Salesforce nearly doubled its money in Zoom IPO, but company says it's in for the long term
- Salesforce invested $100 million in the Zoom IPO, following a strategy it took last year with Dropbox and SurveyMonkey.
- As of Tuesday's close, that investment is now worth about $192 million.
- Salesforce says it's a strategic investment and the companies are working closely on product development.
Salesforce invested $100 million in Zoom's IPO, and it's paying off quickly, almost doubling in value in just three trading days.
It's the result of an unconventional investing approach for Salesforce Ventures. Like other corporate venture arms, Salesforce typically backs earlier-stage companies, but since early last year the venture group has been buying shares in select IPOs, like Dropbox and SurveyMonkey, hoping to benefit from the expected pop and to forge a tighter bond with emerging cloud software companies.
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With Zoom, the company is working to enable live video for Salesforce's sales and service representatives and is integrating Salesforce's Einstein artificial intelligence technology to transcribe Zoom video meetings for participants, said John Somorjai, the head of Salesforce Ventures.
"It was a very basic integration and now will be much deeper," Somorjai said in an interview this week. "There are a lot of ways we can bring these products together."
Shares of Zoom rocketed 72% in their debut on Thursday and have continued to trade higher, closing on Tuesday at $69, valuing Salesforce's stake at about $192 million. But while Salesforce Ventures invested alongside traditional public market buyers, the company agreed to the same 180-day lockup period as insiders and even signed a so-called standoff agreement with Zoom not to sell the shares for up to a year, according to the prospectus.
"Our goal is to be long-term investors," said Somorjai, who is also Salesforce's executive vice president of corporate development.
Zoom is the third cloud software stock Salesforce has bought in an IPO, following Dropbox in March 2018 and SurveyMonkey in September. Both of those produced less dramatic returns. Salesforce's $100 million investment in Dropbox is now worth $111 million, and its $40 million initial stake in SurveyMonkey is valued at $58.5 million as of Tuesday's close.
The strategic piece of the Dropbox deal has the companies working together on customized Dropbox folders inside some of Salesforce's products and an integration between Dropbox and Quip, the productivity software suite Salesforce acquired in 2016. Zoom is also planning to work within Quip, allowing users to start a live meeting from the app, Somorjai said.
The SuveyMonkey partnership includes integrating data collection tools in Salesforce.
While buying into IPOs is a new strategy for Salesforce, the company has been active in start-up investing for a decade. Last year, it had the second most active corporate venture group, behind only Google-parent Alphabet, according to CB Insights. Salesforce Ventures did 95 deals in 2018 and has been busy expanding outside the U.S., launching $100 million funds last year in Canada and Japan, followed by a $50 million Australia fund last month.
Some of Salesforce's earlier-stage bets, like Twilio and DocuSign, have also gone public. According to its latest quarterly filing with the SEC on ownership stakes (predating the Zoom IPO), the company owned shares in five public companies with stakes worth over $440 million in total.
Few are like Zoom
Somorjai said he and his team noticed Zoom taking over the market last year, when the product started showing up in seemingly all of their portfolio companies and in internal meetings at Salesforce. That's one way Salesforce Ventures scouts deals, because it provides a clear window into what kinds of products work well with Salesforce's software and what's gaining real traction in the market.
Somorjai acknowledges that the company leaves plenty of money on the table by only investing in companies where it sees a chance for a close partnership. But there also aren't many companies that look like Zoom, which more than doubled revenue in 2018 and turned a profit.
"It's one of the best S-1 filings I've ever seen," he said.