Emergence Raises New Fund and Maintains Focus
I've been waiting for a few minutes inside VC firm Emergence Capital Partners' swank offices in San Mateo as general partners and co-founders Gordon Ritter and Jason Green walk in. "I see that you've managed to escape the Sand Hill Road gulag," I tell them.
They laugh and we sit down to talk about their VC investments and philosophy. They tell me that getting out from the Sand Hill Road VC community in Palo Alto was important.
"We got fed up with the same scene, and seeing startups go from one firm to the next, all day long," said Gordon Ritter.
"We also wanted fresh and independent thinking and so getting out was important in that regard," said Jason Green.
The four year old Emergence recently announced a second fund, $175m, an increase of $50m over its first fund. And its focus is on what they like to call technology enabled software and services startups.
The first fund had an early success with an investment in Salesforce about a year before it went public. And the other investments have been in similar types of companies in the software as a service sector.
"We decided from the beginning that we would specialize in one type of investment rather than have many different investment sectors," said Mr Ritter. Most other VC firms invest in startups in different sectors. But Emergence decided that focus and specialization would enable it to establish through leadership and expertise--and that would produce more successful investments.
Mr Green says that this has paid off in that they are now known for their expertise and that their portfolio companies have succeeded in raising additional funds.
"Startups in our space know about us and they come to us." He said that Emergence gets to see about 68 per cent of all dealflow in their areas of expertise. That's about 600 business plans per year.
Technology enabled service startups are attractive because they offer a regular services revenue model. Mr Ritter does not believe in hybrid models where companies offer a license for the software, or a software as a service.
RightNow Technologies, for example, offers its software to customers to run in their data centers or they can purchase it as a service.
"Hybrid models won't work because not everybody will upgrade to the new software and so that limits development of new features and services," said Mr Ritter.
The small and medium business market is a natural target market for the type of companies Emergence funds--a huge opportunity and one that IBM, Hewlett-Packard, Oracle, Microsoft, SAP, etc are also targeting.
How about exit strategies? "It's too early to think about IPOs and selling companies," Mr Green said.
But when the time comes, the two men are confident there will be plenty of opportunities for exits. The large IT vendors are obvious potential buyers for their portfolio companies.
Emergence is emerging as new rules VC firm. I define a new rules venture as: take a few specialists in a specific area; focus on the most efficient and productive business processes; and wrap open source and web services IT around them (Mr Green says their in-house IT capabilities are far more sophisticated than at the $1bn VC firms where he used to work).
In many ways, Emergence is a technology enabled services company itself.
Salesforce.com (CRM) San Francisco, CA
The pioneering provider of customer relationship management solutions delivered as a service.
Adapt Technologies Pasadena, CA
Paid search advertising platform and services.
DVDPlay Los Gatos, CA
Automated DVD rental in retail locations
Genius Inc. San Mateo, CA
On-demand customer intelligence service for sales and marketing professionals.
Goodmail Systems Mountain View, CA
The leading provider of email authentication and certification services to corporate email senders.
HireRight Irvine, CA
An innovative provider of technology-enabled employee background screening services for large corporations.
Intacct San Jose, CA
Integrated suite of Web-native financial back-office ERP software solutions delivered as an on demand service.
inQ Agoura Hills, CA
eCommerce company that provides online chat services to generate incremental sales or leads.
Ketera Technologies Santa Clara, CA
The leading provider of on-demand spend management solutions.
Krugle Mountain View, CA
Vertical search engine for software developers.
Megapath Networks Pleasanton, CA
A leading provider of value-added broadband Internet connectivity and services.
SuccessFactors San Mateo, CA
A leading provider of hosted human resource solutions including workforce performance management, assessment and planning.
Visage Mobile San Francisco, CA
A leading provider of enabling services for mobile virtual network operators, or “MVNOs”.