Karan Mehandru’s SaaS Predictions for 2014!

When Neils Bohr said, “Prediction is very difficult, especially about the future,” he succinctly captured the many challenges of venture capital. Venture Capital is about people, about company building, about trust and support, about ups and downs, but at its very core, venture capital is a predictions business, especially if you’re an early stage VC. While a large part of our job is saying no, and we say no a lot, our business is built and judged on the decisions when we say yes. And to say yes, I believe you have to have a point of view on the world, a way in which you focus your waking hours to filter the signal from the noise and put yourself in a position to seek out greatness, or at least recognize greatness when it walks through your door. It is about creating magic when you have access to the right combination of people, product and market.  It is about maintaining your sanity in a profession where being reactive is an easy substitute to the harder task of being proactive and predicting what the future will look like in 3-5 years, and even beyond.

As a practitioner of investment strategy led by market theses, I often spend a better part of December calibrating my investment decisions relative to my predictions the year before and looking ahead at what the following year will hold.

Here are my predictions for 2014 related to trends I expect to see pick up steam in SaaS, specifically in the application tier.

1)     Actionability– We are capping a year in which almost every SaaS company has an analytics component. Multi-tenant, cloud hosted services allow vendors to offer aggregated and tenant level analytics to their customers. In 2014, SaaS companies that prioritize insights, actionability and prescriptive recommendations will outshine those that have not moved beyond analytics. This will apply to every vertical, most importantly sales and marketing, where buyers have been inundated with technology and analytics. To enable actionability, SaaS vendors will increasingly align themselves with corporate workflows.  Companies like RJMetrics and Preact have embraced this trend by building and executing on product roadmaps that treats actionability as a core asset alongside analytics.

2)     Verticalization – 2013 showed the beginnings of how verticalized approaches in industries ripe for disruption can yield fantastic returns for employees and investors. This trend will continue to gather steam in 2014 and many verticals will be disrupted by SaaS products emphasizing usability, collaboration, analytics and actionability. Trinity has made several bets to that end, such as companies like ViewTheSpace and Dotloop in the real estate sector.

3)     Customer Success – 2014 will further awareness that the purchase of software by a customer is not the end of the transaction but rather the beginning of a relationship that lasts for years. Customer service and success will be at the forefront of the customer relationship management process where terms like retention, upsells and churn reduction get more air time in board meetings and management sessions than ever before. The VP of Customer Success will be a key part of the executive team and successful SaaS companies will increasingly hire for that position early. Companies like Preact, Intercom and Gainsight will provide essential technologies for those SaaS companies and their CEOs. Data-science centric, predictive and prescriptive customer success products will outpace static and human powered tools, and customers will get sophisticated enough to understand that (not so) subtle nuance.

4)     Mid-market and SMBs – While we are already seeing explosive growth in the mid-market, 2014 will be marked by mid-market focused SaaS companies getting to $50-100M ARR levels proving that this largely ignored segment of the market (the Fortune 5 million) is indeed a driver for large SaaS franchises. This trend will favor companies like Act-On SoftwareRJMetricsSimply Measured and New Relic by putting the focus on ease of use, integrated functionality, low price points, freemium and free trial offerings and low friction and product led sales as opposed to lengthy contracts, services intensive businesses and top down selling. 2014 will also witness at least a handful of SaaS IPOs characterized by SaaS 2.0, exemplifying some of these high-velocity, low friction customer adoption trends.

5)     Inside Sales Automation – With the rise and maturity of SaaS, and specifically mid-market SaaS characterized by the trends above, there is a rapid transformation happening in the sales function of companies. In many cases, the new face of sales is characterized by webinars, on line demos, telephonic deal closes, large number of initially small customers and shorter sales cycles. As a result, 2014 will be marked by a rise in technologies and products sold specifically to automate, manage and improve the inside sales process.  Companies like Hoopla, Clearslide and others are positioned well to capitalize on this trend in SaaS.

Rest assured, I will look back and evaluate my scorecard when the year is done, but in the meantime, as we continue to invest Trinity XI, I look forward to meeting with, investing in and building long lasting relationships with exceptional entrepreneurs who are at the leading edge of some of these trends.

Here’s to a “SaaSy” 2014!