Heidi Jannenga: One big lesson that we learned was that valuation is important, but it’s not the most important thing. The terms of the deal are the most important. People can give you valuation but at the end of the day when it comes to the contract, it’s really about the terms. Even on a minority deal, they can put in terms in there that feel very much like a majority owner. You lose a lot of control, potentially, if you’re not watching the terms.
We went down the aisle with two companies, got starry-eyed with valuation, but at the last minute, we took a deep breath and said, “We’re not sticking to what we said we were going to do here.” We walked away at the altar and did not go through with the deal. It was one of the best decisions that we’ve ever made. We went back to the grindstone for six months and several companies came back to us saying, “Are you sure?” We probably had, at least, 40 to 50 interviews with private equity companies all across the nation who had interest in our organization. We did a much smaller process because we’ve done so much diligence the first time.
Battery Ventures actually had taken interest a year prior to us going out for this potential PE round. We just continued to be very positive. We ended up striking a deal with Battery Ventures in 2014. They did take 51% of the company. As co-founders, that was a very hard decision because at that point, you “lose control”. We thought we had done our due diligence extremely well in terms of talking to companies that Battery had invested in. Not only did we talk to people that were invested with Battery, we actually found companies that had not had good results. It didn’t pan out the way they thought it was going to.
That was a piece of advice that someone had given us that I thought was really great because it’s all rosy when things are going great, but when things aren’t going great, that’s when you see people’s true colors. That’s something that we did. We tried to find as many of those that we could and we still got positive results. We felt very good about them sticking to their promise of, “We’re not operators. We invest in companies that have great management and leadership. We love your vision. We love the niche market.” That was one of the things that a lot of other PE firms didn’t like about us. We are not a B2C company with billions and billions of dollar opportunities and millions and millions of potential users. We are a very small niche, but they understood that. They had both the healthcare experience as well as the SaaS experience. Those two married up along with the relationship that we had built with the managing director who now sits on our Board. It was also a big piece of our decision-making at that point. That happened in 2014 and we haven’t looked back. It’s been an amazing relationship. They have continued on the path that they promised they would.
Sramana Mitra: I have a question about the technicalities. How much did Battery invest and how much is that to give liquidity to your founding team versus growth capital?
Heidi Jannenga: We don’t release the numbers but we were able to take some liquidity off the table as well as investment into the company. There was more liquidity than there was investment but we were able to capitalize the company into taking us to where we are now as well as allowing us to take liquidity off the table and feel comfortable.
Sramana Mitra: If you are a founding team that has significant leverage in a private equity deal, you wouldn’t give up 51% of a company without taking significant liquidity off the table.
Heidi Jannenga: Absolutely, but we’re still the second largest shareholders behind them. We still have a significant portion of the organization that we still own.