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State of SMB Software Q2 2018

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A look at all the VC, PE and M & A deals in the SMB software landscape for Q2 2018 (N. America).

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State of SMB Software Q2 2018

  1. 1. THE STATE OF SMB SOFTWARE A l ook at Q2 2 0 1 8 f u ndraising and exi t t rends among Nort h A m e ri can sof t ware com pani e s t hat se rv e t he SMB m arket Q2 2018
  2. 2. Private & Confidential | Q 2 ' 1 8 : 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. 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 now update it quarterly. 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 lots of activity with $1.75B in venture funding, $ 370M in Private Equity investments and $2.8B in acquisitions. We hope you find this report useful and invite you to get in touch to discuss it with us. The SurePath team July, 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. 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 SI 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 E R I K M O S N E Y A N A L Y S T
  5. 5. Q2 2018 SMB Software Deals
  6. 6. Q 2 ‘ 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 surepathcapital.com $5M $10M $3M $254M $297M $237M $269M $481M $171M $728M $369M $1,805M $182M $102M $87M $1,266M $266M - $500M $1,000M $1,500M $2,000M $2,500M $3,000M April May June TotalCapitalInvested(inmillions,$USD) Capital Invested by Deal Type IPO PE Growth/Expansion Merger/Acquisition Corporate Later Stage VC Early Stage VC Seed Round Angel 6 10 5 8 14 10 17 21 18 9 18 8 4 2 3 7 2 3 3 2 0 10 20 30 40 50 60 70 80 April May June DealCount Deal Count by Type Over $6.6B of capital was deployed across 172 deals over the second quarter of 2018. The biggest deal was the acquisition of ecommerce platform provider Magento by Adobe. Both M & A and funding deal volumes were high.
  7. 7. Q 2 ‘ 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 144 SMB software companies raised venture capital in Q2 of 2018. The bulk of the funding went into accelerating 56 early stage and 35 growth stage companies. surepathcapital.com $18M $67M $788M $921M 21 32 56 35 0 10 20 30 40 50 60 - $100M $200M $300M $400M $500M $600M $700M $800M $900M $1,000M Angel Seed Round Early Stage VC Later Stage VC DealCount CapitalRaised(inmillions,$USD) Capital Raised by Venture Deal Type Capital Raised Deal Count
  8. 8. $60M Sequoia Capital $60M IVP $55M OMERS Ventures / JP Morgan Chase $50M Insight Venture Partners / Bessemer $42M New Enterprise Associates (NEA) $117M Promecap Capital de Desarrollo $107M Mosaik Partners $100M Premji Invest $65M Spark Capital $64M Goldman Sachs Private Capital Q 2 ‘ 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. 9. 62 66 14 $809M $705M $244M Run My Business Grow My Business Keep Track of My Business 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 ~ $1.75B across 142 deals in Q2 2018. Of those, companies that helped SMBs grow 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
  10. 10. Combined, companies in the Business Management/ERP software, Sales Tech, and Marketing Tech, categories attracted 2/3 of total venture capital funding in Q2 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 44 19 35 7 10 8 9 10 $455M $360M $357M $179M $150M $97M $91M $67M Business Management/ERP Sales Tech Marketing Tech Payments Security/IT Accounting and Invoicing E-Commerce HR Tech
  11. 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 75% of venture funding in Q2 2018 went to companies with a broad offering for both the small and mid- market 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 111 14 17 $1,335M $219M $203M Both Small Medium
  12. 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 Q2 2018 saw nearly $557M in capital invested across 44 vertical-specific deals. Retail software companies attracted $111M (20% of total capital) across 8 deals. Vertical-specific companies tend to achieve higher valuation multiples than horizontal peers. Source: Pitchbook surepathcapital.com 8 8 72 1 1 2 4 3 1 1 1 1 1 1 1 1 $111M $86M $83M $50M $50M $42M $37M $31M $28M $13M $12M Retail Health and Wellness Restaurants Food Delivery Home Services Accounting Law Real Estate Construction Sporting Software Development Logistics Government Automotive Hospitality Cannabis Agriculture
  13. 13. $25M Goldman Sachs $22M Dell / Publix / Swordfish Investments $15M Kayne Anderson Capital Advisors $5M Zubr Capital / EBRD VC Programme $3M Undisclosed $100M Leeds Equity Partners $67M CLSA Capital Partners $62M Delta-v Capital $35M Susquehanna Growth Equity $32M Updata Partners Q 2 ‘ 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 + Growth Round; * Buyout SurePath Capital Partners advised on this transaction + + + + + + surepathcapital.com + + + +
  14. 14. P E D e a l s b y C a t e g o r y Source: Pitchbook Private equity investors deployed over $370M in capital into software companies serving the SMB space in Q2 2018. Deals in the Run My Business category attracted the majority of the capital. surepathcapital.com 66 $240M $132M Run My Business Grow My Business
  15. 15. P E D e a l s b y C a t e g o r y ( c o n t . ) SMB Software companies with Business Management/ERP offerings attracted the most private equity funding during the quarter, with E-Commerce companies in a distant second place. Source: Pitchbook surepathcapital.com 6 3 2 1 $240M $62M $54M $15M Business Management/ERP E-Commerce Marketing Tech Sales Tech
  16. 16. P E D e a l s b y T a r g e t C u s t o m e r Nearly all the private equity capital in Q2 2018 went to companies with a broad offering for both the small and mid-market segments of the SMB software space. Only one company served the small segment exclusively and none served only the medium segment. This is similar to what we saw with VC funding. Source: Pitchbook surepathcapital.com 11 1 $339M $32M Both Medium
  17. 17. $120M Splunk $17M Zix $5M Mpulse Mobile $4M WisTech Global $1.68B Adobe Systems $365M Square $342M LogMeln $219M RealPage $150M Mindbody Source: Pitchbook surepathcapital.com Q2‘18’s Top M&A SMB Deals
  18. 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 Q2 2018 was north of $2.9B. Source: Pitchbook surepathcapital.com 2 6 1 $2,045M $638M $219M Run My Business Grow My Business Keep Track of My Business
  19. 19. M & A D e a l s b y C a t e g o r y ( c o n t . ) Nearly 60% of M&A deal value during Q2 2018 was attributable to Adobe’s $1.6B acquisition of Magento, the developer of the cloud commerce platform for selling goods online. Source: Pitchbook surepathcapital.com 1 1 1 5 1 $1,680M $365M $342M $296M $219M E-Commerce Marketing Tech Security/IT Business Management/ERP Payments
  20. 20. M & A D e a l s b y T a r g e t C u s t o m e r The majority of M&A deals in the SMB Software space were related to those companies with a broad offering for both small and medium businesses. Source: Pitchbook surepathcapital.com 1 7 1 $1,680M $1,072M $150M Medium Both Small
  21. 21. Our Purpose
  22. 22. 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
  23. 23. 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
  24. 24. Private & Confidential | 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 served as the exclusive strategic and financial advisor to on its $16M Series A financing led by served as the exclusive strategic and financial advisor to on its growth financing from Undisclosed Client Undisclosed Investor
  25. 25. Private & Confidential | Overview of Transaction: • On April 24, 2018, Uberflip announced a $32.3M growth equity round from Updata Partners • This oversubscribed round was the first institutional funding round for the company • Uberflip will use the capital to extend its market leadership in the content experience category • Uberflip is the #1 content experience platform that empowers B2B marketers to create & control personalized content experiences at scale • Founded in 1998, Updata Partners is a highly successful investor to software and software-enabled businesses SurePath’s Role: • SurePath Capital Partners (SCP) served as sole / exclusive strategic and financial advisor to Uberflip's Founders / Board • SCP worked strategically with Uberflip in advance of the fundraising process to make sure it was on the best operating plan for funding and to build a warm, qualified pipeline of targeted investors. • SCP delivered a competitive, oversubscribed growth financing process, as the advisor of choice for leading SaaS companies C a s e S t u d y : S u r e P a t h C a p i t a l P a r t n e r s a d v i s e s U b e r f l i p o n i t s $ 3 2 . 3 M g r o w t h f i n a n c i n g b y U p d a t a P a r t n e r s surepathcapital.com served as the exclusive strategic and financial advisor to on its growth financing from $32,300,000 for total consideration of approximately Mark, Shubham and the entire SurePath team were absolutely critical to the successful outcome of our fundraise. From start to finish, they were an incredible sounding board, set and managed the process, and ultimately stepped up and filled gaps wherever needed to help us get over the finish line. Pure rockstars! - Yoav Schwartz, CEO & Co-Founder, Uberflip “ ”
  26. 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. 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 Erik Mosney Analyst erik@surepathcapital.com 519.239.5759 27

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