, 4%
GoDaddy, 5, 3%
AVG
Technologies,
5, 3%
Others, 65, 45%
19
W h o a r e t h e m o s t a c q u i s i t i v e b u y e r s ?
How publicly traded companies that serve SMBs stack up amongst
themselves in number of M&A deals since 2013
•146 SMB acquisitions since
2013
•The top 9 buyers account for
55% of all deal volume
•The other 45% or 65 deals
come from 29 different
players

20. Private & Confidential | 20
T h e P a t h t o A c q u i s i t i o n
28
33
37
29
11
0
5
10
15
20
25
30
35
40
1 -2 years 3-5 years 6-10 years 11-20 years 21+ years
NumberofCompanies
Number of Years till Acquisition
•A great outcome
takes time.
•Average of 9 years till
acquisition (median,
6 years)
• Constant Contact
was acquired 21
years after it was
founded
How long does it typically take after the company has been founded?

21. Private & Confidential | 21
H o w d o c o m p a n i e s g e t t h e r e ?
•~ 1/2 of acquired companies were venture backed
•For transactions with disclosed values , VC-backed companies sold for 2.8x
more
•Removing Constant Contact, the average for VC funded exits was $70M
54%
46%
Funded
No Capital Raised
(Bootstrapped) $34.1
$97.2
$0
$20
$40
$60
$80
$100
$120
Bootstrapped VC Funded
AverageDisclosedValuation(in
USDMillions)

22. Success in SMB

23. Private & Confidential |
CAC
Cross Sell
International Markets
Build Channels
23
S c a l i n g S M B A c q u i s i t i o n
4Paths
1
2
3
4

24. Private & Confidential | 24
S c a l i n g y o u r S M B c o m p a n y
01
02
03
04
Build For The Long Term
Maintain Profitable
Unit Economics
Build Channels
Own a segment

25. The SurePath SMB Index

26. Private & Confidential | 26
I n t r o d u c i n g t h e S u r e P a t h S M B I n d e x
SurePath SMB Index
Final Selection of
42 Companies
Selection of Companies for
SMB Focus
Examined 280+ Annual Reports of
Publicly Traded Companies
SCP loves
SMBs
Our
clients
serve
SMBs
So Many
Other
Indices
The First
To See The
Trends

27. Private & Confidential | 27
S C P S M B I n d e x - T h e P l a y e r s

28. Private & Confidential | 28
S u r e P a t h S M B I n d e x
SCP SMB Index Total Market Cap
$164B
• All 42 companies are weighted based on Market
Cap and indexed at January 4, 2016
• 28 of the 42 companies are part of the $1 billion
market cap club (a club we expect will grow over
time)
As of May 9, 2016

29. Shubham Datta
Associate
shubham@surepathcapital.com
647.972.6834
Rena Wang
Analyst
rena@surepathcapital.com
416.897.8922
Mark MacLeod
Founder & President
mark@surepathcapital.com
416.843.6004