As of December, we have had three new software based IPO’s on NASDAQ in the final quarter of 2015. Both Instructure and Mimecast listed in mid-November, and Atlassian went public a few weeks ago. All three have built phenomenal businesses, but what is most interesting to me about these last three listings of 2015 is the fact that none of them are based in Silicon Valley, and both Mimecast and Atlasssian were founded outside of the US where they still keep their HQ’s.
They don’t have much else in common. They are going after completely different markets, with differing strategies, different contract values; I’m sure they each have different cultures and differing styles of leadership. But they have proven you don’t have to be based in Silicon Valley, or even in the US to build a large software company.
I’ve noticed a shift over the last two to three years where companies have ultimately decided to keep their companies HQ’d in their local market rather than take it to Silicon Valley. I’m not talking about companies that left their home market when they were only two or three founders and joined an accelerator in the US or ultimately raised angel money in the US and stayed. These are companies who had reached initial product market fit and a few hundred thousand dollars to a few million in ARR and typically had less than 20-30 employees (think DarkTrace, Scytl, Unity etc). Why is this becoming more common?
I would suggest the following five reasons:
- Local talent is more prevalent today in many cities with people who have tech startup and scale experience (in Europe this includes the established cities London, Berlin, Stockholm, Helsinki and Paris and more emerging cities like Copenhagen, Lisbon, Barcelona and Dublin). Even 5 years ago it was hard to find a world-class product manager in London or Stockholm or a VP Eng who had scaled a 100+ person tech org. Never mind the other critical skills – sales ops, SDR’s, inbound marketers etc. But not today.
- Developers are the new kingmakers and are making more decisions on which software to use rather than the old top down model. This has been driven by open source software and more developer tools.
- Demand for cloud technologies are no longer constrained to the most innovative companies operating in the US. In fact, we are still at the beginning of this shift. Only the CRM market has moved to being more than 50% based in the cloud vs on premise.
- The shift from field sales to inside sales. Companies like Salesforce fine-tuned this model and now many companies operate this playbook with SDR’s, AE’s, Customer Success etc. This enables companies to scale much more rapidly than ever before.
- Better tools available for growing your business. The internet and other sales/marketing applications allow for more effective and profitable commercial orgs within startups (inbound marketing, sales ops tools, crm, prospecting tools, etc).
This is just the beginning. In the the market that I know the best – Europe – there are dozens of great software businesses being built quietly by amazing teams. Some of them are about to cross over the $100m revenue threshold in 2016, others are getting close to having $10m bookings years and others have only just hit product market fit but are growing faster than any of the cohorts before them. I can’t wait to see more global software companies being built outside of SV.