Sourcing VC & PE Investment in the Salesforce Ecosystem

By Ben McCarthy

Salesforce has long been an ecosystem that encourages companies to invest billions of dollars. This includes VC (venture capital) and PE (private equity) companies betting on the next big thing, as well as plenty of M&A (mergers & acquisitions) activity – large consultancies acquiring smaller boutique partners, and ISVs acquiring other SaaS businesses to roll into their own products.

I sat down with Jacob Cole, Vice President at Full In Partners – a New York-based growth equity firm with a particular interest in the Salesforce ecosystem. From his market observations to his own experience of Salesforce, it was a fascinating conversation to be part of.

Introducing Full In Partners

Ben: Thanks for being here, Jacob. Please introduce yourself, your role, and the Full In Partners brand.

Jacob: Sure thing! Full In is a New York-based growth equity firm, founded in 2019. We invest in high-velocity, high-efficiency software and internet businesses. But more importantly, we’re focused on providing proactive strategic and operational support for our portfolio companies at the functional level.

I joined Full In as employee #2 and have seen the firm grow from the ground up – I have also assembled my fair share of office furniture! My day job primarily involves identifying promising companies, and getting under the covers of their finances, operations, and market positioning. There are also post-investment tasks, driving things like strategic M&A, debt and equity financing, and exit planning.

Within the Salesforce ecosystem, I originated and have been closely involved with our investment in AutoRABIT, a leading provider of DevSecOps tools for Salesforce Developers. I also led the company’s acquisition of CodeScan, which is a static code analysis solution for the platform.

Salesforce From an Investment Perspective

Ben: As someone working in the world of financial services, how do you view the Salesforce ecosystem from an investment perspective?

Jacob: In short, the Salesforce ecosystem is super exciting and dynamic, and benefits from a lot of great macro trends. On one side of things, there’s an ongoing movement by IT leaders to centralize around a single stack whenever possible, just because it makes things much easier from a compliance, integration, and security perspective.

This benefits all the enterprise SaaS juggernauts to some degree, but we’ve seen Salesforce become particularly entrenched because of their dominant position among customer-facing teams – they have greater market share in CRM than the next four competitors combined, and they’re still growing steadily at a huge scale.

Salesforce is a massive and growing sandbox to play in, but also has a much better track record than other platforms of enabling an open ecosystem around their core product. Close integration with a central system of record is a huge advantage for ISVs – it significantly increases the likelihood that your solution becomes ingrained in a customer’s day-to-day workflow, which has hugely positive implications around the likelihood of renewal and account expansion.

And the most exciting part is that, while Salesforce can be a powerful facilitator, they don’t require ISVs to opt into (occasionally costly) structures like the AppExchange partner program, or penalize ISVs who opt to go their own way commercially. For example, there are businesses like Conga who fully embraced the AppExchange as a core distribution channel and rode a PLG wave to a huge outcome.

On the other hand, Veeva never had a close commercial relationship with Salesforce, but still embraced their architecture and saw significant benefit from a product and user functionality perspective in the process. Both companies were multi-billion dollar outcomes but took very different paths within the ecosystem to get there, which speaks to the breadth of opportunity in the space.

Significant Market Changes

Ben: How have you seen the market change since you’ve been involved with Salesforce companies?

Jacob: Most of the earliest generation of successful Salesforce ISVs were closely linked to job functions for customer-facing teams, or were reskinned CRMs with industry-specific use cases like Vlocity. I think there will continue to be cool new players in that category, but I’m equally excited by the newer category of players: ISVs that address the back-end workflows associated with the platform.

For many enterprises, Salesforce has gotten so vast and complex that dealing with different orgs, integrations, objects, and so on creates a lot of challenges. And of course, the platform was built to be a CRM versus a multi-functional ERP, which is why we’re now seeing something like 20% annual growth in hiring for Salesforce Developers, Salesforce Admins, and other related roles.

You have a tremendous growth in people whose jobs are closely associated with Salesforce, but we’re still in the early innings of providing them with the tools they need to do that properly. That’s one of the things we really liked about our portfolio company, AutoRABIT, which helps Salesforce Developers to accelerate their release velocities, produce higher quality code, and secure their data.

The eccentricities of Salesforce necessitate a platform-specific tool for each of their product functions which at first sounds esoteric – until you realize that failure of any of these things has major implications for customer experience, enterprise digital transformation, and organization security itself.

Now that Salesforce represents a meaningful line item for most IT organizations, we expect to see more budgets for tools like AutoRABIT that enable businesses to get the most of their exposure to the platform.

Ben: What is your personal investment thesis?

Jacob: From a product and market perspective, the criteria has always been “does this product meaningfully save time, save money, or improve a process?” That sounds laughably simple when you say it, but in 2021 there were plenty of companies raising millions despite having unclear use cases or value propositions, largely fueled by VCs who wanted to speculate on the latest ‘flavor of the month’.

Being able to understand the utility of something is table stakes, but the real holy grail is quantifying the ROI on adopting a certain piece of software, and how it translates to business outcomes for a customer.

Beyond the product positioning, I take an approach to investing that I jokingly call “ball don’t lie.” In short, the idea is that if something is actually the next ‘big thing’, if it’s truly valuable for customers, then the data will reflect that. Markets have natural adoption curves for any new type of technology, and if a company feels they need to burn tens of millions a year chasing growth that gets punitively expensive to acquire, it’s usually a sign that the market isn’t there yet.

The types of companies I admire most are the ones that put down consistently strong growth rates while maintaining relative capital efficiency, because it’s an excellent sign that they’re selling the right product at the right time, underpinned by strong operational execution.

Raising Money with Small Businesses

Ben: For entrepreneurs with a small business in Salesforce who might be thinking about raising money, what considerations should they have?

Jacob: First off, consider seriously if you actually need to do it. The tech community and media often treats raising capital like a huge achievement when, in actuality, it’s a means to a broader end – in the form of building a sustainable business and navigating towards a successful exit.

Most of our fund’s investments to date have actually been in longtime bootstrapped businesses, including AutoRABIT, who had nearly reached $10M in ARR with no external financing. We’re focused on this segment of the market because, more often than not, operating with lean resources means companies need to be more thoughtful about their business model, the value they’re bringing customers, and what internal investments they make.

In a way, operating in a resource-constrained environment can encourage decision-making that is better for the long-term health of the company… since it’s easy to just throw money at a problem without learning any real lessons from it. And of course, bootstrapping doesn’t preclude you from a huge outcome, if you think about Veeva who had only raised $7M at the time of their IPO.

If you do decide to take on capital, be thoughtful about how your partner will work with you and be sure that they’re actually offering value beyond random introductions and vague business platitudes. Once somebody is on the cap table they’re very tough to dislodge, and having somebody that you have to report to – who may not even understand your business, or who may turn tail and ghost you at the first sign of trouble – can be worse than not having anyone at all.

Separately, consider what the investors’ incentives are and what success looks like for them to ensure it’s aligned with your own. You may be happy building a sustainable and efficient business, but if your investor has a “unicorn or bust” mindset, you may find that they encourage you to take on substantially more risk than you’re comfortable with.

Getting Started in the Ecosystem

Ben: Finally, what advice would you give to Salesforce professionals who are considering creating a business in the Salesforce ecosystem?

Jacob: I’ll caveat any advice I can give by saying I normally work with businesses that have been around for a few years, not brand new ones! But in terms of general commentary, my favorite founders to work with have been the people who started a business because they lived through a problem and wanted to address it for others.

That’s not to say somebody who’s working backwards from “how do I make a lot of money?” can’t succeed, but especially in the early days, there’s a critical need for understanding your customers – it can be tough to grasp if you haven’t walked in their shoes. Ideally, before you’ve even gotten meaningful commercial traction, you should have a view around your customer’s pain point, their current workflow, the quality of their experience, and so on.

In a similar vein, one of the biggest mistakes many companies make, particularly in the early days, is selling to anybody and everybody. Money in the door is awesome, but it can ultimately be empty calories if the customers are poor fits. In a SaaS business, you still have to engage with, serve, and respond to these users.

If you aren’t careful, overexposure to poor fits can distort your product roadmap, reduce team focus, and ultimately detract from the experience of the people who should be your power users and strongest advocates. Don’t be afraid to stay in your lane and say no to prospects if there’s a material risk of stretching yourself too thin.

And most importantly, good luck! I respect the hell out of all entrepreneurs and can’t wait to work with the next generation of exciting businesses in the Salesforce ecosystem.

Final Thoughts

It was a pleasure speaking with Jacob about the Salesforce ecosystem from an investment perspective. Our conversation was full of fascinating industry insights and words of wisdom, from avoiding poor-fit customers to maintaining capital efficiency and strong operational execution.

The Author

Ben McCarthy

Ben is the Founder of Salesforce Ben. He also works as a Non-Exec Director & Advisor for various companies within the Salesforce Ecosystem.

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