The Most Important Relationship in Business: Best Practices for Board Directors and CEOs They Advise

Board members can bring a wealth of experience and advice to their CEOs – and not just when the board convenes each quarter. The chemistry of this critical relationship requires careful attention, particularly when selecting and onboarding new directors, coaching the team and providing diverse insights. Tayloe Stansbury, Venture Partner at TCV, shares lessons and insights from his board memberships and two decades reporting to corporate boards as CTO at Intuit, CIO at VMware, and EVP at Ariba. Beth Knuppel, Principal in TCV’s Portfolio Operations, guides the conversation to the key moments and processes that board members and CEOs need to master so that their relationships – and the business – can thrive.

In this podcast, Beth and Tayloe address practical questions for anyone coming onto a board or running a company with board support, such as:

  • The most important criteria for joining a board
  • How to maintain diversity of opinion on the board while still providing the CEO with convergent advice
  • Why board members should meet with their CEO informally between board meetings
  • How to set efficient board meeting agendas that allow for in-depth discussion of pressing issues
  • Why board members should evaluate their own performance and not just the CEO’s

For this and more, settle back and click play.

TRANSCRIPT

Beth Knuppel: Welcome to Growth Journeys. This is a podcast series from TCV focused on lessons from the field from both operators and entrepreneurs in the TCV ecosystem. I’m Beth Knuppel. I’m an Operating Principal at TCV, where I lead our talent center of excellence within portfolio operations. Our podcast today is all about the CEO board partnership and lessons learned for effective governance. I’m joined today by Tayloe Stansbury. Tayloe is a Venture Partner at TCV, where he works with existing portfolio companies, and he’s also involved in diligence for potential investments. In addition, Tayloe serves on the board of directors at Coupa Software and BlueJeans. Welcome to Growth Journeys, Tayloe.

Tayloe Stansbury: Thank you very much. It’s great to be here.

Beth Knuppel: So, Tayloe, you had a long, successful corporate career before joining TCV as a venture partner. Most recently you were CTO at Intuit. Tell me a little bit about your background and how you got to this point.

Tayloe Stansbury: For the last decade, I was CTO at Intuit. I looked after all their technology operations — so engineering, data AI, IT, and information security. And before that, I worked at a number of other companies, including Ariba. I was EVP of product and operations there, which included customer support, product management, engineering, and operations. I worked also at VMware, Calico, Xerox, Sun, and Borland in a variety of different engineering and general management positions.

Beth Knuppel: So you are a technology veteran, for sure?

Tayloe Stansbury: I guess.

Beth Knuppel: In addition to those roles, I mentioned you also serve in some board of director roles. You were on the board of Shutterfly for three years. You continue to serve on the board at Coupa and at BlueJeans. What was it that attracted you to board service in the first place?

Tayloe Stansbury: I was a direct report to CEOs of public companies for some 20 years, which meant that most every quarter I was doing presentations to boards. And it started to intrigue me that maybe I could contribute at a different level. And that’s what led me to getting onto my first board.

Beth Knuppel: When you say at a different level, tell me more about what that means to you. What is it that a good board really adds to a company?

Tayloe Stansbury: Boards advise, right? Boards don’t manage. Management manages. And I think that distinction is really important. Boards bring a wealth of experience that is orthogonal to what some of the managers have and can advise them on new situations that arise and how to think about new problems.

Beth Knuppel: I think that a lot of people have in their mind this outdated stereotype of the board member who sort of jets in, goes to dinner, maybe makes a few pithy comments at the meeting the next day, and then you don’t hear from them again for another quarter. I should say, that is definitely not the model at TCV. Our boards are really engaged. But I’m curious, what would a management team expect, or what should they expect, in terms of engagement in between those quarterly board meetings? How do you work with the board in between those formal opportunities?

Tayloe Stansbury: For myself, I’d say, I generally meet with the CEO of each of the boards that I’m on once in between each board meeting — go out to dinner, to breakfast, or something like that — and just talk about whatever’s on their mind. And I usually adopt one or two, sometimes three members of the senior management team that I coach. And I usually meet with them once off-cycle between board meetings. And those meetings can be a lot of fun, high engagement.

Beth Knuppel: Got it. You know, a lot of our audience are founders who may not have ever worked with a board before. So you’re talking about this engagement in between. Who’s initiating that? Is that you, on the board? How should the CEO be reaching out?

Tayloe Stansbury: I think it’s best always if the CEO is making the introductions so you’re not invading their space and having meetings unbeknownst to the CEO. I’d give an example from a board I was on that was for a college. And the president asked me if I would lead the advancement committee, which means fundraising. And I said, “Hey, I’ll do anything for you, but I know nothing about fundraising.” And she said, “You’ll figure it out,” and turned around and then walked away. So she did actually introduce me to the head of fundraising and, we had a very fruitful relationship, where I would come down before each of the board meetings and go over his management challenges, his prioritization challenges, and how it is that he was going to present to the board, because while he was very experienced in fundraising and I was not, I knew something about presenting to boards and he didn’t. And so it would end up being a very fruitful relationship and we blew through all our targets and it was great.

Beth Knuppel: That’s great. One of the sayings that we have here at TCV is that the journey to the top is never a straight line, right? Every organization experiences setbacks and challenges. But I’m wondering, the CEO is typically looking to put their best foot forward with the board. How should a CEO balance that? How should they bring bad news or maybe challenging situations to the attention of their board?

Tayloe Stansbury: If all you’re doing is the Pollyanna version, nobody learns anything. I think what’s really best is approaching it with complete transparency and an attitude of seeking counsel, because that’s when you get the true value out of a board member who may have been through some of these things, or have cognated things before. So that’s hard to do. It means you’ve got to show your dirty laundry. But over time, you can build a relationship with a board where that’s okay, because they’ve had dirty laundry in managing the things that they did earlier in their lives as well. And they’re not going to be freaked out about it, and they’ll be able to give you much better advice which will enable you to perform better over time, with the transparency.

Beth Knuppel: It sounds like a key piece of that is just developing trust.

Tayloe Stansbury: Absolutely.

Beth Knuppel: How do you think about doing that when you’ve joined a new board and you’re establishing your own relationships with the other board members, with the CEO? How do you think about your entry into that board?

Tayloe Stansbury: Well, I think you’re hitting on a really important issue which is that the relationships are really important. And I think boards work best when there’s diversity of thought, everybody is respectful of each other’s opinions, but they’re also able to converge towards something which is a plan of action or a consistent set of advice for the management team. And I think the same thing is true with management. There has to be that trust of each other, the sense that different people are bringing something different to the party that is worth listening to and every now and then might be the key thing you need to know to manage through a tough situation. Mechanically, how that would work is going out to dinner with these people off-cycle from regular board meetings, getting to know them, and getting to build up that level of trust and respect for what it is that they’ve done.

Beth Knuppel: Right. I’m curious. As you work with a CEO, you want to build that trusted relationship, but at the end of the day, as a member of the board, part of your job is to evaluate the performance of the CEO.

Tayloe Stansbury: That’s right.

Beth Knuppel: How do you work through CEO evaluation?

Tayloe Stansbury: I think it’s best practice to have an annual evaluation of the CEO and actually even an annual evaluation of the other board members, where you think about: “What are the objectives that were set for the company, what are the objectives that the CEO may have set?” And everybody actually scores the CEO on that. You have a discussion as a board, and that gets presented to the CEO on an annual basis. And that discussion precedes setting the compensation for the CEO for the following year. I think that detachment where you can help and also provide some evaluation — hopefully which has got constructive ideas as to how the CEO can improve in areas where perhaps they need to grow.

Beth Knuppel: And you mentioned that you think it’s good hygiene for the board to engage in some self-reflection as well.

Tayloe Stansbury: Yes.

Beth Knuppel: How does that process work?

Tayloe Stansbury: Same way. Score each other, get together to have a couple-hour discussion about what came out in the survey. And if it’s a board that has mutual respect, those kinds of comments can end up helping bring the board closer together and help smooth out some rough spots.

Beth Knuppel: In the case of, maybe, a board that’s underperforming, what are some of the things that in the past you’ve encountered that help address an underperforming board?

Tayloe Stansbury: I see it as a spectrum – where at one end of the spectrum, you have a rubber-stamp board that’s not really providing any meaningful thought diversity to the problem, and the other end, where you have an acrimonious board which can’t agree on anything and they’re just fighting over stuff. And I think the sweet spot is somewhere in the middle, where everybody is thoughtful, they’re presenting diverse points of view, and they’re figuring out how to converge that into something that is constructive for the management team. And how do you get there? Again, I think it’s by spending time with each other and learning to appreciate what each other’s gifts are, what each other’s experiences are, what their scars are that they’ve managed to live through and learn things from. On a rare occasion, it may be best if some people move off the board if they just can’t get aligned with the rest of the team.

Beth Knuppel: Are there any common pitfalls that you see?

Tayloe Stansbury: In one case in particular, we did have a board that was pretty acrimonious and couldn’t get on the same page and it was very hard to get anything done. It was very hard to give consistent advice to the president of that organization. What happened in the end is some of the people who were really on a different page rolled off. And we got down to a set of people not who were rubber-stamped, who had diverse points of view but were able to come together in the end.

Beth Knuppel: I know at Coupa, you’re a member of the nominating and governance committee. What is it that you think about when you’re evaluating somebody who might potentially join the board? For CEOs out there, what should they be looking for when they’re thinking about board composition?

Tayloe Stansbury: We look at: “What is the skill set?” We have a whole matrix for skill sets that would be desirable for the board, and we score each other on how strong we think we are on those things. And that leaves it clear where there are some areas where we may have some gaps, some skills gaps — some experience gaps — that it would be really nice to flesh the board out with. And so then you go and say, “Well, who would be the people who could best fill those skill or experience gaps?” And then you look for, “Who are the people who are going to work well with the rest of the board, whose voices will be heard, who will hear other people’s voices, and will actually be convergent in their thinking, over time.”

Beth Knuppel: And, of course, the other side of the coin, as you’ve joined boards, you’re also making an evaluation. What is it that you look for to figure out whether a board is a good fit or not?

Tayloe Stansbury: The first thing is, you’ve got to have a passion for the business. If it isn’t a business that you love, then you probably shouldn’t be taking up space on the board. Another thing I really want is to have a visceral sense of what is the strategic path to success for this organization. So how is it that they’re going to weather whatever competitive threats and come out on top? Your sense of that may change over time, but I think you have to go in with a pretty good hypothesis of how this organization can become durable and win against the invariable competition. And the last thing is, it’s got to be people I like, because you’re going to be working with these people over several years. And you’re going to have to come to converged advice for management. It helps if you like everybody who’s involved.

Beth Knuppel: Sure. I’m curious to get your perspective on bringing on a new board member. Is there anything that you’ve experienced personally, or you’ve seen done really well, in terms of onboarding somebody onto the board?

Tayloe Stansbury: I think that bringing on a new board member is a big deal, and if you just hand them a board book and say, “Show up for the next meeting,” they’re going to come in without a lot of context, and they’re going to feel a little bit not on the inside, and their questions are just going to be off-kilter. And what I’ve seen as a best practice is you invest several hours, like a day, in training a new board member by having them meet with some of the senior management people, one-to-one, and then also go through a full rundown on the products, including demos of the products, so they have a real feel for the business and the competitive space.

Beth Knuppel: I’d love to get your perspective on how you think about the board agenda, and what topics are actually covered. Board time is so precious, you want to make sure that you’ve got a thoughtfully constructed agenda. What, in your view, rises to the level of importance for a board meeting?

Tayloe Stansbury: One thing I’ve seen that doesn’t really work really well for board agendas is to try to have every key member of the senior leadership team talk about the progress in their area every single board meeting. What I have found works a lot, lot better is if you look at the board calendar over the course of a year and say, “How do we make sure that every function gets their day in court, if you will, with the board, over the course of a year rather than the course of a single meeting?” And everybody can have a deeper discussion, and you get into the meatier stuff. Now, to complement that, I think having board materials that are first-rate, that come out early enough so that all the board members have a chance to read and digest them, is really important.

And what you can do in the board materials is make sure that the board materials include some news about what’s happening in every function that has something to report — even if they’re not going to present — so the board gets a view of that as it’s happening but then gets the deeper-dive discussions.

Beth Knuppel: Great. When I was presenting to boards on a regular basis, one of the things my CEO always said was, “Be bright, be brief, be gone.” In other words, do whatever you need to, to avoid the dreaded page flip where it’s kind of a march through slides that hopefully the board has already read. Is there anything you would share with folks who are in that spot of presenting to the board?

Tayloe Stansbury: I think it’s important for presenters to realize that the board has read the materials in advance and say the things only that punch up the most important parts of what’s on the pages. I think another good practice is you may think that you’re going to have an hour to present or half an hour to present, and it may be that the schedule goes sideways and you end up with only 5 or 10 minutes to present. It’s always good to have the 5-minute version of your presentation in the back of your mind so if you’re asked to do that, you can say something intelligent and helpful during whatever time remains. An important thing to remember about board members is they come and engage only periodically in the business. You, as an operating leader, are in there every single day. The board member isn’t going to remember all the context that you’ve got in your brain, and they’re not going to remember the thing that you told them three months ago. So making sure that you show not current state, but trajectory over what’s happened before, can help make sense for the board member.

Beth Knuppel: Great. Good advice. I want to close out with two questions. And first, I’m curious, if you look back over your board service, what do you think is the biggest learning that you’ve taken away? What is it that you would do differently the next time you join a board?

Tayloe Stansbury: You know, I think that getting to a sense of flow with a board, where you’ve got good ideas that are coming in, people bringing diverse thoughts, and where people are thoughtful about that and get to a good place quickly in terms of advising management, those are the boards that feel really good. The ones where you have people who are on a different place of, “Hey, I’m excited about this company,” and others who are thinking, “We ought to sell this company,” and you just can’t get them together, those end up being pretty rough situations. And you want to avoid the latter, if you can.

Beth Knuppel: Finally, for founders, for management teams who might be listening, what would you say would be the key takeaway that you would offer them for, really, how do you build and leverage an effective board?

Tayloe Stansbury: Look for openness and trust. Build a board where that exists. And working together, you can actually be a lot smarter than you can individually.

Beth Knuppel: Absolutely. Great insights, Tayloe. Thank you so much for joining us today.

Tayloe Stansbury: Thank you so much.

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The views and opinions expressed are those of the speakers and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). TCV has not verified the accuracy of any statements by the speakers and disclaims any responsibility therefor. This blog 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. 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/.


Software-Defining the Pathway to 5G: How a Hardware Player in Cellular Networking Transformed Its Business Model (Twice!) to Revolutionize How Businesses Connect

Cellular connectivity has come a long way over the past two decades and today cellular coverage allows for an always-on world, connected by voice, text, apps, and the internet.  Mobile data usage has exploded, up 73x in the U.S. from 2010 to 2018.  There are now more mobile devices in use in the U.S. than citizens.  Almost 40% of the entire global population owns a smartphone, which are only a little over a decade old.  The disruption from a wired to wireless world has transformed the global economy. 

Different than consumers, businesses have been slower to adopt cellular for primary internet connectivity in their offices given historic cost and reliability concerns However, this is changing quickly with continued improvement in both quality and affordability in cellular service as the world embarks on the pathway to 5G journey. 

Cradlepoint is a market leading innovator helping businesses move from a wired to wireless world powered by next generation LTE and 5G networks, utilizing Cradlepoint’s software-defined wireless products to connect people, places, and things with enterprise-class visibility, security, and control. 

In today’s podcast, Board members Matt Robinson and Doug Gilstrap from TCV explore Cradlepoint’s growth journey with CEO George Mulhern, as he talks through the opportunities, tough decisions, and lessons learned to become the global leader in cellular connectivity for business.

For these insights and more, settle back and press play.

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The views and opinions expressed are those of the speakers and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). TCV has not verified the accuracy of any statements by the speakers and disclaims any responsibility therefor. This blog 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. 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 Welcomes Gopi Vaddi as General Partner

TCV is delighted to announce that Gopi Vaddi, a seasoned investor with broad international experience, has joined the firm as a General Partner. Founded in 1995, TCV has invested over $13 billion in more than 350 consumer and enterprise technology companies, including $2 billion in Europe, where Gopi will be focused. TCV investments in Europe include Believe, FlixMobility, Brillen.de, RELEX Solutions, RMS, Sitecore, Sportradar, Spotify, The Pracuj Group, and WorldRemit.          

Gopi is an excellent fit with TCV’s long-term strategy and focus of investing across geographies and domains, often far from major technology and financial hubs. He was born and raised in India, took degrees in business administration and electrical engineering in the U.S. and India, and has experience investing in the U.S., Europe, and Asia. Most recently, he was a partner at Providence Equity’s growth fund, where he worked on growth buyouts and minority investments in software and payments. At TCV, Gopi will focus on software and software-enabled businesses covering business applications, vertical software, digital marketplaces, and infrastructure software.

“We take as much care in adding a new partner as we do in making a new investment,” said Jake Reynolds, General Partner at TCV. “Gopi’s success springs from the same qualities that have driven TCV for nearly a quarter-century: deep domain knowledge, keen market insight, and a passionate commitment to helping entrepreneurs achieve category leadership. He also complements the firm’s broad growth-biased investment approach with expertise in software buyouts and buy-and-build investing.”

Gopi understands TCV’s approach, just as we recognize the value he has brought to his investments, including a willingness to roll up his sleeves and work side by side with management. As a citizen of the world who started his career as an engineer and data modeler, he has an innate ability to identify and partner with the next generation of category leaders and the entrepreneurs steering them.

We are thrilled to welcome Gopi to the team.

The General Partners of TCV

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The companies identified 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/portfolio-list/. For additional important disclaimers regarding this post, please see “Informational Purposes Only” in the Terms of Use for TCV’s website.                                                                                                 


Nubank raises USD 400 million in a new investment round led by TCV

  • The funding marks the largest investment round raised to date by Nubank 
  • Since the last funding in 2018, the firm’s customer base has more than doubled, reaching over 12 million people in Brazil
  • Nubank’s product portfolio has evolved, now including personal loans, a digital account with debit function for consumers and SMEs in addition to existing credit cards and its Rewards program
  • The company started its international expansion this year, in Mexico and Argentina
  • Nubank continues to pursue and hire talent for its four offices worldwide 

São Paulo, 26 July 2019 — Nubank, the leader in financial technology in Latin America, today announced it has raised $ 400 million in its Series F investment round. The round was led by TCV, one of the largest growth equity firms based in the U.S., and marks TCV’s first significant investment in Latin America. Existing investors Tencent, DST Global, Sequoia Capital, Dragoneer, Ribbit Capital, and Thrive Capital also participated in the round. The transaction is subject to customary closing conditions.

With this new round, Nubank has raised $820 million in seven investment rounds.

Nubank, currently Brazil’s sixth-largest financial institution by number of clients, started its international expansion in May of this year. The company has opened offices in Mexico and Argentina and is preparing to start operations and serve customers in both countries over the coming months.

The firm also expanded its product portfolio beyond its original app-controlled credit card and Rewards products, now including a personal loan product and digital savings accounts for consumers, as well as small and medium-sized businesses and microentrepreneurs.

“We remain firm in our mission to fight complexity and give back to people the control of their finances. Even though the technological change has been transformational for most industries across the globe, most banked consumers continue to pay absurd interest rates and fees to receive very poor financial services in return. Additionally, over two billion people still do not have access to basic financial services. With this new investment by TCV and our existing investors, we expect to contribute to meaningfully change this situation by accelerating our growth in Brazil and supporting the launch of our new Latin American markets,” says David Vélez, founder and CEO of Nubank.

“We are proud of our shareholders and their continued support of our business. Since our early days, we have had the privilege of drawing from the experience of some of the most successful technology investors in the world, and this round led by TCV further strengthens our capital base”, continues Vélez. “TCV has supported some of the most remarkable disruptors of our time, including Netflix, Spotify, and Zillow, with capital, strategic guidance, and industry expertise, and we look forward to partnering with them as we grow the business.” 

“TCV has a long history of backing founder-run businesses that leverage technology to provide magical experiences to consumers,” says Woody Marshall, General Partner at TCV. “David Vélez and his team have built an impressive business at Nubank. We have been impressed by their market position, product-centric DNA and unrelenting focus on the consumer experience. We look forward to supporting their expansion into new markets and providing additional services to their consumers.” 

New products and internationalization

Nubank started offering debit and cash withdrawal functions to its digital savings account (“NuConta”) customers in late 2018, consolidating its digital account as a complete alternative to meet the basic financial needs of all Brazilians. Today, more than 8 million Brazilians are already customers of NuConta.

After completing the process to obtain its license as a financial institution, the company launched in early 2019 a personal loan product, which is now available to over 500,000 customers. Nubank reached 100% of the 5,570 Brazilian municipalities within 5 years of activity, a milestone in a country where only 60% of cities have bank branches.

In the second quarter of this year, the company also began its international expansion, announcing operations in Mexico and, less than two months later, in Argentina. The two countries will receive technology and innovation hubs to develop solutions focused on local financial problems.

In six years of existence, Nubank reached the mark of more than 12 million customers, becoming Brazil’s sixth-largest financial institution in number of customers, and the largest digital bank in the world. Recently, the company entered the corporate market with the announcement of a new digital account for SMEs, a market with more than 20 million companies in Brazil.

Search for talent

Nubank today has more than 1,700 employees in Brazil, Germany, Argentina, and Mexico. The company expects to significantly grow its employee base over the next few years. 

“We are always looking for the best talent in the world. We build strong and diverse teams with professionals from different cultures to jointly challenge the status quo and reduce complexity. We are a technology company by nature and, therefore, we want the best software engineers as part of our global team,” says Vélez.

Media contacts: 

Nubank

Rodrigo Barbosa

rodrigo.barbosa@nubank.com.br

+55 11 984 603 476

TCV

Katja Gagen

kgagen@tcv.com

+1 415 690 6689

About Nubank

Nubank is a leading financial technology company in Latin America. Its first product, launched in 2014, is a no-fee credit card that is fully managed by a mobile app. Almost 30 million people have requested the product since launch, and the company has passed the 12 million customer mark. In 2017, Nubank launched its proprietary loyalty rewards program (“Nubank Rewards”), as well as a digital account (“NuConta”) that is already used by 8 million people. This year, the company began testing its personal loan product and took its first steps in international expansion, opening offices in Mexico and Argentina. To date, Nubank has raised around US$ 820 million in seven equity investment rounds from TCV, Sequoia Capital, Kaszek Ventures, Tiger Global Management, QED, Founders Fund, DST Global, Redpoint Ventures, Ribbit Capital, Dragoneer Investment Group, Thrive Capital and Tencent. Recently, Nubank was elected as the most innovative company in Latin America and ranked no. 36 on Fast Company’s 50 Most Innovative Companies ranking.

About TCV

Founded in 1995, TCV provides capital to growth-stage private and public companies in the technology industry. Since its inception, TCV has invested over $11 billion in leading technology companies, including more than $1.5 billion in fintech, and has helped guide CEOs through more than 120 IPOs and strategic acquisitions. TCV’s investments include Airbnb, AxiomSL, Dollar Shave Club, ExactTarget, Expedia, Facebook, LinkedIn, Netflix, OSIsoft, Payoneer, RELEX Solutions, Rent the Runway, Splunk, Spotify, Toast, WorldRemit, Xero, and Zillow. TCV is headquartered in Menlo Park, California, with offices in New York and London. For more information about TCV, including a complete list of TCV investments, visit https://www.tcv.com/.


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/.


Rave Mobile Safety Announces Significant Investment from TCV

FRAMINGHAM, Mass., April 25, 2019 /PRNewswire/ — Rave Mobile Safety (Rave), the leading provider of critical communication and data platform solutions trusted to save lives, today announced it has received a significant investment from TCV, one of the largest growth equity firms backing private and public technology companies. The investment and expertise from TCV will help Rave fuel its product innovation and growth plans and position the company to continue to build on its market-leading portfolio of communication solutions deployed by top education and healthcare institutions, enterprises, and state and local public safety agencies.

“Today is a wonderful milestone for Rave and a testament to the tremendous results our customers have seen using the technology that they helped design to improve the safety of those they protect,” said Todd Piett, President and CEO of Rave Mobile Safety. “TCV has a history of investing in category-redefining companies and their partnership reaffirms our innovation track record, market-leading customer retention and the rising demand for holistic crisis and emergency management solutions. This investment will fast-track our vision for the business, and we’re eager to step into this next chapter of our company’s history.”

Since its inception in 1995, TCV has raised over $15 billion across 10 funds and invested over $11 billion in leading technology companies including Netflix, Facebook, Expedia, Spotify, Airbnb, GoDaddy, and Zillow. TCV also brings significant software buyout experience, having partnered with leading vertical market software companies, including ETQ, IQMS, Watermark, SMT, CCC, and Avetta.

“The Rave platform is unique in that it helps effortlessly bring together the various entities involved in citizen safety. We were impressed with Rave’s stellar customer base across multiple industries and steady product innovation in a market that is ripe for disruption,” said Kapil Venkatachalam, General Partner at TCV. “Rave will be able to leverage a broad range of TCV’s resources, including our deep sector knowledge and network of advisors to capitalize on growth opportunities in present and untapped market segments.”

“Today’s safety leaders are utilizing innovative technology to prepare better, respond faster, and communicate more effectively,” said Bob Burke, Venture Partner at TCV. “We are delighted to partner with an experienced executive management team and help shape the company’s expansion following on Rave’s 10 years of consecutive double-digit growth.”

Rave has over 5,000 customers deployed in the United States. The City of Chicago, Washington D.C. Schools, the City of Cincinnati, Iowa State University and City of Virginia Beach are some of the 1,100 customers added during the past year. Thousands of agencies and institutions across law enforcement, 9-1-1, state and local emergency management agencies, corporations, healthcare organizations, K–12 districts, colleges and universities depend on Rave’s solutions.

“The community in Virginia Beach has to not only account for the safety of our 450,000-plus citizens, but also for the millions of visitors who travel to our shores each year,” added Stephen Williams, Director – Emergency Communications Citizen Services for the City of Virginia Beach. “We recently upgraded to the Rave Mobile Safety platform from a legacy system because of Rave’s robust Mass Notification feature set and ability to deliver critical information to 9-1-1. Rave gives us that advantage and the peace of mind that comes from knowing we can shorten response times and handle spikes in activity during our busy tourist season.”

Shea & Company served as financial advisor to TCV. Raymond James & Associates acted as exclusive financial advisor to Rave Mobile Safety.

For more information about Rave, visit RaveMobileSafety.com.

About Rave Mobile Safety
Rave Mobile Safety, a trusted safety software partner, provides the leading critical communication and data platform trusted to help save lives. Used by leading education and healthcare institutions, enterprises and state and local public safety agencies, the award-winning Rave platform including Rave Alert™, Rave 911 Suite™, Rave Panic Button™, Rave Guardian™, Rave Prepare™ and Rave Eyewitness™ SwiftK12™ and Swift911™ protects millions of individuals. Rave Mobile Safety is headquartered in Framingham, Mass. For more information, please visit https://www.ravemobilesafety.com/.

About TCV
Founded in 1995, TCV provides capital to growth-stage private and public companies in the technology industry. TCV has invested over $11 billion in leading technology companies and has helped guide CEOs through more than 120 IPOs and strategic acquisitions.

TCV’s software investments include Alarm.com, Altiris, Ariba, Avalara, ExactTarget, ETQ, FinancialForce, Genesys, IQMS, OSIsoft, Sitecore, SMT, and Splunk. TCV is headquartered in Menlo Park, California, with offices in New York and London. For more information about TCV, including a complete list of TCV investments, please visit http://www.tcv.com.

SOURCE Rave Mobile Safety

Media Contacts:

Rave Mobile Safety
Phone: 888-605-7164
PR@ravemobilesafety.com

TCV
Katja Gagen
Phone: 415.690.6689
kgagen@tcv.com

Related Links

https://www.ravemobilesafety.com

Toast Announces $250 Million Funding Led by TCV and Tiger Global Management

BOSTON–(BUSINESS WIRE)–Toast, the fastest-growing restaurant management platform in North America, announced today it raised $250 million in Series E funding at a $2.7 billion valuation led by TCV and Tiger Global Management along with participation from existing investors including Bessemer Venture Partners, Lead Edge Capital and funds and accounts managed by T. Rowe Price Associates, Inc. Following a period of tremendous growth – during which revenue increased 148 percent in 2018 – this fundraise establishes Toast as the leading restaurant management platform for restaurants of all sizes.

“At TCV, we invest in companies that have the potential to reshape entire industries. By providing restaurants of all sizes with access to innovative technology, Toast is leveling the playing field and leading the industry’s transition to the cloud,” said David Yuan, general partner at TCV. “Our investment will enable Toast to extend their platform beyond point-of-sale and guest-facing technology, and in doing so, create a powerful SaaS platform with a superlative business model. We’re excited to partner with Toast as they accelerate the growth of the community they serve.” TCV invested in some of the largest franchises in technology including ExactTarget, Facebook, Netflix, and Spotify; David Yuan will join Toast’s board of directors.

During the past year, the number of restaurants that selected Toast more than doubled as globally acclaimed brands like José Andrés’ ThinkFoodGroup and Tartine Bakery chose Toast in addition to high-growth concepts like Joe Coffee Company, Eggs Up Grill, JACKS Urban Eats, and The County Line.

“Last year we celebrated the five year anniversary of our first Toast customer, Barismo. Now with tens of thousands of restaurants powered by Toast – and nearly 1,500 employees serving our community – it’s impressive to see how far we’ve come,” said Chris Comparato, CEO of Toast. “At our core, we believe every restaurant should benefit from the massive investment we continue to make in restaurant technology.”

Leading the Industry’s Transition to the Cloud

Toast will invest over $1 billion in research and development — over the next five years — to continue building software and hardware designed specifically for the restaurant industry. The Series E investment will enable Toast to help solve some of the industry’s most pressing challenges:

  • Attracting, engaging, and retaining guests:Today, guests spend tens of billions of dollars at restaurants powered by Toast. Restaurants like SuViche already use solutions like Toast Go™ and Toast Guest Feedback to accelerate speed of service by up to 40 percent, increase revenue, and capture guest feedback in real-time. New guest marketing capabilities planned for 2019 will enable restaurateurs to deliver highly personalized offers and campaigns triggered by guest behavior.
  • Recruiting and retaining talent:Restaurants using Toast Point of Sale already benefit from higher sales, increased tips, and lower staff turnover. For example, with Toast Guest Facing Display, Broad Street Baking saw staff turnover significantly decrease as tips increased by 58 percent. New products planned for this year will simplify back-office operations and arm restaurateurs with tools to recruit, hire, and retain talent in a competitive labor market.
  • Improving operations and increasing profitability:Today, the Toast Platform processes over 2,500 requests per second across tens of thousands of restaurants. Through Toast Reporting and Analytics, restaurateurs can monitor the performance of their business in real-time –on any device — so they can run their business from anywhere. Investments planned in 2019 will provide restaurants with access to new reporting capabilities and insights.

Jeffrey Pandolfino, the owner of Green & Tonic, a five-location café in Connecticut, shared how Toast’s focus on the restaurant industry impacted his business: “As we outgrew our legacy point-of-sale-system, we needed a cloud-based platform to build our business on,” said Pandolfino. “With Toast, we’re not only processing orders faster, but we’ve also seen aspects of our business like catering and delivery grow by more than 50 percent.”

Recruiting Top Talent to Serve the Toast Community

In 2019, Toast significantly extended its presence with on-the-ground employees across the U.S. – in addition to engineering teams in Dublin, Ireland – by recruiting from the software, financial technology, and food & beverage industries. Funding from this latest investment will enable Toast to accelerate hiring across research and development, customer success, sales, and marketing to better serve the restaurant community. Interested candidates may find additional information on Toast career opportunities here.

Restaurant owners and operators can learn more about Toast and schedule a personalized demo here.

About Toast

Launched in 2013, Toast powers successful restaurants of all sizes with a technology platform that combines restaurant POS, front of house, back of house and guest-facing technology with a diverse marketplace of third-party applications. By pairing technology with an unrivaled commitment to customer success, Toast helps restaurants streamline operations, increase revenue and deliver amazing guest experiences. Toast was named to the 2019 Forbes Fintech 50, 2019 SXSW Interactive Innovation Finals, 2018 Forbes Cloud 100, and recognized as the third fastest-growing technology company in North America on the 2017 Deloitte Fast 500. Learn more at www.toasttab.com.

Contacts

Karen DeVincent-Reinbold
Sr. PR & communications manager at Toast
media@toasttab.com
857-301-6074

Katja Gagen
Principal and Head of Marketing at TCV
kgagen@tcv.com
415-690-6689


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.

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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/


Woody Marshall on The Twenty Minute VC!

Check out Harry Stebbing’s latest podcast with TCV General Partner Woody Marshall.

 

 

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The statements, views, and opinions expressed are those of the speakers and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). TCV has not verified the accuracy of any statements by the speakers and disclaims any responsibility therefor. This interview 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 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, please see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/.


Hiring for Leaders: Your Company Won’t Scale if the Leaders Can’t

By Jonathan Shottan

Companies that scale quickly share many of the same problems. Institutional knowledge becomes fragmented or lost as people leave. Decision-making authority changes or becomes opaque. New cultural norms are developed. Personality conflicts arise as the old guard and new guard merge. Collaboration becomes even more essential, because almost everyone is involved in creating new functions and establishing new processes.

But if the conditions during scaling are similar, the results vary widely. Some companies thrive through it, while others struggle. I’ve seen both in my career, working at Pinterest, Facebook, and other startups, and cultural differences don’t explain it. Leadership does. There is universality to the qualities exhibited by the best leaders at successful companies. If you’re hiring or promoting from within during a period of high growth, these are the qualities that you can and should identify. Leaders with these qualities naturally maintain momentum, exceed their objectives, develop and attract top talent, and amplify the best aspects of your culture. They are best suited to thrive on constant change and they are instrumental in driving success for the organization. Colloquially, they are the 10Xers.

From my own personal experiences leading teams through scale at Pinterest, Facebook, and other startups, I’ve identified a set of three attributes to consider when vetting leaders during the hiring or promotion process:

  1. Leaders That Scale Take A Position…

What is it: Leaders who can scale companies successfully know how to take a position. I know it sounds simple, but not everyone can do it – especially during times of pressure. A position is an informed stance amid a swirl of uncertainty, which galvanizes others to understand it, respond to it, and imagine how it would work. As such, it speeds the organization toward decisions and action.

Why is it Important: A position is not an opinion, because everyone has plenty of those. A position is also not a point of view because again, everyone has a perspective from which they view the world. A position is a singular proposal for addressing a particular issue. In taking a position, you may actually diverge from your own opinion or perspective, in order to take a position that’s more provocative and therefore more productive. Taking a position creates urgency and gets the conversation moving toward an agreement on next steps.

This is critical because as organizations grow, people can get stuck in paralysis by analysis. They’re not sure of their status yet. They may be afraid of making the wrong decision, or making the right decision, but in the wrong way for the culture they find themselves in.

Leaders who take a position dissolve all this. Though it may sound like a paradox, taking a strong position at the outset of a meeting is a unifying force, not a divider. Everyone else now shares the same task: testing the position, modifying it, figuring out whether and how it would work. It’s easy to focus because a hodgepodge of opinions and questions has been replaced by a proposed solution. Even if the stance is only a straw man, it sparks a productive conversation. And if the position becomes a North Star that everyone can navigate by, you’ve just taken a great leap forward.

How to Hire or Promote for it: First of all, you want candidates with a wide range of knowledge and interests, not superficially, but down to details. These people tend to be polymaths. They are familiar with a wide range of fields, technologies, cultures, and customers, and they can see the big picture intuitively. They can also explain it from multiple angles. They love to share their data or historical knowledge if it will enlighten or empower others. Typically, they can formulate their position as they walk into a room, because that’s how their minds work: synthesizing many factors into one proposition and pitching that proposition at the right level for others to understand and react to.

During the interview pick a big hairy sector, such as transportation or education, and ask the candidate “How do you think this sector will change in 10 years? In 50 years?” Ask about the candidate’s hobbies, pick the one you’re most familiar with, and ask the candidate to talk about it at length; you’re looking for what it says about them, their passion, and their personality. What was the last book they read? What is the next book they want to read? Do they play a musical instrument or a sport? Ask them to analyze the strategy of the organization they’re working for now, both pro and con, to see how many different perspectives they incorporate into their analysis.

  1. Leaders Don’t Get Stuck On A Position…

What is it: The second trait for leaders who scale is effortlessly moving off their own positions when the time is right. They do this because they understand that the position is a means to an end. If you’re familiar with the expression “strong opinions weakly held,” you understand this trait already. In many ways, it’s the flip side of the first trait. Strong opinions weakly held means that leaders readily evolve their positions in the face of new information or through an ability to read a room. They understand that a stronger position is forming – and this was the reason for taking a position in the first place.

Why is it Important: Why does this matter for scaling an organization? Because you need everyone to share their ideas, even if they’re shy. Being inclusive of thought accomplishes this. It also draws out sharper analysis from bolder or more informed members, because they trust that they’re not going to hit a wall if they voice partial or even complete disagreement with a leader’s opinion. Getting to a new, better, shared position makes everyone feel connected to the outcome. Now it’s time for action.

How to Hire or Promote for it: Testing for the ability to gracefully move off a position can be fun for you and the candidate. Before the interview, pose a real-world business problem within an area where you have lots of data but there are many ways to solve the problem. For example, if you’re at a ride-sharing company you could ask “How would you build a driver loyalty program?” Once the candidate states a position in the interview, begin to challenge it constructively, as if you were colleagues in a meeting. Probe for the thinking behind it. Share new data and see how they change their position. You’re not just looking to see if they’re open to revisiting their conclusions. You also want to see if they can continue to effectively articulate their position in the face of resistance — without getting stuck on it.

  1. Leaders Embrace the Outcome…and Adapt Appropriately

What is it: Unless you’re the CEO you don’t get to make the final decision most of the time. That’s when leaders need to have a third critical trait: they embrace the outcome of the conversation that just concluded. If the board decides to cut marketing hiring by 50%, the leader of the marketing department could respond in a variety of ways. The one you want is understanding and expressing the consequences of that decision to the department, in a constructive way.

Why is it Important: Psychologically, this leader has an innate ability to assume best intent. If a management decision goes against such individuals, or their organizations, they don’t take it personally. Quite the opposite, they default to a position that the people above them or around them share a vision for success and that the decision was necessary. Today is not forever, and marketing will be hiring again in the future. The focus now is making the current strategy succeed, rapidly. A good leader will take a positive, proactive position on how to do that.

This natural aptitude is an invisible bulwark against confusion and fatigue during times of rapid change and growth. Why? Because leaders with this trait are consistent in message, countenance, and style. When the environment is constantly changing, people look to their leaders. If the leaders are showing up as constructively positive in good times and bad, their teams will adapt a similar penchant for consistency and there will be fewer productivity troughs.

How to Hire or Promote for it: There are two approaches that can help you identify candidates who will naturally embrace an outcome, turn it positive, and lead their team to success with it. The first approach is to ask the individual to describe a time they disagreed with a boss or peer, and how they responded. You’re not looking for surface answers like “Of course I had to go along” or “I won.” You’re looking for the ways the candidate turned the adversity into opportunity – graciously.

The second approach is to actually put the candidate through adversity as part of the hiring process. If you gave them a homework assignment before the interview, change the terms before they can present their work. Substitute in an interviewer they didn’t expect to talk with. Pick something on their resume that could potentially be a deal-breaker and ask them to reframe it into a deal-maker instead. Again, you’re not looking for pat answers. You’re looking for the natural inclination to embrace what’s happening and turn it positive.

 

The Most Important Deliverable You Have

In my own career I came to realize that vetting for and then fostering leadership attributes on my teams was more important than any other deliverable I had. I am also aware that this knowledge can get crowded out when your company is on pace to grow 10X in two years, because you’ve got so many high-priority problems to solve. Fight the tendency. Sure, you don’t want to be distracted. But you still have to get leaders in place who can scale. Making this a priority benefited my teams tremendously. Individuals with the traits described above were resilient culture carriers who instilled confidence, trust, and good-will in the organizations they were involved with. They were best suited to manage constant change and rapid growth, and most responsible for the ultimate success of the organization.

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Jonathan Shottan is an Executive-in-Residence at TCV.

The views and opinions expressed in the blog post above are that of the author and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). This blog 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. 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/.