Today, a social network called Spiceworks announced it had raised $57 million in a round led by none other than Goldman Sachs. At the same time, Ben Boyer, Managing Director of Tenaya Capital, leaned back in his chair, rubbed his hands together, and laughed maniacally.
Okay, maybe he didn’t do exactly that, but he should have. Boyer, whose firm specializes in later institutional rounds, saw Spiceworks’ potential back in 2011 and led its Series D. With the company now well on the road to IPO, it’s turning out to be a smart investment indeed.
“Huh?!” you say. “WTF is Spiceworks?”
It’s a social network for IT professionals. It supports the man or woman scurrying around the scenes of your workplace tugging and unplugging wires to make sure everything keeps running. Spiceworks is a place for IT workers to connect with each other, ask technical questions on forums and get answers, post job openings and apply for said openings, and learn about new products on the market.
Why would Goldman Sachs invest loads of money in a social networking platform for IT professionals? To make more money, of course.
As a professional platform that houses one-third of the world’s IT professionals, Spiceworks serves up a perfectly targeted audience to companies looking to sell their enterprise products.
Spiceworks is one of many professional social networks to spring up in the last decade that seem to be doing remarkably well. There’s also GitHub for developers, ResearchGate for scientists, Edmodo for educators, GrabCAD for mechanical engineers, and Practice Fusion for doctors. In total, these platforms have raised $454.6 million in venture capital.
Cynics might groan. “Haven’t we seen this before?” they shout, shaking their hypothetical fists at the sky. “No one wants a social network for dogs!” Or at least, not enough people to bring in the sky high returns VCs look for.
Ai, it may be true that not many people want a social network for dogs. But it turns out people do want a social network for their jobs, and one with a more curated user base than LinkedIn.
Vertical social networks are back in vogue, and this time they’re for the professionals among us.
Websites like GitHub, ResearchGate, and Spiceworks are helping people do their jobs better, by giving them access to fellow professionals and also to products and tools specific to their industries. Furthermore, they’re big money generators because they deliver a targeted audience up to advertisers looking to market their wares. Investor Ben Boyer claims these result in higher CPMs than a horizontal platform like LinkedIn.
Of course, Boyer has reason to hope this is true. He has bet the house on these networks succeeding, leading rounds in two professional networks and investing in a third: Spiceworks, ResearchGate, and Edmodo respectively.
Spiceworks was his first such investment, and it opened his eyes to the potential of these products.
Beyond the 30-plus percent of IT professionals in the world on the network, the company thinks the new cash infusion can help it achieve even higher market penetration. “Spiceworks is a B2B business but the growth and metrics look like a consumer business,” Boyer says.
Spiceworks co-founder and COO Jay Hallberg told me, “An acquisition is no longer a credible strategy. We’re managing Spiceworks to be a brand that’s going to be around for a long time.”
The success of the network inspired Boyer to seek out other such professional social networks, and Tenaya invested in Edmodo in 2012 and ResearchGate in 2013.
“With each of these businesses, the commonality that we found was the successful ones created a ton of utility upfront,” Boyer says. For Spiceworks it was a network management tool the company gave away for free to help IT pros do their job. For ResearchGate, scientists could see extracts of every journal they’ve ever written for, with links to scientists around the world doing similar research.
That way, they could connect, check out each other’s data sets, and learn from one another. Likewise, GitHub started as a repository to make it easier to collaborate on code, before it became the all-in-one developer job board and networking tool it is today.
In turn, these platforms become distribution tools for companies trying to get access to IT, scientist, or developer minds, an avenue they’re willing to pay dearly for.