In this series, we’re breaking down key findings from our 2018 State of AppExchange Partners Report, highlighting how successful SaaS companies leverage the Salesforce AppExchange. Download the full report here, or check out these other posts for insights:
Part 1: Product and Company
Part 2: Growth
Part 3: Technology and Development
Part 4: Salesforce as a Channel
Our 2018 State of AppExchange Partners Report has unearthed how SaaS companies are finding success through the Salesforce AppExchange. In order to expedite this success, many companies take on additional funding from outside sources, such as venture capital firms or through IPOs.
Additional funding can act as a growth amplifier, allowing companies to leverage the influx of funds to develop new solutions, as well as innovative improvements to their market offerings.
These are the highlights of what we learned about how AppExchange companies are securing and using funding.
Salesforce Ventures Funding Provides Opportunity
Salesforce Ventures, which has invested in 250+ enterprise cloud startups since 2009, offers a great opportunity for technology-space innovators to develop solutions and reach broader audiences via the AppExchange. Ventures funding encourages startups to build new, innovative applications and products using the Salesforce platform that will fuel growth for both parties.
Scott Voight, CEO of FullStory, credits Salesforce Ventures in contributing to their success as an investor in $15 billion of Series B funding in 2017 — and as a connector and problem-solver.
“The Salesforce ecosystem is massive and the Ventures team has masterfully helped us navigate internal organizations and trail blaze new customer segments,” Voight says.
A CodeScience customer, FullStory was able to shrink its app development timeline to just two months. You can learn more about their journey in this Dreamforce ‘17 panel recording.
Salesforce has launched two $50 million funds since Fall 2017 that could prove especially rewarding to AI-fueled AppExchange solutions or solutions geared toward benefitting greater society. Learn more about the AI Innovation Fund for Salesforce Einstein-based products and the Impact Fund rewarding companies driving “positive social change,” or check out this breakdown of current funds.
Investors Are Spending on AppExchange Companies
The word is out on AppExchange companies; investors are seeing the success and growth opportunities of companies on the platform, and are particularly interested in getting involved.
BJ Lackland, CEO of Lighter Capital (an investor in early-stage companies on the AppExchange and co-sponsor of the survey) breaks down the returns Lighter Capital received on AppExchange companies versus those not on the platform.
“After 5 years of working closely with the Salesforce AppExchange, we’ve witnessed firsthand the power of the ecosystem’s benefits for startups,” Lackland states. “AppExchange companies represent 10% of 330 investments we’ve made, and on average AppExchange companies have outperformed non-AppExchange companies — they have 10% higher growth rates and have raised 2x the amount of venture capital.”
Twenty-eight percent of venture-backed companies report taking their last round of funding in the previous 12 months.
Additionally, 25% of respondents expect to raise a new round of funding in the next 12 months — with the majority expecting to raise it from venture capital.
This signifies that investors see high growth potential in companies building business apps — specifically on the AppExchange — and believe they can capture a healthy return in funding the right ones.
Most Funding is Single-Source
Though some companies believe most AppExchange apps are built through a cornucopia of funding that costs them significant equity in their company, our research shows that it’s not only possible to fund a build through one source — it’s the most common route.
Overall, 68% of partners receive funding from a single source. Bootstrapping accounts for 48% of the funding sources, while venture capital comes in at 43%.
Having one source of funding allows you to retain more controlling equity in your company than if you have multiple sources. This means that companies can build for growth without making a tough decision on sacrificing equity at the expense of investment.
Aiming for an IPO
Although there has not been an IPO in the AppExchange community since 2013, liquidity events can be profitable. Several companies in recent years have experienced this first-hand, through the acquisitions of ServiceMax (by GE for $915M), Riskonnect (by Thoma Bravo for an undisclosed amount), and Velocify (by Ellie Mae for $128M).
Veeva and Marketo are recent companies on the AppExchange to go public — so we took a look at their performance since.
Veeva had raised just $7 million prior to its IPO in 2013, with $4 million coming from a venture capital firm. After going public, Veeva walked away with about $217 million in additional funding.
Marketo’s initial IPO was priced at $13 a share. Marketo was sold in 2016 to Vista Equity in an $1.8 billion acquisition, which valued shares at $35.25 — nearly a 3x increase in per-share valuation.
These IPOs are examples that companies using AppExchange products to fuel growth and go public may be in line for serious windfalls, assuming scaling continues. And there’s reason for optimism — 4% of respondents forecast IPO in 2018, an exciting time for all parties involved.
That’s a wrap on our five-part breakdown of our 2018 State of AppExchange Partners Report! If you would like to read the report in full, download it here.
The conversations we had surrounding this report inspired us to launch the AppChat podcast, which explores what success in the SaaS ecosystem looks like with some of the industry’s brightest minds. You can subscribe to our Decoder newsletter to have it delivered right to your inbox.
Want to put our insights to work? Let’s find time to talk about opportunity in the Salesforce ecosystem.
