Get ready for Google to buy a bunch of cloud startups in 2016, says top cloud investor
SteelBrick's quote-automating service is growing fast and could make Salesforce a more robust sales platform.
But some investors believe the deal could also be a sign of much bigger things to come next year: a more active M&A market in the cloud software space.
"This is kind of like a canary in a cold mine deal. I think 2016 will be a very interesting year from an M&A perspective," Jason Green, general partner of the VC firm Emergence Capital, told Business Insider.
And he thinks Google will be one of the companies doing the buying.
A new crop of cloud startups
Green's firm focuses on enterprise and cloud-based companies, and has had a lot of success over the years with early investments in cloud successes like Salesforce, Box, and Veeva
He noted that the market for buying fast-growing cloud software makers has been unusually slow over the past 18 months.
Part of it is because the first wave of red-hot cloud software startups has already been snatched up over the past few years. For example, SAP bought HR cloud service SuccessFactors for $3.4 billion in 2012, Microsoft got collaboration service Yammer for $1.2 billion in the same year, and Salesforce paid $2.5 billion to get marketing service ExactTarget two years ago. (SuccessFactors and Yammer were both Emergence investments.)
But that could change with a new crop of cloud software startups emerging quickly, Green said.
SteelBrick, for example, had its Series A funding in May 2014, and in less than 18 months raised more than $77 million, before Salesforce snapped it up for $360 million yesterday.
On top of that, the market for late-stage financing has been slowing down lately, with some of the private equity and hedge fund investors even marking down their equity value in high-valued startups like Dropbox and Zenefits. The public market hasn't been particularly friendly to cloud startups, either.
"We're now starting to see this kind of second wave of companies emerge," Green continued. "And with the IPO markets and some of the late stage financing becoming a little more questionable, I think companies are going to become much more aggressive on the M&A front."
Get ready for Google
This will cause the cash-heavy enterprise companies to find growth through acquisitions.
Green picked the obvious big names like Oracle, SAP, and Microsoft to become major buyers next year, but also pointed to Google as a potential sleeper in the enterprise space.
"Google has made some big moves on the enterprise front, and they're going to unleash a lot of potential with that," Green said.
This isn't the first time we heard of this prediction. Tom Roderick, managing director of market research firm Sitfel, echoed the same idea when we spoke to him last month. He said most of the software acquisitions have been focused on private equity buyouts of old tech companies, like Informatica and Tibco, and less on fast-growth startups.
"It's been too quite for too long for strategic M&A," Roderick told us. "For the next 6 months, you're going to see some activity in M&A that adjusts the way people think about it."
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