The Exchanges

Q So what were some of the reasons you turned this down? Obviously, that's a big one.

A That's a big one. They actually retraded this deal. That retrading is like an industry term for, hey, I gave you an offer, and then after diligence, I changed the offer on you, I gave you a worse offer. Um, that's like, also, if you tell somebody that a firm retraded you, it's really bad for their reputation. These guys retraded me right at the end. They said, oh, come down to San Francisco, have lunch with us. So I came down to San Francisco, and they were like, yeah, you know, there's some things in diligence we didn't like, and so we're gonna cut the deal in half. Um, and then, in a year from now, We'll have the right to buy the, the other half at the same rate as what we're proposing today. This is like really nasty. And we'll help you figure out how to scale the business. It's like, what does this guy know?

AI assessment note: “They actually retraded this deal... we're gonna cut the deal in half.”

Q So that feel expensive at the time? Yes. Yeah. I mean, what Vista's deals are usually like 7.8, like nine X. This was a high price.

A Yeah, it was a high price. And the funny thing, funny, a year later, I had a year earlier, I had an opportunity to buy Zoom Info for two hundred and forty million dollars and I passed. And that might feel like a bad decision. Like, oh, that was dumb. He had to pay eight hundred million dollars one year later. It wasn't a bad decision. Like, the business wasn't ready to take on that acquisition, and we would have fumbled it. A year later, we were in a much better place, but a private equity firm came in at two hundred and forty million dollars that year before, and they're happy to hold the investment for four to five years because that's the hold period they had. I had to come in a year into that hold And pay them for what they thought they would get four years into the future. And so they weren't gonna transact with me unless I could tell them, like, I will pay you now for what you, what would be a great return three or four years from now.

AI assessment note: “Yeah, it was a high price.”

Q Interesting. Um, the sale, the sale closes. Does the AE stay on the account, or does it get passed to a CS team that's incentivized with expansion?

A It gets passed to a CS team that's incentivized for expansion. Now that is actually, if you pause there, sort of, if you think about what we just talked about, they're very specialized roles, right? There's an, we actually, even in SDR, it's specialized. So we have outbound SDRs, we have inbound SDRs, and then we have something called SWOT SDRs. So our inbound SDRs, if you fill out a form on our website, we're going to call you in two to three minutes to try to set that demo. Um, an outbound SDR, they have a list of target accounts that use discover org data to go set what's, you know, typically a purely cold call. We have a SWOT SDR where it's somewhere in the middle, like someone's come to our website, they filled out something, And then we've nurtured them to a point where it's warm, it's not cold, but it's also not inbound. And so there's three levels of specialization in the SDR role. On the account executive side, there's also levels of specialization. There are sort of commercial reps who are doing sort of our SMB accounts. There are regular sort of reps, and then there are enterprise reps. And so they get, those leads get passed based on sort of where those.

AI assessment note: “It gets passed to a CS team that's incentivized for expansion.”

Q Typically, um, adjacent to what you already do, so you can drive ARPU expansion across your current base, or directly in line with what you do, so you're buying a customer base and revenue?

A It's, it's a little, it's a little bit of both. So, uh, So one I'm looking ideally for sort of other really interesting data sets. So you're a company that does something really interesting in healthcare, and I have a bunch of clients who sell into the healthcare space, so I can take that data set and I can sell it to all of my clients. You're a company that does something really interesting from a data enrichment perspective. Uh, we made an investment in a company, uh, that does email verification and email validation. For two reasons. One, we could use that to cleanse all of our data in a more, uh, optimized way. And two, we think just cleansing data is a core competency of ours that we can start selling to our customers as well. So there has to be sort of an overlap where I can take what you're doing that you're really good at that I'm not good at today, and then apply it to our 4500 customers. Uh, uh, some way, shape, or form.

AI assessment note: “It's, it's a little, it's a little bit of both.”

Q the things that, you know, I chat with, I buy, sell companies all the time on the back end. One of the things I always see, it's very difficult to get someone to work hard for you after you make them rich. Right. What keeps you motivated? I mean, I assume you made plenty of money, you know, selling this to TA. What keeps you motivated to keep doing this?

A Look, I think about this a lot. I just have, I have a six month old, uh, daughter and I think about this. Thank you. And I think about this a lot in that, like, I don't want, I want my daughter to see that I work hard. I want that to be something that's important to her and that she, you know, she grows up knowing like daddy worked hard. Dad went to work beyond that. It's important for me to make this a success for TA. And then for myself, it's important for me to prove that I can be a success beyond like having a good idea and lightning strike him. Um, and so I want to prove to myself, to my friends, to my family, to my daughter, that, that there's a real skill that goes into running a business beyond just coming up with an idea, but scaling it and seeing it through successful exits. You know, that's important to me as just a, as a, somebody who's trying to achieve.

AI assessment note: “I want my daughter to see that I work hard.”

Q And, and any, I mean, there are some people in here with 50 to a hundred million bucks in revenue that are hiring the CFO that might be thinking about the IPO. I mean, would you do anything different? Like, is it okay that you under, or that you, it's basically doubled?

A Yeah, there's gonna, you're gonna read articles that say, like, oh, the pop on day one, like, that just means you, like, did a bad job of pricing your IPO. It's not really true. Like, we had the best advisors, the best people around the table on this. You don't really want an IPO that doesn't go up on the first day, creates, like, bad issues and morale issues for your team. You want a successful IPO, and ultimately, the, the, the trick is, we didn't sell a hundred percent of the company in the IPO. We sold, like, 10% of the shares in the IPO. And that's how all companies are. They don't sell the whole company in the IPO. Like, we're publicly traded, but most of the shares are privately held. Um, so, you can do a small amount in the IPO, get a kick, get a bunch of press and excitement about it, and then downstream, you sell the rest of the shares at a higher value.

AI assessment note: “You don't really want an IPO that doesn't go up on the first day”

Q Oh, TA came before. Okay, got it. So TA first, and then introduced Carlisle to the equation. When did that happen?

A So then we operated for almost four years. We made a couple of acquisitions, um, had grown pretty significantly, and we're sort of at the end of What would be typically a hold period for a private equity firm? We're four years into what's typically a five-year hold. Um, and so TA decided we were going to go to market. There were, and the interesting thing here is TA was like, we can sell some portion of discover org today. We can sell all of it, our whole position. We could sell half of it. We could sell none of it. Um, and what they ended up doing was selling about, uh, Uh, of their holdings. Cause they took Carlisle cause they saw a much, uh, bigger future ahead of us as well. And so we were a very successful company in their portfolio. Cause you can imagine we were twenty five million when they invested. And from a run rate perspective, we're probably one 21 30 when Carlisle came in.

AI assessment note: “we operated for almost four years. We made a couple of acquisitions”

Q Okay. What about, um, like additional product lines altogether?

A Um, well, the, the way we think about product lines is data. So I may come in and say, I want to buy access to all of the companies that have over 5000 employees. And then that goes really well. And so then I say, you know what, I'd like the rest of your data. I'd like it on all companies that are sub 5000 employees, but greater than a hundred employees. Like, okay, great. We can sell you that data. That's a product SKU that we can sell you. And then obviously you have a bunch of different reps who are, who are selling to those accounts. So then we tell you users and then that data, those are the two elements.

AI assessment note: “the way we think about product lines is data”

Q obviously just take the 70 divide by 12. Um, what about some of the other economics around the business? So one of the things, uh, Henry, when I talk to other folks in this space, they have Huge issues with churn because people will come in and you know what I'm going to say. They'll download all the data they want, then they'll leave. How do you guys manage churn?

A Well, so look, I think that that's, that's the fundamental piece of not only any business and sales intelligence, but really any SaaS based business. And, um, we have a large customer success team. We do a lot around education, um, both from a platform perspective, but also really from a, like a true success perspective. Cause when you think about our business, I, I think our customers by discover org, um, Not for the data, not because it's clean, not because it's integrated, but they're buying discover org because they want to grow their businesses. And so they're really trying to buy like success and growth for their businesses. And that leaves us in a little bit of a weird spot, right? Because if they're successful, they leave, right? Yeah, if they're not successful, they leave. It's like a doctor, right? Yeah, it's actually, it's, it's probably, it's, it's more difficult than that, because for us, it's like, we've always thought if we give you really great data, we've delivered on our promise. But the truth of the matter is, unless we help you grow, we have not delivered on our promise. And so it's a different sort of, we're developing our customer success reps to, to be consultative, to help with the business, to teach the users how to not only use our platform, but How to use it to generate more revenue for their, for their firms.

AI assessment note: “we have a large customer success team. We do a lot around education”

Q How did you get that deal done? You're buying Discover, or I'm sorry, you're buying some info, I believe, from a private equity firm.

A This is a complicated deal from a debt perspective. So what happens here, and the company wants to, you want to use debt as well as you can if you're a profitable business, because, and I'll do this point again, every time you use debt, debt doesn't participate in the upside of the company. And so if I take a hundred dollars of debt, and it has a five percent interest rate, And then for three years, my company grows a hundred percent. The, the debt doesn't get a hundred percent return. It gets a 15% return over those three years, and the company participates in the upside. So, uh, when we went out to buy ZoomInfo, ZoomInfo was an eight hundred million dollar acquisition, just under eight hundred million. And, uh, and we-

AI assessment note: “This is a complicated deal from a debt perspective.”

Q there we go. Okay, so I love how, we really want to curate this event. You guys are all operators. You all have upside. You're on the cap table. You all have equity. So good. That's, that's a good view. Now sit down. So, Henry, take us into this deal, right? Explain first what a secondary is, how the opportunity came about in 2012, and how you negotiated this LOI.

A Yeah, this was a bad LOI for what it's worth. Uh, but, uh, the business was profitable because we didn't know how to run a business. We didn't have an option otherwise, and so you have to build a profitable business because after the 25,000 dollars of Chase financing ran out, there was no more money to run the business. So we ran the business in this really profitable way, and then we started getting calls. We got on the Inc. 500 list, and then we started getting calls from venture capital firms and private equity firms. The private equity firms ended up being the ones most interested in us because we had profitability, and that's what they would give a multiple off of.

AI assessment note: “we got on the Inc. 500 list, and then we started getting calls”

Q really see a duopoly between you guys and ZoomInfo. I mean, there's a lot of these little, like, I would call them kind of hacky-ish companies that do, like, an email scrape there, or, like, something illegal on LinkedIn over there, or, like, some other, you know what I'm talking about. How do, how do you differentiate against ZoomInfo, and do you really see it right now as a duopoly?

A I don't see it as a duopoly. Um, I actually see there are a ton of companies who have momentum in this space who can spring up in a short period of time. I think what you see in this space today is getting access to data has become significantly easier than it was five years ago. Five years ago, if you wanted someone's direct dial phone number, we're the only shop in town. Um, today there are a variety of different vendors who have a variety of different places that they can go to to get direct phone numbers and mobiles and personal numbers. Um, and we have to, like, continuously innovate to keep ahead of those folks. There are, there's, you know, there's obviously, like, a long tail of what you might call, like, mid-market and SMB companies that play in this space. And then there's LinkedIn. And, like, in our space, Microsoft is the big player. Um, and so all of us combined, um, Have nothing on, uh, on the size and scope of LinkedIn and Microsoft as a sales solutions provider. Um, and so I view Microsoft as the 800 pound gorilla, and then there's a whole sort of litany of other providers that are competing against Microsoft.

AI assessment note: “I don't see it as a duopoly. Um, I actually see there are a ton”