As I walked out of our first board meeting with the founders of Powell Software and our co-investors Level Equity in Manhattan today, I wanted to reflect on why we decided to invest in this company…
A spin-off from an established and recognized consultancy in France, the deal certainly didn’t come to us gift-wrapped. It called for quite a bit of work and patience on both sides to set the stage for a great partnership. Yet, the fundamentals were there, and several if not most of those traits I look for in startups that make for companies I want to invest in were there.
People and culture
This is one of the key things: from the first meeting to the dozens that followed, I have come across established business leaders that beyond having developed a profitable and recognized consulting business over the past 15 years, employing over 200 people, have demonstrated a true entrepreneurial mindset. They could have reaped the rewards and cashed the dividends in; rather they saw a huge opportunity and reinvested their earnings into a great product that became a software venture.
With stellar growth and eye-catching logos, some could have demonstrated complacency and conceit. Not their style. They embody growth mindset: they know what they don’t know, are genuinely humble, ask more questions than they assert, seek advice from experts, look to hire people that will do a much better job than they could, and listen extensively. They are good people with strong values, they care for their teams, and you can feel that throughout their organization. All that makes for a strong culture that is a sound foundation for success. The hardest part will be to maintain it when the company further scales.
Business Traction
When you invest in SaaS, you look at usual KPIs : MRR, churn, MoM, QoQ and YoY growth, sales velocity, CAC, LTV… You drill into cohorts and look up new/up/down/cross-sell… You look at usage and sustainability thereof. The net: it was (and is) really good. They can be proud. Over the past 3.5 years, they’ve achieved consistent triple digit growth and have 1.5M daily users across the globe, from 300 enterprise clients HQ’d in a dozen countries, including some very enviable logos…
A huge, booming market
Then, there’s the depth of the market and the speed it is growing at. Depending on sources, the digital workplace market is estimated to stand between $15B and $30B by 2024, with a CAGR of 25 to 30%. That’s big. Microsoft’s office 365 suite counts 200 million business users worldwide (+30% YoY), and Powell can overlay that to make Sharepoint and Teams (Microsoft’s fastest growing application ever) edible and productive. Regardless of whether you run Office or G Suite (or anything else for that matter), they will also orchestrate all your business apps in a single place, whether desktop or mobile. Plus they will allow you to generate intranets in a matter of hours, for different audiences. The more business apps you use, the more information you have to share, the larger your organization and the more heterogeneous your employee population is, the more you need Powell. All in all, it’s a gigantic addressable overlay market that is still looking for a category leader.
Product and Market Recognition
Becoming a category leader calls for a great product — or rather a product suite to meet client needs. That’s the other thing we love: the team has built on years of experience developing intranets for large corporations, and acquired deep domain expertise: they have responded to what clients were crying for, especially the ability self-manage their digital workplace with minimal integration, and offer a sweat-free experience for IT security officers that have already vetted 0365 migrations! As a result, their flagship product Powell365 has, for the 2nd year in a row, been recognized as a leader in US and Europe by specialized consultant Clearbox for Intranet-in-a-box; the next step is to have Gartner, Forrester and the likes create the category and to make sure they’re in the right spot!
International at heart
I often complain that France is a small market (especially in the software world) but that it is conversely deemed big enough by most local startups to feel comfortable growing within its boundaries. France counts gigantic corporations with global operations and leadership, but it’s not the earliest adopter when it comes to software (not to mention long sales cycles). If you aim to lead a category, you need to be global. And if you want to stay at the edge of innovation, you need to be confronted with the needs of a varied enough customer base with differing requirements. Powell did not wait to scale abroad: 3.5 years into starting operations, they have physical presence in 7 countries (France, UK, Germany, US (3), UAE, South Africa and Hong Kong). You’ll find non-French natives in their Paris office, where English is the official common language. Over 50% of their revenue is international. Music to my ears. Grooming those international ambitions made it a must for me to have a US co-investor on our side — I was very pleased to find one that shared my views on the opportunity, with Level Equity.
Smart Go to Market
Go to Market strategy was another plus when we looked at the deal; although Powell is working on its brand recognition and market leadership, they recognized very early that they needed to rely on partners with strong ties into local ecosystems to win business. They therefore wisely leverage implementation and systems integration partners as distribution channels, resulting in over 80% of their sales involving them. That’s what giant software firms have been doing forever (ask Microsoft, Salesforce, Oracle, IBM, etc.) and if I use market cap as a success proxy, it’s served them well.. It’s the heart of my thesis: if you’re a software startup knocking on the door of a Fortune 100 client on your own, they’ll politely lose you in a never ending sales cycle, or they will route you to the innovation team to run a POC that often leads nowhere… POWELL got that right: they work directly with those personae that have budgets and the power to implement production environments. Their partners know their way around each client. It’s essential.
Cash Efficiency
The advantage of bootstrapping (funding your company with your own $$ vs. calling upon VC money) is that you learn to be cash efficient! In the case of Powell, rarely have I seen such good ratios (the number of $ you need to generate $1M of ARR). This did not prevent them from achieving stellar growth. Now, as with any triple-digit growth SaaS business, you need to keep investing to maintain, if not steepen that slope. This is where we come in: to serve those ambitions. Being cash conscious and down to earth means you need make sure investments are productive. In a world where startups are recognized based on their ability to raise (and burn) cash, the down-to-earth investor I am also likes to think that unit economics and accounting are not obsolete (don’t get me started on WeCompany, among others) and that your path to profitability must be clear. We have that with Powell, and that doesn’t prevent them (and us) from being very ambitious — and demanding on the growth rate!
What’s next?
Now, is it perfect and smooth? Of course not. Else, I’d be bored 😉
There’s a lot of work to do to build the foundations for sustained hyper growth, with higher base effects, and attract top talent to get there. Among other things, we need to build a more scalable partner and alliance program, improve on product marketing and communication (the company is sexier in the inside than it looks on the outside, whereas I am used to seeing the opposite), and constantly (re)prioritize the customer mix (whether geo, verticals or enterprise segments) that proves best suited for fast adoption. At CAP HORN, we do intend to leverage our broad, expert network to help them accelerate.
As with most startups/scaleups, It’ll be bumpy and fun, and we’re certainly proud to be by their side on this journey!
[author] [author_image timthumb=’on’]https://caphorn.vc/wp-content/uploads/2020/01/Capture-decran-2020-01-02-a-12.44.53.png[/author_image] [author_info]Alexandre Pelletier, Partner Cap Horn[/author_info] [/author]
