Private equity, venture capital and unprecedented change
By Kevin Pukala
The worlds of private equity and venture capital are facing unprecedented changes. An influx of non-traditional investors, fewer potential targets and anemic economic growth are all contributing to intense competition for returns. The formerly well-defined lines of fund categorization have begun to blur, and major industry shifts are requiring a rethinking of traditional capital structures and holding periods. Given these momentous shifts in the PEVC landscape, the 2015 Kellogg Private Equity and Venture Capital Conference sought to explore the challenges of building value at both the fund and portfolio company level.
We were honored to have two fantastic keynote speakers — Scott Dorsey ’99 of ExactTarget and Paul Finnegan of Madison Dearborn Partners — as well as industry professionals on six different panels walk us through how their respective firms are addressing these new challenges and trends. The conference drew a high level of interest from students and professionals as more than 300 tickets were sold for the event, held at the University Club of Chicago.
As a Kellogg alumnus, Dorsey’s story was particularly compelling. He co-founded marketing technology leader ExactTarget and led the company from start-up to IPO, and subsequently to its $2.7 billion acquisition by Salesforce.com in 2013.
Following the acquisition, Dorsey led the newly created Salesforce ExactTarget Marketing Cloud – a global team of nearly 3,000 employees. It was interesting to hear how he juggled the ongoing challenge of keeping the company’s orange culture intact as it grew from a three-person startup into a large public company.
Dorsey co-founded the company after the dot-com bubble burst, so there was not much capital for software startups. It meant he had no choice but to bootstrap the company and focus on building great applications. At the same time, he had to convince investors and clients of the company’s vision — that all organizations would use email for marketing.
Scott Maxwell, a venture capitalist and board member of the company, told the story of ExactTarget from an investor’s perspective and offered a unique tale-of-two-companies for the audience. In 2004, he led a deal team that ultimately invested $10.5M in the company — the firm’s first private placement from a Venture Capital firm — nearly four years after its founding.
SalesForce attempted to buy the company 18 months after this investment for $90M, but Maxwell was able to convince the founders to forego the liquidity in light of all the potential growth ahead of them. After eight more years of hard work growing the company and evolving its leadership team and board, SalesForce came back to the table with a $2.7B offer price. Maxwell mentioned that even the most optimistic people on the investment team didn’t expect this colossal result. A few of the early investors received a 50x return on invested capital.
Maxwell closed by asserting that Dorsey was the single most important person in the company’s exceptional success and that he built a company full of talented people that became exceptional together. He went on to further say that Kellogg helped Dorsey and asked the students in the crowd which one of us would be next?
The 2016 conference student team looks forward to continuing this year’s success, and I hope to see you all in attendance!
Kevin Pukala is a First-Year student in Kellogg’s Full-Time Two-Year program. Prior to Kellogg, he worked in management consulting in Accenture’s Strategy practice. This summer, he will intern at McNally Capital, a Chicago-based private equity firm that partners with family offices and high net worth investors to make and manage direct investments.