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From Zero to a Market Cap Bigger than General Motors: Keith Krach, Founder of Ariba (Part 3)

Posted on Wednesday, Jan 16th 2019

Sramana Mitra: You started navigating the venture capital industry in Silicon Valley?

Keith Krach: Yes, that was my introduction. We had five venture capitalists. It got to a point where we were running out of money.

Sramana Mitra: Who were these people? This is 1989. This is a very immature industry from a venture capital point of view. Who were the guys who were willing to work with you?

Keith Krach: US Venture Partners was one. Another one was called Hambro. Another was Advanced Technology Ventures. There were a few more. It got to the point where they weren’t willing to put in any more money. Back then, Japan was booming. Everybody thought they were going to take over the world.

Because of GM Robotics, I’ve been to Japan a lot of times. I went over and met with a company called Kubota. It’s like the John Deere of Japan. We needed some money. We put together a business plan. It was a three-year business plan. I will never forget showing it to him right there at the table and he said, “We don’t do three-year business plans. We do 20-year business plans.”

First, I was asking for a million dollars. I changed that in the end. We asked for $10 million – $3 million for equity, $2 million for non-recurring engineering, and $3 million for license. We built that. We created mechanical design optimization. In 1995, we were all set to go public. Morgan Stanley was taking us out and Parametric Technology came in.. We were talking about a partnership. They said, “Let’s do a deep partnership. We want to buy you.” I was like, “Really?” We ended up being about $500 million.

Sramana Mitra: How much revenue were you doing at this point?

Keith Krach: I think we were doing about $40 million. We just had the greatest quarter in our life. There were about 40 slides. The climax was at the end where we showed what we did the last quarter. On slide 15, they go, “What did you do last quarter?” I just went through that last slide. They said, “Don’t get any investment bankers. We can do this on our own.” Once they said that, I knew we had to get investment bankers. We also got Autodesk interested in us.

Sramana Mitra: Did you have to stay at PTC after this acquisition?

Keith Krach: They wanted me to be the EVP of Strategy. I didn’t want to go back to Boston. I took six months off. It was more money than I had ever dreamed I would make in my entire lifetime. I set a hundred goals. I broke them out in terms of family goals, physical goals, intellectual goals. At the end of that time period, Benchmark Capital was being formed. Bob Kagle, who was one of the early partners, was also from General Motors.

Sramana Mitra: I know Bob.

Keith Krach: He’s a great guy. He was on our Board at Ariba by the way. He goes, “Why don’t you join us here at Benchmark?” I said, “I don’t think I want to be in VC. I can do that when I retire.” He said, “Why don’t you be our first entrepreneur-in-residence?” I go, “What is that?” I didn’t want any strings attached when I went to the next company. This was when the internet was being commercialized.

Then I grabbed some of the old guys. There were a total of five of us. I added two other guys and said, “We had heard about this company called Open Market. They’re talking about this B2C electronic commerce. We’re B2B guys. We grabbed those guys. Also, the second entrepreneur-in-residence, Paul Haggerty, was VP of Engineering at Next with Steve Jobs.

Sramana Mitra: My husband used to run Next for Steve Jobs. I know Paul.

Keith Krach: You know Paul? He’s one of the smartest guys I’ve met in my life. At that time, he was probably one of the best object-oriented coders in the world. We had a ragtag team. We said, “Let’s do this B2B e-commerce thing.” I said, “We don’t have a business plan because what I’ve learned in the last six months is, you guys don’t read them anyway. We’ve got a great team. We all have a lot of scars on our backs. A fair price is $16 million for x%.” They jumped on it.

This segment is part 3 in the series : From Zero to a Market Cap Bigger than General Motors: Keith Krach, Founder of Ariba
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