Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

It’s the second to last day of 2019, meaning we’re very nearly out of time this year; our space for repretrospection is quickly coming to a close. Before we do run out of hours, however, I wanted to peek at some data that former Kleiner Perkins investor and Packagd founder Eric Feng recently compiled.

Feng dug into the changing ratio between enterprise-focused Seed deals and consumer-oriented Seed investments over the past decade or so, including 2019. The consumer-enterprise split, a loose divide that cleaves the startup world into two somewhat-neat buckets, has flipped. Feng’s data details a change in the majority, with startups selling to other companies raising more Seed deals than upstarts trying to build a customer base amongst folks like ourselves in 2019.

The change matters. As we continue to explore new unicorn creation (quick) and the pace of unicorn exits (comparatively slow), it’s also worth keeping an eye on the other end of the startup lifecycle. After all, what happens with Seed deals today will turn into changes to the unicorn market in years to come.

Let’s peek at a key chart from Feng, talk about Seed deal volume more generally, and close by positing a few reasons (only one of which is Snap’s IPO) as to why the market has changed as much as it has for the earliest stage of startup investing.

Changes

Feng’s piece, which you can read here, tracks the investment patterns of startup accelerator Y Combinator against its market. We care more about total deal volume, but I can’t recommend the dataset enough if you have the time.

Concerning the universe of Seed deals, here’s Feng’s key chart:

Chart via Eric Feng / Medium

As you can see, the chart shows that in the pre-2008 era, Seed deals were amply skewed towards consumer-focused Seed investments. A new normal was found after the 2008 crisis, with just a smidge under 75% of Seed deals focused on selling to the masses for nearly a decade.

In 2016, however, a new trend emerged: a gradual decline in consumer Seed deals and a shift towards enterprise investments.

This became more pronounced in 2017, sharper in 2018, and by 2019 fewer than half of Seed deals focused on consumers. Now, more than half are targeting other companies as their future customer base. (Y Combinator, as Feng notes, got there first, making a majority of investments into enterprise startups since 2010, with just a few outlying classes.)

This flip comes as Seed deals sit at the 5,000-per-quarter mark. As Crunchbase News published as Q3 2019 ended, global Seed volume is strong:

So, we’re seeing a healthy number of deals as the consumer-enterprise ratio changes. This means that the change to more enterprise deals as a portion of all Seed investments isn’t predicated on their number holding steady while Seed deals dried up. Instead, enterprise deals are taking a rising share while volume appears healthy.

Now we get to the fun stuff; why is this happening?

Blame SaaS

As with many trends long in the making, there is no single reason why Seed investors have changed up their investing patterns. Instead, there are likely a myriad that added up to the eventual change. I’m going to ping a number of Seed investors this week to get some more input for us to chew on, but there are some obvious candidates that we can discuss today.

In no particular order, here are a few:

• Snap’s IPO: Snap went public in early 2017 at $17 per share. Its equity quickly spiked to into the high 20s. By July of that same year, Snap slipped under its IPO price. Its high-growth, high-spend model was under attack by both high costs and slim gross margins. Snap then went into a multi-year purgatory before returning to form — somewhat — in 2019. It’s not great for a category’s investment pace if one of its most prominent companies stumble very publicly, especially for Seed investors who make the riskiest bets in venture.

Salesforce turned 20 this year, and the most successful pure enterprise SaaS company ever showed no signs of slowing down. Consider that the company finished the year on an $18 billion run rate, rushing toward its 2022 revenue goal of $20 billion. Oh, and it also spent a tidy $15.7 billion to buy Tableau this year in the most high-profile and expensive acquisition it’s ever made.

Co-founder, chairman and CEO Marc Benioff published a book called Trailblazer about running a socially responsible company, and made the rounds promoting it. In fact, he even stopped by TechCrunch Disrupt in San Francisco in September, telling the audience that capitalism as we know it is dead. Still, the company announced it was building two more towers in Sydney and Dublin.

It also promoted Bret Taylor just last week, who could be in line as heir apparent to Benioff and co-CEO Keith Block whenever they decide to retire. The company closed the year with a bang with a $4.5 billion quarter. Salesforce, for the most part, has somehow been able to balance Benioff’s vision of responsible capitalism while building a company makes money in bunches, one that continues to grow and flourish, and that’s showing no signs of slowing down anytime soon.

All aboard the gravy train

The company just keeps churning out good quarters. Here’s what this year looked like:

F5 got an expensive holiday present today, snagging startup Shape Security for approximately $1 billion.

What the networking company gets with a shiny red ribbon is a security product that helps stop automated attacks like credential stuffing. In an article earlier this year, Shape CTO Shuman Ghosemajumder explained what the company does:

We’re an enterprise-focused company that protects the majority of large U.S. banks, the majority of the largest airlines, similar kinds of profiles with major retailers, hotel chains, government agencies and so on. We specifically protect them against automated fraud and abuse on their consumer-facing applications — their websites and their mobile apps.

F5 president and CEO François Locoh-Donou sees a way to protect his customers in a comprehensive way. “With Shape, we will deliver end-to-end application protection, which means revenue generating, brand-anchoring applications are protected from the point at which they are created through to the point where consumers interact with them—from code to customer,” Locoh-Donou said in a statement.

As for Shape, CEO Derek Smith said that it wasn’t a huge coincidence that F5 was the buyer, given his company was seeing F5 consistently in its customers. Now they can work together as a single platform.

Shape launched in 2011 and raised $183 million, according to Crunchbase data. Investors included Kleiner Perkins, Tomorrow Partners, Norwest Venture Partners, Baseline Ventures and C5 Capital. In its most recent round in September, the company raised $51 million on a valuation of $1 billion.

F5 has been in a spending mood this year. It also acquired NGINX in March for $670 million. NGINX is the commercial company behind the open-source web server of the same name. It’s worth noting that prior to that, F5 had not made an acquisition since 2014.

It was a big year in security M&A. Consider that in June, four security companies sold in one three-day period. That included Insight Partners buying Recorded Future for $780 million and FireEye buying Verodin for $250 million. Palo Alto Networks bought two companies in the period: Twistlock for $400 million and PureSec for between $60 and $70 million.

This deal is expected to close in mid-2020, and is of course, subject to standard regulatory approval. Upon closing Shape’s Smith will join the F5 management team and Shape employees will be folded into F5. The company will remain in its Santa Clara headquarters.

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The insurance industry, sleepy and ancient, is ripe for disruption. We’ve seen companies like Lemonade, Hippo and Rhino get in on that opportunity. Today, an insurtech company focused on small business insurance has raised $18 million to keep growing.

Meet Huckleberry, whose Series A was led by Tribe Capital, with participation from Amaranthine, Crosslink Capital and Uncork Capital.

Huckleberry launched in 2017 to offer business insurance, including workers’ compensation and general liability, all through an online portal.

Small business insurance coverage is not like car insurance or renters insurance. It’s not as simple as filling out a few forms and getting a quote. Even if a few platforms do have algorithms for providing quotes, you can’t really close the deal unless you get on the phone.

It’s an incredibly tedious and stressful process. In fact, Huckleberry co-founders Bryan O’Connell and Steve Au first came up with the idea for Huckleberry when they were seeking out their own small business coverage for a previous startup idea.

The industry itself is incredibly fragmented, which is caused in part by the fact that small business coverage underwriting varies wildly from business to business. For example, the policy for three or four restaurants might look relatively similar. However, a fast food restaurant might be identified as a higher risk with regards to workers’ compensation than a Michelin-star restaurant, where workers might be more eager to get back to work and take home their tip money. These differences come in the form of location, operations and many other factors, as well as business vertical.

Huckleberry has worked to build out myriad coverage verticals, including food and beverage, fitness, retail, legal, healthcare, hair and beauty and more.

The firm offers worker’s comp, as well as a package policy that includes general liability, property and business interruption insurance. Customers also can purchase add-ons like hired and non-owned auto insurance, employment practices liability insurance (EPLI), liquor liability insurance, employee dishonesty coverage, professional liability insurance, equipment breakdown coverage and spoilage coverage.

Huckleberry isn’t itself an insurance carrier, but does have the authority to underwrite and sell policies on behalf of the carrier. That said, Huckleberry’s expansion both by vertical and geography is more difficult than your average software startup. The regulatory landscape of insurance in the U.S. goes state by state.

“Our biggest challenge is navigating 50 states’ worth of extremely complicated regulations on something that is much more complicated than a software product,” said O’Connell. “We’re trying to protect individual workers and businesses all while staying fully compliant in every market.”