Dear Clients & Friends of the Firm,
2016 was another banner year for SPMB! Our clients enjoyed a variety of successes including significant revenue growth, big fundraisings, as well as major liquidity events including IPO’s and massive acquisitions. SPMB was recognized as the #1 search firm in the Bay Area by the San Francisco Business Times (for the 4th time, we might add – see article here). Thank you to all of our amazing clients and network of friends – your trust allows us to do what we love to do – bring great companies and great executives together! We’re proud to say that just over 30% of the tech IPO’s in 2016 were SPMB clients.
As we look forward to 2017 and beyond, the only thing clear is uncertainty. Most of us have never lived through a political environment as divided as the one we’ve entered with this Presidential inauguration. No matter what side of the political spectrum one might fall, few would argue that the coming years will be like any we’ve ever seen…fasten your seat belts as hot topics such as immigration, trade, environment, carried interest, healthcare and tax reform dominate the headlines and influence the markets in which we play.
What this means to the technology industry is still to be determined and while there is plenty of reason for concern, we remain bullish that 2017 will be another strong year. We are already off to a great start, with two long time clients achieving multi-billion dollar exits in the last week alone – AppDynamic’s massive $3.7B acquisition by Cisco, and Silver Lake portfolio company Vantage Data Center’s $1B acquisition. Congrats to all involved!
Here are some of our observations and predictions as we head into 2017:
- 2017 will be a big year for liquidity.
- Late stage companies (and there a ton of them) will continue to push towards IPO, with a sense that 2017 may be the final window. How many IPO’s will the market be able to support? It will be interesting to see how that plays out.
- SPMB Clients: Apptus, DocuSign, Mulesoft, Uber
- Top public companies with high valuation multiples will get acquisitive and work to strengthen their position in the market while their currency is high.
- Large incumbents in non-tech industries (ala GM, Unilever, Under Armour) will continue to use tech M&A as a way to differentiate themselves and add value for customers.
- The Venture and PE worlds are in an interesting state. Big funds raised, tons of dry powder, yet there is a general state of cautiousness and hangover from the valuations that seemed to peak in 2015. 2016 was a pullback year, and our sense is that 2017 should be one of stabilization.
- The number of overall companies funded will be similar to 2016, but the money raised for the selected winners will be higher and more concentrated.
- The mentality in 2017 will be to raise enough funds for long multi-year runways, in anticipation of a correction and limited IPO opportunities by late 2018/2019.
- Investors will face tough choices within their portfolios…Do they double down on existing mediocre investments? How do they fix the cap tables of those that were overvalued in 2015? 2017 will be a year of separating the wheat from the chaff, all in the interest of avoiding another 2008/2009 portfolio squeeze.
- There will be a scramble to find liquidity amongst the weaker companies as they struggle to raise additional funding. Oracle, Microsoft and Salesforce will have a field day!
- More layoffs within unicorn companies as they work to become disciplined and extend their runways.
- The recruiting environment within unicorns has definitely changed. We are seeing more and more executives interested in getting back to earlier stage, scrappier, more entrepreneurial environments.
UPDATE ON PRACTICE AREAS:
Technology Practice
We closed over 200 searches in 2016. Senior officers in Engineering, IT, Marketing, and Sales continue to be the cornerstones of our practice, but we’re also seeing greater emphasis on Customer Success, HR, Business Development, and Finance/Operations.
- Enterprise continues to be huge with tons of investment and growth. Compelling infrastructure plays in storage, security, and compute are gaining surprisingly fast market traction. And emerging software players are driving tangible ROI efficiencies in a variety of functional areas (IT/CIO and post-sale functions) and verticals (Retail, Supply Chain, etc).
- Over the last couple of years we’ve been active in exciting categories such as Virtual and Augmented Reality, Microservices and Containers, AI/Machine Learning, Self Driving/ Autonomous Vehicles, Drones… 2017 will be a pivotal year as we help them gain traction and move from science projects to real businesses.
- Developer-oriented platforms are still in “emerging” stage. Developers will tell you that the software Development process, ironically, is one of the last areas to be industrialized and automated. It’s still fragmented with developers rewriting the same code over and over. Startups like Sourcegraph, npm, inc., Gradle, Tigera, Gigster, Hashicorp, etc. are working to change all of this.
- Data has made it’s way to the C Suite in both the enterprise and consumer sectors. Companies are elevating the role of the Data Scientist and in many cases are creating the role of Chief Data Officer or VP Data Science (often complementary to CIO or VP Engineering). Interestingly, however, there are a number of startups out there attempting to “automate” data science for companies through a platform approach, i.e. the Ayasdis, Quboles and Databricks of the world. Will these new technologies eliminate the need for such large data science organizations? In time, we think so.
Consumer Practice
Our Consumer practice continues to be one of the fastest growing segments at SPMB.Nate Pearl was promoted to Client Partner and the team added 5 new members in 2016, deepening our research and associate capabilities. 2016 was filled with amazing clients such as Uber, Fitbit, Yelp, Lululemon, Oculus/Facebook, Pittsburgh Steelers, Gogo, Outdoor Voices, among others. It’s been particularly gratifying to see some clients, such as Rent The Runway and drone maker DJI, who we worked with when they were early stage companies, grow into dominant industry leaders.
- 2017 is going to be a big year for retail and ecommerce. Here’s why:
- Led by innovators like Capital One and Nike, traditional “non tech” companies are now starting to really invest in internal software development. For example, Citigroup has more software engineers than most technology companies today. These companies, many of whom are clients, are looking to executives from digitally native environments to drive this change. We think this is a great opportunity for tech executives looking to flex a new set of muscles.
Sustainability Practice
In 2016 the Sustainability Practice added 2 new team members and continued to expand its footprint into Connected Homes & Devices, Autonomous Vehicles (Delphi), Food & AgTech (BrightFarms, Illumitex).
- While the residential Solar Market saw consolidation with Tesla’s acquisition of SolarCity, the challenges of being a public company continue to torment this sector. While we do see residential solar as a sector that will continue to grow, it needs to demonstrate profitability and create ancillary services that leverage the cost of customer acquisition value (i.e. energy storage).
- As we move into 2017, continue to keep an eye on the energy efficiency financing sector. We expect companies like Spruce, Mosaic, and Renew to continue to make waves in the industry with the PACE loans program fueling the fire.
We are looking forward to the rest of 2017 and can’t wait to see what else our clients accomplish!
Sincerely,
The Partners of SPMB
