SaaS Continues its March to Digitize Every Enterprise Workflow; Trifecta Companies Like Scout are Poised to Win
For the last few years, Menlo Ventures has actively invested in SaaS, both vertical and horizontal. One of the “crown jewels” of the portfolio has been Scout RFP, the first company in quite some time to innovate in eSourcing and Procurement software.
It’s amazing how many large markets still rely on antiquated, often analog workflows. The lack of purpose-built modern software creates an opportunity for scrappy founders to create efficiencies. In the case of Scout: eSourcing was dominated by a basket of general tools cobbled together, a disjointed process that might involve email, word docs, and excel. The Scout team dug in deep to understand the buyer’s needs and the workflow, creating a custom application that simplified the process and offered intelligence only SaaS products can provide, like supplier quality ratings across vendors. As a result, their business thrived. Scout showed significant growth in 2019, continuously beating plan, including passing more than $38.5 billion worth of spend managed through its platform. It’s no surprise that Workday, who was already a strategic investor, was tracking Scout’s rapid growth in a critical category, resulting in today’s news that Workday will acquire the company for $540M plus cash.
Having led Scout’s Series B in 2017, the team at Menlo is proud to have been involved in Scout’s journey. It’s been a pleasure to work closely with CEO Alex Yakubovich and his co-founders Stan Garber, Chris Crane, and Andrew Durlak as they built a phenomenal business. This team proved themselves to be the type of thoughtful, next-gen entrepreneurs that we are excited to back. Scout has worked hard to get here, building a solution to a problem they experienced first-hand. The vision for Scout came from Alex and Stan, who previously founded ONOSYS (later sold to LivingSocial), which provided online ordering systems for restaurant chains. When running ONOSYS, Alex and Stan had to respond to RFPs for all of their restaurant chain customers and found it to be an immensely slow and painful process. They understood that this could be a universal pain across industries, so they started Scout.
For the investors at Menlo, the problem space resonated; many of our companies engage in RFP activity. It’s often a bespoke process with no tooling, and limited knowledge carried over from previous RFPs. But more than anything, Alex and Stan made it easy to decide to work with Scout. They were humble, commercially driven (with a strong handle on their metrics), and always had an eye on the opportunity ahead. It’s a great outcome, but this company also had tremendous potential as Coupa’s (SaaS-based eProcurement) market cap suggests.
For Workday, which offers a single cloud-based system for finance, HR, and planning, the acquisition of ScoutRFP expands their portfolio of services: Scout is the sourcing and supplier engagement platform trusted by procurement teams to streamline their processes, manage a unified pipeline of projects, and collaborate with stakeholders and suppliers to drive more significant business impact. Both companies share a commitment to providing the best possible experience for their customers, driving efficiencies at every opportunity.
What should SaaS founders and the broader startup ecosystem take from today’s announcement?
- Founders who have “lived the problem” are often best equipped to solve the problem.
- Companies demonstrating what Menlo call’s “The Trifecta” are primed for success.
For our purposes, the trifecta represents a SaaS product (often only a beachhead) that:
- Can stand-alone, eliminate, consolidate, or automate “busted,” manual workflows
- Exists as — or becomes — a system of record and facilitates the data plane.
- Attracts multiple constituents (or counterparties), driving network effects, lateral movement, and monetization within an ecosystem.
More on the trifecta here.
- SaaS is on a tear—and shows no signs of slowing. This acquisition is just the latest proof point. Gartner predicts that by the end of 2019, more than 30% of technology providers’ new software investments will shift from cloud-first to cloud-only, further reducing license-based software spending and increasing subscription-based cloud revenue—an area in which Menlo has made several investments.
As ScoutRFP exits our active portfolio, we already getting excited about making our next trifecta investment. If you are a founder working on a company that fits this model, we’d love to meet you!
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