Deal focus: Investors flock to SaaS specialist Ones

When presented with an opportunity in a specific enterprise software vertical, investors invariably ask: How big is the market and how high is the ceiling? China Growth Capital struggled to find answers to these questions about current and potential size on encountering Ones.

Mainstream software-based collaboration tools like Alibaba Group’s DingTalk, ByteDance’s Lark, and Salesforce’s Slack are general-purpose business communication platforms.

Ones, on the other hand, caters to R&D teams engaged in large-scale projects. Software developers are the primary users. The China-based company enables collaboration between product managers, R&D engineers, test engineers, and maintenance engineers. With small changes in product specification requiring wholesale process realignment, Ones helps teams speed up the execution.

The current customer base includes Xiaomi, China Telecom, and SAIC Motor. When China Growth Capital led an extended Series A round in 2018, the business was more nascent, but the investor was persuaded by the potential to secure paying customers.

“China’s software industry is still in its early stages and the key issue is persuading customers to pay. Ones is a must-have tool for managing product development, whether you are a game developer or a bank launching new products. It’s easier to quantify the cost savings and justify payment than for general-purpose SaaS [software-as-a-service],” says Jake Xie, a partner at China Growth Capital.

Cost savings could be considered in this context: if a programmer in China earns RMB300,000 ($46,000) per year, Ones can be used to manage 100 programmers and deliver efficiency gains of 20-30% - for a price that amounts to less than the salary of one programmer.

Ones recently closed a $50 million Series C led by GIC with participation from Source Code Capital and XVC. This follows a RMB300 million ($46 million) in June across two tranches led by XVC. Xie sees these rapid fundraises as evidence that capital is gravitating towards a market leader.

“The company has never changed its direction,” he adds. “This may sound easy, but actually, it’s the hardest thing to do. There are so many different opportunities out there, but Ones has maintained its focus and become the number one player in its segment.”

Founded in 2015, the company aspires to be China’s answer to Atlassian – an Australian SaaS player specializing in products for software developers and project managers that went public on NASDAQ in 2015. It now has a market capitalization of $98 billion.

Ones has gained more of a following in China than Atlassian because its product offering has been tailored to suit local needs. It is designed to be mobile-friendly, there is a large local support team to serve local businesses still finding their way into SaaS, some functions have been cut back to create a relatively simple interface, and flexibility is prioritized.

While Atlassian provides only cloud-based services, Ones is willing to deliver on-premises solutions. This is a tacit acknowledgment of a reluctance among Chinese companies to store sensitive data on servers outside of their control, especially those overseas.

Xie believes that Ones has built a big enough moat around its business to withstand competitive challenges. This is in stark contrast to other SaaS verticals. Xie points to marketing SaaS, where there are nearly 8,000 start-ups in the US alone. A strong sales capability is essential to staying ahead of the pack, but this approach is often tied to high-cash-burn and unsustainability.

For all the mystique around translating market potential into a valuation for Ones, there is one reliable metric: enterprise data value realization. The platform has clear visibility on the efficiency of individual developers and the defect rate in their code.

“This kind of transparency improves the efficiency of business operations; you can easily evaluate the work and you know where the problems are,” Xie adds. “Data transparency is a key theme of our application-level SaaS investments.”

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• Topics
• Greater China
• Expansion
• Technology
• Investments
• China
• enterprise software
• GIC Private
• China Growth Capital
• Source Code Capital
• XVC
• Growth capital