Odoo, a Belgium-based enterprise resource planning (ERP) software company, has achieved a valuation of $5.3 billion from Alphabet’s CapitalG and Sequoia Capital VC firms.

The event has more significant implications for the ERP industry. Open-source ERPs are in high demand as a solution within the enterprise software market. This high valuation positions Odoo as a new prominent competitor against established enterprise software companies like SAP, which is currently the world’s largest ERP software vendor.

Odoo’s Business Model and What They Offer

The company’s core focus is on open-source ERP software. They offer over 80 applications, including tools for accounting, customer relationship management, HR, e-commerce, and website development—everything a company could need from the bottom to the top.

Odoo’s services primarily cater to small and mid-sized businesses. Providing a free ERP software option is most beneficial for small but growing companies that can’t afford the premium prices of traditional offerings. 

Odoo CEO’s Insights on Market Opportunity

Fabien Pinckaers, the CEO of Odoo, emphasized ERP’s fragmented market and the challenge of simplifying complex systems for smaller businesses to use. 

He claims the company’s success is because “Small companies have complex needs from accounting to inventory, to website, e-commerce, point-of-sale. It’s a lot, and they don’t have a budget, so they need something that is simple and affordable.” He adds, “Nobody succeeded in getting both. You have complex products like SAP that run well for large companies. But it’s complex and expensive.”

Instead, Odoo provides a solution that works well for smaller companies while remaining accessible. SAP is a well-functioning ERP software, but it is not accessible to the average small company.

Financial Performance and Growth Trajectory

Odoo has had record-breaking revenue growth in the last year, with a reported €370 million in billings. The company is projected to reach €650 million by 2025 and €1 billion by 2027. 

About 80% of the company’s revenue comes from its open-source software. The remaining 20% comes from licensed software. These numbers demonstrate the high demand for affordable software, which is mainly used by smaller companies.

Odoo’s Origins and Expansion

Odoo has been in the works for decades. The company was initially founded 22 years ago by Pinckaers, who opened the first company office from a farm in Belgium. The operations were entirely self-funded and expanded organically over the years.

Now, the founder resides in India with his family and hopes to expand the company’s presence in the area. They are currently focused on hiring, marketing, and developing their partner networks in the South Asian country. 

Investment Strategies and Shareholder Dynamics

As a part of the €500 million investment led by CapitalG and Sequoia, other private equity firms backing the company, like Summit Partners, Noshaq, and Wallonie Entreprendre, sold a portion of their shares.

Summit Partners remains a key shareholder in Odoo despite having recently sold a portion of their stake.

The founder of Odoo is prioritizing its long-term growth over short-term public market pressures. Their last primary capital raise was a $10 million Series B round in 2014. There are no immediate IPO plans at this time.

Industry Insights and Challenges

Andrew Reed, one of the partners at Sequoia, says the company “just requires more gestation time than most startups both because the core system is very complex, and making it simple to use for small businesses and various countries is no small feat.” He notes the complexity of the ERP market, especially as Odoo focuses on use by small businesses.

Alex Nichols, a partner at Alphabet’s CapitalG, expresses confidence in Odoo’s ability to grow without focusing on IPO.

Odoo offers a unique approach to affordable ERP solutions for small businesses. This gives the company a competitive edge as a cost-effective alternative to the traditionally complex and expensive software options like SAP, which have long dominated the market.

The high valuation reinforces the value of an open-source business model for ERP software, which is committed to sustaining global expansion.