Posts from enterprise

Building Enterprise Networks Top Down

Most people that are in the VC and startup sector know that USV likes to invest in networks. And most of the networks we invest in are consumer facing networks of people. Peer to peer services, if you will. The list is long and full of brand name consumer networks. So it would be understandable if people assumed that we do not invest in the enterprise sector. That, however, would be a wrong assumption.

We’ve been looking for enterprise networks to invest in since we got started and we are finding more and more in recent years. There is a particular type of enterprise network that we particularly like and I want to talk about that today.

Businesses, particularly large ones, build up large groups of suppliers. These suppliers can be other businesses or in some cases individuals. And these suppliers also supply other businesses. The totally of this ecosystem of businesses and their suppliers is a large network and there are many businesses that are built up around making these networks work more efficiently. And these businesses benefit from network effects.

I am going to talk about three of our portfolio companies that do this as a way to demonstrate how this model works.

C2FO is a network of businesses and their suppliers that solves a working capital problem for the suppliers and provides a better return on capital to large enterprises. Here is how it works: C2FO has a sales force that calls on large enterprises and shows them how they can use their capital to earn a better return while solving a working capital problem for their suppliers. They bring these large enterprises onto their platform and, using C2FO, they recruit their supplier base onto the platform. They also bring all the accounts payable for the large enterprise onto the platform. Once the network and the payables are on the platform, the suppliers can bid for accelerated payment of their receivables. When these bids are accepted by the large enterprise, the suppliers get their cash more quickly and the large enterprise earns a return on the form of a discount on their accounts payable. C2FO takes a small transaction fee for facilitating this market.

Work Market is a network of businesses and their freelance workforce. Work Market’s salesforce calls on these large enterprises and explains how they can manage their freelance workforce directly and more efficiently. These enterprises come onto the Work Market platform and then, using Work Market, invite all of their freelance workers onto the platform. They then issue all of their freelance work orders on the Work Market system, manage the work, and pay for the work, all on Work Market. Work Market takes a transaction fee for facilitating this and many of Work Market’s customers convert to a monthly SAAS subscription once they have all of their freelance work on the platform.

Crowdrise is a network of non-profits, the events they participate in, and the people who fundraise for them. Crowdrise’s salesforce calls on these events and the large non-profits who participate in them. When a large event, like the Boston Marathon, comes onto Crowdrise, they invite all the non-profits that participate in their event onto the platform. These non-profits then invite all the individuals who raise money for them onto the platform. These events and non-profits run campaigns on Crowdrise, often tied to the big events, and Crowdrise takes a small fee for facilitating this market.

I hope you all see the similarities between these three very different companies. There are several but the one I’d like to focus on is the “they invite all the ….. onto the platform”. This recruiting function is a very powerful way to build a network from the top down. And once these networks are built, they are hard to unwind.

We don’t see many consumer networks built top down, but we do see a lot of enterprise networks built top down. And we are seeing more and more of them. It is also possible to build enterprise networks bottoms up (Dropbox is a good example of that). That’s the interesting thing about enterprise networks. You can build them top down or bottoms up. And we invest in both kinds of enterprise networks.

The top down enterprise network is a growing part of the USV portfolio. We like this approach to building an enterprise software business and it does not suffer from the “dentist office software” problem. Which is a very good thing.

A Lens Into The Future Of Enterprise Software

I’ve been working with our portfolio company Work Market for four years now. It’s been a real learning experience for me as enterprise and SAAS has never been my long suit. We were attracted to Work Market because, as their name implies, they use a marketplace model to help enterprises get work done. Specifically, they created and are the leader in the Freelance Management System market. We like software that has a network effect built in because it is harder to commoditize. A marketplace of freelance workers inside an enterprise software application seemed to us to be exactly that. And that has been true. But along the way we’ve learned quite a few other things:

1) Mobile matters, a lot. I mentioned in my What Just Happened post that mobile is starting to really impact the enterprise software business.

At Work Market, the freelancers want to get work, accept work, and close out work on their phones. So mobile app development has become a huge part of what the Work Market engineering team has to work on. At some point, the enterprise will likely want to issue work orders on their phones too.

2) Freemium and transactional business models work in the enterprise just as well as they work in consumer. Work Market has a free tier with a transactional revenue model for enterprises that want to try the system or plan to be an occasional user.

WM pricing

We know that “freemium SAAS” works well for horizontal enterprise applications like Dropbox, Slack, Google Apps, etc and I believe we will start seeing freemium SAAS models applied to vertical applications as well. We already are.

3) Enterprise applications must also be platforms if they want to scale into the largest enterprises. Salesforce is the poster child for this trend. They have become a very powerful platform and distribution partner for SAAS applications. But every SAAS application should have APIs that allow their users to plug enterprise software together. Work Market can talk to the other large applications that enterprises use for managing talent (HR, VMS, etc) and that is a requirement for the largest deals. It will soon be a requirement for all deals.

I am seeing a bunch of new SAAS companies get started whose entire value proposition is building on the open APIs that most enterprise SAAS products have released in the past few years. If you are in finance, or HR, or marketing, or sales, you are now using a host of SAAS applications to get your job done and a big trend in the market is new applications that tie all of those together (via APIs) so that you can have a single view into your workflows. This is the “platformization” of SAAS and it is upon us.

The big takeaway for me is that all the things we have seen happen in consumer web and mobile software are happening in the enterprise and the impact of that is already being felt. I am seeing it up close at Work Market and fortunately they got started recently enough that they have been able to take advantage of all of these trends (marketplaces, mobile, cloud, freemium, platform) as they go to market and build their business. That is, among many other reasons, why we recently led a growth round to help Work Market’s new CEO, Stephen DeWitt, scale into the freelance management system market opportunity that they created a few years ago.

Broken Cap Tables

A “cap table” is a schedule of all the shares outstanding for a specific company. Here’s an MBA Mondays post I wrote back in 2011 on the subject of cap tables. If you want to know how much of a company you own, a cap table is the best way to figure that out.

Cap tables are almost always prepared and kept in spreadsheets, usually excel, but also increasingly google sheets. And, it turns out, they are often wrong.

Henry Ward is the founder and CEO of a company that is aiming to fix that called eShares. Last month USV led a Series A round in eShares and my partner John Buttrick wrote a bit about that investment today on the USV blog.

The reason I tell you this is that yesterday Henry wrote a great post about broken cap tables that everyone in the startup world should read. Here are the four big takeaway’s from Henry’s post:

  1. Most cap tables are wrong
  2. Most investors don’t track their shares
  3. Note holders are often forgotten
  4. Employees suffer most

How does Henry know this? Well part of eShares’ business is converting cap tables from spreadsheets into their cloud based application and reconciling everything to make sure it is correct. They onboard about 100 companies a month right now and they see a ton of cap tables.

Tracking everyone’s ownership in companies is a perfect application for a cloud-based network of owners and issuers. If every company used a platform like eShares, and if all these platforms talked to each other, if there was a common identity standard, then as you move from one company to another over your career, collecting equity along the way, you could access and manage all of your ownership interests in a single dashboard.

This is a service that is incredibly useful to startups and angel investors and VCs. But as Henry outlines at the end of his post, it will ultimately help employees the most. And, as we have discussed here before, employee equity is certainly more broken than cap tables are. Fixing that is a worthy mission for a startup and that is what Henry and his team intend to do.

NY Enterprise Technology Meetup

Next tuesday evening, I am giving at talk at the NY Enterprise Technology Meetup. I will talk about networks in the enteprise. I plan to use USV investments like WorkMarket and Pollenware to discuss how entrepreneurs can use networks to build powerful enterprise oriented businesses.

If you plan to attend that meetup or if you are interested in networks and enterprises, I have created a hackpad where you can introduce suggested topics for me to touch on in my talk. This hackpad is totally open and anyone can contribute to it.

I know that the meetup is almost completely sold out and that many of you who might want to attend will not be able to. I hope the meetup organizers will record the talk so I can post it here for everyone to see after the fact.