Flashpoint, a VC firm specialising in software-as-a-service (SaaS) investment, is launching a new fund, targeting $200m and with $70m already closed.
It comes after a year where SaaS companies have been booming, with VCs pumping €12bn into the sector, stocks in listed SaaS companies soaring and SaaS giant UiPath becoming one of Europe’s most valuable tech companies.
Flashpoint’s focus is on central and eastern Europe and Israel. The new fund is focused on later stage tech companies, aiming to provide liquidity for early stage shareholders and allow companies to consolidate their cap tables.
But after a record 2020, where’s the SaaS industry headed next, and where’s the fund looking to invest?
One area that Alexander Konoplyasty, cofounder of the fund, thinks will benefit from the software boom next is construction.
“Construction has traditionally been a very conservative industry. People use iPads sometimes but they still make paper plans and check the progress of the site by visiting it in person.”
The conservative nature of the industry means it has a lot of potential to be updated by software processes and automation, Konoplyasty says, and it’s an area the fund is looking to invest in.
It’s the same for the property market, he says — as more people work remotely and property managers need to look after flexible working spaces, software will step in to help organise the industry.
Flashpoint is already an investor in Guesty, a real estate management software system based in Israel.
“Retail is changing too,” Konoplyasty says. “People are longing for the experience of shopping whilst we are in lockdown — for many people it’s the experience itself rather than the purchase that gives satisfaction.”
To accommodate this, software that allows online fitting rooms and automated clothes browsing is a fast growing area, Konoplyasty says.
The pandemic has fast forwarded people’s frustration with customer care options, Konoplyasty says, making it another area for software to capitalise off.
“Why do we need call centres?” Konoplyasty says. “You call, you have to wait, you’re on hold for some time, or something is delivered wrong and you need to complain.”
We’ll see this replaced more and more by voice assistants and AI software, he says.
Education, ehealth and remote work
At the same time, we’ll see the continued growth of SaaS for areas that have boomed under the pandemic, Konoplyasty says — like online education tools, tools that help with remote productivity and ehealth platforms.
Last year, Flashpoint invested in Chili Piper, a remote work tool, and All Right, a Ukrainian company that aims to gamify education and which tripled its revenue last year.
As the software industry continues to benefit from lifestyle changes brought on by the pandemic, Eastern Europe, where the fund is focused, is in a unique position to benefit, Konoplyasty says.
“The reason we’re investing in founders coming out of Eastern Europe is because traditionally the people coming out of the region have found it harder to fundraise in the US or the UK,” he says, be it based on language barriers, or on founders having qualifications from less well known institutions for foreign investors.
The region’s built over 70 unicorns, Konoplyasty says — the same as the UK and only four times less than the US. At the same time, capital invested is about 40 times less.
But the area has some things on it’s side. “We’re competing with the same customers,” he says, “but using a much more favourable cost base: hiring is a lot cheaper, but people are still talented and technological.”