Executive Vice President of Corporate Development & Salesforce Ventures, Salesforce
John Somorjai at Draper University | Silicon Valley Entrepreneurship Program
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About John Somorjai
John Somorjai, Executive Vice President of Corporate Development & Salesforce Ventures at Salesforce, discussed the company's acquisition strategy and venture activities in several 2024 and 2025 appearances. At Dreamforce 2025, Somorjai said his team reviews "several thousand opportunities every year" but acquires only a small number. He outlined key acquisition criteria: the ability for a company to become accretive to cash flow and profitability within one to two years, a reasonable price, and a non-dilutive structure for shareholders. He cited the pending Informatica deal and the acquisition of Regrello, now part of Salesforce's Agentforce Supply Chain, as recent examples. Somorjai also described a framework for integration that emphasizes speed, transparency about challenges, and alignment of culture and values between the acquired company and Salesforce. In September 2024, Somorjai announced a new $500 million AI investment fund from Salesforce Ventures, bringing the firm's total commitment to AI innovators to $1 billion over the prior 18 months. He stated that the fund aims to invest in entrepreneurs "helping to solve business challenges in unprecedented ways" and noted that Salesforce Ventures has invested in companies such as Runway, Anthropic, Hugging Face, and Mistral. Somorjai said the firm typically invests at the Series A stage, co-investing with venture capitalists, with Series A investments not exceeding $2 million and Series B investments not exceeding $5 million. He added that Salesforce Ventures has invested in 162 companies and is one of the most active corporate tech investors.
Transcript (49 segments)
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John Somorjai0:03
Thank you all. It's really great to be here. I got talked into doing this by Tim Draper. I ran into him at a party over the holidays and he was telling me about all the great students that are coming to his university and really wanted me to spend some time with you and talk about what we do, but also what we're seeing in the startup world and how we make our investment decisions and how Salesforce thinks about innovation, which I think would be pretty helpful to all of you.
One of the things I'll just touch upon briefly is that I also worked at a startup before I joined Salesforce, this company called Ingenio. And I went through the ups and downs of being at a startup. We were a few days from going bankrupt, saved the company, turned it around, and got everything back on track to the point that we were able to actually sell the company to AT&T for 250 million dollars. So it's a pretty amazing success story and I think a lot of the lessons that I learned in that I've applied to my job at Salesforce.
I joined Salesforce in 2005 when we had about 850 employees and about 300 million in revenue. And today we are a lot bigger. So we ended last year at 6.67 billion in revenue. We're projecting over 8 billion in revenue for this year. We have 20,000 employees at the company. We're now part of the Fortune 500. We've won a lot of really prestigious awards from various important publications, including one I'm very proud of, which is being the most innovative company for four years in a row. And I think last year we were second or third. So I've been there now 11 years. This is actually an unbelievable ride and I hope all of you get to experience something like this, to go from a moderate size company to a behemoth as we are now. And it's really fun, it's really challenging, and I want to tell you how we got there.
So for those of you that don't know what we do, we sell a variety of different products. We're best known for our customer relationship management products, so sales force automation which we call the Sales Cloud. We deliver everything as a service over the internet and in the cloud, and so all our business units are called clouds. So we have the Sales Cloud, we have the Service Cloud for managing a large call center, and both of those are focused on connecting with your customers in a whole new way. We have the Marketing Cloud, which was primarily built through acquisitions, and that's about building one-to-one customer journeys. We also have the Analytics Cloud, the IoT Cloud which is about getting smarter about your customers, and then we have the App Cloud which is our platform, essentially both Force.com and Heroku, where you can build your business and run your business from your phone.
Alex Dion is our head of products and actually joined us from an acquisition. And so I run all M&A at Salesforce and he is really like the prototype of the best acquisition you could possibly do. We paid 31 million dollars for his company in 2008 and today that business is really the foundation for our Service Cloud, which is a two billion dollar business, and the CEO of IntraNetworks. So that's kind of the best you can do in the M&A world in terms of acquisitions. We've had a lot of other acquisitions that have been less successful than that.
But this is just a quote from Alex about what we do and how we think about innovation. Our company has always approached innovation as being really one of the most important values of the company and being really paranoid about what's coming up in other areas, never getting too complacent with our success, but really looking at all the different developments going on in the software industry and making sure that we have a role in that. And sometimes that will mean that we're going to be developing new products. For example, Chatter is a great example of how we looked at what was going on with Facebook and we thought, wow, we need an enterprise version of that to allow people who work in a company to collaborate with one another. We've built things like the Sales Cloud from the ground up, where we have the best collection of different software packages to really run your entire sales force on a global level, and that was all built internally. But then we've had to supplement with acquisitions to make sure that we're always staying ahead of the game and making sure that we can't get disrupted like we disrupted some of the old legacy players like Siebel, for example.
So this is an example of how we have applied different acquisitions to help bolster each of our clouds. The Marketing Cloud is entirely made up of acquisitions, but the others are really additive to what we've built internally, other than maybe the Analytics Cloud which is predominantly built on acquisitions as well. Heroku, which is a big foundation of our platform, is another acquisition. But this gives you a sense of some of the things that we're doing now. Over the last year we've bought eight companies and a few of those have been in the deep learning and machine learning, artificial intelligence space. So MetaMind and PredictionIO are examples of that. Tempo, which is a smart calendar, is another example. But this is an area that we're investing very heavily in because we really do see intelligence and machine learning as the future of the software industry. And so being able to proactively suggest what people should be doing or just having a machine do it, that's where we really think the whole industry is going. And so we're trying to apply all of these to every one of our clouds. We're applying an intelligence layer to it.
We do four types of acquisitions. The large-scale public companies where you're really buying a business, and you do this when you want to enter a new market. And so ExactTarget was one of the leaders in marketing automation. We bought the company in 2013. This will be a billion dollar business for us this year. We do strategic product adjacencies, which are examples of what I talked about on the last slide where we help bolster an existing cloud with an acquisition. We have a whole initiative around services because we now have so many customers that are these large Global 2000 customers, massive businesses, and they want help in trying to figure out how to digitally transform themselves so that they don't get disrupted by the next generation of companies. And so we're helping them think through that with some services acquisitions. One of the issues that you would find if you work in an enterprise company where you're servicing all these large customers is that you really do need a professional services arm to go along with the software sales. It's not just enough to sell your software, you actually have to show people how to use it, how to be more effective with it, and help them transform their businesses. So that's why we've done a few acquisitions there. And then we do all the time, almost one a quarter, we do a technology tuck-in where it's usually we're buying technology that can help a product, we're bringing in a really talented team of people, and we do quite a few of those.
Okay, so then I have Ventures. So the other part of my job is, before you want to buy a company, you might want to invest in them. Or you may have no intention of buying the company, but you want to learn what's going on in the industry, you want to help a partner, you want to stay attuned to the innovation that's going on out there. So we created Salesforce Ventures. We've been investing for seven years. We have 162 companies in our portfolio. We're one of the most active corporate tech investors. And this is part of the Corporate Development Group, and so we keep it, it's not a separate fund, it's very strategically related to Salesforce. We only invest in companies that relate to our business, and we give them a lot of help, and I'll talk about that in a moment.
So why do we do this? We're really trying to grow an ecosystem and help the company grow as a result of building this ecosystem, because we're providing more integrated solutions to all of our customers. And so our goal is really to increase the cloud adoption, accelerate the momentum of not just our technologies but the cloud as a whole. We sometimes use investments to access new markets. This is a huge part of why we make investments, is that there's this new area coming up in the software industry, you don't really understand it, but we want to make sure that we have a very good sense and provide that data to our product teams so that they can think about this technology and think about how we might want to leverage it in our own products and learn from the teams. Sometimes we make investments that are total failures, but we learn from them, and that's the key thing. It's like you might lose all your money in the investment, but at least we learned. It's better to make a couple million dollar investment and see that there was a failure, that there wasn't really a great market opportunity, than spend tens of millions of dollars wastefully trying to get into that same opportunity. So we learn just a ton from these investments.
We also focus a lot on philanthropies. So how many of you know about our 1-1-1 model? No one knows? Okay, well this is a great opportunity for me to try to sell you on having this for your own company. So when we started Salesforce, we created this philanthropic model where 1% of the equity in Salesforce was put into a foundation, and employees would give 1% of their time, paid by the company, to help nonprofits. We would give away 1% of our product for free to nonprofits, and we would give away a lot of our time and our energy to help nonprofits. But fast forward, we've been in business now 16 years. We've now given out over 100 million dollars in grants. Employees have donated over a million hours of time. We have 28,000 nonprofits that run on Salesforce for free, and it's really making a big difference. So we're encouraging our whole venture program, all the portfolio companies, to adopt a similar model. We have 48 of them that have adopted it. This is the sort of thing that when you're hiring people of your generation, Millennials, this is what they expect their companies to do. And we can really make a big difference in the world if everybody contributes back like this. So hopefully that resonates for you as you think about starting your own companies.
Why would companies take money from us? Well, three things. We give them tremendous access to our ecosystem of partners, to our executives, our product teams. We make VC introductions for them. We give them a lot of advice. We've learned so much over the years and made many mistakes, and we can help advise companies to make sure they don't make the same mistakes, help them think about their technology, scalability, reliability, all the infrastructure lessons that we've learned from the billions of transactions that we have to serve every day. And obviously, it gives a lot of credibility if you're selling into the enterprise and selling to our customer base to have an investment from us.
As I mentioned, we invest all over the world. I've got a full-time head that works for me in London who does our European investments, and then one in Tokyo who does our Japanese investments. It turns out Japan is a great market for cloud computing, really high adoption for cloud, for mobility, for social technologies. And so we've found some amazing companies there, and that's probably one of the best returns from our portfolio overall, if you just have to pick a region or option, in Japan, which probably surprises you. And we do most of our investing in the Bay Area, there's 72 companies in there. It's really because our business is not so big in South America. We try to piggyback off of the business of Salesforce as a whole, because we're again, we're about building that system of partners and helping customers buy more, and our business just isn't as developed down here.
Yeah, well they don't pay a lot of money for it. I think that's the thing. Here's one of the big lessons that we learned early on, is we used to peanut-butter our international investments all around the world and have a little bit in every country. And we realized that it's pretty important to have scale. You want to have a hub of activity where you have sales people, pre-sales people, software engineers, marketing people, and our executives will go. And so we decided to focus on nine countries essentially, and we put 98% of our investment goes into those nine countries. And those are the nine markets that are the best for enterprise software. So that would be the US, Canada, UK, France, Germany, Netherlands, Japan, Australia, and I guess the Nordics would probably be next. But Latin America is not on that list. If there was a tenth country it would be Brazil, but we really only focus on those nine.
So this was kind of cool. There was some research done on who's the most active VC in enterprise software, and we were number four on the list even with all these top tier firms. So that was very exciting for us. But even more exciting is that we have a lot of potential IPOs that are getting ready, a lot of investments that we've made in companies over the years that we think will go public soon. And we think about investments the same way, it's sort of very similar to the chart I showed you on acquisitions, is that we need an executive sponsor who will raise their hand internally and say this company, this technology is really important and I'm going to help them. And then they sponsor the investment. And we have that for every one of these companies. And they're basically all tied to a cloud. We've done, as you can see, because the bulk of our business is in sales, services, marketing, that's where most of our investments have been made. And then we have a series of businesses over here that are not less related to our company, but there might be built on our platform, or there's some important partner, or they're a very hot company like Stripe that we work with in some cases and we want to have a piece of that. So I don't know if any of you saw 60 Minutes last night and saw the great 60 Minutes on FinTech and Stripe was featured. Any questions on this slide?
That is a great question and one we spend a lot of time on. So every, probably two to three times a year, I meet with one of the leaders of these business units that we call clouds, and we talk about their whole roadmap strategy for the next three years and where they want to build, buy, or partner. And when they think about the buy versus partner, they may not know, it might be an area, it's a young area, we think it's important, the companies in the space though are all really small and we just don't know if there's a lot of revenue there. So why don't we start by partnering with them and investing in them, and if they do well then we can buy it later. We'll pay more, but one of the challenges that I have right now is that where we are as a company, 8 billion in revenue this year, if you're not buying a business that's going to be 100 million in revenue very quickly, it just doesn't mean anything to the company. And so we really need to focus on making sure that we're spending our money wisely and that we're buying companies that will really move the needle for us. And this is one of the challenges you have as the company grows. When I started in 2005, we were not thinking about hundred million dollar businesses, we were thinking about ten million dollar businesses. The scale was just completely different.
I'm going to segway. This is kind of where we're spending most of our time investing right now. So as I mentioned, predictive intelligence, machine learning, and deep learning is one area that we're really looking hard at, and it applies to every business that there is. Big data and data integration, this is hugely important for cloud services. So you need to have all these apps be able to communicate with each other and pass data back and forth between them in a very secure way. And the old legacy businesses that are all built on premise behind a firewall, that's not where the world is going. The world is going in this direction where a company will buy hundreds of applications and they all need to integrate and move information back and forth among them in a very secure way. So this data integration, this is a huge business and something that a lot of companies are trying to solve in many different ways. Also being able to mine a lot of data and extract valuable insights out of it is very important. We think every operation in the company is all moving to the cloud. Mobility is a huge theme for everything that we do, and so we always think about when we're developing our products of trying to be mobile first. And so we're investing in a number of companies that are helping mobility in different ways on the business side, which is companies that create like a messaging layer or a payments layer that every application can tap into, so that if you're developers you don't have to build it yourself. That's a big area of investment right now. And then verticals, like lots of vertical solutions for companies in the cloud. But that's what we're spending most of our time on.
The short answer is no, but I would say you'd have to ask someone much more technical than I am that question. But I think we feel pretty good about where our platform is right now.
So we typically will invest at the first time at the Series A stage, and our model is to co-invest with a VC. So we don't do the early stage seed stage investing. We'll come in at the Series A, sometimes it's Series B, but that's 80% of our investments start at that early stage level. There are a few companies that we've come in at the Series C and D level, but those tend to be larger, more established partners, and that's a much smaller percentage of what we do. And then in terms of investment size, we basically, because we invest off our balance sheet and we worry about making sure we're not, if the company goes under and we've invested off of our balance sheet, we have to take a write-off for that company, that investment. And so we want to make sure that we apply the right level of risk and the right dollar amount that we're investing at the stage of the company. So for a Series A investment we're not going to go above two million dollars. For a Series B investment we won't go above five. For later stage companies we'll do larger investments, but then the risk is much less and the company has really proven itself.
All right, so the next section of this presentation is really about what's going on in the startup world right now, which I thought would really interest you guys. Before I go into that, do you guys have any questions on the first part?
Right now, China hasn't proven to be a country where people are willing to pay a lot of money for software for business. And so we haven't yet seen a really successful cloud software company come out of China. And I think part of it is that a lot of businesses don't want their data to be in the cloud where the Chinese government can access it. And so companies really, they like to do the traditional on-premise version of software. Until that changes, I don't think we're going to do a lot of investing in China.
I mean what's the biggest challenge or biggest risk you are facing? I think one of the big challenges we have is we have 20,000 employees now all over the world, and being able to make sure all of those employees are aligned with what our strategic goals are for the company and working towards those goals, and that they feel engaged with everything that we're doing, and that people are collaborating well across all those time zones and countries. It's just very hard when you're so big. And I see it on a very small scale. I have a team of 20, I have as many people in this room, I have a 27 person team actually, and I have three people who are not in the country and one person who's on the East Coast. And just even being able to do team meetings and collaborate with those people who are not in San Francisco, it's hard. So doing that on a 20,000 person level, we have to really work to make sure that we're keeping those employees engaged and feeling a part of Salesforce and making sure that they feel part of our culture too. That's probably the biggest challenge.
Okay, so I'm going to get into a little bit what's going on in the startup world because it's really changed over the last year, and this is information you guys should all know if you're about to start a company. So one of the things that has happened is that there's been too much funding, there's been sort of this massive over-funding of companies that has really driven up valuations to levels that we haven't seen in quite a while. And companies are raising a lot of money that they used to spend on sales and marketing and product development, and they have huge burn rates and it's unclear whether a lot of these companies are actually ever going to get to profitability. And the other thing we found is that as the public markets corrected, there's a valuation disconnect between the valuations that public companies are getting and private companies in the same space are getting.
Okay, so the other thing that's happened is IPOs are not happening, and I'll share with you some data on that. So there are fewer IPOs, there's this valuation disconnect, and what it's resulting in is it's just getting harder and harder to raise money. And a lot of the rounds that we've participated in recently are actually down rounds, flat rounds, they're rounds that have a lot of structure to them. And do you guys know what structure is in the VC context? So you have super rights, so basically any investor that will invest in your company gets these special rights that you might not have given to other investors that allow them to make more money and have more protection. And so we're seeing this is kind of a key theme that you're seeing, and part of it goes back to this point about there being fewer IPOs. So if you just see over time, there have been fewer and fewer IPOs. And last year there were only 23 IPOs. At the height of 2000 there were 350 IPOs, and it's just gone down from there. 23 IPOs last year, there's only been one technology IPO so far this year. So this is a problem for a lot of companies and a lot of investors because it means really the path to liquidity that's open to them is M&A as an exit.
And one of the things that also has happened is the IPOs that have actually made it out have performed really poorly. So that one IPO, SecureWorks, that happened last week has 0% return on it. This chart shows is last year there were 23 IPOs, and from the moment they went public, which is the gray line, to the end of the year, the best-performing IPO had a 26% return over its IPO price, and the worst had a loss of 12%. But this was like Fitbit, and Fitbit is now trading below its IPO price. So this was sort of a moment in time that didn't last. But you can see 2013 was probably the best year to go public, and it's just gotten worse and worse and worse. So again, it means that M&A is probably the most likely exit.
Okay, so private company valuations are going down. And I think, I won't spend time on that slide, but investors think it's actually going to get a lot worse. So 91% of investors think this year the valuation environment will be either marginally down or significantly down. And this brings me to the fundamental problem. Okay, so we have unicorns and now we have unicorpses. And these are companies that have billion-dollar valuations and then got sold and investors ended up pocketing all the money and employees got nothing. And so this is what you guys need to understand is the difference between common stock and preferred stock. Do any of you in this room understand that? A few of you, okay. So when you start a company you will have what's called common stock. You will have equity in the company that has no special rights or privileges, and that's what you will give to your employees. But when investors come in to invest, they get what's called preferred stock, which gives them the first money out. So when your company is sold they get paid first. They also get special rights to dividends and they get a whole series of special rights because they're giving you their money and so they want to make sure that they're protected. Now the reality is there's very little downside for most of these investors because almost every company that gets started, unless the team is not very good, they usually get sold for about what was put into them. And so the investors very typically will at least get their money back. So the risk is very low, but often the employees walk away with nothing or they just get stock in the new company that buys them, but they're starting from ground zero.
So that's what happened with Gilt and Good last year. These are companies that raised, Gilt raised 270 million, they sold for 250, so the investors got 100% of the 250 and employees got zero. Good was a similar situation. There are actually a whole bunch of lawsuits around Good because employees claimed they didn't know that this was going to happen to them. So it's one of the things you have to think about. I think a lot of founders are very naive about this point and they freely take money and they focus on the valuation, oh, I have a hundred million dollar valuation, I have a five hundred million dollar valuation. Well, you don't. That's the valuation of the preferred stock that investors are putting in, but it's not really the valuation of what you have. And so it's just something you have to think about, and this is important when we get to the M&A context in a second.
I'm going to go through some data for you first. So CB Insights did a good study of the companies that started in 2009. There were 1,027 seed or VC-backed tech companies that started in 2009. Of those, 411 were able to raise a second round, 232 a third round, and so on until you get to nine that were able to raise a sixth round, had a billion-dollar valuation, and that included Uber, Slack, and Instagram. There's a very special group of companies, but there were a thousand companies that really didn't get to that level. And of those, 77% of the thousand are either dead or walking dead. So it just goes to show that this is really, really, really hard to do. And so you have to focus on the right things and you have to focus on building a business and not building a feature. And you have to make sure that you're not raising too much money and wasting too much money because that just kills you in the M&A scenario, because most companies are acquired, they don't go public.
So these are the sorts of things you have to think about. If you look at last year, there were only five private software companies that were sold for more than 500 million dollars. And the 500 million dollar number is important because that means everyone made money. That means the employees were happy, the founders were happy. That's like a really nice meaty M&A return where it's like, you get into the Gilts of the world and that was a 270 million exit, you see that there wasn't really enough to go beyond the investors. Because it doesn't take 500 million dollars to build a great company, and that's why I use that as kind of the benchmark of where people should be happy and they made money. But there were only five of those exits last year. And then this year there have been three, but these are all public companies actually. So Steven, Texture, and Opower which was announced today, these are all public companies that IPO'd. So just to give you a sense of just how few large deals are. And I told you we bought eight companies last year. This you can see with some of the other large acquirers in enterprise software are doing. And there was a lot of M&A activity in 2012 and 2013. You can see what these companies are spending billions of dollars on M&A, and that continued into 2014. Concur, SAP bought Concur, was the largest enterprise sale that we've seen. And then it really slowed down a lot in 2015, and you can see the dollars spent by these large acquirers just got smaller and smaller. And then in 2016 it's starting to pick up again, but again, they're not big exits for any of these companies.
So the other thing we've seen is that I talked about the disconnect in the public markets on valuations. So 2014, the companies in our space, which is cloud, enterprise cloud, SaaS companies, were trading at the height, and then it's gone down from there. And then there was a big correction that happened this year, and we're now trading kind of near the historical mean of four times revenue.
Okay, so this is my last slide, and this is just explaining a little bit of what we see happening next. So on the private side, companies really need to focus on controlling their burn rate and sustaining themselves. There's not necessarily a winner-take-all phenomenon, but it's not realistic for the same type of company to just get tons of funding that does the same thing as another. You'll see one or two winners in every space. There are going to be a lot more flat rounds, down rounds, and lots of these structured deals to raise money. On the public side, we have to be very valuation sensitive when we're buying companies because we get valued by our investors based on our profitability. So we can't acquire a company with a large burn rate. And so you're going to just continue to see burn rates challenging feasibility for M&A, and the valuation crunch where oftentimes M&A is going to happen at a lower price than what the last round value was.
Okay, so I loaded you up with a ton of information and I hope that was helpful, but I wanted to answer any questions about that.
We do it in different ways. I think it's very case-specific, but oftentimes we'll buy a business where it's a really well-run company, they can be sort of self-contained and all stay together, and just the CEO of that company will report to one of our executives and he can continue to manage his business. We always, for every acquisition, we take over their finance function, legal, HR, the back-office pieces, credit and collections, things like that. So that always gets integrated immediately. But everything else can sometimes stay in a contained unit. RelateIQ is a great example of that. We bought that company in Palo Alto, it's been renamed as Salesforce IQ, and it's our small business solution now for CRM, all available on your mobile phone. It's really an amazing product actually. If you're about to start your company, look at buying Salesforce IQ because it's really all you need for managing your sales. And we've kept them by themselves in Palo Alto. But other companies which aren't really like a self-contained business, we'll integrate them all into our functions immediately.
Well, I think when you're raising your first round, you'll raise a seed round where you have no revenue at all. So once you've gotten past that and you're looking for your Series A, you want to show at least, I would say, something like a million dollars in annual recurring revenue. You want to be on that million dollar run rate. So to go from zero to a million is very impressive, and to be able to go from one to five your next year, that's the type of growth that people get excited about. But I know it takes some time to figure out what is your business model, build a product, well actually probably build the product first, then figure out your business model, and then start to bring in revenue and show that. No one expects you to be profitable until much later. That's why you have to raise the funding, is that you need the funding to fund the burn. But you want to have a path to revenue as soon as possible. You don't want to, there was a period of time where the freemium model was all the rage and everybody said, well, we'll give our products away for free and eventually we'll figure out revenue. It's a lot harder to do that now.
You know, it's very case-specific. I mean, I think a lot of it depends on how much money you're able to raise. The key thing is that you always want to have 18 months of cash in the bank. That's kind of a good rule of thumb, is that you want 18 months of cash.
Well, Aaron Ross worked for me for a year actually at Salesforce. I was his, that was his last job as he was working in M&A. But before he worked for me, he built out an inside sales team that made outbound phone calls to prospects and would help, and it was, he did develop that and it was basically a really, really effective tool to prospect for new business over the phone in a very efficient way. That's what he did for us. I haven't read the book so I don't know what more is in there. I can't really answer about things, but the inside sales is super important. I mean, we fundamentally believe that all software probably has to be sold. There's very little software that can be self-service. But the companies that do have a great self-service model, like a SurveyMonkey or MailChimp is another good example, those are amazing businesses because they can bring in millions of dollars in revenue without ever having to pay a salesperson anything. But when you want to sell to an enterprise company, you're going to need a salesperson to do that. It's just a requirement. But when you're selling to smaller companies, you can have a very efficient sales force that does it all over the phone. But the key is that productivity, they have to have the minimum amount of touches with the customer and be able to close the deals quickly or it's not going to pay itself back. So that's what Aaron developed for us.
No, they are services companies. They are people who go in and advise a company on what they should be doing and get paid by billable hour. So it's a service model. It's right now it's less than 10% of our revenue. And services businesses are in general much lower margin businesses. They usually run at breakeven or to a 20% margin somewhere in the middle. Whereas a software business at scale can run at like an 80% gross margin and can be a very profitable business. But my point in all that is when your company gets large enough, you have to have a services component. It's almost a requirement when you're selling to large companies.
Well, we are preferred shareholders. When we make an investment, we take preferred stock and we are preferred shareholder in that company. And so if a company doesn't do well, I mean, we've actually, there's only one of all the investments that we've made, over 200 investments, there's only one company where we lost our money. Every other company that's had an exit, we've at least gotten our money back, and that's because we get paid first.
I'd question kind of why. If the goal is growth and you're trying to grow your company, the more a company grows, the higher their valuation will be. An early-stage company, you don't want to be too profitable. You want to make sure that you're reinvesting in the business and growing it, because you want to be growing at 100% at least year-over-year when you're a little company. That's what you want to achieve. And so just hoarding the profits and putting it in the bank, it's not a good investment in the future. It's unlikely that that will turn into a big business. You want to keep reinvesting in the business until you hit a certain level. Maybe when you have 50 million dollars in revenue and you're thinking about going public at the hundred million dollar level, you want to be profitable when you're public. So that's the point in time where you want to think about, okay, what's my path to getting profitable so I will have a successful IPO. But investors now, when you go public, they want to see that you'll be profitable within four quarters.
You've got to paint the picture that there's a big market opportunity for any investor. So no one wants to invest in a company that's going to be little. They want to invest in a company that's going to be big. And so the market opportunity has to be there. And so all those slides where you show what's the total addressable market are really important in your presentation pitch to an investor. But when it comes to the actual setting of the valuation, when you have no revenue, it is completely made up. I mean completely made up. And it's all about what percentage of the company do you feel like you can give away to investors. And you always want to give the least percentage away that you can get away with to still raise money. So that's kind of, those are the sort of trade-offs that you have to make. But you need the early investors to believe in you so that you have a chance to get off the ground.
Yeah, well, I mean, I think you do raise a good point is that you don't want to be too greedy because you really need their money to be able to start your company and have some early success. So I don't know, I think you have to, if you have a good idea, most people invest in the idea and the team. What is the quality of the team? Do they believe that the team is hungry, has good experience, knows the market they're entering into, and that they're really going to give it their all? That's what gets you the money early on. And that's why you see proven teams are often able to raise money over and over and over again from investors.
Okay, so Marketing Cloud. So that's all about helping, so what the Marketing Cloud does is it helps our customers communicate and get more revenue out of their customers and market to them. And so we have a whole bunch of products that they can use to try to engage with their customers to bring their customers back to buy more. And I think that's kind of the premise of all the investments we make in that space. They all kind of serve that same goal where they are helping a company market to their customers and increase their own revenue.
I think that's a little bit different because that's more almost a product-focused company where you're trying to help develop your product in a way that increases market effectiveness. So I'd probably put that in a different bucket. I'm not sure, we don't sell that or service that, so not really sure what that is. There is something called the IdeaExchange at Salesforce which allows our customers, they come in and they give us ideas on what they want to see in our products, and they vote on the ideas and the highest voted ideas bubble to the top and things like that. That's the closest thing we have.
Without knowing more about what you're trying to sell, what your product is, it's hard to know. But the best thing you can do is get a pilot with a real company that tries your software out and then says great things about it, and then you can use that to try to get them to pay for it or use their quotes and their references to get others to pay for it. But I see your predicament is that you have to prove that this is a money-making venture before you'll get funding.
I don't think it matters. I think that it's really about what have you done in your life and what is your idea and who are the people that are going to help you get there. I think it's hard to raise money if you're just one person. People like to invest in the teams. So they want to see a team of, call it four people, who are really passionate and excited about what they're doing and they have a good idea and they have a big market. And I don't think they care about your credentials so much, but they do care that you're ethical and have high integrity and are not going to waste their money.
Well, it depends on the company. So we bought a company a few months ago called SteelBrick that was actually built on our platform. So we were able, within one month of closing the acquisition, we were able to instantly turn the switch on and have our salespeople sell it because it was already built on our platform and it already was even integrated with our Sales Cloud. And so it was a very easy process. It had gone through our security review and so it had all the credibility that you needed to be able to sell it. That's a rare case. Usually what ends up happening is we have to shut down, if it's a little company, we shut down sales of the company, we take a period of time and rewrite the technology or integrate it onto our platform, before then we will turn it back on and start selling it again. And then the other extreme is we buy a business like ExactTarget that when we bought it was a 350 million dollar revenue business. And so we can't obviously shut that down. We've got to keep that business growing. And over a period of time we build an integration from their platform to our platform, but it's so big you can't possibly rewrite what they're doing. But you have to make sure that there's tight integration so that the data can flow back and forth very easily.
Well, you hope that you don't make those mistakes and you certainly, you do your due diligence on the technology and on the company and the business and the people before you buy it so that hopefully you don't make that mistake. You certainly don't want to make that mistake on anything big. But sometimes when it's a small company that's a little bit more unproven and the founders have less experience, you are taking that risk. You don't really know how it's going to perform. And we used to, sometimes people talk about having earn-outs. Do you know what an earn-out is? Where you buy a company, you really don't know how the company is going to do, and so you give them some amount of money up front, but then if the performance is really great they get to earn extra money down the road. That's what's called an earn-out. And we don't do that. We did it on one transaction and it's just too difficult to manage. Typically it's just easier to just take the risk upfront, buy the company, and hopefully it works out.
Yeah, so our app store, which we call the AppExchange, you can have multiple companies in the same area be on the AppExchange, and they all have the opportunity to go get business from our customers. And hopefully the best company does the best on the AppExchange. Sometimes we will invest in two companies that are in the same space on the AppExchange because we don't know which one will do better, or one might service more enterprise companies and others might service more small businesses, and we've got to be able to service all customers. And so that's why we might do that on the investment side. But there are lots of companies on the AppExchange where we might have invested in a company in their space, but they're still doing really well in our ecosystem even though we invest in another one. So I have lots of examples of that too, because at the end of the day we have almost 200,000 customers and they have lots of different needs and different desires of what they want to buy.
All right, well thank you very much.