As a software securities analyst for investment banking firm Canaccord Genuity, Richard Davis spends 200 days a year on the road visiting companies. He goes to public companies such as Oracle and Salesforce.com, but he also visits up-and-coming software companies he thinks will go public in the near future. In his new column, Davis talks about some candidates he thinks may be ripe for the IPO class of 2012 or 2013.
Xactly Corporation: Compensation management
I hadn’t met with Xactly CEO Chris Cabrera for more than a year, so it was good to catch up. Customer demand for the firm’s SaaS compensation management suite has apparently reached a tipping point. The firm focuses direct sales on six-figure deals with larger enterprises. This business, based in San Jose, CA, has a solid double digit growth trajectory. In addition, Xactly wrote a small- and mid-sized business version of its platform on Force.com. As part of that eco-system, Xactly is able to use Salesforce’s sales team, which means access to CRM’s 100,000-plus customer base.
Of course, having target customers is nice, but the key to Xactly’s elbow in growth has been the inexorable logic of automating and optimizing compensation structures for commissioned sales reps. In this respect, Xactly has benefitted from the market development buzz created by adjacent HR firms like SuccessFactors, Taleo, SilkRoad and Workday, and the recognition that HR is in desperate need of an upgrade. In Xactly’s corner of that world — compensation management — the firm often replaces Excel spreadsheets.
Xactly is entering that period of time when the years of hard work are beginning to pay off; this is when firms win the occasional “blue bird” deal, results come in above expectations, and board and operating committee meetings are something you look forward to.
Estimated revenue range, 2011: $30-50 million.
Implications for public company investors: Demand for HR upgrades remains strong.
ON24, Inc: Webcasting and virtual events
In this follow-up meeting, we drilled down to discuss how San Francisco-based On24 views itself. Specifically, we talked about On24’s delivery of live, streaming virtual events and whether this was a revenue generator or cost savings play. The reality is that the firm does both. Virtual events, like online tradeshows, generate new leads and sales for the presenting firms. For example, Autodesk, Oracle, Astra Zeneca and CA have deployed On24 for both tradeshows and training events.
Interestingly, some of the attendees to these virtual events spent upwards of five hours online. A viewer/user saves money for travel and can attend specific events of interest. Sometimes new customers come into the On24 ecosystem when a firm wants to host an internal Town Hall meeting. On24 makes the process of assembling the audio-visual and broadcast systems easy for these customers. More often than not, a new user recognizes that the process is painless and cost effective, and this leads to future orders. On24 sells live virtual access on a per user basis or in five, 10 or larger subscription packs that are valid for a year.
Competition is primarily “do nothing” or get on an airplane. Cisco’s Webex is a fine solution, but its focus is fewer users. Citrix has a competitive product in GoToMeeting, while Microsoft is apparently asking users to move off of Live Meeting and onto a collaborative Office 365. We do not view non-live streaming firms like BrightCove as a viable competitor to On24.
Estimated revenue range, 2011: $50-100 million.
Marketo: Sales and marketing management
I met with Marketo‘s “new” CFO of six-months, Fred Ball. We compared our views on the competitive environment. San Mateo-based Marketo has been one of the pioneers in B2B marketing automation; specifically it helps companies convert leads to revenues. In a world in which most companies have cut costs just about to the bone, growing revenues is something that we believe will become much more important. Business-wise, Marketo has been gaining customer count share since the firm introduced its highly functional, reasonably priced Revenue Performance Management suite.
Companies like Marketo are what make this job fun. I met this company when it was barely a dozen people making a few hundred thousand in revenues. I always respected CEO Phil Fernandez back from when he was at Epiphany and Red Brick Systems. Marketo’s primary competition is cobbled together legacy systems and Microsoft email. Other firms include Genius.com and Eloqua. We were impressed with Genius.com and that firm’s vision, and Eloqua has a solid reputation as one of the pioneers in this space.
Estimated revenue range, 2011: $20-50 million.
Richard Davis is managing director of enterprise software for the brokerage firm Canaccord Genuity. Before joinging Canaccord, he spent 10 years as a senior analyst at Needham & Company. Previously, Davis was at Tucker Anthony, where he was a managing director and launched the firm’s Internet and enterprise software coverage.
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