Every year in the US there are about 500,000 start-ups but only about 10 to 15 of these ultimately join the $1bnin- revenues club, according to non-profit entrepreneurs organisation Kauffman Foundation.
Salesforce has breezed into this club by being, as executive chairman Marc Benioff said, “the first enterprise cloud computing company to exceed a $2.3bn annual revenue run rate”.
Salesforce closed its financial year at the end of last month with more than 100,000 customers and is already predicting about $2.9bn in annual sales for the current 12-month period.
It has been using an increasing amount of its free cashflow to acquire its first corporate venturing portfolio company and take minority stakes in third parties.
The company has 16 disclosed deals, including backing customer support application Assistly over a four-year period to the end of 2011 (see first two tables below, after key people fact box).
This has been part of a longer-term plan to build the ecosystem that supports the software-as-a-service (SaaS) – cloud – market and help its evolution from selling customer relationship management (CRM) services to one providing a broader range of enterprise tools.
Salesforce, founded in 1999 and floated in New York in 2004, set up a $25m developers fund in 2007, managed by venture capital (VC) firms Bessemer Venture Partners and Bay Partners, to back about 50 developers for its Force.com platform beyond CRM and in human resources and social media.
At the time of the fund launch in 2007, analyst Joseph Sweeney at Australia-based Intelligent Business Research Services told news provider ZDNet: “I would expect over the next two years some of these companies that have been invested in will be making investments in each other and leveraging each other’s support streams.
“Salesforce is small enough to broker these arrangements and, because they are small, hungry and flexible, they are less likely to cast you aside like some of the larger companies.”
Ryan Aytay, vice-president of corporate development and strategy at Salesforce, refers such developer partners through its Force.com platform to venture capital firms for investments and considers them potential deals for Salesforce.
The evolution from the developers’ fund to an approach by Salesforce for larger acquisitions and corporate venturing deals has often followed a period of close collaboration between Salesforce and the third parties.
Its three most recent disclosed deals, Rypple, a social performance management app to be relaunched as Successforce, Model Metrics, a mobile and social cloud consulting services company that has completed more than 1,000 Salesforce deployments, and Assistly, a customer support app for small businesses, reflect this, and Salesforce has a senior director, Jonathan Hunt, for acquisition integration.
Bernard Dallé, a partner at VC firm Index Ventures, another member of Assistly’s investment syndicate, on his blog said: “On the back of its active corporate development programme,
“Salesforce made a strategic investment last year [2010]. A couple of months ago, witnessing how the company was developing ahead of expectations, Salesforce decided it was time to move aggressively and acquire the business.
“It is a logical step. Salesforce announced its ambition in social media management with the Radian6 purchase early this year and is acutely aware of the importance of customer service through ServiceCloud. Assistly will now enable Salesforce to effectively serve a larger base of customers, starting with small and medium-sized enterprises.”
Bruce Breslin, founder of Infinimedia, said on his blog in December 2010: “One could say that Salesforce pioneered SaaS as a business model with their initial CRM tools being subscription and web based.
“Many years later the pivot started, with the introduction of the AppExchange marketplace, and Salesforce shifting to provide a platform for external developers versus building it all within their silos.
“After AppExchange, Salesforce launched Force.com which is essentially a set of APIs [application programming interfaces] for Salesforce, thus creating the business tool equivalent of [Apple’s] iTunes marketplace for small business widgets and mini applications. [After a series of acquisitions, Salesforce now has] the tools in place for you to build, host and support your business applications in their cloud.
“This effectively completes the value proposition cycle for smaller developers and application providers – ‘come to our platform and we take care of everything that you don’t want to worry about, and in exchange you get immediate access to tons of customers whose credit cards we have on file’ (similar to iTunes).
“Salesforce is going to try to be to business functions on the web as Facebook is to social connections.”
And Salesforce has continued to build close links with start-ups, including those going through the Y Combinator accelerator – it has taken stakes in at least four of its graduates. Salesforce has also bought Y-Combinator start-ups Etacts for its contact-management business for an undisclosed sum and Heroku, a Ruby on Rails platform, for $250m.
Salesforce has used its links to the start-up ecosystem, especially in California’s Silicon Valley, to keep close to innovative ideas – including those of former employees, such as Chuck Ganapathi, who created Salesforce‘s Chatter social network but left in August to join VC firm Accel Partners as an entrepreneur-in-residence – and allied this with strategic planning involving corporations’ business needs and the future of technology.
Late last year, Salesforce hired JP Rangaswami, as chief strategy officer from UK-based phone operator BT, and analyst Bruce Richardson as chief enterprise strategist, while company co-founder David Moellenhoff remains chief scientist and research fellow.
Salesforce has been laying the groundwork in a bid to reach $10bn of revenues. Its rate of revenue growth, however, has slowed from its preflotation performance, when it doubled turnover every year from 2001 to $96m in the fiscal year ending January 31, 2004.
Salesforce’s continued sales success has come with some debate by a few analysts, including Bernstein Research, over its net income figures, but has led to a 647.7% rise in its share price return from 23 June 2004, when it floated on the New York Stock Exchange at $11 a share, to 23 January 2012, when it had a market capitalisation of $15.8bn. Shares now trade at around $116.
Its success since foundation has had much to do with co-founder Benioff, 47, who has been part of the close-knit Silicon Valley cognoscenti for about 25 years.
Previously, Benioff co-founded Software As Service, a web services platform that is the origin of Salesforce’s Force.com product, alongside its chief executive Gordon Ritter.
Ritter then went on to found VC firm Emergence Capital – Salesforce was its first investment – and he was also responsible for IBM’s launch partnership with Salesforce, having once been the vicepresident of the $3bn IBM global small business division.
Benioff’s experience in the sector came partly from his original $50,000 angel investment in Siebel Software, which also offered customer relationship management before being sold to database provider Oracle. Benioff had been a colleague of founder Tom Siebel at Oracle and had made at least $10m from his Siebel shares. He also made between $20m to $30m from his stock of Oracle shares granted during his employment between 1986 and 1999. The database company’s chief executive, Larry Ellison, invested $1m in Salesforce in 1999.
These stock profits allowed Benioff to bring in a team of developers led by Frank Dominguez, Parker Harris and Moellenhoff and set them up next door to his house in order to take on Siebel and other CRM providers.
Benioff’s personal investments in VC firms, such as US Venture Partners, and technology companies (see third table), including Blue Martini Software, during and after the 1990s gave it a number of personal connections on which to call when building Salesforce.
Magdalena Yesil, a partner at US Venture Partners, invested in Salesforce in 1999 and owned 2.3% before flotation, according to the regulatory filing at the time.
Blue Martini (later Escalate Retail, now RedPrairie) became one of the first Salesforce customers at launch and, in 1999, Benioff told Bobby Yazdani, chief executive of Saba Software, in which he also owned shares, about his idea to build a hosted salesforce automation service. Yazdani introduced him to two developers.
Some of Benioff’s more recent angel investments have also done well, including the sale of video company Qik to online phone operator Skype for $150m, and a number have had ties with Salesforce. Zuora, a cloud-based billings platform, is used by Salesforce’s social media monitoring group Radian6, while Xsigo is another Benioff portfolio company providing data centre infrastructure used by Salesforce to provide more flexible and scaleable hosting.
Salesforce paid $340m for Radian6 last year to add to a product suite that now includes Chatter, a private social network for businesses; Sales Cloud, for salesforce automation and contact management; Service Cloud, for customer service and support; Data.com and Database.com for business data; AppExchange, a marketplace for enterprise cloud computing applications; Force.com, for custom application development; and Heroku, for building social and mobile apps in Ruby on Rails.
Salesforce and Benioff declined to comment on how decisions were made about which deals became a corporate venture or an angel deal.
It is not uncommon for senior US executives to have personal investments in start-ups or VC firms while heading companies with large corporate venturing units, including Eric Schmidt, chairman of Google, through his TomorrowVentures vehicle.
None of the public deals by Benioff or Salesforce have coincided and a corporate venturing head said it had avoided co-investing with the family offices of its founding shareholders for fear of running into anti-trust or competition challenges that might slow up a deal.
What has differentiated Benioff, however, has been his engagement with corporate and personal philanthropy from the start of Salesforce, when a foundation was set up to hold 1% in stock and reap 1% of profits from the company for good causes. Benioff has also personally backed online charity donation network Causes, established by Facebook shareholder Sean Parker, and encourages all his staff to donate their time to philanthropy.
The success of Salesforce means more than $100m has gone to the foundation so far but Benioff could perhaps be forgiven for thinking his most socially-aware action in setting up Salesforce was in removing many of the software CDs that ended up in rubbish tips.
After all, as Benioff told news provider New York Times ahead of the Salesforce flotation: “We applied for a permit from the city to march against software. We claimed it was hurting the US economy. It was creating landfills full of CDs. And the city granted it to us.”
Fact box
Key people
Marc Benioff, chief executive and co-founder
Parker Harris, executive vice-president of technology and co-founder
David Moellenhoff, chief scientist and research fellow and co-founder
JP Rangaswami, chief strategy officer
Bruce Richardson, chief enterprise strategist
John Somorjai, senior vice-president of corporate development and strategy (ex-Oracle)
Ryan Aytay, vice-president of corporate development and strategy who also refers Force.com partners to VCs for investments
Villi Iltchev, senior director of corporate development and strategy who leads the Y Combinator investment programme
Jonathan Hunt, senior director of acquisition integration
Eric Darwin, senior manager of corporate development
George Hu, chief operating officer
Frank Dominguez, fourth co-founder, not on the company’s list of senior executives
Salesforce acquisitions
Acquisition price in backets where disclosed
Rypple, a social performance management app to be relaunched as Successforce
Model Metrics, a mobile and social cloud consulting services company
Assistly*, a customer support app for small business ($50m)
Radian6 for social media monitoring and engagement ($340m)
Manymoon, a developer of social productivity apps
Dimdim, online sharing and presentation tools for meetings ($31m)
Etacts, a Y-Combinator start-up in the contact-management business
Heroku, a Y-Combinator start-up providing a Ruby on Rails platform ($250m)
Activa Live, live chat provider
Sitemasher, project management of websites and online applications
Navajo Systems, an Israel-based encryption technology provider ($30m)
Jigsaw, real-time data provider ($142m +10% performance)
Informavores, developer of business orchestration software used to create the Force.com Visual Process Manager
GroupSwim, collaboration content management software
Data.com, a crowd-sourced contact database in the cloud
InStranet, customer-service technology software provider ($31.5m)
Koral Technologies, content management technology
Kieden, for search engine marketing
Sendia ,for mobile software on demand ($15m)
* Previous Salesforce portfolio company
Sources: Salesforce, Crunchbase, regulator, Chubby Brain,
Global Corporate Venturing, companies
Salesforce investments still in portfolio
Name Round size ($m) Stage Location
VSee N/A stake US
Flotype 1.4 seed US
Urban Airship 15.1 C US
Box.net 81 n/a US
Checkmarx n/a n/a Israel
800App n/a B China
Kenandy 10.5 A US
Appirio n/a D US
Taptera 2 A US
ServiceMax 14 C US
HubSpot 32 D US
Seesmic 4 n/a US
DocuSign 27 C US
Practice Fusion n/a n/a US
Xactly 12 n/a US
Coda2go (now FinancialForce) n/a n/a Netherlands
AppHarbor* n/a seed US
Mailgun* 1.1 seed US
Apportable n/a
Now.js n/a
Vidyard* 1.7 seed US
Infor n/a
* Y Combinator graduate
Sources: Salesforce, Crunchbase, regulator, Chubby Brain,
Global Corporate Venturing, companies
Benioff’s personal portfolio has included:
Zuora, cloud-based billings platform used by Radian6
Domo Technologies, business intelligence technology formerly known as Sacho
Path, a social network for photo sharing and messaging on mobile devices
Mashery, a provider of tools to help companies build APIs and open up their content
Xsigo, data centre infrastructure company used by Salesforce
Lookery, social network-centric ad network part sold to Adknowledge
ZocDoc, online medical booking service
Tapulous, an Apple games platform acquired by Walt Disney
Qik, mobile video streaming service sold to Skype for $150m
Causes, online donations service
Home-Account, a mortgage-finding service
Blue Martini Software, now part of RedPrairie
Siebel, software company now part of Oracle
Saba Software, a people management software firm
Crossworlds Software, sold to IBM for $129m
Angel Investors
US Venture Partners, a VC firm
Digitalwork.com, business web sites builder
Notifi.com, web domain
Yield Dynamics, enterprise yield management ultimately sold to Rudolph Technologies
Oracle, employee stock options
Sources: Salesforce, Crunchbase, regulator, Chubby Brain,
Global Corporate Venturing, companies