Matt Melymuka co-founded PeakSpan Capital in 2015 with Phil Dur and Brian Mulvey. The firm, focused on growth investments in B2B software, in January closed its sophomore fund on $265 million, exceeding the $225 million target.
How do you differentiate as a firm in a market like software?
We do that through focus and specialization within B2B software. As partners we only focus on three themes each. We have three partners and altogether we cover [about] 10 themes. My current themes are [tech for] hospitality, sales and marketing [and] customer experience management. I am second-in-command on the third one. The whole point is to develop domain expertise in those areas. We want to develop strategic rapport and provide more than just capital. …
Another way [is we] get to know the teams at the companies 12 months before we invest. [We] work on strategic projects and initiatives with the management teams to show them the impact we can create and offer.
Discuss your investing process.
We apply technology to every part of the investment process. We’ve been building proprietary software at PeakSpan for over 10 years now. Currently, we have two tools.
One, called ADA, ingests data from 63 online sources. [The] software customizes the data, normalizes it and applies predictive algorithms to it, [estimating] revenue, revenue growth, capital efficiency, market buzz, customer sentiment. So, before we ever come in contact with private software companies, we have a directional sense for how big they are and how fast they’re growing. … We then have senior partners reach out and engage with companies that are performing best based on those metrics.
Second, we have a software platform called Dewey, [ingesting] data from over 500,000 periodicals. Dewey reads those articles and catalogs them; it also breaks them down on concepts and tags each concept. This helps our companies with marketing and with controlling the dialog and positioning.
How do you navigate high valuations?
We look for opportunities where the teams we partner with focus on more than just getting the highest valuation, such as on getting the best partners for their business. … What’s also interesting is when the public market turns and comes back to reality, we see about a two-quarter lag in private markets. I would expect that to happen as we are about to enter a potentially worsening environment. We expect valuations to come down a bit.
Which recent deal represents what you do at PeakSpan?
We invested in Cordial in summer 2018, [leading the Series B with more than half the $15 million round]. The company helps brands to provide personalized messages to customers across any device and any channel in real time, incorporating real-time event data.
Cordial ingests data from different sources to understand consumer behavior and then delivers a message on a channel where you are most likely to engage with it: can be email, Instagram or another social-media platform. For instance, the consumer brand Revolve is using Cordial to deliver highly personalized emails. …
What are your return expectations in 2019, given high valuations and more capital-market volatility?
Our expectations in both good and bad economic times are the same: 3x and more. The companies we invest in should be resilient to bad economic environments. … We think 2019 is going to be another great year.