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Salesforce ventures into Europe to woo the 'Children of Benioff' with $100 million

Stuart Lauchlan Profile picture for user slauchlan October 12, 2015
Summary:
Salesforce is in search of additions to its growing ecosystem of partners and it has a bag of money to help oil the wheels. Who will be the next Salesforce?

money-trail
Follow the money

In what appears to be another case of ‘money where mouth is’ when it comes to EMEA, Salesforce has today committed $100 million to invest in European start-ups in search of the 'Children of Benioff' - the next generation of start-ups built around the Salesforce ecosystem.

The noble ambition behind this, according to the official announcement, is:

to fuel cloud innovation and customer success in the region.

It’s also of course to spot winners and get them engaged with the growing Salesforce ecosystem.

As Mrs Beeton’s Cookbook advises, first catch your rabbit.

Salesforce Ventures has been out hunting those innovative rabbits since 1999 and has scored some significant successes in that time, including the likes of ERP firm Kenandy and call center experts NewVoiceMedia, whose CEO Jonathan Gale testifies:

[Salesforce Ventures] investment in our business, solutions, strategy and vision has allowed us to expand our business faster while giving us access to the most experienced and innovative cloud executives, ecosystem and customers to ensure we maintain our rapid growth rate.

From the PoV of those chosen for funding, there’s an added bonus, as Graham Cooke, founder and CEO of another Salesforce Ventures-backed firm, Qubit, observes:

Beyond funding, Salesforce Ventures gives us unique access to the Salesforce customer ecosystem.

Hunting rabbits

Overall then, a win-win situation for both sides of the equation it seems. But how does Salesforce decide which horses (rabbits?) to back? And how do putative cloudy lapines get the firm’s attention to cash in on its largesse?

I caught up with John Somorjai, EVP of Corporate Development and Salesforce Ventures, Salesforce, this week to find out more. He began with the mission statement:

We started the program to invest in next generation companies and to give them a lot of our expertise to build ther businesses and provide access to our customer base. We’re working to build the best ecosystem of cloud partners.

Salesforce Ventures has, to date, made 17 investments in Europe - out of 150+ overall - and has set up a head of investments in London, experienced venture capitalist Alex Kayyal, to scout the market in Europe for fresh opportunities.

Many US tech firms have spoken about the pool of talent available in Europe. When this is balanced with the still immature level of entrepreneurial funding in the European markets, despite the best efforts of initiatives such as London’s Tech City quarter, it’s easy enough to imagine that Europe is potentially something of a happy hunting ground for the likes of Salesforce - lots of ideas, lots of talent and precious few indigenous backers to support them.

Certainly Somarjai talks in terms of this being a good time to make “deeper investment” in Europe on this front. The region is Salesforce’s fastest growing year-on-year with 29% growth and the firm has made significant investment of late, both in terms of infrastructure, such as new offices in London and Paris, as well as its in-region data center commitment - two already opened in the UK and Germany, one to come in France early next year.

But it’s not a case of coming over from the US and picking the cream of the European crop to take back to California, insists Somorjai:

The culture is changing. We are seeing a lot more successful entrepreneurs build their companies and stay in Europe. Every one of those companies is going to want to open a sales office in the US, but in many ways it’s preferable to keep R&D in Europe. There is so much access to talent. You can have a more efficient company by basing it in the UK. There’s so much talent and fewer jobs, so you don’t have the pricing pressures that you do in Silicon Valley.

So what makes a good candidate for Salesforce Ventures? Well, first up, you need to have done some of the legwork already. There’s no point in bringing an idea on a piece of paper as this is not about seed funding to get businesses off the ground. As such, there needs to be a product to look at and some form of organization around it to attract the equivalent of Series A funding. Somorjai says:

We look for innovation, something that is new and novel that our customers would want to buy. We have a very good sense of what they want to buy. We look at the quality of the management team. We ask if this is going to be a market opportunity for us, rather than just a feature add-on.

And presumably whatever’s on show needs to be built on the Salesforce platform? Somorjai demurs:

We would love for them to build on us, but it isn’t a requirement that it must be built on our technology. It does have to have a partnership with us in some way. So it has to be integrated with us on AppExchange or built on Heroku or force.com. You need to have an existing partnership in place.

That can take a number of forms, such as participating in the Salesforce for Start-Ups program, as well as the obvious certification for and participation in the AppExchange.

Big feet

One thing that is likely to become increasingly complicated as the Salesforce ecosystem increases its own functional and vertical market footprint is how Salesforce can encourage new entrants to build on its platform without creating new rivals for itself.

We’ve already seen more established firms such as Marketo being declared unwelcome at the annual Dreamforce jamboree due to their competitive nature with Salesforce’s own Marketing Cloud, while this year I heard a claim from one partner that they weren’t allowed to use the name of their own product in collateral at the show.

Those treading-on-toes tensions are only going to grow, so presumably Salesforce Ventures has to a take a longer-term view of such potential clashes? Maybe don’t bother coming to them with a sales force automation proposal? Somarjai concedes:

We are not going to invest in competing companies. For new companies coming in, you should look at the white spaces, focus on the areas where we are not.

He cites areas such as mobile and predictive analytics as current sweet spots as well as the likes of machine-learning.

If you have a start-up that wants attention, there are a variety of ways to attract attention, ranging from submitting an online application through to contacting Somorjai or Kayyal. Or you could go straight to the top and pitch your idea directly to CEO Marc Benioff.

This raises an interesting question as Benioff has invested personally in a number of start-ups in Silicon Valley, rather than as Salesforce. It’s an important distinction to make. We need only look to NetSuite to see a company that is all-too-often mistakenly referenced as an Oracle-backed venture when in reality it’s a Larry Ellison personal investment.

So how do Salesforce Ventures and Benioff divide up the spoils? How do you determine, for example, that Kenandy, which started life as a conversation in Hawaii between Benioff and his neighbour, manufacturing resource management veteran Sandy Kurtzig, becomes a Salesforce Ventures-backed firm rather than a Benioff-backed one? Somorjai explains:

If the business is related to Salesforce or is strategically relevant to Salesforce, then it would come to us. [Kenandy] started with the conversation between Marc and Sandy and that was what got Sandy excited. Then she came to me for funding, although she was self-funded for the first year.

That seems as neat a summary of how Salesforce Ventures works. Somorjai concludes by encouraging firms who think they’re in the same sort of place as Kenandy was at that point to come and talk:

As long as [candidate] meet our requirements, we’ll take a meeting and we’re happy to talk to them and learn more about them. Sometimes companies might not be ready for an investment just now, but it’s good to keep tabs on them.

I’ve been in France for a week and now I’m in the UK and I’ve never seen so many exciting start-ups. In all the times I’ve been to Europe, it really does seem that we’re at a tipping point.

My take

I’m all for any venture that encourages the growth of European innovation in the tech field, so this $100 million commitment is a welcome gesture.

I’ve written before about what I’ve referred to as the ‘Grandchildren of Ellison’ syndrome we can see in the cloud industry today. Out of the belly of Oracle came the founders of Salesforce and NetSuite and Workday et al. Now out of the belly of Salesforce come the 'Children of Benioff'- the Zuoras, the Kenandys, the FinancialForces and all the others that haven’t yet registered on the radar.

Exciting times indeed.

 

Disclosure - at time of writing, FinancialForce, NetSuite, Oracle and Salesforce are premier partners of diginomica.

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