2016 - TOP 40 Funding in the Hospitality SaaS Software ... · 5 Funding in the Hospitality SaaS...

2016 - TOP 40

Funding in the Hospitality SaaS Software Sector

EXPAND EXECUTIVE SEARCH

Contents

Introduction

Market sample

Market overview

Market value

Market growth rate

Investment activity

Mergers and Acquisitions

Appendix 1 - Market sample

Appendix 2 - Investors

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Introduction In every industry, the borderless online realm is undoubtedly putting pressure on the traditional way of doing things. Critical changes occur in ways that brands and companies interact with customers, business partners and competitors. We are witnessing the rise of new market models and economic environments. From global development and outsourcing, to the sharing economy, on-demand markets and social media, the hyper-connected world of today is the perfect context to allow real disruptors to take over yesterday's industry giants. Hospitality is no exception - the industry is ultimately serving end-users, and social crowds are one of the main drivers of innovation. Most of the market disruptors today are in fact responding to the needs of the many, the customers that have taken the digital leap are waiting for brands to do the same in order to meet them where they are. Hospitality technology has been fragmented, expensive and resource-intensive. In the past few years, the Hospitality Software as a Service sector has sky rocketed. Keeping up with the exponential growth in cloud computing power, SaaS products have become more complex, more intuitive and more efficient than the traditional reservation, property management, email services or customer relationship management solutions taken separately. Expand Executive Search takes an opportunity to review the early-stage economy in Hospitality SaaS, based on an analysis of selected market players - B2B Hospitality SaaS solutions vendors. Our market sample includes innovative companies offering SaaS solutions for the Hospitality industry as their main and only activity - in each stage of development - from newly established startups to industry leaders. This approach allowed us to exclude from our sample large software companies such as Oracle, and only focus on the niche players in this vertical market.

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Market sample

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Our sample is a representative of the vertical market and consists of our selection of 40 companies in various stages of business development, from seed funding stage to established enterprises (Appendix 1). Our main criteria of selection were: ● Innovative companies offering a SaaS-like product ● Companies are providing their product in a B2B model ● SaaS products are exclusively targeted at the Hospitality industry ● The SaaS product is the company’s main activity As the vertical market is undoubtedly in its early stages, we believe that the key players are start-up companies bringing new solutions to the market. Our valuation approach is based on the recent activity records of each company, combined with investment trends in the startup economy. 30 out of the 40 companies in our market sample are publicly disclosing their records of recent funding rounds, news, acquisitions and mergers. We believe this segment to be representative of the selected market. However, to keep the sample balanced, we have also included large established companies along with providers that have chosen not to make public their funding, and providers that have been acquired recently. With very few exceptions, most of the companies in our sample are established businesses, having been active in the market for over 5 years. Among the newer ones, there are also remarkable players (see, for instance Duetto) who have the potential of becoming market leaders in their niche.

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Market overview Competition in the hospitality software market is high, especially in recent years. Large software companies that have traditionally supplied their solutions to hospitality businesses are having a hard time keeping up with the trends of increased connectivity, data collection and client interaction.

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The advent of SaaS means there’s a lower barrier of entry for smaller players that fight their way into vertical markets by providing innovative, nuanced, disrupting or enabling solutions for a fraction of the cost of traditional software systems. Their innovation comes not only from the remote delivery model, but from their business models as well. Flexible payment methods such as monthly subscriptions or order-based commissions are allowing hospitality businesses to make their way into the on-demand market with almost zero risk in terms of investment uncertainty. Most Hospitality SaaS providers are responding to a common challenge: bridging the gap between hospitality offer and demand. While older property management and related software were focused more on the business management side, new SaaS solutions are targeted at the business development side; and this makes all the difference. The market is very dynamic. End-consumer facing industries such as Hospitality are under constant pressure to adapt to new channel of communications and new patterns of consumption. This means the vertical market of Hospitality SaaS is constantly changing, companies adapting to new trends and responding to new challenges, while bringing hundreds of solutions to the marketplace. Market value Startup companies are usually making their funding public as a way to gain visibility, brand recognition, the public’s trust, and most importantly, to increase the chances of raising more capital. Based on our internal research, there is an inherent link between the funding a company receives, the stage at which the funding comes in and the market value of the company. An overview of multiple sources of information from early-stage investors reveals that there is a general consensus regarding the trade of funding for equity at each series level, which is a good indicator about a company’s market value.

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The typical percentage of shares an investor gets in return for their funding:

Our calculations of the mid-range segment are focused on the latest round of funding for 30 companies that are representative of the market and have made their funding rounds public. The amount of capital raised in the latest funding round allowed us to make an estimation of each company’s market value. To keep the mid-range segment relevant, we have excluded from our calculations the valuations of over $1B. ‘Unicorn’ companies such as Zomato and established market leaders such as Sabre Hospitality, are however crucial to a comprehensive image of our market overview. In an attempt to make a broader evaluation of the vertical market, we have also considered private companies which are not active on the startup scene. Our market sample includes 8 such companies, as well as two market leaders which are valuated at over $1B each. As expected, the bulk of the companies in our sample, more than half, are in the mid-range segment, valuated at $10M to $100M. The smaller players - most of them in their early stages - are valuated at under $10M based on the public investment rounds. Of the 40 companies, 7 are leading companies with current valuations at over $100M each, 3 of them in startup stage and 4 of them having been acquired.

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As expected, startups that reach Series C or D funding rounds are already established as significant players on their market and valuated accordingly. Of the 3 startups, worth over $100M, 2 are in their Series C (LightSpeed POS, Duetto), while Rategain is enjoying a $50M funding right in their Series A. Overall, the combined estimated value of our market sample stands at over $1,6B, with the average valuation of $53.5M. However, as described above, this is only a mid-market estimation of the average Hospitality SaaS company. The overall market sample estimated value stands at over $7B (it is important to note that this figure does not represent the total revenue of the market sample). As most of the key players are still in their early stages of development, their revenue may be irrelevant to their projected market value.

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Market growth rate The overall market growth rate between 2014 and 2015 for the Leisure and Hospitality software market is over 17%, according to a consultancy specialized in App research and buyer insight1. The rankings are based on 2011-2015 enterprise applications revenues of more than 3,000 enterprise applications vendors. The above figure seems right, especially when put into perspective with the average growth among the top 10 players in the Hospitality Software market, which is only 11.8% by comparison. We agree that the general trend is for Hospitality companies to rethink their management strategies, especially in client-facing operations such as ordering, payment and marketing, and to move some of these highly-sensitive operations to frameworks that are trusted by their clients. We expect to see a predictable margin between the growth rates of traditional hospitality software providers (including web-based) and the new, innovative start-up market. In the best-case scenario, at an average YoY growth rate of 17%, our market sample will be worth over $15B in 5 years. Again, it’s important to mark the distinction between a company’s estimate valuation and a company’s revenue. 1 https://www.appsruntheworld.com/app-top-500/%20Leisure%20&%20Hospitality

http://www.appsruntheworld.com/app-top-500/%20Leisure%20&%20Hospitality

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The SaaS sector, while being on a clear growth trend from a market share perspective, is best defined by innovative business models and cost-effectiveness. We can expect the entry barrier to lower further for new players that may turn the scale of projected market trends. Investment activity The SaaS market is a hotspot for angel investors and private equity funds. No less than 134 investors have funded companies in our market sample, of those 47 participated in more than one round, funding one or more companies (see Appendix 2). The combined amount raised by companies in our sample was $906,8M (made public).

Last year (2015) market the highest level of investment in the hospitality SaaS market, with a combined $326M raised by companies in our sample. This figure represents more than the previous 3 years combined. However, in 2016 the level of investment has dropped to only $144M. This can be related to the notable acquisitions in the vertical made over the last 3 years by major investors such as Insight Venture Partners and Vista Equity Partners.

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The massive investment in the Hospitality SaaS vertical in 2015 is easily noticed at a closer look of investment rounds per company. All the top 5 companies with publicly disclosed funding rounds in the last 5 years (Zomato, Lightspeed, Duetto, Rategain, Revinate) have received important investment in 2015 (in yellow).

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Some of the most consistent funding rounds took place in 2015. The graph below shows the top 5 investment rounds that took place in each of the last 5 years, by raised amount (combined by company). As opposed to 2015, investment rounds made in 2016 are significantly smaller.

The distribution of investment money also shows that although most of the heavily backed companies have raised funding in multiple rounds over the last 5 years, there are new entrants on the private equity investment market that have raised significant amounts in their first rounds. Rategain, for instance, has raised $50M in a single round in 2015, while Toast has raised $30M in a single round in 2016.

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The top 5 investors by the number of investment rounds they took part in are Accel (9 rounds), Info Edge (5 rounds), Battery Ventures (4 rounds), Daniel Scholnick (4 rounds) and Benchmark (4 rounds). Most active investors by number of rounds:

All 5 investors above are also lead investors in one or more rounds. The investors who were lead investors in more than one round are Info Edge (5), Accel (4), Vy Capital (3) and Concur Technologies (2). No less than 46 lead investors have been identified in our market sample. Lead investors by no. of rounds:

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Mergers and Acquisitions Mergers and acquisitions occur mostly in the upper market segment, with market leaders Sabre Corporation and Zomato leading the way in our market segment, as expected. While Sabre has acquired no less than 29 companies since 2000, Zomato has acquired 10 companies in the last one and a half years alone.

Zomato opted to buy both direct competitors such as Urban Spoon that would help them increase their market share, as well as enablers such as Sparse Labs (logistics) and MaplePOS (PoS solution) that would impact their business activity. Notable acquisitions in the vertical are also Fourth and Lanyon Solutions. Fourth is the world’s leading provider of cloud-based cost control solutions to the hospitality industry. Insight Venture Partners acquired Fourth from ECI Partners in 2014. It is relevant to note that in the previous years, Fourth has already expanded internationally with the acquisitions of Adaco, a US-based company offering SaaS solutions for the international hotel sector and Team Hours, a labour productivity solution. Lanyon offers cloud-based software for the meetings and events industry, and transient hotel programs. Active Network, part of Vista Equity Partners, acquired and merged with Lanyon in 2014, hoping to bring a single more comprehensive solution to the event management industry. Further, Vista Equity Partners went on to acquire Cvent in 2016, slowly gaining control of a significant portion of the event technology market.


Appendix 1 - Market sample

Company Name Website

Alice http://info.aliceapp.com/

Appy Hotel http://appyhotel.com/

AvailPro http://site.availpro.com/

Bevspot https://www.bevspot.com/

Birchstreet http://birchstreet.net/

Checkfront https://www.checkfront.com/

Clerk http://www.clerkhotel.com/

Clock Software https://www.clock-software.com/

Cloudbeds https://www.cloudbeds.com/

DerbySoft http://derbysoft.com/

Duetto http://www.duettoresearch.com/

Flypay http://www.flypay.co.uk/

Fourth http://www.fourth.com/

Hetras http://www.hetras.com/

Hotelogix http://www.hotelogix.com/

HotSchedules https://www.hotschedules.com/

innRoad http://www.innroad.com/

Iristrace http://www.iristrace.com/

Lanyon Solutions Inc http://www.lanyon.com/

LightSpeed POS http://www.lightspeedhq.com

LodgiQ http://www.lodgiq.com/

Mews Software https://www.mewssystems.com/


Appendix 2 - Investors

Investor Rounds Investor Rounds Investor Rounds

Accel Partners 8 Eric van der Maten 2 Saeed Amidi 1

Info Edge 7 Startupbootcamp 2 Shiji (Hong Kong) 1

Battery Ventures 4 Temasek Holdings 1 Triangle Peak Partners

1

Daniel Scholnick 4 ECI Partners 1 Expedia 1

Benchmark 4 Caisse de Depot et Placement du Quebec

1 Jason Finger 1

Vy Capital 3 Investissement Quebec

1 Laconia Ventures 1

Sequoia Capital 3 Icon Ventures 1 Paul Appelbaum 1

iNovia Capital 3 Brad Gerstner 1 Todd Arky 1

Altimeter Capital 3 Spectrum 28 1 BOOST&Co 1

Marc Benioff 3 Trinity Ventures 1 Blue Heron Capital 1

Thayer Ventures 3 TA Associates 1 Rose Park Advisors 1

Bessemer Venture Partners

3 METRO GROUP 1 Saama Capital 1

Northern Light Venture Capital

3 Carlo Kölzer 1 Blume Ventures 1

Formation 8 3 Digital+ Partners 1 Mumbai Angels 1

Fortify Ventures 3 Hasso Plattner Ventures

1 Cultivation Capital 1

Concur Technologies

3 Lars Kamp 1 eonCapital 1

Plug and Play 3 Tom Köhl 1 Joe Maxwell 1

Jaws Ventures 2 F-Prime Capital Partners

1 Moore Venture Partners

1

Leland Pillsbury 2 GV 1 Seed San Diego 1

Concardis 2 Beijing Shiji Information Technology

1 Tech Coast Angels 1

ALSTIN 2 Keytone Ventures 1 Auriga Partners 1

European Regional Development Fund

2 DCM Ventures 1 Andrew Wilkinson 1

Industry Ventures 2 Sozo Ventures 1 Cinco Ventures 1

Northgate Capital 2 GC Hotel Tech 1 David Arnsdorf 1

Tao Capital Partners

2 Time Out 1 Julien Sellgren 1

Tenaya Capital 2 Just Eat 1 Rajiv Khaneja 1

500 Startups 2 Beacon Capital 1 RBC Capital Markets

1

Dingman Center Angels

2 Entree Capital 1 Steven Myhill-Jones

1

J. Hunt Holdings 2 QuestMark Partners 1 Stuart Bowness 1

Middleland Capital 2 Dave McClure 1 500 Mobile Collective

1

Militello Capital 2 K Street Capital 1 Horizon Partners 1

Stardust Venture Partners

2 Paul Singh 1 Axivate Capital 1

Intel Capital 2 Sameer Gulati 1 Alfonso Alvarez 1

Acceleprise 2 Bain Capital Ventures 1 Ana Vilas 1


645 Ventures 2 Accanto Partners 1 André Kingham 1

neuehouse 2 Dorm Room Fund 1 Bbooster Ventures 1

Partech Ventures 2 Square Enix 1 Ignacio Soto 1

Tekton Ventures 2 Shaw Venture Partners

1 Juan Margenat 1

Episode 1 2 Ignition Partners 1 Lánzame Capital SL 1

Notion Capital 2 ITOCHU Corporation 1 Marek Fodor 1

Geordie Henderson 2 Sumitomo Mitsui Banking Corporation

1 Playbossa Ventures SL (Grupo Matutes)

1

Rasool Rayani 2 Toyota Motor Corporation

1 Sacha Fuentes 1

Right Side Capital Management

2

Toyota Motor Credit Corporation

1 Toubkal Partners 1

Unlimited Capital 2 Highgate Ventures 1 Ziclo Inversiones Alvarez Santamaría SL

1

Kima Ventures 2 Trilantic Capital Partners

1

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2016 - TOP 40 Funding in the Hospitality SaaS Software ... · 5 Funding in the Hospitality SaaS...

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