Thursday, January 2, 2020
Reflections On 2019: Peter Cowen, Sutton Capital Partners
Every year, at the end of the year, we share some reflections on the past year from our readers, entrepreneurs, venture capitalists, sponsors, and others in the local technology community. Today, we share the thoughts of Peter Cowen, Managing Director of Sutton Capital Partners (www.suttoncapitalpartners.com). Socaltech has partnered with Sutton Capital Partners with their Recurring Revenue Conference for several yars.
What was the biggest news for you/your company this year?
While it was a good year for our merger and acquisition practice in the SaaS and fintech space, our most exciting news is in our merchant banking sector where we invest in and advise growth companies often for several years. Two companies stand out: 17Hats, a leader in the freelance CRM space made painful but critical choices and now are very well poised for meaningful 2020 growth. Leaseville, the pioneer in the virtual lease-to-own (LTO) space demonstrated strong metrics on its new product this year and is now poised to scale significantly.
What is the biggest lesson you learned this year?
Two lessons learned—and relearned! First, business is ultimately about people—the strengths and flaws of being human. One of our SaaS companies made great strides with a new product. However, there was a prolonged clash of egos that delayed implementation and added costs. The second lesson is the need for continuous effort to balance mixing creativity/experimentation with the discipline of measurable testing. With customer acquisition costs (CAC) rising significantly across most products, one company experimented with a few low-cost initiatives. A novel channel that was an initial lower priority ending up being a far bigger contributor than expected. Conversely, another product launch wasted resources as leadership was so sure of its success that they were slow in monitoring performance for too long before abandoning it. Themes we plan to discuss at the 2020 Recurring Revenue Conference are: 1) the benefits and perils of virtual organizations, 2) the surprising tradeoffs between early self funding vs outside funding, 3) the challenges and opportunities where CAC continues to rise, 4) competing against new overfunded players and 5) proactively managing an early stage board
Are there any technology innovations, gadgets/devices, software, that you found most interesting in 2019?
I love the Whisper Synch feature on Audible so I can read books and then seamlessly listen where I left off. Also, the IPad has become my multi-functional portable PC with its new great pen for notetaking and keyboard for documents that is so intuitive to integrate and easy to carry around.
What is your prediction on what will be the most important thing for the technology industry in the coming year?
Valuations have continued to soar from early stage through later stage at an unsustainable rate, driven by large amounts of available capital, notably the increased presence of seed funds and PE firms in software. Meanwhile the number of quality SoCal companies continues to grow at an impressive rate that reflects more strong executive talent, resources and a vibrant ecosystem. I predict SoCal will continue to grow, but in 2020 more companies nationwide—and here—will not get the funding they need. There will be more down rounds and acquihires, particularly with the backlash of disappointing IPOs this year and the WeWork cautionary tale.
One area we see garnering premium valuations that will continue to do well is at the convergence of SaaS and FinTech—specifically companies with deep customer engagement that also control their client commerce transactions. That relationship is now properly being valued for this additional high margin profit stream.
So I suggest if you are fundraising, raise more now and give yourself a longer runway (i.e have a plan to make money last 2+ years, not 1 year). And if you think you are going to sell in the near term, do it sooner than later.
Peter Cowen is Managing Director of Sutton Capital Partners, a leading technology investment banking firm focused on software and fintech. Previously he co-founded 3 tech companies, one in computer networks, one in logistics and one in biometric security. Two were sold to public companies and one to a Bain-backed rollup. Peter has advised and invested in over 50 early stage companies and 8 VC seed funds, including MindBody, Cognition Technologies (sold to Nuance), StyleHaul (sold to Bertelsmann), Postmates, ESalon, Provention Bio (NSDQ: PVRB), Docupace, Winc, , List Reports, Wheels, Ranker and CUE (NSDQ: CUE). Peter founded the annual Recurring Revenue Conference one of SoCal’s leading tech events and is a senior lecturer at UCLA Anderson School of Management.