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State of SMB Software Q3 2018

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A look at the venture, PE and exit activity in Q3 2018 for North American software companies that target the SMB market.

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  • Love these presentations Mark. Have you got a public list of SMB software companies that you track? I've seen the index published, but wondering if there's a public list of all public and *private* companies.
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State of SMB Software Q3 2018

  1. 1. THE STATE OF SMB SOFTWARE A l ook at f u ndraising and exi t t rends i n t he N ort h A m e ri can SMB sof t ware m arket Q3 2018
  2. 2. Private & Confidential | C o n t e n t s 01 Introduction 02 Venture Capital (VC) deals 03 Private Equity (PE) deals 04 Mergers & Acquisitions (M&A) 05 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. Q3 saw lots of activity with $3.1B in venture funding, $4.2B in Private Equity/LBO’s activity, $437M in IPOs and $10.4B in acquisitions. This included some mega-deals like Marketo’s sale to Adobe. Normally, we see a slow down in the Summer. But not this year! We hope you find this report useful and invite you to get in touch to discuss it with us. The SurePath team October, 2018 T h e S t a t e o f S M B S o f t w a r e surepathcapital.com3
  4. 4. M A R K M A C L E O D F O U N D E R S H U B H A M D A T T A D I R E C T O R 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 D A N I A L S H A I K H A S S O C I A T E E R I K M O S N E Y A N A L Y S T S A R A D E F I N A A N A L Y S T 4
  5. 5. Q3 2018 SMB Software Deals
  6. 6. 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 Over $18.1B of capital was deployed across 184 deals over the third quarter of 2018. The biggest deal of the period was Adobe’s acquisition of Marketo. Both M&A and funding deal volumes were high. August, typically a quiet time for deals, was very active 6 24 21 16 15 16 11 10 6 5 9 9 4 9 9 10 4 2 0 10 20 30 40 50 60 70 July August September DealCount Deal Count by Type $2,084M $2,372M $5,930M $3,400M $602M $1,131M $604M $281M $188M $210M $230M $207M $728M - $1,000M $2,000M $3,000M $4,000M $5,000M $6,000M $7,000M $8,000M July August September TotalCapitalInvested(inmillions,$USD) Capital Invested by Deal Type PE Growth/Expansion Angel Seed Round IPO Early Stage VC Later Stage VC Buyout/LBO Merger/Acquisition
  7. 7. 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 146 SMB software companies raised venture capital in Q3 of 2018. Most of the deal volume was in Series A and B. surepathcapital.com $22M $67M $679M $2,337M 21 22 61 42 0 10 20 30 40 50 60 70 - $500M $1,000M $1,500M $2,000M $2,500M Angel Seed Round Early Stage VC Later Stage VC DealCount CapitalRaised(inmillions,$USD) Capital Raised by Venture Deal Type Capital Raised Deal Count 7
  8. 8. $115M T. Rowe Price $100M ICONIQ Capital $100M Accel / Sequoia Capital $90M T. Rowe Price / Wellington Management $85M Temask Holdings $427M Dragoneer Investment Group / General Atlantic $300M Tiger Global Management $250M Coatue Management / DST Global $250M Fin Venture Capital $140M MSD Capital / Dragoneer Investment Group T o p S M B S o f t w a r e R a i s e s Source: Pitchbook surepathcapital.com8
  9. 9. 65 14 67 $1,437M $236M $1,432M Grow My Business Keep Track of My Business Run 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 ~ $3.1B across 146 deals in Q3 2018, a significant increase relative to the first half of 2018, which totalled ~3.0B. Companies that helped SMBs grow and run their business attracted approximately 90% of VC $. 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.com9
  10. 10. Combined, companies in the Business Management/ERP software, E-commerce and Marketing Tech categories attracted 2/3 of total venture capital funding in Q3 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.com10 24 25 11 45 15 7 7 7 5 $635M $607M $191M $979M $296M $157M $73M $162M E-Commerce Marketing Tech Sales Tech incl POS and CRM Business Management/ERP HR Tech incl Payroll and Employee Mgmt Security/IT Accounting and Invoicing Payments Ad 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 Nearly 75% of venture funding in Q3 2018 went to companies that target both the small and mid-market segments. 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 and continue to serve customers as they grow. Source: Pitchbook surepathcapital.com11 98 20 28 $2,361M $578M $165M Both Medium Small
  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 Q3 2018 saw nearly $1.2B in capital invested across 54 vertical-specific deals. Food Service and Restaurants and Logistics companies attracted more than half of the total invested capital (~$747M across 14 deals). Vertical-specific companies tend to achieve higher valuation multiples than horizontal peers. Source: Pitchbook surepathcapital.com12 13 1 6 11 9 3 1 3 2 3 1 1 $447M $300M $152M $85M $82M $53M $32M Food Service & Restaurants Logistics Health & Beauty Real Estate Retail Financial Services Agriculture Manufacturing Home Services Healthcare Childcare Automotive
  13. 13. $3.4B Francisco Partners / British Columbia Management $550M Warburg Pincus $68M Guidepost Growth Equity $60M Primus Capital $50M Susquehanna Growth Equity $12M Level Equity $10M Boathouse Capital $5M Undisclosed Investor T o p P E G r o w t h / B u y o u t S M B D e a l s Source: Pitchbook + Growth Round; * Buyout + + + + + surepathcapital.com + + 13
  14. 14. P E G r o w t h / B u y o u t D e a l s b y C a t e g o r y Source: Pitchbook Private and Growth Equity firms deployed over $4.2B in capital into software companies serving the SMB space in Q3 2018. Deals in the Grow My Business category attracted the majority of the capital, specifically the VeriFone LBO which accounted for $3.4B of this capital. surepathcapital.com14 1 1 6 $3,400M $745M Grow My Business Keep Track of My Business Run My Business
  15. 15. P E G r o w t h / B u y o u t D e a l s b y C a t e g o r y ( c o n t . ) SMB Software companies with Sales Tech incl. POS and CRM offerings attracted the most capital from PE and Growth Equity firms during the quarter, with Business Management/ERP companies in a distant second place. Source: Pitchbook surepathcapital.com 1 2 4 1 $3,400M $555M $190M Sales Tech incl POS and CRM Business Management/ERP HR Tech incl Payroll and Employee Mgmt Accounting and Invoicing
  16. 16. P E G r o w t h / B u y o u t D e a l s b y T a r g e t C u s t o m e r Approximately 75% of all the PE and Growth Equity capital in Q3 2018 went to companies that target both the small and mid-market segments. One company, VeriFone, contributed a majority of the capital to the medium segment (~3.4B). Source: Pitchbook surepathcapital.com16 6 2 $695M $3,460M Both Medium
  17. 17. $426M Morneau Shepell $390M GrubHub $220M DocuSign $150M GrubHub $150M Gannett Company $4.8B Adobe Systems $1.6M Workday $775M Fortive $700M Global Payments $600M SoftBank Group Source: Pitchbook surepathcapital.com T o p M & A S M B D e a l s 17
  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 Q3 2018 was approximately $10.4B. Source: Pitchbook surepathcapital.com18 13 5 10 $5,736M $628M $4,021M Grow My Business Keep Track of My Business Run 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 80% of M&A deal value during Q3 2018 related to companies within the E-commerce and Business Management/ERP categories. Source: Pitchbook surepathcapital.com19 2 9 1 6 2 1 3 3 1 $5,545M - $3,185M $526M $290M $558M E-Commerce Marketing Tech Sales Tech incl POS and CRM Business Management/ERP HR Tech incl Payroll and Employee Mgmt Security/IT Accounting and Invoicing Payments Ad Tech
  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 that target both small and medium businesses. surepathcapital.com20 16 6 6 $4,095M $6,234M Both Medium Small
  21. 21. S M B S o f t w a r e I P O s surepathcapital.com21 Source: Pitchbook NYSE: EB IPO Date August 23, 2018 Amount Raised $230M Age at IPO 12 years Headcount at IPO 900+ Pre-IPO Investors Tiger Global Management, SoftTech VC, T. Rowe Price NAS: SVMK IPO Date September 26, 2018 Amount Raised $207M Age at IPO 19 years Headcount at IPO 700+ Pre-IPO Investors T. Rowe Price, Morgan Stanley Expansion Capital, Google Capital
  22. 22. Our Purpose
  23. 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.com23
  24. 24. S u r e P a t h a n d S M B surepathcapital.com Business Management E-Commerce CRMMarketing Tech Payments We have been part of some the most successful SMB SaaS 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 24
  25. 25. Private & Confidential | R e c e n t S u r e P a t h D e a l s surepathcapital.com served as the exclusive strategic and financial advisor to on its growth financing from served as the exclusive strategic and financial advisor to on its Series A financing led by served as the exclusive strategic and financial advisor to on its sale to an operating group of Undisclosed Client Undisclosed Investor 25
  26. 26. 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
  27. 27. 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.com27
  28. 28. Shubham Datta Director shubham@surepathcapital.com 647.972.6834 Danial Shaikh Associate 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 28 Sara Defina Analyst sara@surepathcapital.com 416.689.2474

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