Is SpotOn Spot On? Only Time will Tell

As we continue to observe the ever-changing dynamics and challenges facing SMB SaaS, we keep discovering new companies to cover in order to bring you a holistic view of the space.

In that context, we learned last week about yet another SMB SaaS operation raising a very large chunk of money. To be precise, $125 million. SpotOn is a four-year-old Bay Area-based company that took a Series D round led by Andreessen Horowitz, one of the biggest names in Silicon Valley venture capital. Prior rounds netted SpotOn $190 million. 

We noted a few interesting things in the post that Andressen Horowitz published announcing the investment. For example, they cite 32 million as the size of the U.S. small businesses market, using this from the U.S. Small Business Administration – Office of Advocacy, as the source. 

We often read releases citing super large numbers of SMBs. It’s often a red flag. Why? Data from the SBA makes it very clear that while there are 31.7 million small businesses in the U.S., 81 percent, or 25.7 million, have no employees (termed “nonemployers”) and 19 percent, or 6 million, have paid employees. That’s why we’ve never been that comfortable with using 32 million as the TAM for SaaS for SMBs. We prefer to use 10 million which takes the 6 million with employees and adds in another 4 million without employees. 

Roots in Transactions

So what is SpotOn? From what we can discern, SpotOn began as a transaction platform and formally called SpotOn Transact, LLC. But like so many other SaaS for SMBs founders, we presume they too saw an opportunity to widen their product offerings for SMBs. The company now offers what it calls “an end-to-end, cloud-based tech stack for small business owners, including software to help process payments, market the business, pull reports, manage customer loyalty programs, manage customer reviews, and much more.”

Where have we heard this before? Lots of places of course. 

Here is how Andreessen Horowitz described the investment thesis that drove them to put money into SpotOn. “We believe a rapid technology replacement cycle is underway, offering a nearly $200 billion revenue opportunity as the ~80% of restaurants and 90+% of retail locations using legacy solutions transition to modern, cloud-native solutions.”

According to the release, SpotOn has grown its business 3X from pre-Covid to today. During the pandemic, the company put its effort into shipping some 400 new product features and enhancements. Today it claims to serve roughly 30,000 customers.

In looking over SpotOn, we note that its website pays particular attention to the restaurant space. There is a host of established competitors chasing the restaurant opportunity. Names like Slicelife, Olo, Toast, and not to mention Square. Plus countless others. We also note with interest that one of the company’s initiatives is a Restaurant Advisory Council. The council is loaded up with a very interesting mix of sophisticated foodservice industry types.

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Three for Three on Execution 

At the same time, however, the company appears to also want to serve a broader community of local service providers. You know, the auto repair shop, the beauty salon, the plumber. The company’s website touts an expected set of solutions. It offers websites, SEO, Facebook advertising, to name just a few. 

This all begs the question, what makes SpotOn special? According to Andreessen Horowitz, it’s about execution.

“As investors, we often come across companies that build great products, companies that develop great sales teams, and companies that offer first-class customer service,” the VC said in its announcement, penned by Andreessen Horowitz General Partner David George. “But it’s rare to find companies that execute well on two out of three, much less three out of three.”

The VC also points to SpotOn’s ability to deliver in-person installation, 24/7 personalized support, and less than two-minute customer support wait times. 

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We’re eager to see how things play out for SpotOn. We know there’s considerable competition in the space. Yet, there is also an addressable market of at least 10 million small businesses. And, at least according to Andreessen Horowitz, a $200 billion revenue opportunity.

Numbers like these suggest plenty of available market for all the competitors to chase over the next 18-24 months. After that, we believe the focus of helping SMBs transform into the new digital world will shift from acquisition to retention and customer service. But of course, time will tell. 

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