I’m on my way to COFES 2015 - annual gathering of people discussing a future of engineering software in Scottsdale, Arizona. It made me think about an intersection of startup and engineering software world. Last year I shared my thoughts about a potential surge of CAD / PLM startups driven by new cloud technologies, web, open source and multiplied by large amount of unsolved problems in engineering software such as globalization, slow ROI, complexity and cost. So I want to continue a startup theme today.
My attention was caught by article by Dave McClure – Bubble, My Ass: Some Unicorns Might Be Overvalued, But All Dinosaurs Gonna Die. Article speaks about Unicorns - an unofficial term used to call a startup with valuation greater than $1B. According to recent WSJ article, there are 82 startup companies in the world with such valuation. You can see companies from consumer and enterprise space there. The following picture (from 2013 TechCrunch article) can show you the split:
My favorite part in Dave McClure’s article is actually related to a great summary of reasons why Dinosaurs companies are going to die – 1/ Dinosaur companies don’t innovate; 2/ Dinosaur Companies have a tough time recruiting & retaining top technical talent; 3/ Dinosaur Companies don’t get how critical internet marketing is becoming. The following passage is my favorite:
Fundamental to all of the above is the following observation: most public companies have not taken to heart how absolutely mission-critical software technology & internet marketing have become to business competitiveness. Thus, almost every Dinosaur Company is extremely vulnerable to a Startup Unicorn eating their lunch (stated so eloquently this past week by none other than JP Morgan Chase CEO Jamie Dimon).
You cannot spot engineering and manufacturing software companies in these lists. However, we can see few companies that can be associated with enterprise software business and used by manufacturing companies – Dropbox, Box, Tableu, Workday, Palantir. The largest valuation of CAD / PLM startup that was mentioned recently was $295M for Onshape – here is the Fortune article mentioning that:
Onshape, a Cambridge computer-aided design (CAD) software startup, has raised a total of $64 million in funding from New Enterprise Associates, North Bridge Venture Partners, and Commonwealth Capital. The funding values the company, which has operated stealthily for the past three years, at $295 million, including the funding.
Here is a question to think about. Can engineering and manufacturing software industry create a unicorn startup in the next decade? As a reference you can take a look on available information about market capitalization of some CAD / PLM companies – Dassault Systemes ($16.1B), Autodesk ($14B), PTC ($4.26B). But these are public companies with 20+ years of lifetime. At the same time, I’m not aware about any startup company in engineering software domain that has revenue close to $100M. According to latest CIMdata analytical researches, PLM market (which includes CAD business too) grew up 6.8% to $37.2B in 2014. Onshape is probably the only company on a horizon that (based on funding and buzz it created) can think to be a unicorn in the future. However, Onshape is still very early in the lifecycle and it is hard to predict its future trajectory.
What is my conclusion? From traditional engineering software viewpoint, it is hard to see how CAD / PLM industry can bring a new company that will be valued with $1B in coming 5-10 years. However, here is the thing…. Look on companies in the list of unicorns. Many of them made a transformation in the traditional industry landscape (transportation, hospitality, communication). That was the main reason for their premium ($B) valuation. Until now, CAD companies made CAD and PLM companies made PLM in the way we knew that for the last 15-20 years. The future might be different. Just my thoughts…
Image credit GrabCAD