China’s SaaS market is in the early stages of development, but opportunities still exist.
On September 17, the “2019 China Investor Future Summit” hosted by the company was held in Shenzhen. Invite nearly 100 leading investment institutions and entrepreneurial leaders to focus on the development opportunities of industry, corporate services, smart manufacturing, sea, medical, artificial intelligence, brand consumption, education, real estate and home, pet market top ten potential tracks, From the front end of the industry, the Nuggets wind dividend. Exploring the adjustment period of the Internet midfield, and quickly breaking through the core track and enterprises, how to use capital to open up new markets and build a moat.
Before 2018, the venture capital market experienced a series of ups and downs in the tide of double innovation, the rise of new economic enterprises, and the deepening of technological scenes; in 2018, the new regulations of capital management, the industry entered a turning point, the market From madness to calmness; into 2019, the entire market began to re-find and explore the direction, both capital and asset, have produced many new changes.
In the afternoon’s corporate service forum, Yuan Wenda, the managing partner of Red Point Ventures China Fund, shared his views and opinions on corporate IT services and focused on the Chinese SaaS market.
Red Dot Ventures was founded in 1999 as a venture capital fund from Silicon Valley. Yuan Wenda used the US market as an entry point to share the experience of Red Point Ventures in corporate services investment in China and the United States. Red Dot Ventures has invested in more than 400 companies over the past years and has more than 100 successful mergers or acquisitions or IPOs. In the recent investment case, cloud trading company Twillo, and Google’s data visualization company Looker, Red Point Ventures are early investors.
Focus on the SaaS market, the attitude of the US capital market is very positive. Yuan Wenda said that the average corporate value of the US-listed SaaS company divided by the expected income has reached 9.6 times, and the average median in recent years has reached 5.7 times. In contrast, China’s SaaS market is in the early stages of development. From the perspective of market size, the US enterprise market has surpassed China by nearly 10 times.
However, opportunities still exist. Whether it is from the number of registered companies, the structural changes on both sides of supply and demand, or the recognition of digital transformation by large customers, it has brought many positive impacts to the Chinese enterprise service market. On the other hand, the channel construction of the cloud market is constantly going up. If SaaS wants to cut big customers, it needs to make up two aspects: First, there must be a dedicated team to make customer success stories; in addition, in order to improve development. The efficiency and data drive need to be done in the middle.
Looking at the broader trend background, China’s labor supply is showing an irreversible trend, which makes enterprises pay more attention to cost reduction and efficiency increase; and the country’s determination to market reform of many traditional industries and the importance of supervision to informationization. And the continuous deepening of the reform of the fiscal and taxation system has promoted the formation of the marketization of factors and the formation of the new blue ocean market, and the changes in the international situation represented by Sino-US relations.Let some domestic industries be fast and independent… All of the above are the domestic enterprises to serve the market, opening up new situations and new opportunities.
The following is a speech record, edited and organized:
Good afternoon everyone, I am Yuan Wenda, the managing partner of RedDot Ventures China. I want to share with you the content of corporate IT services this afternoon, especially the SaaS market.
Say to SaaS, we must compare the US market. The US market may be ahead of China’s level by about 5 to 10 years. We have also made a detailed statistical analysis of the start-up financing incidents in the US market in the past four or five years. It can be seen that in all the segments, the financing events of corporate IT services are the fastest growing in the past. It has grown about three times in a few years.
This year’s red dot is just the 20th anniversary of its founding. Red dot started out in Silicon Valley and has invested in many startups in Silicon Valley and China. For example, I was one of the earliest 360 security investors (shorthand did not record accurate information, please confirm with David. Thank you). In addition, Android’s operating system was first hatched in the office of Red Dot. Red Dot currently manages a total of $5 billion in assets. We have invested in more than 400 companies in the past, have more than 100 successful mergers or acquisitions or IPOs, and have invested in many outstanding companies in many areas. In the field of SaaS, Red Dot also has a very good performance. We have invested in travel expenses reimbursement giant Concur, the most successful listed company of cloud communication Twillo, we are also their earliest investors. In the first few months of this year, Google acquired Looker, a startup data visualization company, for $2.6 billion. We were the earliest investor of Looker.
Let’s focus on the SaaS space below. For the SaaS market, the attitude of the US capital market is very positive. Looking at the specific statistics, the index of the company’s value divided by the estimated income is a very important indicator for SaaS in the US capital market in recent years. The enterprise value mentioned here is the market value of the enterprise, that is, the market value of the listed company plus its debt minus the equivalent of cash. The acquisition is expected to be the sum of income in the next 12 months, usually the realized income.
According to our internal statistics, the average corporate value of the US-listed SaaS company divided by the expected income has reached 9.05 times, which is also the highest in the past years. You can see the average median difference of these years.Not much is 5.7 times. What we are talking about is not the usual concept of P/E ratio, which is basically the market value divided by the multiple of future income.
Similarly, the market value of these US-listed SaaS companies divided by the multiple of future income, the highest is the Zoom listed this year. Zoom is a video conferencing and collaborative work SaaS company, listed this year, its multiple has exceeded 40 times, this is a very amazing data. We also see that Twillo, Looker, Concur, and Responsys are the SaaS companies that have been successfully listed in the US.
I explain that the reason why the listed company’s market value divided by the future income can be so high, the main reason is that these listed companies can disclose some very important data in their quarterly reports and annual reports, especially Like customer unit price and renewal rate, these have greatly enhanced investors’ confidence in these companies.
The comparison we just made is that the average market value of listed companies is now nearly 10 times the multiple of its future listing. For many unlisted start-up companies, this multiple may be even higher, and the data we see in Silicon Valley is almost 20 times. At home, we even see higher-priority start-up companies that are raising funds at very high valuations. Similarly, compared with listed companies, mergers and acquisitions and restructuring are also very hot, and it also shows a very hot effect, which is the case of mergers and acquisitions in the United States. We are also very happy to see that in the past, four listed companies with red dot participation were successfully acquired in the United States.
In addition, let’s take a look at the very hot SaaS and enterprise services projects. This is a list just released in July this year, called Enterprise Tech3.0. This list includes early, mid-term and post-projects, which were voted by more than 70 well-known investors from 50 organizations across the United States. More than 50 institutions have invested in a total of 95 companies with a valuation of more than $5 billion, and 8 of them are red-pointed companies. As you can see, they cover a lot of fields, and we are also actively looking for benchmarking companies in China.
Analysis of the US market, let’s take a look at the Chinese business market. At first glance, the size of the market in China’s enterprises is much smaller than that of the United States. Some people say that the size of the US market for business services is about 10 times that of the Chinese market. This is reflected in the marketing scale of the entire US business market. It has nearly 10 times more than China.
But from the number of registered companies, the gap is not that much. There are about 35 million registered companies in China, and about 28 million in the United States. This means that the number of SaaS services is similar.
Why is the gap so big? I think that the main price and payment rate of the current corporate services are similar to those in the United States. Just a few guests mentioned that China’s corporate service market is still very preliminary.The stage, but the Chinese market is also changing. If the energyization indicates cost reduction and efficiency increase, the willingness to pay for the enterprise will inevitably be enhanced in the long run. We also see that the proportion of Chinese corporate market payment this year exceeds 30%, and the market in the future is very huge.
Compared with the SaaS giants in the United States, the volume of Chinese companies is quite different. As mentioned earlier, there are nearly 30 listed companies with a market capitalization of more than $1 billion. There are one Salesforce with more than $100 billion and eight with more than $10 billion. Relative to China, there are very few companies with more than 1 billion US dollars. Everyone sees a traditional software company that basically does SaaS. The market value is about 4 billion to 5 billion US dollars. One of them is also doing the work of promoting cloudization. Its market value is just over 10 billion US dollars, with the American body. The amount is still very different, so compared with the United States, the number and scale of Chinese companies still have a long way to go.
We also see that China’s corporate services have undergone many structural changes on both sides of supply and demand compared with previous years. From the supply side, there are technical updates, best practices in the formation of advantageous industries, customer success concepts, and the recognition of SaaS in the Taiwanese and capital markets. On the demand side, although the macroeconomic dividend period has passed, the decline of the labor force, the recognition of digital transformation by major customers, and the reform dividends and self-exports have brought a lot of positive feedback to the corporate service market that we are concerned about. Impact.
This is Gartner’s report. We can see that a large number of cloud technologies are actually on the right side of the technology maturity curve, and the market has basically not worried much about the stability, reliability and security of cloud technology. Cloud management needs are also growing rapidly, and data security concerns can also be solved through the deployment of private clouds. Enterprises have better judgments on the application of IT at the upper level closer to the service side. Therefore, we believe that large-scale enterprises with China’s ability to pay will be able to take better internal processes and ultimately realize payment.
In another aspect, the channel construction of the cloud market is constantly going up. We have seen that in the Alibaba Cloud, a large number of ISV and SaaS providers have been gathered on the enterprise WeChat, and the needs of small and micro enterprises can also be well met through these channels. 2014 and 2015, domestic SaaS
The mainstream concept of
is the so-called freemium, which is to cut the small and medium-sized customer base with free basic services and value-added services. However, small and medium-sized customers, especially small customers, are relatively weak in their willingness to pay and the ability to pay. In addition, the SMEs in China are also very short-lived, so we have seen that most SaaS users have begun to move to large enterprises.
However, large enterprises have more requirements for personalization. In the long run, they are used to IT outsourcing and project customization. Therefore, SaaS needsTo cut big customers, we need to make up two aspects: first, we must have a dedicated team to make customer success stories. Second, in order to improve the efficiency of development and data-driven, SaaS companies are doing middle-class, so that one is soft. Hard, soft is the success of the customer, it is the development of the Taiwanese, and enhances the confidence of large corporate customers to purchase and use SaaS. From the perspective of our investment, SaaS and China-Taiwan integration provide different solutions, which make the industrial Internet have many investment opportunities in manufacturing, internal management of enterprises and customer marketing.
In addition to this growth, the biggest demand for companies is to reduce costs and increase efficiency. In recent years, we have also seen that as the supply of labor presents an irreversible trend, the increase in labor costs is an inevitable trend. In China, the more important new generation of labor is more inclined to information-based work, and basic work is difficult to recruit people. For the new labor force, their preference for Internet software and platforms is also very obvious, so we have seen that MES and project management information products in the industrial manufacturing and construction industries are very popular. RPA applications in the fiscal, tax, and financial sectors have warmed up very quickly this year. Under this trend, the office work that was originally handled by manual calculation is more and more difficult to continue, and the cost is difficult to control. Therefore, we feel that enterprise IT services are a very effective means for improving labor costs.
Generally speaking, the field of corporate services is less affected by policies, but in recent years we have also seen that the country is undergoing market-oriented reforms in industries such as energy, healthcare and finance. At the same time, the supervision also showed the importance attached to the means of informationization and the continuous deepening of the reform of the fiscal and taxation system, which promoted the allocation of factor marketization and the formation of the new blue ocean market. The changes in the international situation represented by the trade war have also allowed some domestic industries to become fast and independent. This is reflected in the areas of IT and enterprise services that we are concerned with, relational databases, operating systems, open source ecosystems, and basic chip areas, etc., which have many opportunities that will not occur under normal circumstances. market. Thank you all.