In recent years, Microsoft, Facebook and Slack (and many more) have all built new productivity platforms for workers to integrate and communicate about dozens of other API-enabled enterprise apps, but what about productivity tools for those enterprises that have no appetite or budget to rip out and replace software that they’ve been using for years? Well, there’s an app for that, too.
Sapho, which has developed a platform that lets you build “micro apps” for older legacy software packages (often without any APIs at all) to make them more useful and used (“as easy as using Facebook” is the pitch from CEO and cofounder Fouad ElNaggar), has picked up $14 million in a Series B round of funding — raised as the startup continues to pick up speed among enterprises using older software, growing revenues 320 percent and customers 200 percent in 2016.
Typical categories covered in Sapho’s range include expense reporting, sales software, IT support tickets and HR tasks.
Sapho added a Microsoft Teams integration earlier this month, and it also added an integration with IBM Domino (the server side of the legacy service IBM Notes) this past February. It also integrates with software from Microsoft Dynamics, Oracle’s EBS, Salesforce and SAP ERP.
That momentum has also meant that Sapho has been attracting M&A attention: close sources tell us that both Microsoft and IBM are among a group who have talked to the startup about buying it outright as a route to offering micro apps building and administering services to enterprises direct, rather than letting a third party do it for them.
Sapho’s valuation is not being disclosed, but ElNaggar tells us that its increased nearly three-fold since its last round, a Series A of $9.5 million in June 2016, announced at the same time as Sapho launched out of closed beta. The company has raised $27 million to date and is not yet profitable, investing everything in growth at the moment, he added.
The rush of new cloud services from the likes of Amazon, Microsoft, Salesforce, Box and so many more has taken the IT industry by storm. Many small companies and some larger ones are jumping into the new wave of IT with both feet by buying into cloud-based products that can be used in the office, on the go on your phone and maybe even through your watch or Echo speaker.
But that is not the whole story: there is a lot of legacy software still being used by large enterprises, and in many cases the cost of it has already been depreciated to zero, noted cofounder Peter Yared, making it a compelling concept for companies to figure out how to continue to use that rather than invest in something new.
“In Silicon Vally people love to talk about running Docker and Kubernetes, and that is the future of the enterprise stack maybe 15 years from now, but the reality today is that we’ve got security concerns and an IT team that is not ready to make that migration,” said ElNaggar.
“The cost required to migrate is so abhorrent and risky that if they can find a way to get more value out of systems tat have been depreciated to zero on balance sheet, if they have a way of triple productivity on an asset that is sitting with zero dollars on balance sheet, then that’s what they will do. Plus, there’s tens of billions in revenue still running on top of AS/400s.” (IBM’s legacy system, first introduced in 1988.)
There are other reasons why businesses might be reluctant to “rip and replace,” for example in cases where companies merge with each other and bring in their own legacy systems and large armies of employees that are already having to adjust to a range of other merger-related shifts.
Sapho may focus on ways to make legacy software more modern, but the product itself is a product very much of the new wave of IT applications and how they are priced on demand: it is $4 per active user per month, with a one-time connection fee “to connect the gnarly older stuff” in the words of Yared.
“Our whole thesis behind pricing was that we hated getting burned for licensing for people who didn’t use the software when we were back at CBS Interactive,” he noted (both he and ElNaggar are alums of the media company). “Our thesis is to make 2,000 people more successful, and when we can build micro-applications for 2,000 people, then they get addicted and use them.” In that regard, Sapho is taking a route to revenues that is not unlike Slack’s. ElNaggar said that currently the utilization rate is over 90 percent for Sapho.
This Series B round was led by previous investor Caffeinated Capital, with participation also from new investor Felicis Ventures, along with other previous investors Alsop Louie Partners, SoftTech VC, Morado Ventures, AME Cloud, and Bloomberg Beta.
“I have seen Sapho’s traction firsthand with Fortune 500 customers looking to modernize their existing systems and improve employee productivity,” said Raymond Tonsing, founder and MD of Caffeinated Capital, said in a statement. “As someone who is always on the lookout for transformational companies with exceptional founders and a world-class team, I believe Sapho is in the right spot to transform enterprise systems while also fundamentally improving how people work.”
Tonsing was the first angel investor in Sapho and also invests in Affirm, Docker, Color Genomics and many others. He also has an interesting track record of exits in developer-focused startups: he was also a backer of Parse (the developer platform sold to Facebook) and Appurify (an app testing platform sold to Google).
Comment