One of the big growth areas in European tech over the course of 2022 was B2B SaaS. We saw plenty of investment interest in this space, exciting new product developments and the establishment of a promising market for European startups to develop into.
B2B SaaS stands for business-to-business Software-as-a-Service. It includes cloud-based software that is used by businesses for various tasks – such as accounting, productivity, CRM, and so forth. In the digital, tech-enabled world, it’s become an integral part of a business – regardless of the sector. From the financial world to travel and tourism, B2B SaaS plays an important role in keeping business moving forward.
Some currently trending topics in the B2B SaaS landscape are Artificial Intelligence, Machine learning, Data Analytics, Increasing security concerns, SaaS for remote and Hybrid work, Low-code and No-code Platforms, Marketing SaaS solutions and Mobile-first SaaS. You can find out more about the B2B SaaS market in our recent premium report – available here.
Conviction VC is an early-stage firm focusing on B2B SaaS investments. The firm, operating since 2017, has invested in 20 high-growth B2B SaaS companies, including the likes of Mimecast, Oradian and Zumper. The company is led by Andrew Jenkins, who spent over 20 years in venture investing before launching the firm. We chatted with him to learn more about B2B SaaS and what 2023 has in store.
What is the focus of Conviction VC?
Conviction VC invests in pan-European business-to-business (B2B) software-as-a-service (SaaS) ventures. We target companies that are disruptive, have a high potential for growth, whose founders can demonstrate the measurable value of their product to their customers and markets. We particularly like companies that are predictable, repeatable, and scalable, with technology that can be rolled out simultaneously across multiple markets.
Our approach to investing has developed over the years, between a group of angel investors who have been working together since the early 2000s. In my former role as Lead Financier for Mimecast, I raised funds through an informal syndicate, which became known as the ‘Conviction Syndicate’. In 2017 we decided to formalise our investment approach, using the Conviction name and established Conviction Investment Partners. Since then, the firm has built a portfolio of nearly 20 companies and invested over $100 million.
And what is the company’s ethos?
As our name suggests, conviction comes first: our founders’ conviction in their vision, and our firm’s conviction in the investments we make. We spend a lot of time identifying the right founders – those with integrity and the potential to take their vision all the way to the unicorn stage. We build close, long-term relationships with founders and support them throughout all the stages of their fundraising journey.
We make a small number of high-conviction investments each year, which allow us to be more selective and offer extensive support to those companies.
Conviction invests in B2B SaaS – what exactly is this market?
B2B SaaS companies sell a product that is cloud-native and is sold on a subscription basis to companies across all industries.
SaaS seems to be the market that keeps on growing in Europe and the place where we see lots of unicorns emerging.
Any startups that are really great examples?
Yes! One great example is CreativeX, a game-changing creative data platform for marketers. It uses artificial intelligence and cloud technology to enable brands to instantly measure and track the effectiveness of their content. In the past, this kind of analysis would be undertaken manually, over a series of days. In June 2022, the company raised $25 million in Series B funding and we believe they are a company to watch.
Why has B2B SaaS become so important to modern businesses?
The SaaS market has turned into a steady performer in recent years and is particularly consistent when compared to the more headline-grabbing technologies like Web 3.0. SaaS has been described as ‘boring’, but it is now back on trend.
Conviction VC has been investing in this space for years, and we still see a lot of potential to come. B2B SaaS companies have thrived because they are still solving businesses’ problems. Many large enterprises are still using spreadsheets and emails to answer their pressing business questions, where SaaS can provide cost-effective solutions that remove the need for large companies to build their own technology – as they would have done in the past.
For example, SaaS has transformed customer relationship management, with most companies’ systems moving to the cloud. There are still many other areas where manual processes and old technology are used, that are ripe for disruption.
What is special about Europe’s B2B SaaS market?
Europe has a strong technical base, with a large talent pool of developers alongside excellent universities. This provides a strong foundation in which to translate yesterday’s cutting-edge research into today’s enterprise-ready software products.
Europe is also increasingly at the forefront of some of the biggest challenges that enterprises grapple with – data privacy, and how to incorporate climate change into business decision making. There are some brilliant innovations in both spaces, which will likely result in some of the biggest SaaS companies of tomorrow emerging from Europe.
Do you think Europe has an edge in the global market?
In recent years, Europe has been at the forefront of some ground-breaking technologies, many of which have come out of its universities. European start-ups are translating deep tech into practical products that can be used in an enterprise setting, resulting in differentiated offerings and great start-ups. Europe has advanced technology across data, artificial intelligence, and cyber security – all capabilities valued in the enterprise software market.
From within our portfolio, companies like CultureAI – a cyber security platform focused on the human risk element – have identified that cyber risk is an increasingly important issue at board level in large enterprises. Therefore, this is driving the adoption of new technologies. As prospective customers gain a better understanding of these emerging issues, they progress from asking consultants or the large software incumbents to solve all their needs, to requiring specialised point solutions that deliver best in class results. This is where the right start-up can capitalise on a growing need.
Although Europe has not historically been as aggressive in the VC market, it has always been at the forefront of innovation and entrepreneurship. Dare I say ‘entrepreneurship’ is a French word!
What are the main trends you see unfolding?
There are some particular trends that have spiked our interest at Conviction VC. One is cybersecurity, an issue that is becoming increasingly important for companies of all sizes. Another is big data, and the way that companies use that data across artificial intelligence and machine learning to get real-time insights about their business. Finally, it is more and more common that companies are under pressure to retain their talent. We see a major trend emerging in workforce education, where employees can upskill through cloud-based platforms.
Your personal story in investment – what inspired you? And what is it about B2B SaaS that interests you?
My investment story began when I first met Peter Bauer, the Founder and CEO of Mimecast, the cybersecurity company that totally disrupted the way that email is managed. When I heard about his company’s solution, I could see its high-growth potential and knew that this would be a life-changing investment.
I became Mimecast’s seventh employee and lead financier. The company was later listed on the Nasdaq in 2015, and in May 2022 it went private again in a $5.8 billion deal. That experience showed me a company’s route to achieving unicorn status, and what ‘good’ looks like. It has inspired me to seek out the same ingredients for success in other B2B SaaS companies – to identify the companies that are truly disruptive – and help them on that growth journey.
Where do you see the B2B SaaS market going in the next 5-10 years? And how are startups shaping this?
There are some broad trends emerging across all areas of SaaS. First, Machine Learning will become embedded in nearly every SaaS product, to automate workflows and enhance human decision making. If we look back only 10 years, most SaaS start-ups were differentiating themselves because they were cloud hosted, but now that’s the market standard – we expect to see the same with Machine Learning.
We’ll also continue to see a proliferation of vertically specialised versions of horizontal software. They will focus on catering to the specific needs of industry groups that previously relied on heavily customised generic platforms.
Finally, the arms race in cyber security isn’t cooling down anytime soon. This means that enterprises are going to have to invest heavily in keeping their data and reputations secure.
Any words of advice for B2B SaaS founders?
Founders need the courage of their convictions and confidence in their vision. Firms like Conviction VC can meet that with patient capital, supporting founders at every stage of their fundraising from seed funding, through to initial public offering (IPO).
It can be easy for founders to get distracted and diverted from their original plans during the fundraising process. While founders should take feedback on board, it is also important that they have confidence in themselves and their vision. Ultimately, it is their vision that will determine the success of the company, and they need to have the confidence to get out there and make it happen.
