Insight Partners, a New York based private equity firm, launched a report today with Wakefield Research that focuses on the challenges growth-stage software companies face in scaling their operations.
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Insight Partners typically invests in scaleups at Series B and beyond, but sometimes as early as Series A. Its key markets for investments include Israel, Europe and North America, with a few portfolio companies in Asia and Australia. In recent years Insight has ranked high in our reports for their pace of investing in private companies.
We spoke with Hilary Gosher, the managing director at Insight Partners who leads Onsite, the team that assists portfolio companies with growth efforts. The support includes setting up repeatable processes for marketing, sales, customer engagement, back office and recruiting, “the operational heft that really is the hallmark of a scaleup,” said Gosher.
The firm defines a scaleup as a startup that has $10 million to $1 billion in revenue, 50 to 1,000 employees, growing revenue and headcount growth of 20 percent to 50 percent or more over three years.
There is a lot of opportunity to get it wrong at the scaling phase as we have seen most recently with Robinhood, but also previously with high-growth companies like Zenefits and WeWork, among others. Gosher notes that the same assistance can be helpful to companies that are at $10 million as well as $150 million ARR.
“COVID-19 accelerated trends we were seeing and accelerated the growth of our company,” Gregg Coccari, CEO of online learning platform Udemy, said in the report. “We nearly tripled the capacity of our consumer business. [Web] traffic spiked to levels we hadn’t previously seen and we had to scale up very quickly … On the B2B/enterprise side of our business, our customers turned to us to help them navigate through change across their businesses and teams.”
“These markets are much bigger than we ever thought,” said Gosher.
There are now multiple entry points to the customer, and since sales organizations cannot always be in front of it, the product team is focused on adoption and trying before you buy.
Insights from the report
- Scaleups can be a particularly attractive software provider to large enterprises; scaleups with a growing customer base bring innovative solutions, with fewer business risks than earlier stage startups.
- Nearly half (49 percent) of software leaders who responded to the survey cited in the report also cite access to customer usage data as an element that can help with quick scaling. As companies grow, they can obtain valuable insights to help with product development such as extensive training data for algorithms, as well as feedback data to help with product performance and new feature design.
- Software leaders expect more than just a cash infusion from investors. They want a partnership that provides strategic resources across functional business areas (64 percent), along with networks of other high-growth companies and customers (58 percent).
According to the report, Insight Partners’ 200 portfolio scaleups had just under 6,500 open jobs at the beginning of 2020. During the pandemic, that number almost halved to 3,500, but as of December is back up, an indication of the scaleup growth despite the pandemic.
We have reached a stage where there is a confluence in venture and private equity, according to Gosher.
This appears to be borne out by the data. Of the 318 U.S. based private unicorns, private equity firms have invested in 265 per Crunchbase data. U.S. headquartered companies that have raised over $10 million in venture funding since 2016 comes out to 8,000 private companies. Close to half of those companies boast a private equity or alternative investor.
“Private equity has always had these teams of cost-cutting gurus who have gone in and fixed operations,” said Gosher. “For scaleups emerging we don’t need the cost cutting, but we need the operational expertise.”
Charts and photo of Hilary Gosher courtesy of Insight Partners.
Illustration: Li-Anne Dias
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