The Boston Globe’s weekly Ocean State Innovators column features a Q&A with Rhode Island innovators who are starting new businesses and nonprofits, conducting groundbreaking research, and reshaping the state’s economy. Send tips and suggestions to reporter Edward Fitzpatrick at email@example.com.
This week’s Ocean State Innovators conversation is with Angus Davis, founder of Upserve Inc., a Rhode Island-based startup which was just acquired by Lightspeed POS Inc. for $430 million in cash and stock.
Q: For those unfamiliar with it, can you tell us what Upserve is and how much has it grown since you founded it?
Davis: I founded Upserve in late 2009. Upserve helps thousands of restaurants with a fast, easy-to-use tablet-based point-of-sale system. The typical Upserve customer is a sit-down restaurant with waiters and waitresses, like Clarke Cooke House in Newport or Eastern Standard in Boston.
Upserve provides analytical reports that give actionable insights into improving service and lifting profits. For example, Upserve can tell a restaurateur which dishes on the menu drive repeat visits, which waitress sells the most dessert, and who might need a little training help on the wine list.
Upserve also gives restaurants a powerful online ordering system, which has seen a big increase in usage this year. Upserve integrates with dozens of third-party restaurant technology software, like Resy and OpenTable for reservations. Think of Upserve as the “magic ingredient” that helps restaurateurs thrive.
When I started the business in 2009, it was valued at about $4 million. Since then, its value has grown more than 100-fold. While I left my role as CEO in 2018, I maintained my ownership in the business alongside our other investors and became an adviser to the company’s board.
Q: How much revenue was Upserve generating before it was sold and how does it compare to Rhode Island startups?
Davis: The company announced this week that over the trailing 12-month period ended Sept. 30, Upserve generated about $40 million in net revenue.
Lightspeed acquired Upserve for a combination of $123 million in cash and 5.9 million shares of Lightspeed stock. The total deal consideration is worth more than $430 million. In the day following the news, Lightspeed’s stock rose by more than 10 percent.
In terms of technology startups founded in Rhode Island, I am not aware of any other company founded in the last 20 years that created this level of enterprise value. That said, I would love to see Upserve’s record eclipsed by even bigger and more successful Rhode Island-based startups in the future.
Q: What does the acquisition by Lightspeed mean for the two companies?
Davis: Lightspeed has purchased the best point-of-sale product for “table service” restaurants in the United States. Prior to the acquisition, this segment was a weakness for Lightspeed, particularly in the critical U.S. market (Lightspeed has operations around the globe). Now, it is a clear strength.
Upserve’s product is highly differentiated from its closest direct competitor, Boston-based Toast, thanks to its analytics, reliability, and easy-to-use interface. With the addition of Upserve, Lightspeed is poised to help restaurants accelerate the shift from old-fashioned “on premise” point-of-sale systems like Micros and Aloha to modern, cloud-based technology like that offered by Upserve and Lightspeed. Ultimately, this technology shift will help restaurants delight guests, smooth operations and boost profits.
For the combined companies, it means significant scale: more than 100,000 locations served, about $250 million in annual revenue, and nearly $40 billion in annual transaction volume on the platform.
Q: How has the pandemic affected Upserve and the restaurant industry?
Davis: All of Upserve’s revenue comes from restaurants. When restaurants do well, Upserve does well. It has been a tough year in the restaurant industry, but there is opportunity to come back much stronger in 2021.
Upserve helped restaurants adapt to the 2020 realities with new features. Many people don’t realize that when you order food online through an app like Grubhub or Uber Eats, the app provider takes 20 to 30 percent of the order. For a typical restaurant with only a 10 percent operating margin, that doesn’t make sense. That’s why restaurants use Upserve’s online ordering module on their own website, because it allows them to avoid paying exorbitant fees to Grubhub while building customer loyalty.
Upserve also developed innovative “Scan to Pay” technology that makes it easy to pay the bill for meal in a “contactless” fashion, simply by scanning a QR code with your cell phone.
Restaurants employed over 15 million Americans last year. It is the second-largest industry for private sector employment after healthcare. When air travel declined as a result of the pandemic, the U.S. government gave airlines $32 billion to keep airline workers employed. Restaurants employ 30 times as many people as the U.S. passenger airlines, but so far the government hasn’t helped restaurants enough.
The short-lived Paycheck Protection Program was not designed to compensate for a year-long period of restaurants being restricted from operating normally. Local independent restaurants are an essential fabric of our neighborhoods and deserve to be saved. While the worst is behind us, and better days are assuredly coming this spring, this winter will be a challenge for many restaurants.
Q: What is the main thing Rhode Island leaders can do in the next year to help the economy rebound?
Davis: At the end of World War II, Winston Churchill famously said, “Never let a good crisis go to waste.” Rhode Island policymakers could adopt bold steps to transform the economy so we stop being the first economy to suffer in a downturn and the last to recover.
For example, Rhode Island could consider aggressive tax incentives to attract high-income, newly mobile knowledge workers to work remotely from our state. Folks who agree to move from other states to Rhode Island, buy a home, and live here for some time, would get some sort of benefit, which would only apply to people who had not lived in Rhode Island in the prior 10-plus years.
We could take steps to get in front of the China decoupling and repatriation of our supply chains by creating secondary education programs that better prepare our future workforce for new types of advanced manufacturing jobs.
We could finally try to rationalize our school system with a different mix of state and local control, to realize cost efficiencies and hopefully finally start to close the gap with Massachusetts on student outcomes.
We could get ahead of the curve on new technologies, for example, in the same way South Dakota attracted Citibank in the 1980s with laws favorable for the credit card industry.
We could adopt some laws that make Rhode Island the first choice for any entity dealing in cryptocurrencies.
We could build on changes from the pandemic to boost our tourism industry by creating pedestrian-friendly areas, changing zoning, and shutting down parts of streets to reclaim acreage lost to cars and parking to be used instead by people, restaurant tables, bicyclists, and street carts.
We could make Rhode Island a much friendlier place to enter a new field of business by repealing some of our burdensome occupational licensure regulations.
We could encourage dining out at restaurants again by giving every vaccinated Rhode Islander a $40 card to spend at local restaurants, sort of like an “I voted” sticker for the vaccinated.
Q: What is your role now at Foundation Capital and what’s next for you?
Davis: I joined Foundation Capital as a partner in 2019, where I focus on investments in early-stage technology companies, primarily in the business software and financial technology sectors. While Foundation is based in Palo Alto, California, I am the sole member of our team based on the East Coast.
One of my recent investments is a mobile-only bank for younger Americans called Current, based in New York. I led our investment of more than $16 million into the business earlier this year. Just last month, a later stage investor, Tiger Global, led a $120 million investment in the company that valued the business at $750 million.
As an investor, I now get to live a bit vicariously through the founders I work with, offering up pearls of wisdom from the many mistakes I have learned from along the way, and ultimately sharing in their failures and successes. I will always be an entrepreneur at heart. We had a sign on the door at Upserve for many years. It said: “Make better mistakes tomorrow.” That’s what I aim to keep doing for the foreseeable future.