Shasta Ventures

  • February 23, 2015
  • Transaction_3D-512Configure, price, quote (CPQ) software was once a barely thought about branch of CRM falling under the heading of sales enablement. But lately, it’s been getting a lot of attention from a familiar source, Salesforce.com. The question is why?

    You can easily argue that many forms of business don’t require CPQ so that’s a possible reason it’s been in the background forever. For instance, if you sell a service, chances are reasonable that you need to develop a customized statement of work with calculated estimates of time, materials, labor and few of those things come out of a catalog. Services sales has its own version of CPQ but it’s different and a story for another day.

    CPQ’s sweet spot focuses on line items, quantity, extended prices, add-ons and discounts but why Salesforce’s sudden interest in CPQ? I can think of some reasons. Some, if not most, CPQ systems like Apttus, also manage contracts and you can’t really have a valid contract about a deal unless there’s an itemized list of materials, promises, and all the rest. The same can be said on a services statement of work (SOW) but that’s, again, another story.

    In today’s marketplace many deals are consummated almost without human contact. Two people might get together to specify a need and the sales person will develop a quote and the haggling is conducted electronically, if at all. But the pace of business is so torrid these days that the turnaround time needed to develop a quote, get it approved by your boss, and into the hands of the customer is shrinking. If you can’t deliver quickly, your competition can, which would place you at a serious disadvantage. Subscriptions add a new wrinkle since those deals can be consummated with zero direct human contact. Customers have come to expect contracts as quickly as they can make selections.

    So in thermonuclear terms you could say that there’s an arms race ongoing in many markets to ensure that each sales team is adequately supplied with the tools that enable rapid and accurate quoting. Understandably, vendors like Salesforce want to ensure they can offer their customers a choice of quality solutions and they need to be able to do this at the enterprise level which often requires that the emerging vendors staff up.

    So, a few weeks ago Salesforce Ventures, Salesforce’s corporate investment group swung into action. They led an investment round (the B round) that garnered $41 million for Apttus, a high-flying CPQ vendor. Apttus’ claims to fame are multiple and include being built on the Salesforce1 Platform (very important to Salesforce) and offering some innovative technology that enables the user to access and use Microsoft Office products like Word and Excel to build quotations. No more wrestling with product catalogs and hand writing the first draft for your department admin to decipher. It’s a productivity tool for certain.

    Not to be outdone,  Steel Brick made a similar announcement raising $18 million in a series B round led by Shasta Ventures with participation from existing investors Emergence Capital and new investor, (tada!), Salesforce Ventures. That’s two CPQ vendors running on the Salesforce1 Platform that Salesforce has taken an interest in.

    It’s not strange to see a big dog like Salesforce stuff multiple arrows into its quiver and it’s a big market so I am sure the CPQ players will be able to differentiate well enough for the time being.

    What’s ahead? It’s just me, but I don’t think CPQ by itself is enough to build a story around that you can take to the public markets. In an era of universal platforms CPQ is a good thing to have but it is a feature at the end of the day. It will never be a platform outright, we are too far down that road. All that plus larger vendors’ thirst for end-to-end product and business process coverage suggests either a merger or acquisition or both — the order of events is not clear.

    You could imagine such a scenario for almost every category in the Salesforce AppExchange yet that won’t happen because Salesforce needs a well functioning ecosystem capable of generating billions in annual revenue if it is to reach its goal of becoming one of the biggest software companies in the universe. But CPQ is different, in many ways it is core to selling and CRM, and for that reason I could envision a scenario where one or both of these companies gets acquired by Salesforce as many other core competency companies have already. By investing early, Salesforce might be seeking to identify the right time and price.

     

     

     

     

     

     

    Published: 4 years ago


    Subscription billing and payments pioneer, Zuora, today announced its series E funding.  The tranche of $50 million brings the company’s total capital investments to $132.5 million, much of it spent on sales and marketing.  This convinces me that the hardest thing about being a disruptive technology is the cost of getting the idea into people’s heads.  Salesforce spent a similar amount on sales and marketing while getting going and it’s reasonable to say that this is now the formula.

    The really good news is that all of the company’s original investors have ponied up repeatedly to buttress the company and that includes individuals like Dave Duffield founder and co-CEO of Workday and Marc Benioff, co-founder and CEO of Salesforce.com as well as conventional venture companies like Benchmark Capital, Greylock Partners, Redpoint Ventures, Shasta Ventures, Tenaya Capital.  You could say the smart money is on Zuora in anticipation of an IPO at some undisclosed point in the future.

    All the cash gives the company a cushion that translates as an IPO someday but on its terms, there’s no rush.  And the financial news and prognostications are nice but the underlying fundamentals say even more.  They say that Zuora got it right in 2007 when the company identified the back office of subscription companies as the place most in need of help to make the model work.  Co-founder and CEO Tien Tzuo had an intuitive understanding of the back office having seen first hand what a fast growing subscription company had to deal with each month getting its billing done right.

    At Salesforce, Tzuo was chief strategy officer and, when he recognized the need, he built a sort of version one of what would become Zuora but he didn’t stop with billing at Zuora.  The company now offers solutions for payments, or commerce, and finance but even more than this, it is innovating around the idea that the subscription business model is fundamentally different from the conventional product or service models we’ve lived with since the Medici invented double entry bookkeeping.  Keeping an eye on the business model means the company will be able to innovate around the core idea for a long time and that’s a good thing.

    Zuora makes its mark taking the broad view, which is in part why I like them.  The response from the market and the venture community tells me they’ve struck a nerve and the fact that there are many other companies plying the same waters tells me this is important.

    So, good on you Zuora.  I am looking forward to speaking at their user conference in a couple weeks in San Francisco.  It should be quite a party.

    Published: 5 years ago


    Zuora, the subscription billing company announced that it has concluded its Series C round of financing raising $20 million and bringing its total capital investments to $41.5 million.  The round was led by Redpoint Ventures and the existing investors including Benchmark Capital, Marc Benioff, Shasta Ventures and Tenaya Capital also participated.

    This strong performance says a lot about the company, its management and the idea of the subscription economy.  In a time when credit is tight and venture funds are raising much less capital than they did five or ten years ago, Zuora’s success marks a kind of breakthrough that says good ideas can still be funded and that the subscription economy is a real good idea.

    Analysts refer to the just finished recession as a balance sheet recession rather than the more familiar inventory related type.  In classical economics when inventories get out of hand, production slows, causing a decline in economic activity, and inventories are sold off to rebalance the system.  Inventory recessions have become less prevalent in the last several decades as powerful analytics software has been employed for inventory management and ERP technology has better managed production.

    The balance sheet recession happened when the banking system became over leveraged and credit collapsed.  Over the last two years corporations and individuals have worked to deleverage their accounts and in the process low credit availability caused a recession.

    This recession precisely points out the importance of the subscription economy and may be a harbinger of recovery, albeit on different terms.  Leverage is being replaced by subscriptions as companies and individuals come to the realization that they don’t have to own everything they use if a viable subscription is available.

    So far, companies like Salesforce.com, RightNow Technologies, NetSuite and many others have leveraged the subscription model to good effect with Salesforce becoming the first company to achieve billion dollar revenues based on the subscription model.

    But subscriptions are not simply for software and that’s where Zuora comes in.  Many other industries could profitably take advantage of the subscription model if only they could accurately invoice and collect.  The hidden issue for many companies wanting to enter the subscription economy is that their antiquated billing systems cannot support the high transaction flows inherent in the subscription model.

    Enter Zuora and its ilk.  As a leading company in the rapidly growing subscription billing industry, Zuora has figured out the business process including the transaction flows.  Zuora, or a company like it, will be at the heart of a change in the publishing industry as newspapers and magazines begin moving their subscriptions to the Web.  Periodical publishing is a great example of an industry hamstrung by its billing processes.  With billing so difficult all but a small handful of newspapers—The New York Times, The Wall Street Journal for example—give away their product.  Those papers have begun to stop the revenue drain and they are in the vanguard.

    So, Zuora has twenty million dollars more in the bank this morning and because the company has been cash flow positive for most of this year, it looks forward to spending the new money on growth.  It is hiring sales people and opening up its European offices, for starters.  You can do a lot with that kind of money, including spark a business revolution, which will surely follow.

    Published: 8 years ago