Sequoia-Backed Clari Growing At 300% In $52B CRM Market
If you want a smooth path to raising money from the best venture capitalists in Silicon Valley, there's a simple formula: make sure you've already made them a bundle.
One little problem -- doing it the first time is a challenge. But if you specialize in turning an idea into a company that gets acquired for hundreds of millions of dollars, you can rinse and repeat several times.
Of course, there's a chance that the CEO who does this will never preside over a large, publicly-traded company that changes the world, but VCs don't mind. The question is whether such companies pose a threat to large, publicly-traded companies -- or whether incumbents copy the upstart's product and leave it twisting in the wind.
This comes to mind in considering Sunnyvale, Calif.-based, Sequoia-backed "AI for sales" provider, Clari, which claims to be "nipping at Salesforce’s heels."
Before getting into that, let's take a look at the Customer Relationship Management (CRM) industry and the performance of its founding player and leader, Salesforce. The $52 billion CRM market growing at 20% a year keeps track of information that sales people use to do their jobs.
Salesforce created this industry and its software as a service business model which lets companies pay a monthly fee and receive frequent updates to the software. Salesforce's shares were up about 42% in 2018 as of August 17, revenues have grown at a five year annual rate of 28% to $10.5 billion; while free cash flow soared at a 32% annual rate to $2.2 billion, according to Morningstar.
Salesforce -- which trades at a pricey P/E of 353 -- is anticipated to report slightly below trend growth after the close on August 29. Specifically, Zacks expects its sales to be up 25% to $3.23 billion and adjusted earnings to rise 31% to 47 cents a share.
CRM is a big market that has attracted upstarts. As I wrote earlier this month, there's Copper -- a supplier of "CRM solutions for companies that use Google applications" -- which seems to be growing rapidly. Copper has raised a total of $87 million, employs over 200 people and serves 10,000 customers as it barrels towards a goal of topping $100 million in annual recurring revenues (ARR).
Copper says it's scarfing up Salesforce customers. As its CEO Jon Lee told me August 7, "We beat Salesforce 60% to 70% of the customer face-offs and 40% of our customers formerly used Salesforce. Salesforce is abandoning its SMB customers to focus on the large enterprise so it can increase sales from $12 billion to $20 billion."
Another upstart, Clari, seems to be more of a complement to Salesforce. Clari uses artificial intelligence (AI) to analyze sales activity data "to find patterns, identify risk and leverage predictions to proactively focus resources where they’re needed most," according to MarTech Series.
Clari has raised a total of $61 million, most recently a March 2018 $35 million Series C round led by Tenaya Capital in which Sequoia participated. When Clari previously raised money in 2014, it had a relatively modest post-money valuation of $83.5 million and TechCrunch estimated that its valuation increased to "comfortably into hundred-million territory, once you add in this latest $35 million."
Clari -- whose customers include Adobe, Audi, Check Point Software, Equinix, Epicor Software Corporation, GE, and PerkinElmer -- is growing rapidly. As CEO Andy Byrne told me in a July 10 interview, "Between July 2017 and July 2018, we grew 300% and increased the number of customers from 50 to 200."
Clari helps sales people spend their time in the most productive way by helping them to evaluate which sales opportunities are most likely to become paying customers. As Byrne told TechCrunch, “If you have 150 opportunities presented to you as a salesperson, how do you choose 10 where you should spend your time? A more traditional CRM platform has never showcased your risk and outcomes.”
Byrne has made money for investors in the past. Symantec paid $410 million for Clearwell Systems in 2012 of which he was VP of business development; he was founder and CEO of Timestock which Wily Technologies bought in 2005; and he worked for Vitalsigns which was bought in 1999 by INS -- the year Lucent paid $3.7 billion to acquire INS, according to Redmond Magazine.
Byrne's connections to Sequoia stretch back years. I am guessing Byrne met Jim Goetz, now a partner at Sequoia, at VitalSigns which Goetz cofounded. Goetz led Sequoia's investment in Clearwell whose CEO was Aaref Hilaly. Hilaly is now a partner at Sequoia and serves on Clari's board.
Byrne's experience with Clearwell helped point him in the direction of using AI for the CRM market. As he told Mar Tech Series, at Clearwell -- which was also backed by Sequoia -- he and his cofounder Venkat Rangan used machine learning to automate securities and legal data analysis.
When they started Clari in 2013 Rangan and Byrne wanted to solve the problem of sales forecasting. CRM was mostly a place to store sales activity data that sales people had to enter manually. They decided to collect automatically all sales activity data -- from CRM, e-mail systems, calendars, and call logs -- and build an AI system that would help sales reps to close more deals faster and executives to forecast sales more accurately.
Byrne sees a big market opportunity here. As he told me, "We're starting in sales CRM which is a $50 billion to $80 billion market. JP Morgan says that AI spending will increase from $12 billion to $60 billion by 2021. We also see an opportunity to apply the technology to marketing and other functions. Our strategy is to land and expand -- if we are creating value for a customer, we can increase our revenue per customer from, say, mid-five figures to 10 times that or more."
Clari is a Salesforce partner -- but through recent enhancements, Salesforce has incorporated similar product functionality into its Sales Cloud Einstein, the Salesforce, Inbox and it improved sales analytics, according to Customer Think.
Moreover, Salesforces's acquisitions of Cloudcraze and Mulesoft will enable Salesforce to tap into much of the data that Clari uses. Microsoft and SAP Hybris also offer so-called opportunity-scoring solutions that use machine learning to help boost sales -- though they may not be as good as Clari's service noted Customer Think.
Nevertheless, it seems clear that Clari does not have this niche to itself and should try to find another source of growth -- a challenge Byrne says the company is addressing.
Until it becomes apparent how much traction Clari is getting with that, I'd guess the best hope for Clari investors for the company to be acquired -- because I'd guess it can't get large enough to go public solely by focusing on sales opportunity scoring.