Marketing Automation Vendor Hubspot to IPO

Large enterprises automate their marketing functions with a tool such as Eloqua (now Oracle) or Marketo, which is public at a valuation of 11x sales.  Small, local businesses may use Yodle which filed to go public and whose prospectus I reviewed here.  “Goldilocks”, in the form of Hubspot, which targets the mid-market (10-2000 employees) has also filed to go public.  After a few week delay, I have been able to review their prospectus.

For several reasons, I’m happy to say that unlike Upland, this prospectus was a joy to read:

1.   Hubspot makes it very clear what they do and how they do it, with simple to understand graphics.  This simplicity is important for scaling among mid-market companies who are not likely to have many full-time marketing people:



2.  Hubspot keeps the product line and pricing simple , with three seemingly well-tailored offerings.  (“Goldilocks” in their versioning too!)  Again, a critical element for scaling.

3.  Unlike many SaaS companies that are going public, Hubspot transparently provides key SaaS metrics.  Hubspot indicates that for the latest three months ended June 2014, their subscription dollar rate of retention is 90.3%, but more important, they also show that it has been rising nicely.  Hubspot also pegs its CAC at about $12k, unfortunately this figure has been rising as well.  Hubspot will have to prove they can stem this growth in CAC.  Hubspot’s ARR is about $9k, and is also rising nicely.

4.  Hubspot has built an impressive ecosystem for penetrating the mid- market.  Critical elements of this ecosystem are 1900 agency partners:


I’d want to talk to agencies and clients to be sure everything is as good as it looks, but Hubspot certainly seems to have the right positioning for the mid-market.   I normally try to avoid the mid-market, as the cost to serve can be high, while the revenue is often not commensurate.  Hubspot may be unlocking the keys to this market.

The Hubspot IPO will likely be very hot and will have a valuation not too different from Marketo.  As a reformed value investor, I will be unlikely to partake, but it will be fun to watch.  I’m rooting for them.

IPO Window Wide Open Again for Enterprise Software

After a little breather, at least two B2B software plays–besides Alibaba– have filed to go public.  In this post, I’ll cover Upland Software and in the future, I’ll cover Hubspot, yet another marketing automation vendor.


Upland was “founded in 2010 to deliver cloud-based enterprise work management applications to organizations of all sizes.”  (Well, that narrows it down a bit.)  Upland has “achieved significant growth since their inception, substantially all of which has been as a result of their acquisition strategy”  The prospectus list six acquisitions in 2012 and 2013:

  • PowerSteering:  cloud-based program and portfolio management
  • Tenrox:  professional services workforce management
  • EPM Live:  project management collaboration software
  • Filebound:  workflow and content management
  • ComSci:  IT Financial management
  • Clickability:  Content Management

These products are all loosely joined under the Upland brand, by adding “by Upland” to each product name.

The company has managed to acquire companies fast enough to reach 1200 customers, $32 million in revenue in the first six months of 2014 and a net loss of about $15 million during the same period.


I tried to find something to get really excited about here, but I’m having problems. Admittedly, I am biased against software companies that grow almost entirely through acquisition, even though I know this can be a quite profitable strategy for the shareholders.  So take my comments with a grain of salt:

On the positive side:

  • Upland has a really nice website.
  • Uplands’s products compete in some broadly applicable, growing, markets: project management, IT financial management, time sheets, and content management.
  • Upland provides one common SaaS metric: on a dollar basis, Upland retained 90% of customers in fiscal 2013.
  • 1200 customers in nothing to sneeze at, including a few blue-chip names.  Also no customer accounts for more than 3% of revenue.

On the negative side:

1.  These are broad, tough markets with multiple buyers from different functions–not easy sells. Upland’s product portfolio manages to compete with everyone from Microsoft to Adobe to Deltek to VMware.  How will Upland differentiate itself?  By product? By vertical? By market?  As a suite (not easy with acquired products)?

2.  Upland’s marketing is necessarily generic.  Here are some claims from their website:

  • From the next 25 years to the next 25 seconds.  Strategy meets execution with a new generation of cloud-based enterprise work management software
  • Run smoothly. Change quickly. Achieve more.  Upland’s family of cloud-based enterprise work management software helps every team in your organization do their best work
  • From modernizing healthcare records to personalizing a global web experience and hundreds of ways in between.
  • Our family of products helps teams run their operations smoothly, adapt to change quickly and achieve more every day. We do this by automating the flow of work, connecting people through technology and creating visibility across all aspects of the organization

It sounds nice, but is it Dropbox, Sharepoint, Google docs, ERP?  Even e-mail makes these claims.  Again, what will help Upland stand out from the crowd?

3.  90% client retention on a dollar basis is the only typical SaaS metric datapoint provided and it is fine, but not great for enterprise software, especially on a dollar basis.  (To be fair, though, it is a new company with not a lot of time to up sell new products.)

4.  For the six months ended June, 2014 R&D expense is more than 50% of revenue. Normally this might bode well for the future.   However, in this case, the majority of this expense consists of a large stock grant ($11M) to a non-executive director’s company, with whom the company has a technology service agreement. There are also a couple of other related-party transactions, though the company is instituting a new policy in this regard going forward.  Related-party transactions never look good and can be easily avoided, so I always wonder why people engage in them.


I’ve become so immersed in vertical software plays, or point solutions with very hard, specific ROI cases, that these broadly horizontal solutions no longer get my blood pumping.   As you can tell, this is one I will be passing on.  Upland feels as though it was hastily pulled together to take advantage of the attractiveness of all things enterprise cloud right now.  Perhaps because everything worthwhile I’ve ever worked on took a lot longer to come together, I’d like to selfishly believe that Upland cannot pull it off so quickly!

Brands Under Pressure

When I graduated college in the early 1980s the accepted wisdom from investment greats such as Peter Lynch and Warren Buffett and business school courses, was that branded consumer goods were a great investment.  Great brands were thought to build moats from competition, allow pricing leverage, build loyalty, and fulfill a yearning by newly emerging middle-income consumers for affordable luxury and quality.

Much this is certainly still true, but one of the secular shifts wrought by the Internet has been to put pressure on the value of many of the national brands.

I was reminded of the pressure on brands by three unrelated events during my recent vacation:

1.  I needed a replacement battery for my Samsung Galaxy 3.  Surprisingly, neither Sprint (my carrier) or Radio Shack offered these.  (This stocking policy may be one of the reasons both companies are doing so poorly.)  Instead, I went to Amazon Prime and promptly bought a replacement battery from a Chinese manufacturer I had never heard of, but that had great reviews on Amazon.  The company also had good prices, a clear description that made it easy to assure the battery would be compatible with my phone, and the product was available on Prime.  I purposely skipped over the Samsung-branded replacement battery, which ranked lower.

2.  When I went for ice cream with my Dad, the local place “Oink’s” was completely packed as it is every night.  (Oink’s has a lot of character and stellar reviews on Yelp, Google, Trip Advisor, etc).  Opting for something faster, we sought out the nearby Dairy Queen (the franchisor owned by Warren Buffett).  The Dairy Queen had been run out of business by Oink’s.  A second one nearby by was also shuttered.  (Thanks to G-d, a third one remains open, providing the occasionally needed ice cream cake and Blizzard.)

3.  Peter Lugli of the aforementioned brand friend and killer, Amazon, sent me a good article from the Economist, a magazine which erudite people like Peter apparently read.  (Not enough graphics for me.).

Taking great liberties with the article, it suggests three main possible components of brand value or equity.

1.  In a world filled with too many choices, a brand provides a level of mental availability (when coupled with physical presence) that makes it easier for us to make purchase decisions.  Brands are mental shortcuts/cues that help us make fewer decisions every day.

2.  Closely related to the above, brands signify consistency and quality relative to a world of unknown providers.

As my examples from vacation show, however, these forms of value are under assault from internet-based rich search and seemingly reliable ratings and reviews from Amazon, Yelp, TripAdvisor, Google, and other sites.  These two forms of brand equity are certainly being challenged broadly and consistently by the Internet, not to mention improved private label brands!

3.  A third element of brand equity is the loyalty engendered by brands that establish an emotional connection between themselves and consumers.  Used properly by brands, the Internet can enhance this emotional connection.  As the article points out, however, this emotional connection is fragile especially for service companies as consumer experience with the brand will outweigh the effects of marketing.  (For example, all of the airlines are well-branded, but our experience is so bad with all of them, the only loyalty we feel is generated by the mileage programs.)

There is one element of brand equity that the article does not mention, which is when our brand choice is highly visible to others.  Let’s call this the fashion element of brand choice.  Some consumers are very careful to manage the brands they wear or the places they frequent to manage their own “personal brand”.  The Internet will have very limited impact on this aspect of brand value–other than through encouraging the sale of knock-offs and grey market goods (Alibaba)!

Polo, Michael Kors, Starbucks, Lacoste, Under Armor, Whole Foods?, these brands and many more are perceived to say something about us to others.  Even the Starbucks cup we carry around may be perceived to say something about us to others versus that Dunkin’ Donuts cup– beyond how burnt we like our coffee.   The Internet will never kill this aspect of brand equity.

I’d suggest that these days if a product is not :

  • either addictive (e.g., caffeine, nicotine, salt and fat, sugar and fat, or Wheat Thins) or
  • one of these “externally exposed”  fashion brands or
  • sold increasingly to folks in emerging markets where an “internal” brand may function like an “external” one

the product’s brand equity may be eroding over time.  No need to panic, but it is time to think more carefully about the nature of a brand’s equity.  If brand equity is not emotional or fashion-driven, it will not be worthless, but it will be worth less.

Learn from the Credit Card Networks!

If you are building a two-sided commerce network or a supply chain finance company (and who isn’t doing the latter these days?), you will benefit from understanding the history and economics of the credit card and procurement-card (p-card) markets.

You can learn about the credit card market by reading Paying with Plastic, reading the prospectuses of Visa and Mastercard, or reading the financial statements of the public merchant acquirers, such as Global Payments, First Data (private, but still publishes financials), and TransFirst which just filed for an IPO.

Among the lessons you will learn from the credit card networks:

  • How to solve the “chicken and the egg” problem
  • How to massively enable “suppliers” (merchants)
  • How much mature networks get paid for standards setting and providing the commerce rails (20-30 bps)
  • How much mature merchant acquirers (supplier enablers) get paid for providing enablement technology, training, and taking on a little solvency risk (10-50 bps)
  • How much issuing banks subsidize the use of their cards by buyers
  • How many networks can survive in the long run–not many

The P-card market, the B2B cousin of the credit card market, is one of the original forms of supply chain finance.  It is a little harder to study than the consumer market, but is well worth the effort.  The best sources of information on p-cards are:  RPMG Research, NAPCP, as well as literature from American Express, USBank, and the other large P-card issuers.  The procurement card industry processes about $200 billion in spend annually and generates net fees (after rebates) of about $2 billion, so it is small relative to credit cards, but nothing to sneeze at.

The p-card industry perfected the art of subsidizing the buyer by providing corporations with rebates in return for spend.  The industry has struggled to make supplier and transaction enablement as easy as in the consumer world (partly due to the expensive fee structure–2%+ 45 days early payment), but recently the industry has tried ways to gain share in larger dollar size transactions, making p-cards even more a part of the supply chain finance game.  In fact, one way to view the current trend in the supply chain finance market is as an attempt to extend credit to the large, “middle class” of transactions and vendors.

Banks have traditionally focused their programs on the gigantic buyers and suppliers, while P-cards mop up the smaller transactions for these same credit-worthy buyers. Figuring out the right legal structure, rules, rails, and funding sources for the vast middle of the supplier market and higher credit risk buyers will take some thinking.   Much of that thinking amounts to adjusting the approach successfully modeled by the credit card industry!


  • big data,
  • a great transactional platform,
  • a legal structure that allows “click-through” participation
  • a smooth supplier enablement program and
  • access to competitive, elastic financing

and someone will create a giant business.  So far there are some contenders, but no one who has solved all of the pieces of the puzzle.

Gaming IPOs

I normally do not write about consumer Internet stocks, but the recent news that Alibaba invested in Kabam ( a game-maker) at a valuation of $1 billion and that Machine Zone (a top-grossing game on the Apple App store) is apparently raising money at a rumored $3 Billion valuation got me excited.

Why?  Because eventually these companies may go public and if they do, despite everything investors have learned about these game stocks, they will still likely be overvalued.  This will create a nice opportunity for the skeptics among us.

I’m not a gamer, never have been.  Not Nintendo, Xbox, PS 4, even apps.  (Maybe a little Fruit Ninja on the iPad when the kids were younger.)  I know very little about this massive industry and really have very little right to comment.  I hear the new games are multi-player, have new freemium strategies and they offer opportunities to buy in-game items, blah, blah, blah.    In other words, the proponents say, “these companies are different.”

But what everyone that has ever played any kind of game knows is:

  • very few of these games create massive franchises and become more than a passing fad.
  • competition in this industry is fierce
  • people only access a total of about 20 apps at any given time (Meaning shelf space is tight and yet supply is seemingly endless.)

Nonetheless, when the latest gaming fad hits the stock market, the public will likely throw caution to the wind and convince themselves that these companies will not be “one-hit” wonders.  In scientific terms, I suppose this is dubbed the “recency effect” by behavioral economists!

The pattern on the last two game IPOs, Zynga and King Digital, could not be more clear. Even though Zynga sank its first day on the market, and King Digital was much more reasonably valued, they have both been good shorts.




Rovio (remember Angry Birds?) did not go public but still reported in April (presumably as a public service) that its 2013 profit fell 50%.

So here’s to Kabam and Machine Zone, we are waiting for you!

B2B Software Blogging is “Hot”

How can I make such a bold claim?  I submit as evidence the following actual pictures of folks (or their colleagues) who have recently asked to link to me on LinkedIn:

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Forgive me, as I do not mean to be sexist (I am, after all, Daddy to two lovely, young ladies and am married to another) but these potential new contacts do not seem random to me.  What could it be that unites these young ladies in their interest in linking to me?

I have several theories:

Theory #1.  My LinkedIn picture was taken professionally many years ago when I had hair. Perhaps this is just an example “associative linking”.  You know, that is the process by which attractive people sort themselves into groups of similarly attractive people.  This is, by far, my favorite theory, but it is also the least likely.

Theory #2.  I write about really interesting B2B software subjects in a pithy, humorous, accessible, some might even say alluring way. ;-)  Maybe this subject is particularly interesting to young, female, brunette readers.

Theory #3.  I have also noticed that all of these young ladies work for companies that provide inside sales/lead generation services.  Is it possible that these people simply want access to my network of contacts?  And is it further possible that these companies have learned that men on LinkedIn seem to accept, and respond more to, links with pictures of attractive young women?  No, that cannot be it.  This theory seems impossible in this day and age.  We all know sex does not sell.  Only adding value and being a trusted advisor.

If you have been a “victim” of the same sales approach, please do not let me know.  I want to continue to believe my first two theories and I do not want to alert LinkedIn to this particular form of abuse of their system.

Running with Blinders On

All good Dads read to their kids.  I have a great Dad.  My Dad taught me to read The Daily Racing Form–the bible of horse racing.

If you are a nerd and/or like to bet, the Form is simply irresistible.  Think of it as the original “Moneyball” database or Fantasy Sports league. The Form provides prospective bettors with a wealth of information on the horses running in the day’s races, including:

  • Historical performance by stage of race, track condition, etc. for their last few races
  • The quality, weight carried, and jockey in those races
  • The genealogy and trainer of the horse
  • The horse’s latest workout times
  • A speed rating which benchmarks performance of the horse versus that track’s record for the same distance
  • Last, but not least, even whether the horse was wearing “blinders” or “blinkers” in those races!

Blinders are worn by horses thought to be poorer performers when they can see to the side or behind them.  Blinders really are designed to provide the proverbial “tunnel vision”.

What I’ve since learned about B2B software, and life in general, is that unlike horses, we are all running with blinders on.

When I was at Ariba looking for networks for us to buy, I was confident I had the most exhaustive list of B2B networks in the world.  I went to conferences, scoured the web, had inbounds from investment bankers, subscribed to analyst reports,  etc.  I’d test my list with folks and generally find my list to indicate a broader perspective.

However, when I left Ariba and started working with both horizontal and Industry Cloud networks, I discovered that I had had blinders on the whole time! Within a few months–just by looking at the market differently–I discovered a couple hundred more networks!  (I used to post a graphic of these companies, but have since given up based on the futility of that effort.)

In fact, every time I look at a new industry, I discover many more SaaS B2B players than I imagined could possibly exist.  A recent example is the real estate and construction industry.  This sector is very hot right now, perhaps because the 2008 meltdown killed real estate and it is only now recovering!  Here’s a great graphic of the companies (B2B and B2C) just involved in trying to improve various aspects of the residential real estate market:


Generally I have been more interested in the commercial construction market than the residential market. In the past week, I discovered three more companies in that space, all of whom are trying to build networks. A final example:  my recent work has been in the healthcare industry and that industry would fill at least three pages like this!

When I talk to entrepreneurs who are looking for advice, I always ask “Who else is doing the same thing you are?”.  I’m not trying to scare them or discourage them, I just want to see if they have studied the competition. More often than not, I find they are running with blinders on too!