With the notable exits of Yammer and Jive Software, shouldn't interest in the industry be higher? Or was the marriage of social and enterprise just a fad?
So did Microsoft’s acquisition of social enterprise software start-up Yammer for $1.2 billion in Q3 2012 and Jive Software‘s IPO the prior winter ignite a firestorm of financing and exit activity in the social enterprise space? Sort of. On the financing front, deal activity has seen an uptick with 24 deals in the trailing four quarters (a 33% increase vs. the prior year), but funding ($) declined over 20% vs. the prior year. This is due primarily to the fact that deal activity in the space has been to smaller, more fledgling companies at the seed, angel and Series A stages. (see below)
Although an IPO and a billion dollar plus acquisition would usually be enough for VCs to pile into a space (especially the momentum- and trend-chasing variety of VCs), a couple of factors look to be constraining investment into the industry. Most surprisingly perhaps is the lukewarm exit environment for enterprise social software companies. Add to this that Jive Software is trading at or near its IPO price at present and you got some cold water thrown on the enterprise social software party. This is nevertheless surprising given positive sentiment and general frothiness around all things enterprise these days. It may be that the industry’s tie to social which many investors seem keen to disavow any knowledge of is providing a headwind as well.
Enterprise Social Software Financing Activity
Financing activity into the enterprise social software space reached its peak in Q1 2012 with funding in that quarter buoyed primarily by Yammer which had yet to be taken out by Microsoft. Deal activity also hit a high in the quarter as investors jumped into other enterprise social companies such as social innovation and idea management firm Spigit.
Enterprise Social Software Funding Activity by Stage
As alluded to above, early stage deals (Seed / Angel / Series A) made up more than half of the deal activity within the Enterprise Social Software space over the last two years. Early stage funding continues to see positive yoy deal growth with 250% growth in Seed / Angel rounds alone. Median deal size for Seed / Angel rounds is at a modest $0.5m, but spikes to $3.71m in Series A deals, with average and median deal size increasing as would be expected with deal stage maturity.
Enterprise Social Software Funding Activity by Geography
Unsurprisingly, California saw more than 40% of the deals into the space followed by NY and then somewhat surprisingly by Texas which stood solidly in third place. In this space, Texas is far ahead of Massachusetts and Southern California – two usual suspects for venture activity. Texas’ enterprise social software presence includes Socialware (founded by former Bazaarvoice execs) and Telligent Systems which focuses on online social communities within the enterprise.
Enterprise Social Software Exit Activity
Exit activity has been intermittent within the space as can be seen below. In the last year, there have been 4 exits with Yammer being the most high profile and largest. Most exits are, of course, not like Yammer and are smaller, tuck-ins of teams and technology. Jive’s IPO in Q4 2011 is the one flash of orange on the below graph. Most of the exits as mentioned above have been of young companies who’ve not raised a great deal of money. The majority of exits were of companies who’d received their first financing within the last 2.5 years and who had raised less than $20 million from investors prior to their liquidity event.
If exit activity remains tepid, it will be interesting to see if the early stage enterprise social software companies will be able to raise money in future financing rounds. Of course, if acquisition activity by the likes of IBM, Cisco, Microsoft, Salesforce and other enterprise players increases, that will likely be all the wind that companies and investors need at their back to continue to invest in the space.