And let me rephrase that already… I expect you to have M/A skills and understand how to spot a killer application and a great investment subject. And I don’t mean buying some IT company for a buck doing due diligence over a bottle of red wine. If you are that stupid, go back to school or learn from your (countless) mistakes Mr.!
But after stressing the capital industry with my energy and a lot of business plans, I find it confusing and amusing that both VCs, BEs and the rest of the venture market does not have a clue on how to evaluate SaaS companies, and why the window to opportunity is now and 6-9 months. Let me explain:
The IT industry (where the big money is) works in waves and evolutions. Once a while a revolution comes around and early market players get a high ride on the value curve. A million dollar investment is suddenly a dot-com adventure waiting to go public (remember to spot your exit!). Every cycle has a timeframe of 6-10 years.
Right now the IT industry has entered the next revolution (SaaS, IaaS, PaaS – in all cloud computing red.) and with it for once, the power has been shifted to the small, innovative and very aggressive business models of independent software vendors (ISV). It is not a vendor, large game play (although they wish to have their piece of the cake, but invest poorly in technology). The next wave is controlled by the successors in 8 years time and these companies will be brought to exits and mergers worth millions and billions of dollars. And that my dear investors are your sweet-spot(s).
But wait a minute! Venture capital companies invest over 3, 5 or 7 years? And you state that the wave is 6-10 years?
While that is true, I don’t stipulate that you should invest NOW; however the ISVs will realize and understand their value and your opportunity to spot the next successors is only one to two consultants away. I strongly believe and market indicating proves my point, which the game is shifting and the customers are back in control. Nearly 4 years ago I got turned down on a business proposal to bring ERP online to the cloud.
Ridiculous and obscured Rasmus! Companies will never move their ERP to be a hosted system
Reality – we had been rich to that model. Today we see many successful companies doing exactly that…
Where is my risk vs. reward?
You have to invest in risk. Seed capital? Yes, also that. Growth capital – more than you normally would. Will you lose some of these prospects and investments – yes! Indeed! But risk and reward is somewhat in a controlled manner as the ISVs of tomorrow and the people already on the success path have been pushed to differentiate and verticalized their skills into segmented software packages, with a global and world-wide distribution channel. This causes may of the software vendors to become leaders in their nice markets, and trust – these companies will be M/A stuff with 4-6 years, and global venture companies will drive to consolidate “best of breed” to build conglomerates, re-capitalize and split up.
I will come back with an article on how to spot a killer ISV business 😉 Stay tuned…