Episode 11

IPO

Hosted by Okta's Frederic Kerrest and Epic Magazine's Joshua Davis

Featured on iTunes' Business New and Noteworthy

This is it. The moment you’ve been waiting for. How nervous is everyone? Why IPO? Why now? In this episode, we talk with successful entrepreneurs about the highs and lows of taking their companies public — and everything it took to get there. You'll hear from Josh James, Fred Luddy, Julia Hartz, Ben Horowitz, Aneel Bhusri, and our very own Frederic Kerrest about the day itself and how it propels your company into an entirely new chapter.

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Next Episode

People spend a lifetime getting to an IPO — but what happens after you go public? How does it change your company? How does it change your worldview? And how do you channel all of that change into something much more significant? In our season finale, we explore the great beyond of post-IPO success with Aneel Bhusri, Josh James, Maggie Wilderotter, and Aaron Levie.

Guest List

Josh James

Founder, CEO, and chairman of the board of Domo

Fred Luddy

Founder of ServiceNow

Julia Hartz

Cofounder and CEO of Eventbrite

Ben Horowitz

Cofounder and general partner of the venture capital firm Andreessen Horowitz

Aneel Bhusri

Cofounder and CEO of Workday

Transcript

Joshua D
Before we get started with today's episode, we have some exciting news to share. We are going to be launching into season two very soon here.
Frederic K
Very soon.
Joshua D
And in season two we're going to be opening up the conversation to you. We're asking you to send your problems to us and we will then help you solve them.
Frederic K
We think there's a lot of opportunity and seeing how we can help you take your venture, whatever stage you're at, whatever challenges you're having, whatever opportunities are in front of you to the next level.
Joshua D
Send us questions, problems that you're dealing with in your business, in your entrepreneurial journey. You're trying to figure it out. Let us know. Email us zerotoipo@okta.com that's, Z-E-R-O T-O-I-P-O-@-O-K-T-A.com now let's get on with the show.
Julia
I mean literally I could not find one person that said they enjoyed going public, or being a public company CEO. So I figured I would have to construct my own reality if I were going to like have any optimism around the process.
Aneel
Honestly a biggest feeling was just a sense of relief.
Fred L
Overall it was just a surreal day with an exceptional outcome, and it's been surreal ever since.
Frederic K
Welcome to Zero to IPO podcasts about what it takes to go from a great idea you had in the shower, all the way to a thriving company listed on NYSE or Nasdaq. I'm Frederic Kerrest co founder of Okta.
Joshua D
And I'm Joshua Davis, the co founder of Epic and a contributing editor at Wired.
Frederic K
This is it Josh. We finally made him man. All the way to the end. The IPO.
Joshua D
We started out at zero. Now we're at IPO, we're there. We've arrived the big moment. So today's episode is devoted entirely to this milestone in a company's life. The moment that it has its initial public offering.
Frederic K
Last 10 episodes, we've gone from the very beginning. The idea, it's in your garage, you're starting to build a team, things are going great. Things are going south, you need to raise more money, who are all these people, building the culture, keeping it going. Here we are IPO, it's exciting and I think we have an outstanding roster to talk with us about this today.
Joshua D
We're going to hear from Josh James of Domo, Fred Luddy of ServiceNow, Julia Hartz of Eventbrite, Ben Horowitz of Andreess and Horowitz and a bunch of other stuff, and Aneel Bhusri of Workday. But Freddy before we go to our first interview, I just want to ask a couple questions of you because you've been through this.
Frederic K
Yes.
Joshua D
You've, you've gone through an IPO.
Frederic K
Actually, I've gone through a couple. I went through the salesforce.com IPO, but I was obviously much younger in my career. I wasn't a member of the executive team, I didn't get to go to New York for the opening of the bell.
Joshua D
So you didn't know shit.
Frederic K
Yeah, I didn't know anything. I just really enjoyed the party.
Joshua D
It was a good party.
Frederic K
It was a great party.
Joshua D
That's what you need to know about the IPO.
Frederic K
That was in 2004 by the way.
Joshua D
It was a while back.
Frederic K
[inaudible 00:02:57] the clock back.
Joshua D
And in addition to the party that you throw, which is an important topic, we don't want to skip over that.
Frederic K
We threw ours at AT&T Ballpark.
Joshua D
Well that's a pretty big venue.
Frederic K
[crosstalk 00:03:11] where the Giants play.
Joshua D
That's a pretty big venue. Were the Giants there?
Frederic K
No.
Joshua D
Well, let's get to our first guest. Josh James of Domo has actually done this twice. He's taken two companies public, and so if you want a masterclass in what it's really like to get to that first IPO look no further.
Frederic K
When you took Omniture public, you were the youngest CEO of a NASDAQ and YAC trading company.
Josh J
Correct.
Frederic K
What was that like? Like do you feel people underestimate you because of your age?
Josh J
Yeah, they definitely underestimated me. It was fun to see Zack finally, and I first met him and I said, “Hey don't go public.” Because everyone was harassing him at the time at Damos, “Hey, don't go public.” He looks at me he's like, “What?” “If you do, I'm not going to be the youngest anymore.” That's how I met him. But I mean I had never run a public company. My CFO had never run a public company, the biggest challenge though, honestly was NAF was public. And they had all of their data came from humans entering it. We had software as a service. So they're like, “Oh, so you're like sales force?” Like no, we have all these servers and we have all this data coming in. And every time we signed $100,000 contract, we immediately would go and spend $30,000 on servers because AWS didn't exist.We spend $30,000 on servers, we haven't collected one month's pay. And so we're negative cashflow. The faster we grow, the more negative cash where I'm buying servers. And people did not understand that.
Frederic K
One of the challenges that you might have faced was you were just too early, just they needed to be educated by a hundred more companies in front of you. And if you were the 100 first, they always said, “Oh yeah, this makes [inaudible 00:04:54].”
Josh J
Yeah. So you're welcome to all the other SAS companies that benefited.
Frederic K
It seems like it worked out okay for you.
Josh J
It worked out okay. I can't complain.
Frederic K
Why go public?
Josh J
I actually liked being a public company all the time I talked to people and they're like, “Oh, it's horrible being public. You don't want to go public.” Like the most, I guess free ... First of all, you have capitals. So if you want to buy something you can buy it. Which is interesting because that's another competitive weapon that you have a secondly, it's easier to recruit employees, but the thing that I hate about it is you can't talk as much. You gotta be careful about what you say. And that was the only thing that caused me consternation, and then I found out if you slip up as long as you issue a press release within like 24 or 48 hours, everything's cool. I was like, “Free thing I've ever learned, I can just issue a press release, Wonderful.”
Frederic K
What about the value? I find that there's a lot of value in being public just in customer marketing, because customers now they don't have to ask you how much cash you have and then you kind of have to give them an answer. But you can't really see you put your CFO on the phone, then he dances around it. It's like, well, they're audited. It's like Ernst and young already. Go check it out. We just filled the 10Q.
Joshua D
Why do customers care how much cash you have?
Josh J
I think especially after 2000, 2001 I remember it was a big issue. People were picking codes. The worse code is when you were selling contracts and now they can look and see, and there's definitely a perception [crosstalk 00:06:14]-
Joshua D
So if you go bankrupt. They're not running their business on a piece of software that is no longer supported. Now that you're republic, is this a specific issue to SAS companies? Or all companies [crosstalk 00:06:27]
Josh J
Enterprise companies are especial, and when you're public, it's not even that they're going through the financials. You're just public and everyone knows [crosstalk 00:06:35]
Joshua D
It gives them a sense of security.
Josh J
It's an extra sense of scrutiny that the company's been through. For sure.
Frederic K
What about international marketing? So probably in North America, people know the name Domo, you're an experienced, seasoned, successful entrepreneur. They might know the name Domo abroad as well, but the day it went public. Did that help you with international marketing?
Josh J
Not necessarily.
Joshua D
Good question.
Josh J
It helped us with ... The only place it helps, it helps with the multinationals, it definitely helps us with those. [crosstalk 00:07:03]
Frederic K
Domestically based but-
Josh J
There were some multinationals where we'd have maybe a domestic ... We started domestically, but it was based in Germany, it definitely helped in those situations. So I guess I should have said that really.
Joshua D
But to Freddy's question and it wasn't like you got pick up coverage all over the world, and suddenly you have calls coming in from France and calls coming in from Brazil.
Josh J
I don't know if you saw the press associated with our IPO, but it was pretty negative, so it was more of a burden than it was helpful.
Joshua D
Why don't you tell us about that? Not to make you relive difficult days, but-
Frederic K
I thought all press was good press.
Josh J
Oh yeah, all press is definitely, I thought so as well. But no, I think definitely-
Joshua D
What happened?
Josh J
The press has definitely figured out when you file, you're in the quiet period and they can write whatever the heck they want to write. So they write it as salacious as they possibly can. It's definitely click bait, it's untrue for the most part. It's exaggeration, it's out of context, it's horrible and-
Joshua D
And you can't say anything.
Josh J
It's misleading and you can't say a damn thing. It's extremely frustrating, but it's motivation. It actually pissed off everybody in my company. So my employees were like, “It's us against the world.” Which I was like, "Okay, that's good. I'm glad you're in the boat with me." But yeah, it was-
Joshua D
How handful was it in the lead up?
Josh J
I mean, we had things like all these related party ... We weren't planning on going public that soon and so we didn't have time to get rid of some of the related party transactions just because it's cleaner, and you want it to be cleaner, you don't want to answer questions. And like for instance, my brother owns a restaurant. We serve people lunch and we would come in, it was the number one rated food item of all the lunches that we brought in. And so we'd bring them in, they were giving us food, most favorite nations pricing basically at cost. But I got to list it and disclose it as a related party transaction. And that's what most of the articles were about.
Joshua D
About your product.
Josh J
He's enriching his brother through Domo, it just suck cause it's just completely unrelated to the business and it has nothing to do with it. [crosstalk 00:08:55]
Joshua D
But that became the story.
Josh J
That's the story.
Joshua D
Talk to us about the day of going public. You've done it twice now, take us through the first day. It sounds like the first go around was perhaps a little more challenging, the second time you know what's coming.
Josh J
Yeah. For me, neither of my IPOs were tremendously successful. I mean one was 105% subscribed, the other one was very negative in terms of the press around it, and it was a hustle. I mean we had a really hard time finding investors that would listen long enough to feel like they totally got it. So it wasn't like either time were these great, wonderful days. Thankfully the second time at least went up the first day.
Joshua D
On the first one with Omniture, it went down the first time?
Josh J
No it didn't, but it like stayed right at 650 and just stayed there, and it didn't move and we were price below the range and-
Joshua D
From an outside perspective you just IPO-ed, you just generated a ton of money so-
Josh J
You know what's really cool? I went to Sun Valley afterwards.
Joshua D
After the first one?
Josh J
After the second one. And I was kind of embarrassed because my employees were not ... We didn't meet their expectations. And the last private round we did was over $2 billion and our market cap is around half a billion dollars. So clearly we have a lot of work to do, and so I was a little embarrassed by it. But I go to Sun Valley and there's all these CEOs and every single one was like, “Good on Ya. That was awesome.” It made me feel really good. I was like, “Yeah, what the hell? That was freaking hard. We did it. We still have lot of work to do, but we should be able to celebrate this moment.”And sometimes I'm not good at it. I just focus on the 1% that's not working. And that's all they think about, but yeah it was cool to do it. I think the thing that I liked the most about the day of our bringing, I filled a room, I bring as many employees as I can and I let them bring their spouses or significant others.
Joshua D
So the day of the bell rings, you're live on Nasdaq. And Are you immediately like, “Okay, let's get back to salt lake and let's get going.” Or is there a moment of euphoria just for a second?
Josh J
No, not for me. No, it was let's go-
Joshua D
[inaudible 00:11:08] a lot of our listeners right now.
Josh J
Yeah. I mean it was just Kinda ... It is what it is. I guess I'm the happy when my company's cashflow positive has grown the way I want it to grow, and the market ... I'm getting the value for that, that's a great feeling.
Joshua D
Freddy. I like the honesty. I like Josh's honesty. He says neither of my IPO were tremendously successful. But he did it. I mean listen, he made it across the finish line and it gave him a lot of tools. I guess that's one of the things that's most interesting to me is the tool set you get when you go public.
Josh J
I think you're talking about the value you get out of being public.
Joshua D
Correct, I mean, he talks about the fact that you have capital to buy something, it's easier to recruit people.
Frederic K
I don't know that it's easier to recruit people. You're trying to recruit a different kind of person now, a different kind of person wants to join a 100 or 200 person company that wanted to join a post IPO company. They have a different risk profile, they have a different plan. There's different things they liked to do. And frankly I think it's obviously always hard to recruit because you're always trying to hire the best people in the world at any stage. Fred Luddy is the founder of ServiceNow and has been through the ringer. Here's Fred Luddy.
Fred L
Who went public just before us?
Joshua D
Facebook.
Fred L
What happened to Facebook when they went public?
Joshua D
It didn't go very well.
Fred L
No. And who on this planet would say, “God damn it. Why didn't I buy those shares at 23 whatever, fell down, but nothing.” They called it faceplant. It was horrible, and nonetheless we pressed ahead with our road show, and it short lived and-
Joshua D
Was everybody on the road show? Were they asking you about Facebook?
Frederic K
Who went on the roadshow? It was Frank-
Fred L
Three. Three people, Mike Scarpelli CFO, Frank CEO and me. I drank a lot of starbucks coffee and answered an occasional question, but frank was very good on the road show. He'd done this before. Mike was very good on the road show, he'd done this before. It was a questionable time to go out-
Frederic K
In this situation, you're on the road, you're trying to convince people that this is a good idea. Facebook has just faceplanted.
Fred L
Correct.
Frederic K
And everybody is saying your market's small, so it's not looking good.
Fred L
No. Why do you think you saw the evaluation that we wanted to go out, that was north of $2 billion and they're saying, "Why would you be worth $2 billion and your total addressable market is only worth 16?" So we had to try to convince these analysts that's ... You're looking in the rear view mirror at the mainframe marketplace. What we see is a market that's far more significant and far more open minded than mainframe people of the 1990s.
Joshua D
Where did you end up pricing it?
Fred L
We came out at 2.3. So-
Joshua D
Okay. And how did it go when you went live on the New York Stock Exchange?
Fred L
That was the most surreal moment of my life. So what happens is you get to the New York Stock Exchange storied. They bring into one hall. This is the hall where they used to park the horse and buggies. Then the next ... It's now trading floor. Then you go to the next trading floor. They walk around and say, “Here's the booth where your stock is going to open." Then they take you-
Joshua D
When you say booth, what does that mean?
Fred L
Well, if you watch the CNBC, you have these like kiosks. And so we're going to go out in one of the kiosks. So one of the kiosks has a market maker-
Joshua D
And the kiosks are those kind of like, they're more like towers, they're like towers on the floor.
Fred L
Yeah. What do they call them at a mall, it's just like-
Joshua D
Yeah, I see what you mean. Like a kiosk.
Fred L
It's a kiosk in a mall.
Joshua D
So they take you to that kind of tower kiosk thing, you're standing there-
Fred L
And that's where the market maker is, that's the person who's deciding if there's enough buy, sell, and then they release, but then they take you to a-
Joshua D
But this is early in the morning, right? The market hasn't opened yet?
Fred L
Very early in the morning.
Joshua D
So you have to wake up early. What time did you have to wake up?
Fred L
I didn't sleep. My wife and I went out to dinner.
Joshua D
Late dinner.
Fred L
Late dinner. We came back and I turn on CNBC and the futures market we're up 275 points. And I thought-
Joshua D
For ServiceNow?
Fred L
No.
Joshua D
No. You mean for futures and general?
Fred L
Futures in general in the market. And you and you look at ... Because you want to go-
Joshua D
You want to go out on a big day.
Fred L
You want to go out on a rising tide day.
Joshua D
[crosstalk 00:15:40] go on a downmarket day.
Fred L
No. And-
Joshua D
So that's looking good.
Fred L
Well, all the prior days it had been down. So we're selling into this-
Joshua D
Downmarket.
Fred L
Huge downmarket storm and Frank is like, “We're not going to sit in our foxholes. We're going to go out, we're going to be a public company and the stock's going to go up according to how we perform. It's that simple."
Joshua D
He's taking the long view.
Fred L
He's taking the long view. He's not a one day deal. And so he was absolutely right. It didn't make any difference really what we want public at, the fact is we'd now become a public company. And by the way there's significant advantages to being a public company versus private, and there's significant negatives as well. But anyway, so let's go back to the IPO because this is fun. So after they show us the kiosk and the market maker, they take us up to this gorgeous, gorgeous room where you and 30 of your best friends have breakfast. Now New York Stock Exchange was a big customer of ours, and 10 of their guys had flown themselves from Chicago to New York to have breakfast with us, on their own nickel. Like your customer flies to make sure, “We're going to be there to support you. We're going to help you out, we're going to be there, raw rock cause we can get in the exchange. And we can ... We just want to be there with you cause we've been with you all these other years. Let's do this together.” And I was really ... Ben knows the guy that headed that, and I was really appreciative that. You ring the bell, they show you the exact button to push. By the way that button is-
Joshua D
So you're not actually like hitting the bell. You press the button.
Fred L
Yeah, you press the button and that button works the same way as the door close button on the elevators. There's no wires. Nothing.
Joshua D
[inaudible 00:17:16] straight.
Fred L
You're not doing anything.
Joshua D
Oh, there's nothing to it.
Fred L
No.
Joshua D
It's just like a [inaudible 00:17:22]
Fred L
You press this and then ... Well Bill is going to ring that anyway whether or not you press it, but you feel good about pressing it.
Joshua D
Who pressed it?
Fred L
Frank Slootman. And I was standing next to Frank and it was very exciting. But then you go down to the floor and you go to the market maker, and that's when it's fun because we had sold the shares the night before for $18. The way that it works is you presale the shares to other people that want them, and then what happens is the starts getting made. And so you have a bid ask and you have a certain amount of volume and they're yelling. It's just like an old fashioned hog auction, they're yelling back and forth. And then finally they are like, “Okay, we got a quarter million, quarter million trade. We got a quarter million trade trading at $23, no we have a half a million that's going to trade at $23.” So people had bought it 18 we are now going to sell at 23 and people are going to buy in at 23. At that point they said the market has made the whole thing went off and bam.
Joshua D
At 23.
Fred L
At 23, and we went up like 30, 40% that day. Oftentimes stocks are excited about, “Oh, we grew 100%.” You just got screwed by the banks out of 50% of your money.
Joshua D
Because you sold at 18.
Fred L
Because you sell the night before, right?
Joshua D
You're done.
Fred L
Yeah. So if you sold at 50 and it goes to 100 you just got screwed out of 50 right? So you want to have a healthy uptick-
Joshua D
But not too much.
Fred L
You don't ... Oh, we had a hundred percent uptick. Oh Man those bankers, they got you. They got you good. But it was a very surreal day. And I always say that the very positive thing about becoming public, versus private is when you're selling to the enterprise, there's all these corporate viability questions. Will you be here next week? What are your financials? What are you doing here and there? And all of a sudden you're on par with them. You're a publicly traded company and you have public financials. And so they can assess your viability without you having had these special calls.
Frederic K
There're audited by Ernst and Young. You can say, “Go pull my 10Q”.
Fred L
Yeah, exactly. And so the SEC documents, the downside is that you have to behave differently as a publicly traded company, and there's a lot of governance that goes into that and a lot of costs for the governance. But overall it was just a surreal day with an exceptional outcome, and it's been surreal ever since.
Joshua D
You hit the IPO. And for most of us, we think that's the end of the road. Fred points out that his experience was quite different because they were selling into a down market, and it was just a tactical decision that gave them an increased tool set to continue to build the business. That's what it was for him. It wasn't this kind of Vall Holla like end of the road experience.
Frederic K
But I think it's just a mature approach, the mature approach as you're playing the long game. So it's like, what does it matter what happens this month, next month, the next month in the stock market? If you're going to create an awesome business. And it's going to be a good business and it's going to grow, and it's going to create a lot of value for your customers and shareholder value for their shareholders. It doesn't matter what month you go public, if you can have that approach. Fred had been through some of that and I'm sure that some of that colored it, and he talks about it he's like, “That's why I was more comfortable doing it."
Joshua D
Maturity, Huh? That's what you're saying. You got to behave like an adult.
Frederic K
Yeah. The number one thing about going public, my number one recommendation is make sure you have predictability in the business. Now in our business, enterprise IT, enterprise software and service, we have good predictability. We understand what's going to happen. We have a subscription base that we can build on, we know kind of what new customer attraction hopefully is going to look like and so we have an idea of what's going to happen. It has helped us without a doubt, like that's the number one most important thing. If you do not have predictability and you don't know what's going to happen next quarter, or the quarter after, if it's super lumpy sales, take a step back and think long and hard because you're going to have to give guidance to Wall Street, and that is how they're going to value your company going forward. Well our next guest is going to talk about this idea that the IPO doesn't just give you a new tool set. It also helps you further define who you are. Julia Hartz, the co founder of Eventbrite. Talk to us about how the IPO helped her and her co founders better define the company's mission. Here's Julia.
Julia
I went with our CFO, Randy Bafumo, who spent 15 years on the buy side at Legg Mason. So it was like old home week for him, because of the investors
Frederic K
Hey nice to see you again. How are you.
Julia
So that was wonderful. We are very different, and so it was great to have them see sort of how we work together. And Kevin joined us at the very end, which was a wonderful way to ring the bell on the New York Stock Exchange and celebrate that moment.
Joshua D
What are your memories of that day?
Julia
Well at first I felt like it was our wedding all over again, except with [inaudible 00:22:34] so it was kind of funny. Our family was there. We had some of our earliest Breitlings there. We had our creators on the floor with us, and I was very proud and I'll tell you why we set out ... When we decided to go public, we set out with three core objectives. Obviously throughout the years we'd been told this is a pain. It's tedious, it's expensive, you'll hate it. I mean literally I could not find one person that said they enjoyed going public or being a public company CEO. So I figured I would have to construct my own reality if I were going to like have any optimism around the process. So what I knew was that it was going to be a very expensive and time consuming fundraise. If you think about private fundraising in the era that we've been fundraising, so to point out in the good days, it's like a loping or dating. If you think about going public in that public fundraise, it's like my big fat Greek Wedding. All of a sudden 17 people have an opinion on the cake and you have multiple pieces of stationary you're choosing from and it's a lot. And so our first core objective was to extract as much value out of the process of going public as the time, and energy and money we were going to put into it. And for us that was about using the drafting of the S1 as the time to really put pen to paper, and appreciate the fact that we were caudifying or a strategy.We're really defining this mid market for the first time for the world. That for us was incredibly valuable because it helped us focus on what is most important, how we got here, and setting the roadmap for where we're going in the future. The second objective for us was to be able to tell the story of Eventbrite through the journey of the event creator. And why that was so important was because the experience economy is at its all time high. We tend to think about live events as being the Taylor Swift concerts in Madison Square Garden. We're focused on a very, very different population of creators and inventory of events. So we wanted to tell the stories that really illuminated who they are.They're entrepreneurs in nature. There's a guy, Chad Collins who brought a set of Legos home for his daughter because we wanted her to be an engineer like he was, and they started making YouTube videos, making all these really cool Lego creations and they amass like 12 million followers.
Joshua D
My son watches them.
Julia
Yes. And she had a great idea one day she was like, “Daddy wouldn't be fun to get together with all these people in real life.” And he's like, “Yeah.” So an idea was born Brick Fest Live, which is a Lego enthusiasts meetup. They sold 23 tickets in there ... 23,000 tickets rather. That'd be disappointing if it was 23, 23,000 tickets in their first weekend in Philadelphia, he had no idea what he was doing. He searched event ticketing, came across of Eventbrite, signed up and off to the races. So all of a sudden he has this great idea. So what does he do you think that maybe he'd just do it again the next year? No, he then rolled out the Mind Fair, from Minecraft enthusiast innovators festival, 31 events in 15 cities over the course of five years.Seeing over a quarter of a million people. I mean this is emblematic of the typical event creator on Eventbrite.
Joshua D
And you can do that on ticket master, none of these things that people think of already.
Julia
Well, where we excel is really looking at how we can help the Chads of the world exceed, and exceed their own expectations and find success. And so Eventbrite at the end of the day is a business enablement platform for event creators. And I think going through the process and telling these stories, and an earthing more stories change the course of the company frankly. And so that was a huge value add.
Joshua D
And that was happening as you went through S1 process.
Julia
I mean it's been happening all along, but I think it really came to the forefront because we wanted to use the journeys of these event creators to tell our own story, and that it wasn't just about Eventbrite, and that there was color. And the importance of the color was that not many people understood our market before we went public. We were telling this to a much broader audience of people who were going, "Okay, so how are you different from ticket master? Like what's it?" So we needed a vehicle and we decided that the event creators, and their journeys and their stories would be the vehicle, and in the course of that we would help amplify their stories to the world.The third objective was to raise the proceeds that we needed, that we wanted to add to our balance sheet, not too little, not too much, and to add world class investors to the conversation, and to welcome them in. And I would give the team a lights out grade on all three. And I think because of that, because of that intention and because of our execution of our IPO and these objectives, it was a really positive experience for us. So yes, it's expensive. Yes, it takes a lot of time. But if you have intention and through our framework we use objectives, but if you have a clear intention, it can be a very positive moment and momentum builder for the company. And so we come out of it a stronger company, which I don't know if a lot of people feel that way once they go through that process. We also rang the bell on September 20th. So we had the benefit of getting through our IPO journey quickly, and decisively and getting out before the wobbliness of the market. And so I feel very fortunate that we were able to do that. But that's just a moment in time, it's like a celebration of the work that you did to raise the money and to become public. And now we are going to operate the business and we get to grow the business as a public company. And that's obviously where the real work is.
Joshua D
Do you feel the same hit on efficiency that you did in previous rounds?
Julia
No, and that's very interesting. So while there may be a tendency to say, “Wow, we raised all this money, let's go spend like drunken sailors.” Because I think that's in humans. We have a structure, we have a model and a set of defining principles that allow us to really understand where our superpower is, and our superpower is in the leverage of our business model and creating a core business that generates free cashflow, taking that free cashflow and reinvesting it in areas that are on the path to returning or returning already, and continuing to compound growth that's durable and sustainable. So in a downmarket, in uncertain times Eventbrite is not impervious. Nobody is impervious to macro conditions, but we're certainly a lot stronger than other companies in our space or even outside of our space.
Joshua D
So Freddy, now we've heard from Julia, we've heard something similar also from Josh James earlier who was talking about how it helped the company, but it wasn't easy, it wasn't particularly a successful experience. And I think our next guest is actually going to offer us an entirely different perspective, which is, it could be an absolute shit shock. Here's Ben.
Ben
Well, so we got thing public and then we'd get out there and the world is getting worse and worse and worse. And over time it started to become clear that the loud cloud business, which was kind of a cloud computing business ahead of its time sadly, probably wasn't going to work. But we had calculated that we needed another $50 million to basically get to cashflow positive, in which case at least like the business would be viable, and so we'd go out and ... Again, like we couldn't raise money the regular way, we couldn't do it secondary even though we were public. So the bankers came up at this thing or made us hip to this thing, which is a rare instrument called a PIPE, which stands for a private investment in a public equity. And so that means even though you're a public company, you're raising money privately which is weird. But anyway, so we go out to do this PIPE and we think we can do it. We think we can raise 50 million in PIPE and we're going to raise it on Tuesday. And on the Monday I get a call from our largest customer, it's a company called Atriax which was funded by city group and Deutsche Bank. So we were sure they were fine, foreign currency exchange. And the CEO called me up said, "Were bankrupt and we're not going to pay you the $25 million we owe you." So now we're $75 million [inaudible 00:31:50] and we had to announce that because we're a public company.
Frederic K
At least they called you.
Ben
Yeah, well I wish they hadn't because I couldn't even raised the money if I hadn't known. But once you know, then it becomes very illegal not to tell people. So I told people and then the PIPE went away. And so now we are $75 million in the hole. No way to raise it, and it was very clear because even with the 50 million it was optimistic that we would get to cashflow positive, and there was no ... You couldn't, if you're an honest person, you couldn't talk yourself into you were going to survive at that point. And so I came up with a scheme to sell off the services business and keep the software and all these things, which we did like amazingly, we sell the services business to EDS, we kept the software, we became a software company. The stock dropped, it was $4 before the PIPE, then $2 after the Atriax announcement. And then we did the transaction it was 35 cents a share.
Joshua D
So you've just lost 90 plus percent of your value.
Ben
Yeah, and lost 90% of our value, but like I knew we could survive and so I knew we weren't going to run out of cash. I knew I wasn't going to commit the one unforgivable sin. So I felt great about that. Like it was no problem for me.
Joshua D
You felt great about losing 90% of your value?
Ben
Well, I felt great about getting rid of the cash burn. That was the thing that was going to kill us for sure. [inaudible 00:33:21] like the stock prices is a reflection of what people think you're worth. People are often wrong about that, and so you just have to be comfortable with that fact. I don't know what happened, but like at least now we can succeed. So I was-
Frederic K
And then you ultimately they sold the company for 40 times that value.
Ben
Yes.
Joshua D
There's another kind of psychological component to all of this Freddy, which is that suddenly your share price, which is public to everybody, is a reflection of what people think of you. It's something that people probably don't spend enough time thinking about, and perhaps readying themselves for the fact that everybody up and down the organization now has an immediate barometer for how people in the world feel about the company. Whereas before when it was private, nobody knew really.
Frederic K
You're going to be better off yourself and your company wealth, if you can really have that long term approach and not get jacked up and down by the daily volatility of the markets, I mean there could be conflicts between nations or there could be GDP data came out or all sorts of stuff has nothing to do with you, and then all of sudden your stocks up or down. And so I think it's fraught with peril to talk about stock and talk about stock price, and answer questions about stock price. And I do think it's a shame that some people take advantage of the opportunity to talk about what a great job they're doing when the stock's going up. And it's a shame just because then when the stock is going down, people are like, “Well, talk to me about it now."
Joshua D
Talk to me about the shitty job you're doing.
Frederic K
Exactly. I want to hear what a bad job you're doing. And it's like, “No, I'm not doing bad, I don't want to talk about it.” It's like, “Well, you want to take credit for it when it goes up into the right, take credit for it now.” And so it's like-
Joshua D
And a way out of that?
Frederic K
It's just not ... We don't talk about it, at Okta. We don't talk about stock price. It doesn't matter. It doesn't matter. The only two days the stock price matters is the day you buy and the day you sell, every other day it doesn't matter. So if you can have that mature approach I give you full credit. I'm not saying I'm perfect at it, but I aspire to be perfect at it.
Joshua D
Our next guest took his company public in 2012, Aneel Bhusri, is the CEO of Workday. Let's hear him describe what it was like. Let's talk about the IPO itself and what that meant to you that particular day. What was it like? Where were you, what did you have for breakfast?
Frederic K
Was it a thing or was it a process or?
Aneel
Just so you know, you've been through it. Two weeks on the road, you're kind of worn out by the end.
Joshua D
Are you nervous about what's going to happen or are you pretty sure it's going to go well?
Aneel
You're always nervous. You're always nervous. I was thinking about ... I couldn't go to sleep the night before, I knew I was going to go on CNBC with Cramer who I ... I love Cramer, and I kept on playing in my head, "I think the stock's going to go up cause I know the demand is high, but if it goes down, what am I going to say?"
Joshua D
Because you're going to be live with Cramer well it's [crosstalk 00:36:31]
Aneel
How's life? Your stocks down 10%. I'm like, “What is my.” ... And I stayed up all night trying to figure out what I was going to say. Fortunately the stock went up $20 on the first trade. And it was a much easier question to answer. We had invited a whole bunch of our employees through a lottery. And so there were 40 employees that were watching us on TV and ring the bell. And it was super fun. Honestly, the biggest sense of relief I had ... Biggest feeling I had was just a sense of relief, now moving onto the next part. That was two weeks of hard travel and you know what it's like. You give the same presentation 47 times, I think we gave it 47 times. And you try to be fresh when you do it.
Frederic K
And are all the questions the same?
Aneel
No.
Frederic K
They're different all over the place.
Aneel
They're not ... There's 80%.
Joshua D
They're thematic though.
Aneel
Thematic.
Frederic K
Yeah.
Aneel
And then there's some ... The more people know about the space, the better questions they ask.
Joshua D
For a company like you doing something so core to businesses and international, there must've been a lot of like halo effect of the IPO that helped with the business.
Aneel
Absolutely helped.
Joshua D
Just marketing, just awareness. Just like I can go check their financials. All those kinds of things.
Aneel
There's actually a set of companies that would not be customers for a private company. They had to know that we were there for the long run. You make a decision for an HR and finance system. You're going to live with that decision for seven to 10 years. You want the company to be around for a long time and once we went public it was a stamp of approval that this is going to be around for a long time. And we didn't try to get to profitability really quickly, but we had a clear path. And we hit those goals and that took away some of the risk factors that people felt.
Frederic K
This might be a naive question, but does it really give the enterprise companies that sense of security, because public companies can tank, versus a private company?
Aneel
What I think it gives customers is transparency. They can see all the numbers and they can compare to the other vendors that do business with, I don't think it matters for a consumer oriented company to be public. Consumers don't really look at that stuff, but for a CIO or CEO betting their business on a new cloud platform, it matters a lot.
Joshua D
Now notice we haven't had anybody on the show who IPO-ed mode and then just faceplanted. But there are examples I imagine certainly from the fast.com bust in the early two thousands-
Frederic K
[inaudible 00:39:02] plenty of them.
Joshua D
That a lot of graveyard. It's a graveyard filled with those-
Frederic K
Sock puppets.
Joshua D
Sock puppets. That was pets.com this doesn't always work.
Frederic K
Yeah, totally. There's plenty of arguments to stay private. You are not constrained to the quarterly cadence, so you can actually make investments for three, six, nine, 12 months or four years down the road and no one's going to hold you to it. There's an opportunity to do things outside of the public eye. So if you want to buy things, you want to merge companies, you want to grow in certain ways. Number three, you can try out all sorts of strategies and if they don't work, it's okay. You're not going to get hammered them, 90 days later, 90 days later there's quarterly cadence. So there's a lot of reasons to do that.On the flip side though, there's a ton of reasons to go public. We talked about them on this show, so I don't think it's one size fits all, and in fact you've seen over the last few years, more and more companies are staying private later for a lot of different reasons. And their businesses might be just great when they go public in the end. Regardless of what happens the IPO is an impactful event for a company, for a leader, for a team, for the employee base, for the customers, for the investors. There's just so many dynamics to it.
Joshua D
This has been Zero to IPO, a podcast about starting a company and taking it all the way to IPO. And I'd like to give a special thanks to our guest today, Josh James, Fred Luddy, Julia Hartz, Ben Horowitz, and Aneel Bhusri, and also to the MIT Trust Center for Entrepreneurship for their support of the show along with Okta. If you like what you've heard and want to know more, check out exclusive in depth stories from each episode on fastcompany.com and to hear the next step and taking a company from zero to IPO. Make sure to subscribe and give us a good rating on iTunes, Spotify, Stitcher, or wherever you listen to your podcasts. I'm Joshua Davis.
Frederic K
I'm Frederic Kerrest.
Joshua D
And this is Zero to IPO. Thanks for listening and get ready for our next and final episode of season one, of season one.
Ben
We wanted to build a special company where employees were happy and customers were happy and we had fun and we innovated, and the IPO was just a step along the way. It's a rite of passage for a company, but it's not the end.
Obviously throughout the years we'd been told this is a pain. It's tedious, it's expensive, you'll hate it. I mean literally I could not find one person that said they enjoyed going public or being a public company CEO. So I figured I would have to construct my own reality if I were going to like have any optimism around the process.
Julia Hartz, Eventbrite