VCs eye big cloud software returns despite dwindling valuations

RELATED QUOTES

SymbolPriceChange
CRM71.20-0.42
MSFT57.40-0.63
ORCL39.12-0.32
WDAY90.36-0.52

By Sarah McBride

SAN FRANCISCO (Reuters) - A cloud software boom has nudged startups into unlikely realms such as dairy farms, yoga studios and back-of-the-building loading docks, leading venture capitalists to hope for stratospheric returns.

Venture capitalists poured more than $11 billion into software last year, more than into any other sector and about double the amount in 2010, according to the National Venture Capital Association. The number of deals in which venture firms have backed software startups has risen by about half in the same time, to 1,570 last year.

Not everyone shares their enthusiasm. Wall Street investors are voting with their wallets when it comes to the hottest sector, known as "software as a service" or SaaS. Internet-delivered, subscription-based software has slumped this year, with big companies like Workday Inc (WDAY.N) and Salesforce.com Inc (CRM.N) each shedding around 9 percent of their market value.

Venture capitalists say that decline has dragged down the valuations of private companies. A few months ago, VCs counted on companies trading at 10 times forward revenue when they went public, instead of five times today.

While those numbers might have some observers muttering about bubbles, venture capitalists defend their bets, saying that software is just starting its advance into all kinds of unexpected and lucrative places.

"People are getting it more than they used to," said Jason Pressman of Shasta Ventures, which uses mobile devices to make formerly deskbound software reachable from anywhere, could supercharge the adoption of business software.

Such ventures increasingly must target a smaller slice of business given that the easy broad terrain of human-resources management, bookkeeping, and the like have already been taken.

"I see a lot of startups going after super niche categories," said Chuck Ganapathi, a former Salesforce executive and founder of Tactile, which synchronizes data from calendars, social media, and other programs.

Few SaaS start-ups will become the Microsofts and Oracles of tomorrow, but venture capitalists said that does not faze them. The also-rans will get bought up by big established software companies scrambling to adapt to a cloud-based market.

MISMATCHED

And a lucky few SaaS businesses will make it all the way to a public-market debut, as Workday did two years ago.

"The top 20 percent become real companies," Scott Weiss of venture firm Andreessen Horowitz said in an interview.

Others, he wrote in a blog post last year, will be sold, but the big businesses that buy them will not always know how to handle their start-up acquisitions.

"They will smother these (start-up) companies with too much negative attention, mismatched sales forces, and misunderstood business models," Weiss predicted.

From his perspective, that just creates a double investment opportunity, as the bigger companies' bungling paves the way for entrepreneurs to revive and try again the SaaS idea that withered once a bigger company bought it.

SaaS allows companies to easily try programs without technology infrastructure upheaval or tedious staff training. Dropping a SaaS program is no big deal if it does not work out. The flexibility accounts for why many industries are beginning to embrace the model and bring it mainstream.

At Irvine, California-based loading-dock servicing company McKinley Equipment, technicians ditched three-part carbon-paper work orders for iPads and ServiceMax software. ServiceMax, which earlier this year raised $71 million in new funding, directs the technicians to malfunctioning loading docks, helps locate the bug, and streamlines the ordering of replacement parts.

"In the old days, when a technician needed something, he would draw a picture, 'I need this part, it's the thingamajig that connects the blah,'" recalled McKinley Chief Financial Officer Kevin Rusin, pointing to delays or wrong parts being delivered. Now, ServiceMax and greater use of photos help identify the right gear for order that day, contributing to double digit revenue growth at McKinley.

Other niche players include Dairy.com, which allows farmers to track their milk; and MindBody.com, which allows yoga studios to manage class schedules and customers. Yesware's software analyzes interactions with emails, telling salespeople who has opened and forwarded around their messages so they know where to focus their follow-up efforts.

Even though SaaS seemingly encroaches everywhere, many venture capitalists remain reluctant to invest, perhaps because they think of software in the traditional non-mobile, non-accessible way, said Battery Ventures' Roger Lee.

"Most people's framework for investing is in the rear-view mirror," said Lee, who blogs frequently about software. "What you need to do is completely change your frame of reference."

(Reporting by Sarah McBride; Editing by Christian Plumb, Edwin Chan and Richard Chang)

--

Get stories like this on the Yahoo app and discover more every day.
Download it now.
Loading...
  • Global equity deals rise in third quarter but down 30 percent year-to-date - Thomson Reuters data Reuters - 6 minutes ago

    Global equity fundraising rose in the third quarter, Thomson Reuters data showed on Friday, but failed to make up for the sharp slowdown of the first half of 2016, when volatile markets deterred listings. Bankers said a robust pipeline of deals may … More »

  • Oil prices down on profit-taking after two-day jump
    Oil prices down on profit-taking after two-day jump Reuters - 9 minutes ago

    Oil prices dropped on Friday on profit-taking, after rising 7 percent in the past two sessions, amid doubts that OPEC's first planned output cut in eight years would make a substantial dent in the global crude glut. The Organization of the … More »

  • Windfall in District 20
    Windfall in District 20 The Edge Property - 11 minutes ago

    The bigger profit of $6.1 million accrued to a two-storey bungalow at Windsor Park Estate, which was sold for $8.6 million, or $1,203 psf on land area. Since the seller purchased the freehold property with a land area of 7,147 sq ft in June 2006 at … More »

  • Tokyo shares open down on Deutsche Bank worries AFP - 13 minutes ago

    Tokyo shares opened lower Friday as Deutsche Bank's woes dented financial stocks while sentiment was also hit by weak Japanese data that aggravated concerns about the economy. The weak start followed a ... … More »

  • Nutanix IPO shows risks of 'unicorn' valuations Reuters - 17 minutes ago

    In the run-up to its initial public offering, cloud computing company Nutanix scrambled to avoid a situation that has increasingly marred technology IPOs: a price that is below the most recent private funding round. After initially pricing shares … More »

  • Nutanix exceeds expectations in upsized IPO Reuters - 18 minutes ago

    San Jose, California-based Nutanix's share price exceeds the $13.40 value last placed on its shares in a 2014 funding round, an upgrade encouraging for the many unprofitable technology companies that, like Nutanix, have been weary of testing public … More »

  • 4 Ways Money Can Stop You From Being Successful
    4 Ways Money Can Stop You From Being Successful GET.com - 29 minutes ago

    I'm sure many Singaporeans would agree that having money is part of being successful. But have you... … More »

  • Tenants’ flight to quality puts pressure on Grade A office space rents
    Tenants’ flight to quality puts pressure on Grade A office space rents The Edge Property - 33 minutes ago

    Tenants’ flight to quality has put pressure on rents of Grade A office space, according to Knight Frank’s latest Singapore 3Q2016 office bulletin. Meanwhile, Grade A+ office space in the same area saw a rental decline of 2.1% to between $9.30 and … More »

  • Homebuyers' wish list
    Homebuyers' wish list The Edge Property - 33 minutes ago

    Private homes priced between $1 million and $1.5 million were the most sought-after among the respondents polled in a joint survey by Knight Frank and The Edge Property. The survey found that 217 of the 500 respondents, or nearly one in two, were … More »

  • China Seeking to Succeed Where Japan Failed in Yuan Global Push Bloomberg - 43 minutes ago

    The Japanese yen’s share of global reserves reached a record 8.5 percent in 1991 as the nation’s post-War industrial boom made its economy the world’s second-largest. While the yen is still ranked third for trading and fourth for payments, it now … More »

  • Japan CPI, consumption fall again, keeping Bank of Japan under pressure Reuters - 49 minutes ago

    Japan's core consumer prices fell in the year to August, a sixth straight drop, keeping the Bank of Japan under pressure to ease monetary conditions further as it reboots policy in a bid to hit 2 percent inflation more quickly. Household spending … More »

  • ‘Whistle-Blower’ Suit Against Chinese Bank Withdrawn in New York Bloomberg - 54 minutes ago

    Natasha Taft, the bank’s former chief compliance officer in the city, had alleged she was penalized for telling the Federal Reserve of money-laundering risks from international trade-finance transactions. The case was Taft v. Agricultural Bank of … More »

  • Singapore Insurance Policies as Investment Products
    Singapore Insurance Policies as Investment Products ZUU online - 1 hour 3 minutes ago

    Insurance policies currently available for individuals to purchase in Singapore: 1. Ter... … More »

  • Asian Stocks Fall as Banks Are Dragged Lower by Global Concerns Bloomberg - 1 hour 5 minutes ago

    The MSCI Asia Pacific Index dropped 0.9 percent to 140.05 as of 9:07 a.m. in Tokyo,. A measure of Asian financial stocks weighed most on the benchmark, falling 1 percent as Japan’s Mitsubishi UFJ Financial Group Inc. and Australian lenders … More »

  • Chinese Yuan’s Ascent to Global Reserve Status: A Timeline Bloomberg - 1 hour 6 minutes ago

    Its entry into the International Monetary Fund’s Special Drawing Rights -- alongside the dollar, euro, pound and the yen -- will help further China’s efforts to boost international usage of the yuan at a time when the currency’s share of global … More »

  • Japanese Shares Drop as Lenders Slump on Deutsche Bank Concerns Bloomberg - 1 hour 15 minutes ago

    Deutsche Bank’s New York-listed shares tumbled after Bloomberg News reported about 10 hedge funds doing business with the German lender have moved to reduce their financial exposure. The rout follows a request from U.S. authorities that Deutsche … More »

  • Alarm Bells Sound in New York as Duterte’s Audit Shakes Up Mines Bloomberg - 1 hour 25 minutes ago

    The threat to shutter about three-quarters of the nation’s mines risks savaging the country’s reputation among investors, according to the head of a company whose operations face suspension. “I just came from New York, and investors are very … More »

  • Goldman feels the heat in Asia as IPO engine slows
    Goldman feels the heat in Asia as IPO engine slows Reuters - 1 hour 30 minutes ago

    Goldman Sachs (GS.N) failed to make it to the upper echelon of Asia's equity market fee earners for the first time in more than a decade, hit by a squeeze in fees that is prompting the U.S. bank to cut back jobs in the region. Goldman has shared … More »

  • Japan’s Consumer Prices Fall for Sixth Straight Month in August Bloomberg - 1 hour 30 minutes ago

    Industrial production made a modest gain, while household spending slumped and the jobless rate held near the lowest since 1995. Consumer prices excluding fresh food, the Bank of Japan’s primary gauge of inflation, dropped 0.5 percent in August … More »

  • VW's Skoda to ponder U.S. production amid market push Reuters - 1 hour 50 minutes ago

    Volkswagen's (VOWG_p.DE) Czech division Skoda said it will assess the possibility of building cars in the United States as it considers selling in the world's second largest auto market where its parent continues to grapple with an emissions … More »

  • Most Asian Index Futures Drop Amid Bank Rout; Oil, Copper Swing Bloomberg - 1 hour 52 minutes ago

    Shares in New Zealand fell early Friday with U.S. index futures, as contracts on equity gauges in Japan, Australia and South Korea foreshadowed losses. Financial stocks drove the S&P 500 Index lower last session amid concern over Deutsche Bank AG … More »

  • Bunker-busting bombs close Aleppo underground schools: charity
    Bunker-busting bombs close Aleppo underground schools: charity AFP News - 2 hours 16 minutes ago

    Bunker-busting bombs are putting children in so much danger in Syria's Aleppo that they won't even be able to return to underground schools when classes resume this weekend, a charity said Friday. The "ferocious assault" on Aleppo could deprive … More »

  • Elliott Management takes 8.1 percent stake in Mentor Graphics Reuters - 2 hours 35 minutes ago

    (Reuters) - Activist hedge fund Elliott Management said it picked up an 8.1 percent stake in electronics hardware supplier Mentor Graphics Corp (MENT.O), a few months after Carl Icahn exited the company. ... … More »

  • Obama, Merkel condemn 'barbarous' Russian, Syrian strikes on Aleppo
    Obama, Merkel condemn 'barbarous' Russian, Syrian strikes on Aleppo AFP News - 2 hours 44 minutes ago

    US President Barack Obama and German Chancellor Angela Merkel condemned what they called "barbarous" Russian and Syrian regime airstrikes on Aleppo during a phone call Thursday, the White House said. The Syrian government and its ally Russia "bear … More »

  • Deutsche Bank shares sink 7% as hedge funds pull money out AFP - 3 hours ago

    Deutsche Bank shares sank seven percent Thursday after news that a number of hedge funds had pulled money out of the German giant amid worries over its financial strength. The move to sell off the German ... … More »

 
Recent Quotes
Symbol Price Change % Chg 
Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
You need to enable your browser cookies to view your most recent quotes.
 
Sign-in to view quotes in your portfolios.

MARKET MOVERS

  • Most Actives
    Most Actives
    NamePriceChange% Chg
    0.156-0.004-2.50%
    N21.SI
    0.110.00+2.80%
    40F.SI
    3.95-0.07-1.74%
    Z74.SI
    0.735-0.010-1.34%
    G13.SI
    0.280.00-1.75%
    5ME.SI
  • % Gainers
    % Gainers
    NamePriceChange% Chg
    1.70+0.18+11.84%
    BAI.SI
    0.32+0.03+9.22%
    BJE.SI
    0.255+0.015+6.25%
    BQM.SI
    0.475+0.020+4.40%
    CZ4.SI
    0.110.00+2.80%
    40F.SI
  • % Losers
    % Losers
    NamePriceChange% Chg
    0.435-0.015-3.33%
    T55.SI
    0.31-0.01-3.12%
    5OT.SI
    0.108-0.003-2.70%
    SK3.SI
    0.73-0.02-2.67%
    BS6.SI
    0.156-0.004-2.50%
    N21.SI

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    1.3657+0.0017+0.13%
    USDSGD=X
    1.5314+0.0014+0.09%
    EURSGD=X
    1.7694+0.0013+0.07%
    GBPSGD=X
    73.9580-0.113-0.15%
    SGDJPY=X
    5.6775-0.0065-0.11%
    SGDHKD=X
    3.0323+0.0094+0.31%
    SGDMYR=X
    9,516.8213-25.8916-0.27%
    SGDIDR=X
    4.8846-0.0024-0.05%
    SGDCNY=X
    1.0415+0.0006+0.06%
    AUDSGD=X
  • Commodities
    Commodities
    NamePriceChange% Chg
    1,326.70+0.70+0.05%
    GCZ16.CMX
    19.16-0.03-0.17%
    SIZ16.CMX
    95.01-0.66-0.69%
    ^XAU
    2.190.00-0.09%
    HGZ16.CMX
    43.85+0.41+0.94%
    CLV16.NYM
  • Bonds
    Bonds
    TreasuryYield (%)Yield Change
    1.12-0.01
    ^FVX
    1.56-0.01
    ^TNX
    2.28-0.01
    ^TYX