Our second 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 in 2017

1. THE STATE OF SMB SOFTWARE
A look at 2017’s fundraising and exit trends among North
American software companies that serve the SMB market
2017

2. Private & Confidential |
A g e n d a
01 Introduction
02 Methodology and Scope
03 Venture Capital (VC) deals
04 Private Equity (PE) deals
05 Mergers & Acquisitions (M & A)
06 Public Market Activity
07 Takeaways and Recap
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3. Private & Confidential |
Welcome to our second 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. To isolate the SMB deal activity we
analyzed over 3,700 deals, narrowing them down to 287 venture deals, 27 PE deals, 11 M & A deals, and 2 IPOs
representing over $6B in deal proceeds. Venture capital funding captured the most dollars followed by M & A.
However, we see PE as a growing category of deals giving companies two bites at the apple – a partial exit
today, with significant upside for the future.
We track SMB software companies across three broad categories: Grow my Business (front office), Run my
Business (middle office) and Track my Business (back office). For VCs, most activity was in front office. For PE
firms, the middle office was most popular.
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.
Similarly, despite the intense fragmentation in marketing technology, new fundings and exits remain strong.
Marketing is an increasingly complex and technical challenge. Small business owners are getting more
sophisticated in their online marketing needs.
We hope you find this report useful and invite you to get in touch to discuss it with us.
The SurePath team
March, 2017
T h e S t a t e o f S M B S o f t w a r e
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4. S H U B H A M
D A T T A
D A N I A L
S H A I K H
M A R K
M A C L E O D
F O U N D E R D I R E C T O R S E N I O R A N A L Y S T
J O S H
S C H E R M A N
V I C E - P R E S I D E N T
T h e S u r e P a t h T e a m
The SurePath team has over 30 years of experience in operating, growing, investing,
buying, and selling SMB software companies.
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5. 2017 SMB Software Deals

6. M e t h o d o l o g y
In 2017, there were over 3,700 deals in the B2B software
space, globally
Of those, 2,252 deals were in North
America
Of those, 327 deals (287 venture
deals, 11 M&A deals, 27 PE
deals, and 2 IPOs) involved
companies with a clear SMB
software offering
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7. 2 0 1 7 S M B S o f t w a r e D e a l L a n d s c a p e
Angel/Seed, $209M
Venture Capital,
$2,569M
PE
Growth/Expansion,
$837M
Merger/Acquisition,
$2,090M
Buyout/LBO,
$526M
Total Capital Invested by Deal Type
1. Source: Pitchbook
2. Deal count excludes deals involving accelerators, incubators, crowdfunding and deals with undisclosed values
$2M $16M
$42M
$190M
$75M
$123M
122
165
20
11
7
2
0
20
40
60
80
100
120
140
160
180
$0M
$20M
$40M
$60M
$80M
$100M
$120M
$140M
$160M
$180M
$200M
DealCount
AverageDealSize(inmillions,USD)
Average Deal Size by Deal Type
Average Deal Size Deal Count
2017 saw lots of early stage activity with 122 angel and 165 VC investments. Most of the $ volume was in
venture capital. As in other sectors, SMB software saw far fewer exits relative to fundraising with 18 outright
exits, 20 PE/growth deals and 2 IPOs.
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8. S M B V e n t u r e F u n d i n g i n 2 0 1 7
1. Source: Pitchbook
2. Deal count excludes deals involving accelerators, incubators, and crowdfunding and deals with undisclosed values
$60M
$149M
$1,011M
$1,558M
43
79
109
56
0
20
40
60
80
100
120
$0M
$200M
$400M
$600M
$800M
$1,000M
$1,200M
$1,400M
$1,600M
$1,800M
Angel Seed Round Early Stage VC Later Stage VC
DealCount
CapitalRaised(inmillions,USD)
Capital Raised by Venture Deal Type
Total Capital Raised Total Deals
127 SMB software companies raised their first funding rounds in 2017. However, the bulk of the VC $ invested in
the sector went into accelerating 109 early stage and 56 growth stage companies
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9. $80M Iconiq Capital
$77M CoVenture
$75M Sageview Capital and Leaders Fund
$53M Norwest Venture Partners
$50M New Enterprise Associates
$250M Softbank
$166M CDPQ
$101M Generation Investment Management
$100M JP Morgan Chase, Temasek
$100M Battery Ventures
2 0 1 7 ’ s T o p S M B S o f t w a r e R a i s e s
Source: Pitchbook
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10. V e n t u r e D e a l s b y C a t e g o r y
SMB software companies raised ~ $2.8B across 287 deals in 2017. Of those, companies that helped SMBs grow
their business attracted nearly 50% of the venture capital in the SMB software space.
137
112
38
$1,338M
$975M
$465M
Grow My Business
Run My Business
Keep Track of My Business
Outer ring represents
total capital invested
by category and inner
ring represents total
deal count by
category
Source: Pitchbook
We track SMB software
companies across three
broad categories:
• Grow my Business:
marketing / front office
• Run my Business:
typically vertical apps
to help operate
(business management,
ERP, etc).
• Track my Business:
Billing, accounting, etc.
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11. Combined, companies in the Business management/ERP software and Marketing Tech categories attracted
61% of total venture capital funding in 2017. However, all front, middle, and back office sectors
saw deal activity.
80
96
29
21
17
23
7
9 5
$845M
$815M
$461M
$328M
$137M
$84M
$47M $45M $15M
Business Management/ERP
Marketing Tech
CRM
Accounting & Invoicing
Payments
HR Tech
E-Commerce
Security/IT
Ad Tech
Source: Pitchbook
V e n t u r e D e a l s b y C a t e g o r y ( c o n t . )
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12. V e n t u r e D e a l s b y T a r g e t C u s t o m e r
Nearly 75% of venture funding in 2017 went to companies with a broad offering for both the small and medium
segments of the SMB software space. Relatively few companies served either only the small or medium
segments explicitly. This makes sense as it enables software vendors to reach a larger market.
189
79
19
$2,032M
$593M
$152M
Both
Small
Medium
Source: Pitchbook
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13. V e r t i c a l - S p e c i f i c V e n t u r e D e a l s
27
22
97
6
5
4
4
4
28
$273M
$139M
$146M
$46M
$11M
$28M
$24M
$12M
$18M
$268M
Restaurants
Real Estate
Home Services
Financial Services
Health and Beauty
Cannabis
Event Management
Legal
Construction
Other
2017 saw nearly $1B in capital invested across 116 deals involving companies serving specific verticals within
the SMB software space. Restaurants-specific software companies attracted $274M (28% of total capital)
across 27 deals. Vertical-specific companies tend to achieve higher valuation multiples than horizontal peers.
Source: Pitchbook
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14. # of
Investments
Investors
6
5
4
M o s t a c t i v e S M B S o f t w a r e V C s
We find that most early-stage VCs don’t have a specific focus on SMB software due to high churn rates and the
challenges of distribution. That notwithstanding, many firms had multiple deals in the sector last year.
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15. $59M Silversmith Capital Partners
$55M Vista Equity Partners
$36M Mainsail Partners
$35M Providence Equity Partners
$35M Welsh, Carson, Anderson, and Stowe
$250M Hillhouse Capital Group
$231M Warburg Pincus
$230M Clearlake Capital
$125M K1 Investment Management
$92M HGGC
2 0 1 7 ’ s T o p P r i v a t e E q u i t y S M B D e a l s
Source: Pitchbook
+ Growth Round; * Buyout
Note: Squarespace reportedly raised nearly $200M in growth capital from General Atlantic in December 2017. The deal values Squarespace at $1.7B. The deal has not been confirmed by either party.
+
+
+
+
+
+
*
*
* *
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16. S M B S o f t w a r e P E D e a l s i n 2 0 1 7
1. Source: Pitchbook
2. Deal count excludes deals involving accelerators, incubators, and crowdfunding and deals with undisclosed values
Though growth rounds for SMB software companies attracted over 60% of the capital across nearly 75% of the
total SMB software PE deals, buyout deals attracted significantly more capital per deal ($75M/deal for buyouts
vs. $42M/deal for growth rounds)
$526M
$837M
7
20
0
5
10
15
20
25
$0M
$100M
$200M
$300M
$400M
$500M
$600M
$700M
$800M
$900M
Buyout/LBO PE Growth/Expansion
DealCount
TotalCapitalInvested(inmillions,USD)
Capital Raised by PE Deal Type
Total Capital Invested Deal Count
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17. P E D e a l s b y C a t e g o r y
PE deals (buyouts or growth rounds where the fund bought < 50% of the target) grew significantly in 2017. PEs
are increasingly seeing SMB as a place to invest and grow large, enduring companies. Middle office (run by
business) deals were the most popular.
Source: Pitchbook
11
12
4
$608M
$553M
$202M
Run My Business
Grow My Business
Keep Track of My Business
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18. P E D e a l s b y C a t e g o r y ( c o n t . )
Private equity investors deployed nearly $1.4B in capital into software companies serving the SMB space in
2017. Of that, nearly $500M of the capital went to companies focussing on business management and ERP
systems.
Source: Pitchbook
7
2
3
4
6
3
1
1
$495M
$268M
$167M
$166M
$119M
$84M
$35M
$28M
Business Management/ERP
E-Commerce
Accounting & Invoicing
CRM
Marketing Tech
HR Tech
Payments
Security/IT
surepathapital.com

19. P E D e a l s b y T a r g e t C u s t o m e r
Over 70% of private equity capital in 2017 went to companies with a broad offering for both the small and
medium segments of the SMB software space. Relatively few companies served either only the small or
medium segments explicitly. This is similar to what we saw with VC funding.
Source: Pitchbook
21
4
2
$998M
$317M
$63M
Both
Medium
Small
surepathapital.com

20. $128M Ellie Mae
$40M Yelp
$32M Gannett Company
$21M Yelp
$17M Zendesk
$760M First Data
$470M Paysafe Group
$340M Intuit
$135M Snap Inc.
$134M GrubHub
2 0 1 7 ’ s T o p S M B S o f t w a r e M & A D e a l s
Source: Pitchbook
* SurePath Capital Partners advised SweetIQ in its acquisition by Gannett Company
*
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21. M & A D e a l s b y C a t e g o r y
Source: Pitchbook
4
7
$1,584M
$506M
Keep Track of My Business
Grow My Business
As with other deal categories, Grow My Business was the leading category by volume. However, the largest
exits were in track my business. This was driven by payments-related transactions.
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22. M & A D e a l s b y C a t e g o r y ( c o n t . )
Private equity investors deployed nearly $1.4B in capital into software companies serving the SMB space in
2017. Payments-related companies saw the largest deals.
Source: Pitchbook
2
2
4
2
1
$1,230M
$354M
$203M
$168M
$135M
Payments
Accounting & Invoicing
Marketing Tech
CRM
Ad Tech
surepathapital.com

23. NYSE: SEND NYSE: YEXT
IPO Date November 14, 2017 April 13, 2017
Amount Raised $131M at $805M post-money valuation $133M at $958M post-money valuation
Age at IPO 8 years 11 years
Revenue at IPO ~$96M ~$124M
Headcount at IPO 400+ 600+
Pre-IPO Investors
Bain Capital Ventures, Sway Ventures,
Bessemer Venture Partners
Inisight Venture Partners, CrunchFund
2 0 1 7 ’ s S M B S o f t w a r e I P O s
Source: Pitchbook
Neither IPO in 2017 was a pure play SMB company, but both have a meaningful number of SMB customers.
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24. The SurePath SMB Index

25. SMB is
our
focus
Our
clients
serve
SMBs
Many
other
indices
The first
to see
trends
Introduced in 2016, the SurePath SMB Index tracks 35 publicly traded
companies that serve SMB and their performance against other benchmark
indices.
Examined 280+ Annual Reports of Publicly
Traded Companies
Selection of Companies for SMB
Focus
SurePath SMB Index
T h e S u r e P a t h S M B I n d e x
Final Selection of 35
Companies
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26. I n d e x C o n s t i t u e n t s
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27. S u r e P a t h S M B I n d e x
• All 35 companies are weighted based on Market Cap
and indexed at January 4, 2016
• 30 of the 35 companies are part of the $1 billion market
cap club (a club we expect will grow over time)
SCP SMB Index Total Market Cap
$257B
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28. A c l o s e r l o o k a t t h e S M B I n d e x P e r f o r m a n c e
SCP Index, 129%
S&P 500, 118%
Nasdaq, 127%
Dow Jones, 124%
95%
100%
105%
110%
115%
120%
125%
130%
135%
1/3/2017
1/10/2017
1/18/2017
1/25/2017
2/1/2017
2/8/2017
2/15/2017
2/23/2017
3/2/2017
3/9/2017
3/16/2017
3/23/2017
3/30/2017
4/6/2017
4/13/2017
4/21/2017
4/28/2017
5/5/2017
5/12/2017
5/19/2017
5/26/2017
6/5/2017
6/12/2017
6/19/2017
6/26/2017
7/3/2017
7/11/2017
7/18/2017
7/25/2017
8/1/2017
8/8/2017
8/15/2017
8/22/2017
8/29/2017
9/6/2017
9/13/2017
9/20/2017
9/27/2017
10/4/2017
10/11/2017
10/18/2017
10/25/2017
11/1/2017
11/8/2017
11/15/2017
11/22/2017
11/30/2017
12/7/2017
12/14/2017
12/21/2017
12/29/2017
SCP SMB Index compared to major indicies in 2017
SCP Index S&P 500 Nasdaq Dow Jones
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29. LC, -23.8%
SSTK, -9.5%
SHOR, 4.9%
WEB, 5.3%
DLX, 6.9%
EIGI, 7.7%
YELP, 9.8%
PAYX, 11.5%
FDC, 12.3%
ADP, 13.2%
HRB, 14.5%
MCHX, 18.3%
SGE, 22.6%
WIX, 28.0%
CMPR, 28.5%
ANGI, 28.7%
INTU, 37.5%
MB, 40.7%
GDDY, 40.8%
GRPN, 45.7%
ZEN, 52.9%
CARB, 60.9%
STMP, 63.7%
XRO, 72.5%
PAYC, 72.9%
APPF, 80.4%
QLYS, 82.3%
HUBS, 84.7%
TEAM, 85.0%
NEWR, 93.7%
GRUB, 93.7%
RNG, 126.7%
SHOP, 135.9%
SQ, 151.1%
TREE, 246.2%
-50% 0% 50% 100% 150% 200% 250% 300%
LC
SSTK
SHOR
WEB
DLX
EIGI
YELP
PAYX
FDC
ADP
HRB
MCHX
SGE
WIX
CMPR
ANGI
INTU
MB
GDDY
GRPN
ZEN
CARB
STMP
XRO
PAYC
APPF
QLYS
HUBS
TEAM
NEWR
GRUB
RNG
SHOP
SQ
TREE
M o v e m e n t o f t h e I n d e x i n 2 0 1 7
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30. -50%
0%
50%
100%
150%
200%
250%
TREE
SQ
SH
O
P
RN
G
G
RUBN
EW
R
TEAM
HUBS
Q
LYS
A
PPFPA
YC
XRO
STM
PC
A
RB
ZEN
G
RPNG
D
DY
M
B
IN
TU
A
NG
IC
M
PR
W
IX
SG
EM
C
HX
HRB
A
DP
FD
C
PA
YX
YELP
EIG
I
D
LX
W
EB
SH
O
R
SSTK
LC
Annual Stock Movements - 2017 vs 2016
2016 2017
A n n u a l S t o c k M o v e m e n t s – 2 0 1 7 v 2 0 1 6
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31. T o p 5 P e r f o r m e r s i n 2 0 1 7
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32. P o o r e s t P e r f o r m e r s i n 2 0 1 7
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33. Lessons & Takeaways

34. Early stage funding is alive and well across all software categories: There were over 200 early stage fundraising
transactions in 2017. Martech, despite being crowded already, still saw 96 funding deals. Despite this funding
activity, we do see consolidation coming in the future. There are just too many point solutions. Most of them will
not figure out customer acquisition at scale.
Deal activity was broadly distributed across categories: Venture Capital funds (VCs) invested mostly in front
office applications that help SMBs grow. Private Equity (PE) preferred middle office applications that help their
customers run their businesses. The largest exits were in back office, specifically payments.
SMB software companies serve a wide range of customers: “SMB” covers everything from a freelancer to large
mid-market enterprise. Most of the companies that transacted in 2017 serve both the small and the mid
market. There were relatively few players focused on just one segment of the market.
Vertical software is on the rise and attracts healthy valuations: Over $1B was invested in vertical-specific
companies last year. The restaurant vertical was the most active. Upserve & Toast alone raised over $200M.
Construction/home services is the next busiest vertical.
Software and payments are like peanut better and jelly: Adding payments grows revenue per customer, makes
the software stickier and completes the solution for the business owner.
Few IPOs, but strong public market performance: There were no pure play SMB IPOs in 2017. However, our SMB
Index outperformed all major indices. Lending Tree, Square and Shopify were the top performers. Lending Club
had the biggest decline.
T a k e a w a y s & R e c a p
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35. To help fund, grow, and exit SMB software companies
SurePath maximizes your optionality:
We ensure our clients are always in a position to raise more capital or exit profitably
Preparing you to raise the right amount of capital from the right
investors on the right terms
Growth
Funding
Leveraging our deep operating expertise to ensure your business is on
the right plan to create the most value
Strategic
Guidance
Our unparalleled access to SMB buyers helps us position you for an
intentional, profitable exit
Exits
S u r e P a t h : O u r P u r p o s e
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36. We have been part of some the most successful SMB software companies
We have deep relationships with SMB investors and buyers
SurePath is committed to becoming the leading strategic financial advisor to the global SMB software market
S u r e P a t h a n d S M B
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37. served as advisor to
R e c e n t S u r e P a t h D e a l s
served as the exclusive strategic
and financial advisor to
on its sale to
an operating group of
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38. The Leading Financial Advisor in SMB Software
EXPERIENCE
Funding, growing & exiting tech companies
PEDIGREE
Alumni of Constant Contact, FreshBooks, Shopify…
ACCESS
To Tier 1 investors & strategic partners
FOCUS
The only advisor with a dedicated focus on SMB Software
COMMITMENT
Helping our clients and their investors succeed
T h e S u r e P a t h D i f f e r e n c e
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39. Shubham Datta
Director
shubham@surepathcapital.com
647.972.6834
Danial Shaikh
Senior Analyst
danial@surepathcapital.com
647.876.5453
Mark MacLeod
Founder & President
mark@surepathcapital.com
416.843.6004
Josh Scherman
Vice-President
josh@surepathcapital.com
646.420.0074
Toronto • San Francisco