All

Welcome to Notion’s Spring newsletter.

Notion has had a busy few months with investments in Tradeshift and Brightpearl to update you on. We’ve also provided an update on Star’s fantastic progress as the company continues to set new standards and looks set to have its best ever year.

Notion only invests in cloud-based companies and we track the overall growth in this market very closely. And even by the fast paced standards we are used to in this sector, the last few weeks have been truly groundbreaking with the Skype acquisition by Microsoft, the LinkedIn IPO and the record results from Salesforce. I think May will be seen as a defining month for the validation of the cloud computing model and have provided some further thoughts on this.

Lastly, there is our usual information on the European environment for venture capital fundraising and exits and the overall cloud computing industry.

And remember for further news and opinion you can read my blog at www.notioncapital.com/blog

All the best,
Jos


On May 16th we announced our investment in Tradeshift. You can see the full press release here and also coverage on the story in the FT and the Wall Street Journal.

We’re very excited about this investment and believe Tradeshift has what it takes to become a very large and valuable business. The team, the technology and the overall vision make for a powerful combination and we’re thrilled to have a stake in this business and its future success.

Tradeshift solves a real pain point for businesses by providing a user friendly, web-based and intuitive way to manage the invoicing process. The service is offered for free and has seen dazzling growth exceeding 50% per month with more than 60,000 businesses now on the platform. Recent customer wins include the French and Irish Governments and the NHS which together represent supply chains of more than a million companies. Industry experts are already describing Tradeshift as one of the most disruptive start-ups in Europe and their vision is a very compelling one.

Tradeshift has worked out that one of the main ways businesses interact is through invoicing and payment and that this also happens to be a very frustrating and time-consuming process. So it makes sense to offer a much better way of managing this process as a starting point. But looking out a little further, they aim to be a kind of social network for all business-to-business interactions providing a range of additional services and applications that extend a company’s reach, enhance engagement with its customers and suppliers and generally help them to do business more efficiently. Tradeshift is also giving third party developers access to its platform in order to offer a wider range of apps and improved integration. We think this is a very exciting vision and that the business has what it takes to make it happen. And we’re looking forward to helping them to do that.





We also recently completed a follow-on Series A investment into Brightpearl together with Eden Ventures. You can see the full press release here and some coverage on the story in Techcrunch.

Since our seed investment a year ago, Brightpearl has made fantastic progress that includes tripling its monthly revenues, hiring a new CEO in Salman Malik, launching in the US and opening new offices to make room for their growing team. The company’s growth shows that the SMB market is really seeing the value in its cloud-based solution that includes accounting, CRM, inventory and ecommerce.

We are excited to see the next phase of growth for Brightpearl as it moves into new markets like the US and benefits from an increasing acceptance amongst business customers that the cloud can deliver a better solution.





Not to limit our commentary to investment activity alone, our largest portfolio company Star (c£50m revenues) continues to make great strides and recent performance deserves a mention.

A stellar set of results for the six months ended January 2011, showed EBITDA up 47% but more impressive still was the sales performance with net bookings up tenfold on the equivalent period last year. With its broad portfolio of cloud-based services, Star is something of a bellwether for cloud adoption so this is not only a great endorsement of the company’s strategy but also of the overall market opportunity – an opportunity that Notion is laser focused on.

We’re really proud of the progress that Star is making under Rick Hudson’s leadership — the company is delivering on its vision of being the UK’s leading ‘everything-as-a-service’ cloud provider and is set for great things in the future.



May 2011 — A Defining Month for the Cloud?

We have seen some extraordinary events in May that lead us to believe it will be seen as a defining month for the cloud (as opposed to evidence of a second internet bubble as some have been saying).

Firstly, we had the Microsoft acquisition of Skype for $8.5bn - more than three times what the previous investors paid only two years ago and at a valuation of around 10x 2010 revenues. Whether you think Microsoft overpaid for Skype or not (and only time will tell) what it does show is the value they placed on internet-based voice and video communications of which Skype is not only the clear leader but also the verb that’s used to describe it. It also showed the huge cash reserves the big technology companies have and how much of it they’re prepared to spend to stay competitive in a world that is moving more and more into the cloud – a world that is in danger of passing them by. You can see Jos’s post on the acquisition here.

Secondly, we had LinkedIn’s IPO delivering results that exceeded virtually all expectations. The shares were priced at the higher end of the expected range at around $40 and reached $94 at the end of the first day reflecting a 109% increase. The company’s valuation had reached almost $9bn and nearly 20x current year revenues (expected to be in the $400-500m range). Whether this is sustainable or not (probably not) it shows the level of excitement and belief in the potential of social networking and, more broadly, of cloud computing.

Lastly, we had Salesforce, the leader in the software-as-a-service market, reporting record quarterly results with revenues up 34% to $504m and on track to comfortably exceed $2bn for the year. Marc Benioff, Salesforce’s outspoken CEO, talked about being a top 5 software company overall showing how cloud companies are now starting to measure themselves against the whole market rather than just within their category; he also had some choice words to say about Microsoft:

‘Customers continue to want visionary products that give them a competitive advantage, not the me-too Zune-type products locking them into these old, proprietary, desktop-driven platforms that are dying off.’

We don’t believe that this is a bubble along the lines of 2000. Jos has written a lot about the valuations of the various social network companies and you can see his blog post here, comparing the valuations of Skype, Facebook, LinkedIn, Groupon, Twitter and Zynga based on their number of users.

The big difference between 2000 and 2011 is that this next generation of internet companies not only have huge numbers of users, but they are also well on the way to turning those users into significant revenues and, to a lesser extent, profits. LinkedIn is expected to generate $500m revenues this year, Skype is forecasting over $1bn, Salesforce $2bn and Facebook more than $4bn. That was not the case in 2000, when businesses were much less developed in terms of their revenues and profits. LinkedIn and others will have a bumpy ride and their value is probably inflated right now but this is more down to scarcity in the public markets than anything else. These companies are here to stay.

We believe May represents a new benchmark in the validation of the cloud computing model and its unstoppable move into the mainstream. Cloud computing allows us to communicate, share information and conduct business in an entirely new way; the only things holding it back are the people, the organisations and the vendors who have invested so much in an old generation of computing that it is clearly not in their interests to change any time soon.



European Financing Round-up

Investors put €1.bn into 182 deals for European companies during Q1 2011, marking an 18% increase in investment, but a 35% drop in deals from the same period last year, according to Dow Jones VentureSource.

The UK remained the most favoured destination for venture capital investment in Europe during Q1 2011, seeing its share of investment rise to 44% from 38% a year earlier. Investment increased by 35% to €485m over the same period last year. The UK was followed by France (€111m), Spain (€110m) and Denmark (€108m).



Headline Financings

In Q1 2011, the largest internet financing was Wonga (UK); the leading online short term loan site raised a massive £73m Series D round led by Oak Investment Partners, Meritech and the Wellcome Trust. Existing investors Accel Partners, Balderton Capital, Dawn Capital, Greylock Partners and TAG also participated.

Other interesting European VC financings (internet) in Q1 2011 included, German web audio platform, SoundCloud ($10m); US-Lithuanian independent app store, Getjar ($25m); UK online reservation and marketing service, Livebookings ($10m); UK online web development platform, Basekit ($6.5m); French enterprise software connectivity provider, EntropySoft (€2.5m); UK online takeaway platform, Just-Eat($48m); Danish Communication and Collaboration Platform, Podio (€3m) and UK-based online service connecting homeowners with recommended tradesmen, Rated People(£3m).



Exit Environment:
M&A deal Activity Flat


According to Dow Jones, 34 European venture-backed companies were acquired or part acquired with a total value of €1.1bn during the Q1 2011, representing a 48% drop from the same period a year earlier. The median amount paid for a company was €25 million, 64% more than the median paid in the first quarter of 2010.

Headline M&A deals involving European targets included, Amazon’s $312m acquisition of Lovefilm, AOL Europe’s $98m acquisition of GoViral and Orange’s €59m for a 49% stake of Dailymotion.



Spotlight on the Cloud

IDC’s report on the Future Software Leaders in Europe, examines Europe's emerging (SaaS) vendor community and provides valuable insight into the European SaaS Landscape. The report finds that the European SaaS segment is growing in excess of five times faster each year than software overall. Another trait of the European software industry is its focus on applications as opposed to development tools, middleware, and system infrastructure software. In core applications (ERM, SCM, and CRM) and industry applications, the European top 100 software vendors had market shares in excess of 20% of the global market in 2009. IDC believes that the local nature of enterprise applications with respect to legislation, business practices and structures, languages, currencies, is the main factor behind the strength of European software vendors in applications.



 

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