The Time for Scaling... People, Investments, Exits
2014 was undeniably a productive year for Scale…but it's in our DNA to regularly ask ourselves, "Can we do better?" Particularly when the market is as competitive — and potentially frothy — as it is now. The first thing we do is go back to our principles. While our job is to buy low and sell high on behalf of our limited partners, the real value is created by the fundamental high growth generated by our portfolio companies. That is why we spend our energy looking at company go-to-market strategies, customer traction and sales productivity rather than stock prices. A transformative category leader with skilled execution in a growing sector will be able to exit successfully in almost any market.
We've had the good fortune to invest in and partner with a number of best-in-class entrepreneurs who strategically grew their startups into dominant market leaders.These are teams that begin with an understanding of how to consistently delight their customers in large and globally expanding markets. The Scale model is to complement that vision with the experience and knowledge we've developed after 15+ years helping early-in-revenue enterprise software companies successfully grow.
In 2015, we're "productizing" that scaling expertise to make it more accessible to entrepreneurs. The ScaleVP team is doing that by investing in our own best-in-class "Scaler," Dale Chang, who joined us this month as VP of Portfolio Operations. Dale has incredible depth of knowledge on how to successfully scale market-leading software companies. Dale formerly was a partner with the Alexander Group, the premier independent group for sales execution in Silicon Valley. Our team and our portfolio companies are lining up outside Dale's door to tap into his expertise and network. Given our focus on investing in companies early in their commercial lives, our ability to help them travel up that learning curve and execute quickly can make a difference between dominating a market and being the runner up.
As my partner Rory notes in a recent blog post , "… our objective is to compress the sales learning curve and … the whole scaling process in our portfolio. We don't mind paying to learn an expensive lesson once, but we see no value for us, or for our CEOs, in having multiple companies pay for the same lesson."
Dale is the most recent in a string of strategic hires and promotions we made this past year to help us accelerate our own growth. Cack Wilhelm and Rose Yuan joined us in the summer, and in the early fall, Ariel Tseitlin was promoted to Partner and Susan Liu was promoted to Senior Associate. And we continued to expand our network of successful operating executives with our most recent Executive-in-Residence, Bill Burns, who shared his expertise in the security issues that are increasingly plaguing large companies and governments, and helped us run a recent survey of Chief Information Security Officers (CISOs). His insight helped refine our approach to investing in the security sector. This collaboration resulted in our September investment in Agari.
Today's momentum is built on a series of recent successes. We were thrilled to see the teams at BrightRoll, Everyday Health, Hubspot, Healogics & Jaspersoft realize strong exits in 2014 and congratulate Box on its successful IPO last week, the first large tech IPO for 2015.
- Brightroll's online digital advertising platform was acquired in December 2014 by Yahoo (NASDAQ: YHOO) for $640M in an all-cash transaction.
- Everyday Health (NYSE: EVDY), a leading provider of digital health and wellness solutions, went public March 28, 2014 on the NYSE, raising $100 million.
- Hubspot (NYSE: HUBS) also had a successful IPO in October, raising $125 million to fuel the continued growth of its inbound marketing software platform.
- Healogics, a legacy health care services company in our portfolio, was acquired by Clayton, Dubilier & Rice for $910M in July 2014.
- Jaspersoft's business intelligence software solution was sold to TIBCO in April 2014 for $185 million in an all-cash transaction.
- Box has been in our portfolio since 2010 and went public last Friday (NYSE: Box) raising $175M to continue the growth of its content collaboration business.
It is a great time to exit, but a tricky time to invest given the high-priced environment. Our experience with more than 20 companies who have scaled successfully has improved our deal flow significantly, both in quantity and quality. It also gives us increasing confidence based on the common patterns we find in early-stage companies who are best positioned to lead in their markets and achieve successful exits. We continued to be disciplined about investing, selecting real gems to add to our Fund IV portfolio last year. These include:
- Agari Putting an end to advanced email cyberthreats
- Bizible Marketing analytics to align sales and marketing to maximize revenue
- Crittercism Mobile app performance monitoring
- CloudHealth Pioneering the next generation of IT Service Management for the cloud
- Extole Referral marketing platform to build brand value and acquire new customers
- OneLogIn Enterprise identity management
- Pantheon Web management platform to build, launch and run WordPress or Drupal sites
- Treasure Data Cloud-based Data-as-a-Service
- WalkMe Online guidance platform for web and software applications
We have never felt better about how the Scale team and our portfolio companies are performing - everyone is firing on all cylinders - but we remain attentive to the market forces around us. The venture industry raised more capital last year than it did in the previous seven years. Given our long-held beliefs about the dangers of an oversupply of capital, that puts us on our guard. That oversupply coupled with high private valuations means our investing, and that being done by our portfolio companies, need to take into account that enterprise valuations will return to normal levels sooner rather than later. At that stage, there will likely be a greater gap between the best companies and the merely good companies. This is why we have sharpened our team, our focus and our execution. Our eyes remain fixed on working with transformative companies that can be positioned to scale successfully for years to come.
Originally published January 27, 2015.