16 months ago I wrote the first “Moving FaaSt” TechScape outlining the oft forgotten role of “finance” within a larger business. This had come on the heels of Visa’s purchase of Plaid for $5.3B, and Chime’s $500M round fundraise. The thesis at the time was that “fintech” was getting all the attention while a more valuable, secondary revolution was happening behind the scenes — in software, at both the application and software layer.
16 months later, Plaid is not owned by Visa but is valued at $13.4B, and Chime has hit a $25B valuation. The fintech revolution continues, fast — But there are a few observations in its software companion that are worth the update: 1) The finance role is not a great buyer, 2) The financial software behemoths are harder to displace than we thought, and 3) Pretty UI is not the winning strategy.
A Bad Buyer: The Controller of the Budget picks himself/herself last
About five years ago, several venture firms started investing behind “buyer personas” in software to find new systems of record that could become the end all be all for buyers in an organization, with budget. Salesforce was the best example of this for sales teams — but other winners emerged like Jira for engineers, Hubspot & Iterable for marketers, Productboard and Amplitude for product managers, etc. Finance teams were usually ignored. But we thought, its obviously because there aren’t great tools built for them, yet…right?
Well sort of.
While I still believe there aren’t great tools built for finance teams — its also because there’s a “good enough” and highly flexible tool that they default to — MSFT Excel. None of the other buyer personas discussed above really had good enough tools — either you had a CRM or you tracked potential customers through email. The “good enough” of Excel has emerged as the number one issue for selling software into finance teams.
The other problem is that you are selling to the controller of the budget. You’d think that would help (i.e. if he or she controls the budget it will be easier to get….) — but heads of Finance or controllers are typically the last people to request something pricey for themselves. Instead, they make sure they have allocated enough budget for other members of the team (sales, marketing, engineering.) In my research with finance buyers, I have found that if they are really struggling with efficiency, they include another “head” into the budget. In a software procurement cycle, typically “oh well, I guess I’ll just hire another FP&A analyst, so I don’t need this” wins out.
Incumbents Get Smarter: Don’t count the behemoths out
The next big aha for me was the strength of the finance industry behemoths. As a software investor for almost 9 years, I don’t typically give credence to the old-school player — entrusting that better software with better distribution HAS to ultimately win out. In the finance software sector — I think it will be much harder.
First, let’s go back to the example of Excel. If you ask anyone who is in a finance role at a fast moving organization — they will tell you Excel is the best piece of software in the world. It is the most flexible, the most in tune, just incredible. I’ve read stories that if Excel was spun out as a private company it would be worth $$$$$$$. I concur. The issues with Excel have more to do with how to procure information “into” Excel than issues with the actual software. Some finance teams are solving this with better BI tools or stronger APIs — but the end system of record never changes. Excel wins — and you can never, ever, ever beat its distribution network (i.e. essentially given for free to every knowledge worker when they join their company.)
Second, let’s talk about Intuit. If MSFT Excel is the #1 most used financial software, Quickbooks is the second. Several years ago, many companies in Silicon Valley went straight for Intuit. Bookkeeping was tough, Quickbooks had an unfair monopoly and every large player that tried to win the US away from Intuit, lost…badly. So the startups went after what they thought Intuit couldn’t do at the time — automation.
Lots of money went into these companies — but Intuit was fiercely reactive. They watched — and then launched their own bookkeeping-as-a-service platform to resounding success with Quickbooks Online Advanced, and Quickbooks Live. If you spend even a few minutes demo-ing this product — you’ll realize its really, really good and looks very next gen. They even gave step-by-step tutorials like this one! (Instructions on how to use Zapier too….amazing.) When I published the first version of this TechScape, Intuit was valued at ~$74B. It is now valued at $157B. In 16 months, Intuit’s market cap has more than doubled.
Third, MSFT Excel and Intuit aside, virtually every strong incumbent has done exceedingly well in the last year. Anaplan, the FP&A leader, is valued at $9.5B, and Bill.com is valued at $26.5B (making large acquisitions with Divvy for $2.5B and Invoice2Go for $625M to keep its software fresh and open up new revenue channels.)
The behemoths are getting smarter — and they are using their distribution networks to iterate faster. No longer can startups just build fancy UI and win large deals — innovation must happen at the ingestion or workflow/collaboration layer.
Lipstick on a Pig: UI will not win alone
In the last 16 months, I dug pretty deep into the product layer of several of these sub-sectors.
First, I will say that I *love* all the innovation in the space. Finance software is finally…sexy. Smart entrepreneurs want to innovate in the space, and they are spending time interviewing buyers, customers, and most of all garnering attention from industry leaders — all of which makes for a richer and more robust ecosystem.
However, I have found that the teams that are going after the space fit into one of two buckets. The first bucket is the obvious A+ Silicon Valley team — product managers and engineers from top decile technology companies in the Bay.
The second bucket is former finance execs — individuals that have actually used the tools they want to disrupt (Anaplan, Concur, ADP, Netsuite.) They understand the pain, so they can attempt to find the best medicine to alleviate it.
What we’re missing is a third bucket — founding teams that have both these perspectives — the product and distribution know-how PLUS the history of use.
Second, in several of the emerging players — the focus has been on UI versus ingestion and workflow. I don’t believe this is the winning strategy. If a Quickbooks file or an Excel file is still the source file — then it is very hard to build an emerging and long-lasting company. This is because when budgets are slashed, the layer that sits on the system of record will be the first to go. Let’s take Salesforce as a great example. If your Salesforce disappears — there isn’t another system where all your sales contacts live. So you are tethered to it.
The best emerging platforms in finance software will be both easy to use, collaborative, and essential to day-to-day workflow.
Below you will find my updated landscape — with some companies excluded and some new ones worthy of a coveted spot. You will also find several new segments added — specifically at the infrastructure layer.
This goes without saying — but lots of these buckets have overlap and I have by no means added all the relevant players (just the ones I know well and can vouch for.)
I’ve re-posted my first landscape at the bottom for reference as well — so you can better evaluate the changes.
What’s Next? Where am I bullish?
As you can see in the landscape above — lots of the bookkeeping and automation platforms have been re-bundled into accounting. They all start with that source file —so it has hard to distinguish between them — especially because “automation” no longer sets them apart. There are new, smart wedges in this space through tax credits and new business formation — which are exciting — but too early to tell. I now believe that to win in bookkeeping, you have to own the GL.
FP&A is the second bucket that has seen a lot of changes in just a year. You will notice it is a lot more packed with logos, with some incredible emerging players trying to disrupt the Anaplan and Adaptive’s of the world.
Spend Management is another bucket that has continued to explode and find strong traction with small and large enterprises alike. Interestingly, more fast-growing category has emerged with spend management — which is procurement — tackling both intake to procure and eventually procure to pay — and taking on a $18B giant in Coupa — with a lot of spend! This category is nascent and also touches on compliance teams that sit closely with the finance buyer.
You will also notice that the infrastructure layer has seen the most innovation and traction — with new categories like Banking-as-a-Service and Payments.
My hunch is that the most exciting categories will continue to be the ones with limited incumbents (primarily a monopoly) and 2–3 main competitors. It will be incredibly hard for young startups to go up against the categories with several big monopolies and/or 5+ well funded competitors.
I’m still tracking billing and invoicing, and closely tracking procurement and compliance, which not enough startups are focused on — and of course the infrastructure layer where more categories will quickly emerge.
At CRV, we are proud to be investors in this space already in companies like Pilot, Mercury, Wave and Ordway Labs. In my previous life at BVP, I spent time with Adaptive Insights and Intacct. And we more recently introduced our new investment in Jeeves, along with a few others that are still stealth.
If you got all the way through — you know what to do. Please get in touch if you have exciting new companies in the space (or vehemently disagree with my theses!)
I would love to hear from you.