PSG Equity, a Boston-based growth equity firm that invests in software developers and tech-enabled service providers, announced in July an investment in AppHub, a San Francisco and New York-based e-commerce software company. At the same time AppHub revealed an add-on acquisition in Boost, an AI-powered search and discovery tool.
Artificial intelligence, especially generative AI, is an ongoing theme for PE Hub’s coverage of PE deals in 2023. Private equity firms are increasingly interested in the technology both from the investment angle and from the value creation perspective for their existing portfolio companies.
To find out more about the AppHub deal and PSG’s strategy, we turned to the PE firm’s Matt Stone, managing director, and Kate Nimmo, senior vice president.
What does AppHub do?
Stone: AppHub is an e-commerce enablement platform providing a suite of software solutions for merchants to grow and scale. Merchants are facing an increasingly complex e-commerce environment, and AppHub provides critical functionality through its suite of 25+ tools that help merchants run a successful storefront and establish direct consumer connections. AppHub aims to empower entrepreneurs with extensive support and to continuously evolve. The company currently serves over 150,000 merchants.
At PSG, we are focused on partnering with software and technology-enabled services companies navigating transformation growth, and we’ve been bullish on the opportunities in e-commerce enablement software for some time. A report by Forester Analytics found that e-commerce is outpacing overall retail market growth, accelerating from about 16 percent growth in 2020 to an anticipated increase to 20+ percent by the end of 2023.
AppHub has emerged as a leader in this area with a strong management team and the ability to preserve strong customer service as the company has scaled. In addition, we were attracted to the strength of AppHub’s business model that allows the company to continue innovating tools to help merchants throughout different parts of their growth journey.
What’s driving demand for AppHub?
Nimmo: AppHub’s product suite provides essential functionality that helps merchants run a storefront. For instance, if you think about your own online shopping experience, you likely scan a few reviews from past shoppers before adding a product to your cart. Due to the growing percentage of e-commerce vs. brick-and-mortar sales, in addition to the proliferation of online-only merchants, reviews can play a big role in replacing the physical shopping experience to help customers establish trust in potential product purchases. Reviews are just one of the tools in AppHub’s platform that helps position e-commerce merchants to optimize customer interactions – for example, helping to capture new customers and helping to increase conversion rates. Right now, the company’s growth is likely to continue outpacing that of the overall e-commerce market, underscoring its value to merchants.
How does AppHub fit into PSG’s portfolio and investment thesis?
Stone: At PSG, we’re focused on middle market B2B software companies at an inflection point, where we believe that we can help them grow to the next level through our team’s collective domain experience and operational resources. We look for companies, like AppHub, with the capacity to deliver a comprehensive solution to a fragmented market by adding capabilities organically or through our buy-and-build strategy.
AppHub sits right in this sweet spot – an established software platform with great potential to scale within a large, growing market. We have made several investments in the e-commerce enablement space to-date, including NoFraud, Pacvue, Searchspring, Stylitics and Yottaa.
What drove AppHub’s add-on acquisition of Boost, and do you expect to do more add-on deals?
Nimmo: The addition of Boost’s AI-driven search and discovery tool is critical to AppHub’s goal to address e-commerce merchants’ needs on a single platform and enhance their connections to customers. Beyond the value for merchants, Boost strengthens the ability for customers to find what they’re looking for by providing personalized recommendations based on product analytics and search history. In turn, this may increase conversion rates and average order value for merchants. The value of Boost’s offering serves both the end customer and merchant, adding to AppHub’s continually developing suite of products to meet the needs of an evolving marketplace.
AppHub has completed nine acquisitions to date, and while there are opportunities for growth through additional acquisitions, at its core, the company is a team of builders and innovators. AppHub’s in-house developers are dedicated to constantly evolving the platform and creating new apps to meet the dynamic needs of the merchant ecosystem. At PSG, our role is to help support AppHub’s builder-centric culture as we work alongside the team to evaluate both organic and acquisition-driven opportunities on a case-by-case basis.
What are the opportunities for AI in PSG’s existing portfolio and in your deal pipeline?
Stone: AI is a disruptive technology and has potential to drive innovation and corporate development. For the B2B software companies we invest in, there are two ways we’re approaching AI. The first is applying AI tools to customer-facing products and features to enhance their value proposition. An example might be using natural language processing to create a better dashboard or using AI to convert a customer’s unstructured data into a digestible format to streamline an onboarding process that used to be manual.
The other is leveraging AI in back-office applications intended to create operational efficiencies in areas such as product development, support and marketing programs, as well as cross-function collaboration.
We’re seeing opportunities on both sides within our existing portfolio and in our pipeline. It’s something we’re actively focused on and discussing with our portfolio companies in addition to creating opportunities for them to discuss with one another.
For more on AI and PE, see PE Hub’s interview with Hamilton Lane’s Griff Norville, and our story on how PE firms are using generative AI in deal sourcing.