With the venture industry increasingly dominated by a handful of multibillion-dollar powerhouses like NEA and Sequoia Capital, smaller boutique firms have arisen to focus on particular startup sectors or stages. Outfits like True Ventures and Baseline Capital have become popular with investors and entrepreneurs alike. In this week’s edition of Elevator Pitch, we meet the co-founder of a firm with a particularly specialized investment strategy.
San Mateo’s Emergence Capital Partners focuses not just on software, not just on enterprise software, but on enterprise software delivered over the cloud. Software as a service, or SaaS, is one of the most popular catchphrases in tech investing, and Brian Jacobs and his partners have ridden that wave to big-ticket investments in companies like Salesforce.com and SuccessFactors. Here’s Jacobs to explain why:
Q: HOW’D YOU GET INTO THIS RACKET?
A: I started working for a VC firm (Security Pacific Venture Capital) while I was in business school at Stanford. I was planning to start a technology company when I graduated, but I wanted to learn the inside scoop on how to get funded. One thing led to another, and before I knew what happened I had spent 10+ years funding startups. I finally did my own startup when I co-founded Emergence Capital in 2003.
Q: WHAT DO YOU LIKE ABOUT VC?
A: We work with people who intend to change the world. Every day we meet new people with new ideas. It doesn’t always work, but it’s very gratifying to partner with passionate people who are betting it all to make a difference.
Q: WHAT KINDS OF PITCHES ARE YOU LOOKING FOR NOW?
A: We like early-stage companies that have achieved product/market fit without spending a lot of money.
Q: WHAT’S THE BIGGEST MISTAKE ENTREPRENEURS MAKE?
A: Many entrepreneurs get swept up by the fund-raising game. It’s tempting to think that raising a big round means you have succeeded. In many cases, a company founder and all of his or her shareholders will do better by raising less money, not more.
Q: WHAT’S THE NEXT BIG THING GOING TO BE?
A: Mobile business applications will be even bigger that web applications, because virtually all workers can access the cloud from their mobile device. Many large industries, like healthcare, retail and transportation, employ workers who don’t sit at desks. Mobile business applications are the key to bringing these workers into the cloud.
Q: EMERGENCE ONLY INVESTS IN SAAS COMPANIES — THAT SEEMS LIKE AN INCREDIBLY SPECIALIZED NICHE. HOW’D YOU HIT ON THAT?
A: Over the last 10 years, the largest category of venture capital investment has been software. Software-as-a-service is disrupting and enlarging the software market. SaaS may have seemed like a niche in 2003, but today it is one of the most exciting sectors for entrepreneurs and venture investors. Software is eating the world, and innovative companies are using the cloud to rewrite the rules of various industries.
SaaS dramatically lowers the price of using software, and we know that when prices decline, market size increases because more customers can afford to buy. Today, customers are equipping all of their workers with cloud-based software from Emergence portfolio companies such as Salesforce, SuccessFactors, Yammer and Box.
Q: VENTURE CAPITAL INCREASINGLY SEEMS TO BE RETURNING TO ITS ROOTS AS AN “ARTISAN” BUSINESS. BUT ARE THERE ENOUGH STARTUPS FOCUSED ON CLOUD-BASED ENTERPRISE SOFTWARE TO KEEP YOU AND YOUR PARTNERS FED?
A: Innovation leads to more innovation. The cloud enables us to rethink how business is run, and we see new ideas every day.
Since we founded Emergence 10 years ago, each year we have seen an increasing number of exciting opportunities focused on cloud-based enterprise software. And we believe that trend is accelerating.