Mining data from the new world of remote living

The migration to at-home work, learning and e-commerce is creating opportunity for technology investors.

As the world slowly reopens from the pandemic shutdown, investors are reassessing their views of the opportunities in tech, showing preference for more resilient end-markets and stable business models with recurring revenues.

Tech investors at Great Hill Partners, TCV and TPG Growth talked to PE Hub about post-covid trends as they scout for opportunities in cybersecurity, workflow automation, consumer internet and other tech segments.

For Great Hill Partners, investing post-covid will look similar, surprisingly, to the times before the coronavirus. The firm’s portfolio has proven its attractive positioning amid the pandemic, says managing director Chris Gaffney.

“Because so much of our portfolio is doing so well, it will be just going deeper into the themes that we’ve already been investing in,” he says. “Whether it’s cloud, or automation, or e-commerce, or collaboration, or remote services – all of these companies are doing well.

“So we are looking for both add-ons to our companies to make them bigger but also to new platforms that we can make investments in.”

Two-thirds of Great Hill’s portfolio shows a median growth rate of greater than 15 percent for 2020, Gaffney says. That number is down from last year, when half the firm’s portfolio grew at nearly 30 percent.

The firm sees significant demand in businesses that provide cloud services; automation and workflow support; and cost-saving benefits, Gaffney says. Specific examples include portfolio companies Evolve IP, Mission, EnterpriseDB, Mineral Tree and Versa Pay.

“For example, EnterpriseDB, which optimizes open-source database management, is providing cost savings over legacy providers,” he says. “It is pacing better than our original expectations for the year and growing at well over 30 percent.”

Workflow software
Great Hill’s Mineral Tree and Versa Pay – which manage accounts payable and accounts receivable, respectively – have also been extremely popular as corporate clients turn to remote cloud-based workflow automation services, Gaffney says.

Indeed, Mike Zappert, partner at TPG Growth, says the segment of technology that provides core workflow software for CFOs and their financial teams has seen tailwinds as corporate offices reassess the quality of their technology.

Some of those companies saw demand slow at the beginning of the pandemic as many financial teams prioritized more urgent work (like covid-19 reforecasting, for example). Now that that work is done, those businesses are seeing a full recovery in terms of interest in their market.

“Those CFOs and finance teams really recognize that there are a lot of gaps in their business processes that are not covered by software,” he says. “They want the ability to leverage the next generation SaaS and tools to be able to manage their core workflows across accounts payable, receivable, treasury – a lot of those companies we talk to in the market really see nice tailwinds.”

EdTech
EdTech companies that deliver learning services and educational content digitally have also seen traction in the remote environment.

TCV is an investor in Varsity Tutors, a tutoring and online learning platform, and Newsela, an educational content platform. Both businesses have seen demand pick up during quarantine.

Younger generations who consume content from mobile devices are changing the delivery of education, says Neil Tolaney, general partner at TCV. “We had this thesis on EdTech coming into the pandemic and we continue prosecuting on this effort,” he says. “We are fortunate to have portfolio companies in which we invested on a pre-covid basis that have facilitated this consumer need.”

For Great Hill, handling the pickup in demand for its EdTech portfolio company Examity, which provides online testing and proctoring services for colleges, universities and employers, has become a task of its own.

During quarantine, Examity saw demand levels from some of its customers reaching 10 times the level of last year. “The biggest issue for Examity is putting together the capacity to satisfy this demand,” Gaffney says.

Security and identity
TPG’s Zappert says covid-19 also accelerated the growth of certain trends within technology related to security, DevOps and the so-called Office of the CFO segment. He says TPG will be spending time in those areas as the world re-opens: “It’s important that there is a recognition for the buyers that the tools these companies provide are more in demand now than they were before.”

Security, for example, is poised to benefit from the remote environment, as society shifts toward more flexible workspaces.

“This is the environment that is totally different than what the companies are used to,” says Zappert. “Now people are working from home, they are working from their vacation homes, they’re working from friends’ and family homes, so there is a whole range of new environments people are accessing their devices from, their corporate systems from. So the need for authentication tools and identity tools to understand what’s happening on the companies’ network and what’s happening within the companies’ systems is much more.”

As a result, Zappert says, enterprises such as MacAfee, a security company backed by TPG Capital, and Tanium, a computer security business backed by TPG Growth, both saw tailwinds in data security.

Macro view
As pandemic restrictions around the world loosen up, firms are seeing that geography is dictating opportunity.

Covid-19 has affected M&A activity in various parts of the world differently, presenting a more favorable landscape for deals in Europe, says a partner at a tech-focused growth equity firm: “There is less impact there. If I just look at our current pipeline, we are definitely seeing more opportunities in the UK and in Europe, in part because they’ve done a better job in putting down covid, and here in the US we are still very much in the grips of that.”

Despite the global shutdown influencing growth in certain companies, taking a macro approach and assessing whether that growth can be sustained after the pandemic becomes crucial, says TCV’s Tolaney: “There are many companies… with very high acceleration in this time period. But for us, as long-term investors, we want to ensure there is sustainability over multiple years.

“As long-term investors, we are focused on how companies could enjoy sustainable growth and adoption with enhanced brand awareness in this time period and the future.”