big outcomes in smb: a look at how to achieve big exits for smb-focused startups (mark macleod,...
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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
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
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
Private & Confidential | 4
O u r P u r p o s eHelping 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
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%
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
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
122133
171 170
187195
185 182 180
157
8 10 12 113 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
Med
ian
Dea
l Size
Num
ber
of D
eals
North American SaaS IPO vs M&A
M&A Median Valuation IPO Median Valuation M&A IPO
Private & Confidential | 11
I P O s s i n c e 2 0 1 3Company IPO Date
Atlassian (TEAM) Dec-15Square (SQ) Nov-15AppFolio (APPF) Jun-15MINDBODY (MB) Jun-15Shopify (SHOP) May-15GoDaddy (GDDY) Apr-15New Relic (NEWR) Dec-14Lending Club (LC) Dec-14HubSpot (HUBS) Oct-14Zendesk (ZEN) May-14Paycom Software (PAYC) Apr-14Wix.com (WIX) Nov-13Endurance International Group (EIGI)
Oct-13
RingCentral (RNG) Sep-13Cvent (CVT) Aug-13GrubHub (GRUB) May-13
• Of the 42 public companies that serve the SMB market, 16 companies have gone public since 2013
Private & Confidential |
13 274832 49
70
2450
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
Reve
nue
Gro
wth
YoY
Reve
nue
in U
SD M
illions
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.
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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?
23
21
12
4
0
5
10
15
20
25
1-2 years 3-5 years 6-10 years 11-20 years 21+ years
Num
ber o
f Com
pani
es
Number of Years till IPO
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
1213
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
Tota
l $ S
pen
t o
n M
&A
(in
USD
Milli
ons
)
Total Deal Volume ($) Constant Contact Total Number of Deals
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
Ave
rag
e V
alu
atio
n o
f Disc
lose
d D
eals
(in U
SD M
illio
ns)
Private & Confidential | 16
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 +
Nu
mb
er o
f D
ea
ls
• 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
Gro
wth
%
iin U
SD M
illio
ns
Total Revenue EBITDA Gross Margin Revenue Growth
IPO - October 2007
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%
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
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
Num
be
r of C
om
pa
nie
s
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?
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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
Ave
rag
e D
isclo
sed
Va
lua
tion
(in
USD
Milli
ons
)
Private & Confidential |
CAC
CrossSell
InternationalMarkets
BuildChannels
23
S c a l i n g S M B A c q u i s i t i o n 4
Path
s
1
2
3
4
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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
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
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
Shubham Datta Associate
[email protected] 647.972.6834
Rena Wang Analyst
[email protected] 416.897.8922
Mark MacLeod Founder & President
[email protected] 416.843.6004