Michael Brown of Bowery Capital and Kelli Fontaine of Cendana Capital discuss trends and themes using Cendana Capital manager data.
A few years back, one of our limited partners introduced us to their version of the annual kick off. Upon coming back from the holidays, their entire management team goes away and discusses results from the prior year. They also set the tone and goals for the upcoming year. It’s a quick 3 days and you are set up for the year. We thought it was a great idea and an easy way to put an end on the prior year and set us up for the future year. So, we borrowed it a few years back and it has stayed with us since. This year was the 2020 Kick Off.
Given we are a bit more boutique than this limited partner, we condense our kick off down to a single day and generally do it at one of our portfolio companies HQs. This year, we spent the day at Transfix for our kick off. We had a lot of insights and thinking throughout the day reviewing our OKRs and setting them up for 2020 and decided to condense down the trends and themes we are working through into a few points for the community. We will cover some thinking from our Investment Team today and publish another post from our Acceleration Team in short order.
1. Deal Quantity vs. Deal Quality. In any calendar year, we have consistently had a key result focused on the number of opportunities that we feel we need to see (quantity) while also having a key result focused on the deal sources that matters most to us and how many we see from this group (quality). We debate this endlessly and have in prior years focused more on quality or more on quantity but with so much capital out there showing us new opportunities (2019 was the highest year ever in terms of number of opportunities seen…we suspect this is the same for everyone) we ended up doing away with the quantity measure for 2020.
2. What To Do Outside NY & SF? For the first time in our history, 50% of our new investments were not in the major b2b markets that we spend the most time in and have offices in. Companies like Reibus in Atlanta and GraphiteRX in Nashville were not really by design. Other than these founders knowing that we invest in an operating space (b2b marketplaces in this example) and being attracted to that, we didn’t plan on constantly being in a particular city. That said, we had a 100% increase in new opportunities coming from these cities and it encompassed about 20% of our overall opportunities in 2019. We started seeing this last year with investments in Houston and Cincinnati but we plan to spend a lot more time and focus on these ecosystems in 2020 and beyond.
3. Trends, Themes & Industries. We spend a bit of time in these meetings reviewing progress of some of our portfolio companies and hearing from team members on how everyone ended the year. We also bring in some of our thinking around themes and trends in our quest to understand the future. There was a lot to be bullish about in our 2020 Kick Off. Most of these markets are expanding much more than our initial thesis, additional buyers within the modern corporation are “coming online” and several buckets of spend that used to sit within an MSP or straight up pen and paper are seeing leverage in technology. Spaces like Industry 4.0, IIoT, Narrow AI, InfoSec, Industry Cloud, Cryptography, and a few more are getting more and more exciting to us after brutally long sales cycles and difficult times through 2018. 2019 seemed to be a changing year for these companies (in and out of our portfolio). There is also a lot to be bearish about. Our start was really around the marketing technology stack and the CMO bucket of spend. We’re still long the spend area but with 7,040 companies in the space today we are getting very narrow about what we like. HRIS, ERP, the sales stack, and some other areas seem to mirror this or have “winner take most” markets where the story has already been written.
4. Vertical vs Horizontal. This year was a strong year for us with 40% of our overall deal flow coming from industry solutions (vertical) versus non-industry (horizontal) solutions. This keeps going up every year for us and we wonder overall if this is a trend throughout the industry as more and more companies purpose build their solutions for a specific industry. We promote the trend a lot, but our feeling is there is still a really long way to go. 2019 was a great year for financings but not much activity on the M&A and IPO front. We did see Veeva Systems cross the $20B market cap mark and businesses like Guidewire move into the $10B+ range which is great to see from this grouping.
Those were some of the trends coming out of our 2020 Kick Off this year.
If you liked “The 2020 Kick Off – Beginning A New Year At Bowery Capital” and want to read more content from the Bowery Capital Team, check out other relevant posts from the Bowery Capital Blog.
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