$4.4bn IPO on only $7M of VC funding? Veeva.

Case Studies in Capital Efficiency #1

“Cash generating businesses are always valuable to somebody, at some point a loss making business isn’t valuable to anybody” — Peter Gassner, CEO Veeva Systems

Introduction 📖

Veeva provides customer relationship, content and master data management software products to the life sciences industry. It’s a one stop shop for life sciences companies like GSK or Cancer Research to securely store and share customer, clinical and commercial information.

Like many other capital efficient success stories, Veeva was initially written off by VC’s over a perceived small market. At the time Veeva had a single CRM product for a single industry. Vertical SaaS was a ‘niche’ with no potential for outlier outcomes at the time. Oh how wrong we were!

CEO Peter Gassner raised just $7M of venture funding before taking Veeva to IPO in 2013 at a value of $4.4bn, six years after founding the company.

Veeva is a legendary example of both rapid, capital efficient growth and durability. Let’s dig in and understand how they did it:

Veeva’s strategy

The Layer Cake 🍰

From the outset, Veeva chose to focus solely on the life sciences industry. Zeroing in on one vertical had some massive benefits, both strategically and practically. Veeva started purely as a CRM tool, but they moved into taking slices of multiple horizontal software products and tailoring them for the life sciences sector. Their CRM product was followed up with content management (Veeva Vault), and then marketing automation (Veeva Network) inside a single 18 month period. Sales people were deeply knowledgeable in the life sciences space and rapidly fed back customer pain points to the product teams. Features that were relevant for some customers were likely to be useful for many, so trade offs on product development were limited to what was most impactful for the whole customer base.

The practical benefits of selling to a single industry are more subtle, but no less important. Most large enterprises sign Master Service Agreements with suppliers. These agreements need to be put in place before a purchase order for a specific product. They set the broad terms of a business relationship and can involve both lengthy negotiation and a lot of KYC and other reference checks. Once they’re in place though, Veeva became an ‘approved vendor’ and each up-sell or increase in # of seats was a much faster process — accelerating the enterprise sales cycle. From a marketing standpoint, a single sector focus amplified the impact of positive customer references — people in the same industry talk and when things work, they snowball.

Salesforce 👩‍💻

When Veeva was building their CRM tool, they chose to build on top of the Salesforce Platform. This meant they required far less upfront engineering spend to get to market and is the second central tenet of how Veeva was able to build so efficiently. The decision came at a cost though — at the time of their IPO Veeva was paying c.20% commission to Salesforce on their CRM subscription revenue. This was based on a deal with Salesforce that ran until 2015 granting them exclusivity to sell to drug makers in the pharma and biotech sectors; but after 2015 all bets were off. With the benefit of hindsight, this seemingly risky decision paid off. Veeva has been able to renew their Salesforce agreement twice since IPO, and the partnership appears stronger than ever. Moreover, the company took several steps to reduce their reliance on Salesforce. In 2017 they shifted from a managed hosting model leasing network capabilities from Salesforce, to a cloud hosting agreement with AWS. Veeva’s CRM transactional data and the core CRM was still on Salesforce architecture, but a critical part of their spend had moved. The success of the Vault product, built in-house, also gradually chipped away at the dominance of Veeva’s Salesforce linked CRM revenue stream.

Business Model 🔄

Like most enterprise SaaS companies, Veeva charges for its product in advance on either a quarterly or upfront annual basis. Unlike most though, they only ever sign annual contracts. This flies in the face of conventional SaaS wisdom where companies try and pin their customers down to long multi-year terms. Gassner claims that selling annually meant Veeva gave away less in terms of incentives and never took customers for granted. It also meant that each year there was an opportunity to upsell existing customers — something Veeva has been exceptional at.

Veeva combines SaaS with professional services — consulting work aimed at helping customers onboard smoothly and get the most out of Veeva products. Consulting work isn’t as high margin as SaaS, nor is it recurring — but in a heavily regulated industry like life sciences it’s a super power. It means industry experienced customer success agents could provide a bespoke experience and ensure that every customer was maximising their use of the product. That’s a stark contrast to a brief onboarding journey for a generalist product and makes it that much more likely that customers will stick around. The consulting business also means that Veeva stays close to its customers, learning about their needs that can then be fed into future product iterations.

The intangible

Culture & Management 👫

The role of management and culture is absolutely central to Veeva’s efficiency. Gassner claims that he aimed at the outset to ‘build a profitable lemonade stand’ with Veeva. All spend in the company was ruthlessly prioritised. Spend needed a tangible link to product or customer, or else it was cut or not approved. Capital efficiency is deeply embedded in Veeva’s DNA — and that DNA is in large part dictated by Gassner’s own framework on how to build an enduring company.

Veeva also takes hiring very seriously. Gassner claims that ‘every single hire needs to be massively value additive’. Very few companies would say anything else, but Veeva walks the walk — their revenue per employee trended steadily upwards before settling consistently above $200k/head. Part of their success on this path has been to promote from within and give people with range the scope to grow and take on more responsibility.

Timing ⏱

As so often with successful start-ups, Veeva’s timing was impeccable. When the company was founded in 2007, cloud based software was already mainstream but penetration in Veeva’s core market was still low. Their key competitors in CRM at the time of IPO were on-prem solutions like Siebel Life Sciences and Cegedim SA. Cegedim, a company founded in 1969, had an outdated product in the market which Veeva had proved highly successful in chipping away at the market share of. Marketed at c.60% of the price of Cegedim , Veeva’s cloud based solution was both radically cheaper and offered full modern functionality.

Conclusion 📝

Like most examples, Veeva’s capital efficient success was the result of a coming together of several strands. The company’s timing was bang on — at a time where cloud software was permeating every sector and displacing legacy on-prem solutions. Veeva’s model was efficient to its core, focusing on one heavily regulated sector and adjusting best in class horizontal solutions for the demands of it. Finally, management pushed a culture of cost conscious lean growth to fully exploit the opportunity the times and the model had created.

Hope you enjoyed the blog! Any thoughts or comments gratefully received



VC @ D2 Fund. Investing in the next generation of equity efficient founders

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Amory Poulden

VC @ D2 Fund. Investing in the next generation of equity efficient founders