Inside Salesforce’s Acquisition Strategy with John Somorjai

Well, Kate, it's wonderful to be with you today. My role is to lead our corporate development team and that includes three parts. So, our M&A deal team, our M&A integration team, and then Salesforce Ventures. And I've been with the company now for 20 years.

I lost a couple with COVID. I think it's about my 19th right now.

It is very exciting. I think second time around is even more fun than the first because now I kind of know what's going on. I'm not just lost in the Moscone Center.

It is. It is. Everyone's high energy even now towards the end of the day.

Right. Well, as you can imagine, we probably review several thousand opportunities every year. And we only buy a very, very few number of companies. And so how we approach it is thinking about it as it relates to what we call our disciplined M&A framework. And this is a really important framework that we introduced a few years ago. And it really centers on three areas. So first and foremost, does the company have a strong strategic fit? Will it accelerate our AI and data strategy? That's kind of question number one. Question number two is can we accelerate them? Is it something that will really help us grow together? Will our customers be more successful by having this asset delivered to them from Salesforce? And then finally, are there cost savings that we can find? And then the third area is really about value. Can we, after we integrate the company, can it be accretive to cash flow and to profitability within one to two years? Can we buy it for a reasonable and appropriate price? And can we do it in a way that's non-dilutive to our shareholders? So, all of those factors are part of the framework.

Well, I can give you a few of them that we were making. Well, one we're in the process of making which is Informatica. So, not yet closed but close, but not yet done. And it is really exciting for our data strategy. And so, one of the things that was so impactful when we acquired MuleSoft is it allowed our customers to have all this integration through APIs to their applications. But what Informatica also gives them is integrations to all their data. And so when you think about all of that extra data that can flow into Salesforce, into our platform, into our Data Cloud, it makes the AI that much smarter. So the better data that you have, the more data that you have, the context that you can provide that AI, the better the results will be, right? And so that's what's so exciting to it. And then when you layer Tableau on top of that where you can run intelligence on top of your data, it's really going to be, we think, a very fruitful acquisition and something our customers will love. So that's one example. The other example I would bring up would be Regret. And Regret we introduced yesterday in Mark's keynote as our Agentforce supply chain technology. And what we're seeing is our customers like Dell who have 19,000 users on Regret running tens of thousands of workflows through this, all automating really what were broken manual processes using this technology that is all done through generative AI to make those processes automated. And it's really remarkable technology. We're so excited that we were able to complete the acquisition and get it done in time for Dreamforce.

Right. Well, so one of the areas of the framework that I touched on is so important around getting to accretion in a relatively short period of time. So one to two years, really the best way to do that is speed of integration, is making sure that you are really trying to make the products work together as quickly as possible, that you get the systems integrated, that you get all the sales people aligned, that you have a uniform organization where the acquired team is not operating in a silo but they're actually part of the Salesforce family. You know, all of those things are really important to making it a successful integration. And I think one of the things that is also key is how we can do that in an efficient way and thinking about cost savings too as we approach it because there are a lot of duplicative efforts that happen when you buy a company and making sure that we can, you know, find those and take it out of the entity is really helpful.

So, one thing that might be helpful is the history a little bit of where Salesforce Ventures came from. And so we started this in 2009 and it was in the midst of the financial crisis and we had an ecosystem of partners that were integrating with Salesforce and really important to our customers that were low on cash and it was a time when it's hard to believe now when you look here and you see what's going on at Dreamforce. But there was a time back in '09 when it was very hard for startups to raise funding. And so we decided that we needed to help them, that we needed to help our partners and really get behind them. And that was when we made some of our, you know, really fantastic early investments in companies like Box and DocuSign and others. And it proved to be a very successful strategy. And so we built on that program and we've now, coming out of it, you know, 14, 15 years later, we've had 35 IPOs. We've had over 175 of our companies get acquired. And we have one of the best financial IRRs of probably any VC around. But the history I think is just interesting because we didn't start out to be based on financial returns. This is really all about helping our partners and grow the ecosystem. And one of the things that I'm very proud of is the value that we can bring to our partners that we invest in. And what we try to do is give them opportunities to meet with our customers, to meet with press, to meet with analysts. I just had three of our portfolio companies over at the hotel in front of 130 industry analysts from around the world showcasing what they do. And then we help them with their product integrations. We give them meaningful advice and then most importantly we introduce them to customers. And so these are the types of things that we can provide to portfolio companies that a typical VC would not be able to do.

Okay. Well, I do think it's important that when companies come in to pitch us, whether it's for acquisition or whether it's investment, tell us the story, be transparent about what's going well, where are your challenges and articulate what your vision is and how you think that fits with where Salesforce is going. I would say another thing is really to focus on what's the market opportunity for this technology. I mean, one thing that we do see quite often is we see companies that, you know, they're really more features than they are going to be big businesses that have a big addressable market ahead of it. And so it takes so much energy to make an acquisition that you want to make sure that you're spending that on something that's really worth it, that's really going to drive revenue for Salesforce. We look at culture quite a bit and how do the values of the founders match the values of Salesforce, that's really important to us. And I would say the last piece is do the financials look exciting. And will the valuation make sense? So all of those factors are probably the key things we focus on.

Wonderful to meet you. Thanks Kate. Cheers.