Be My Valentine: Our Love Letter to Software
To celebrate Valentine's Day, our team wrote a love letter to our one and only: software.
You are unlike any category I have ever met. Software companies have the benefit of high recurring revenue that drives the potential for sustained growth, ii) the potential for low cost to renew customers when “need to have” productivity is delivered, and iii) near-zero marginal cost of production. Combined, this creates some of the strongest business models the world has ever seen. You make investors crazy every time we see a new one emerge.
While I see how beautiful you are, I want to make sure you see how beautiful you are. I compare you to an auto manufacturer. The differences are striking. In 2018, Mercedes made a profit of approximately $4,200 for every car they sold. If you assume an 8-year average ownership duration for that car, it’s only ~$500 per year of profit. And, at the end of the 8 years, there is no guarantee you buy another Mercedes. Mercedes has to convince you again against an onslaught of competition and the cost to switch is near zero. The marginal cost of the product is enormous, and distribution is painful. Growth is likely stuck in a 3-5% range.
Then there is you, software. I look at Salesforce where the Mercedes-equivalent enterprise license costs $300 per month. At their 20% EBITDA margin, they make $720 of profit per year. That customer is likely renewing for as long as their company stays in business, and Salesforce is growing at 20%.
Better retention. Better marginal profit. Better growth. Enormous market. Beauty.
Software, we pledged in 1994 to love you forever. We had no idea just how amazing the ride would be—and we expected a lot! With our 25th anniversary hijacked by COVID, I wanted to take this moment to renew our vows to you on this Valentine’s Day. We look forward to loving you for the next quarter-century and beyond, and we look forward to witnessing everything you do to improve the human condition.
With love forever,
(Penned on behalf of the firm by Managing Director, Ryan Hinkle)
"I love software not just because of what it can do, but how it works. Indeed, software’s very construction is one of inspirational beauty – an impossibly complex and interconnected compilation of one’s and zero’s working together in symphonic harmony atop microscopic processors. Software is an embodiment of humankind’s technological and engineering mastery, and it represents the beginning of a new era in our civilization’s progress. Most importantly, I love software because it will be the platform that enables our species to overcome the most critically pressing issues of our time. Software evolves deterministically, ever-improving to deliver a better experience to its users, and its potential is limited only by the imagination of its creators – the visionary entrepreneurs that Insight is so fortunate to back."
- Thomas Krane (Investment Team)
Software, you and I have been getting to know each other for 15 years. What I love about you the most is how you continue to evolve. You're always surprising me with new innovations. You're really growing up into something beautiful. Your maturity from startup to ScaleUp means that we can do more together, build more together, and really change the world. I'm excited about where our relationship will go. Let's ScaleUp together.
- Nikki Parker (Marketing & Communications)
“Software fundamentally helps people be more productive, do their best work, and drives positive change in society.”
- AJ Malhotra (Investment Team)
“Software is today and our future. It unlocks human potential and empowers human capital. With software, companies and organizations have greater access to talent to scale their business and social initiatives."
- Helen Hua (Talent Center of Excellence)
"It’s not love but software that makes the world go round and Marketing is its ultimate matchmaker."
- Whitney Rothe (Marketing Center of Excellence)
"Software and technology are at the center of everything we do. What I love about software is that it enables problems to be solved and products to be built that otherwise would be impossible."
- Andrew Korbel (Product & Technology Center of Excellence)