Tech: The Future of ISV Channel Partnerships

ISV channel partners extend the reach and effectiveness of Independent Software Vendors (ISVs) in marketing, selling, implementing and supporting their products; enabling them to scale more rapidly while focusing on their core competencies in software development. The relationship is symbiotic, and the channel partners (albeit harder to scale) capture much of the value in the ecosystem – channel revenue can be several times greater than the vendor’s software revenue.

Traditionally, most PE ISV channel deals have been rooted in the major enterprise software vendor ecosystems such as SAP, Oracle, and Microsoft. These are large, well-established markets which have long-standing partner ecosystems. Generalist channel partners are well fished, but there are plenty of opportunities for those with a distinctive offering – for example those with a specialisation in a niche product, or with vertical IP.

We are increasingly seeing ISV channel partner opportunities in less mature channels outside of these ‘major’ ecosystems. These include ServiceNOW, Workday, Hubspot, Salesforce, and Splunk as well as more niche and high-growth ecosystems.

When triaging opportunities within the ISV channel partnerships, there are a few key common considerations:

Vendor Attractiveness

Is the vendor / product a good horse to back?
Is it a large growing market, and/or is there a route to taking share of channel?
Is it complex and/or mission critical?
Is there good professional services attach rate?
What is the revenue profile? Lumpiness of projects concentration? Are there opportunities for on-sell, continuous improvement, own IP licensing, and managed services?

Vendor Relationship

Is the vendor channel friendly (reseller model, channel support, no direct sales)?
Is there a strong, mutually beneficial relationship between the target and the vendor?
What go to market support is available from the vendor (leads, co-marketing, co-selling)?
Can the target generate its own demand with a standalone sales & marketing function?
Does the target have visibility of vendor(s)’s roadmap and commercial strategy?

Talent

Does the target play in complex and growing but supply constrained markets?
Where will the talent come from? Where does it hire from? Can it grow its own talent?
Are there specific roles which will be pinch points?
Is there a way to increase our talent pool using near/offshore?
How reliant is the business on contractors?
Any risk of poaching from clients / SIs?

How strong is the know-how and expertise (technical, vertical)? (Good)
Does the business have any accelerators to speed delivery? (Better)
Can the IP be productised + monetised? (Best)

Exit Routes

Enterprise focus client base – potentially opens up GSIs who can pay a significant premium in talent constrained markets
SME focus client base – less clear + case by case. MSP/DX consolidators are often of interest

As well as these common considerations, different types of ISVs require distinct strategies and have different diligence questions. If you are considering investing in this sector, please contact a member of the Technology team who are happy to discuss specific opportunities and considerations.

Selected Armstrong SAP, Oracle and Microsoft Credentials