Four billion reasons why Veeva just proved verticals are the new hotness

Four billion reasons why Veeva just proved verticals are the new hotness

ON OCTOBER 16, 2013

For enterprise software nerds like me, little-known and newly public Veeva might be the Dos Equis Man of startups: It may be the most interesting software company in the world.

I don’t always build a $4.5 billion software company, but when I do, it only raises $10 million pre-IPO and is focused narrowly on the healthcare industry. 

Veeva is the first company I’ve seen that holds up all of the early 2000s’ promises of cloud computing. The idea that the cloud enabled venture capitalists and entrepreneurs to build a big multi-billion dollar company on less than $30 million or so in funding. The idea that cloud software companies would be able to spend dramatically less on sales and marketing costs than the previous generation of on premise software giants. The idea that profits could come early and effectively bootstrap a company most of the way to its IPO. And the idea that software could become better for everyone — not just the mainstream big business customer.These were all the hype-filled promises when VCs jumped into the market in Salesforce’s wake, and all of the early cloud companies that won — Salesforce, Netsuite, Workday — took a shit load of money to get there. Netsuite only recently got profitable, and despite Salesforce’s stellar management and aggressive bob-and-weave with tech trends, Wall Street has still bitched about its margins.

It turned out the try-before-you-buy hype of SAAS — as we called the cloud back then — software companies still needed an army of elephant hunters to bring in the big deals. Even recently, consumer Web 2.0 transplants who’ve entered the enterprise world are adopting sales-guy religion.

Enter Veeva, which priced last night and rang the opening bell of the New York Stock Exchange this morning. It was worth about $2.4 billion in the morning at its IPO price of $20 per share and jumped 85 percent to end the day at $37.16, with a $4.5 billion market cap. The company makes tools specifically for the healthcare industry, starting out even more narrowly focused on CRM tools for healthcare.

And in a twist that made even more VCs think this company was doomed to quick-flip mediocrity, Veeva didn’t even build all of its own software. It built on top of’s platform, striking a rare deal where Salesforce would get a cut of its sales and wouldn’t compete. These are the kinds of companies that Marc Benioff opined might use Salesforce’s FORCE! platform when he launched it amid the early platform mania of the mid-to-late 2000s. But no one actually thought a $2 billion company would result.

The beauty of constraints

So how has Veeva done so much with so little? Founder and CEO Peter Gassner says the restrictions were freeing, not stifling. It built something very specific and leveraged the constant feedback loop of cloud software to continually tweak and perfect the product, based on what customers said and how they used it. I caught up with Gassner this morning just after ringing the opening bell, and he said that customers get excited to give feedback because Veeva can push fixes so quickly “they know they could be using a better version by next month.”

“It’s just an unfair advantage,” he says of the rapid and focused feedback loop.

Gassner should know. This isn’t some kid who recently decided enterprise could be cool. He has been in enterprise since he was coding for mainframe. Gassner was early at PeopleSoft when the hot trend was client server software, and early at Salesforce when it moved to on demand. His company’s valuation today portends that he could have started his own trend with what he calls the “industry cloud” — or companies building software for specific, neglected, cash-rich industries. Veeva’s new market cap isn’t the only good number it sports: It does $130 million in revenues, is rapidly growing and has margins above 20 percent.

The tight focus also means sales and marketing efforts are so targeted that the costs are half similar-sized cloud companies. “We know exactly who we are building it for and what they need,” he says. “We aren’t talking to anyone who doesn’t need this.”

That’s largely the told story of Veeva. What fascinated me in my conversation with Gassner this morning was the role that he sees data playing in Veeva’s future. Again, because the focus is so narrow, it can gather meaningful industry data that can help its customers more than just automating their business processes. If 50 percent of the pharmaceutical reps in the world are using it, they can draw parallels on how they meet with certain doctors. From that Veeva can make recommendations for the best way to close a sale.

For instance, it can tell you that Dr. Green only wants to see sales reps between 3 pm and 5 pm on Fridays at the Hoboken office and never to call him. That helps the doctors and the sales reps be more efficient. Efficient equals better sales, which means the industry can’t not use Veeva.

“We can crowd source to create a digital profile of the twenty million or so doctors around the world,” Gassner says. ”That’s a benefit that’s measured in the billions of dollars. That’s data not available anywhere else.”

It’s not what most people mean when they talk about THE CONSUMERIZATION OF ENTERPRISE! but it reminds me of how Evan Williams describes an early Twitter as recognizing the beauty of constraints and simplicity. Gassner draws another unexpected parallel to the consumer world when it comes to this use of data.

“Google and LinkedIn’s value is really in the data they gather and what they can derive from it,” he says. “This is the unknown story in the industry cloud. Over time it might be the biggest advantage.”

Veeva is also exciting because it’s playbook is so orthogonal to most of the recent enterprise hype. Companies like Dropbox, Box, Yammer, and others are focused on a scattershot of pro-sumer to small business to maybe bigger companies on the high end. From an engineering point of view, that means they have to solve products for everyone, and when you design for everyone no one is 100 percent happy. Keeping things simple and usable gets harder and harder the more feedback you listen to, because everyone wants different things.

From a sales point of view, it’s harder because everyone might be a potential customer. And selling to the world isn’t exactly efficient. Veeva enjoys the exact opposite of both of these. In some ways it’s a throw back to the pioneer days of enterprise software when companies were in a land grab to sign up massive multinationals and a few big deals could make a quarter. For the most part, horizontal cloud companies have been fighting over scraps of budgets. So-called “industry cloud” companies like Veeva can be mini-Oracle-like BSDs within industries because no one has ever designed excellent modern software for them before. It wasn’t possible before the feedback loop and data generation possibilities the cloud unlocked.

Verticals are the new horizontals

Reading this, it may sound like verticals are a no brainer, but they’ve long been the  red-headed step children of the enterprise software world. In fact, until recently, verticals were the red-headed step child of the consumer world, too. As I’ve written before, that’s fundamentally changing and it’s a huge shift for entrepreneurs, VCs, and eventually public market investors as the companies wind their way to big exits.

wrote about this trend before when it comes to the peer-to-peer and sharing economies. The broad horizontal platforms have struggled while the verticals — like Airbnb and Uber — have been the stand outs.

This has totally changed how VCs look at verticals. There have always been waves of verticals that follow big trends — like meta-search engines for specific niches or “Facebooks for knitters” — but it turned out the main companies like Google or Facebook just solved these problems well enough. As I mentioned in my previous article, Andreessen Horowitz even thought about creating a rule that you couldn’t invest in verticals because the history has been so conclusive that they just don’t yield the biggest companies with the greatest networking effects.

That’s all changed. The most obvious change is the sheer size of the Web, and how smartphones are dragging companies international from day one. Many verticals are bigger now than the entire Internet was in the late 1990s.

And the $1 billion valuation of Vice — a media company that eschewed the LCD, mass-market BuzzFeed and Huffington Post playbook and aimed squarely at a niche of hipster young men — shows the same can be done in media. If you can break space and time and language barriers that typically made niche media companies limited, you can scale a niche to a pretty large size. Especially given the world’s smart phone penetration.

But the interesting thing to me is that the trend isn’t just limited to consumer, mobile and media apps. Veeva proves it can work in enterprise as well. Veeva’s main investor Gordon Ritter of Emergence wrote about this several months ago with a blog post that — coincidentally — had nearly the same title as mine about verticals in the sharing economy.

Cue the herd

The great thing about a vertical is, by their very definition, there are a lot of them, and a vertically focused company isn’t going to own them all. While IPOs of Uber, Airbnb, and other consumer verticals are a while off, Veeva’s banner IPO will have broad ramifications for dozens of VCs who are sitting on billions in uninvested capital and  desperately seeking a hot new investment thesis on which they can deploy it. Many more savvy entrepreneurs will launch companies tailored on this theme, the “Veeva of fill-in-the-blank” industry.

There will be a lot of lame lemmings and road kill, as with any new investment thesis. But some great companies will probably result. And that’s great for the future of work. Far too many industry specific niches have had to suffer with sub-par software tools for too long. I, for one, would love collaboration, sales and workflow tools designed specifically for newsrooms. (Although we’re not nearly as lucrative an industry as the $1.6 trillion health care industry. Oh well.)

Expect Veeva’s investors — Emergence Capital– to be big players in this trend. An interesting sub-theme of Veeva’s IPO is what it means for Emergence. It grew out of the early SAAS wave of companies, a small backer in and others. Speaking of verticals, Emergence was a firm designed solely to invest in SAAS companies.

When the initial wave of SAAS companies largely disappointed, and consumer came roaring back, it would have been easy for Emergence to lose faith and pivot, but it didn’t. When Veeva went around raising cash, Gassner said plenty of VCs scoffed at Veeva’s vision, despite his experience and chops going back to the mainframe days.

“We built our first product on the sales force platform and other VCs thought it was strange and different and limiting, but Emergence thought it was strange and different and might work,” Gassner says. Emergence invested $4 million in the only institutional round and snapped up another $2.5 million in secondary market shares subsequently.

That was a smart call: Fast forward to today and that initial $4 million check has turned into Emergence’s biggest home run.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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