The State of SMB Software: 2018 Report

State of SMB Software Report

JAN 30, 2019 - Mark

A look at 2018's fundraising and exit trends among North American SMB software companies

I am pleased to present our third annual State of SMB Software Report, looking at fundraising and exit activity in the Small and Mid-Sized Business (SMB) software space in North America last year. To isolate the SMB deal activity, we analyzed over 5,700 deals, narrowing them down to 553 venture deals, 37 private equity (PE) deals, 83 M&A deals, and 9 IPOs representing over $44B in deal proceeds.

We track SMB software companies across three broad categories: 

  1. Grow my Business (front office)

  2. Run my Business (middle office)

  3. Track my Business (back office)

For VCs, most activity was in front office. For PE firms, the middle office was most popular. This was the same last year.

While there are some pure-play companies that just serve small business, most companies serve small and mid-market customers. This mirrors our deal practice at SurePath where we work with software companies serving freelancers all the way up to mid-market enterprise.

Key takeaways from this year’s analysis:

  • 2018 was a banner year across almost all deal categories: Other than angel/ seed rounds, every other deal type saw a large increase in deal volume and $. 2018 was a great time to fund your business and sell your business.
  • M & A Deal sizes were up significantly in 2018: There were six acquisitions over $1B in 2018 (vs none in 2017). With lots of capital and high valuations, 2018 saw lots of sale activity including several large take private transactions.
  • Business management/ERP and marketing tech were the top categories for deals: As younger people start small businesses, they want & expect to have software platforms that they can run their business on. And every small business is always looking for more customers.
  • Restaurant tech may soon be the first ever ‘winner takes all’ category in SMB: Most SMB markets are too large and fragmented for one vendor to own. For two years in a row, restaurant tech has seen significant funding. The stakes are high and every aspect of running a restaurant is being addressed. We expect to see a clear market leader emerge in this market.
  • 2018 was a challenging year for public markets: Our SurePath SMB index was flat for the year. Gains in the first half of the year were wiped out in the back half. It still finished well up on all major indices. Atlassian was the best performer in the index. Deluxe was the worst performer.
  • Despite the overall public market volatility, IPOs were up significantly: We had 9 IPOs in 2018 (vs. 2 in 2017) with ~3.0B in capital invested.

I encourage you to check out the full report. We are happy to speak with you about the implications of this deal activity for your business.

Read Our Full Report

Mark Macleod
Written By:
Mark Macleod is the Founder of SurePath Capital Partners. Sitting on both sides of the table, Mark has helped raise hundreds of millions of dollars and successfully led companies to acquisitions by Airbnb, Blackberry, Gannett, Rackable Systems, Return Path, Thrivehive and more.

About SurePath Capital

Based in Toronto and San Francisco, SurePath Capital Partners is the only investment bank focused exclusively on the global SMB software market. We work with sellers in this market to ensure they are funded for growth and positioned for meaningful exits. In addition, we work with buyers in this market to help shape their strategy and execute acquisitions.

Follow us on LinkedIn and Twitter for regular updates on deals and trends and in the SMB software market. Say hello: info@surepathcapital.com

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