Meet Jack Newton, the Driving Force Behind Clio’s Legal Tech Revolution

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When Jack Newton started legaltech company Clio alongside his grade-school friend Rian Gauvreau, it was 2008 — but based on the way lawyers worked, it could’ve been decades earlier. 

Top firms located in the most expensive real-estate in Manhattan were dedicating the bulk of their floor space to filing cabinets. Paper timesheets were the norm. And it would’ve been hard to find an office that wasn’t filled with the distinctive whir of fax machines… not to mention exhausted, overworked, and unhappy lawyers. By 2008, Amazon, Salesforce, and LinkedIn had all become major players in the corporate world; within the legal space, though, it was as if the Internet revolution had never happened. 

In the 15 years since, Clio has been a leader in the movement to modernize the legal industry, bringing an efficient and easy-to-use suite of products to bear on taking the law online. But Newton and Gauvreau didn’t set out to spark a revolution in how lawyers and law offices do their business on a daily, even hourly, basis. (And anyone who has ever encountered a lawyer knows just how sacred the hourly basis is.) Instead, they had a much more fundamental realization that guided them toward their ultimate destination — and it began when Newton started charging neighbors to shovel their snow. 

Newton grew up in Edmonton, Alberta, where he got into computers at an early age; he remembers tinkering with an Intel 8086 that his dad brought home for him. By eight years old, he was already writing programming, absorbing the remarkable implications of what it represented. “That was so mind-bending for me, especially as a young person — that you could just sit down and write some lines of code and make something that does something useful for people,” Newton says.

Doing something useful for people always played a major role in his thought process, and at the same time that he was experimenting with processors, he also started his first businesses. One of these came out of a very simple observation: in Edmonton, it snowed a lot. People needed their driveways shoveled. So he and his brothers started a snow-shoveling business — serving a clear need in their community. (Newton likes to joke that he’s always been in SaaS, except then, instead of Software as a Service, it was Shoveling as a Service.)

Fast forward to the mid-2000s. While many people assume that Newton is a lawyer himself, he’s actually a technologist: he trained in computer science as an undergrad and then obtained a master’s degree in machine learning at the University of Alberta. After working as a software developer at a blossoming medical-technology startup, he got the itch to launch his own company, and he and Gauvreau surveyed the scene around them, trying to understand what kind of business the macro environment might support.

“We saw the cloud becoming a really transformative technology that was going to, in our mind, transform almost every industry out there. It was really obvious to us, even though the cloud was fairly nascent in 2008,” Newton says. “Our question was, what is an industry that is ripe for transformation, ripe for disruption? Rian and I were two hammers looking for a nail.”

Cue the snow-shoveling wisdom. They needed to find the space most desperately in need of what cloud technology could provide — the place where there was the most snow that needed to be shoveled. At the time, Gauvreau had actually moved to Vancouver and was working for the law firm Gowlings, and he got to observe firsthand how poorly the average law firm implemented technology. They realized that the legal industry desperately needed a cloud-based service that could consolidate and streamline many of the practices that remained painfully manual. And they also saw that it wasn’t just a corporate need: it was a societal need as well. 

“It’s an important space in that the legal system is really foundational to our society, and access to justice was a huge issue where 77% of individuals do not have access to lawyers to help them see good legal outcomes for their problems,” Newton says. “We really saw that it was not only a big and important opportunity, but that legal, in a lot of ways, was the last major industry to be fundamentally transformed by technology in general, and by the Internet, in particular. Lawyers in 2008 were still doing their job like it was 1958 — they had really been almost untouched by technology in terms of how lawyers worked on a day-to-day basis.”

While the need for Clio seemed clear, Newton and Gauvreau had no sense that they were launching a company that would one day be worth more than a billion dollars and employ almost a thousand people. At the beginning, their goals were far more modest: create something that could support the two of them and a handful of other employees by making the “average lawyer’s day just a little bit better and a little bit easier to get through,” as Newton puts it. 

But it soon turned out that this average lawyer looked considerably different than he expected. As a technologist, Newton had little idea of what lawyers were actually like — and most of what he did know was based on TV. He assumed that most lawyers resembled Harvey Specter, the slick protagonist of USA Network’s Suits, working in high-end firms populated by hundreds of lawyers. He was surprised to find that, on the contrary, about 80% of lawyers turned out to be working at firms of 10 lawyers or less, and a full half were practicing solo. 

“They don’t have a floor of IT people, the way a big law firm might,” Newton says. “They’re solving their problems themselves, or they’ve maybe got their 13-year-old nephew that’s good at computers helping set up their IT systems.” Moreover, these lawyers weren’t just practicing law: they were spending even more of their time running small businesses, something they had never been trained to do in law school: “The law school industry is unfortunately producing a lot of lawyers that are pretty ill equipped to do that successfully. We saw a real hunger for a tool and a company that helped lawyers understand how they can leverage their training as a great lawyer into being able to run a successful law firm.”

That meant that this modest initial goal — make the average lawyer’s life a little better — turned out to have extremely far-reaching effects, because so many lawyers were so desperately in need of what Clio had to offer. At the same time, not only was the legal industry more than ready to start this evolution: as a SaaS company — Software now, not Shoveling — it actually made sense for Clio to go out and raise external funding so that they could frontload customer acquisition as much as possible. Newton had come to understand this from analyzing other SaaS case studies, where he saw evidence of a frequent winner-takes-all dynamic, particularly in vertical spaces, where the market could really support only one major player. 

This is also what caused Clio to first come across the radar of TCV. “We look at large verticals and potential technology categories of different types and try to understand, for anything that seems like a potentially large opportunity, who are the most innovative market leading businesses in those segments,” TCV general partner Amol Helekar says. “Legal was one of those almost Captain-Ahab, white-whale types of categories for us where we felt like, wow, this is such a huge vertical.”

As Helekar surveyed the space, he couldn’t find any companies that felt truly innovative and paradigm-shifting as far as how they addressed the way that law firms run — until he met Newton at a conference and learned about Clio, which was doing exactly that, for more than 35,000 firms. At the same time, Clio fulfilled the other criteria that Helekar looks for in a successful investment, including unique and powerful value proposition, huge engagement with users and customers, virtuous cycles that could cause a chain reaction of innovation within the product category, and a visionary, growth-oriented CEO and management team. 

“It’s the same types of characteristics that we saw with some of our notable investments, whether it’s Netflix, Spotify, Facebook, Expedia, or Zillow,” Helekar says. “When we would do customer calls on Clio, which we did well in advance of investing, we heard from lawyers that they’re using the product every day, that this is the core for how they manage their businesses. It’s the first application they log into in the morning, and it’s the last one they log out of at night. That’s where they track all their time, where they store all their data. And you could just feel the passion and the importance of the product to how they manage their practices.” 

On top of that, Clio wasn’t just transforming the way that law firms conducted their operations — it was also fueling development within the whole ecosystem of legaltech. Clio now features more than 200 applications, and it exists at the center of its vertical, investing in other legaltech products as well as hosting the Clio Cloud Conference, or ClioCon, one of the largest and most influential annual legaltech conference. 

But when TCV invested in Clio’s Series D round in 2019, it wasn’t a partnership that Newton entered into lightly. At the time, Clio was on pace to become a $100 million company, but Newton was already thinking past that — how they could become a $500 million company, and then a billion-dollar company, a “really durable, generational company.” To achieve that kind of growth and presence, the fit would have to be perfect.

“Maybe second only to who are you choosing as your co-founder, the next most important decision you make as a founder is who are you bringing onto your cap table to help grow the business, and in what ways can they help support you growing the business over the long term.”

“It’s like a marriage, and a lot longer lasting than some marriages: you’re entering into a five or six or 10-plus year engagement to go and drive transformation in the company and take the company to the next level.”

What impressed Newton at first was that TCV sat down with him and other members of his management team and walked them through a detailed view of how the fund thought about the legal space and where they saw opportunities to expand, as well as the feedback they were getting from their customer calls — years before they invested in Clio. This provided both a sign of good faith as well as a preview of what their partnership might look like, and Newton found himself aligned with Helekar and TCV on the various propositions that both sides brought to the table, including a strategy for using corporate development and M&A as tools for expanding Clio’s reach and value. 

Crucial in making the partnership work, though, was that TCV understood and endorsed Newton’s forward-thinking outlook — a very forward-thinking outlook. “We talked about building a 100-year company at Clio, a company that’s going to outlast me as CEO and outlast everyone who’s currently part of Team Clio, and it’s rarer than you’d think to find investors that have the kind of long-term view that that TCV does on their investments,” Newton says. “A lot of investors are thinking about a three-to-five-year hold period, and I think TCV is exceptional in how many investments they’ve been part of for a decade. Or two.”

More importantly, Newton and Clio have fulfilled that initial goal of improving lawyers’ quality of life — once again, far beyond the scope of what he had initially envisioned. Lawyers do not live easy lives: they work long hours in high-pressure situations, often engaging with clients at the worst moments of their lives, whether it’s a divorce, a bankruptcy, or any number of other pivotal events. 

“You spend your entire day, internalizing other people’s problems, dealing with emotional stakes that are quite high to start with,” Newton says. “And then you’re dealing with structural components of the industry, all the way to the billable hour, that really encourages a mismatch between work-life balance, including a very hard-driving atmosphere at law firms where associates and more junior folks in the firms are worked extremely hard. All of this creates a profession that has some of the highest suicide rates, highest substance abuse rates, highest rates of depression of any profession, full stop.”

By helping them to manage their workloads, streamline their interactions with clients, and increase responsiveness without piling up more hours on the job, Newton and Clio have found that they’ve been able to make a noteworthy difference not just in lawyers’ work, but in their lives. In one internal survey of their customers, Clio found that its software saved them eight hours a week — a whole workday’s worth of logistical and administrative labor that no longer needed to be performed. 

But Clio didn’t spin this as time that could then be turned into more billable hours. Instead, the company coined what it calls the “Clio day.” “We really turned that around and said that the time we’re saving you is time you can go and invest in quality of life,” Newton says. “This is time that you can spend with your husband or wife or your kids — this is the school recital that you don’t have to skip and miss out on.”

It all goes back to the streets of Edmonton. People don’t pay you to shovel snow because they want to have more time to shovel snow: they pay you to shovel snow so they can do something else. Newton and Clio have applied this lesson to an industry in which the average practitioner had to shovel a lot of metaphorical snow. 

Now, there’s a company that can shovel some of that snow for them.

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The views and opinions expressed are those of the author and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). TCV has not verified the accuracy of any of the data or statements by the author and disclaims any responsibility therefor. This blog post is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by TCV or any of the securities of any company discussed. The TCV portfolio companies identified above are not necessarily representative of all TCV investments, and no assumption should be made that the investments identified were or will be profitable. For a complete list of TCV investments, please visit www.tcv.com/all-companies/. For additional important disclaimers regarding this interview and blog post, please see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/

The API Economy

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APIs are seen as the cornerstone of modern software applications, as they allow developers to efficiently stitch together multiple services and build better apps faster. With the continued rise of microservices architectures and cloud computing infrastructure, APIs are the main way in which software interacts with software, both within and between organizations. Today, developers are spending more than half of their time on APIs, underscoring how important APIs are to modern software development.

Microservices architectures decompose applications into smaller services that can be independently managed and updated. With services now organized around business lines or functions, microservices offer increased flexibility and modularity, making applications easier to develop, test, deploy, scale, and maintain. As companies increasingly leverage microservices and engage with third-party and open APIs to create applications, the volume and complexity of enterprise API footprints are exploding. In web development, serverless architectures are abstracting away backend infrastructure behind APIs, which is leading to a decoupling of the backend from the frontend. These trends underlie an unbundling of the software stack and a move towards API-led SaaS, where software is consumed in smaller component parts. 

There has also been a recent emergence of new web API protocols/frameworks like GraphQL and gRPC which enable a step-function improvement in performance, leading to the creation of new types of applications. As a result of these shifts, an entirely new infrastructure software layer around API development, management, networking, monitoring, and security has emerged (see below landscape).

GraphQL has been widely adopted by large enterprises like Facebook, Yelp, and GitHub, who have reported significant improvements in application performance and developer productivity. With GraphQL, developers can specify exactly what data they need wrapped in a single request, reducing unnecessary, repetitive data fetching and improving overall application performance at scale. This attribute is especially advantageous for large-scale applications with numerous front-end clients that require high-performing data retrieval.

GRPC is another modern API protocol that is gaining popularity amongst developers. It is a high-performance, open-source framework for building remote procedure call (RPC) applications. With GRPC, developers can write efficient, fast, and scalable distributed applications, enabling microservices to communicate with each other. GRPC also supports a range of programming languages, making it a versatile option for application development.

As APIs have come to the forefront of application development, tooling around building, authenticating and testing APIs and writing their documentation have arisen in the form of collaborative software platforms. These companies emphasize the collective power of the engineering community towards faster and more robust API development, improved governance, and tighter security downstream. The growing overall trend towards sharing data externally, spurred by API-first businesses, has contributed to the growth of API marketplaces that provide a place for developers to upload, distribute and monetize their APIs as well as provide a space for consumers to discover and implement APIs for their own products.

In microservice architectures, apps are broken down into a network of back-end services that perform specific business functions. Both open source and commercial product offerings have developed around the concept of service mesh – the management of inter-service communication that will only grow in complexity as additional microservice applications are built. New innovations have also arisen around the API Gateway in terms of routing efficiency, security, real-time tracking and scalability.

The rapid proliferation in both closed and open API development has led to a corresponding rise in security concerns. APIs are now commonly used as a primary target for attackers, as they are directly used to access underlying sensitive software functions and data sources. Existing cybersecurity solutions like Web Application Firewalls (WAFs) and older models of API gateways do not offer comprehensive coverage.

Security leaders note identifying, inventorying, and securing APIs as a critical pain point within their organizations, and see implementing API security solutions as a top priority over the near term horizon. 

As more organizations recognize APIs as the building blocks of modern software, we believe tooling and services around API design, testing, security, and networking will continue to advance and capture developer mindshare. 

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This thought piece was originally shared with TCV’s TCXO community. TCXO brings together executives across functional domains to share best practices, unpack challenges, and foster networking opportunities. Members will have access to exclusive TCV content, events, and programming. Sign up to here to join the network.

The novel digitization of healthcare data and the compelling opportunity for technology

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The U.S. healthcare industry is undergoing a rapid technological transformation underpinned by the recent and novel digitization of healthcare data. Historically, the healthcare industry has operated in an offline fashion (e.g., paper records, phone calls, faxes, etc.), and the utilization of digitized healthcare data was largely limited to insurance claims. Today, healthcare generates ~30% of the world’s data and its data volume is projected to grow faster than that of any other industry.[1] At the same time, we believe technology adoption within healthcare remains low compared to other industries.

In our view, the proliferation of healthcare data is principally the result of three factors:

1. Ubiquitous adoption of electronic medical record (EMR) platforms

2. Growing availability of genomic data

3. Increased use of wearable healthcare devices 

The first followed the 2009 HITECH Act, which provided incentives for healthcare providers to purchase EMR technology platforms; accordingly, as of 2019, ~96% of healthcare providers had adopted an EMR, up from only ~8% in 2008.[2] 

The second is a derivative of the dramatic reduction in genomic sequencing costs over the past two decades – from ~$95M per genome in the early 2000s to only ~$500 today.[3] The resultant proliferation of genomic data has had a transformative impact on the medical field and led to a myriad of advances in treatment and MedTech, particularly around understanding how an individual’s DNA contributes to varying health and disease outcomes. 

Finally, the growing use of wearable healthcare devices (e.g., smart watches, blood glucose meters, etc.) has resulted in troves of real-time, patient-generated data that is increasingly being used for real-time patient monitoring and intervention applications, as well as in clinical trials to both expand patient accessibility and improve data capture. 

Until recently, all three of the aforementioned types of healthcare data existed either in an offline format (e.g., paper records) or essentially not at all (e.g., genomic and wearables data). Note that there are several other types of healthcare data consistent with this trend, including, but not limited to, lab, medical imaging, and social determinants of health (SDOH) – all of which are important and have their own idiosyncrasies. In our view, however, drivers #1 – 3 outlined above are the three most notable and encompass the broadest array of healthcare data; accordingly, this piece focuses principally on those three.

As a derivative of unsustainable growth in U.S. healthcare expenditures, coupled with a growing need to improve health outcomes, the healthcare industry has reached a profound inflection point. Against this backdrop, we have strong conviction that numerous category-defining, franchise technology companies will be built that utilize healthcare data to address the industry’s most ambitious problem statements and pain points, including increasing drug discovery and development productivity, improving diagnostic quality and care coordination, driving operational efficiencies, and improving the overall patient experience – all vectors which also improve patient outcomes. In our view, these technology platforms have the opportunity to drive an enormously compelling ROI for industry stakeholders across a myriad of use cases and applications.

Having said all of that, there are several foundational considerations that render healthcare data uniquely difficult to utilize. While the complete list is rather long, here are some of the more notable roadblocks:

1. Healthcare data exists in silos generally organized by data type (e.g., clinical records, insurance claims, genomic, lab, imaging, pharmacy, etc.)

2. Custodians of one type of data are unlikely to be willing to share it with other industry stakeholders (e.g., a provider with clinical data vs. an insurer with claims)

3. There is no ubiquitously utilized enterprise master patient index (EMPI) that can be used to pair datasets at the patient level; single data sources by themselves present an incomplete picture

4. HIPAA compliance and other regulatory considerations heavily restrict data access, sharing, and utilization rights

5. Different data formats and connectivity standards introduce added complexity and friction in terms of data sharing (though some recent industry initiatives are helping)

6. ~80% of healthcare data is unstructured (e.g., free-text notes, images, etc.) rendering it difficult, if not impossible, to use in its current form[4]

In our view, these challenges, coupled with the growing volume and diversity of healthcare data sources, present a unique opportunity for technology companies to deliver significant value to the healthcare industry. We sub-segment the technology companies that benefit from this theme into four buckets, including: 

1. Infrastructure and enabling technologies

2. Data analytics

3. AI / ML to drive decision-making

4. AI- / ML-enabled automation

Note that #1 and #2 are not mutually exclusive, while labeled and annotated training data are prerequisites for #3 and #4. Below we’ve shared a bit more about each category, as well as some representative vendors that fit into each.

1. Infrastructure and enabling technologies – Help connect, normalize, curate, and manage data across disparate sources and formats; examples include 1upHealth, Datavant, Health Gorilla, HiLabs, Innovaccer, Lifebit, Mendel, Ribbon, TetraScience, Tripleblind, Science.io, and Veda Data Solutions

2. Data analytics – Packaged, self-service analyses via an application layer and / or curated data delivered via an API; examples include Kipu*, Komodo Health, H1 Insights, OM1, and Truveta

3. AI / ML to drive decision-making – Use labeled / annotated data to train AI and ML models that help end users make better informed, more efficient decisions; examples include Aidoc*, BenchSci*, Deep 6 AI, Diagnostic Robotics, Iterative Scopes, Paige.AI, and Unlearn

4. AI- / ML-enabled automation – Use labeled / annotated data to train AI and ML models that automate business processes and workflows; examples include Syllable*, Abridge, AKASA, DeepScribe, Memora Health, Notable Health, and Robin Healthcare

* TCV portfolio companies

We further believe that technology companies across all four categories have an opportunity to differentiate and establish competitive moats along the four dimensions outlined below. To be clear, compelling technology platforms need not check all four boxes – some may only check one of them.

1. Unique access to healthcare data – This can be a derivative of business model (e.g., open / network-based system), via barter or give-to-get relationships, long-term data sharing partnerships, and / or customers contributing data, among other levers

2. IP that integrates, curates, and prepares the data for downstream use cases – This may take the form of technology tooling and / or organizational know-how (e.g., the process for cleansing the data)

3. Functionality that applies healthcare-specific contextualization – This often involves both platform functionality as well as clinically / scientifically trained personnel in order to ensure effective platform utilization by the end user

4. Software applications that deliver value in the context of specific business use cases and workflows

In closing, the U.S. healthcare industry is perhaps the last major industry to undergo digitization; it is also one of the largest. Against a rapidly growing volume and diversity of healthcare data, coupled with challenges and complexities associated with its use, we believe there is an extraordinary opportunity for technology to play a leading role in audaciously unlocking and delivering value across multiple sub-segments, functions, and applications in healthcare. Accordingly, we at TCV are incredibly excited to continue to partner with companies boldly seeking to utilize healthcare data in order to fundamentally transform both the development of novel medicines and provision of patient care, and, ultimately, to improve patient outcomes.

1 Source: RBC.

2 Source: HealthIT.gov.

3 Source: NHGRI.

4 Source: NCBI.

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The views and opinions expressed are those of the speakers and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). TCV has not verified the accuracy of any statements by the speakers and disclaims any responsibility therefor. This blog post is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by TCV or any of the securities of any company discussed. The TCV portfolio companies identified, if any, are not necessarily representative of all TCV investments, and no assumption should be made that the investments identified were or will be profitable. For a complete list of TCV investments, please visit www.tcv.com/all-companies/. For additional important disclaimers regarding this blog post, please see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/

TCV invests in Evisort to deliver scalable, AI-powered contract management

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Contracts are at the heart of business, enshrining a company’s rights and obligations across areas ranging from sales transactions and supplier relationships to employment agreements and beyond. Resulting from this centrality, rising contract volumes and legal complexity have made contract management unmanageable without leveraging technology.

Evisort delivers end-to-end contract intelligence software that turns contracts into data. Customers use a simple, intuitive interface to extract critical context from contracts, integrate that data into other enterprise systems, and automate a wide range of legal and operational workflows – themselves codified in contract data. Evisort’s platform is powered by award-winning AI that is purpose-built for contracts and trained on over 10 million documents, thereby driving a differentiated customer experience and rapid, tangible ROI.

We are thrilled to announce TCV’s Series C investment in Evisort. We believe that contracts have been both an under-managed source of risk and under-explored source of value for companies, and that Evisort’s AI-powered Contract Intelligence Platform solves increasingly important pain points for businesses of all sizes, ranging from the Fortune 500 to mid-sized companies alike.

Evisort was founded in 2016 by lawyers and technologists who saw the need for automation in contract management.  The platform started as an intelligent analytics engine that extracts clauses and metadata to index contracts and their contents, making them easily searchable and manageable without manual data entry. Evisort’s AI further contextualizes the contract, indicating what type of contract it is, identifying counter-parties, flagging auto-renewal dates, and more.

More recently, Evisort has been adding workflow capabilities – relevant for coordinating contracting processes and operational workflows across the business. Evisort’s end-to-end approach ensures that all contract data is located in one repository, minimizing security risks, reducing the number of required integrations, and allowing the system to apply learnings from previous contracts to new ones.

More than any other contract management software business we’ve evaluated, Evisort’s AI platform supports a wider range of teams, industries, and use cases. Sales teams use Evisort to drive sales and renewals by reducing contracting friction and speeding time to agreement and revenue recognition. Legal departments use Evisort to drive compliance, quickly find and report on critical information, and act as a single source of truth. Procurement and sourcing organizations rely on Evisort to accelerate purchases, negotiate stronger agreements, and manage supplier risks more effectively. In all cases, Evisort drives efficiency by reducing reliance on manual legal review – a major bottleneck in many contracting processes.

Transforming the future of contract management

Evisort’s Contract Intelligence Platform has three main capabilities:

AI-Powered Contract Analytics and Insights: Evisort extracts data from contracts, produces critical insights, and reports on those insights in an easy-to-use dashboard, so that users can focus on higher value tasks. This contract intelligence is then used to generate workflows across the organization. Evisort is focused on delivering the intelligence layer between core operating systems such as customer relationship management and enterprise resource planning platforms.

Intelligent Contract Lifecycle Management: Evisort provides contract request intake, contract drafting, approvals, version control, and repository (storage, search, reporting) features. Evisort’s platform creates a source of truth so teams can centralize knowledge, collaborate easily, and simplify contract administration.

Central Contract Repository and Integrations: Evisort’s no-code platform lets legal, sales, and procurement teams self-serve, taking the burden off of IT teams and providing immediate configurability. Evisort easily integrates into existing systems to minimize the need for data migration and accelerates deployment because employees can work from the systems they already use.

Why now: A big market waiting for the right end-to-end product

At TCV, we have invested extensively behind the digitization of the legal industry – having backed innovative legal technology industry leaders such as Clio, LegalZoom, and Avvo. As part of our work in this space, we have been closely following the evolution of the CLM market for nearly a decade. In that time, customers consistently indicated a desire to manage both new and existing contracts in the same place – in other words, a true end-to-end platform. Over the last several years, our conversations in the space increasingly indicated that Evisort’s founders Jerry, Jake, and Amine had built exactly that and Evisort’s platform was seeing accelerating adoption in a largely greenfield market.

Evisort customers – which include our portfolio companies such as Netflix – typically start with analytics use cases to understand existing contracts, and then add pre-signature workflow to more efficiently generate new contracts. From there, thanks in part to Evisort’s ease of use, usage often quickly expands to additional teams and stakeholders within their organization. For customers, the results are industry-leading time-to-value, implementation speeds, self-service analytics, and flexibility to apply contract-based insights to a wide range of business functions. For Evisort, a cohesive and forward-thinking strategy appears to have translated into an innovative and fast growing company in an exciting market.

Looking Forward

As we look to the future, we are incredibly excited about the tailwinds strengthening Evisort’s value proposition for its customers. Businesses of all sizes have more contracts and a greater need to manage them than ever before. The compliance and regulatory environment also continues to evolve, requiring businesses to maintain constant visibility into their contract corpus. And companies are increasingly leveraging the data embedded in contracts to drive business processes across sales, procurement, operations, and finance.

Given that robust backdrop, we are incredibly excited to work with Jerry, Jake, Amine and the rest of the Evisort team to maximize the opportunity for AI applications in contract management.

 

Empowering the growth mindset: Next gen people SaaS

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The employer-employee relationship is being reshaped and the next generation of HR software vendors are helping employers attract and retain the best talent

At long last, companies are waking up to the reality that the talent they employ is their most strategic, and ultimately differentiating, asset. However, in a somewhat ironic twist of fate, attracting and retaining talent is more difficult than ever before, driven by near decade-low unemployment rates, the much touted Covid-induced “Great Resignation”, and global competition for increasingly diverse and inclusive talent. Employers are also facing hybrid work as the new normal, as well as a generational shift to Millennials as the dominant employee base. 

The task for navigating these challenges is being laid at the feet of HR teams, whose responsibilities now span everything from driving Diversity, Equity, and Inclusion (DE&I) initiatives and improving organizational health and wellness to reducing employee attrition and navigating hybrid work / the return to the office. All of this in turn necessitates a much more strategic approach, and has escalated the importance of People teams to mission-critical as organizations recognize they need to do everything in their power to hire, nurture, and retain top-tier talent.

At the same time, People teams have historically relied on a legacy stack of outdated and inflexible software tools (e.g. ADP, SAP Successfactors, Oracle HCM, and Ceridian) that have acted primarily as systems of record rather than systems of engagement built for a hybrid work-environment and focused on employee user-experiences and organizational ROI. These tools are unable to drive employee engagement and lack the functionality required to enable People teams to operate effectively.

Enter Next Gen People SaaS, the new-age of HR software tools seeking to empower People teams looking to align People operations with overarching company strategy. 

These vendors are going after a massive market opportunity – Paychex, Workday, and ADP alone comprise $200Bn in market cap. That said, the market is not homogeneous, and the dynamics in each segment are nuanced. For instance, while the SMB market is largely greenfield (running many HR processes on paper and Excel), the enterprise market is rife with legacy solutions that are difficult to integrate with and thus organizations are left with tool sprawl, where a spaghetti-mix of 50+ different HR tools is not unusual. 

We at TCV have been lucky enough to partner with next gen HR leaders including LinkedIn, Grupa Pracuj (the largest job board in Poland), Hirevue (AI-driven talent assessment and video interview platform), Perceptyx (employee surveys and people analytics platform), OneSource Virtual (Business-Process-as-a-Service vendor for the Workday ecosystem) and more recently Darwinbox (cloud-native end-to-end HRIS platform for Enterprise), and Humu (enterprise-grade digital training platform). In addition, we have also had the opportunity to both collaborate with and learn from a deep bench of People-team leaders across our portfolio, including TCV Venture Partner Jessica Neal, the former Chief Talent Officer at Netflix. We continue to believe there are enormous opportunities ahead in HR and expect to see innovation arise from every corner of the globe. Here are three of the major themes we believe will shape the HR-tech landscape in the coming years.

#1: HR products built for employees

While we are now used to frictionless, user-friendly tech experiences everywhere in our personal lives, the software tools many of us use daily in the workplace are clunky and counter-intuitive. Next Gen People SaaS is changing this paradigm by putting employee experience at its heart and, in the process, turning systems of record into systems of engagement, driving ever-higher ROI, as well as enabling flexibility with how employees engage with employers.

Best-in-class UX is required for Next Gen People SaaS

Superior UX enables employees to self-serve to a much greater degree, alleviating the administrative burden on People teams. Geographic and vertical context also becomes relevant. For example, offering a truly mobile-native and mobile-optimized (note: not the same as just having an app) UX in emerging markets and frontline industries can be critical in driving access and engagement across the full employee base. This is a key factor that underpins the  strong momentum seen in companies like Darwinbox. Many new-age tools also monitor traditionally “B2C” KPIs (e.g. DAU/MAU, sessions per day), while also continuously A/B testing to drive better user engagement, thereby unlocking workforce insights that legacy tools with poor user uptake are simply unable to access. By utilizing Next Gen People SaaS, People teams can drive heightened employee engagement while also gaining meaningful insights in culture, sentiment, and employee performance.

Employing talent on its own terms

The days of inflexible, full-time, in-office employment are largely behind us. Companies have realized that, in the war to hire world-class talent, the ability to offer flexible employment (e.g. remote work from anywhere in the world, freelancing) can be a critical differentiator. That said, this creates enormous challenges for People teams, as running onboarding and compliant payroll and benefits across full-time and freelance employees in several countries is fraught with complexity. This has driven the rise of a host of new tools (e.g. employer of record, aggregated global payroll, end-to-end freelancer management tools) to simplify this process and alleviate companies of onerous compliance and administrative burdens. We believe these tools will further embed themselves into the core-HR stack of the hybrid workplace of the future.

#2: Talent is at the forefront of HR product innovation

The ongoing war for talent will dramatically reshape the HR tech-stack in the years ahead. Given the criticality of talent as a key differentiator, we expect to see accelerated innovation and the rise of best-in-breed point solutions (particularly for larger enterprises) at every stage of talent management process:

Sourcing

Professional networks, such as former TCV investment LinkedIn, have become staples of the HR toolkit. That said, there are further opportunities to enrich data from existing networks and build more advanced, automated searches powered by AI:  e.g. aligning with an employer’s diversity and inclusion goals, helping to automatically elevate talent at the right stage in their careers, prior candidate rediscovery, etc.

Screening and recruitment

We are seeing two major, and often simultaneous, themes reflecting the growing war for scarce talent – 1) a pivot towards building candidate-friendly recruitment experiences vs. being employer-centric (as much as employers are trying to better evaluate whether a candidate is a good fit for them, savvy candidates are doing the same with potential employers); 2) a pivot away from interview processes focused on subjective individual assessments towards more quantitative, standardized screening that collects dozens of data points along the candidate journey to reach better, less biased recruiting outcomes. 

Enablement

Retaining and nurturing talent have become highly strategic areas for employers, exacerbated by the generational shift towards a Millennial employee-base. We have seen the rise of increasingly sophisticated solutions for engaging and training talent, including a focus on individualizing content delivery. For instance, TCV portfolio company Humu helps teams instill and develop effective workplace habits through the use of behavioral nudges. At the core of Humu’s differentiation is the focus on delivering the right content, to the right person, at the right time.

Although the supply of world-class talent in every department is scarce, nowhere is the effect of the war for talent felt more acutely than in R&D. As ‘technology’ has shifted from being a standalone industry vertical to a horizontal foundation that nearly every industry depends upon, demand for engineering talent has never outweighed the supply more dramatically. Given that analysts continue to forecast a global technology talent shortage of nearly 5M workers by 2030[1], we anticipate this will be a defining trend of the 2020s and will continue giving rise to engineer-focused talent solutions.

While we expect the proliferation of talent-focused point solutions to continue, at the same time, we expect to see other segments of the HR stack begin to rebundle. Many mid-market and enterprise People teams have experienced massive tool proliferation over the last years (some using as many as 50+ different HR apps!) and tool sprawl is now becoming increasingly challenging to manage. As a result, we expect to see many core HR tools (e.g. time & attendance, benefits etc.) naturally aggregate thereby providing HR teams and employees with seamless, end-to-end integrated workflows.

#3: The specialization (and verticalization) of HR

In spite of the fact that both employer and employee needs vary significantly by size, industry, and geography, many vendors historically have offered a ‘one-size-fits-all’ HR proposition. As a result, there have been a number of historically overlooked and underappreciated market segments that represent massive greenfield opportunities when innovators focus on them explicitly. Going forward, as we have seen with broader vertical SaaS over the last decade, we expect to see the rise of verticalized HR vendors who focus on a specific customer segment and offer a much deeper, more tailored proposition than a generic, horizontal platform. In addition to this, we believe there are clear parallels with our theses around the office of the CFO and SaaS as a network whereby the verticalization of HR also gives rise to the opportunity for vendors to offer a bundled solution which in turn can drive TAM expansion, improved retention, better unit economics, and a more strategic relationship with customers. Two major expressions of this that we are focused on are 1) the rise of SMB-focused platforms and 2) tool-building for frontline workers.

Rise of SMB platforms

People teams in SMBs have historically been notoriously overstretched, understaffed (or even nonexistent!), and undertooled. More often than not, the “core People” platform is pen-and-paper or an Excel spreadsheet that is error-prone, time-consuming to update, and only acts as a very basic system of record. 

Increasingly, as SMBs are having to up their game and offer great employee experiences irrespective of resource constraints, we are seeing a new generation of arms dealers cater to this enormous yet enormously underserved market segment. Given the greater propensity for SMBs to purchase bundled solutions, we believe that vendors who can land with a mission-critical beachhead have an opportunity to expand their footprint and build a single-aggregated People suite for SMBs. 

We see two primary beachheads into the SMB today – the central people data repository (“HRIS”) and Payroll (mission critical from day one). Companies in such a position have a unique opportunity to build an ecosystem of integrations with best-in-breed tools (e.g. for performance, engagement, training and onboarding, interviewing, etc.), further embedding themselves as the epicenter of the new SMB People stack, and potentially over time branch out and cross-sell other People modules and even financial services (e.g. insurance, expense management, etc.). As outlined above, this drives a multitude of benefits (ARPU expansion, improved retention, deeper customer relationship, etc.). 

Given the sheer scale of the SMB base (e.g. SMBs typically represent ~50% of national GDPs[2]), the market opportunity for even national or regional champions is enormous.

Building for the frontline

Despite the fact that nearly 2 billion people currently work on the frontline and nearly every organization employs a combination of desk-based and frontline workers, HR tools have historically catered primarily to longer-tenured, desk-based employees. That said, this is changing as organizations are increasingly recognizing the importance of engaging their frontline workforce, in no small part catalyzed by the recognition of the critical role frontline workers played in helping navigate the Covid-19 pandemic.

The requirements of frontline employees can differ significantly from those of desk-based workers. As a starting point, many frontline workers lack access to a desktop (so being truly mobile-optimized and deliverable to a variety of endpoints is mission critical); they may not have a company email address (which has implications for security as well as means of communication); and they often have more flexible, shift-based working hours (which has implications for time/attendance/payroll). In addition, hiring, training, and onboarding may need to happen in a matter of hours, versus days or weeks for desk-based employees.

We are now seeing the rise of HR tools optimized to service the unique requirements of this historically underserved segment of the workforce. Going forward, mirroring the rise of vertical SaaS in the past several years, we expect to see continued specialization of HR platforms by worker type, which in turn is a stepping stone towards industry verticalization. As with the SMB opportunity, this could in turn drive opportunities to offer bundled HR solutions such as employee learning, time and attendance, and payroll.

What excites us

While great progress has been made modernizing the HR technology stack in recent years, the unprecedented challenges HR teams face when looking to hire and retain world-class talent are more pertinent today than ever before. We believe this will continue to create massive opportunities for problem-solving technology vendors across the HR stack, especially into historically underserved market segments. We at TCV are incredibly excited about what the future holds for HR tech and look forward to backing and supporting visionary teams building the seminal businesses of tomorrow across every corner of the globe.

[1] Future of Work: The Global Talent Crunch, Korn Ferry, 2018

[2] 2020 Annual Report on European SMEs, European Commission; & “Measuring the Small Business Economy,” Bureau of Economic Analysis, US Department of Commerce, 2020

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The views and opinions expressed are those of the speakers and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). TCV has not verified the accuracy of any statements by the speakers and disclaims any responsibility therefor. This blog post is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by TCV or any of the securities of any company discussed. The TCV portfolio companies identified, if any, are not necessarily representative of all TCV investments, and no assumption should be made that the investments identified were or will be profitable. For a complete list of TCV investments, please visit www.tcv.com/all-companies/. For additional important disclaimers regarding this blog post, please see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/

Understanding the Future of High Tech

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If the best way to create the future is to build it, then the best way to understand a possible future is to listen to those who invest in it. Gartner interviewed several leaders at TCV to better understand their views on the future of high technology and high-tech providers. The views expressed below represent TCV’s view on its operations and the future. These opinions are TCV’s own and independent of Gartner positions. Throughout the interviews, the following themes emerged regarding the forces and factors driving technology investments and future success:

  • Top-line revenue growth has replaced cost efficiency as the primary job for technology — it is now Job. 1.
  • Insight is the source of effective strategies for achieving growth through differentiation and specialization.
  • The pace of change is accelerating across the frontiers of technology, including how rapidly companies and consumers adopt it — and few competitive advantages are as decisive as speed.
  • Technology architectures are in the midst of a generational change that is driven by more than the cloud or Hyperscalers.

TCV has invested in these insights, focusing on companies with the technological potential to support rapid, substantial growth in large, untapped markets. Figure 1 shows the ideas and connections TCV leaders described as the future of high tech.

Figure 1. TCV’s Perspective on Technology-Accelerated Growth

Growth Is Job 1 for Technology

“When you cut through all of the jargon and acronyms, the biggest difference for software and tech over the past five years has been in supporting growth,” says McAdam, who contrasts the growth imperative with technology’s prior jobs of taking costs out or getting cheaper computing power. 

“Technology has created operating leverage via business process automation. Now technology’s value rests in driving top-line growth.” This changes the nature of technology, how it is valued, and what it does, according to McAdam.

“Growth is the uber premise when we think about disruptive technology solutions and the digitization of everything that drives our investment themes,” McAdam explains. “Consider CFOs. It used to be that an old-school CFO would be cost-oriented and say yes if the solution saved money and drove EPS. CFOs of today still care about this, but not as much as they care about taking market share from the competition. The clearest way a tech company can get a multibillion-dollar market cap — one that is 10, 20, 30 times revenue, is to provide a product that allows customers to transform their businesses and grow faster than the competition.”

Building for Scale and Speed

Applying technology in support of revenue growth requires TCV to work with companies on their go-to-market (GTM) strategy. TCV uses the ratio of revenue growth to sales and marketing expense (see Figure 2a) to identify points of friction and efficiency.

Figure 2. TCV’s Sales and Marketing Ratio

The calculation indicates how much new growth the company is achieving for every dollar spent on sales and marketing. If the ratio is 50 cents every $1 spent on sales and marketing generates 50 cents in new growth. The lower the ratio, the more opportunity there is to increase efficiency or effectiveness.

Figure 3 illustrates how the sales and marketing ratio can visually depict the performance of a company’s sales and marketing efforts. (Note these ranges are for illustration only; typical ratios vary by industry.)

Figure 3. Illustrations of Sales to Marketing Ratio

Source: TCV

TCV is using technology in a number of ways to move the needle:

  • Implementing analytics and diagnostics to identify growth obstacles, and documented strategies to better orchestrate key GTM practices across sales and marketing.
  • Facilitating forums and collaboration where leaders share ideas and best practices and road-test ideas with other executives.
  • Leveraging GTM practices that are based on best practices within the portfolio and providing other TCV companies with ready-to-programs to speed time to value.

TCV’s head of Marketing, Katja Gagen, added: “We see companies using technology to optimize their go-to-market capabilities. This can range from publishing thought leadership on growing sales pipeline or refining their messaging. The difference with technology is that companies can actively benchmark themselves against industry best practices.”

Blending Human Insight with Analytics to Identify Growth Potential

“We track nearly 10 million companies in our database,” notes Tim McAdam, a general partner at TCV. “We then do a deeper analysis of 2,000 to 3,000 candidates per year in order to select 12 to 15 companies in which to invest.” This puts our information on prospective companies into an analytic engine running proprietary algorithms created from the firm’s domain knowledge, sector expertise and 26 years of investment insights.

The result for each candidate is much like a credit score — a snapshot of investment worthiness that guides subsequent analysis and decision making. As McAdam explains, “Any given result is statistically valid because of the high number of other companies we have ranked against the same set of metrics. It’s an empirically driven assessment of the company’s areas of strength and needs for improvement.”

TCV uses this information to differentiate each of its portfolio company’s situation and connect it with experienced people and resources in support of the company’s success. McAdam compares TCV’s role to that of a coach, “we recognize that the founders of our portfolio companies are deeply invested in their firms. We seek to provide advice for them with humility, intellectual honesty and insight, with an eye toward finding solutions that move them forward.”

Growth requires a different Technology Architecture and Infrastructure

Matt Robinson, a TCV principal, explains that “high-tech architectures shift about every decade. Today, the increasing importance of speed, extensible solutions and consumption-based business models is the driver of evolution in architectures and infrastructure. If my technology is designed to drive your top-line growth, then your growth becomes my growth,” Robinson explains. “Our architectures and infrastructures need to be seamlessly integrated together.” Thus, the business case for architecture evolution is at least as important as the technical innovation from cloud and Hyperscalers.

The Future of High Tech — High Growth Potential

TCV does not see the future as one of consolidation around a few large well-capitalized companies — either Hyperscalers or so-called digital giants. “It is an old argument to think that everything will consolidate,” McAdam notes. “That view makes sense only if companies stop finding new ways to grow.” While he believes that Hyperscalers are important, he sees their role as “more of a channel to a stream of future technology-intensive growth and innovation rather than a competitor in the application/solution space.”

Gartner subscribers can see the full published case study at: Case Study: The Future of High Tech and Generative Providers (TCV).

Digitizing One of the Last Unconnected Markets: Built’s Place in the Multi-Trillion-Dollar Global Construction Ecosystem

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$1.58T is spent annually in the U.S. construction industry, yet it’s one of the least digitized industries in the world. Paralleling the shift to digital transformation across other industries, this is beginning to change. That’s just one reason we are delighted to announce that TCV is partnering with construction finance cloud leader: Built Technologies.

Construction may be one of the least digitized industries, but that’s not going to last for long. Builders and owners are expecting digital services, just as they do in all other aspects of their lives. When it comes to financing a construction project, customers around the world should expect seamless communication, payments, and procurement through the convenience of their phone. That’s why we are excited to invest in Built, who is seeking to upgrade the functionality and user experience for everyone in the construction value chain. 

Nashville, Tennessee-based Built offers a cloud-based platform solution for construction lenders, owners, developers, and contractors. Its software acts as a digital workspace to allow all parties to collaborate to get projects built and keep capital flowing to the proper destination. The software is used by more than 150 of the leading U.S. and Canadian construction lenders, in addition to thousands of developers and contractors. 

Built is closely following TCV’s thesis for SaaS as a Network – combining software + payments + marketplace, and connecting all key stakeholders on one platform. SaaS as a Network is a strong model for industries lagging in digital adoption, as products are focused on driving solutions, operational enablement, and strong ROI. We’ve seen this at Toast in the restaurant space – where Toast helps businesses operate more efficiently and grow revenue by providing payments, software and services, or with Clio, where law firms are able to manage their employees, and customers, and enable payments.

We believe SaaS as a Network is markedly increasing the possible expected return and economic strength of vertical sector-serving SaaS platforms, given it takes advantage of end-to-end workflows to build “rails” direct to their merchant’s customers, suppliers, and employees. 

When a SaaS provider starts serving a high enough density of merchants, it can leverage that strength to build two-sided marketplaces with the merchant’s customers, suppliers, and employees. That SaaS vendor has now created a marketplace that can enjoy powerful network effects as seen in consumer marketplaces like Airbnb and Amazon. 

Built’s platform started with a Construction Loan Administration offering that improves communication and operations between banks and their borrowers. Built has grown this offering to over 150 lender customers, representing more than $80 billion of unique construction dollars and is the system of record for these lenders’ construction portfolios. In addition, builders use this system to access their capital—the lifeblood of construction.

By following the flow of money from banks into the hands of builders and owners, the Built team realized there was an even bigger opportunity within the construction ecosystem. They started to build more products around payments and value-added services like on-site inspections and other critical support to enable the construction loan process.

Built was able to accomplish all this due to its product-driven team, led by CEO, Chase Gilbert, who has construction industry experience and understands the real-world buyer pain points. In addition, Chase and the Built team have taken a customer-centric approach that informs everything that they do, especially product design. As we spent time with customers, one of the key themes we kept hearing was the operational efficiencies that Built enabled. All stakeholders involved with the Built platform felt that they were able to operate better through their use of Built.

Since its 2015 launch, the platform has been used to manage the financing of over $135 billion in construction, spanning more than 200,000 commercial, homebuilder, land development and consumer residential projects. All these were factors that led to TCV being the lead investor in Built’s $125 million Series D funding round.

TCV first called on Built in 2017, and our team took the time to build a strong relationship with the executive team.  

“We appreciate the great investing experience TCV brings to the relationship. As a result of its deep customer and technical research, TCV understands our vision and can see just how big an opportunity this is for both of our companies. We’re excited for our future together.”

Chase Gilbert, CEO, Built

While the recent funding is a nice milestone for the team, we are even more excited about the tens of thousands of users that access Built on a regular basis to fund their operations, and the opportunity Built has to build more products and do more to help its customers.

We view our investment as a perfect opportunity to add value. We think Built has a superb window of opportunity, as the world moves faster into a recovery being boosted by widespread embracing of digital ways of working. And, finally, we see huge potential in Built’s ability to connect key stakeholders in the construction process, connecting everyone onto a shared system. We’re grateful for this new partnership with Built and Brookfield Technology Partners, 9Yards Capital, XYZ Venture Capital, HighSage Ventures, and existing investors Addition, Index Ventures, Canapi Ventures, GreenPoint Partners, Nine Four Ventures, Fifth Wall, Goldman Sachs, and Nyca Partners among other individual investors. We look forward to supporting Built’s world-class team on their mission to transform a global market. The addressable market is not just the U.S.’s $1.58 trillion, but the world’s annual $10 trillion construction market.

We believe construction finance on a SaaS as a Network footing presents a remarkable future opportunity. Let’s get something great Built here!

If you’re interested in driving change in the construction finance market, Built is hiring!

FarEye Helps Enterprises Delight Their Consumers at Every Step of the Journey

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After perusing slick digital shopfronts for hours, checking AI-enabled online catalogs, and paying through seamless single-click checkouts, you may eventually be rewarded with ‘your delivery should arrive in 5-10 working days’ and left to pray that the shiny new gizmo you ordered will arrive in one piece. Sound familiar? For all the innovation and investment across most steps of the online purchasing journey, the actual delivery experience has been largely neglected. Yet, the surge in remote purchasing shows no signs of abating and consumers are demanding faster, better, and cheaper deliveries. This has placed the status quo under immense strain and the need for new solutions to help companies navigate this complexity today is greater than ever.

A New Frontier for Innovation in E-Commerce Enablement

E-commerce enablement has been a key investment theme for TCV, and we have made multiple investments across each step of the value chain. In early 2019, we invested in RELEX Solutions (Helsinki, Finland) which provides an AI-driven platform helping global retailers forecast demand and prepare their supply chain to execute against it. In 2020, we backed Spryker (Berlin, Germany) which helps enterprises build beautiful digital commerce platforms for B2B, B2C, and marketplaces. We also invested in Mollie (Amsterdam, Netherlands) which provides a seamless, easy-to-integrate online payments solution for merchants across Europe. Another recent investment is Trulioo (Vancouver, Canada) which provides seamless know-your-customer (KYC), and know-your-business (KYB) verification checks globally, enabling smooth onboarding of merchants and consumers onto online marketplaces and fintech platforms. Paradoxically, while the e-commerce experience may appear increasingly effortless for consumers, the underlying technology landscape has become increasingly sophisticated and complex.

Following our investments upstream in the ecommerce value chain, we cast our eye further down, identifying logistics as the natural next step. Within this untapped, vast market, last-mile delivery from a fulfilment center to a delivery endpoint like a consumer home has always been the most operationally complex and resource-intensive leg of the journey, absorbing nearly 50% of total logistics dollars spend, driven by inherent lack of economies of scale (disparate drop-off points) and its on-demand nature. Complexity has also compounded due to new delivery and fulfilment modes like micro-fulfilment centers, curb-side pick-up, etc. which strain already razor-thin margins for retailers and carriers alike. Even Amazon, the most sophisticated logistics machine in the world, has not been spared — as a percentage of retail-related sales, Amazon’s cost of fulfilment/shipping grew from ~16% to 32% between 2010-19. On the end-consumer front, delivery experiences have become a critical driver of satisfaction and repeat purchases, with delivery constituting the only physical touchpoint for online brands with their customers. In fact, 55% of US consumers have bought goods from one retailer over another because they provided more delivery options[1]. Throw all of the above in the mix and you have a market that is ripe for disruption. Enter FarEye – a next-generation intelligent software platform that helps enterprises to orchestrate all of their delivery logistics requirements.

We were thrilled to recently announce our investment in FarEye. Founded in India in 2009 by Kushal Nahata (CEO), Gautam Kumar (COO), and Gaurav Srivastava (CTO), the trio started their journey as logistics consultants, before settling on their strategy of building a software platform that would help companies navigate the immense complexities of managing last-mile deliveries. Having spent several years developing the product in India and South-East Asia, where delivery logistics challenges are even more pronounced than in Western economies, FarEye relocated headquarters to Chicago and moved towards global expansion, addressing the vast demand across Europe and the U.S.

Compelling ROI and an Enormous Market Opportunity

We first came to know FarEye through its superlative customer feedback and enormous ROI generated for customers – 22% improvement in first-attempt deliveries, two times improvement in courier satisfaction, and 24% increase in on-time deliveries all while providing complete visibility across the entire logistics operations. Spurred by these reviews, we got in touch with Kushal and were blown away by the depth of the platform as well as Kushal’s strategic and product vision.

The FarEye platform provides an incredible range of end-to-end functionality today — all deployed on fully multi-tenant, cloud-native infrastructure — that benefits retailers, carriers, manufacturers, and end consumers alike. Shippers and carriers benefit from automated order allocation and dispatching, real-time dynamic routing, loop optimization and electronic proof of delivery; their customers get slot-based & flexible delivery scheduling, automated alerts and notifications, the ability to real-time track their deliveries, and 24/7 chatbot-based customer support. FarEye also empowers enterprises with the latest advances in real-time tracking and tracing, ETA prediction based on real-time constraints such as traffic bottlenecks, and control-tower visibility of enterprise delivery activity.

At the heart of the FarEye platform is a low-code BPM engine that allows users to rapidly build delivery workflows that can be customized to meet the demands of a particular industry and customer. Customers today span hot-food delivery, pharmaceutical, packaged goods, housewares, industrial equipment, and more. FarEye even counts some of the largest global carriers among its clients. FarEye Delight has helped the company to quickly expand its existing customer base which increasingly rolls out the platform across new geographies and business units while growing its functionality with net retention that is best-in-class.

As e-commerce and broader home-delivery become the new normal, retailers across the world are racing to adapt, while those that do not face the risk of quickly falling behind. For TCV, FarEye is an excellent fit with our overarching strategy of investing early in what we believe to be the franchise technology companies of the future – no matter where they are founded. FarEye joins Cognite, Trulioo, Redis Labs, Revolut, Relex, Nubank, Klarna, Mambu, Mollie, Spryker, and Dream Sports among recent investments made outside the U.S. Based on our experience investing in many other global leaders that were once young growth-stage companies, we believe FarEye has the technology, talent, expertise, and strong track record to become a truly generational software business of the future.

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The views and opinions expressed are those of the author and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). TCV has not verified the accuracy of any of the data or statements by the author and disclaims any responsibility therefor. This blog post is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by TCV or any of the securities of any company discussed. The TCV portfolio companies identified above are not necessarily representative of all TCV investments, and no assumption should be made that the investments identified were or will be profitable. For a complete list of TCV investments, please visit www.tcv.com/all-companies/. For additional important disclaimers regarding this interview and blog post, please see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/.

[1] MetaPack Global eCommerce Consumer Report, 2020

Full Potential SaaS

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We believe that SaaS vendors, particularly vertical and SMB, that provide a “system of record” are seeing massive increases in TAM, competitive moats, and economic opportunity. By extending and leveraging their workflow, data, and account ownership, SaaS vendors are delighting end customers while creating platform and networks.

With opportunity comes competition, both from within one’s category (e.g. application area) or from adjacent categories within one’s vertical (e.g. industry). As boards and management teams wake up to the opportunity, they realize that the race is on to capture the full potential of their vertical.

This post is a framework to help leaders of SaaS companies think through the strategic choices and hopefully increase the odds of reaching their full potential.Strategy is implemented by focused alignment of execution, talent, M&A, organizational structure, functional excellence, and financial and governance/board frameworks.

Finally, it’s important to acknowledge that very few companies have reached “full potential,” and this framework is inherently aspirational. However, “most entrepreneurs aren’t building a house, they are putting bricks in the foundation of a skyscraper” (Naval Ravikant). Aspiration is important, so hopefully this is an articulation of what is possible.

Lead the Category

This phase of the SaaS strategy is well understood. A SaaS company aspires to:

  1. build a great product (and service)
  2. over time, build an efficient and repeatable go-to-market model (marketing -> sales -> onboarding)
  3. and then “add capital” and execution to press its advantage against sluggish incumbents or poorly capitalized competitors

This is the playbook that Omniture and our portfolio company ExactTarget pioneered a decade ago. Despite massive capital inflows into SaaS and deteriorating economics, this model generally still works today.

On the product side, scale in data + AI can create increasing differentiation. For example, when you start to have more data than anyone else, you can flip your product from being reactive to proactive — having the product tell users where to look and how to optimize the system. Both Xero and Shopify have done this well.

Five other things to think about in this early phase that don’t get enough attention:

  • Scalable onboarding: Onboarding friction can be unaccounted drivers of CAC and churn. A great onboarding process builds the trust and confidence that are the foundations of virality/word of mouth, future cross- as well as third party channel strategies. Carefully measure funnel metrics and be attentive to new customer NPS. Automate early as “throwing bodies at it” can create process debt that will be difficult to unwind later.
  • Expansion: Expansion drives net revenue retention and most of the strategies we are about to discuss. With all sales processes, it’s a lot easier to learn, iterate, and optimize with fewer bodies and less complexity.
  • UI and Architecture: Like onboarding, these can be long-lead time fixes that compound as your business scales and gets more complex. A specific call out is to plan for an API strategy. It can facilitate future partner strategies and increase the value and stickiness of your offering.
  • Pricing structure/strategy: You will constantly revisit tactics, but it’s important to have some sense of how your pricing structure might change over time.
  • Foundations for global, including a work culture that can support distributed executives and operations, and good product feedback loops that incorporate non-home market needs.

Hyperscale Locations, Feed the Beast

A lot of ink has been spilled on forward investing in sales and marketing, and arguably it’s part of a/the “lead the category” strategy. But, it’s worth a call out as it’s important you don’t take your eye off the ball too early. So much of winning and future monetization is getting location market share. When the wind is at your back, go get it done! Market structures have a nasty habit of shifting, future secular tailwinds may abate, or competitors may leapfrog your product or your go-to-market model. If your churn and sales economics are sound, keep “feeding the beast!”

One particularly powerful unlock is Channel. There are verticals and categories, where influencers in a channel are kingmakers and can help you engage with segments that are otherwise difficult or uneconomical to reach.  Furthermore, Channel partners’ engagement and contributions can enrich your products and increase overall customer value. A great example is in tax software, where Xero’s wooing of accountants proved to be an effective source of customers and a formidable competitive moat (thereby disrupting the incumbent provider). Xero went as far as offering free practice management tools to help accountants run and grow their business on Xero.

Win the Control Points: Own Your Vertical

This is where management teams are faced with a paradox of choice: “Where should we go next? How should we spend the next incremental dollar? On increasing ARPU, acquiring incremental locations, or expanding into new verticals, geos or segments?” At this juncture, it is our belief that you should focus on winning the control points. In vertical SaaS, there are typically one or two control points, “systems of record.” Usually one control point in the front office (e.g. Point of Sale, CRM, e-commerce) – “that drives sales, that grows the business, that serves as the cash register.” And one control point in the back office (e.g. general ledger) – “where everything else reconciles to.” Hopefully, you provide one of the systems of record, so go build or acquire the other system(s) of record and secure the high ground! 

Pragmatically, a system of record is the last software package a customer will “turn off” in a tough economic time.

We also like to think about the concept of “gravity”:

  • Workflow gravity – the system that all other systems integrate to – it’s where the most users spend the most time. Not all workflows deliver the same value; in my experience the system of record workflow tends to deliver the most value.
  • Data gravity – the system that creates and holds the most critical information and is the hardest to migrate. That data can be critical to a client for a wide range of applications, from understanding their customers (e.g. CRM) to managing risk (e.g. compliance). Data also can be critical in two-level situations, such as loan underwriting (e.g. a bank underwriting a merchant’s risk via POS data) or supplier information management (e.g. a client managing risk by validating supplier capabilities and quality). Data depth and scope also create gravity where AI technologies can be highly productive.
  • Account gravity – the user/sponsor of the system is the highest-ranking individual in the customer organization; it’s the system that requires the biggest financial outlay, etc.

Winning the other system of record is not easy. By definition, a system of record is hard to displace and unless the market is greenfield pen and paper, competition can be challenging. You may be able to do it organically with product innovation, but M&A can be the more desirable path if “integration debt” is manageable. If M&A is not possible, a slow winnowing of your competitor may be the only approach available to you.

If you own multiple systems of record in a vertical, the benefits are enormous:

  • Customer delight: automation from integrated workflows and potentially unified data and data models allow efficiencies and offerings unavailable before
  • “SaaS as a Platform and SaaS as Network” opportunities
  • Stronger account ownership to capture incremental spend and drive more efficient growth
  • A new level of durability and stickiness

A good example is Veeva. The company started in 2007 with the launch of a CRM and a sales automation platform for pharma sales reps (e.g. record their activity, keep track of the doctors they meet with or drop off samples for, etc.). After becoming the dominant player in that category, Veeva saw an opportunity to move backward into research and development for their life science customers (developing new drugs, conducting clinical trials and bringing those drugs to market). In 2011 Veeva launched Vault, a suite of applications that first centered on the core content management needs for clinical trials, regulatory submissions, and quality documentation. The company then expanded to include a series of core data applications that help manage clinical trials, quality processes, safety processes, etc. Veeva is expected to finish 2019 with $1.1B in revenue (26% YoY Growth) and 37% EBIT margins. Vault represented 51% of total revenue and grew 38% YoY. Analysts also estimate Vault meaningfully expanded Veeva’s addressable market. 

Another recent example might be front office player Shopify’s $450M acquisition of 6 River Systems to move into back office fulfillment and warehouse management. Some financial analysts estimate that merchants spend up to ~10-15% of their GMV on logistics which could potentially provide multiples of Shopify’s current take rate.

Expand Headroom

With category leadership comes high market share and potentially high saturation. Long-term growth is driven by location growth, as there’s generally a finite share of wallet you can access. It’s important to invest in the S-curves of geos, segments, and adjacent verticals that can unlock new location TAM. This can take a couple of tries before you’re successful, so start this during your growth phase when there’s less pressure on maximizing profitability.

Extend Through the Value Chain

This stage of growth can be transformative. By leveraging the strengths of your core customers, you can expand into a new market with a new set of customers. Typical patterns include moving from front office software to extend to your customer’s customers, or from back office software and extending to suppliers. These can be riskier bets, but success can pay out big here:

  • Increased TAM
  • Workflow that spans multiple parties and creates increased customer value and vendor stickiness
  • Two-level network effects

Supplier

Extension seems to work best by “following the money” and leveraging purchasing power. TCV portfolio company Ariba articulated the “golden rule”— He with the gold rules! By using their leadership in procurement software at large corporate buyers, Ariba extended to build a robust suppliers software business for merchants that serviced those corporate buyers. More recently, Avetta has followed a similar path in the supplier information space by building a strong two-level network effect. We believe corporate clients want to be on Avetta because it has the largest network of suppliers, and suppliers want to be on Avetta because it has the most corporate clients. Avetta’s advantage gets stronger as it scales. Moreover, Avetta has an opportunity to help suppliers do more than just manage compliance information. As a result, Avetta sees growth in helping suppliers grow and operate their business.  

CCC is on the third generation of this approach. They started by serving large auto insurance carriers and then extended into autobody repair shops that serve the carriers. CCC is now in the process of expanding to parts suppliers. By getting all the key constituents on its software platform, CCC is able to leverage AI and automation to massively reduce friction and provide a great customer experience across all steps of the auto insurance process.

Employee

The employee opportunity is similar to the supplier opportunity in terms of “following the money.” Companies can use integrated payroll or time & attendance offerings to establish a relationship with the employee. Employees are also consumers who represent significant B2C opportunities such as consumer lending, insurance, etc. There are big dollars here, but perhaps less opportunity to build significant network effects.

Consumer

The consumer/demand opportunity is the white whale. We believe that SaaS companies tend to capture ~ 50-100bps of GMV for software subscription, whereas online demand channels can take 15-20% of GMV in categories such as hotels and restaurants. In addition to the massive revenue opportunity, Consumer also represents a strategic flank worth monitoring carefully. Online marketplaces have large competing salesforces that engage with your merchant customers and have strategic interests encroach on the software layer to try to control supply.  Booking.com bought Buuteeq and Hotel Ninjas to vertically integrate into hotel supply. Uber is rapidly expanding its driver offering to over-draft protection, a debit card, and likely lending over time to manage driver churn. This is another example of increasing marketplace + SaaS convergence.

That said, success stories of extending SaaS to Consumer are rare. Few SaaS companies have consumer product DNA, the funds, or the skills to build a consumer brand. While a SaaS provider can have a high market share of merchants in a vertical, it’s rare that it has the supply ubiquity that an online marketplace would require. Eventbrite is one of the few companies that has landed as a software tool for creators, built liquidity, and created a marketplace.

Some derivative Consumer monetization models include:

  • Consumer pay: FareHarbor approaches tour and activity operators with a free to merchant, consumer pay model: “We’ll build your website and booking engine for free, with no work on your part; you just pay us for payment processing and the customer will pay us a booking fee.”  
  • Channel management: SiteMinder offers channel management to help hotels manage existing channels in real time. SiteMinder has extended that value proposition to “Demand Plus,” an offering that helps hotels easily expand into new channels to scale demand.
  • Existing customers: While 15-20% marketplace take rates may be sensible for new customer acquisition/discovery, companies such as Olo are looking to move existing customers to lower cost channels through their dispatch offering while taking a much lower percentage of GMV.
  • Customer Co-opt: By seeing consumer data pass through their systems, some SaaS vendors are building consumer profile databases that they might monetize over time. In the recruiting market, we’ve seen players leverage job distribution tools to build a candidate database. Shopify similarly has built a large shopper profile database across all their merchants. While Shopify hasn’t monetized directly, the uplift in conversion rate is likely significant. This model is the most capital efficient but can create conflicts with the vendor’s core merchant customers.

The biggest benefit of extending through the value chain is that it gives you a beachhead and a right to win in a new vertical to start the “full potential” growth cycle again. As you do this, it’s important to reconsider your end market and focus. When Ariba transitioned from procurement software to supply network, they started to represent a front office “system of record” for their suppliers. In doing so, Ariba was both a large enterprise “procurement company” and an SMB “supplier enablement company.” The question was: “Which priority should dominate?” When extension leads to conflicts, there are no easy answers. As such, it is important to acknowledge that this growth strategy is ever-evolving.

Deepen Functionality/ Monetization

Deepen Functionality/Monetization doesn’t literally mean waiting to pursue this step until all other strategies have been completed. It’s more a reflection of priorities. Acquire as many customers as you can, win the control points, and you will likely have many of these profit pools locked up to pursue in the future.

In winning the key control points, for the same reason a single system of record has a lot of “gravity,” you now have an even stronger opportunity to turn your product into a channel. This enables entry into adjacencies with data, workflow, and account ownership advantages for you as well as for the end customer. The most extreme example is the “platform/ecosystem” play, where you monetize third party vendors that want access to the channel your product has become (e.g. Salesforce, Intuit, Shopify). However, most commonly a SaaS vendor will pursue additional monetization with in-house or white-labeled products.

Another key consideration in prioritizing adjacent function/monetization is consistency with your core go-to-market channel and proximity to key decision makers. Go-to-market will determine the financial leverage of the cross-sell and often the overall success. The core advantage of SMB software here is that often the decision-making is relatively consistent and concentrated across software purchases.

Every vertical is different, but there are some common functionality/monetization patterns emerging. Each of these patterns deserves its own write-up, but for the sake of brevity here are some highlights:

  • “Integrated payments -> integrated banking”: The attachment of payments to SaaS has been well covered. That trend is expanding to the attachment of integrated banking. We had an opportunity to interview two of the smartest people in the business, Tim Barash and Jackie Reses. Square is out front here with broad based merchant and consumer plays. To understand the magnitude of the opportunity, Square’s Subscription & Services (most of which are financial services) are expected to reach $1.3B in 2020. This represents 23% of 2020 total GAAP revenue and 47% of 2020 Total Gross Profit (incremental gross profit is ~90%). Brex is earlier in its progression, but we’re excited to see how the company leverages its initial corporate card and expense management offerings to extend into broader financial services.
  •  “Follow the workflow”: At times SaaS companies have actually observed customers at work or mapped out the physical sites to understand all the areas their workflow touches as areas of expansion.
  • “TAM shark”: HashiCorp CEO David McJannet describes expansion as “TAM Shark,” constantly circling the biggest, fastest growing (most change/opportunity) markets. He requires product managers to report on market size and growth of all adjacent categories to make sure they are focused on the biggest opportunities. Generally, over a 2-3 year period companies have one, maybe two opportunities to build distinct add-on businesses. Make sure you’re picking the biggest markets and therefore the biggest payoffs.

Summary

If the typical SaaS playbook is “Lead the Category” and “Hyperscale Locations,” clearly the full potential for vertical SaaS players is dramatically larger than conventional SaaS wisdom would suggest. We’re excited to work with — and hopefully invest in —the frontier players as they explore the “Full Potential of SaaS.”  

If you found this useful, let us know, and we’ll continue to publish and explore the topic. We look forward to hearing your adds, edits, and challenges.

Caveats

  • There’s a tension between aggregating as big a profit pool as quickly as possible vs. “winning the market.”
  • This framework is characterized as a sequential strategy. In reality, most companies are pursuing multiple steps concurrently, and the sequence is more a reflection of prioritization.
  • Time horizon: this approach is a long-term strategy to winning, which may often be at odds with short-term maximization of valuation multiple and financial performance.
  • This approach is informed by a U.S./western/mature approach. In emerging/more greenfield markets, less focus and value chain expansion earlier in company development may make sense.

The views and opinions expressed are those of the authors and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). TCV has not verified the accuracy of any statements by the authors and disclaims any responsibility therefor. This blog post is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by TCV or any of the securities of any company discussed. The TCV portfolio companies identified above are not necessarily representative of all TCV investments, and no assumption should be made that the investments identified were or will be profitable. For a complete list of TCV investments, please visit www.tcv.com/all-companies/. For additional important disclaimers regarding this document, please see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/.

[1] See TCV’s SMB and Vertical SaaS investments at the end of the document.