Workhorse Capital Invests in Traackr

TraackrDave and I are delighted to share that we’ve made an investment in Traackr, the leading provider of influencer relationship management (“IRM”) solutions for brand marketers.

Our investment in Traackr highlights our emerging growth-equity investment focus. By all measures, the company is an already-successful SaaS business. The company serves well over 100 enterprise-class customers, having established itself as the category leader in the influencer relationship management space. Traackr’s results show all of the hallmarks of a successful SaaS business; rapid growth, high gross margins, and negative net-churn. Further, having essentially bootstrapped the business on a small amount of non-institutional equity capital, the management team is battle-tested and has shown itself to be fiscally disciplined.

What Dave and I admire most about Traackr’s leadership is the disciplined manner in which they have gotten the value-creation flywheel turning. Traackr isn’t leading the league in the vanity metrics category (capital raised, FTEs or burn rate). Rather, this workmanlike team is focused on the hard financial and operational indicators of success around demand generation, product innovation, customer satisfaction and cash.

The story of Traackr is unconventional if compared to the path taken by venture-backed businesses. But their story is par for the course for bootstrappers. Two founders, Pierre-Loic Assayag and David Chancogne started Traackr to solve a problem; they wanted to organize the web’s content around people, rather than around pages, keywords and context. Ultimately, they found application for the technology they had built when influencer marketing (a people-driven process) started to become mainstream. But rather than trying to go full-unicorn with Traackr (which probably would have killed the business), PL and David have taken a pragmatic, disciplined approach to establishing Traackr as a category leader. The Traackr team wrote a great post on their “unconventional path”. Unconventional, people-driven and wonderful…

Now, having established a market-leadership position, Traackr has the opportunity to accelerate its growth by raising its first institutional round of capital. We’re pleased to have the opportunity to work with Pierre-Loic and the entire Traackr team as the company embarks on the next phase of its value-creation journey.

At a recent all-hands event, Dave and I had the honor to participate by handing out rewards to key members of the team. Many of the team members received well-earned recognition throughout the event. I had the honor of announcing the winner of the MVP award which is given to the team member who most represents the company’s values through their contributions to the company. Although only one employee could receive this particular honor, I was struck by the sense that the award could legitimately have been awarded to any one of the 50 team members who attended.

Congrats to the entire Traackr team for completing your first institutional financing! Dave and I are delighted to be your partners.

 

Workhorse Capital Invests in Datavail

DatavailWorkhorse Capital is pleased to announce the completion of its first investment; a $7.2 million investment in Datavail Corporation. Datavail is the largest independent provider of remote database administration managed services in North America. Workhorse’s investment in Datavail is part of a $47.0 million growth recapitalization led by new investor, Catalyst Investors. New investor, Lumerity Capital and existing investors, Meritage Funds and Boulder Ventures also participated in the financing.

My relationship with Datavail started through my work at Meritage Funds. Meritage led Datavail’s Series C financing in 2011. I became more deeply involved with the company in 2013 upon my return to Meritage after having run a portfolio company for 16 months. At the time, Datavail had executed several acquisitions of smaller database managed services providers. The working thesis at the time had been to scale the business primarily through acquisition based growth. The acquisitions that the company made were certainly worthwhile, particularly in helping the business to achieve minimum efficient scale. However, it was clear that acquisition based growth strategy would ultimately become limiting and expensive and that the company would have to execute on other growth vectors if it was to achieve its highest potential.

Early in my involvement, it became apparent that Datavail had developed an under-appreciated core competency, the ability to predictably and profitably acquire enterprise class database administration customers at low cost. Datavail has always excelled in customer satisfaction and delivery. Adding a repeatable and scaleable organic customer acquisition capability to the core operating and delivery platform had the potential to create significant value. Through Mark Perlsetein (CEO) and the team’s superb execution, the Company proved its organic growth capabilities, and was able to garner additional internal financing to invest more aggressively in organic growth initiatives. The results is that the company has grown meaningfully over the past two years and with an attractive LTV/CAC ratio.

My relationship with Mark Perlstein, Datavail’s very capable Chief Executive Officer was cemented during our work on the organic growth strategy. We worked together to put the metrics, measurements and decision-tools in place to support the company’s organic growth aspirations. Getting the building blocks right on the front end has helped the business to direct its organic growth investments toward the most productive channels. It is great to see that work proving its worth.

As exited as I am about Datavail’s recent performance, I’m even more excited about the company’s prospect going forward. There are a number of reasons to be optimistic.

  • World-class Team: Mark Perlstein (CEO), Datavail’s CEO has put together an A-quality team across the board. Mark, Keenan Phelan (COO), and Andrew Evans (CEO) do a fantastic job making the business strategically relevant while also making sure the trains run on time. Robin Caputo (CMO) and David Boyle (SVP Sales) constantly improve the customer acquisition process and drive the revenue generation machine with a high degree of precision.
  • High Quality Scaleable Service Delivery Platform: Datavail has built a world-class service delivery operation and infrastructure. With 24×7, global delivery, the Company can meet its customers needs in any location and in any time zone. The company has really differentiated itself in the marketplace in its ability to serve a broad array of needs of mid-market and large enterprise customers.
  • Repeatable and Scaleable Organic Customer Acquisition: Datavail has not only built a world class service delivery platform but also a machine-like customer acquisition engine. With an LTV to CAC in excess of 5.0x, Datavail is poised to continue to grow as it enhances its investments in organic growth.
  • Great Partners: I’ve known the team at Catalyst Investors for many years. Tyler Newton, who led the financing on behalf of Catalyst is a capable and thoughtful investor. Matt Kim of Lumerity is also a long-time friend and colleague in the business. I’m pleased to have Tyler, the entire Catalyst team and Matt as a partners in this investment. I’m also looking forward to continuing to work with Jack Tankersley of Meritage Funds and Peter Roshko of Boulder Ventures. The investor group shares a common purpose to support this management team in taking Datavail to the next level.

I’m really pleased that Datavail is the first investment for Workhorse Capital. I’d go so far as to say I’m proud of it. The investment nicely fits Workhorse’s core focus of investing in growth-stage technology-enabled services businesses. Less than six months after Workhorse Capital’s launch, I’m grateful for the opportunity to be an investor in such a high-caliber company and with the quality management and investment partners around the table.

Congratulations to the entire Datavail team!

Introducing Workhorse Capital

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Today, we launch Workhorse Capital. We start modestly, with humility, but with big aspirations.

We subscribe to Jim Collins’ Hedgehog Concept, based on Isaiah Berlin’s parable of the Hedgehog and the Fox. The story of the Hedgehog and the Fox comes from a quote fragment attributed to the Greek poet Archilochus:

The fox knows many things, but the hedgehog knows one big thing.

Long-story short… the fox is cunning, sly, creative, and out to get the hedgehog. The hedgehog is, by contrast, mundane, plodding, un-inspiring and looks like easy prey. However, every time the fox attacks the hedgehog, the hedgehog responds consistently and effectively by turning into an impenetrable ball of quills. The fox is turned away every time. No matter the tactic used by the fox, the hedgehog “wins”.

Hedgehogs aren’t the most electrifying of animals. They certainly don’t have the broad repertoire of physical and cunning attributes possessed by foxes. However, hedgehogs do turn into an impenetrable ball of quills really, really well. The success of the hedgehog stems from the fact that the hedgehog is built with purpose.

Our Purpose

Like the modest hedgehog, Workhorse Capital is purpose-built to do one-thing and to do it really well. In our case, Workhorse Capital is purpose-built to support the next generation of great technology-enabled service market leaders with growth equity capital.

We observe that every one of the successful entrepreneurs with whom we’ve had the honor of working shares a unifying but frequently overlooked trait: They pursued their work with an infectious and unyielding sense of purpose. A sense of purpose doesn’t guarantee success, but, in our estimation, success cannot be achieved without it.

Our purpose is to use capital as a catalyst to help the entrepreneurs we finance achieve their purpose. In the process, we aim for a lofty goal; to build a world class growth equity firm.

Our Hedgehog Concept

The Hedgehog Concept suggests that the truly great companies are those that have a deep understanding of the intersection of three concentric circles represented by three questions:

HedgehogWhat Are You Passionate About?

We’re passionate about supporting tech-enabled services entrepreneurs in achieving the purpose they have set their business to. We do not believe that companies are hollow vessels. We believe they are the instrument through which entrepreneurs achieve their dreams. We only invest in companies where we believe in the entrepreneur’s purpose as passionately as the entrepreneur believes.

What Can You Be Best in World At?

We believe we can be best in world supporting the creation of economic value from growth stage technology-enabled services businesses. We’re committed to working with businesses that are between $5 and $20 million in revenue with equity checks between $3 and $15 million. We have observe that most every growth equity firm starts by becoming successful in this segment, but is eventually lured away by the opportunity to increase assets under management by raising larger and larger funds. Ultimately, the overwhelming pull of gathering assets causes growth equity fund managers to vacate the very segment in which they enjoyed their initial success. In the process, they lose touch with what made them successful.

We are uncompromising in our intention to be best in the world working in our defined stage and segment; forever. We do not aspire to go “up-market” and raise a $500 million fund, ever. We would not recognize ourselves if we did.

What is Your Economic Engine?

Companies in which we invest create value by converting invested capital into capital efficient revenue growth. As a result, our economic engine, which we refer to as the Revenue Yield Ratio, relates revenue growth to entry valuation and invested capital.

Revenue\ Yield\ Ratio\ = \frac{Dollars\ of\ Annual\ Revenue\ Growth}{Entry\ Pre-Money\ Valuation\ +\ Dollars\ of\ Invested\ Equity\ Capital}

We target a Revenue Yield Ratio in excess of 1x; so that every dollar of pre-money valuation and equity capital invested translates into at least one dollar of increase in annual recurring revenue over the life of the investment. If we don’t believe an investment prospect can increase revenue by 1x the sum of the pre-money valuation and the equity capital we expect to invest, we won’t make the investment.

Because the businesses in which we invest typically exit on a multiple of revenue, the value creation impact of the Revenue Yield Ratio is magnified by the exit revenue multiple.

Our economic engine reflects our belief that value creation is the result of a balance between three inter-related factors: revenue growth, entry-valuation and capital efficiency.

Our BHAG

We begin the journey knowing only our point of departure (a humble beginning) and our destination; the aspiration to build a world class growth equity firm. In Collins-speak, this is our BHAG (Big Hairy Audacious Goal). What the journey has in store between departure and destination we shall see.

We hope you share our sense of purpose, our passion for technology-enabled service businesses, and our awe and appreciation for entrepreneurs. Whether you are an entrepreneur, an advisor or capital provider to tech-enabled services businesses, we hope that our work and purpose inspires you to walk more than a few steps of the journey along side us.