Thanks for writing. I appreciate the interest and I’m happy to talk. Before we do, > however, there’s a few things to know:
Tenon is a fully bootstrapped company with myself at 100% ownership. Our accounts list reads like a who’s who of the enterprise customers Microsoft, Intuit, Palantir, Delta Airlines, Comcast, REI, Progressive Insurance, and more. We’ve made over $x.xM in the last 365 days and we’re currently carrying $xxK in accounts receivable. Our net profit has grown 159% over last year.
Here’s the part that tends to put investors off: That income includes a substantial amount of services income.
We only make about $xxxK per year in SaaS subscriptions. We make about $xxxK per year in Enterprise software sales. The rest is services income.
Lots of investors we’ve talked to are all about MRR on SaaS subscriptions, because they don’t really realize that the players in our particular industry offer a blend of product and services. In fact, it would be completely foolish for a company in our industry to only offer software because the competition would eat your lunch.
I like to use the analogy of Credit Unions. Credit Unions do not make their money from the little $5 share account most people open. They make their money by becoming your sole provider for checking, savings, and lending. The same goes for the accessibility field.
Given the above, I don’t want to waste your time if your firm is looking for software-only investments where the value is derived from recurring revenue. While I definitely want to aggressively grow that side of my business, the reality is that services will always be part of what we do. It would be foolish if we didn’t.
If you’re still interested, I’m happy to set up a time.
The above is a boilerplate email I send in response to the 3-5 emails I get from Growth Capital firms each month since about 2016. I’ve been contacted by Elephant Partners, Armour Capital, Volition Capital, Ridgepeak Partners, Insight Partners, Level Equity, Elesewhere Partners, and more. Each time an equity firm has reached out this year, I’ve sent that exact message in response – not to be a jerk, but to make sure neither of us are wasting the other person’s time.
To be very clear: I’m not actively looking for investment. Nor am I looking to merge or be acquired. Bootstrapping is a hard slog, but it is rewarding. The team of people who work with me are – across the board – awesome people. And, on a selfish note: I get to call the shots. I get to do what I want, when I want, how I want, where I want, and with whom I want. Naturally, I still have a boss: my customers. But that’s a thousand times better than working for someone else.
There’s another factor that explains why I’m not out chasing after investors: I’m too busy executing and focusing on building the company, building the product, and doing the things that directly pays the bills. Every minute I spend chasing investors is a minute I’m taking away from ensuring my people get paid. So, no.
Interestingly, after receiving my boilerplate email response, all but one person has said they’re still interested in speaking with me. And up until this point, whenever they said they still wanted to talk, I accepted their invitation – because hey, if someone wants to toss cash my way to help Tenon grow, I’m open to the right deal. As 100% owner, I’m OK with giving up some equity in order to more quickly achieve my goals for Tenon’s products.
Each call goes the same way. Despite telling them that approximately 60% of our revenue is from consulting and that about 70% of our software sales revenue is from enterprise customers, they’re still fixated on the amount of MRR or ARR from SaaS and are entirely disinterested in revenue from services. Apparently, they’ve also caught wind of the magical overlay products that falsely market themselves as the ultimate solution to all your accessibility needs.
Market Education for Investors
During the rest of this post, I’d like to help educate possible investors looking to enter the Web Accessibility space.
Overlay products do not work and do not have any other added value
Let me ask a question: Would you invest in “healing crystals”, penis enlargement pills, or a company that sells those “negative ion bracelets” that claim to boost your energy? If you answered “Yes”, then you should immediately invest in an overlay company. Companies like Mk-Sense, AudioEye, User1st, AccessiBe, UserWay, and others all sell a product that bills on a subscription basis and, like penis enlargement pills, have been proven to be 100% bullshit. But, like penis enlargement pills, there are still plenty of desperate and ignorant customers out there willing to try anything to solve their problem. If you have no ethics and just want your 5-10x return, go for it. As an investor, this is your best software-only play. If you care about the quality of what you invest in, read on:
I’ve already said plenty on this topic myself:
I’ve even gone so far as to challenge these vendors to prove that their product works by setting up https://overlaysdontwork.com/ for them to show me that their product works. So far none of them have. The reason is obvious: Their product is bunk and they know it.
While I might be the loudest voice speaking out about overlay companies, I’m not the only one. Furthermore, I’m not even the first one.
- Discussions about the ineffectiveness of overlays go all the way back to 2004
- [The legendary Jim Thatcher called out overlay vendors back in 2011]
- Adrian Roselli has written on this
- And many others have contributed to the conversation as well.
Perhaps even more telling, on the topic of whether overlay products are a worthwhile investment is the fact that not one of the more dominant players in this space are making one of these products.
The Paciello Group, Deque, and Level Access are the most dominant companies in web accessibility in the United States. Each of which were founded around 1998 or so and each are doing over $20M in revenue each year. Other major players are Siteimprove and Cyxtera (who owns, via acquisition, the Compliance Sherriff product) and these companies do similar revenue numbers.
There are two primary things that differentiate the above companies from the overlay companies:
1 They do not make an overlay
2 They are actively involved the standards making process
To the first point it stands to reason that if overlays were a viable approach to resolving accessibility problems, these companies would be doing it.
To the second point, these companies are focused on real solutions to the problems organizations are having with accessibility. They are focused on providing viable, effective solutions and are contributing to the standards that define how to ensure accessibility in the first place.
If you read through the participant lists of the various accessibility working groups on the W3C you will notice that not one overlay company participates in any of these working groups at the W3C:
- Accessibility Guidelines Working Group
- Accessible Platform Architectures Working Group
- Education and Outreach working group
Why don’t they participate in these standards-making efforts? I’m not really in the mind reading business, but it seems unusual that none of these companies participate in any of the various communities around accessibility. Probably because everyone – themselves included – know their products are bullshit.
As an investor, you’re thinking ahead toward your exit. You should think in advance about how you envision an exit with an overlay company. Specifically, you should consider how other exits have gone and, well, there’s only been one.
ReadSpeaker is a piece of software that has text-to-speech technology and when it first came out, it was marketed as a miracle accessibility product. They’ve since made a pivot that places a much lower focus on accessibility. ReadSpeaker was acquired by HOYA Group in 2017.
The ReadSpeaker product still exists, but I foresee it dying a slow death. When ReadSpeaker first came out, there wasn’t much else on the market that really did text-to-speech that wasn’t a screen reader. As an accessibility aid, something like ReadSpeaker is excellent for users with cognitive and learning disabilities. This is, quite literally, the only useful feature in overlay products.
When it comes to using the web, per-site accessibility solutions do not make any sense and text-to-speech is really the kind of thing that should be part of the user’s browser. In fact, text-to-speech extensions abound. At least when it comes to using the Web, a browser extension makes much more sense. After all, if a user has difficulty read one site, they’ll have difficulty on all sites. More and more schools are installing these extensions on their computers to help their special education students because the extensions are significantly less expensive than specialized software for learning disabilities.
That being said, the situation with browser extensions is only marginally better than per-site solutions. If you follow the logic I’ve already shown, it would also make sense for a person with a learning disability to have an application available at all times on your computer that can read text on the screen. Luckily, this is something built into both Windows and macOS.
Given the above, you should be extremely concerned about the likelihood of an exit, if you invest in an overlay company. Just as you would ask who the target customer is for a given product, as an investor you should also think about who would acquire an overlay company?
In my opinion there are three reasons to purchase another business:
1 To acquire their accounts
2 To acquire their people
3 To acquire their product
The first two reasons would generally be a good play if the buyer wanted to boost their overall business value or bring on key talent to fill a gap or increase services bandwidth. I’ll discuss both of these later, in the cases of SSB BART Group/ Level Access and Vispero.
In the last example, “To acquire their product”, it generally would require that the product fits in with the overall theme of what the buyer already offers and/ or that the product is offered in a compatible tech stack. For example, Oracle gobbled up scores of companies who offered web-based business software written with a Java backend.
You’re unlikely to find satisfactory answers to the three reasons I offer above when it comes to an overlay product. In other words, they just aren’t good targets for acquisition. Your only hope is that you stick it out for the long term, probably through multiple fundraising rounds, and hope the technology becomes something someone bigger wants to buy. To date, I’m unaware of any M&A activity having to do with overlays.
Where the action is
So, given the above, where is the action? Virtually all the M&A action been among [assistive technology manufacturers](https://en.wikipedia.org/wiki/Assistive_technology and consulting/) testing tool companies.
For instance, SSB Technologies acquired Bartimaeus Group (Becoming SSB BART Group). They later acquired Tec-Access. They later got $40M in funding from JMI Equity and changed their name to Level Access. Shortly after the $40M in funding, they acquired Simply Accessible and Evaluera. None of the companies that Level Access has acquired are product companies. Although Level Access makes a software product, their product sales are a minor portion of their revenue.
Vispero (formerly VFO Group) now owns – by a series of mergers and acquisitions – Interactive Accessibility and the Paciello Group on the services side, and AISquared and Freedom Scientific (who had previously purchased Optelec and GW Micro) on the software side. Freedom Scientific was the result of a merger between Henter-Joyce, Blazie Engineering, and Arkenstone.
Finally, in terms of acquisitions, is the case of HiSoftware, which was acquired by Cryptzone, which is now owned by Cyxtera/ Medina Capital.
In terms of funding, another event that bears mentioning is the $55M in venture capital raised by Siteimprove in 2015. That round was led by Summit Partners.
Assessing the action
There are a few things to pay close attention to in all of the above situations:
1 The only product-only acquisitions in this industry had to do with assistive technologies, such as AISquared being bought by Freedom Scientific (Now part of Vispero). This gives Vispero market dominance in the area of desktop software for nonvisual access.
2 The overwhelming trend for every one of these transactions has been toward offering more services, not less.
The two largest transactions above were the venture capital raised for Level Access ($40M) and Siteimprove ($55M). All of acquisitions listed above were all for much less-than-half of what Level Access raised.
At this point, every one of the companies I’ve described in this section have a significant services side of their business. If any company is doing more software sales volume than services, it is probably Siteimprove, as their product covers more quality domains than just accessibility. Even in the case of Siteimprove, they do a significant volume of business around accessibility services.
As further evidence of the importance of services in this field, you need look no further than Vispero which started out as a company that developed & sold assistive technologies but whose last two acquisitions were companies that had no product at all and only did services.
Services just makes sense
Earlier in this post, I used the example of Credit Unions:
Credit Unions do not make their money from the little $5 share account most people open. They make their money by becoming your sole provider for checking, savings, and lending
It is worth expanding how and why this happens, though it is probably already obvious. Once you give the credit union your $5 for the share account and become a member, your $5 is basically being used to offset the cost they will incur marketing to you. In fact, the members who never do anything but open the $5 share account will eventually end up costing the credit union money. So, like any good business, they immediately begin to upsell and cross sell their products and services via email and mail marketing programs. Their goal, of course, is to get the member to open a checking account, refinance their car, take out a debt consolidation loan, etc. They will even offer ultra-convenient resources (such as switch kits) to get the member to move things over.
The same goes for offering software and services for accessibility. In the web accessibility field, not offering services is willingly leaving money behind. Even worse, it is also willingly leaving your customer ripe for stealing by your competitor who does offer product and services. A significant amount of Tenon’s services revenue comes from customers who, at first, were SaaS customers. The converse is also true. For example, over 20% of Tenon’s 370-ish customers have purchased both product and services from us, and we’d like that to be higher. My experience as an employee of my now-competitors suggests that this is the same elsewhere as well.
As an investor, you might be focused on MRR/ ARR from software sales, but you should also be concerned if they don’t also offer services, as it could risk them losing accounts to those companies who offer both.
What does the future hold?
Unfortunately, I think we’re probably going to see more and more overlays out there. The number of investors I talk to who seem convinced of the magic of overlays is troubling. I think we’ll see some overlay companies getting venture capital over the next few years, but I still don’t foresee any acquisitions happening there.
Assistive technology (AT) is an extremely broad field and in this post I’ve only touched on the biggest players in nonvisual access. There are so many more other types of assistive technologies, including hardware-based assistive technologies. Unfortunately, I don’t have enough insight into many of them so I cannot meaningfully comment on things that are outside my experience. As a parent of a child with learning disabilities, there seems to be a market opportunity for less expensive products for such students, as the products currently out there are quite expensive and price is often a barrier for school systems and parents.
When it comes to AT that improves accessibility for persons with visual impairments, Vispero is dominant in the market. However, I see their position being threatened by Microsoft. In the past, Microsoft themselves enabled there to be a Freedom Scientific (now Vispero) in the first place. Microsoft’s half-hearted (IMO) past efforts at adding accessibility features to Windows created a market opportunity that was quickly filled. However, the last few years have seen Microsoft making massive improvements to the accessibility features in Windows itself. While there’s still a lot of work to do, if Microsoft continues their current rate of improvement, they pose a real threat to Vispero’s long-term viability, at least when it comes to the sales of assistive technologies. Vispero’s products, JAWS and ZoomText, are very expensive for the end user. If Microsoft were to build feature parity into Windows, it will eliminate the need for additional software-based assistive technologies. This is probably still at least 5-10 years away.
There will always be a need for accessibility services. Currently the dominant driver for market demand is the large number of ADA lawsuits in the United States. Ignoring, for the moment, the impact of ADA trolls, the reality is that accessibility is a civil right and accessibility requirements are enshrined in laws in the US, EU, and numerous other countries around the world. The litigation side of things is non-existent outside of the US and this impacts pricing tolerance significantly. Whereas $250 USD per hour is not unheard of for consultant time in the US, market rates elsewhere are much lower. That said, accessibility is still a niche knowledge domain and demand for accessibility services continues to grow. It is exactly this demand which has driven the acquisitions of TecAccess & Simply Accessible by Level Access and Interactive Accessibility & TPG by Vispero. As this demand continues, we’ll continue to see new entrants in the space and probably new acquisitions as well.
There will be a corresponding demand continuing for accessibility tools – either in the form of testing tools that detect accessibility errors in code or development & content tools that can more reliably produce accessible code in the first place. This demand will continue unabated until the majority of mainstream development and content tools incorporate accessibility checking by default. This is unlikely to be the case for at least several more years. Regardless, companies which do accessibility-related services will continue to offer their own tools as their goal will remain becoming the single-source provider for their customers’ accessibility needs.
OK, so the above 3000+ words were too much to suffer through, here’s the summary:
Are you only interested in getting in & out fast without regard for ethics or whether the product actually works? Invest in overlays. They’re the penis pills of the tech world: totally worthless but lots of desperate suckers buying them. However, there’s no M&A activity happening.
Are you actually interested in accessibility? Assistive technologies are interesting, but software-based assistive technologies built into the operating system will probably continue to get better to the point that they threaten the market. That said, there are so many other opportunities with assistive technologies worth exploring.
When it comes to testing & diagnostic tools for accessibility, you’ll need to accept the fact that services need to be part of the business. If such a model is unacceptable to you, then you should reconsider your desire to invest in this space. This is the only place where any M&A has happened.