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Bootstrapping a Billion Dollar Unicorn with Services from Utah: Dave Elkington, CEO of (Part 5)

Posted on Friday, Apr 10th 2015

Sramana Mitra: We’re talking 2010 now?

Dave Elkington: That experience was in 2011.

Sramana Mitra: Where were you revenue-wise at this point?

Dave Elkington: We were probably doing $6.5 million. A lot of companies in the SaaS space talk about bookings. When you’re bootstrapped, that gap is the only important thing that exists and most importantly, it is cash flow. It’s all about managing cash flow. Other companies would compare with us on, “What are you on revenue?” I’d be like, “We did $6 million in gaps.” They’d say, “What about bookings?” I’m like, “What’s a booking?” All that matters is the cash I’m going to bring in.

Sramana Mitra: It’s not very helpful.

Dave Elkington: I talked to a company and I really didn’t know what a booking was. He tried to explain it to me and it was such a foreign concept. At that time, I was like, “Who cares?”

Sramana Mitra: You realize why you care when you’re dealing with these markets and all of this stuff where there’s predictable revenue. That’s when you care.

Dave Elkington: I care very deeply now. At that time, it didn’t really matter.

Sramana Mitra: I can understand that. When you decided to raise money, what did you do next? What was the thought process behind whom to raise money from?

Dave Elkington: I’ve been courting venture capital firms. You’d give them the update and they’d call you back. None of them were really breaking down the door to invest. I probably had 10 term sheets, but they were all just moderately interested in us. At Dreamforce, we had lions at our booth. I was very purposeful in inviting where there will be demand for our stuff. I had several venture capital firms visit us at that event, which was in the Fall of 2011. I would make them wait in line to talk to me because I’d be talking to prospects. If you’d compare our booth to booths on either side, there’s a huge difference.

It changed the dynamics of everything. At that point, people were knocking down the door to try and get involved and learn about the company. At the same time, I was also looking at Silicon Valley Bank and other companies that would do debt deals. I always joke. I love several things in my life but the most important is my wife, next are my children, then my equity. I always try to preserve equity in the company as much as I can.

There was an event in 2008 when the market crashed where I had a small revolving line of credit. I got an SPA loan for $150,000. By 2008, I had our bank pull the line of credit after having committed and sworn to us that they wouldn’t. It was just two days before payroll. It almost bankrupt the company. I went first to the leadership and said, “I don’t know what to do. I already maxed everything out.” They stepped up. All my leadership said, “We’ll go without income.” It was something I would ever feel comfortable asking. But it still didn’t get us there.

We then went to our vendors and said, “I don’t know if we’re going to be a going concern unless you improve our terms.” They totally did. We went even to some of our customers. Some of them prepaid. We had one customer pay three years in advance to help us out. We anticipated about a six to nine month turnaround before we could get everything back square. It took not even 90 days because as the economy tanked, people were looking for tools to improve efficiency. We really turned it around but I got a sour taste for debt. Since then, we’ve never had any debt. I will never do debt again. Because of the cooperation, honesty, and the very candour, we turned it around. I’m sitting in front of my employees and saying, “This is why I’m asking you not to take payroll for three months.”

Fast forward to 2011, what mattered most to me was preservation of equity but also control and the terms of the deal. I had a bunch of term sheets. I got an introduction from Josh James to Hummer Winblad and most particularly Mark Gorenberg who was one of the partners in the firm. I told Mark what matters the most. He said, “I love everything I see. You tell me what you want. You write your term sheet and I’ll do it.” He gave me a super-voting right for all intents and purposes. It was my baby. It was my company and he was along for the ride.

I remember a conversation he and I had. I said, “Mark, the valuation is way too low.” He said, “That’s funny because I think that’s way too high.” I said, “Listen Mark. One of two things is going to happen. I’m going to be right and this company is going to be off to the races and you’re going to have gotten the best deal of your life. Or you’re going to be right and the valuation is way too high and you’d wish you hadn’t done it in the first place.” He said, “That sounds like the negotiation of perfect terms.” It really was. As ambitious as I was, I felt that the term sheet should have higher valuation, but he gave me every term I wanted. Nobody could ruin our business but us.

We took $4 million in financing. We closed the deal by January of the next year. The plan was to spend all $4 million and really ramp up my growth rate back to 100%. We slowed down to about 50% because it was just hard to continue to scale organically that way. The plan was to burn all $4 million and try to get to $12 million in revenue. We actually grew to $12.5 million. We also generated a profit of $500,000 that year and it wasn’t on purpose. There was just so much efficiency and by putting fuel to the fire, we just sold. By the end of that year, we didn’t need money.

Mark said, “Let’s go to Dreamforce and invite some more venture capital firms to come meet us.” We used the exact same playbook where we knew there was a lot of demand. We have a very purposeful and very meticulous playbook of how to drive these events very efficiently. We had lines 20 to 30 people deep. We had firms like Andreessen Horowitz, Excel, and Sequoia. At that point, we demonstrated 100% growth, so there was plenty of interest. They met us at Dreamforce and by the end of the year, I probably had six or seven different term sheets.

This segment is part 5 in the series : Bootstrapping a Billion Dollar Unicorn with Services from Utah: Dave Elkington, CEO of
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