Topics: Serent Sectors

Serent Capital's IT & Software Development Sector Update

Our focus and investment considerations within the IT & Software Development landscape

July 09, 2020

We are actively looking to partner with companies that provide tools used by IT (Information Technology) professionals (in-house and services providers) and software development teams. The IT / developer tools landscape is dynamic and rapidly evolving, creating unique business-building opportunities for innovative founders. We see great potential for entrepreneurs to leverage industry tailwinds to build the next generation of market-leading technology solutions.

IT & Software Development Sector Update Overview:

  1. Trends for Vendors in the Software Development Life Cycle
  2. Trends for Vendors Serving IT Professionals
  3. IT Spotlight: Tools Used by Managed Service Providers (MSPs)
  4. MSP Tool Market Map
  5. Schedule a Meeting


1) Trends for Vendors in the Software Development Life Cycle (SDLC)

  • Every company develops software now: New business formation is overwhelmingly indexed toward technology, and incumbent players in every industry are scrambling to develop software competency (whether building their own solutions or leveraging 3rd party solutions).
  • Development processes are evolving: Agile requires new collaboration tools and more fluid / rapid interaction between product managers, dev teams, and business managers.
  • New procurement models favor flexible tools: Bottoms-up procurement is increasingly prevalent, and flexible tools that can by used by multiple constituencies (e.g., dev teams and ops teams) and can seamlessly integrate with other apps will win the day.

The Serent Focus - We segment the SDLC into seven stages:

1) Plan
2)
Track
3)
Code
4) Build
5)
Test
6)
Deploy
7)
Monitor
Within these seven stages, we see promising opportunities on the front & back end of the SDLC.
On the front end, we believe there are under-served categories with explosive growth potential (e.g., tools used by product managers). 
On the back end, we believe there are opportunities to build competitive moats through infrastructure-specific (e.g., Azure) and application-specific (e.g., EHRs) monitoring expertise.

 2) Trends for Vendors Serving IT Professionals

  • Increasing complexity creates new requirements: IT organizations often have to monitor and manage numerous environments (public, private & hybrid cloud), a growing list of 3rd party applications, and a broader array of devices.
  • Need for tighter alignment with business users: IT departments have to engage with and satisfy employees who are generally more tech savvy and demanding. Tools that improve end user experience and enable IT automation are critical for effective IT ops.
  • Ecosystem navigation and optimization. As clear leaders have emerged in certain categories (e.g., ServiceNow in ITSM, the three public cloud providers, etc.), there are opportunities for vendors to develop solutions that integrate seamlessly with leading platforms and augment feature/functionality. Ecosystem partners have opportunities to carve out defensible niches and benefit from the reach of their platform partners.    

The Serent Focus - We see opportunities to scale differentiated solutions in:

  Network, Infrastructure & Database Management
  Application Management
  Endpoint & Device Management
  IT Ops & IT Service Management
  Security


IT Spotlight: Tools Used by Managed Service Providers (MSPs)

Within the IT sector, the MSP market is highly fragmented and continuing to grow, which is why we believe this market gives rise to attractive investment opportunities. MSPs have specific requirements and leverage a wide variety of tools to serve their customers. The average service provider offers a broad range of solutions, including device management, server management, network management, backup / disaster recovery, and managed security services, among others. As the list of service offerings grows, so does the MSP toolkit.

Serent’s interest in service provider tools is based on a straightforward thesis:

Large Market in the Midst of a Transformation

  • The global managed services market will likely top $200BN in 2020 and is still growing 10% YOY according to a 2019 report on MSPs from SolarWinds.
  • Managed services have transformed the IT channel; the cloud changed customer requirements and enabled new services monetization opportunities for channel partners.
  • Evolving service requirements / complexity creates opportunities for innovative tool vendors.

Core Service Offerings are Increasingly Complex (Tools Required)

  • Core offerings, like device and network management, can be a drag on efficiency if tools aren't leveraged appropriately (ideally tools that enable automation).
  • Trends like hybrid infrastructure, remote work, and BYOD (Bring Your Own Device) create opportunities for emergent vendors to take market share from legacy players.

MSPs are Looking to Provide Higher Value Services (Tools Can Help)

  • MSPs are seeking to grow by introducing higher value services (e.g. managing applications, security services, etc.).
  • Tools that generate ROI and help MSPs expand the breadth of their offering can rapidly gain traction (and this innovation isn't likely to come from some of the larger providers such as Datto, SolarWinds, ConnectWise, or Kaseya).

“our experience suggests that CEOs who are able to take a step back and view sales through a holistic lens ... have the highest level of success.”

 

We have mapped the MSP tool market (representative landscape below) and are targeting tools that orbit around the big four PSA/RMM platforms (Datto, Kaseya, ConnectWise & SolarWinds). Our goal is to identify and partner with vendors that (i) are capitalizing on the limited organic innovation potential of the big four and (ii) are leveraging technical / business partnerships with these platforms to extend their reach.

 


Representative Vendors / Market Map

We have mapped the MSP tool market (representative vendors)

Linked to Customer Work

Connectivity

Data Management

Remote Access

Other Monitoring & Mgmt.

Central Pillars of MSP Operations

Professional Services Automation (PSA)

Remote Monitoring & Mgmt. (RMM)

Back-Office / Internal

Documentation

Quoting

Business Admin / Intel

Other

“We have seen success deploying this framework within our portfolio.”

Schedule a Meeting

 

Serent Capital invests in profitable, growing service companies. We typically invest in founder-led companies and often represent the first institutional capital in the company. We are highly selective, choosing to invest in only a handful of businesses each year. Our selectivity ensures that all our companies receive the attention and expertise that they need. Learn more about our portfolio companies.

 

Disclaimer:

Nothing presented herein is intended to constitute investment advice, nor sales material, and no investment decision should be made based on any information provided herein. Information provided reflects Serent's views as of a particular time and are subject to change without notice. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. Trends are based on Serent research and industry observations. While Serent has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third party information presented herein. All rights to the trademarks and/or logos presented herein belong to their respective owners, and Serent’s use hereof does not imply an affiliation with, or endorsement by the owners of these logos. Past performance is not indicative of future results. There can be no guarantee that any investment strategy employed by Serent will be successful. A full list of portfolio holdings is available on Serent's website.

Founded in 2008, Serent Capital is a leading lower-middle market private equity firm focused on investing in high growth service and technology businesses. Our operating model is distinct in its focus on business building. We strive to be an involved, value-added investor, capable of providing significant operational and strategic support to our portfolio company CEOs on the most critical issues that they face as their companies scale.

Serent Capital's ability to assist its companies is based on its principals' experience as CEOs, strategic advisers, and Board Members, and a deep network of formal and informal advisors.

Our mission is to deliver extraordinary returns by partnering with outstanding executive teams to grow exceptional businesses. Our success in this mission comes from our persistent adherence to our values.

Focus

Vertical Specific B2B Software, Data, or Tech-Enabled Services Companies

Enterprise Value

$15m to $250m
(Smaller for add-ons)

Company Size

>$5M of recurring or reoccurring revenue
(Smaller for add-ons)

Geography

USA & Canada

Growth

10% - 1,000%

Profitability

EBITDA up to $15M

Ownership

Minority or Majority Transactions
30-100%

Disclaimer:
Nothing presented herein is intended to constitute investment advice, nor sales material, and no investment decision should be made based on any information provided herein. Information provided reflects Serent's views as of a particular time and are subject to change without notice. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. While Serent has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third party information presented herein. Past performance is not indicative of future results. There can be no guarantee that any investment strategy employed by Serent will be successful. A full list of portfolio holdings is available on Serent's website.

The information contained herein may not be copied, reproduced, republished, or posted in whole or in part, in any form without the prior written consent of Serent.