Capturing early growth in software businesses
A Conversation with Cian Cotter, Managing Director at Insight Partners
Helen Steers, Partner at Pantheon and manager of PIP, speaks to Cian Cotter, Managing Director at Insight Partners, one of PIP’s largest private equity managers, about their success.
Insight Partners is PIP’s largest manager by value, accounting for 8.1% of its total private equity asset value as at 31 May 2022.
Managing Director, Insight Partners. He joined Insight in 2003 and leads the firm’s capital markets and capital formation activities.
The interview below can be found in PIP’s 2022 Annual Report.
Could you provide a brief overview of Insight Partners for us?
Insight Partners (“Insight”) is one of the world’s largest investors in high-growth software companies that drive transformational change in their respective industries. We have over 25 years’ experience in the sector and have regulatory assets under management of over $90bn.
What types of investment do you focus on?
We are sector specialists, investing in growth-stage software businesses through minority and control investments. We believe that this flexible approach allows our investors to access the best available opportunities. We are able to capture early growth and then able to increase our investment as a minority investor or to grow the position to one of control.
We invest across the globe. Roughly 60% of our capital is invested in North America, and 40% across the rest of the world.
Why the software sector in particular?
We believe that we are in the early stages of a multi-decade digital transformation of the global economy. While companies across industries are investing more into digital solutions, and market conditions support continued digital adoption, just 23% of application workloads are run in the cloud, according to our research. Drilling down further into a few industries, for example, reveals that only 23% of healthcare providers offer eStatements and 30% of mortgage providers offer fully digital applications. The global economy has undergone a rapid digital transformation over the past 20 years, but we believe that there is still a huge amount of digital growth to come.
We expect the Software-as-a-Service, or “SaaS”, market to add more than $10tn in value over the next 10 years, and the businesses that we invest in aim to capitalise on this growth in global SaaS spend.
What differentiates your portfolio companies from household name technology stocks?
Growth-stage companies are companies that have significant opportunities to expand, either organically or through acquisitions, and have potential for growth in either revenue, operating profits or, frequently, both. Insight invests in companies that apply technology to solve business and consumer problems, typically through software.
Over time, we have increasingly focused on software companies with high recurring revenue achieved primarily through a subscription business model or SaaS, which we believe offers a number of key benefits. First, the high recurring revenue and lower upfront cost structure makes SaaS businesses relatively less risky than other forms of software and internet investments. The homogeneity of the business model for SaaS companies enables pattern recognition with a higher degree of accuracy, which allows Insight to identify key performance indicators to drive successful outcomes.
Can you tell us about some of the companies that you currently hold?
Recorded Future is a market leader in cybersecurity intelligence, enabling customers to prevent and detect cyber threats through an internet-wide dragnet of real-time intelligence. We were attracted to the company by its differentiated technology approach, which leverages machine learning and automation to collect intelligence at scale from a wide variety of sources and package it in a manner that can be utilised by humans and machines. The investment is a great example of the flexibility of Insight’s investment strategy – we initially led a minority investment in 2017 which positioned us to later become majority investors in 2019. We believe that our experience with the company and operational expertise will enable Recorded Future to continue to grow.
MURAL is an example of a business driving transformational change in the industries it serves. MURAL is a collaborative intelligence company powering effective ideation, innovation, alignment and team building. The company fosters innovation at scale by providing a digital whiteboard and collaboration features for everything from product strategy and planning, research and design, to sales and consulting engagements. The business operates in a rapidly expanding market and has demonstrated strong growth, high customer satisfaction, and strong upsells to existing customers.
A further example is Bullhorn, a cloud-based software platform for the staffing and recruiting industry that automates end-to-end the talent supply chain and drives tangible ROI for staffing agencies. Our return on investment thesis centred around three key areas: the company’s strong market positioning and growth at scale, Bullhorn’s blue-chip customer base with considerable opportunity for cross-sell and upsell, and the opportunity to expand the addressable market in a highly fragmented industry through M&A. The business has seen a remarkable growth in revenue and has generated strong returns for our investors.
Why is Insight well placed to capitalise on the growth in this market?
Insight leverages its dedicated, outbound calling or “sourcing” team, to identify and track growth-stage software companies. Our sourcing team, comprising of over 60 dedicated employees, contacts around 30,000 companies per year and enters the information collected into a proprietary database, which now contains profiles on over 175,000 companies. As a result, approximately 62% of our deals have been sourced by our outbound sourcing team.
Data analysis plays an important role in the selection of potential deals. Factors considered in this analysis include the total potential addressable market that a company is targeting, the degree to which the company’s product(s) satisfies market demand and need, and the rate at which a company is able to acquire new customers and retain revenue from existing customers over a sustained period of time.
Ultimately, our core objective is to find the most compelling high-growth opportunities in the software space and provide these companies with the strategic and operational support to be well-positioned at exit and achieve attractive returns. To help with this, our specialist in-house consulting team, “Onsite”, provides our portfolio companies access to best practices in areas such as strategic planning and operations management.
Can you tell us more about Insight Onsite and how it makes a difference to portfolio companies?
The Onsite team is dedicated to the long-term success of our portfolio companies and comprises industry leaders who have the breadth and depth of experience to help management teams take their companies through the next stage of growth. The Onsite team is designed to support the critical functional areas necessary for software and technology companies to scale.
Onsite covers the full spectrum of operations of our portfolio companies, including hiring top talent, building market-leading products, advising companies on their optimal Go-To-Market strategies and supporting inorganic growth through M&A. We believe that Onsite has been successful in helping companies navigate the challenges presented during the early stages of growth, and as a result the demand from portfolio companies for Onsite’s expertise has continued to rise. There are now approximately 120 people on the Onsite team, up from 65 people in 2020. In 2021, Onsite supported approximately 350 of our portfolio companies.
Onsite helps portfolio companies leverage learnings from our top companies and operationalise those lessons in the context of their own business. For example, Recorded Future has leveraged Onsite in a number of ways. Onsite’s executive talent team helped the company source, vet and interview executives including their Chief Revenue Officer, Chief Marketing Officer and Vice President of EMEA sales. Onsite also helped the company implement detailed Go-To-Market monitoring to enable more predictable sales execution and re-package their product into modules to enable faster time-to-value for their clients. Additionally, Onsite assisted Recorded Future with executing and integrating two strategic acquisitions, expanding the company’s total addressable market and setting the stage for continued growth.
Could you tell us more about your relationship with Pantheon?
Pantheon first acquired a number of secondary interests in our Fund IV in 2004 and that allowed us to start a relationship. Pantheon then committed primary capital to Fund V in 2005 and we invited them to join our limited partner advisory committee. Pantheon has supported each of our subsequent funds and served on each of our advisory boards since that time. The relationship has continued to expand over the past 18 years with additional secondary purchases and numerous co-investments.
We have found them to be thoughtful and experienced investors who represent their clients with integrity and professionalism. We are very grateful for their support over such a long period of time.
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