Even in Silicon Valley, where the profusion of venture firms means that there’s a lot of specialization, you don’t often run into a firm as focused as Emergence Capital Partners. Many firms confine themselves to investing in Web or software startups, but Emergence is far narrower than that: the four-partner firm restricts itself solely to early-stage investments in Software as a Service, or SaaS-based companies. Their word for this category is a little broader—they call it “technology-enabled services.” But what they’re really talking about is companies that help other companies do business by providing subscription access to Web-based infrastructure software, whether it’s for storing or transferring files, measuring the performance of an ad, or tracking prospective employees or sales leads.
If that definition sounds a lot like Salesforce.com, it’s no accident. Emergence founder and general partner Gordon Ritter was previously the co-founder, with Salesforce.com CEO Marc Benioff, of Software As Service, a Web services offering that grew into Salesforce.com’s Force.com and Database.com cloud computing platforms. After leaving Salesforce.com and setting up Emergence in 2002, Ritter’s first investment was in—you guessed it—Salesforce.com. It was a move that repaid itself 80 times over when Benioff’s company went public in 2004, and that success made Emergence into one of the most sought-after investors for any startup building a SaaS product.
Many Silicon Valley entrepreneurs may be too young to remember it, but there’s a firm with a very similar story in its past: Sequoia Capital. The now-legendary firm invested $2.5 million in Cisco in 1987, obtaining a 32 percent stake in the company. When Cisco went public in 1990, Sequoia’s shares were suddenly worth $225 million—a 90x return. Not only that, but as Cisco grew and became acquisitive, it bought up many of the Sequoia’s subsequent portfolio companies, becoming a lasting engine of returns for the Sand Hill Road firm.
“In our space, we are the Sequoia,” says Ritter. Of course, Sequoia itself would probably say that it’s the Sequoia of SaaS. Be that as it may, the Sequoia-Emergence and Cisco-Salesforce.com parallels are nearly exact: the huge initial return after an IPO, setting up the venture fund to attract even more capital and make more investments, followed by massive growth at the former portfolio company, making it into an acquirer of yet more companies. In the last year alone, Salesforce.com has bought up seven other SaaS startups, paying venture-exit-worthy prices for at least two of them—Heroku fetched $212 million and Radian 6 brought $326 million. Neither of those was an Emergence company. But Ritter says he’s pretty sure that Salesforce.com “not only is our Cisco, but is going to be the acquiring company for our companies, as well as others’.”
There’s definitely a long list of Emergence portfolio companies that might welcome a call from Benioff or his lieutenants. They include HR-automation firm SuccessFactors—itself a $3 billion company, about one-sixth the size of Salesforce.com—as well as Bill.com, Box.net, Echosign, InsideView, Intacct, Genius.com, Lithium, MedeAnalytics, PivotLink, ServiceMax, Veeva, Yammer, YouSendIt, and Zuberance. (There are other Emergence companies, of course, that wouldn’t be such a great fit for the cloud service giant—for instance,
