The OneStream IPO, a Datadog-plus for the Enterprise
The OneStream IPO, a Datadog-plus for the Enterprise
A software deep dive
Introduction, building the CFO’s cloud
Tom Shea, OneStream’s founder, is a typical serial software entrepreneur. With each new start-up he founded, he iterated on the learnings from the previous ones, improving the software’s design and architecture. The first product was Magma, developed in the late 1980s, which was an add-in for Lotus 1-2-3, the Excel-like killer app for MS-DOS at the time. Magma allowed users to consolidate financial data for a large company owning a variety of subsidiaries, and use this output for budgeting, financial reporting and analytical purposes. At this stage, Tom Shea was still working as a financial analyst, daydreaming of becoming one day a CFO at a blue chip name. So Magma was more of a side project, automating his own workflow while allowing him to make some money on the side by selling the software.
During the nineties, Hyperion became the dominant enterprise software for these types of financial consolidation and reporting tasks, named after one of the Greek titans. Shea became an avid Hyperion user. While the tool was extremely strong at its core tasks, Shea noticed that many organizations were struggling to get all their data into Hyperion. The problem was that the data had to be sourced from a wide variety of software systems such as ERP tools, accounting software and spreadsheets, and this from a wide variety of subsidiaries. In-house developed processes were usually manual, error prone and time consuming, involving in the worst case a ton of spreadsheets and in the best case a number of outdated software tools. This area would form the target market for the second software tool developed by Shea.
At the start of the millenium, Shea founded Upstream so that enterprises could automate this cumbersome work. Upstream would extract the data from an enterprise various systems and computer files, automatically transform it where needed, subsequently validate it, to finally upload the data into Hyperion. As from now, data became available in real-time for Hyperion users. Upstream was so successful that Hyperion acquired Shea’s business in 2006. One year later, Hyperion itself was acquired by Larry Ellison for $3.3 billion, so like many other enterprise systems, it finally ended up somewhere inside of Oracle.
This is Tom Shea looking back at these years:
“From 2001 to 2006, life was a blur. UpStream was growing 90 to 100 percent a year, and we were building integrations to all of Hyperion’s products and some competing products, such as Comshare and OutlookSoft. In 2003, we settled in and became an exclusive partner to Hyperion. The UpStream engineering team and I started working a lot closer with Bob Powers and Hyperion’s engineering team at this time. We collaborated on tighter engine integration, product UI consistency, performance, and overall technology advancement.
Bob and I were forming a mutual respect for each other’s engineering skills and we liked collaborating. In 2006, Hyperion came to me and said ‘We have been dating long enough, we would like to purchase UpStream and make you part of the family.’ After careful consideration, we felt this was the best outcome for all stakeholders since the company was really built for and targeted towards Hyperion’s products and community. UpStream became Hyperion FDM in mid-2006, and we started to really integrate UpStream’s engine into the Hyperion product suite. Bob and I began to work more closely together, and we often talked about what a next-generation CPM product could be.
In 2007, acquisitions became prevalent in the CPM space, and in a matter of months, all the pillar companies were scooped up by larger enterprise software companies. In mid-2007, Oracle acquired Hyperion, then quickly after that SAP acquired Business Objects and IBM acquired Cognos. Just like that, the standalone CPM market was gone. At this time, Bob and I both stepped away from the CPM market. Bob went on to become the CTO of a SaaS company, and I took some time off so that I could spend more time with my family.”
The Shea - Powers relationship is important as both engineers would develop some years later the core of OneStream together. Shea would take on the role of CEO at OneStream with Powers as the CTO, while all the hard coding work would be split between them. This is Shea again reflecting on this period:
“In 2010, OneStream was born. It started with a call to Bob, where we discussed the potential to create a unified platform that encompassed the capabilities of all the products that we had seen in the evolving CPM space. This space had expanded over the years to go way beyond Financial Planning and Reporting to now include solutions such as Account Reconciliations, Financial Close Management, and many other domain-centric products for the office of finance.
I remember being on the phone with Bob and pacing around my front yard when we came to the conclusion that we would embark on a software architecture and coding journey that would be the equivalent of two people trying to eat an elephant for dinner. We discussed the idea that we needed to build a platform that could basically replace the 15 or so different CPM products with a single unified platform. The name OneStream comes from the idea that these 15 products needed to become one platform with infinite extensibility. This started another blurry phase in my life as both Bob and I went into coding overdrive. We literally divided up the engines that needed to be coded, and just set out coding until we had the foundation of a product.
In 2011, we began to have some core CPM capabilities in place, and it was time to get other key people involved to formally launch the product. This was a massive product that would require a lot of testing and validation before we could sell it to a customer. The 2010 to 2012 years were really focused on R&D and technical validation, the engines had to be solid and the data had to be right. We managed to get our first customer, Federal Mogul, in 2012 and began the long process of building an operational company. Each time we added a key team member, they led us to other key people, and the list of rock stars grew. The one thing that I have always known is that if we created a great product and we could attract the best people in the CPM industry, there would be no stopping us.”
A unique feature among software start-ups is that OneStream had been profitable since its first customer was signed in 2012. Basically the company sold licenses at the time so that they would receive the cash upfront and as such, there was no need for venture backing. Over the years, Shea turned down several offers from outside investors. But as the desire started to grow to turn OneStream into a $100 million revenue company, Shea finally accepted an investment of $500 million from KKR in 2018. This is Shea commenting on the KKR deal in Crain’s Detroit Business News:
“The thesis for bringing on KKR wasn’t just capital, but raising our profile too. News of this deal helped us land a CFO in November, Bill Koefoed, with a background at Microsoft and other big tech firms. KKR brought us a level of excitement that has made hiring a lot easier, we’re scaling the business. Employment is at 420 now, up from 250 when the deal was announced. And the KKR funding will help the company expand into other geographies and hopefully help land big government contracts. David Petraeus, a retired U.S. Army general and former director of the Central Intelligence Agency, joined the board after the deal. We’re not disclosing revenue at this moment, but I won’t dispute a published report that the company had revenue of $88 million last year. And as of mid-year, we’ve had in excess of 60 percent growth. An IPO is the eventual goal, but we have to do the work and scale the business first.”
OneStream is among the many software start-ups that followed in Salesforce’s footsteps to modernize traditional client-server based and on-premises computing infrastructure. As an additional abstraction layer, enterprises would from now on be able to automatically scale software systems in the cloud, a service managed for them by the software provider. As such, this new business model would be called Software-as-a-Service (SaaS). Whereas Salesforce is the key SaaS tool for the sales office, Workday is so for HR and ServiceNow for IT. The initial goal of Onestream was to become the equivalent for the finance office. However, the platform is now much more than that, more like a Datadog for the enterprise, which we’ll dive into below.
For premium subscribers, we’ll review in-depth:
OneStream’s platform and the company’s runway for growth.
The competitive dynamics in the industry, and the variety of software tools being used in the finance office and for enterprise observability.
Insights from a variety of directors at $30 billion-plus blue chip companies on how they’re using OneStream and other competing point solutions, with the strengths and weaknesses of each. We’ll also include the views on the space from a director at Accenture, the leading systems integrator for enterprises. Each of these industry experts is available via the Tegus network, with a single expert typically charging $500 to $1,000 for a one hour call, so the price of a Tech Investments subscription is obviously a really great deal to get access to these valuable insights.
The opportunities and risks from AI for enterprise software in general, and OneStream in particular.
A detailed analysis of OneStream’s current financials and valuation, with thoughts on whether it makes sense to invest here.