1Mby1M Virtual Accelerator Investor Forum: With Jason Lemkin of Storm Ventures (Part 3)

Sramana Mitra: SaaS continues to be bigger because there is a lot more software adoption happening all over the world. Last week, we had a session that was focused on what’s happening on the Indian cloud market, which is a very active market right now.

There’s a company called Greytip that has built up quite a bit of scale. It’s a bootstrapped company. It has taken them many years. It’s a 15-year story. They do the equivalent of PayCycle. The per user fee for Greytip is $.30. It’s a completely different ball game in terms of pricing model and what is a profitable customer acquisition strategy. Everything is bigger. The number of customers all around the world is bigger. The number of competitors all around the world is bigger.

Where can you point our entrepreneurs to look for good opportunities? We’ve had a few of these discussions – Brian Jacobs of Emergence Capital was here a couple of months ago. These guys have been doing SaaS right from the beginning.

Jason Lemkin: He was one of my investors.

Sramana Mitra: Brian is a great investor. Emergence Capital is an excellent investor in the SaaS area. His observation, which I agree with, is that a lot of the obvious opportunities have saturated.

Jason Lemkin: I don’t agree at all.

Sramana Mitra: My question to you is what is your analysis of the market?

Jason Lemkin: If you’d asked me 28 months ago, I would have agreed that everything is saturated. Let me challenge that and then answer your question in two ways. First of all, let’s step back for a minute. All the categories – CRM, ERP, expense management – have all been done and are multi-million businesses. This is especially relevant to some of the audience that we’re chatting about.

Once these spaces get really big, there’s this huge amount of room at the bottom. Salesforce is on its way to doing $10 billion in recurring revenue. That means that the bottom 10% of the market won’t even touch. The next bottom 10% above that, it will barely try to touch. Salesforce is trying to do all eight to nine-figure deals now.

You can build 10 to 20 IPO-able companies in CRM and in spaces that Salesforce isn’t even touching. This will repeat itself as these spaces get bigger. That was true as Salesforce was going to a billion but it’s so big now that there’s room for 20 or 30 IPOs in CRM alone.

Sramana Mitra: There is Zoho, which is doing really well.

Jason Lemkin: There’re so many. Where did Zendesk come from? Zendesk was another $100 million opportunity. At that time, it was too small for Salesforce to even worry about. There’ll be Zoho. There’ll be SugarCRM. None of them have to dethrone Salesforce. None of them will even nick Salesforce’s momentum because there’s so much room at the bottom. I think it’s hard to take on Salesforce directly. There’s so much room on the bottom and sides.

I wouldn’t fear to take on the incumbents for that reason. The next generation of SaaS B2B apps that are taking off are generally replacing paper, Excel, or email. The last generation of apps generally replace software. Because software is everywhere, every industry is creating a system of records in SaaS.

Whether it’s printing, web designers, t-shirt manufacturers, it doesn’t matter. All of these industries are so big that they’re developing a system of records. The replacement is almost always some Excel or email-type tool. I’m meeting more and more entrepreneurs that have gotten to a million in revenue and their competition is paper. Those business segments often were not big enough a couple of years ago.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Jason Lemkin of Storm Ventures
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