The current state of the enterprise software industry
We feel that the value-creation from enterprise software has not yet peaked. From the very top level, we feel that this industry will continue to grow at a very good rate. For the next 15 to 20 years, we will see substantial cost savings from the automation of business processes and information exchange platforms that this industry will deliver. Buyers of enterprise applications are still figuring out ways to extract value out of the large investments they have made. They are finding methods of enterprise application integration that retain process values. In the current state, the enterprise industry is scrambling to deliver these values.

Investing strategy in this space
We divide this industry into three broad categories: infrastructural, horizontal and vertical. Infrastructural, which is foundational, an enabling software typically strong in intellectual properties, and which may not deliver direct value to the enterprise by delivering customers or cost savings. For example, one of our invested companies develops business process management software. Business process management software doesn’t create value by itself, but enables a business to automate its processes and build systems thereon. We look for strong intellectual properties in this sector.
To be defensible, you need to be technology-heavy. We typically invest in this sector at the early stage, where a company can have only potential clients, and we will still be interested. They need to have built a technology with a customer-focus.
Then, we look at another sector: the horizontal application pocket. Here, a company typically would have built a product that can be customized across industries. One of our portfolio companies is into supply chain management software, which helps companies in lean manufacturing, inventory management, and forecasting. This software is applicable across industries: aerospace, healthcare, consumer goods. The processes in each industry being different, the software must have the generic strength to be customized. The team should have deep technology and industry knowledge.
The vertical application demands tremendous domain knowledge. The product will be specific to some very specific parameters, fulfilling certain critical needs. Typically, these applications will find very few customers, but have very high ticket values. We look at domain knowledge here.

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