As many of you know, the enterprise software space is receiving an unprecedented level of attention in recent months. By unprecedented, I really mean that we haven’t seen anything like this since the dotcom times or the days of the IT revolution on which money was being thrown at enterprise software companies.
The cause of this shift of attention from consumer to enterprise-focused startups might be found in the strong performance of enterprise software companies such as WorkDays, Palo Alto Networks, LinkedIn and Splunk in the IPO market last year which contrasts with the disastrous Facebook IPO and the disappointing performance of consumer darlings like Zynga or Groupon. In addition to the dynamics of the IPO market, we need to add the recent crunch on series A funding partially caused by the large number of startups that, after raising decent angel or seed rounds, haven’t been able to perform to the expectations of series A investors.
The combination of these two phenomenon plus a few other factors, have caused a lot of VC and growth equity firms to turn their attention to revenue-driven, enterprise software startups. Living and breathing in the enterprise software world, I totally love this level of VC-attention because I think it’s necessary to take the ecosystem to the next level. However, I am also very cautious and even a bit concerned about this level of VC-love because I think it can cause its own version of the series A crunch within the enterprise software startup ecosystem: let’s call it “the enterprise software crunch”.
The reasoning here is very simple: by receiving too much attention from the VC community, the enterprise software space is going to experience different phenomenons that could end up hurting the ecosystem. Disproportional valuations, an increase of the number of angel and seed rounds and an overly-crowded market with B or C players in important enterprise software areas such as security, enterprise mobility, cloud or big data are just some of the effects we can fully expect to see as a result of this VC-focused on the enterprise. Any one of those elements or the combination of them can end up hurting the enterprise software space. However, we need to remember that the software industry and the VC-community is really smart and, like a good friend of mine likes to say, they have been to a few dances before ;)
Despite these concerns, we should agree that this recent shift of VC dollars towards enterprise software companies is a great thing for the ecosystem. If we can avoid the side effects of some of aforementioned concerns, we can be confident that the best days in this renaissance of the enterprise software space are still ahead.
PS: I promised a more detailed post about my thoughts on this matter as soon as I have a few hours to focus on writing ;)