Welcome to the fifth in our series of ‘Anonymous Exits’.
In our Anonymous Exit series, we meet founders and executives that have exited their business.
We want to make sure it’s as useful for you as possible, with founders and executives being as honest as they feel appropriate - so it’s anonymous. We will talk with people that exited at a range of valuations in a range of Edtech and associated verticals.
In this edition, we are providing the perspective of a founder and former CEO of a public company.
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Theme(s):
There’s nothing like the prospect of an IPO to concentrate the mind
Running a meritocracy and rewarding results pays dividends in the long-run
If you’re in a new field, pay even less attention to competitors
Founders should ringfence time weekly to be deeply strategic, focusing on key decisions like price, product roadmap, and team structure
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The interview consists of 5 sections (you can skip ahead using the links below):
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Us: Not to be nosy, but I like your office!
This is actually the home office in which I founded the company. I’ve renovated it but the soul is the same – I think of it like a library, a place for concentration. I can’t sell this place- it means too much to me!
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THE IPO
Us: Let’s work backwards from the IPO. We know that you did a follow-on IPO after the initial listing, so it’s now dual listed. Could you tell us about this journey?
Sure!
We first listed in our chosen exchange largely because it was convenient – not only convenient to us but because it was convenient for our largest investors! They were well connected in the initial exchange and were particularly well known by relevant banks that could be helpful in the listing process. It’s a smaller market than the market in which we are currently dual listed.
We never considered listing in exchanges closer to home… (i.e. Europe, with its typically smaller, more local exchanges).
At the time of going public, in the grand scheme of things, we were a relatively small stock – we needed to go public in a market which accepted companies with revenues under $100m (we have since exceeded this figure substantially which is one of the reasons why we decided to dual list in a larger exchange).
We first listed when our revenues were closer to half the $100m revenue figure.
Our initial listing process and partners were rather local – our key investors, banks and underwriters had significant local operations.
Hence, placing the stock within the ecosystem was not a problem and I think this is one of the reasons why the stock was highly oversubscribed.
But, given we were in a smaller exchange, it had significantly less coverage from analysts. This meant that the rate of scaling, financing and growth we could unlock via that exchange was limited – it had a ceiling. We saw this in the data and in the amount we raised during the dual listing.
For context, we initially listed before the pandemic started. When it took hold, the stock price rose significantly, partially driven by our field experiencing a tailwind. 10 months after the initial listing, we were close to $100m revenues, growing ~60-70% - this continued through most of the pandemic and has stabilised since.
Hence, there was huge demand for companies in our space- we took advantage of that and decided to dual list in one of the largest stock exchanges globally, in North America. Another significant advantage in our case was that given partnerships between our initial exchange and subsequent exchange, we did not need to file paperwork twice, which made the whole process far less painful than it could have been!
When we relisted, the market cap rose circa. 5X in the space of 10 months, largely driven by the tailwinds I mentioned. There is certainly better coverage of our stock by analysts now, which is always a good sign and something we wanted.
Us: And what was the portion of revenue coming from North America by the time you listed? Did you consider this factor, given that it could be an indicator to the wider market and your possible investors on the likely performance of the stock?
From my experience with business in Europe and North America, I’ve found the vibes to be very different. In North America, if you have meaningful revenues in the market and proven acceleration, you will be set up for success. But if you are, for example, a French company doing 99% of your business in France with a very ‘French-centric’ CFO or CEO, you’re less likely to have success in a listing in North America. In our case, we were doing around 75% of our business in North America prior to our listing.
I’m trying to say that the percentage or portion does not really matter – it matters far more that your growth rate is increasing and that you’re successfully building momentum in new markets of operation.
Us: How did you decide to pursue the IPO?
In our case, it’s important to consider that our investors are not the classical venture capital funds that have ten year fund terms.
Some of our key investors were banks and family offices that manage their own money. The question for these organisations isn’t necessarily of needing to sell because they don’t operate on the same time horizon as typical VCs – if an asset isn’t causing troubles or headaches and is doing well, there is no need to sell or disrupt them. The real question and attitude becomes: ‘is the asset making as much as another asset could for the same investment? Is it the best deployment of our capital? It is better in an asset we like than in a bank getting eroded by inflation’ . The downside is that it can lead to some complacency, I think. In our case, this happened a little- investors would say ‘let’s keep it going for another year’ or words to that effect. This was made more straightforward by the fact the company was compounding revenues, so the value of the investors’ assets were increasing!
One night at a dinner with our largest investor, our biggest shareholder, I decided to address this and said “guys, I am very happy about our partnership and how the business is doing but why don't we raise the bar? Why don't we shoot for the moon? This would be very useful to give a clear challenge and direction to the whole team”.
It’s worth bearing in mind that my money was (and to some extent still is, of course), tied up in the company, so I also had an eye on making something back from the work we had put in – you also can’t exactly cash out in a major way as a CEO/ founder during the IPO so it was a long game.
We agreed to a set time horizon of 2 years – we wanted the company to be in a good place to go public within 2 years. This gave the company a lot of urgency and a lot of direction – it became fun again!
Us: Could you talk to us about these two years? How did you approach laying the groundwork for the IPO?
We actually ended up doing it in 18 months, which was remarkable.
We were in hyper-growth mode. We were doubling revenue every 12-18 months from a high base. So we had to move from a small accounting team to a formal director and eventual CFO. We hired a guy that was super senior, understood everything immediately – someone very experienced. He quickly became instrumental in our growth. We also assembled a great team of external lawyers, auditors and bankers - they were very helpful, as was our board!
To IPO well, you need to have had a solid three or four prior quarters of growth. We knew we needed to achieve this and our new CFO oversaw this like clockwork.
One thing I found strange was how little ownership of my own compensation package I had by the end of this process - it wasn’t unhelpful because it got me used to having my salary set by the board after the IPO and it also kept me focused on the right motivations!
This process was certainly one of learning by doing. We worked through all of the areas that could trip us up – ops, compliance, finances, growth. But there were of course things that came as surprises – for example, I didn’t know about blackout. To me, blackout meant no electricity.
And then, we wanted to reward the team well following the IPO but I was told this wasn’t possible because ultimately this cash injection after the listing needs to be treated like investment, not to be mistaken for bonus budget! What we were able to do was make sure that people in the team had the right stock options prior to the listing.
Us: It seems that the primary drivers of your IPO timing were internal, as opposed to driven by market timing. What were the main external drivers of your IPO timing?
Well, I mean, the external forces were favourable only because we were a healthy business. The year we went public was okay for IPOs, but wasn’t stand-out crazy. This became clear when we saw crazy IPO activity levels in subsequent years.
Us: What were the most significant hurdles that you came across at that time during your phase of learning by doing?
I feel like I was so permanently within the grinding machine that I couldn’t focus for much time on either things that were going well or things that were sub-optimal; we just had to find good solutions to issues as quickly as possible.
I found the compliance hoops difficult to jump through. I also found it difficult to adjust when we went public to the fact that personnel moves and news and data that felt relatively minor before we went public suddenly became a big deal that would shape our share price! We would make a hire, or fire someone, or report a non-descript metric and all of a sudden, you’d see $X million wiped from the stock or added to the stock. I often didn’t understand (and still don’t understand!) the market movements myself. I remember being frustrated about how difficult it felt to cash out a very small number of my shares. Every time I discussed this with people, they would suggest I wasn’t in the company for the long-run. I thought ‘fuck, I’ve been at this 19 years!’.
Us: Because I've heard very mixed things on this from people that work in the public markets as analysts, but also founders who have sold businesses or scaled them to IPO: how savvy - or how well - do you think the stock has been priced since its initial listing? Do you feel like it's fair reflection and commensurate with the ongoing performance of the company?
I like to think about the stock price as an equilibrium. The equilibrium itself is a moment between fluctuations. It's a very rare moment. So usually the stocks are fairly priced in a very rare moment when the market is not crazily optimistic or crazily pessimistic.
When you first list, the price tends to depend on momentum. If anything, your price when you initially list is probably the fairest because it is backed by the most solid data and insights and been given the most consideration of involved players.
In my opinion, the markets are pathologically bipolar. There is arguably no such thing as a fair price and unfair price – there is an accurate price that reflects company performance and a price that does not. It can be considered a fair price if there is a willing buyer and seller.
Us: One of the main reasons it seems that companies obviously go through the IPO route is to raise money for specific projects - was that your intention?
We raised a good amount of money during the first IPO but raised more than 9X that amount when we dual listed in the larger exchange.
The larger round was actually locked up in the company so we couldn’t do as much as we would have liked – we made a couple of strategic acquisitions and we had a big cushion for other strategic initiatives.
YOUR FUNDING JOURNEY
Us: Let’s work backwards now, could you tell us your founding story?
I realised there was a gap in my organisation that I could address from within through software. I decided to build a first version and the team started to form as we realised demand. It was an exciting time. We built carefully and intentionally, gradually forming a suite that was capable of winning larger contracts. It was not a glamorous story but I’m proud of it and the progress we made.
Us: In the sense you ultimately took the company public on a globally recognised exchange, you're a rare case. So your investors must be extremely pleased to have backed you. But I'd be interested to know how your relationships with different parts of your investment group have evolved since they’ve come on board. Could you share more on this?
One of my strengths has always been mediation and I’ve always been focused on mitigation of negative risks. With this in mind, I was always very mindful of our board make-up to ensure that relationships were positive, constructive and strong.
Once we went public, it of course became a little more complex because you have such a broad range of investors. You have the asset managers, the hedge funds and others. You have to do earnings calls with lots of people – you know beforehand usually whether you’re going to get shit or a pat on your back! The interesting thing is they all have different investment philosophies and expectations. You have to deal with that.
Us: Were your first investors a family office?
My first investor was a smaller VC - their shares were later bought out by a family office during a period of accelerated growth.
Prior to this, we bootstrapped for 10 years.
Us: How do you now reflect on your time bootstrapping?
I can barely answer that question because I feel like I looked down at my desk to get started and then when I looked up it was 19 years later and we had achieved our dreams! Bootstrapping was tough but it was worth it in the end.
Us: Was the decision to bootstrap initially a conscious one because you didn't want to raise money, or because you didn't see a need to raise money, or because the money wasn't interested?
Well, first of all, you have to realise that we were in the mid-noughties. People were still dealing with the stigma of the dot-com bubble and the capital market in our home market was a non-starter. So, this is to say, we actually had little choice. But I don’t think this was a negative – actually, the opposite. It forced us to be thoughtful and deliberate. I think that there is too much money available now, if anything, that leads to great inefficiency as well as capital inefficiency within businesses. Rising availability of capital for us was an excuse to pivot to software as a service and raise.
LEADERSHIP
Us: We are aware you are no longer the CEO. How did the succession take place?
I hired the current CEO more than a decade ago – he worked in the team for a long time as he rose through the ranks. He moved from the US to learn about the team and the company and then moved back to the US to form the US sales machine and be country manager. He proved to be very effective.
Us: It seems that merit was always an important factor to how you facilitated future leaders’ growth.
I made sure that everyone on the C-level was equal, they had the same authority. We have always been perceived as one single person, one single entity. The CEO would always have the last say if there were disagreements but we were largely democratic. We were an oligarchy rather than a monopoly!
So, when I stepped away from the CEO role and into more future-facing stuff, it made sense and saw the current CEO’s smooth ascension. To many, I think this was probably expected.
It has long been my view that the role of CEO evolves in time. There are also different types and these evolve as the company scales – you might have a product CEO, a sales CEO, and a financial market CEO. I was always perceived as the product CEO. There comes a time when the product CEO is no longer the right type of CEO - product-focused founders should bare this in mind.
Us: I've been speaking with our people mentor about how to cultivate leadership and future leaders within organisations. It sounds like the accelerated trajectory that you gave them is now paying you back.
Yeah, it was powerful messaging for our employees that you have the possibility to become who you want in the organisation.
Us: And was that always an important value to you (meritocracy within the team, with a relatively flat structure)?
I think it happened more by instinct than pre-set intention – it’s the right way to run things, it’s the ethical way to do things. We gradually developed better methodology on hiring and progression, but it would be disingenuous to suggest this was done early on!
Us: How did you prioritise finding the people to work on this with you in the earliest days? Were they connections you had already? How did that initial team come together?
We first set about building the company around 20 years ago. In our field, there were no blueprints for success, no methodology or best practice. I’ve learned over time that it’s important to have awesome C-level people that are not over-stretched – no one does their best work when they are over-stretched. In practice, this meant making sure we had a superb middle-management layer – middle management often gets a tough ride for getting in the way but these people can really make your business tick.
Us: That’s interesting – could you expand on this a little more?
Well, first of all, when we refer to middle management, there can be three, four, or even five layers of middle management. The most important layer to me and the one I referred to above is the layer that reports into the C-level – the SVPs and equivalent. Being honest, most VPs and Managers are relatively replaceable because they are rarely required to be strategic and forward-looking.
Us: Got it! When speaking to our People mentors, they framed this layer as the ‘heads of’, not the C-level, but not far off and often in the room on big calls. In practice, this means the person that runs your people team, the person that runs your product team, the person that runs your design team, the person that runs your dev team etc. They need to see their opposite numbers in the other functions as their team, as opposed to the people that work underneath them within their team. In these roles, you are ultimately responsible, of course, for what's going on underneath you in your team, but then your primary function to deliver the messages up and down the chain in the right way.
What you really want from a C-level person is that when the numbers, data, decision and ideas are presented to them, that the decision they make is 100% trustable – you want to trust that they have arrived at the right decision without needing to get involved. For these people to make good decisions, they need good middle managers providing them with the best information. You know your middle managers might be a little weak if you’re inclined to get involved in decisions or jump over them to reach the information yourself… If you find yourself doing this, you’ve got a problem, or you might even be creating a problem because you don’t give the mid-manager the chance to take their responsibilities.
DEALING WITH RISK
Us: Were there any moments along the road where you thought the company was going to fall over? Or times where you thought you might run out of money?
Oh, every single day! Every single day, until we became EBITDA positive consistently. I found that being paranoid and pessimistic was the way to survive.
Us: So I guess you’re grateful to have had that attitude now?
Yes, 100%.
Us: What did this approach look like in the business? Was it just about continually identifying and mitigating risks?
Yes, primarily minimising risk.
We tried to always be prepared for a crisis – hope for the best, of course, but prepare for the worst. The best way we coped with this approach was to ensure we were a capital efficient business. The actual EBITDA wasn’t always the focus – we were more focused on the direction of travel. If you have two or more quarters on a negative trend, this is worrisome and can lead to bankruptcy – but if you have the opposite, you are building a great business.
Us: Thank you for sharing this approach! Are you able to share an example of a specific challenge that you thought could be business-ending, or did your approach to being paranoid avoid any such instances?
I think of it as more of a philosophy that we applied in key decisions. For example, we wouldn’t make investments into new teams or projects until the required money was literally in the bank. The other principle we applied was to not count revenues until you have the signed and sealed contract and the purchase order is signed. I took this approach on hiring too – a few times I waited for signatures on contracts before signing on new team members. The day we would get a wire transfer, we would send the formal offer letters – not a day before! It’s a good lesson, basically applying the ‘don’t’ count your chickens approach’!
Us: I guess there can be a difference between the way you communicate about something and what you actually do, the reality – there are always situations in which this can be helpful. This is largely the case with FOMO!
In my case, I didn’t want to found the company until I was reasonably confident that the idea was good and worth building. I was certain on the macro trends, but of course you can never be certain of how it will play out. My feeling was that I only wanted to build something that was B2B and could sell contracts of $5k+ because smaller contracts tend to be more flimsy (that was my perception).
Us: And did you define the roadmap from the outset or were you more customer-led in this expansion of your product suite?
I’d say a mix of both. Customers were certainly helpful in directing our innovations. We of course also had our own ideas. What might make us a little different to others is that we never looked at competitors. We were not interested in what they were doing – with hindsight, I think this worked well for us because we had to build our own vision and own conviction on what needed to be build. We didn’t want to copy anyone because we had confidence we could do it better and lose our ‘original’ approach.
Us: And linked to this, how are you thinking about what’s next in the company and wider industry?
I’ve focused on innovation considerably more since I stepped back from the CEO post. I don’t spend time thinking about what’s happening now, I spend my time thinking about what’s next for the company and wider industry.
I frame it as: what are the pillars in our industry and adjacent industries that are going to move or evolve next? What opportunities does this create? I don't know. But this is the kind of approach I have now, focused on how things will be done in the future.
I think it’s a little exhausting as a fund manager to be naval-gazing so consistently. In the case of a fund manager, you usually think that things happen faster than what usually happens because to you, the future is happening now. There are still people driving diesel powered cars, for example. In reality, when something comes to market, it’s rarely adopted rapidly. ChatGPT and other public LLMs have bucked this trend but they’re a rare case.
Companies in our space will have a long tail and a sticky customer, especially in very large enterprises. They tend to be very slow to adopt to change. This gives companies looking to serve them the luxury of time to innovate. Larger companies have more data at their disposal and it’s increasingly normalised to have better control of this data – so, I do think this could make the adoption curve for many B2B startups more shallower than is currently the case.
Us: When I was looking at the company’s website, I noticed that what I would have considered as a tangential competitor was bidding on your name, meaning they were the top hit. On the subject of competitors, how do you think about competitors now? You spoke a little about this earlier - do you think about these competitors differently now than you did before? Are they threats, rivals, or comrades?
I feel inherently most threatened by companies that clearly have a firm vision towards which they are working coherently. The company bidding on our name is just that – so yes, I do feel competitively towards them but I’m also excited by what they are building. I think this is a more relaxed feeling than I might have had before our IPO… This said, if I was them, I wouldn’t be sitting on their laurels of their vision – most companies in our industry will be dinosaurs in around 5-10 years. The competitor bidding on our name is perhaps simply the youngest dinosaur!
WRAPPING UP
Us: Was there anything you would like to mention – specifically, advice- that you haven’t had a chance to mention yet?
Founder: Certainly. I would encourage all CEOs to take time in their week, for at least a couple of hours, to be deeply strategic, thinking about product strategy, to think about expanding your product range or adding new features, how you market and price the product. These subjects can make or break companies but CEOs rarely have the bandwidth to pursue them deeply.
Us: And a final question, when you first cashed in some shares in the company, what was the first thing that you did with the money?
Founder: First of all, I repaid my mortgage and I spent about 50K EUR on nice gym equipment for my basement. Then I put the rest in the bank.
If you guys are interested in doing some shared investments, please let me know! I am involved with a US VC fund that is interested in your spaces. Let’s stay in touch!
Us: We would love to! Talk soon!
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