Contact: Brenon Daly
In the startup world, there are more pivots than in an NBA game. But often lost in this flurry of activity is that – at some point – changing the direction of the business needs to produce some actual value. (Otherwise, the pivoting just becomes pirouetting, as one of our VC friends recently quipped.) One of the most successful pivots we’ve seen recently came to light on Thursday, with the IPO of ExactTarget.
The online marketing vendor stormed onto the NYSE with a debut valuation of more than $1bn, and then surged from there. (The offering – led by J.P. Morgan Securities, Deutsche Bank Securities and Stifel Nicolaus Weisel – priced at an above-range $19 per share and then traded above $24 in early-afternoon session.) Followers of the IPO market will know that this was actually ExactTarget’s second run at an offering. It had been on file in 2008, before pulling the paperwork in mid-2009.
At roughly the same time that it took itself off the IPO track, ExactTarget dramatically changed its business. It went from selling a single product (email marketing) to a single slice of the market (SMB) to a full cross-channel marketing vendor serving companies of all sizes. The pivot had immediate consequences on its P&L sheet: ExactTarget went from running solidly in the black when it was on file four years ago to running deeply in the red now.
However, it’s a move that has paid off. Counter to the typical pattern, the growth rate at ExactTarget has actually accelerated as the company has gotten bigger. As it consciously increased its spending (particularly around sales and marketing), ExactTarget has taken its annual growth rate from 32% in 2009 to 41% in 2010 and then pushed that to 55% last year. And this is not some rinky-dink business. ExactTarget recorded $208m in sales in 2011. Another way to look at its growth: the $60m in revenue that ExactTarget did in Q4 2011 is more than it did in the full year when it was previously on file (2007 revenue was $48m).
With the benefit of hindsight, it’s probably a good thing that ExactTarget didn’t go public when it had initially hoped to. Three years ago, it was a sub-$100m revenue company, putting up a decent, but hardly spectacular, growth rate. Sure, it could have expanded the business as a public company, but the moves would have been far riskier and (almost certainly) slower because of the myopic scrutiny of Wall Street.
Instead, ExactTarget had the freedom behind closed doors to reposition its business to accelerate. The series of investments it chose to make have almost certainly meant the creation of several hundred million dollars of additional market value. In fact, on just a back-of-the-envelope calculation, ExactTarget’s debut has created more value than any other IPO of an on-demand vendor that we can think of. The company has some 66 million shares outstanding (or closer to 74 million fully distributed), so at a price of $19 each, ExactTarget was worth an astounding $1.25bn (or closer to $1.4bn fully distributed) before it even hit the aftermarket. In comparison, salesforce.com priced at a valuation of about $1.1bn in its 2004 IPO, based on the prospectus share count.