Thu. Nov 21st, 2019

Emergence Capital backed Salesforce before its IPO. Here’s why one of the VC firm’s partners thinks the $141 billion software giant is vulnerable to a next-generation enterprise software startup. (ZM)

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Emergence Capital backed Salesforce before its IPO. Here’s why one of the VC firm’s partners thinks the $141 billion software giant is vulnerable to a next-generation enterprise software startup. (ZM)

  • Emergence Capital is narrowly focused on investing in early-stage enterprise software companies.
  • That specialization helps give it an edge over rivals when it comes to getting in on deals in the sector, Santi Subotovsky, a general partner at the firm, told Business Insider.
  • Emergence can offer startups access to all its partners and a community of founders at similar companies experiencing like challenges, he said.
  • Subotovsky remains bullish on the enterprise software sector, saying the need for mobile enterprise applications, the productivity promise of artificial intelligence, and the desire to replace aging software will boost demand for new services.
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Enterprise software has been one of the hottest areas in tech in recent years. 

If you believe Santi Subotovsky, it’s not going to cool down anytime soon.

Subotovsky, a general partner with Emergence Capital, thinks the enterprise sector is going to continue to boom, driven by some big trends, such as the near-ubiquity of smartphones and the increasing sophistication of artificial intelligence technologies. Those trends could make older providers of enterprise software, including Salesforce, vulnerable — and should open up opportunities for upstarts, he said.

“We’re looking at next seven to 10 years,” Subotovsky told Business Insider in a recent interview. “We see some major transformations in the way people are using technology at work.”

Mobile phones and AI will boost demand

One major trend has been the widespread adoption of smartphones. That’s created a need and an opportunity for workplace applications that are built with those devices in mind, he said. Much of the enterprise applications that have been built in the past have been designed to be used by office workers sitting at desktop computers. But there’s a whole “desk-less workforce,” as Subotovsky refers to it, of people who can now access enterprise applications through their mobile phones.

ServiceMax, an Emergence-backed company that GE acquired three years ago, offers a service that helps companies direct their field service technicians to particular customers and helps them place orders for new parts all through a mobile app. Similarly, UpKeep, another of the firm’s portfolio companies, offers a mobile application that helps restaurants, manufacturers, and property-management companies direct maintenance workers to repair jobs.

Such apps are replacing antiquated solutions and technologies, such as pen and paper and simple spreadsheets, Subotovsky said.

Catering to such workers “expands the market a lot,” he said. “The desk-less workforce,” he continued, “needs productivity apps.”

Another factor expected to continue boosting the enterprise software sector is the development of artificial intelligence, including in machine learning and natural language processing, Subotovsky said. Such technologies have plenty of applications, he said. And while some fear they will be used to replace workers, he thinks they will actually complement workers and make them more productive. 

Companies are looking to replace older apps

Take Chorus.ai, yet another Emergence-backed company. It has developed a service that listens in on sales calls and uses artificial intelligence to analyze the conversations to determine what sales representatives are doing right and what they can improve on. Similarly, Textio has developed a service to enhance job-wanted postings, taking simple ideas and requirements and turning them into polished sentences that are designed to attract desired candidates.

salesforce tower san francisco marc benioff 5334

“From what you do, the technology should be able to learn and adapt to help other people do their job better,” Subotovsky said. “So we’re super-excited about that.”

The enterprise market is also likely to be driven by a demand to replace and upgrade older business-oriented applications, he said. Zoom’s video-conferencing application was by no means the first of its kind. But older video-conferencing services had failed to keep up with innovation, Subotovsky said. Business customers were asking for a better, more up-to-date tool, he said.

Similarly, he thinks there might be an opportunity for an upstart to take on Salesforce, the customer-relationship management software maker that’s now worth $141 billion. Salesforce has a negative net promoter score — a measurement that indicates customer satisfaction and loyalty — he said.

“People don’t love it,” he said. “That’s a great sign,” he continued, “that there’s an opportunity for someone to come up with a solution people love.”

Emergence specializes in backing enterprise startups

Emergence is well poised to take advantage of the continued boom in enterprise software, Subotovsky believes. The firm focuses solely on the sector; it invests only in early-stage enterprise software companies, said Subotovsky, a general partner with the firm.

Founded 15 years ago, Emergence has backed some of the more successful enterprise startups over that time, including Salesforce, Veeva, and Box. But it had one of its biggest successes earlier this year when another one of its portfolio companies, Zoom, went public and more than doubled its initial-public-offering price within a few weeks.

The firm makes only about five to seven investments a year — all in A rounds. But because of its specific focus, it gets to look at pretty much all the companies in the enterprise space, Subotovsky said. Seeing that many companies allows it to survey the landscape and pick the ones it thinks have the best chance of succeeding, he said. It can also tap into its own knowledge of how such companies have developed in the past, he said.

“We’ve seen this movie play out many times in enterprise,” Subotovsky said.

Emergence’s partners all focus on the enterprise sector

Emergence’s narrow focus is also a benefit to its portfolio companies, he said. Subotovsky and his partners know what it takes for nascent enterprise startups to reach their potential, he said. 

Zoom CEO Eric Yuan, center, celebrates the opening bell at Nasdaq as his company holds its IPO, Thursday, April 18, 2019, in New York. The videoconferencing company is headquartered in San Jose, Calif.

Many venture firms have only one or two partners focusing on such companies, and they often spend their time with their portfolio companies just meeting with the CEO. Emergence’s partners all work with its portfolio companies, and they end up meeting with many of the companies’ top leaders — not just their CEOs. Subotovsky said it’s not unusual for him to meet with a portfolio company’s heads of marketing, sales, or product.

“I spend time with the CEO, because I want to help them out,” he said. “But if I can help out the rest of executive team, then that has a huge impact on the organization.”

Because all of Emergence’s partners are focused on the enterprise sector, its portfolio companies to tap into the knowledge of any and all of them, Subotovsky said. At other firms, where only one or two partners focus on enterprise startups, the firm’s relationship with the startup can be disrupted if one of those partners leaves, Subotovsky said. But that’s not a danger with Emergence, since the entire firm develops a relationship with the startup. 

Another advantage Emergence has is the firm can connect founders to peers who are running similar startups and facing like challenges.

“That creates an incredibly powerful community,” Subotovsky told Business Insider in a recent interview. “You’re building a relationship with the entire team, and that makes a huge difference.”

Got a tip about venture capital or startups? Contact this reporter via email at twolverton@businessinsider.com, message him on Twitter @troywolv, or send him a secure message through Signal at 415.515.5594. You can also contact Business Insider securely via SecureDrop.

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