Goldman Sachs bets on the unsexy B2B community beasts in our midst
Two unsexy social networking companies are wandering the startup wild, growing into bigger and bigger beasts without attracting much attention: Spiceworks and uTest (which is changing its name to Applause. They're both enterprise focused, and have flown under the radar despite promising revenue and monetization strategies.
These companies aren't exactly household names, but that hasn't stopped Goldman Sachs from taking a bet on both, leading each one's Series E in the last few months. In uTest's case, that was a $43 million Series E in January, and for Spiceworks a $57 million Series E in early February. Goldman is on the hunt for the next big enterprise IPO, and it's hoping one of these startups could be it.
There's money to be had in large, curated networks. The Goldman Sachs investor who led the two companies' latest rounds is David Campbell, Managing Director of the firm's Merchant Banking Division. "There are no businesses not affected by changes in social technologies," Campbell tells me. "There's a lot of opportunities we're finding as these businesses get reinvented and old solutions become less and less compelling."
Funny enough, Goldman Sachs is seeing that potential in these two startups at a time when the leading professional social community -- LinkedIn -- is hitting its equilibrium. LinkedIn's quarterly earnings report last week showed that the company's sales growth is slowing down and the forecast for next year's revenue is lower than analysts expected. The network has reached a critical mass and has to find new ways to scale.
At the same time, these other companies are raising big rounds because they have found innovative, new ways to monetize a community of users.
Here's the overview. Spiceworks is a vertical community of IT professionals, a place where they can post questions for one another, learn about new technologies, bond over the trials and tribulations of the IT job in today's bring-your-own-device world, and other such social activities.
As we explored after Spiceworks' funding, Goldman Sachs saw potential in the IT community because companies are willing to pay for the privilege to access a curated worker bee community. It allows them to target ads to the very people who might buy or use their products.
Spiceworks also runs programs where companies can tap IT professionals to beta test their products, giving feedback and suggestions before the product officially launches. They're building early relationships and brand awareness with the very people who might buy what they're offering.
The IT pros themselves are excited to have a say in developing what comes on the market. Of course, Spiceworks takes a cut. "It's a phenomenal service," Goldman Sachs investor Campbell tells me. "Everyone wins when they start using it." Especially those who stand to make money on the advertising and testing schemes.
David Campbell also led uTest's latest round. Applause/uTest is a company that crowdsources out app bug testing to a community of 100,000 "professional app testers," who get paid for the privilege.
In recent months, the company has built more and more of a networking environment around its testers. As Chief Marketing Officer Matt Johnston explained, it's edging into LinkedIn territory. "[We want] to get to the point where [uTest] becomes the destination if you’re in the world of app quality or testing. It is where you go to learn, to network, and yes, this is also where you go to earn paid projects."
"It's such an underrated community when you think about technology testers," Goldman Sachs investor Campbell says. "They're not a loved bunch but they're really important."
Apps are no longer peripheral features of a company, to be handled solely by engineers. Apps are entire businesses in and of themselves, and they've become core to consumers' experiences of many industries.
Whether retail, media, travel, or financial services, companies in all these sectors are realizing that customers will be won and lost over who has the best website or iPad application. Digital experiences are the future battleground.
"That's the reason we could raise the round we did and Goldman Sachs would be willing to lead it," uTest's Chief Marketing and Strategy Officer Matt Johnston tells me.
uTest and Spiceworks' major funding rounds say as much about the money to be had in big professional communities as they do about the health of these specific companies.
Winning the hearts and minds of a huge amount of people in a particular industry makes it easy to funnel them into advertising or testing schemes for product creators.
"Our investments in both Spiceworks and uTest came out of spending a lot of time looking at how these community or group-based businesses were able to leverage a non-employee base of people to get things accomplished," Campbell says.
Enterprise networking may not be the sexiest of spheres, but Goldman Sachs is seeing gold in the potential IPOs anyways.
[illustration by Brad Jonas for Pando]
[image courtesy: Thinkstock]