I’ve had the opportunity to invest in enterprise software companies for nearly a decade now. While business tech has its turn in the limelight every so often, even the staunchest supporters (myself included) have always been hesitant to call companies in this traditionally “unsexy” sector “cool” or “the next big thing.” (We don’t dare bring them up at family gatherings and risk having to explain what’s actually cool about them.)
Let’s just say that COVID-19 has changed much of that and thrown business technology into the spotlight in a big way. When the world seemingly shut down earlier last year, and companies were unsure if business could continue as usual, large-scale tech deployments kept them going. Information workers were able to still log in, collaborate with teammates and get everything done, regardless of their location. (In some cases, companies even noticed an increase in productivity due to absence of commute times.) Companies also started to add digital workflows to non-information worker streams to optimize productivity.
What also became evident very quickly in this transition was that businesses that had already invested in digital transformation weathered the storm much better than others. In 2020 as digital transformation finally crossed the chasm from early adopters to mainstream buyers, public software companies and startups alike have seen a mad rush towards their products. (According to Gartner, nearly 70% of boards cited COVID-19 for an acceleration in spending on IT and digital capabilities.)
While it is always risky to derive conclusions from public market data, IPO volume and momentum also seem to support the above conclusions. From Crunchbase data, 19 enterprise software companies raised $15.5 billion in public markets in 2020 and have a current combined market cap of $289 billion at the time of writing. This compares to 12 consumer companies raising $12 billion in 2020 and having a current combined value of $234 billion. Even in a year where two very large, very well-known consumer properties (Airbnb and DoorDash) went public and drew tremendous attention, we still see the strength of enterprise shining brightly. We expect this trend to continue, and for enterprise software as a whole to accelerate growth even further, in 2021.
All of this has also made for a busy year for many of our founders and portfolio companies, as we’ve seen the momentum reflect in the Canaan portfolio. Here are a few milestones we were proud to be part of in 2020 – and a little bit on how they’ll inform our enterprise investments moving forward.
Canaan enterprise companies together raised nearly $700 million dollars: We’ve had the opportunity to participate in all rounds, including massive fundraising events for companies like Snyk, MindTickle, ContentSquare and Dragos. We also led earlier stage rounds for a number of exciting companies, including Axis Security, BoostUp and Alkymi.
Facebook announced acquisition of Kustomer for over $1 billion: Kustomer is a company we’ve been bullish on since we led their Series A in 2016. It was also one of our earliest bets in enterprise automation.
Kustomer’s ambitions to reimagine customer service for a new generation of businesses and consumers were evident from our first meetings. Companies are increasingly looking to offer effortless and seamless customer service across all channels. That includes text, email, phones, chatbots and messaging, but also new ones that inevitably pop up (hello, TikTok). As consumers interact across more services, and also spend more time online, Kustomer’s value proposition is much more valuable today than it was five years ago.
As we continue to partner category-defining enterprise companies, a few areas of particular interest for 2021 include:
Transforming unstructured data to enterprise automation: Since our first investment in Kustomer, we have broadened our thesis on enterprise automation and placed even more bets. Fireflies.ai, Alkymi, and BoostUp are examples of that. All three have proven essential for companies during COVID, many of which are operating across global time zones, digital channels and asynchronous ways of working.
Technology is at an inflection point now where many tasks that involved listening, reading or writing by a human can now be performed by software. Humans will continue climbing the productivity ladder taking up more complex tasks. As distributed teams become the rule vs. the exception, we expect to see a new wave of solutions built that emphasizes those new aspects of work, and we expect enterprise automation to be a big opportunity.
Leaning into product-led GTMs and bottoms-up adoption: For years in enterprise software, user experience has taken a backseat to functionality. However, one upshot of digital transformation is that software purchase decisions are no longer as centralized as they used to be. Employees will be more empowered to choose the tools that boost their output, which will lead to this next wave to grow virally through bottoms-up adoption. This movement is spanning across the enterprise ecosystem from developer tools all the way to productivity tools.
Shaking up sleepy cybersecurity sectors: Companies have clung to the notion of an impenetrable perimeter that keeps the bad guys out. That simply is outdated, most CISOs now assume that their networks have been breached. Zero Trust/Beyond Corp is the only security architecture that can isolate individual components of the enterprise from one another thus preventing the spread of a malware. We expect this architecture to become ubiquitous. How companies actually build solutions with Zero Trust obviously varies, but many of our recent investments, including Dragos, PerimeterX, Axis Security and Snyk, are all fueled by their understanding and belief that Zero Trust is the way forward.
Digital transformation is a long term trend that is here to stay. We are excited to continue supporting bold ideas in enterprise and the incredible people who make them happen – and to mark new milestones in 2021.