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New fund: Emergence Capital raises $250 million fund

Investor in Salesforce, SuccessFactors, Lithium, Yammer, Box gets new round of capital

Financial trends and news by Bambi Francisco Roizen
February 29, 2012 | Comments
Short URL: http://vator.tv/n/24a8

(In image: Jason Green, Brian Jacobs, Gordon Ritter)

While consumer Web start-ups always seem to grab the spotlight (they're so much easier to understand, after all), the same trends that are driving consumer Internet companies also affect what's happening in the business sector. But because investing in enterprise-focused companies isn't as sexy (at least for now), the valuations aren't as crazy.

Therein lies the opportunity for venture funds, like Emergence Capital Partners, focused on enterprise applications piggybacking on consumer trends. 

Emergence, which was founded in 2003, announced Wednesday that it closed its third fund. The team said they initially targeted $200 million, but was $50 million oversubscribed. This brings the total amount under management to $575 million. The focus is on early-stage, Series A start-ups in the so-called unsexy space of enterprise technology.

"In the current nomenclature, Emergence focuses on cloud companies," said Gordon Ritter, a founding General Partner at Emergence, in an interview with me.  "We call it technology-enabled services, and it encompasses, SaaS, cloud and information services." Basically, these are "B2B" (business-to-business) companies, to use the au courant word of the late 90's. 

"While everyone has a consumer practice, we're taking advantage of consumer trends but applying them to the business market," said Ritter. For example, Emergence invested in Lithium, which applies game mechanics to big businesses and Yammer, which has morphed into a Facebook for the enterprise.

(Editor's note: Michael Wu, principal scientist at Lithium, will be speaking on the science of gamification at Vator's new Spark event called Get Game: How to gamify your start-up. Limited early-bird tickets still on.) 

"That's really at the core of what Emergence is doing," explained Ritter, who has a lot of experience in the enterprise space. Ritter, who co-founded Emergence with Brian Jacobs and Jason Green, was an entrepreneur himself in a prior life. In 2000, Ritter co-founded with Salesforce founder and CEO Mark Benioff a company called Software As Service, which was the origin of the Force.com, and now part of Salesforce.com.  

Emergence also invests as low as $1 million, but has a sweet spot of between $3 million to $6 million. The companies that it typically invests in have valuations below $10 million, but can be as high as the high teens in pre-market valuation. The partners make about six to 10 investments a year, mainly in young start-ups, but at times in those progressing well. "We like to invest in early stages, but stay opportunistic," he added. Indeed, Emergence recently invested in Box, which is hardly an early-stage company at this point.  

Emergence's new round comes after some other impressive raises in the last few months. In January, Canaan Partners raised$600 million. And last December, Founders Fund raised $625 million. 

The question is: Why a $200 million fund and not something more? "The main piece is we believe in having the right-sized funds where you're truly making the right decisions about which companies are making it big, rather than feeling that you're trying to find new markets and new segments to put new money to work," Ritter explained. "We still believe the best thing to do is to focus on the best initial investment opportunity and spend the time with companies."

The partners, of which there are four (Kevin Spain is the fourth partner), are very hands on, Ritter went on. Each partner sits on about five to seven board seats. At the moment, the company has about 25 (out of 25 invested) outstanding companies in its portfolio which have not yet had an exit. Among those with successful exits include Salesforce.com and Successfactors. 

 Here's the full release:

Emergence Capital Partners (http://www.emcap.com), the leading venture capital firm focused on investing in Technology-Enabled Services companies, announced that it has closed its third fund, Emergence Capital Partners III. Initially targeted at $200 million, the fund was oversubscribed and ultimately capped at $250 million.

Limited partners in the fund include a select group of highly respected university endowments, national foundations and pension funds that have a deep history of successful investing in venture capital.  Emergence now has $575 million under management across three funds.  The firm is known for having been early investors in the top two public SaaS leaders, Salesforce.com (CRM) and SuccessFactors (SFSF), as well as in leading private companies including EchoSign (acquired by Adobe), Yammer, Lithium, YouSendIt, Box, Veeva Systems, and many others.

Since its founding in 2003, Emergence has been committed to finding and backing the finest entrepreneurs who are passionate about building business-focused Technology-Enabled Services companies.  Combined, the Emergence portfolio now impacts over 30 million business users and 300,000 businesses in 190+ countries.  Emergence invests across a number of areas within technology-enabled services including SaaS, cloud services, business freemium, social and mobile enterprise applications, analytics, and adtech.

"Yammer is really excited to be working with Emergence Capital,” said David Sacks, founder and CEO of Yammer and former COO of PayPal.  “They truly understand the SaaS model and have helped recruit great talent to our team.  They have been fantastic partners."

"Emergence Capital is Veeva's only institutional investor," said Peter Gassner, CEO of Veeva Systems. "Their team-based approach and laser focus on the cloud has helped us make strategic 'bet the company' decisions that have paid off big.  Veeva has become the leading cloud company in the life sciences industry in just five years.  We could not have done it without Emergence."

Emergence’s new fund will be managed by General Partners Jason Green, Brian Jacobs, Gordon Ritter and Kevin Spain, along with other key team members.



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