SM: Tell me about some of the deals that you have done since coming into existence, and what is unique about them?
BJ: Since we started Emergence we have had three IPOs. That is pretty good for a young firm.
Obviously SalesForce.com was one. We also invested in a software provider in the Human Resources space called SuccessFactors, and they have gone public in November of 2007.
We also invested in a company called HireRight, which provides pre-employment background screening as a service. This is not a pure software company. It is a technology enabled process outsourcer. They do not really provide their customers with an application, but they outsource and entire business process, and that process is heavily automated within HireRight so they are competing with traditional labor-based services. They went public in August of 2007.
We have invested in numerous SaaS companies that are still private today, such as Intaact in the accounting space, Genius in the marketing automation space, Pivot Link in the online business intelligence space, Ketera in the procurement space, and several more.
SM: Your investment thesis continues to be Saas, or technology enabled service. How long do you think this will last?
BJ: We think this is a very long term trend. Service businesses have been around since the beginning of economic activity on the planet and we do not think they are going to go away anytime soon. The core decision any customer must make is if they want to buy technology, and if they do they must own it and maintain it to ensure it continues to deliver value to them.
Their alternative is technology enabled service, to partner with a company that will provide them the technology they need. In that case the provider’s role is to continue to upgrade it, maintain it, and ensure it is delivering value.
In many companies there is not a core competency around making their technology systems work. A retailer typically has a core competency around merchandising and marketing, not around running IT systems. We believe that there are some companies that have core competencies in IT systems, such as many financial service companies. They can buy technology and make it work.
SM: Even the large retail ones can, such as Walmart.
BJ: In every industry there will always be one company that will choose running technology systems as a competitive advantage. We believe that in most markets the majority will choose to outsource some functions.
SM: In many ways the comparable is BPO.
BJ: We think SaaS is a form of outsourcing. It is outsourcing the management of an application. As I mentioned, Hire Right is an example where they have written a software application which does this function. The users are not folks sitting in the client corporation, but the users are internal to Hire Right who known how to use the software to deliver the end result to the customer. In many ways the BPO is a larger value proposition than SaaS, though there are tradeoffs. Typically, the margins are lower in a BPO and of course we are looking at those BPOs that have technology leveraged. Their margins are supported by their use of technology.