by : Andy Brown & Sand Hill East team.
Welcome to the 2020 Sand Hill East Update. This year it has taken me a lot longer to write and publish than previous years. There are two reasons for that, firstly, the insane activity level across our portfolio companies has been keeping us really busy and secondly the combination of snow/winter and COVID and every day being the same makes it difficult to be inspired to write. I woke up this morning and the snow had finally stopped and the sun was shining so figured I’d better strike while the iron is hotter than 10F!
2020 was the year that wasn’t, wasn’t it! After 2019 being the year of hip replacement for me (Titanium 1 and Titanium 2 are still going strong btw), who would have predicted what happened next…
Many thanks to the people that have worked tirelessly throughout the year; the doctors, nurses, medical workers, pharmaceutical researchers, front line responders, restaurant workers; the 1099ers at DoorDash, Uber Eats and all the others who worked their hearts out to help others throughout the year.
2020 Summary of Activities
Roseann, Nanette and I along with our advisory partners and recent addition of Andrew Dubois have added a number of interesting new companies and capabilities to the Sand Hill East portfolio in 2020. Knoema, Skyhive, Digital Prezence, Kodexa.Com, DiamondStandard.co, all became clients during the year and Knoema was also acquired by Eldridge in December. We also invested in a few new companies Deep Factor in devops, TrQk in Digital Music Licensing, Ediphy Markets in capital markets, One-Creation in Digital Data and Entitlements and additional raises/pro ratas in a number of companies including the wealth/social crossover NVSTR.
We also acknowledge, empathize and have worked hard in and around the tough times experienced by a number of our companies because of COVID. There have been significant mental health issues associated with COVID isolation and in all of our companies we have looked to share useful ways to break down walls, help people to socialize and sometimes meet in person (e.g. socially distanced walks et al).
I am particularly sad to have seen Sitehands not make it to 2021. The business model we built for Field Technologists as a Service will have its time I am sure of that. Wishing all my friends colleagues and co-workers there all the best for 2021.
COVID has accelerated all things digital and decelerated many things physical Rather than repeating our observations here, I include a link to our original thesis from late March early April a lot of which has already come true and some of which is coming true this year.
We see six key focus areas for our clients and portfolio companies for 2021 :-
Digital (including cloud) — Digitization of Supply Chains globally and remediation of many of the risks exposed by COVID. Many organizations equate moving to Cloud with Digital. This is not Digital. Digital is when your Business supply chain has API’s through which you interface upstream to your suppliers and downstream to your distributors and distribution channels. This may or may not be cloud based. We are also seeing (mostly at Digital Asset but more broadly as well) businesses that are in the same business band together to build (from scratch) digital supply chains on digital ledgers to replace multi-party workflow and inefficient email and attachment approaches.
Security — The level of security attacks, surface area and vectors of attack grew significantly in 2020, culminating in the release of the Solar Winds hack. This Trojan horse requires different thinking from a defense perspective than we have previously had and a renewed emphasis on insider threat (of any kind) has taken hold as a result.
Previous discussions related to investment in infrastructure may now be joined with investments related to securing the nation’s digital infrastructure, which would mean significant additional capital deployed to this critical area. As an example it seems like digital identity may finally be addressed by the US government in this term. To see how far behind we are check out www.e-Estonia.com.
Privacy has come to the top of the agenda and we have made investments in privacy first social platforms such as AtSign and Digital Rights Management / Encryption platforms such as One Creation
DevOps — I was in a meeting in 2016 with a bank including the head of Compliance, Legal, Audit and Tech & Ops who were asking the CIO of a regulator what happened to infrastructure when the regulator moved all of their platforms to Amazon. He answered that anyone who could code or script was still employed… 2020 was a transition year with people in large organizations particularly banks figuring out what their plans were and who they would partner with. As an FYI the ones that partnered with one cloud vendor and built a fully open architecture with open source tooling and processes have far exceeded all others.
AI learns to walk — For many of our AI companies 2020 was the year when they really moved from crawl to walk. The simple use-cases can now be done more effectively with NLP, ML and AI than with humans and in particular the human assisted workflows have been big beneficiaries this year. Moogsoft, Netomi and Skyhive have all had a successful 2020 as a result and have real turbo chargers going into the rest of 2021.
Data — Data and analytics have remained super important to our largest clients in the Banks, Insurers and Pharma industry, our startups and technology companies. In our portfolio Knoema, CMGx.io are two examples of companies really taking advantage of this trend. Bigger companies like Kinaxis, D&B and other raw data providers have also seen a big upswing in 2020. Some platform companies that we are working with are also doing super well such as AtScale and Snowflake has created a focus on data like never before which we are using to integrate Alternative data with Knoema and beyond.
ESG — ESG and Stewardship have become major topics for governments, world leaders, investors and companies and we are going to see a massive focus on this in the Digital Decade (2020–2030) if the recent Blackrock Stewardship event for Directors is any measure of what is in store. The cementing of the measurement frameworks for companies will happen this year as well as the trading infrastructure needed for various Carbon platforms. We believe this will be much broader than many people think and will join up the dots across the developed world first and the globe second.. We also think that a lot of what is needed is personal behavioral change/demand reduction and we will see progress in the consumer world in that regard this year also.
As I said in my fun podcast with
Mazy Dar in 2020 the things investors are spending time on in 2021 are going to be ABCD, A=AI, B=Blockchain, C=Cloud, D=Data/Digital (thanks @ken tregidgo for the analogy). I am adding E for ESG as well!
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In early 2020, Lastline sold to VMware which gives the platform the power of one of the best sales machines in the world. Congrats to Chris Kruegel, Giovanni Vigna and Engin Kirda. Additionally, Armis achieved an amazing exit to Insight Partners and last week achieved a 2Bn dollar valuation… kudos to Yevgeny Dibrov and Nadir Israel.
Our earliest stage companies have continued grow through 2020 into 2021 (PadInMotion, CMGx.io, Pomco, EclipzIT, LexAlign, CloudFrame, Kodexa) and are well positioned going into 2021.
Cutover, Cyberhaven, Fintech Studios and Soofa.co also closed additional raises. Modelshop continues to build out their go-to-market. Netomi.com closed a significant Series A and now has very strong market traction. Our mid-stage (A+ -D) companies have continued their growth and capital raising in the market (MaxMyInterest, Digital Asset, LMRKTS, Callsign, TRexGroup, Street Contxt).
Our traditional types of work around Enterprise Advisory have continued in 2020. We have 3 modes of engagement with clients :-
- Bring Expertise/Experience to bear to help young startup companies build products that (mainly Enterprise) customers will buy.
- Help young and later stage startup companies connect to the marketplace, get feedback on their products, evaluate the best uses of the products, and establish the right approach to take to get sales of the product established.
- Work with established companies who want to truly transform digitally and establish new approaches, business models, Organization, Op Model and Roles and Responsibilities to meet the very different needs of customers and consumers.
In each of these models we get some form of ownership and / or cash incentive for our time and our work.
2021 Industry Commentary
2021 has already started out with digital disruptors in Finance, Insurance, and many other technology/vertical cross over industries becoming scale players through SPAC’s, rollups, combinations/j.v’s and so on. In some cases the upstart company is now on the front foot and the previously market dominant player is shrinking, growing slowly or flat. Valuations have changed to massively favor the rapidly growing which gives huge equity power to those companies. Unicorns are seen much more often than they used to be! These trends will continue as deal flow/digital disruption is driving a plethora of corporate development activity.
Data continues as the fuel of Digital, and we see many data companies (even very traditional FS ones) retooling with Digital API’s so that they can fuel both incumbents and disruptors with the data that drives customer experience, product definition, underwriting, analytics and algorithms. Going through the applicants for the Fintech Lab Class of 2021 NLP, Machine Learning and AI have become “features” or “how-to’s” vs. “what’s” of customer centric platforms or capabilities that are leveraged within a digital supply chain. There will still be (few) stand-alone platform companies but the predominant use-cases will move to very specific vertical use-cases.
IOT has become the edge of digital supply chain and COVID has dramatically accelerated this. A company we are close to and work with at Digital Asset is CBL/Xpansiv who is literally the case study of this kind of business and furthermore the explosive rate of growth that can be achieved if you get that right.
“Digital” is now all about (new) business models, not the application of technology to incumbent business models.
2020 FinTech Advisory
2021 will be another break-out year for many of our Fintech companies. We have seen many more of our fellow Finance & Insurance Industry Alumni join in the Fintech Revolution. We believe this will drive further and faster Fintech adoption as top line & digital become primary drivers of FOMO and customer adoption.
LMRKTS (www.lmrkts.com) has continued to drive significant savings for clients in FX derivatives and have also developed a number of other interesting go to market products that are making their way into the market.
T-Rex Group (www.trexgroup.com) had a very successful 2020 announcing major client wins and funding wins. Revenue is accelerating as T-Rex’s capabilities is being adopted by larger clients with bigger books of business. There are some groundbreaking new deals and deal types on the table for 2021 and the business is poised to take significant market share.
Eversafe (www.eversafe.com) which focuses on identifying and alerting elder abuse through automated means has continued to make significant progress and has signed a number of important client relationships with large companies such as major broker-dealers and other senior oriented organizations.A number of new partnerships were added in 2020 positioning the business well for 2021.
Modelshop (www.modelshop.com) has pivoted to be a low/no code platform and is seeing some siginificant new use-cases. This year will be critical in the success of the platform.
Fintech Studios (www.fintechstudios.com) had another exciting year. They did a slight pivot to work with the SI’s on specific use-cases where the capability they have built can be super relevant. Compliance and Regulation is one such use-case and vertical and they have established both the platform, the vertical solution and the go to market partners to make it a success. This is a year of execution for sure.
Beacon.io Beacon (www.beacon.io) had a very strong 2020. They closed their series B with Centana, and have continued to build out deep, capable risk solutions for major Clients, as well as closing some high profile “name” clients. They have added support for additional cloud platforms and look to have lined themselves up for a successful 2021.
Diamond Standard Diamond Standard (www.diamondstandard.co) has developed the world’s only regulator approved diamond commodity. Diamond Standard has developed the technology so that investors are finally able to trade this $1.2 trillion natural resource as a liquid commodity. The initial public offering for Diamond Standard happened last week (2/16/21).
MaxMyInterest Max had a great year and has built upon the promise of previous years to maximize return on cash. With the 10year tipping up this past week the spreads will widen and Max’s customers will make more money. The account opening process on Max is world class (seconds) and they are poised for significant growth in 2021 as more interest bearing startups and big bank platforms enter the market.
Capital Markets Gatway CMG had a very successful year following the strategic investment by the banks early in the year and is positioned for very strong execution in 2021.
Ninth-Wave had a very successful 2020 and has come into the new year with renewed vigor in their sales and go-to-market team. They have solidified the platform used by 19 of the top 20 FS organizations and have also built a broader platform, called TNP, to help the Banks and Broker Dealers further monetize their expertise.
Boards
Zscaler (www.zscaler.com) innovated successfully in 2020 bringing to market additional assets acquired through small acquisitions as well as new capabilities that are literally groundbreaking with Zscaler Digital Experience (ZDX) and Zscaler B2B. Zscaler also achieved FedRamp HIGH security status for the ZPA product opening opportunity in the Federal government and beyond, and more importantly cementing our position as a highly sought after, very strong Zero Trust Security platform.
Moogsoft (www.moogsoft.com) had a strong year as the leader in AI Operations for technology. We have continued to grow in the Fortune 100 and beyond and have continued to win head to heads against our competitors. We have also launched a pure cloud product recently to much acclaim and early adoption from both existing and new clients.
Guidewire (www.guidewire.com) Guidewire cloud has been the story of 2020 with 2 major releases Aspen and Banff. We are delivering a typical SaaS 6 month cycle which is super exciting for Guidewire and the industry.
Pure Storage (www.purestorage.com) Pure is bringing to market new capability around Block Storage in the cloud (Initially on Amazon, later Azure) and a number of new capabilities in the on-prem platform, as well as the ability to manage storage solutions across cloud and on-prem going forward. It is very exciting to be a part of a storage company growing their share of the market as well as becoming a SaaS company in a world where significant data growth is a part of life.
CloudFrame (www.cloudframe.com) Roseann has had a successful year as Executive Chairperson. CloudFrame (www.cloudframe.com) had a very exciting 2020. Cloudframe allows companies to migrate from mainframe to java via ZiiP, Linux or major Cloud platforms. Cloudframe has really capitalized on their work at Fintech Innovation Lab; has closed a major credit card company and is working on 5 major deals at this point in time. It is super exciting.
Skyhive (www.skyhive.io). Andy joined the board of Skyhive, the experts in human labor analysis for governments and corporations, following a successful incubation in Fintech Innovation Lab. Skyhive has unique capabilities to bring to bear on competitive analysis of people’s skills and training across similar companies, states, countries, armies etc.
Digital Asset Digital Asset (www.digitalasset.com) has driven the use of DAML as the smart contract programming language for mainstream business logic. The team has continued the march towards building front to back trading support platforms on Digital Ledgers with their anchor client ASX, and has closed a number of other deals in Financial Services Infrastructure, Healthcare and other verticals. 2021 looks to be a landmark year for Digital Asset, and I am looking forward to what the year will bring.
Tech Focused Advisory
Our Technology focused investments have continued to perform well, particularly those that are part of the Hybrid Cloud and Security market places.
Callsign (www.callsign.com) had a very busy year continuing to rolllout their technology to Lloyds bank and signing agreements with a number of other premier financial institutions. They also closed a large Series B… Behavioral Identity remains part of the bedrock of a secure internet and is also fundamental to solving authenticity and data lineage.
Inpensa (www.inpensa.com) is a NJ based company specializing in measuring benefit realization of strategic initiatives. In a world where every Change $ has $5 of demand, their platform helps organizations work out the best place to achieve a return on their investments whether that’s financial, risk or other strategic metics (like new customer acquisition or revenue for example). They had a hard year in 2020, and prospects are brighter for 2021.
Liirn (www.liirn.com) — Liirn supports driving change through engaging an entire organization in the change initiative and allows people to share their ideas, crowdsource ideas, provide feedback on how they feel and also contribute to important outcome measures. We have seen a number of opportunities for Liirn particulary in Work / Workplace of the future and the change associated with that.
IOT & Emerging Technology & Other Investment and Advisory
Vernon Francois Haircare (www.vernonfrancois.com)
While 2020 was not a fantastic year for retail brands we took advantage of the down time and are ready to go in 2021.
The-Wing (www.the-wing.com) had a very tricky year because of COVID but made it to the other side. This year will be a defining moment for the company as the post-COVID reshaping of the business occurs.
Netomi (www.netomi.com) had a very exciting year, building a very strong pipeline, closing their Series A and coming into the new year with a lot to look forward to. COVID acted as a real accelerant for Netomi as companies struggled to deal with digital inbound on IM (FB Messenger, What’sAPP, TwitterDM et al and email). Netomi has also proved out its economic value proposition and is literally a margin improvement driver in every company that has adopted. It also drives NPS and customer engagement/happy customers. They are closing larger and larger companies as time goes by and Q4 2020 and Q12021 in particular are very exciting customer wise.
Roomi had another tough year in 2020, as COVID impacted big city living. The founding team has seen a number of green shoots in the past few months particularly with the business in Mexico.
Digital Prezence (www.digitalprezence.com) has created an influencer marketing marketplace. Think match-making, but for influencers that helps brands find the perfect ambassadors for their brand. The platform also automates many of the heavy lifting of influencer campaign management which is key for agencies.
2021 New clients
Three additional firms have joined the Sand Hill East advisory portfolio in early 2021. We have kicked off engaging sessions with their management teams to accelerate their 2021 objectives.
NexJ (www.nexj.com) is the pioneer of Intelligent Customer Management. The NexJ team has deep financial services experience and have utilized this to build a finance-focused CRM.
QNext (www.fileflex.com) have developed a zero trust remote data access and sharing platform for today’s massive remote workforce. The FileFlex Enterprise platform provides secure remote access and sharing across an Hybrid-IT infrastructure to protect corporate data.
Rythan (www.rythan.com) helps sales, banking or “pitching” organizations tell a better story through personalized and interactive presentations that better connect with their customers. They’ve built a cutting-edge sales enablement solution that automates content development and distribution for enterprise and mid-size organizations.
That’s a wrap!
To wrap it up we are all excited about 2021, are expecting deal activity in a number of our portfolio companies and are excited about the rise of SaaS in multiple verticals at the same time.
Wishing all of you a very successful 2021!
Andy, Nanette, Roseann, Andrew, Mirna and all our other advisory partners!