The pressure is on at Outreach.
The Seattle startup took a break on Wednesday, hosting an open house party to christen its new headquarters overlooking Elliott Bay and celebrate a recent $114 million investment round that propelled the company to unicorn status.
But with a new valuation of $1.1 billion, there’s more at stake to produce, said CEO Manny Medina.
“It creates an additional level of pressure,” Medina told GeekWire on Wednesday. “The unicorn valuation is based on forward-looking revenue — it implies further growth on a number we haven’t hit yet. It’s a lot of pressure to make sure you deliver on those numbers.”
Outreach has been on a roll for the past few years with its software that uses machine learning to help customers such as Cloudera, Adobe, Microsoft, Docusign, and others automate and streamline communication with sales prospects. The technology offers one system to track all touch points, from phone calls to emails to LinkedIn messages, and integrates with existing tools including Salesforce and Gmail.
Medina, a former director at Microsoft, originally helped launch Outreach as a technical recruiting startup called GroupTalent in 2011. But he and his co-founders pivoted in 2014 to focus on building tools for salespeople.
The rest is history — Outreach now has more than 3,300 customer accounts and 50,000-plus users. It employs 350 people and plans to reach 450 by the end of 2019.
Read on for more from our chat with Medina, who talked about preparing for an IPO, creating the right culture, and more. (Interview edited for brevity and clarity)
GeekWire: Thanks for meeting with us, Manny. Let’s talk about the $114 million fundraising round. Why did you decide to raise this much at this time?
Outreach CEO Manny Medina: The capital markets are getting to a point where they’re recognizing the value of SaaS companies and they’re paying very high multiples for it. We had a conversation with Bank of America Merrill Lynch where they were saying that whoever invested in IPOs two years ago already made a 100 percent return on that investment, and whoever invested in IPOs a year ago are making anywhere between 60 and 75 percent returns within a year.
Those kinds of returns are forcing big financial institutions to come in earlier in the cycle and start making bets on companies pre-IPO. We decided that for us it would be good to take advantage of those favorable situations so that we can build out more of the customer engagement layer that we still have to build out. A lot of what we do is very sales-related. We need to continue to evolve into account management, customer success, etc., so that we can have the entire layer of customer-facing reps in power on Outreach.
GeekWire: With the exception of Microsoft Ventures, the investors in this round came from outside of Seattle. Does that say anything about the investment climate in Seattle?
Medina: I can’t speak to the Seattle VC community because I only run one company. I’m friends with Madrona and Ignition, the B2B investors here in town. Our last round was led by Lone Pine Capital, a hedge fund in New York, so it wasn’t even Silicon Valley money. Meritech, a Sand Hill Road firm, also participated, but the bulk of the investment came from New York. Our previous rounds did have DFJ, Sapphire, Spark — they are all Silicon Valley investors, but they have sizable investments here in Seattle. They are not based here but they are very familiar with Seattle.
I think it’s a myth to believe that because you’re in Seattle, you’re only going to take Seattle money. It’s a very short flight from here to wherever. With our last round in particular, investors came to us, so we didn’t have to travel anywhere. People know who we are. They know our traction. They come and visit, they see the numbers, and it’s a pretty straightforward decision.
For this round, we really wanted to have a bridge fund that can invest in both private and public markets, because they will stay on as we go public. What usually happens with VC-backed companies, is the moment they go public, you see a big sell-off for the VCs who are trying to get liquid. We wanted to have funds that will stay with us through the public markets and there’s not that many who do that.
GeekWire: How does the company think about this billion-dollar valuation? How does that affect your planning for growth and further ambition?
Medina: It actually creates an additional level of pressure. The unicorn valuation is based on forward-looking revenue— it implies further growth on a number we haven’t hit yet. It’s a lot of pressure to make sure you deliver on those numbers.
Financial results are an outcome of a bunch of other work that you did in the past, right? You build a great product, you build a good culture, you are able to maintain a vibrant community of users and customers and they’re getting results from that. There’s a lot of investments you have to make to get there.
But now you have to do it efficiently. In the past, growth at all costs was a fine way to grow. It’s no longer OK to do that. To be an IPO-ready company, you have to have market efficiency within a range, you have to have burn within a range, you have to have a path to profitability, you have to have top of the line retention, and so forth. So a lot of the unsexy things about growing a company have to happen now for us to prepare to go public.
GeekWire: Are you profitable?
Medina: No. We are investing in efficiencies right now that will get us to profitability in a couple of years. But nothing on the horizon. When you’re growing and you’re doubling, when you have the opportunity to capture that much market that fast, it’s really hard to solve for both profitability and growth. Right now we just need to capture so many areas of the workflow and so much pain within the customer-facing reps — we need to solve that first, and then become efficient later.
GeekWire: You’ve mentioned an IPO — with the new funding, does that accelerate your timeline?
Medina: We don’t have a timeline, but it allows us to do it right, to think about public life at our own rate. As Anna Baird, our COO, would say: A public fundraising event is not an exit strategy — now you’re going from the road to one of the fastest freeways in a glass car. Everybody can see exactly how you’re doing and your numbers are transparent and you have to be transparent about the work.
There’s definitely list of things that we need to get done internally before going public. It’s being able to easily invoice in multicurrency; setting up tax entities in different countries; multi-language support; multi-cloud support — the unsexy stuff. The list keeps going and going. And in a world in which data privacy and security is very important, you want to be able to pivot quickly as regulation changes to put the data where the data needs to reside. That’s a thing that we have to be very conscious of as we continue to grow.
GeekWire: You and your company have pretty good ratings on Glassdoor. Outreach was also just named one of Inc. Magazine’s best workplaces. What are some leadership lessons that are important to you that have helped build the culture here?
Medina: There are lot of the things that you hear or you read that are true, but they’re just hard to apply. Of course there’s honesty and transparency and grit and being true to your cultural values. Those are important. But one of the things that I always sort of manage for is energy and passion. There are two types of people: there’s people who bring energy into the room and there are people who suck energy out of the room. And they’re both fine, right? They’re both people that you may need. But you need the balance for that. And you need to have more people who give out energy than people who suck out energy — people that will continue to bring vibrancy into groups. So solving for that is something that very few people do, that we have done carefully and very well over time, going from four to 350 people where we are right now.