OSTON–(BUSINESS WIRE)–Toast, the fastest-growing restaurant management platform in the U.S., today announced a $400M Series F funding round led by Bessemer Venture Partners, TPG, Greenoaks Capital, and Tiger Global Management with participation from Durable Capital Partners LP, TCV, funds and accounts advised by T. Rowe Price Associates, G Squared, Light Street Capital, Alta Park Capital, and others.
Focused on empowering restaurants of all sizes to compete on a level playing field with global brands, Toast has quickly become the go-to partner for the restaurant industry, from entrepreneurs opening their first restaurant to enterprise brands scaling across hundreds of locations. During the course of 2019, revenue increased 109 percent as tens of thousands of new restaurants joined the Toast community.
“As a result of our tremendous growth and commitment to the restaurant industry, we have continued to see a significant amount of demand from the investor community,” said Chris Comparato, CEO at Toast. “As the clear platform leader in the restaurant space, we are excited to use this investment to extend our capabilities and drive a bigger impact for the restaurant industry.”
Toast will invest proceeds from this fundraise into its technology platform to meet the evolving needs of the restaurant industry including:
New products designed to both deepen restaurateurs’ connections with guests and increase restaurant revenue;
Hardware and software investments to increase speed of service, streamline the guest experience, and reduce operational costs;
Capabilities to improve the restaurant employee experience, reduce employee turnover, and address the industry’s pressing labor challenges; and,
Financial products that provide quick and reliable access to funding to help restaurateurs grow their businesses.
“Just as the retail industry weathered disruption from e-commerce over the past two decades, restaurateurs now face shifting consumer expectations and a changing landscape of tech players who threaten to erode restaurant brands,” said Kent Bennett, partner at Bessemer Venture Partners. “Toast wants to partner with the restaurant community to level the playing field and strengthen this nearly trillion dollar industry. We’re thrilled to continue to support this incredible team in 2020 and beyond.”
Restaurant owners and operators can learn more about Toast and schedule a personalized demo here.
About Toast Launched in 2013, Toast is democratizing technology for restaurants of all sizes. Built exclusively for restaurants and driven by a passion to enable their success, Toast connects employees, operations, and guests on an easy-to-use platform so restaurateurs can stay one step ahead of a rapidly evolving hospitality market. Tens of thousands of restaurants partner with Toast to increase revenue, streamline operations, retain great employees, and create raving fans. Toast was named to the 2019 Forbes Fintech 50, 2019 SXSW Interactive Innovation Finals, and 2019 Forbes Cloud 100. Learn more at www.pos.toasttab.com.
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.
I hope to write about these supporting pieces over time, but I wanted to start
with strategy first.
think 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.
of the SaaS strategy is well understood so I won’t spend much time on it. A
SaaS company aspires to:
build a great product (and service)
over time, build an efficient and repeatable
go-to-market model (marketing -> sales -> onboarding)
and then “add capital” and execution
to press its advantage against sluggish incumbents or poorly capitalized
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
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
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!”
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
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 my 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!
a system of record is the last software package a customer will “turn off” in a
tough economic time.
I also like
to think about the concept of “gravity”:
gravity – the system that all other systems integrate to – it’swhere 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.
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.
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.
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
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.
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
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
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:
Workflow that spans multiple parties and
creates increased customer value and vendor stickiness
Two-level network effects
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.
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
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.
derivative Consumer monetization
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.
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.
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
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
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. I 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
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
If you found
this useful, let me know, and we’ll continue to publish and explore the topic. I
look forward to hearing your adds, edits, and challenges.
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.
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
 See TCV’s SMB and Vertical SaaS investments at the end of the document.
Compliance seems to divide enterprises into three categories: those that primarily publicize it as proof of “good governance,” those that actually push the boundaries far enough to bring consequences, and everyone else with their heads down, trying to address whatever regulatory standards govern their industry and the seemingly ever-changing nature of those standards.
fourth group is emerging, charting their own course. These enterprises are
turning compliance to their advantage by mining compliance data for digital
gold: insights that increase efficiency and competitive advantage. Like the
governance crowd, they have automated many compliance functions with emerging software
solutions. They are looking at the resulting data with fresh eyes and using it
to improve their businesses.
people think of compliance in terms of rules and regulations imposed by lawmakers
and other governing bodies, for good reason: there is a proliferation not just
of new regulations but of whole new regulatory frameworks such as Dodd-Frank
and GDPR. Even long-time frameworks such as SOX, HIPAA, and FCPA continue to
evolve. Yet at the same time, many enterprises are setting rules of their own
to address an increasingly complex environment that includes global supply
chains, cybercrime, trade wars, Brexit, and other evolving risks.
end, it doesn’t matter where the rules come from: compliance, and the
documentation that comes along with it, is essential for managing risks and
maintaining brand reputation. The roster of damaged brands from just the past
few years illustrates what can happen when risk and compliance management break
recently, enterprises managed compliance risks with home-grown, often siloed and
disparate initiatives that focused on people and processes. The components
included manual record-keeping, time-consuming audits, constant training,
ever-lengthier supplier questionnaires, C-level compliance positions, and
board-level reporting. The reams of information gathered and presented were
considered useful mainly for answering a simple question: Are we compliant or
Then a new
question arose: Can we at least automate and digitize risk and compliance data,
like we have done with so many other processes? The answer to that question is
clear: We can, thanks to a growing community of companies providing governance,
risk, and compliance (GRC) technology solutions that automate the process of
collecting, aggregating, analyzing, and presenting relevant data while reducing
their costs to the organization.
that just as homegrown compliance structures created the opportunity for
digitization, a critical mass of companies are now positioned for a new
opportunity that may eclipse the earlier one. Data that was once viewed merely as fuel for the compliance machine
can now be considered a strategic output in its own right, with value to the
business beyond compliance.
it’s a bank mining Know Your Customer data to pitch targeted travel insurance
to its customers or a CPG manufacturer analyzing complaint data from the Consumer
Financial Protection Bureau to improve its manufacturing methods, we see an
opportunity for companies to extract incremental, “offensive” business insight
from large risk, compliance, and regulatory data sets.
opportunity represents a convergence of what may seem unrelated factors. But
let’s remember that in a globalized, highly competitive economy there are few
trends that arise in isolation.
trend we note is a dramatic change in the people sitting in the chief
compliance officer (CCO) chair. Russell Reynolds
the career backgrounds of 72 CCOs in banking, insurance and asset
management and reported that “gone are the days of principally legal and
compliance executives nabbing the top job in the compliance function.” So who’s
getting the job instead? According to the report, it’s “broader-focused appointees
from consulting, risk and audit. This new breed of appointees would be
well-positioned to contextualize compliance (and the associated cultural
change) in the wider picture of the organization.” In other words, compliance executive leadership is not just for
lawyers and specialists – it’s for multidisciplinary executives who are as
fluent with brand value and enterprise risk as they are with the P&L and
The second trend we note is increased use of AI/ML.
The transportation sector is a leading example, in part because it is heavily
regulated. Shipping companies, notably UPS, now place dozens of monitors on
their vehicles for compliance with internal and regulatory rules – and then
apply AI to the monitor data to optimize delivery routes and driver behaviors
in ways that squeeze out fuel costs and improve customer satisfaction. Fleet
operators are further served by solutions from the likes of Keep Truckin,
Samsara, and Geotab, which help improve driver safety and increase the
precision of preventive maintenance.
The third trend is the evolving
consumer privacy landscape. Ironically, more robust data protection and
security regulations such as GDPR can actually serve to enhance business value
by increasing the trust between companies and their customers. In its January
2018 report, “How
GDPR is an Opportunity to Create Business Value”,
Gartner notes that “handled effectively, there is great potential to obtain
consent to increase data access, use, and sharing rights — aligned with goals
of a wider organizational data and analytics strategy. This can help drive
competitive advantage, while also helping to achieve compliance in other
countries and regions.”
Examples of Leveraging Risk &
Compliance Data to Drive Business Value
examples of companies that are helping advance the use of risk and compliance
data for improving everything from customer experiences to supply chain
performance to more effective emergency response:
customers use Avetta to certify compliance quality of its suppliers (green
flag, yellow flag, red flag) and then mine the data to identify which suppliers
are best trained and best equipped for certain on-site jobs.
Higher education institutions have long collected
data to achieve and maintain external accreditation. Watermark Insights helps universities and colleges not only
collect, digitize, and report on that data to demonstrate effectiveness, but
also to use it to inform curricular changes and improve student outcomes.
AxiomSL’s financial services clients utilize its data integrity and control platform and
its risk calculation and reporting solutions to satisfy regulatory requirements
across the globe systematically. With
trusted data, banks are now also able
to identify opportunities to fine-tune capital/credit risk and deliver
compelling business insights across the enterprise.
Trade Management solutions from the likes of Descartes and Amber Road (now a part of E2OPEN) have long been used to satisfy mandatory export
compliance obligations (e.g. restricted party screenings) and to remain abreast
of regional duty programs and tariffs. But by marrying these regulatory
datasets with companies’ more “traditional” supply chain data (such as bill of
materials and transportation fees), clients are now able to more accurately forecast
true landed costs (the total price of
the shipment including customs, duties, taxes, tariffs, etc.), all the while
minimizing risks and delays.
Rave Mobile Safety enables schools to automate collection of and access to critical facility
information (e.g., floor plans, alarm information), which they need to remain
compliant with fire department ordinances – and it also provide 911 dispatchers
and first responders better real-time capabilities when emergencies arise.
governance and eDiscovery vendor Nuix is well known for its deep
technical capabilities in high speed processing and analytics around vast data
sets, typically in the context of litigation and investigations. But enterprise clients are also able to
leverage the platform to create “data lakes”, making data more accessible for
re-use in future investigations, litigations and data management programs,
helping reduce costs.
Biopharma companies rely on software
from ETQ for much more than compliance with FDA requirements; they also
leverage the data to mitigate and prevent high-risk events, scale operations
more effectively, and streamline their go-to-market activities.
There are many other examples of organizations across
industries utilizing technology from GRC vendors to not only achieve their risk
and compliance objectives, but also advance their strategic objectives. The trend is still very much in its early
days, but it provides an exciting avenue for continued growth in the
sector. As an experienced technology
focused growth equity firm, TCV is committed to investing in the category
innovators in the GRC space and has invested in such companies as Avalara,
AxiomSL, Avetta, LegalZoom, Rave Mobile Safety, RiskMetrics Group, and
The statements, 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 interview 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, please see “Informational
Dan Wernikoff rose to become an EVP at Intuit and general manager of its small business unit and consumer tax group. In both cases he scaled the business-within-a-business from small groups of early adopters to huge hordes of happy SMBs and consumers, by relentlessly measuring early indicators, leveraging core strengths, and focusing on long-term growth goals.
In this conversation with TCV General Partner Tim McAdam, he shares:
Lessons about how selling into SMB markets
differs from enterprise
The best metrics for tracking success, and
Why empathy and understanding matter more than
slick ads and sales techniques.
He also explains how to infuse human expertise
into SaaS models in a way that fits the SMB/consumer mindset.
For these insights and more, settle back and press play.
Dan Wernikoff is a former Venture Partner at TCV.
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 above, 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 document, please see
The opportunity set for SaaS is on the rise. The original SaaS model that revolutionized software is now enabling SMB and vertical SaaS companies to evolve from tool companies to market makers. Pioneers of these new SaaS models not only provide a tech platform to service providers, but also strengthen their position by extending into marketplaces. When these providers aggregate enough supply, they leverage their data and mindshare advantages to create two-sided marketplaces that enjoy powerful network effects. The result is a much stronger financial profile, deeper moats, and a significantly larger TAM.
TCV recently hosted an offsite focused on emerging trends that we believe are dramatically expanding the opportunity set and economic strength of vertical and SMB SaaS companies.
We were fortunate to have Brian Rothenberg as a speaker. Before joining a leading new early stage venture firm Defy as a Partner, Brian was on the leadership team that took Eventbrite from startup through IPO – while evolving the company from a SaaS platform for event venues to a marketplace for live experiences.
In this conversation with John Burke, EVP at TCV, Brian explains the steps and structures necessary to accomplish this strategic transformation and reach scale. He also offers priceless tips on timing and managing relationships with original SaaS clients that leaders can apply as they focus on dramatically expanding their addressable markets.
To talk about SaaS opportunities and get a copy of the presentation, please contact John Burke or Katja Gagen at TCV.
We believe that many SMB and vertical SaaS companies are starting to exhibit platform characteristics. Some of these companies are beginning to build consumer and supplier networks that are dramatically expanding the SaaS model.
Toast is a pioneer in the space, powering restaurants of all sizes with a technology platform that helps them streamline operations, increase revenue and deliver amazing guest experiences. No one lights up a room on these topics more than Tim Barash, Chief Business Officer and CFO at Toast. I’m also excited to welcome Tim as an Executive Advisor to TCV, where he will be working with TCV portfolio companies and helping us to assess new opportunities.
Dave: Tim, welcome to TCV, and thanks so much for spending time to share your thoughts with us!
Tim: I am excited to be a part of the team — it’s been great to
meet with some of the founders of this incredible new class of companies,
changing the rules of what has traditionally been considered SaaS.
Dave: Tell us about Toast. What is the company today, what’s its mission, and where is it going?
Tim:Toast is a company that is transforming the hospitality industry
with an end-to-end platform, extending from a core commerce engine into guest
experience, employee engagement, and financial services. Our mission is to
empower the restaurant community to delight guests, do what they love, and
thrive. We as Toasters are very passionate about bringing this mission to life
for our customers. We launched our core offering in 2013 to the first few
restaurants and today are serving tens of thousands of customers while still
growing over 100%, with over 1,600 employees globally. It’s been a wild ride
these past five years and it’s a really fun space with a creative and diverse
Dave: You and I recently hosted an offsite on “SaaS as a Platform.” Why is Toast a platform to its restaurant customers? If you’re the CEO of a SaaS company, how do you know that you are or could be a platform?
Tim: Toast really extends all the way from
the front of house to the back of the house, bringing restaurants into the 21st
century with a cloud and mobility-first operating system, including hardware such
as self-ordering kiosks and handhelds for order & pay-at-the-table and
guest feedback. We’ve evolved from this core system of record into other high-value
offerings, including payment processing, payroll & employee management
software, credit and consumer-facing apps, and we’ve had great feedback from
our customer base that they want us to continue to solve more problems for them
between our first-party offerings and our deep partner network.
think being the Platform or System of Record generally means you
have the most mindshare and time spent on your system relative to others the
same user may have. As important is where the data
resides; in the restaurant vertical, the core data sets are menus, orders,
guest data, and employee data, whereas other verticals like doctor’s offices
might be more around scheduling, billing/invoicing, and insurance connectors. If the key personas are logging in
multiple times per day and using your tool as the system of record for their
most important data, it’s likely there are multiple platform opportunities to
exploit to make their lives even easier.
Let’s first talk about payments. Generically the opportunity in payments is for
SaaS companies to start monetizing flow through GMV. Why is this good for your
customers, the end merchant, and your customer’s customer, the merchant’s
Tim: A lot of companies are starting to integrate payments
mostly because it creates a much smoother, simpler experience for the merchant.
It starts with onboarding and spans ongoing support and easy reconciliation of
transactions and payments through the same software. Small businesses generally
do not like having to deal with multiple vendors when they can use one holistic
solution for what they are trying to get done.
What’s really compelling is what you
can do for the merchant and the end user once you have payments integrated by capturing
more data. An example is identifying the end user and better understand buying
patterns and be able to help small businesses market to their customers in a
more targeted and automated way.
There’s also very significant margin
enhancement if you can get payments right, which can fuel higher investment
levels in areas like Customer Success and R&D to deliver even more customer
value by displacing a horizontal payments vendor.
I know you could hold a master class on just payments, but quickly what are
three tips for getting started? Should you make them mandatory, or an option?
Tim: Understanding your strengths and weaknesses as a team here
is important — you can get started with a referral partnership or go full bore
and become a payment facilitator and handle all the risk, underwriting, and
merchant-facing tech. It really depends on the available talent, domain
knowledge, and capital access to get something off the ground. Once you’ve
decided what to go with, here are three tips:
Build a dedicated team that
understands your payments space at a deep level — there can be a lot of new
complexity across product, tech, risk/underwriting, pricing, go-to-market
strategy, and customer success that may look and feel different from your
existing business. Make sure at least 1-2 people are coming in with real
payments or fintech experience. Card-present vs. eCommerce experience will
likely be something to think about here.
Resist the urge to over-monetize or
make pricing overly complex — traditionally there have been some bad actors in
the payments world and, as a result, a lot of these companies have low NPS and
very high churn — great SaaS companies have the opposite, so don’t tempt fate
for a few extra basis points.
If you are doing anything other than
an arms-length referral partnership, you should be taking payments-specific
risk, fraud, and security very seriously.
Dave: Ok, so once you’ve launched payments, how would you extend next? I know it depends, so maybe talk about where you would go if you were a front office offering and a back-office offering. Or better yet, what is the prioritization framework for the different offerings?
Tim: I think the prioritization framework begins with mission —
why does your company exist and what are the biggest problems in your industry
that you have an unfair right to help solve? As an example, Toast is the source
of lots of employee data and we kept hearing from our customers that, in the
current macro environment, labor was their biggest concern, so we had both the
market need and the natural entry point to get deeper into payroll and employee
On back-of-office solutions it’s
likely things like payments, credit, payroll, insurance, and B2B/vendor
marketplaces can be interesting depending on the platform and vertical. For
front-of-house it’s likely more about CRM, marketing tools, loyalty programs,
other commerce touchpoints, and the holy grail of leveraging supply of SMB’s to
create a two-sided consumer marketplace. That said, there
aren’t many companies that have made the B2B2C transition, yet it can be a tremendous value creator.
Credit is a big step change because it involves a balance sheet and
underwriting to risk. What is your take?
Tim: I think this really depends on the execution muscle of your
company — if you’ve already gone deep on something like payments, you may have
some experience on the fraud and underwriting side, but getting into credit ups
the ante in a big way. You need to feel confident you have some really strong
players on data science, finance, and risk to go after this yourself. Starting
with a partnership with a Kabbage, Fundbox, or OnDeck could be a way to dip the
toe in the water before putting your capital at risk or trying to attract
outside investors to supply the capital for a credit offering.
If you are going after this
yourself, you will almost definitely want to find outside capital to offload
most of the risk and balance sheet implications of a credit business, both for
optics reasons with investors and because your capital is better put to use
hiring engineering, sales, etc. than lending to your customers.
Dave: How about payroll? Big dollars given the per employee model. How do you know there’s real demand for payroll? Given the 50-state nature, would you do this in-house, partner, or buy?
Tim: If I think about this space, the only software business
that didn’t have HCM/HRIS at its core that’s done this really well is Intuit,
though Square is also starting to gain traction in their new offerings. Payroll/HCM
is its own beast with its own ecosystem of products from worker’s comp and
healthcare to newer technology offerings like same-day pay and employee
management solutions. Similar to payments, capital, marketplaces, and other
platform plays, the decision on whether to extend is all about whether you have
a natural right to play. For Toast, we have restaurant employees clocking in
and out every day on our platform, and managers/owners running staffing reports
and approving hours before downloading the data and uploading to a payroll/HCM
solution. This made it a pretty natural move to solve this disjointed
experience for our customers.
If you’ve got the natural right to
play, demand is probably dependent on the complexity in your vertical — if
your customers only have 1-5 employees and not a lot of complexity around time
and attendance, they may be using an offering from Intuit through their
accounting package, or Gusto, or some other inexpensive and easy solution,
making it more difficult to displace.
In terms of build/partner/buy, this
could be a long slog to build, because of all the regulatory/compliance
elements. Depending on your scale, partnering is likely the best way to enter
into the space and learn this side of the business. Just be careful as one of
the reasons to get into payroll/HCM is that it’s a fairly sticky product.
Ok, let’s get into the next-level network effects for SaaS companies. Most two-level
networks tend to be “Big B to small B” in a buyer/supplier relationship. TCV invested
in three of them over the years. To give the theme a plug — Ariba in
procurement, CCC in the auto industry, and Avetta in supplier information management and
compliance. You sell into large company buyers and help them connect more efficiently
to smaller/SMB consumers. Winning into the big buyers gives you a strong value
proposition to small suppliers and gaining more suppliers in your network makes
you even more attractive to the big buyers. It’s a virtuous cycle.
every SaaS company, particularly vertical and SMB providers, can look to
leverage consumer, employee, and supplier networks. What’s your take?
Tim: It’s a really exciting play that is starting to develop in
SaaS. If done correctly, it can be a game changer in helping SMBs get the scale
advantages of larger enterprises and change their businesses for the better.
Let’s take supplier networks first. Who is doing a good job getting into the
Tim: I think you just hit a few of the strong players earlier. What
CCC has done with the auto parts marketplace is really exciting and a playbook
that could be run by a lot of SaaS platforms in other verticals, especially
something like construction or home services. I’ve seen a lot of startups try
to create the supplier marketplaces in industries such as dental offices,
restaurants, and others, but the standalone model can be difficult because they
aren’t starting with one side of the marketplace already built up — that’s what’s
so exciting about these platform opportunities for existing SaaS companies.
How about employees?
Tim: There are lot of interesting companies out there. For
example, SnagAjob and ZipRecruiter are working on building out the marketplace.
I think ZipRecruiter has been a really interesting story as they did leverage
existing relationship with employers to create their marketplace. Over time, I
think we will see a lot more of these models. There have been a few entrants
into the “LinkedIn of hourly workers” space, and time will tell if something
like that will be created or if more mindshare will go to vertical-specific
SaaS/Employee Network plays. It’s interesting to think about the marginal
utility of a horizontal employee network, certainly there are some generalists
in this employee population but also a lot of specialization in specific trades
Consumers is probably where the big dollars are. Marketplaces regularly capture
10-40% of GMV to deliver consumers. How
can SaaS companies partake of the consumer opportunity?
Tim: I think it heavily depends on how valuable the supply side
of the marketplace is. There are verticals including food, certain home
services, hotels, etc. where quality and user-specific preference is going to
really matter. If you have really compelling supply (especially if it is hard
to access online), you can get real leverage in building out a consumer
marketplace. If it’s something like transportation, it may be harder to have
any real edge against a standalone marketplace startup.
If you are in a position to
capitalize on a consumer network, I think creating a separate team to go after
that opportunity in a big way is likely the right way to go as so many parts of
the business will be different than your core SaaS team is used to working on. You
want the unfair advantage of owning supply without a handicap of having a team
that hasn’t built a consumer business before.
Well Tim, I know we could go on for hours on this topic. Thanks so much for
taking the time today, and great to have you as part of the TCV team. I’m
excited to work with you.
The views and opinions expressed in the blog
post above are that of the author and do not necessarily reflect those of TCMI,
Inc. or its affiliates (“TCV”). 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, 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
TCV’s website, available at http://www.tcv.com/terms-of-use/.
We believe that many SMB and vertical SaaS companies are starting to exhibit platform characteristics. Some of these companies are beginning to build consumer and supplier networks that are expanding the SaaS model dramatically.
We recently brought the pioneers of these new SaaS models together and were fortunate to have Jackie Reses share her thoughts on the emerging lending opportunity for SaaS. Witty, wise, and incredibly insightful, Jackie is a total superwoman. In addition to running Square Capital, Jackie serves on the board of the San Francisco Federal Reserve Bank and is a former board member of Alibaba. She also worked in private equity for 20 years.
Dave: Great to talk
to you, Jackie! Is it true you started your career on the dark side, as an
Jackie: Yes, I
worked in private equity for 20 years. I just kept going forward. I had a
mid-life crisis without the crisis, as I like to call it. I ran parts of a
large private equity firm, but I much prefer being on the operating side. I
still invest and that’s my fun side project. But I love working at Square. It’s
a really fun place to be.
Dave: Square is certainly
on a tear. Maybe we could start and just talk a little bit about that. Very few
companies reach your scale, and then accelerate. But that’s what you’ve done at
Jackie: Yeah, it’s
exciting. We have driven strong revenue growth at scale since we went public. It’s interesting to think back to when Square
was starting with payments and building on that. That really was the catalyst for
what we should build in an ecosystem in a very different way. Since then, we
have built ancillary products around payments like point of sale, loyalty,
employee engagement, lending, and payroll around an ecosystem.
Dave: You mentioned
that every one of your products is an onboarding product. You don’t think of “land
and then expand,” it’s all onboarding, it’s all “land”?
Jackie: Like lending
we consider it to be a product that will onboard into Square. We have two parts
of our lending business. One is the business lending, and that’s something we
launched with Square sellers, and we extended it outside of Square in the
And then we also have an Installments product which has been
incredible. Installments is a consumer lending product that can have a customer
pay for large purchases with installments, which provides the buyer with
That said, I think about Square Capital first. My job is to
grow Square Capital. That should stand on its own. The product itself has to be
When we launch a new Square Capital product, we launch it
because I think about all inbound customers into Square for lending and then
create a cycle throughout our ecosystem to evolve as they learn about other
Dave: You talked
about Square and the multiple product lines and high rate of self-onboarding.
How core is self-serve to Square?
Jackie: It’s the way we start on every product. They have to be self-serve, elegant and fast as a means to make them remarkable. Driving your thought process around self-serve forces you to create simplicity and ease of use.
Dave: You’ve described
several different businesses that have arguably very different DNA. SMB, point
of sale, consumer cash, credit, etc. How does that work in the same
Jackie: I think
lending is the one that everyone has the hardest time with. If anyone thinks
that payments are regulated, lending is like 10x that.
Managing risk and the dynamics of a high-growth company are very
different disciplines. I think that’s probably the hardest thing I deal with as
an executive at Square. The dynamics of credit risk can really hurt sellers,
and they can hurt us, and they can hurt our ecosystem of investors.
And so top line growth on a lending business is not the
goal. I think you have to have a very different level of responsibility and a discipline
that is almost the inverse to payments, where topline revenue growth can be the
You need to remain focused on what’s good for the end
merchant. There are some lenders out there that have a goal of maximizing loan
size. I think that’s irresponsible. We try to maximize a loan that helps sellers
grow. That’s a very different mindset. We are also very fortunate that we don’t
have channel or customer acquisition costs which helps us take a pretty responsible
Dave: Right. There is a real trade-off between growth, risk, and merchant health. How do you measure your success, what are the metrics you report on?
originations and different views of defaults. We could double our loans if we
wanted to tomorrow. Yet, you double it at the loss of small businesses who
can’t afford the debt that you’re giving up. The one limitation of credit is that
there is a natural debt capacity of what these companies can afford based on
their cash flows. And you’ve got to make sure you’re really good at how to
predict that and then manage it so you’re not putting companies at risk.
Dave: Let’s talk about the risk side. Companies in an earlier phase want to learn. They want to train their algorithms. So in some ways having defaults is actually a data point to trigger. How do you get through that initial learning period?
Jackie: We do the same thing. Although I have to say that many refer to models which really aren’t machine learning models – the data set is too small to be driven off of machine learning.
It’s hard to train models when you have a really narrow data set. Many lenders use basic heuristics to limit who they lend to. That is not a machine learning model – its addition and subtraction in a ton of excel.
Loan losses also can be instructive for
model training, so you need to be willing to invest in your weakest credits in
order to learn. If you look at the public fintech lending companies,
very few of them have actually been successful at long term customer
acquisition and default profiling. It’s a hard, capital intense business and
takes years to do. We think of lending as a platform to help our sellers
grow. The regulatory environment and the amount of capital required to do
this is just really high.
Dave: What about
Jackie: The payments data is super useful but you have the fidelity of moment to moment transactional changes. Matching risk, credit, behavioral and bank data together with payments is very powerful!
Additionally, for model training, its instructive to look at why sellers de-activate off of our system. Insights around business failure and fraud can also be a helpful part of the equation.
Dave: You mentioned
just how different being a lender is than the rest of Square and orientation
around growth, versus risk management. How did you actually set it up so that
it was able to perform this task culturally? Did you wall it off?
Jackie Reses: I
thought about it every day. To be honest I think we’re very unique and lucky at
Square because the way we are owned and run is with a long-term orientation,
which most public companies are not.
Being focused on the long term, you can set up the ethos of
what you need it to be. Because it’s the right answer for that kind of business
long term. But we talk about it every day because it’s really easy to lend
money, and it’s really hard to get it back.
And then the compliance is huge. I have everything
documented in a way that’s profoundly non-tech. And that’s in a product that’s highly
automated. We practically have a lean lending team. And then I have to have all
these policies and reviews and committees. It’s the only product at Square that
has a board committee.
We’re growing fast, but you got to be really strict about it
and stand up if you see issues.
Dave: Let’s switch
gears a little bit. I’d love to take advantage of your experience with Alibaba.
The dynamics in China seem totally different.
Dave: Do you think there’s
a future state in China where you do have to worry about some sort of disaggregation
or actually consolidation of the payment infrastructure?
dynamics in China are really different because there was an escrow system that
existed 10 years ago in China because there were no logistics, and there was no
trust. If you were going to order a package in China, you never knew whether
you were going to get it, how you were going to get it, because neither system
existed around credit and shipping. They just didn’t exist. And so the idea of
an escrow system was the genesis of how Alipay got started. It really became a
predominant payment rail. And it did so in an environment where it matched its
sister company which controls 60 percent of the eCommerce in China. So those
dynamics are really different than the dynamics that exist in the United States
today, where the proliferation of credit options is extraordinary. In the U.S.,
there is no logistics issue with the way we think about freight and the
multiple players. You can trust that if you send a package by FedEx it will
actually show up.
All these dynamics of eCommerce that we take for granted in
the United States are really the reason why there’s such a tight band of
competition in China. I think WeChat is interesting. WeChat evolved after QQ
started. Tencent built an unbelievable business and their second version of it
has just been extraordinary because it’s become like a full utility app for
everyone in China.
So now you have these two non-bank players in China competing
with one another. Neither have really been able to get into the United States. I
don’t know whether you noticed, but you’ll start to see Alipay showing up at a
register. Go ask how many transactions have actually happened at that counter. There’s
the notion of these Chinese tourists that are coming here but they use UnionPay.
That said, there’s not a lot of demand for it at this point
in the United States. I think they’ll have a better time in Southeast Asia
where they’re more connected and Japan, because they’ve got the Softbank
connectivity that still owns a huge portion of Alibaba and Alipay. I just think
it will be much harder in the United States.
David Yuan: Well
Jackie, that was incredible! Thanks so much for taking the time to share your
The statements, 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 interview 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, please see “Informational Purposes Only” in
ZipRecruiter is one of the few companies that have been able to extend into consumer demand. We were fortunate to have Co-Founder and CEO Ian Siegel join us and share his thoughts on ZipRecruiter’s journey.
Dave: So maybe to kick us off, tell us a little bit about yourself and ZipRecruiter.
Ian: Sure. ZipRecruiter is an online employment marketplace that I co-founded in 2010. Based in LA, we use Artificial Intelligence (AI) to actively connect people to their next great opportunity. We’ve helped over 1.8 million businesses of all sizes (from SMBs to Fortune 500 companies) with their hiring needs. Tens of thousands of businesses use us every month to find their next great hires and millions of job seekers search for jobs on ZipRecruiter on a monthly basis.
Dave: We’ve been talking to each other for a while, and your first demand side offering was allowing employers to use your distribution software application. And if they weren’t getting applicants fast enough, they could push a “boost” button and get more applicant flow. That was a recruiting facing experience. Explain what’s going on in the background.
Ian: We distribute job postings to more than 1,200 sources. That includes
job boards, aggregators, talent communities, social networks, etc. We send jobs
to online destinations where talent may be congregating and then we pay those
sources on a per-click basis for the traffic they can deliver to us. And then
there’s TrafficBoost, our own job promotion product. Employers can buy a
“Boost” and get more quality candidates faster.
Dave: Great. So, you have this distribution software, and then the “boost button” which is like performance media buying for lack of a better description. And then you started your own candidate profiles. How does that work?
Ian: Good question. The tricky thing about our category is that it
represents a point-in-time need. One of the things you need to contemplate when
you have consumers, for example, in restaurant reservations or looking for a
job, is that they need you for a moment, and then they’re theoretically going
to go away. You have to start thinking about what you can do to get a data
lock. What are the things you could add to your service? That means they don’t
just use you this time but there’s an advantage to using you in subsequent
visits or a subsequent need for that service.
We started moving from résumés to profiles.
Imagine you are a nurse: You come to our site and upload a résumé. We’ve become
very good at enriching résumés and identifying the single skills that employers
are really looking for—for example, a nursing license number turns out to be
the only thing you need in your profile to be inundated with interest from
hospitals and healthcare providers. As a result, you are persistently being
found by new employers who can give you subsequent offers.
Our theory is that job seekers never want to
miss a great opportunity that’s coming through. There’s this misnomer about the
job search category which is that there’s an active and a passive job seeker
profile. The reality is that a person who is eagerly full-time searching for
work represents only about 12% of the total job-seeking population. The other
88% are people who are somewhere between dissatisfied and happy at their
current job but are willing to learn more about new opportunities.
Dave:So, basically, you’ve gotten the consumer applicant to engage with you, which is quite different, right? You’re running essentially a SaaS business, and then you have to build a consumer business on top of it?
Ian: After two years in, we realized that, no matter how many cool features
we put into our product, employers were (and are still) using us for one thing:
access to job seekers. The more people we have on ZipRecruiter, the more
employers we attract, the more new jobs we have, and the more people we get.
It’s a virtuous circle.
And so suddenly, we’re not just in the
employer business: We’re also in the job seeker business.
Dave:So how did you go and do this?
Ian: When our aided brand awareness peaked in the U.S., it became much more
important to make sure that job seekers also knew about us. Which is why most
of our engineers are now working on some form of search algorithm or search
interface. We are deeply thoughtful about focusing on job seekers because,
fundamentally, we sell to them.
Dave:Okay. You made the switch, which was tricky since you recognized that you potentially competed with some of your suppliers, and you had to go all in on brand. Or not just brand, but a switch from a business to a consumer business brand.
Ian: It’s always harder to get the buyer than the seller. If you have the
buyers, the sellers will come to you. To get to that next level in our
category, it’s important to be first and top of mind. When someone decides
they’re ready to look for a job, you want to be synonymous with job seeking so
they go straight to ZipRecruiter to look for work.
Dave:How do you balance ongoing management of your product teams and the focus of the organization between both customer groups? Because in reality, you still need to maintain some amount of excitement and engagement around the recruiters while you’re sort of shifting to job seekers. How are you thinking about that?
Ian: It’s such a good question. Let me take you through an exercise that
was a real-world problem we had in our business. All of you are hiring
managers, right? Would you like it if someone submitted a résumé to you, and
ZipRecruiter corrected the grammar? The underlying question is “Do you consider
spelling errors and grammatical errors a signal that tells you something’s up?”
Ian: Right, signal. If I ask that question to the job seekers, they really
don’t like typos. That’s a real-world problem I’m faced with. Who is our
customer? The answer is nuanced and depends on the situation. How did we decide
who that customer was? In that particular example, we did not correct their
spelling and grammar.
Another example: We are the number one-rated
job search app on both iOS and Android. How did we become number one? With one
simple feature: We tell job seekers when an employer looks at their
application. That’s it. The number one thing job seekers hate more than
anything is what they call the “résumé black hole”, i.e. when they apply to a
job and never hear anything back. In this case, we made the choice for the
benefit of the job seeker.
Dave: What about the team? Was it a separate build? Was there significant change since this is a very different business?
Ian: Our product team members were all revenue-focused, which is to say
employer-focused. So, we decided to split the team and have one subteam
focusing on job seekers and the other subteam focusing on employers. We made a
significant investment to support the job seeker subteam and, in some areas, we
have multi-year timelines because you can either play to make money or you can
play to win. And to win in our category, you need liquidity. You can’t have a
marketplace without some form of elite brand recognition and differentiation.
Dave: Absolutely, great point to end with. Thanks so much Ian!
The statements, 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 interview 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, please see “Informational Purposes Only” in
Creating revolutionary technology for hotels has historically been a slog but lately we’re seeing a change in fate for hotel software companies due to increased investment in the space. One of the biggest investors in hospitality tech is Menlo Park based TCV, the growth equity firm that has invested in breakout companies like Sojern and SiteMinder within hotel tech. TCV has also made major investments in the broader hospitality and travel space such as: Airbnb, TripAdvisor, HomeAway, Expedia, Orbitz, SeatGeek and Toast.
TCV is one of the largest names in the world of technology investing with a successful track record in the massive hospitality and travel vertical. Vertical market software is an extremely hot investment theme right now.
“The easy opportunities for disrupting old-line industries are drying up. Now, many of the up-and-coming start-ups that may become the next unicorns have names like Benchling and Blend. And they largely focus on software for specific industries.” New York Times
Long time TCV investor and former SiteMinder CFO John Burke is excited about the opportunities within the vertical market software. John and his team have identified a trend within a sub investment theme that they’ve coined: “SaaS as a Network”. Here’s how they describe the concept.
“When a SaaS provider starts serving a high enough density of merchants, they can leverage that strength to build two-sided marketplaces with the merchant’s customers, suppliers, and employees.”
David Yuan, TCV General Partner
The general hypothesis is that once vertical market software companies achieve scale with regards to their core products they can always bolt on new point solution functionality but would be wise to focus on a much bigger opportunity. Specifically, TCV believes that these software companies can create two-sided marketplaces that connect their users to new channels of customers, suppliers and employees. Back in February, Hotel Tech Report identified the explosion of marketplaces as one of the 5 biggest tech trends at ITB Berlin, a trend that mirror’s TCV’s investment thesis. Of all the software companies creating marketplaces in hospitality, TCV’s portfolio company SiteMinder has the largest scale to date.
Last year SiteMinder threw its hat in the ring with the launch of SiteMinder Exchange aimed at “breaking down the industry’s notorious integration barriers, connecting hotel systems and applications through smart and simple connectivity.”
“The reality is that few industries are as fragmented as hospitality particularly at the PMS level. There has always been demand for many of the new applications, but innovation has been stifled by lack of connectivity and the sales model makes the economics challenging. Some of these barriers are starting to be broken down by SiteMinder and others which I think can unlock a lot of innovation for the industry. But this is a hard problem and it’s a complicated space with lots of moving pieces so that makes it challenging.”
John Burke, TCV Executive Vice President
SiteMinder’s Exchange marketplace is aimed at allowing other applications to access the firm’s broad user base consisting of more than 30,000 hotels worldwide. Most of those hotels are using SiteMinder’s highly popular channel manager which connects hotel inventory to 3rd party distribution channels as well as other products within the firm’s broader guest acquisition platform such as a rate intelligence tool and an online booking engine. The firm is betting that it can add value for users by allowing them to try more hotel tech applications with ease and in turn create new business opportunities for those suppliers.
We sat down with Burke to discuss his views on hotel tech, the future for platforms like SiteMinder Exchange and highlight the most cutting edge developments happening right now within the hotel space.
How did you get into venture investing?
I’ve been in and around venture since 2011. I started my career with EY in their audit and transaction advisory teams. Getting into venture was a bit of good timing and persistence. The TCV team were looking for an immediate hire and decided to take a chance. I was with TCV from 2011 to 2014 as part of the B2B software team. As I thought about what was next for me, I was drawn to the experiences and mentorship of the TCV Venture Partners (e.g. former senior operating executives such as Erik Blachford). The tech market at that time had been heating up with a few high-profile IPOs. It was my belief that the next wave of great investors was not going to be able to rely on multiple expansion or financial engineering. I believed the best investors over the next 10 years would need to be partners driving actual business growth.
That brought me to SiteMinder down in Sydney, Australia. TCV had just led the Series B investment in the company, and the fundamentals of the business were remarkable. On top of that, they were ramping up for aggressive growth across Europe, SE Asia and were about to launch in the U.S. which I thought would be great experience. I was also excited to work with Mike Ford and the entire SiteMinder team. Mike is a special entrepreneur who is not only very smart and a product visionary, but also authentic and humble. I joined SiteMinder initially in an analytics role and then for the next 3.5 years as CFO. For family reasons, we decided to move back to the U.S. last year, where I reconnected with TCV and rejoined the team. I continue to spend a lot of time in the hospitality and vertical software space and TCV just led an investment in Toast, an exciting next-generation restaurant platform.
Tell us about TCV.
TCV was founded in 1995 as a $100M venture fund and today has raised over $15 billion across 10 funds, focusing exclusively on technology companies. We recently began investing out of TCV X, a $3 billion fund. TCV looks to partner with companies that have potential for a sustained category leadership position and are looking to succeed at an even greater scale. This typically means that a company has been growing for several years — with a history of customer trust and engagement and a business model that is reflective of the value they provide. We are flexible on transaction type with experience in public and private markets and are comfortable in minority or majority positions. Over the past 24 years, we’ve had more than 60 IPOs in our portfolio and have worked with some of the largest franchises in technology including ExactTarget, Facebook, Netflix, GoDaddy and Spotify.
At this point, I’ve talked with many investors in the space which helps me appreciate how the various funds are different. For TCV, I think it’s the depth of industry knowledge and a growth mindset. We have close to 100 team members now and our investment team focuses every day on technology and goes deep in verticals and sub-verticals. When we identify a compelling technology trend, we take the time to thoroughly understand the underlying drivers, business model, and competitive environment. Having a developed perspective means we can have much more meaningful conversations about a company’s business and growth opportunities and are positioned to be a better thought partner for the executive teams as they drive towards expansion and category leadership. We’re not afraid to make bold bets especially when we have conviction on category leadership and to do whatever it takes to help companies reshape industries.
Can you talk about TCV’s view on hotel tech and its SiteMinder investment?
Travel and Hospitality has been a core focus of TCV for well over a decade. In addition to SiteMinder, the active portfolio companies we are working with include Airbnb, TripAdvisor, Sojern, Tour Radar, and Klook. Previously we were investors in Expedia, HomeAway, Orbitz, and Travelport, among others.
For SiteMinder, TCV led the Series B round and we have continued to stay active with the company as the lead director since then. Two of my partners David Yuan (General Partner) and Erik Blachford (Venture Partner) continue to serve on the Board of Directors.
SiteMinder has an incredible history, where is the company today?
SiteMinder is a hotel guest acquisition platform that connects hotels to future guests, so hoteliers can go back to doing what they love. It’s trusted by more than 30,000 hotels of all sizes, across 160 countries and has helped generate more than 87 million reservations worth over US$28 billion in revenue for hotels each year.
SiteMinder is based in Australia, how did you come across the investment?
It was a team effort. Back in 2011 to 2013 we spent a bunch of time mapping out the ecosystem for online travel and hospitality attending industry shows like HITEC and Phocuswright. Ultimately, we identified the channel management sector as promising albeit a lesser known segment in the category. Our view at the time was that online travel was increasingly complicated and in flux with new players vying for hotel distribution. Independent hotels were harder to aggregate but would also allow these same middlemen an ability to offer differentiated supply that was higher margin. Channel management became interesting because it aggregated and provided connectivity to this supply. We thought this was a hard problem particularly to do in a cost-effective way but when executed it could be highly strategic given the long-tail nature of both hotel supply and PMS. From there we focused on the best product and category leader which led us to SiteMinder. One of my colleagues got us an introduction to Mike Ford through an employee. We then got on the 14-hour flight over to Sydney and created a deal.
What’s one piece of advice you have for hotel tech entrepreneurs when raising capital?
Test the investors. Anyone can look at metrics, but make sure you push them on the nuances of your positioning and make sure they understand the depth of your industry and strategic implications of the various alternatives. Mike did this to us in a big way when we pursued SiteMinder and it always stuck with me.
One pitfall I’ve seen is entrepreneurs who get ahead of themselves with regards to the amount of capital raised or valuation and focus on those items vs. choosing the right partner. This can have implications down the road. I would say to raise what you need and what strategically makes sense given your market and opportunity. And focus as much time and energy as you can on the partner. In addition to the strategic perspective which is table stakes, I tend to think entrepreneurs should focus on investors with candor (to drive constructive feedback delivered in the right way) and humility (it’s all about the team and this also makes it more fun).
How do you think the hotel technology space will change over the next 5-years?
It’s a great time to be in hotel technology given how dynamic this market is. I think we are still early in the growth journey for hotel software. In my mind, there is no doubt that software will continue to play a larger and larger role in the next 5 years and continue to reshape the industry and guest and operator experience. We have also been spending a bunch of time on a thesis we are excited about, called “SaaS as a Platform and SaaS as a Network,” which is around the continued extension of the SaaS business model and platform companies leveraging their position in creating marketplaces with employees, suppliers, or customers. I think this trend has many opportunities in travel.
For hotels specifically, I think data, connectivity, and personalization will only increase in importance. Tools like SiteMinder Exchange, which is a data layer connecting PMS with applications and demand channels, can be a big part of this and drive innovation.
I also think there will continue to be more dominant global players with companies like Ctrip continuing global expansion and Google, Facebook/Instagram, and TripAdvisor starting to see momentum on their new models. The lines in the accommodation industry will continue to blur as Airbnb ramps up their investment and focus on hotels as well.
I also feel labor management will matter more, and there will be new innovative ways to tackle this challenge. This is something we’ve seen in the retail vertical which I think will also make its way to the travel industry.
People often say that the hotel industry is a bit slow to adopt technology. Do you agree?
I agree. But I don’t think it’s been driven by the lack of interest or desire. Hoteliers care deeply about guest experiences and the ones that I’ve spent time with often always go above and beyond what’s expected. The reality is that few industries are as fragmented as hospitality particularly at the PMS level. There has always been demand for many of the new applications, but innovation has been stifled by lack of connectivity and the sales model makes the economics challenging. Some of these barriers are starting to be broken down by SiteMinder and others which I think can unlock a lot of innovation for the industry. But this is a hard problem and it’s a complicated space with lots of moving pieces so that makes it challenging.R
If you were leaving venture capital tomorrow and forced to start a hotel technology company — what would it be?
That’s a tough one. Part of working in an operator role at SiteMinder helped me realize how hard it is to be an entrepreneur and scale a company. This only deepened my respect for what they do. I’m a big believer that you need to follow your heart, so I’d want to align it to something I am passionate about. Maybe I’d do something connecting hotels/travel and yoga which is something I’ve come to enjoy. And being a CFO and travelling a lot, I also think the opportunities in corporate travel remain significant.
What is the most interesting or surprising thing that you’ve learned from investing in hotel tech?
Not too much is surprising me at this point. It feels like there is never a dull day in hotel tech! One thing I did notice about some of the larger players in the space is that they serve hospitality, but at their core they are surprisingly not hospitable. One of my partners recently did a podcast with the former CMO at Airbnb and Coca-Cola and he talked about authenticity as an enduring and compounding competitive advantage. I think this is something that will matter more and more. I think it will eventually catch up with those companies who forget that, especially in hospitality tech.
What is the best book you’ve read lately and why?
“The Outsiders” by Will Thorndike. I read it a couple of years ago and it continues to stand out to me. The book profiles eight understated CEOs who took a different approach to corporate management. These “outsider” CEOs often didn’t have the charisma that society has conditioned us to expect and were often in their position for the first time. Humble, unassuming and often frugal, they shied away from advisors and the hottest new management trends, instead focusing on a pragmatic and a disciplined approach to capital allocation which drove extraordinary returns. I found myself getting lost in each of their stories and admiring their independent thinking and patience to wait for the right opportunity. “Shoe Dog” and “Limping on Water” are two others I enjoyed.
What is one thing that most people don’t know about you?
I love yoga and meditation.
For all the startups that might want to pitch in TCV’s office, what can you tell them about your investment criteria?
We recently began investing out of TCV X, a $3 billion fund, so the opportunities we pursue are typically between $30–300M. We tend to be flexible on all other aspects of a transaction type and focus on category leadership potential and growth. I really enjoy spending time with entrepreneurs and would love for folks to reach out even if they are a bit early. Companies can scale quickly so we would love to start a relationship well in advance.
The views and opinions expressed in the post above are that
of the author and do not necessarily reflect those of TCMI, Inc. or its
affiliates (“TCV”). This 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. This post is
intended solely for prospective portfolio companies and their agents regarding
TCV’s potential financing capabilities. The TCV portfolio companies identified above,
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 document, please see
We believe innovation and great entrepreneurs are everywhere. We’ve been fortunate to back some important technology franchises that were built outside of Silicon Valley. In particular, there’s a strong emerging software ecosystem coming out of Australia and New Zealand. We count two category leaders — SiteMinder in hotel management and Xero, a global leader in accounting software — in the TCV portfolio.
TCV GP David Yuan recently had a chance to chat with Rod Drury, Founder of Xero, about his take on building a business from the region. Rod and his team have created and scaled a massive SaaS platform for small businesses around the world that’s made Xero the largest tech company coming out of New Zealand.
really packs in the lessons for growing companies, including:
The advantages of a small home market
How to build a global team and business from day one
Why Xero IPO’ed first and then scaled the business worldwide
How to make the journey its own reward
this and a lot more, settle back and click play.