This is the biggest trend in hotel tech that you’ve never heard of


Originally published at https://hoteltechreport.com on May 2, 2019.

Creating revolutionary technology for hotels has historically been a slog but lately we’re seeing a change in fate for hotel software companies due to increased investment in the space. One of the biggest investors in hospitality tech is Menlo Park based TCV, the growth equity firm that has invested in breakout companies like Sojern and SiteMinder within hotel tech. TCV has also made major investments in the broader hospitality and travel space such as: Airbnb, TripAdvisor, HomeAway, Expedia, Orbitz, SeatGeek and Toast.

TCV is one of the largest names in the world of technology investing with a successful track record in the massive hospitality and travel vertical. Vertical market software is an extremely hot investment theme right now.

“The easy opportunities for disrupting old-line industries are drying up. Now, many of the up-and-coming start-ups that may become the next unicorns have names like Benchling and Blend. And they largely focus on software for specific industries.” New York Times

Long time TCV investor and former SiteMinder CFO John Burke is excited about the opportunities within the vertical market software. John and his team have identified a trend within a sub investment theme that they’ve coined: “SaaS as a Network”. Here’s how they describe the concept.

“When a SaaS provider starts serving a high enough density of merchants, they can leverage that strength to build two-sided marketplaces with the merchant’s customers, suppliers, and employees.”

David Yuan, TCV General Partner

The general hypothesis is that once vertical market software companies achieve scale with regards to their core products they can always bolt on new point solution functionality but would be wise to focus on a much bigger opportunity. Specifically, TCV believes that these software companies can create two-sided marketplaces that connect their users to new channels of customers, suppliers and employees. Back in February, Hotel Tech Report identified the explosion of marketplaces as one of the 5 biggest tech trends at ITB Berlin, a trend that mirror’s TCV’s investment thesis. Of all the software companies creating marketplaces in hospitality, TCV’s portfolio company SiteMinder has the largest scale to date.

Image from David Yuan’s article SaaS as a Platform, SaaS as a Network

Last year SiteMinder threw its hat in the ring with the launch of SiteMinder Exchange aimed at “breaking down the industry’s notorious integration barriers, connecting hotel systems and applications through smart and simple connectivity.”

“The reality is that few industries are as fragmented as hospitality particularly at the PMS level. There has always been demand for many of the new applications, but innovation has been stifled by lack of connectivity and the sales model makes the economics challenging. Some of these barriers are starting to be broken down by SiteMinder and others which I think can unlock a lot of innovation for the industry. But this is a hard problem and it’s a complicated space with lots of moving pieces so that makes it challenging.”

John Burke, TCV Executive Vice President

SiteMinder’s Exchange marketplace is aimed at allowing other applications to access the firm’s broad user base consisting of more than 30,000 hotels worldwide. Most of those hotels are using SiteMinder’s highly popular channel manager which connects hotel inventory to 3rd party distribution channels as well as other products within the firm’s broader guest acquisition platform such as a rate intelligence tool and an online booking engine. The firm is betting that it can add value for users by allowing them to try more hotel tech applications with ease and in turn create new business opportunities for those suppliers.

We sat down with Burke to discuss his views on hotel tech, the future for platforms like SiteMinder Exchange and highlight the most cutting edge developments happening right now within the hotel space.

How did you get into venture investing?

I’ve been in and around venture since 2011. I started my career with EY in their audit and transaction advisory teams. Getting into venture was a bit of good timing and persistence. The TCV team were looking for an immediate hire and decided to take a chance. I was with TCV from 2011 to 2014 as part of the B2B software team. As I thought about what was next for me, I was drawn to the experiences and mentorship of the TCV Venture Partners (e.g. former senior operating executives such as Erik Blachford). The tech market at that time had been heating up with a few high-profile IPOs. It was my belief that the next wave of great investors was not going to be able to rely on multiple expansion or financial engineering. I believed the best investors over the next 10 years would need to be partners driving actual business growth.

That brought me to SiteMinder down in Sydney, Australia. TCV had just led the Series B investment in the company, and the fundamentals of the business were remarkable. On top of that, they were ramping up for aggressive growth across Europe, SE Asia and were about to launch in the U.S. which I thought would be great experience. I was also excited to work with Mike Ford and the entire SiteMinder team. Mike is a special entrepreneur who is not only very smart and a product visionary, but also authentic and humble. I joined SiteMinder initially in an analytics role and then for the next 3.5 years as CFO. For family reasons, we decided to move back to the U.S. last year, where I reconnected with TCV and rejoined the team. I continue to spend a lot of time in the hospitality and vertical software space and TCV just led an investment in Toast, an exciting next-generation restaurant platform.

Tell us about TCV.

TCV was founded in 1995 as a $100M venture fund and today has raised over $15 billion across 10 funds, focusing exclusively on technology companies. We recently began investing out of TCV X, a $3 billion fund. TCV looks to partner with companies that have potential for a sustained category leadership position and are looking to succeed at an even greater scale. This typically means that a company has been growing for several years — with a history of customer trust and engagement and a business model that is reflective of the value they provide. We are flexible on transaction type with experience in public and private markets and are comfortable in minority or majority positions. Over the past 24 years, we’ve had more than 60 IPOs in our portfolio and have worked with some of the largest franchises in technology including ExactTarget, Facebook, Netflix, GoDaddy and Spotify.

At this point, I’ve talked with many investors in the space which helps me appreciate how the various funds are different. For TCV, I think it’s the depth of industry knowledge and a growth mindset. We have close to 100 team members now and our investment team focuses every day on technology and goes deep in verticals and sub-verticals. When we identify a compelling technology trend, we take the time to thoroughly understand the underlying drivers, business model, and competitive environment. Having a developed perspective means we can have much more meaningful conversations about a company’s business and growth opportunities and are positioned to be a better thought partner for the executive teams as they drive towards expansion and category leadership. We’re not afraid to make bold bets especially when we have conviction on category leadership and to do whatever it takes to help companies reshape industries.

Can you talk about TCV’s view on hotel tech and its SiteMinder investment?

Travel and Hospitality has been a core focus of TCV for well over a decade. In addition to SiteMinder, the active portfolio companies we are working with include Airbnb, TripAdvisor, Sojern, Tour Radar, and Klook. Previously we were investors in Expedia, HomeAway, Orbitz, and Travelport, among others.

For SiteMinder, TCV led the Series B round and we have continued to stay active with the company as the lead director since then. Two of my partners David Yuan (General Partner) and Erik Blachford (Venture Partner) continue to serve on the Board of Directors.

SiteMinder has an incredible history, where is the company today?

SiteMinder is a hotel guest acquisition platform that connects hotels to future guests, so hoteliers can go back to doing what they love. It’s trusted by more than 30,000 hotels of all sizes, across 160 countries and has helped generate more than 87 million reservations worth over US$28 billion in revenue for hotels each year.

SiteMinder is based in Australia, how did you come across the investment?

It was a team effort. Back in 2011 to 2013 we spent a bunch of time mapping out the ecosystem for online travel and hospitality attending industry shows like HITEC and Phocuswright. Ultimately, we identified the channel management sector as promising albeit a lesser known segment in the category. Our view at the time was that online travel was increasingly complicated and in flux with new players vying for hotel distribution. Independent hotels were harder to aggregate but would also allow these same middlemen an ability to offer differentiated supply that was higher margin. Channel management became interesting because it aggregated and provided connectivity to this supply. We thought this was a hard problem particularly to do in a cost-effective way but when executed it could be highly strategic given the long-tail nature of both hotel supply and PMS. From there we focused on the best product and category leader which led us to SiteMinder. One of my colleagues got us an introduction to Mike Ford through an employee. We then got on the 14-hour flight over to Sydney and created a deal.

What’s one piece of advice you have for hotel tech entrepreneurs when raising capital?

Test the investors. Anyone can look at metrics, but make sure you push them on the nuances of your positioning and make sure they understand the depth of your industry and strategic implications of the various alternatives. Mike did this to us in a big way when we pursued SiteMinder and it always stuck with me.

One pitfall I’ve seen is entrepreneurs who get ahead of themselves with regards to the amount of capital raised or valuation and focus on those items vs. choosing the right partner. This can have implications down the road. I would say to raise what you need and what strategically makes sense given your market and opportunity. And focus as much time and energy as you can on the partner. In addition to the strategic perspective which is table stakes, I tend to think entrepreneurs should focus on investors with candor (to drive constructive feedback delivered in the right way) and humility (it’s all about the team and this also makes it more fun).

How do you think the hotel technology space will change over the next 5-years?

It’s a great time to be in hotel technology given how dynamic this market is. I think we are still early in the growth journey for hotel software. In my mind, there is no doubt that software will continue to play a larger and larger role in the next 5 years and continue to reshape the industry and guest and operator experience. We have also been spending a bunch of time on a thesis we are excited about, called “SaaS as a Platform and SaaS as a Network,” which is around the continued extension of the SaaS business model and platform companies leveraging their position in creating marketplaces with employees, suppliers, or customers. I think this trend has many opportunities in travel.

For hotels specifically, I think data, connectivity, and personalization will only increase in importance. Tools like SiteMinder Exchange, which is a data layer connecting PMS with applications and demand channels, can be a big part of this and drive innovation.

I also think there will continue to be more dominant global players with companies like Ctrip continuing global expansion and Google, Facebook/Instagram, and TripAdvisor starting to see momentum on their new models. The lines in the accommodation industry will continue to blur as Airbnb ramps up their investment and focus on hotels as well.

I also feel labor management will matter more, and there will be new innovative ways to tackle this challenge. This is something we’ve seen in the retail vertical which I think will also make its way to the travel industry.

People often say that the hotel industry is a bit slow to adopt technology. Do you agree?

I agree. But I don’t think it’s been driven by the lack of interest or desire. Hoteliers care deeply about guest experiences and the ones that I’ve spent time with often always go above and beyond what’s expected. The reality is that few industries are as fragmented as hospitality particularly at the PMS level. There has always been demand for many of the new applications, but innovation has been stifled by lack of connectivity and the sales model makes the economics challenging. Some of these barriers are starting to be broken down by SiteMinder and others which I think can unlock a lot of innovation for the industry. But this is a hard problem and it’s a complicated space with lots of moving pieces so that makes it challenging.R

If you were leaving venture capital tomorrow and forced to start a hotel technology company — what would it be?

That’s a tough one. Part of working in an operator role at SiteMinder helped me realize how hard it is to be an entrepreneur and scale a company. This only deepened my respect for what they do. I’m a big believer that you need to follow your heart, so I’d want to align it to something I am passionate about. Maybe I’d do something connecting hotels/travel and yoga which is something I’ve come to enjoy. And being a CFO and travelling a lot, I also think the opportunities in corporate travel remain significant.

What is the most interesting or surprising thing that you’ve learned from investing in hotel tech?

Not too much is surprising me at this point. It feels like there is never a dull day in hotel tech! One thing I did notice about some of the larger players in the space is that they serve hospitality, but at their core they are surprisingly not hospitable. One of my partners recently did a podcast with the former CMO at Airbnb and Coca-Cola and he talked about authenticity as an enduring and compounding competitive advantage. I think this is something that will matter more and more. I think it will eventually catch up with those companies who forget that, especially in hospitality tech.

What is the best book you’ve read lately and why?

“The Outsiders” by Will Thorndike. I read it a couple of years ago and it continues to stand out to me. The book profiles eight understated CEOs who took a different approach to corporate management. These “outsider” CEOs often didn’t have the charisma that society has conditioned us to expect and were often in their position for the first time. Humble, unassuming and often frugal, they shied away from advisors and the hottest new management trends, instead focusing on a pragmatic and a disciplined approach to capital allocation which drove extraordinary returns. I found myself getting lost in each of their stories and admiring their independent thinking and patience to wait for the right opportunity. “Shoe Dog” and “Limping on Water” are two others I enjoyed.

What is your favorite podcast?

The top 3 for me right now are Farnam Street, Invest Like the Best, and Acquired. All the them have caused me to think differently and continually expand my curiosity.

What is one thing that most people don’t know about you?

I love yoga and meditation.

For all the startups that might want to pitch in TCV’s office, what can you tell them about your investment criteria?

We recently began investing out of TCV X, a $3 billion fund, so the opportunities we pursue are typically between $30–300M. We tend to be flexible on all other aspects of a transaction type and focus on category leadership potential and growth. I really enjoy spending time with entrepreneurs and would love for folks to reach out even if they are a bit early. Companies can scale quickly so we would love to start a relationship well in advance.


Originally published at https://hoteltechreport.com on May 2, 2019.

The views and opinions expressed in the post above are that of the author and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). This post is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by TCV or any of the securities of any company discussed. This post is intended solely for prospective portfolio companies and their agents regarding TCV’s potential financing capabilities. The TCV portfolio companies identified above, if any, are not necessarily representative of all TCV investments, and no assumption should be made that the investments identified were or will be profitable. For a complete list of TCV investments, please visit www.tcv.com/all-companies/. For additional important disclaimers regarding this document, please see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/.


SaaS as a Platform, SaaS as a Network: Building the Next Generation of Vertical and SMB SaaS Leaders

By David Yuan, General Partner at TCV

My colleague John Burke, TCV Executive Advisor Tim Barash and I recently hosted an offsite focused on a couple of emerging trends that we believe are dramatically expanding the opportunity set and economic strength of vertical and SMB SaaS companies.  We call these trends “SaaS as a Platform” and “SaaS as a Network.” 

“SaaS as a Platform” recognizes the power of vertical/SMB SaaS to leverage end to end workflows to build “rails” to their merchant’s customers, suppliers and employees. There’s massive economic capture, customer delight, retention benefit, and data insights that are garnered in monetizing these rails through financial services, employee services, and supplier services.

“SaaS as a Network” takes that evolution one step forward. When a SaaS provider starts serving a high enough density of merchantsthey can leverage that strength to build two-sided market places with the merchant’s customers (more on consumer networks–see my talk with ZipRecruiter CEO), suppliers, and employees. Now that SaaS vendor has now created a marketplace that can enjoy powerful network effects that rival consumer businesses like Airbnb, Facebook, and Apple. In addition, because marketplaces models tend to extract a take rate on GMV, for that SaaS vendor, the TAM and unit economics explode (in a really good way).

We believe SaaS as a Platform and SaaS as a Network offer a step function expansion of the SaaS business model, and is one of the most important themes in software investing. 

To this end, we’ve invested in a number of companies, including AvettaCCCGoDaddy, Grupa Pracuj, Klook, LegalZoom, SiteMinder, Toast, and Xero, that we believe are starting to benefit from these trends.

We’re super excited about these trends and my colleague John Burke will be publishing more on this topic! 5/16/19 Update:

###

The views and opinions expressed in the post above are that of the author and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). This post is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by TCV or any of the securities of any company discussed. This post is intended solely for prospective portfolio companies and their agents regarding TCV’s potential financing capabilities. Executive Advisors are typically independent consultants who are not employees of TCV but have a strategic relationship with TCV and/or provide valuable advice or services to TCV or its portfolio companies. The TCV portfolio companies identified above, if any, are not necessarily representative of all TCV investments, and no assumption should be made that the investments identified were or will be profitable. For a complete list of TCV investments, please visit www.tcv.com/all-companies/. For additional important disclaimers regarding this document, please see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/.


A Founder’s Perspective: The Journey on the Private Equity Highway

Glenn McCarty and his partners built an innovative software company that transformed the quality standards movement. Glenn recently sat down with TCV General Partner Kapil Venkatachalam to talk about the early days of the company and deciding to sell it 25 years later. He also shares advice for founder CEOs of technology companies looking to scale their business and what to expect if they decide to go down the private equity path. Key topics include:

  • ETQ’s origins and early pivots
  • How to assess your buyout options and find the right partners
  • Preparing for success in the due diligence process
  • How to bring your team on board

The Early Days…

Kapil Venkatachalam: How would you describe what ETQ does?

Glenn McCarty: Most people today know ETQ as a provider of a quality management software platform that automates the process of organizing operating data for managing compliance and quality improvement across a variety of industries, including automotive, healthcare, pharma, energy, food and beverage, and chemicals. It’s designed to layer onto a company’s existing processes while opening up much better visibility into opportunities for increasing quality and competitive advantage.

Kapil Venkatachalam: I’d love to hear more about the roots of the company…the cocktail-napkin story. As I understand it, you were a consultant rather than a technologist when you launched ETQ.

Glenn McCarty: Technically, I was an auditor. In the 1980s the U.S. had gotten behind the curve for manufacturing quality. The rest of the world was pushing ahead with ISO 9000, an international standard for improving manufacturing processes, as a way to improve product quality. It was becoming hard for U.S. companies to sell products in Europe and Asia that didn’t come from factories with ISO 9000 certification.

Kapil Venkatachalam: How did this lead to the formation of ETQ?

Glenn McCarty: I was working as a quality engineer for Underwriters Laboratories in the U.S., and I was getting bored with testing hairdryers. ISO 9000 was the big international trend in manufacturing at the time. So I joined a group that was doing ISO 9000 audits.

We were giving failing grades to tons of manufacturers, because their processes just didn’t measure up to the standard. We would get together with other auditors after work and feel terrible. I was a 20-something quality auditor sitting in a boardroom of a large company and telling the executive team all the quality issues they faced.

Kapil Venkatachalam: Did you see the vision for ETQ given the demand and had it figured out from that point on?

Glenn McCarty: Not even close. We started a consulting firm, because we saw that the big accounting/consulting firms did not offer services to address ISO 9000. So we pioneered that market. The thing is, we were able to help a lot of companies achieve ISO 9000 certification, but then they struggled to maintain it. American manufacturing was heavily oriented toward inspections and testing, while ISO 9000 focuses much more on process management with continuous improvement.

Pivoting to Software

Kapil Venkatachalam:  What led you to pivot from consulting to software?

Glenn McCarty:  Two things. First, we knew from our auditing and consulting experience that every company was different. They really valued the processes they had developed to become successful, but there was so much variation from company to company. While consulting was a great business that filled a need, it was not scalable — we had to start over with every company to learn their business. The other issue was that to maintain ISO 9000, U.S. companies had to collect tons more information about their processes than they were ever used to and capable of. It was a serious data management problem.

Kapil Venkatachalam: And this was decades before what we now call the “digital factory.”

Glenn McCarty:  Exactly. No one was offering software focused in this area.

Kapil Venkatachalam: What did you initially envision for the product?

Glenn McCarty: We knew there was a need for something more versatile than the document management systems of the time, which had some nascent workflow capabilities. Companies needed real workflow-based systems to lead their operating personnel through the process, track/capture their process data, to capture their decisions. So we decided to develop technology to track everything:  all the training records, audit findings, document approvals and revisions, different corrective actions or non-conformances that went on in a factory.

When we made the software, the first epiphany was that we had to develop software that could be configurable, not customizable. And it all came from our auditing/consulting days, knowing that companies have distinct processes. They had to be able to layer the software over their own processes.

Assessing the Private Equity Route

Kapil Venkatachalam: When did you start thinking about an exit? What drove that decision? 

Glenn McCarty: Things were going well for us, growth was high, and the profits were great relatively speaking to where we came from – we started in a basement. And we said, “Let’s continue growing this, we can do this.” We kept our heads down and kept hitting our targets. As a founder, you think there are no limits to growth. And while I still believe that’s true, I began to realize that home-grown leadership had its limitations. That’s simply reality. I began to wonder what was out there.

Kapil Venkatachalam:  How did you put that realization into action? 

Glenn McCarty:  The truth is, we used to get letters from various companies saying they were interested in investing in us or acquiring us. We didn’t even respond to them. Then one of our competitors was bought by a large company. I called that company up and said, “Hey, why did you buy our competitor? We’re stronger than them, we’re bigger than them, we’re better than them.” They said, “Well, you wouldn’t talk to us.” That’s when we started to explore our options to bring on a partner.

Kapil Venkatachalam: Did you have a framework to evaluate partners?

Glenn McCarty: We didn’t have much of a framework, but we did have some goals. The main goal was to maximize the value and the potential of the business. That, for us, meant we wanted two things in our partner. One was keeping ETQ intact as a business. We had seen scenarios where competitors were bought by a platform company and integrated into another model. We didn’t want that. The other key aspect for the partner was to bring a lot more than money. To maximize the value and potential of the business, we needed a partner with domain expertise, someone who could understand what we built and take it to the next level.

Kapil Venkatachalam: What about a good fit in terms of culture?

Glenn McCarty: Really important. Working with like-minded people, who see things the way you do, makes everything easier. That realization came quickly, after we began meeting with potential investors. A lot of them had their standard approach, and we were supposed to just fit into it. For example, there were the folks that said, “When we buy you, we’ll keep you folks as the executive management team. We want to come to board meetings and have you report to us on how great you’re doing.”

Kapil Venkatachalam: Was that appealing?

Glenn McCarty:  When we asked, “How are you going to help us with our products, with sales and marketing?” they said, “Well, we know people.” And I said, “No, that’s not going to work.” Then we had other people say, “We’re going to send you back to “school.” You’re going to have to do this our way.”

I’m an engineer and went to many years of school before I graduated. The last thing I wanted was to change everything we had built and stood for. What we were hearing was either status quo or a reeducation program, but our main goal was to maximize value and potential.  We recognized that we needed a partner who offered value creation via a true partnership.  Once that came into focus our next steps became clear.  I would advise founders to seek a partner who can think about your business and your goals the way you do and bring in improvement and new sources of value. Because you’re going to be talking about that value, and working on that, side by side, for months to come.

Kapil Venkatachalam: Once you knew what type of partner could offer the right fit in terms of your objectives and culture, you headed into the private equity journey. In hindsight, what lessons would you offer to other people who are thinking about taking this journey?

Glenn McCarty: In retrospect, the most important thing is to prepare. Like everything else in life, luck favors the people who are ready for it. You have to think ahead about what buyers want, so you don’t wind up doing fire drills down the line because you weren’t prepared. You want to show them a smooth-running business with a ton of potential.

Kapil Venkatachalam: What are the keys to good preparation?

Glenn McCarty:  I would say there are two things. First, surround yourself with good advisors. You are not in the business of selling companies, so get people who are experienced. Your cousin, your sole proprietary accountant or lawyer, the people on your softball team might say he or she can advise you, but it’s unlikely. The reason it’s unlikely is, if they were experts in buying and selling companies then they would be doing that for a living. You don’t ask your CFO to write code, because that’s not what she/he does.

Kapil Venkatachalam: Also, no one expert or firm is going to be the best at everything.

Glenn McCarty:  That’s right, you want experts in each area of financials, taxes, legal, and so on. And this gets us to the other big thing about preparation: you have to get your management team ready. In most cases, they are going to be the ones working with your expert advisors, and then with the experts from the acquiring company. As the CEO you are relying on your management team to raise the bar to meet the due diligence level. You need to make sure that the right people on your team are aware of what’s coming their way and connect them with the right coaches, so they can be prepared in terms of their time, their systems, and whatever information they are going to have to present.

Kapil Venkatachalam: What are some of the points you might use to differentiate buyers?

Glenn McCarty:  You want to know how many founder-owned companies the potential partner has acquired in the past. How many of those companies did the buyer scale up successfully? What is their expertise in sales and marketing or product development? How many other companies in their portfolio could become customers or business partners for you? You want to know all these things, because the potential buyers are doing exactly the same analysis of your company.

Kapil Venkatachalam: Let’s dig a little deeper here and talk through the different areas of preparation for the due diligence process.

Glenn McCarty:  The first thing to realize is that it’s going to be time-consuming. It’s easy to think that you already have your house in order, because your business is humming along. But the buyers have a completely different perspective. They will require you to participate in a due diligence process to demonstrate your companies past and future potential.

Kapil Venkatachalam: Explain why financial systems matter, along with the numbers.

Glenn McCarty:  In hindsight, while you might think the world of your business and its strategic value, at the end of the day the objective measures of success are financial. If you think you are headed for private equity, you may want to invest in better financial systems first. If you do not have a CFO, you might want to seriously consider bringing one on even though you only have one to three years to go before exiting.  One of the benefits is that your financial advisors won’t have to work so hard to explain your financials. They are going to spend some time at this no matter what, but better systems speed it up.

Kapil Venkatachalam: Many founders are aware of the need for strong financials, but they are surprised by the amount of purely legal work that also has to get done.

Glenn McCarty:  We had not realized that our contracts with customers and suppliers would be scrutinized. You have to prepare an amazing number of documents for a transaction. So yes, you need good legal advice and some leverage for document creation, and it should be from a firm that specializes in the type of transaction you are doing. Even with support from an outside legal firm, your General Counsel will be spending a huge amount of time on a transaction, so you have to make plans for them to continue with the business operations while the transaction process is in play.

Kapil Venkatachalam: So now you have your advisors lined up. They’re all experts. But the people on your team may not be experienced in the process ahead. What do you tell them? How do you prepare them?

Glenn McCarty:  First, it’s important to understand the implications of what you are asking. In our case, we had a lot of long-term employees who had worked their way into senior management, so they had never seen this process somewhere else. In that situation, you have to ease them into the whole idea, bring them into your thinking, and get them aligned before you start explaining what they’re going to have to do.

Kapil Venkatachalam: Is this an area where you can get advisors involved?

Glenn McCarty:  I think you have to get them involved, because they know the drill and probably most of your team doesn’t. They can provide education about the process before it starts and coaching all the way through it. You need this because the same employees you are asking to help you sell the company are also running it. No matter how you look at it, this is an ask that is an additional task to their day job. The danger of distraction is there. You need your team to be on top of the due diligence process, while also making sure the ship doesn’t lose speed or direction.

Kapil Venkatachalam: That’s great, thanks, Glenn. My final question is about the takeaways for founders who may be looking at these options. What’s your advice in a nutshell?

Glenn McCarty:  Private equity firms provide an interesting alternative to help you maximize the potential of what you have already built. That said, you have to take the time to find the right firm for you – whose values, experience, and vision are aligned with yours. As we discussed earlier, you have to prepare your team for the journey before you lead them on it. And finally, recognize the value of good advisors. They are worth the money because they bring you the right partners and prepare you for a successful partnership. Selling your business is both exhausting and exhilarating, and I am grateful for all the support I received.

Kapil Venkatachalam: Thanks so much, Glenn.

###

The views and opinions expressed in the transcript above are those of the speakers and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). This transcript is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by TCV or any of the securities of any company discussed. TCV has not verified the accuracy of any statements by the speakers and disclaims any responsibility therefor. The TCV portfolio companies identified above, if any, are not necessarily representative of all TCV investments, and no assumption should be made that the investments identified were or will be profitable. For a complete list of TCV investments, please visit www.tcv.com/all-companies/. For additional important disclaimers regarding this document, please see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/


TCV 2018 Year-End Newsletter

TCV Concludes A Successful Year: Check out Recent Investments, M&A and IPOs, TCV Team News, Technology Perspectives, and Insights from our Customer Acquisition Forum and CTO/CIO Summit.

 


From Startup to Global Scale: Securing and Building the Company’s Culture Are Keys to Success of Tech Leaders

The days when technology chiefs could focus simply on hardware and software are gone. For technology leaders, aligning IT with long-term strategy and attracting and nurturing a winning team has become key in a world where customer expectations are growing, and the pace of change continues to accelerate.

Today’s technology businesses need to think strategically at the local, national, and global level. Many companies run business online or mobile first and are getting creative and competitive advantages from collecting and analyzing consumer data. This provides both opportunities and challenges: on one hand, companies can get access to global customers fast, yet they are also facing competitors both at home and abroad, not to mention threat actors who could be located anywhere and can come at you with sophisticated attacks. It’s your talent against theirs – with your enterprise and your customers in the middle.

At TCV, we’ve been focused on talent and culture as critical success factors for more than 20 years. Many of our investments have turned on building or sustaining successful cultures and nurturing them with the right people. For this year’s invitation only CTO/CIO Summit we decided to look at talent and culture together with the challenges of globalizing and securing the enterprise. We brought together over 40 technology executives, including founders, product leaders, TCV partners, and — of course — CTOs and CIOs, in Half Moon Bay, CA, for an opportunity to build peer relationships, learn from shared experiences, and discuss top-of-mind issues facing these leaders. We also mixed up the “talent” for the event itself, drawing not only on working CTOs and CIOs but also career IT experts with consulting and investing experience across multiple industries.

For us, the most important part of the two-day event was gaining a deeper understanding of both the challenges and opportunities technology executives need to balance, including:

  • Winning the Talent Wars and Creating a Winning Culture
  • Building a Globally Distributed Organization
  • Privacy and Identity Initiatives and Securing the Enterprise
  • Our agenda centered around best practices in scaling a global organization. Other topics we discussed included how to integrate acquisitions and best practices in managing a global workforce.

Here are the highlights:

Over dinner, Zillow CTO Dave Beitel spoke about how technology has transformed the real estate industry. Dave joined Zillow in 2005 and has seen the company grow, both organically and with 13 acquisitions in the last 12 years. Dave explained the importance of creating a strong culture across multiple locations and laying out paths to career development to motivate teams as organizations scale. He also provided advice on a common challenge that many growing companies face, particularly how to integrate offshore teams and make them an extension of existing efforts rather than adjacent resources. He also discussed with the group how to achieve success in scale with multiple office locations and different cultural identities.

Tim McAdam led the next day’s first panel with Victoria Schillinger, VP of HR at Alarm.com; Caroline Horn, Partner at Andreessen Horowitz; Michael Morell, Managing Partner at Riviera Partners; and Jonathan Schoonmaker, SVP of HR at FinancialForce. Their topic: winning the talent wars against today’s tech giants. The practical tips flowed freely, starting with university recruiting. Pick a few schools and work them, including both Ivy League schools and state colleges. Build relationships with influential faculty. Introduce your brand to younger students, not just seniors. When they become interns, give them meat to work on, not crumbs – having an impact is what they value most. If they turn down an offer, wait 2-3 years and call again – they may not be having the impact they expected at that big company they chose. Retaining key talent has to be proactive. Sit people down and map out how they will develop themselves and increase their impact by staying with you. Give them management opportunities so they can imagine themselves as leaders. Don’t expect diversity to walk in the door — look for talented, highly motivated people who come from completely different fields such as law or the military. And finally, the 90 days after a new hire starts are more important than the 90 days spent hiring them. Set them up for quick wins, build in plenty of touch-points, and make sure they’re comfortable in the culture.

Ted Coons continued the conversation with a focus on talent and culture, talking with Kameron Kordestani, a partner at McKinsey & Company, and Otto Berkes, CTO of CA Technologies, about building a globally distributed company. Both speakers separated the “artifacts” of culture – posters, slogans, logos – from its essence: ways of working that make the organization succeed. People who embody those essentials should be made ambassadors to new acquisitions or newly built development centers, so that people new to your culture can experience it live. When new team members absorb it, they should be given broader responsibilities in the combined company – this leverages their talent and inspires their original team. Particularly after M&A, the acquired team needs to understand its role and contribution to the combined entity; this should happen quickly and positively. Pay for travel if you can; people in far-flung organizations form bonds faster when they meet in person. Both Otto and Kam warned against sticking too closely to integration playbooks, particularly when the acquired technology is new or different. Sometimes a talent-rich team should not be integrated rapidly. Don’t compromise on security or safety but take time to observe how they work before you impose on a new team – the last thing you want to do is spoil an acquisition by how you integrate it.

TCV EIR Jonathan Shottan, Manmeet Singh, Co-founder and CEO of Dataguise and Pablo Jensen, CTO of Sportradar pulled back the curtain on Europe’s General Data Protection Regulation (GDPR) and California’s new privacy laws. Simply put, GPDR is about What, Where and Why: What private data do you have? Where is private data stored? Why do you need to process that private data? Both the compliance challenge and market opportunity of the new regulations are huge and what unites them is the challenge of identifying the vulnerabilities. Many companies mistakenly believe they are compliant, because they encrypt and segregate various types of customer data physically or in the cloud; but when they bring data types together for analysis, they create “PII” – personally identifiable information. The new laws also require companies to delete data if customers demand it, but that’s likely to create havoc with legacy database applications built on relational technology. And how do you delete older data stored on physical media? Enter data masking, at production scale, to stand in for deletion and encryption. First movers — with enough IT spend on decoupling, segregating, and masking data — may even competitively enhance their brands as “more secure” than others.

After lunch, Ted Coons and Charles Beadnall, CTO of GoDaddy, delved into the transformation of GoDaddy’s culture, a process that started back in 2013. Engineers loved the company’s mission of providing small businesses with a home on the internet, but deterrents included fly-over geography, aging facilities and sensationalist marketing. With a new CEO – and marketing campaign – GoDaddy began recruiting heavily. The challenge was forming a new culture that welcomed both existing employees and a flood of new developers in ways that produced better products, faster. Charles employed a version of the 80/20 rule: if he could populate 20% of a department with more diverse people who modeled the right behaviors, they would tip over the rest. The company hired people based on referrals, recruited many female graduates from local universities and placed experienced diverse hires in senior IT roles. Charles also drew in Ph.D.s from MIT and spent time with teams around the globe to transform a culture while keeping the company focused on growth.

Matt Robinson led the day’s final session on securing the enterprise with Amir Ben-Efraim, co-founder and CEO of Menlo Security; Rob Fry, VP of Engineering at JASK; Robert West, Managing Director at Deloitte LLP; and Christian McCarrick, VP of Engineering at Auth0. Matt first asked the panel how CIOs and CTOs should differentiate among today’s legions of security providers. Recommendations included assessing your vulnerabilities so you’re asking the right questions, getting referrals from peers, and anticipating the inevitable consolidation among security providers. Not every company needs an industry giant – those companies were startups once, and today’s upstarts may have superior technology. The panel then discussed prioritizing among today’s proliferating threats. Getting governance in place is critical – if no one fully owns the security portfolio, priorities will be set for the wrong reasons. If the role falls to you as CTO or CIO, you must be (or become) a good storyteller to convey the threats to your company and build consensus on addressing them. It’s also vital to recognize that malware will get inside your systems, but it won’t be the end of the world if you’re prepared. Ultimately the biggest weakness of all security systems is the human element. Education and training are essential and need to be on the agenda regularly. In addition, Amir argued that companies should hold vendors to a higher standard, aiming to receive 100% efficacy to keep companies protected.

We are grateful for all the valuable insights our speakers shared with attendees and the TCV community we strive to create. We look forward to exploring new topics and connections during our next TCV event.

###

 

The views and opinions expressed are those of the CTO/CIO Summit speakers and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”).  This summary is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by TCV or any of the securities of any company discussed.  Not all companies discussed above are TCV portfolio companies.  Any TCV portfolio companies discussed above are not necessarily representative of all TCV investments, and no assumption should be made that the investments identified were or will be profitable. For a complete list of TCV investments, please visit www.tcv.com/all-companies/.  For additional important disclaimers regarding this document, please see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/.

 


Match Play: Lessons in Leadership

On the heels of the final rounds of the 50th US Open Tennis Championship, TCV’s General Partner John Doran sat down with George Mulhern, former tennis pro and CEO of Cradlepoint to discuss lessons learned on and off the court. In addition to being CEO of Cradlepoint, a global leader in cloud solutions for 4G/5G-enabled networks, George has been instrumental in driving economic growth in the Northwest region as a venture capitalist. Throughout his 20+ year career, George has drawn on his experiences on the tennis court to succeed through the highs and lows of the ultra-competitive tech industry.

Key takeaways include:

  • How to develop a competitive mentality that keeps you focused
  • The right attitude for responding to adversity
  • Why the mindset of your company’s culture determines long-term success

***

John Doran: It’s not every day I get to talk with a fellow tennis player about what the game can teach tech founders and CEOs. How far did your tennis career take you?

George Mulhern: I went to college on a tennis scholarship and then played for a short time on the American Express Satellite tour, which is like the minor league of professional men’s tennis. That was far enough to know that I would have to make my living doing something else.

John Doran: What did tennis teach you about competing in the technology business?

George Mulhern: One of the most important competitive things you learn in tennis is to never give up when you are behind. You can turn around a match completely, like a major pivot in technology, if you keep your head and adjust your strategy and tactics. It truly is not over until it’s over. An equally valuable lesson, one you usually learn the hard way, is to never let up when you are ahead. If you lose momentum it is much tougher to get back on top, and you also give a big shot of confidence to your opponent. The same is true in business. You can never rest on your past successes. Every day is a new game and you have to approach it with the intention and intensity to win.

John Doran: Pro players often talk about knowing their competition and anticipating how a certain player will try to compete against them. Do you see parallels in your business life?

George Mulhern: My experience was that no matter how much you study your competition before a match, it is impossible to completely predict how they will behave. It is more important to have keen situational awareness, flexibility in your own game and the agility and willingness to rapidly adapt. Then you’re ready no matter what the opponent comes at you with.

John Doran: In tennis, top players often try to balance their strengths and stamina and stay in a match with a view to turning around the momentum. Has there ever been a time when you would conserve energy against an opponent in a long match?

George Mulhern: The context for those comments is that players today are achieving a level of conditioning that is unprecedented for tennis. They’re hitting harder and running more for every ball. So you can win a match by outlasting the other player, not just outplaying them. The same is true in technology. If you are investing enough time and effort into that level of conditioning, you don’t need to conserve your energy. Your competitor should run out of gas before you do. By conditioning I mean ensuring that you have, or are acquiring, the skills and capabilities your company needs to sustain success for as long as you stay in business.

John Doran: It’s often said that success in tennis is as much about the mental side of the game as it is about physical talent.  In your world now, as CEO, having a strong mental game is fairly pivotal as well. How do you keep your mental game sharp in the tech business?

George Mulhern: There are all kinds of distractions when you are playing competitive tennis: fans, competitors, weather, injuries, illness, even the last shot you missed. You need the mental toughness to put all those things aside and focus on what is most important, which is the point you are playing right now. It is the same in the tech business. The distractions are different – there is always the latest shiny object grabbing at your attention – but the challenge is the same. You have to stay focused on the key value drivers of your business.

John Doran: On the WTA tour, I understand that coaching is now allowed during matches at certain times, giving the coach a potentially bigger influence on the outcome of a match. Can you share any feedback that you took from your tennis coaches over the years that you still use today?

 George Mulhern: My college coach, whom I now think of more as “Yoda,” taught me it’s not about who has the best strokes or shots. It’s about a simple decision you have to make: (Yoda voice) “Winner, do you want to be?” If you do want to win, then the challenges of becoming a winner don’t feel like a sacrifice. They energize you. You are more than willing to put in the hours of practice and conditioning. You embrace the need to change something in your game if that’s necessary, and you summon the courage to fight until the last shot of the match even when you’re tired and it starts to feel hopeless.

John Doran: Applying the coaching metaphor to your business experience, what kind of performance feedback is most valuable?

George Mulhern: Direct and honest is the best. As you rise in an organization, more people will tell you how great you are. You have to find the folks that will tell you the things that aren’t so positive and nice to hear. As you move into higher levels of leadership you need to grow a thicker skin, but with some permeability so you can accept critical feedback and not over-personalize it. It’s just business. You use the feedback to improve and move on.

John Doran: One of the commonalties about this generation of top tennis players, especially in the men’s game, is the ability of the top players to continually improve and add to their games, allowing people such as Federer, Nadal, and Djokovic to stay on top for so long. In the business and technology world, how do you ensure you’re making the necessary improvements to your game to stay ahead of the competition?

George Mulhern: My first year of college tennis, it really hit home to me that I had to get better every day, because there are a whole bunch of other guys out there who certainly are. It is the same in technology. Every technology company’s culture has to instill a sense of urgency and willingness to embrace and adapt to change. Your existing competitors are striving to improve, new competitors are starting up, and they all want to take your market share. At Cradlepoint we say, “stay humble and hungry, or you will be.”

John Doran: Even the greatest tennis players of all time have lost big matches throughout their careers. What can business leaders learn from that? How do they recover?

George Mulhern: It’s one match. Learn from it, adapt where you need to, and get over it. People in your organization will take their cues from you and react the way you do, so don’t run around like your hair is on fire. Just go to work on finding the path to the next success.

John Doran: Did any of the great tennis players of the past inspire you in ways that affected your success in business?

George Mulhern: One of my life lessons came from a tennis idol of mine – Arthur Ashe. When he was asked what it takes to become a champion, he said “start where you are, use what you have, do what you can.”  Whenever I am faced with what seems like an insurmountable challenge or problem, I remember that quote.  If you just take that first step, the next step becomes clearer, and then so does the next.

John Doran: Thanks so much for your insights, George.

###

 

 

TCV is an investor in Cradlepoint.

The views and opinions expressed in the transcript above are those of the speakers and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). This transcript is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by TCV or any of the securities of any company discussed. The TCV portfolio companies identified above, if any, are not necessarily representative of all TCV investments, and no assumption should be made that the investments identified were or will be profitable. For a complete list of TCV investments, please visit www.tcv.com/all-companies/. For additional important disclaimers regarding this document, please see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/