Investors sound the alarm about possible private equity tech deals

Enterprise spend management software company Coupa’s investors are ringing the alarm about a possible sale to private equity, concerned that any such transaction in the current investment environment may unreasonably limit its value.

This is something you don’t see every day. Last week, rumors surfaced that Vista Equity Partners was interested in buying Coupa. Today, Coupa’s largest shareholder, HMI Capital, with 4.8% of the stock, made a letter to the Coupa board public, stating that it would oppose any deal that it believed undervalued the company.

It pegged its value at a minimum of $95 per share. Coupa’s share price hovered around $63 this afternoon, down nearly 3%. Like many SaaS stocks, Coupa’s value has dropped precipitously in 2022, down 60% for the year.

HMI is worried that Coupa’s current value doesn’t reflect what it believes will be a lucrative future once it gets beyond today’s troubled valuation market for software companies.

Unlike the poison-pen letters we are used to seeing from activist investors, this one was full of nothing but praise for the company (probably because its goals were very different):

As we have conveyed to the Board and management team, we invested in Coupa based on our belief that it is an excellent business. Its management team — most notably Chief Executive Officer Rob Bernshteyn — has done an exceptional job building the Company from a startup to a clear market leader, while establishing business spend management as its own critical category. Perhaps most importantly, Coupa’s outlook for future growth and long-term value creation is bright. As Mr. Bernshteyn himself stated only a few months ago:

“Now near-term scenario aside, we are proudly the clear leader in business spend management. Our total addressable market is massive and under-penetrated and we are excited as ever in our pursuit to revolutionize this market and deliver customer success like never seen before.”

It’s our view that we speak for many other shareholders when we say that we would be pleased to own Coupa for the foreseeable future and to bet on the team to continue to build momentum and execute its proven strategy.

It’s almost odd to see an external investor praising a company’s leadership, as most public investor comment is negative. Here we do not see an investor begging management to cut costs or change direction. Instead, it’s praise and a belief in greater value yet to come.

The sunny view of Coupa’s future conflicts with present public market sentiment about the future value of tech companies. That prevailing viewpoint, crossed with huge amounts of private equity dry powder, may have put PE investors in a deal-making mood.

HMI is begging the Coupa crew to stick it out, or at least demand more than they otherwise might settle for. Of course, this is HMI talking its own book, but there may be some substance to its argument. Let’s check the math — and a comp.

Investors sound the alarm about possible private equity tech deals by Ron Miller originally published on TechCrunch

3 ways the pandemic is transforming tech spending

Ever since the pandemic hit the U.S. in full force last March, the B2B tech community keeps asking the same questions: Are businesses spending more on technology? What’s the money getting spent on? Is the sales cycle faster? What trends will likely carry into 2021?

Recently we decided to join forces to answer these questions. We analyzed data from the just-released Q4 2020 Outlook of the Coupa Business Spend Index (BSI), a leading indicator of economic growth, in light of hundreds of conversations we have had with business-tech buyers this year.

A former Battery Ventures portfolio company, Coupa* is a business spend-management company that has cumulatively processed more than $2 trillion in business spending. This perspective gives Coupa unique, real-time insights into tech spending trends across multiple industries.

Tech spending is continuing despite the economic recession — which helps explain why many startups are raising large rounds and even tapping public markets for capital.

Broadly speaking, tech spending is continuing despite the economic recession — which helps explain why many tech startups are raising large financing rounds and even tapping the public markets for capital. Here are our three specific takeaways on current tech spending:

Spending is shifting away from remote collaboration to SaaS and cloud computing

Tech spending ranks among the hottest boardroom topics today. Decisions that used to be confined to the CIO’s organization are now operationally and strategically critical to the CEO. Multiple reasons drive this shift, but the pandemic has forced businesses to operate and engage with customers differently, almost overnight. Boards recognize that companies must change their business models and operations if they don’t want to become obsolete. The question on everyone’s mind is no longer “what are our technology investments?” but rather, “how fast can they happen?”

Spending on WFH/remote collaboration tools has largely run its course in the first wave of adaptation forced by the pandemic. Now we’re seeing a second wave of tech spending, in which enterprises adopt technology to make operations easier and simply keep their doors open.

SaaS solutions are replacing unsustainable manual processes. Consider Rhode Island’s decision to shift from in-person citizen surveying to using SurveyMonkey. Many companies are shifting their vendor payments to digital payments, ditching paper checks entirely. Utility provider PG&E is accelerating its digital transformation roadmap from five years to two years.

The second wave of adaptation has also pushed many companies to embrace the cloud, as this chart makes clear:

Similarly, the difficulty of maintaining a traditional data center during a pandemic has pushed many companies to finally shift to cloud infrastructure under COVID. As they migrate that workload to the cloud, the pie is still expanding. Goldman Sachs and Battery Ventures data suggest $600 billion worth of disruption potential will bleed into 2021 and beyond.

In addition to SaaS and cloud adoption, companies across sectors are spending on technologies to reduce their reliance on humans. For instance, Tyson Foods is investing in and accelerating the adoption of automated technology to process poultry, pork and beef.

All companies are digital product companies now

Mention “digital product company” in the past, and we’d all think of Netflix. But now every company has to reimagine itself as offering digital products in a meaningful way.