The Salesforce Force.com Venture Fund – Marketing or Profit Opportunity?

I was reading this post about how Bessemer and Bay Partners are going to invest at least $25 million in companies building applications on top of the Salesforce platform. This is an investment strategy that I can (actually) understand. As I read it, based on this press release, the goal is to deploy a minimum of $500,000 per investment over the course of 3 years. This is by no means a large investment vehicle – I have to believe that the primary driver here is to market the fact that these two firms are really interested in sourcing SaaS entrepreneurs.

Presumably the companies being targeted with this fund do not have to build exclusively for the Salesforce platform – There is isn’t anything I’ve read that makes me think there is any requirement to build exclusively for the Salesforce.com platform. I can’t imagine that would be in the best interest of the companies in question. If the requirement is that you build on the Force.com platform while retaining the ability to build a standalone business, this is not a terribly onerous condition to fulfill. I’d imagine that Salesforce will be one of several channels these companies use to grow themselves into larger businesses.

While Salesforce is a great business, I’m not sure that you can build a venture-scale business solely on the back of Salesforce – While Salesforce has built a great business around CRM and ancillary areas, I’m not sure that there is enough breadth (as opposed to depth) of activity on Salesforce.com to build a software company with a $50 million revenue run rate (yes, I know that’s an arbitrary number, but it’s big enough to be viable and interesting) purely on the back of existing and future Salesforce customers. I am, however, quite sure you could build a smaller business that would be interesting to an individual entrepreneur, though.

Salesforce clearly benefits from getting the opportunity to screen and get early access to promising SaaS firms – It seems to me that Salesforce could be a big winner here. They aren’t putting up any investment capital (as far as I can tell), are getting access to early-stage SaaS companies open to building on their platform, and the success of those companies will ultimately make the Force.com platform more useful.

At the end of the day, this sounds like a developer relations and marketing play operating (cleverly, perhaps) under the guise of an investment vehicle. Given the stakes involved and the opportunities in SaaS, I’m curious to see whether all 3 parties get what they expect out of this arrangement – it’s certainly worth watching.

  • It sounds to me as though Salesforce.com isn’t as valuable a proposition as they made it out to be. While the margins seem compelling, the customer acquisition costs for SaaS is just too high.

    While CRM is an important App, it’s just not that valuable (in terms of revenue they can generate from it). SF.com’s platform and subsequent marketing for it (incubation environment, venture investment) is an attempt to find the Office to their Windows. But they want to own at least part of it. But their platform just isn’t as compelling of an argument. SF.com doesn’t create a new business environment, it simply automates a task. That’s not as inherently value-creating. I think in some ways they know this, but are doing the best they can to create value. Hence the API shenanigans.

    Salesforce.com was supposed to be the torchbearer of the movement away from packaged software. They can’t seem to really generate the revenue to prove the point. Meanwhile, Microsoft still makes a lot of money making packaged software of all sorts.

  • Doug

    It sounds to me as though Salesforce.com isn’t as valuable a proposition as they made it out to be. While the margins seem compelling, the customer acquisition costs for SaaS is just too high. While CRM is an important App, it’s just not that valuable (in terms of revenue they can generate from it). SF.com’s platform and subsequent marketing for it (incubation environment, venture investment) is an attempt to find the Office to their Windows. But they want to own at least part of it. But their platform just isn’t as compelling of an argument. SF.com doesn’t create a new business environment, it simply automates a task. That’s not as inherently value-creating. I think in some ways they know this, but are doing the best they can to create value. Hence the API shenanigans. Salesforce.com was supposed to be the torchbearer of the movement away from packaged software. They can’t seem to really generate the revenue to prove the point. Meanwhile, Microsoft still makes a lot of money making packaged software of all sorts.