Why the Next Billion-Dollar Enterprise Software Companies Will be Born Outside the US

As seen on Forbes.

I’ve written frequently about how the next wave of developer-focused software companies will fuel a $1 trillion enterprise software market, driven by trends such as free open source platforms and flexible API building blocks. The market fundamentals that underpin this trillion-dollar software sector are clear: as every company transforms into a software company—a transformation only accelerated by the pandemic—developers are in the driver’s seat. They want to choose their own tools, technologies and platforms, not products foisted on them by their employers. Thus, enterprise software companies that understand and cater to developer needs stand to generate hundreds of millions of dollars in revenue in the years to come. 

But what sets this next trillion-dollar enterprise software wave apart, distinct from the earlier waves of SaaS software and public cloud, is that the next billion-dollar enterprise companies could be born in any country. Most large software companies today are headquartered in the US, but in the next few years, we will see several billion-dollar enterprise leaders emerge in Europe, Asia, Israel, and Latin America. That’s because the very nature of developer-driven software—global, distributed, bottoms-up, collaborative—provides a fertile ground for developer-focused entrepreneurs to build their companies anywhere. Developers don’t care if great open source code or APIs got their start in Boston, Bangalore or Buenos Aires, they just want to use the best platforms available. And they’re accustomed to collaborating with developers all over the world, sharing ideas on forums, writing code for global open source projects, and reading articles written by their peers working on similar projects. 

Already, we’re seeing developer-focused software companies spring up around the world that have attained, or are set to attain, multi-billion-dollar valuations. For example, JFrog, an Israel-born software company that went public in September 2020 is now worth more than $4 billion. Postman, a US/Bangalore company building a focused on collaboration platform for API development announced a $150 million Series C round at a $2 billion valuation in the middle of the pandemic and BrowserStack, an Indian cloud web and mobile testing platform completed a $200 million round at a $4 billion valuation in June of this year. 

A wide range of earlier-stage developer-driven software companies born outside the US that are also on track to be billion-dollar businesses include Stream, a leader in API-driven chat messaging and activity feed solutions founded in Amsterdam;  Rasa, developers of open source conversational AI tools founded in Berlin;  Evervault, a provider of encryption tools for developers based in Dublin; Nozomi Networks, an IoT security leader founded in Switzerland; Supabase, an early-stage open source database company based in Singapore; and Jina, an open source AI company based in Berlin with development teams in China. All of these companies have developers using their products all over the globe, and they sell to enterprise customers worldwide. 

Venture capital investors have traditionally focused on funding US-based enterprise software firms, but now that the focus has shifted to developer-driven software, opportunity is everywhere. Investment trends show a shift toward global investment in enterprise software companies. Analyzing Pitchbook data showing the total venture capital dollars invested in enterprise software companies globally between 2017 and 2021 (with numbers projected through the end of the year), we found that investors are increasingly backing companies outside the US, albeit at a stop-and-go pace of change. In 2017, the US captured 69% of total venture dollars invested in enterprise software companies, falling to 49% in 2018 when deals in China and Singapore surged, then climbing back to 61% by 2020. For 2021, it’s projected that the US will account for 59% of the total venture investment in enterprise companies. During the last five years,  companies that continued to gain investment dollars include Germany, the UK, and Spain, while Israel, France, and Brazil largely held steady. 

If the pandemic has proven anything, it’s that countries around the world are deeply connected, but software developers have known that for years already. Whether a developer lives in Bangalore or Budapest, they want the best tools for the job, no matter where they were first created. And they collaborate with one another through forums, Github, shared projects, and open source communities. Enterprise software companies that build tools and platforms for the global developer community, and truly understand the needs and mindset of this diverse group, are well positioned to become billion-dollar brands, no matter where they get started.

My firm, GGV Capital, is an investor in Nozomi Networks, Stream, and Jina, all mentioned in this article.

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