From Unsexy Startup to $1.8BN Acquisition

really happy to be here. Thanks for having me,

There’s like a wilderness period. And, look, some companies come out of the gate, and these entrepreneurs, they get the kudos rightfully if they just shoot off. And there’s a lot of companies that just bobble along in the wilderness. We were one of them. As I look back on our first few years, I don’t know what we were doing. It was a learning period. It was confusing because we actually came out of the gate selling about a year in, but we were selling $5,000 software, $10,000 software, transparency, reporting.

It was kind of a political sale. Governments would buy it to show off the data in their thirty, forty year old ERP green screen systems. And I got tricked into thinking it was 1999, sell it for a loss and make it up on volume. And I realized the year end, oh my god, we’ve to broaden the suite. We’ve got to get average selling prices higher. And it wasn’t really until probably five years into the company that things started working.

when you’re selling enterprise software, you’re basically breaking into organizations. Organizations are filled with people, and people disagree with each other. When you’re building a business, alignment is the most important thing you can get for execution. And when you’re looking at a customer, how do you get them aligned on buying your product? Well, you have salespeople. You have marketing. You might have customer success or professional services. You’re breaking down the walls. You’re trying to create alignment, and that’s expensive. People are super expensive. And you’re not gonna make up the cost of sales and marketing by selling 10 k software unless you’re like a Dropbox where you can, you know, or some product led growth phenomenon.

And there are a few of those, and I think we all wish we’d had a company like that. If you can do that, more power to you. But even when they get to a certain size, they start trying to break down the enterprise. And that means you gotta have an enterprise motion, which means salespeople, which means expensive, which means sales cycles, and the ASPs have to go up.

Ten years ago, 25, 50, 75, it used to be like, alright. Get to a 100 k. Now I think kind of big league enterprise salespeople think 100 k deals is like Tic Tacs, and we need to be targeting 7 figure deals. Marc Andreessen said to me something along the lines of, you want a big company? Charge high prices. You want a medium sized company? Charge medium prices. You want a small company? Charge small prices. There’s a lot to that. He actually said there is no upper limit on the price of software.

It’s just the quantity of software and the pain that you’re discovering and the value you’re creating. It’s an interesting business from that perspective.

If you can, yeah. I look at, like, Tanium. I remember when they were, like, in their major growth curve, they were charging massive prices, you know, $5.10, $20,000,000 prices. Look at Palantir, for instance. I remember Michael Ovitz talking about the first deal they did with JPMorgan. They went into the room, supposedly, I I wasn’t there, and they discovered a huge amount of pain on a big kind of mortgage program that they were working on in combating fraud. And they said, we think we can save you a $100,000,000.

And JPMorgan was like, we want it. And they’re like, great. We’ll take 10% of what we can save you. And JPMorgan was like, no. No. We’ll pay you a few million bucks for the software. And they were like, no. And they got to a stalemate, they walked out of the room, and they didn’t answer the calls for, like, six months. And then JPMorgan was like, fine. Fine. Fine. And apparently, was like a $100,000,000 deal.

Yes. Basically. But, look, I’ve been laughed at since we started the company in 2012. And when we were raising money, the number of times people said, basically, you you were more artful, but government? No. Thanks. I came to Silicon Valley to get away from government or good luck with that or it’s all waste, fraud, and abuse. No. Thanks. And that was a little contrarian on our part. We’re very, very mission driven. Our mission is to power more effective and accountable government. We’re probably naive and a little little thick in the head as you would say, but the customers will partner with you for life if you make them happy, and that’s called stickiness.

And the whole game in enterprise SaaS is high gross retention. Let’s just be clear. The whole game is high gross retention. You look at a lot of companies if they’re in the, you know, seventies, eighties, good luck. I don’t want that business. I’ll take ours in the in the mid to high nineties. And so there are a lot of attractive things actually about this little corner of the world, And we were growing steady while everyone was in Zurp, absolutely smashing it with seventy, eighty, 100% growth rates.

And now those same companies are growing ten, fifteen, 20%, and we’re growing faster than them. And I’m kinda like, hey. Just little little little engine that could. For for those that don’t know, what is gross retention, and how does that compare to net retention? A customer’s paying you a dollar for the software or a cohort of customers. A year later, how much are they paying you? That’s gross retention of the same amount of software. And net retention is overall increase in dollars, including from upsells and cross sells.

A lot of companies think eighty, eighty five, 90 is good, and there’s companies in GovTech with 97, 98, 99% gross retention. So it’s almost an annuity if you can really get screwed in and do it right. But, yeah, we won’t have the growth rates at, you know, fifty, seventy, 90%.

There’s two areas to take this conversation. I love it. One is durability of growth. The reason I think Cox was so interested in us and a lot of other kind of private equity firms are drooling over this GovTech space is the sustainability and durability of the growth. A lot of venture backed companies, they get to $50.70, 100,000,000, maybe 200, and they kinda crap out. And you see them orphaned as public companies, you know, in the post IPO land, and they’re growing at 15% or they’re literally bobbling along, not growing because they’re selling new business to make up for the the churn.

And you see a company like Tyler Technologies, which you probably haven’t heard of and most of your listeners probably have never heard of. It’s the vertical incumbent, if you will, in GovTech. They do about 2,000,000,000 a year in revenue for state and local government software, and they trade at $25,000,000,000 on the S and P 500 on the New York Stock Exchange. It’s been a Wall Street darling. Supposedly, it’s the tenth best performing stock of the last, like, twenty years. And few people have heard of it, and they print cash, and it’s an extremely well managed and impressive company.

We compete against them, and that’s an example of what can happen with growth durability. You know, if you’re growing at 25, 24, 23, and you’re decreasing at that kind of rate versus you’re growing at fifty, sixty, 70, but then one year, oops, we’re growing at 15, and the next year we’re growing at eight, and then we’re not growing. And so that’s one area to explore, and your mouth is open, and you’re like, wait. I wanna know more about that company. The other is the dynamics in your business, Harry, which are totally different than the dynamics in my business.

And I’m not here to convince you to invest in OpenGov. Not even here to convince you to invest in GovTech. I’m not really. I think some of these verticalized markets are winner winner take all. I do think there’s a lot of room to build big vertical software companies, but not many great companies in single verticals. Your business is so different from my business and something I feel pretty strongly about because a lot of entrepreneurs and founders wanna just love their venture investors. And let’s be friends, and let’s go to dinner, and you’re gonna be my mentor, and all this.

And there’s definitely room for that, but we are conflicted severely. Your business runs on a power law. Your business is about finding the next Coinbase or the next Uber, maybe the next Pinterest. The reality is OpenGov’s been quite successful, but it doesn’t move the needle. It’s a couple billion dollar type exit. That’s not what you’re in the game for. And it’s really hard for an entrepreneur to understand that when you’re starting out from zero. You’re worth nothing. You’re living on ramen. There’s no nothing in your bank account, and you’re like, gosh.

If I could get to a 100,000,000 in revenue or 200,000,000 in revenue, if I could get a multibillion dollar exit or even a billion dollar exit or even a $500,000,000 exit, that’s powerful for the entrepreneur. It might be powerful for the company, even the industry is in. It doesn’t do much for 20 VC. It doesn’t do much for Andreessen Horowitz. And that’s a really tough pill to swallow. You are incentivized to not care about me.

Of course, I saw it. And as soon as I got to understanding their business and where they’re coming from, it all made a lot more sense and it got a little bit easier. Andreessen Horowitz is managing many billions of dollars, lawn sales managing many billions of dollars. They’re in a different game. It’s about the very, very top 1% of 1% companies. It’s probably, like, less than that. I’m an investor as well, and I understand this. It’s like, I can’t literally spend time on all these investments.

It doesn’t make sense. It’s literally a bad use of time.

Look. There’s a class of investors who almost against maybe they wanna I was I was gonna say against their interest, wanna love on and coach and mentor all their founders and take them to dinner and get them together and all this stuff. And there’s another class of investors who are like, I don’t have the time of day. Like, I wrote you a check, but I barely remember your name. I think the best thing to do is probably just be open, honest, and authentic about it. If you’re trying to build a brand as founder friendly, then sure, loving on everyone, maybe that’s in your financial interest.

I have this I I didn’t raise from, you know, Sequoia, but I have kind of a, like, a respect in the sense that I don’t look. If you’re crushing it, they’re gonna spend a lot of time on you. And if you’re not crushing it, wouldn’t surprise me if they don’t remember your name. That’s not a personal commentary. It’s just a sense. I did get an anecdote from a friend who was he had term sheets from Sequoia and Benchmark, and he was talking to somebody about which one to take.

It was kinda like, do you prefer to be front stabbed or back stabbed? And he’s like, oh, I’d I’d rather be stabbed in the front. And he’s like, okay.

I’m not sure I’d categorize myself in that rank, but from my perspective, the moral support was what mattered a lot. I don’t need to go to your house and spend all Sunday afternoon doing strategy sessions on the business, which mostly consists of reminding you what products we have. When I get a note from, like, Josh Kushner just saying we’re honored to be in business with you, I just walk off and I’m like, gosh. I love that guy. Thank you, Josh. And when I got a a book at Christmas with a handwritten note from Joe saying, I admire what you’re doing, Zach, it’s like, that means a lot.

And, yes, I’d have lots of strategy sessions with Joe who’s a cofounder and chairman, but it’s that moral support that just means a ton versus the group that’s like, hey. We’d like to come to your office next Tuesday and spend ninety minutes reviewing x, y, and z. And I’m like, I can tell him no and, like, damage the relationship, or I can suck it up and waste a bunch of my time on it. It just starts to be a bad kinda trade.

I don’t I don’t think it’s irrational. The the brand look. Are the Sequoia guys, like, amazing investors? They probably are, but it’s probably also an incredible flywheel or network effect where if they invest in your company, it simply helps you recruit better talent and better executives. Maybe it helps you a little bit get some more press. And if you’re selling into, you know, commercial or enterprise, maybe it’s a stamp of approval for early adopters. But I actually think it’s just helpful. So I do think brand name matters.

However, for those who can, like, bootstrap, that’s the ultimate in my opinion. To avoid all of the conflicts that come from raising venture capital and to own much more of the company yourself, that’s when I’m, like, tip of the cap and, like, very jealous. I don’t know if you follow the Founder Collective guys at all.

They’re they’re first class, and they they were in OpenGov early. I got into a bunch of trouble in 2019, so I I I’d overspent the whole way, and I’d raised too much money. I almost lost the company a few times. I’m happy to cry on your shoulder about it. It was ’19. I couldn’t raise. Got one term sheet after 30 no’s, and it was onerous. Pound of flesh. I went through the deal. I said I’m not gonna raise any more money. I’m gonna get religion. I’m gonna change everything, and I started reading all their blogs.

They’re very much on the raise less, own more of your own company. We want to be not conflicted as seed investors. So they wanna go in at the seed. And I just was like, they get it, and they’re right. And I know it’s marketing for them, but they’re actually just right. And very fortunately, before COVID hit or before people got with the program in ’21, we started cutting. You saw the law at work. Cut more, grow faster. It was just amazing. Talk to me. One term sheet, 30 nos.

Who was the term sheet from? A group in Tampa, Weatherford Capital. It was at two ten pre Harry just five years ago. We just got marked, you know, in February at 1.8. What what were you doing revenue wise at two ten? I was probably in the twenties, and I was burning cash like a drunken sailor.

Spend less, grow faster. It’s a weird law. It’s probably my net out. We were single product essentially. And in that August 2019 round, we bought a company in the permitting and licensing space, and we did probably $90,000,000 of transactions in, like, forty five days. That worked very well. And as we broadened our product suite, things started to work. The economics of the business started to work. Basically, you’re paying all this money to market and sell. You’re even paying a bunch of money to deploy. And if you have more product, more arrows in the quiver, you get higher ASPs for the same essentially cost.

Everything started unfolding there. We ended up doing an acquisition, one each year, basically, as we’ve broadened our portfolio suite. And I learned this a little bit from John Chambers. M and A can be innovation. It’s not just buying for customers or revenue. We don’t even do that. We buy for product quality and adjacency, and it jumpstarts the innovation.

years to discover exactly what the product needs to do, particularly for highly verticalized, highly specialized use cases. So we sell software to departments of public works and building and planning and finance and budgeting and procurement. If you’re not asleep, Harry, wake up. These are very specialized complex use cases with governmental accounting and, like, 12 bureaucratic processes that all have to be done and they’re regulated and other things. If you just wanna think up these use cases or just unleash AI and think you’re gonna build the perfect product, you’re wrong.

You’re gonna have to go through months, if not quarters or years of interactive work with the customers. So getting the first million, $234.05 of revenue can take as long as going from five to 25. And if you can catch a company that’s managed to get some semblance of product market fit with a beautiful kind of fully multitenant stack that has done the years of discovery about what the customer needs and what the product needs to have, you’ve saved years worth of work, and you’ve captured tremendous subject matter expertise.

And and now you can pour engineering or r and d into the product, which is exactly what we’ve done. So we build organically, but also if we come across a company that we admire, we’ll buy it and we’ll double the investment in r and d on it. I just wanna get back to the investor

way, I think I think the guys at Rippling are doing something slightly similar. They’re they’re gathering founders. Some of these have subject matter expertise, some don’t. They’re acqui hiring, and we’re doing product acquisitions. When did you and your investor base disagree most, Zach? I’ve had a lot of disagreements. I’ll I’ll tell you a few anecdotes. One, very early on, I had this boneheaded idea that we were gonna create a network of governments across the country, and we’ll have the largest repository of public performance and financial data.

And all the governments will learn and share from each other, and they’ll benchmark, and they’ll cut waste and improve efficiency. The problem was we didn’t have many products. And you come for the tool and stay for the network. You don’t come for the network, stay for the tool. So I was putting our metrics up at our board meeting saying, we’re going to get all these logos. The logos will just magically produce value over time. And Marc Andreessen was like, do you wanna be a real company?

And I was like, yeah. Yeah. I do. I’m like a young entrepreneur. And he’s like, because real companies measure revenue, not logos. And I was like, ah, got it. So I came back to the next board meeting, and I’m like, here’s our two key metrics, logos and revenue. Gave me the same speech. He’s like, real companies measure revenue. And I’m like, ah, that was a fairly it was coaching. Two was hard times in kind of ’15 16. We were overspending, growth was slowing, we were learning about our vertical, we’re not a horizontal SaaS company, we’ve gotta go deeper.

And I could see I was kinda losing the faith of my board, as in this company has revenue, but this is not gonna be the next Pinterest. That was not a good feeling. And I don’t know if I’d characterize that as a disagreement as much as I was like What what

Between, like, 8 and 20,000,000 growth rates we we went from, like, 200 k in revenue to 2,000,000, and it was like, okay. Like, something’s happening here. And I could go out and be like, oh, we 10 x this year or something. But then it went, like, two to four and a half, four and a half to eight and a half, eight and a half to, like, 14 and a half. And I was like, something this is not I’m spending way too much money to add 6,000,000 in ARR.

How much were you spending

expectations, Harry. I was I we’d managed to recruit, you know, a star studded board and we’d raise real money.

It’s market. Well, that doesn’t mean it’s not rich. Look. Your your business is very difficult too, Harry. It it it requires judgment and decisions. How are you gonna get a 50 x if you’re raising at a 100,000,000? You gotta have a big company. And by the way, most people don’t understand. A 155,000,000,000, not how it works. They’re clearly gonna have to raise more money, which is massively dilutive. And by the way, it costs a lot of money to run these companies. It costs equity to run these companies.

Public companies are diluting multiple percentage points a year. What do you think some of these startups are diluting? And so it’s amazing how much it adds up. So I’m like you. On the other hand, somebody offered me the chance to put some money in xAI, and I’m like, it’s raising at 18,000,000,000 as a seed round. Well, now they’re at 50. And it’s like, this is a tough game. Some of the hot companies deserve it, and their multiples aren’t coming down.

Product market fit is when you can make a customer successful, comma, repeatably, and profitably. A lot of people have different definitions. Marc’s is great. That’s when they call you. It’s when your prospects call you. I love that, but we got deceived. We signed up our first 100 customers. These were the five or 10 k deals, and the company was upside down. And I hadn’t switched into a multiproduct understanding that suite, at least in our vertical, suite v beats best of breed. So it’s a classic dialectic in enterprise software.

If you wanna build a Zoom, you got a 10 x better product. If you have a big enough market, great. You can build an IPO scale company. But in a lot of these verticals, you’ve gotta get to, like, Workday level product or rippling compound multiproduct company to get the ASPs working. And that’s actually how you increase your your, at least, strategic or total addressable market. I got totally deceived. Wow. Something’s happening here. I think this is gonna work. But very quickly, I felt it in my body.

This isn’t working. We’re gonna be totally upside down. How do I reposition the company? And repositioning is just brutal.

Occasionally it works. You have to build product furiously. And I, in my opinion, getting to a suite or a suite of suites is the way to do it, at least in vertical software. It requires the proverbial pat your head and rub your belly. Like literally you now have a customer base on this 10 k, 20 k, 30 k product, and you gotta keep selling it or you’re not gonna raise your next round. You’re not gonna have any momentum. The employees are gonna know something’s wrong, and you have to do that while building a new product and a third product.

That’s the entrepreneurial hack. That’s the magic.

Go crazy. So we’re the type of company, sell like mad. Get in front of your customers and prospects. We sing and dance in the aisles of the vendor hall. Most of our competition, they sit back in their chair and they’re looking at their phone, watching the prospects walk by, just waiting for someone to come up to them. And we are like maniacal clowns, come look at what we’re doing. We’re OpenGov. We’re smiling. We’re enthusiastic. So it sounds a little funny. It sounds a little hokey, but we bring the energy.

We bring the passion. We engage with our prospects and customers like crazy. Number two is iterate, iterate, iterate with the customers. This is discovery. You can read about this in the books,

I agree. That’s advice I tend to give around growth, believe it or not. I shrink your TAM. So guys like you sorry. I’ll pay it back to you since you, you know, think our industry is so boring. Guys like you want TAM, TAM, TAM. Like, show me the a large market so I know you could be a big company. And entrepreneurs actually need to get crazy focused. I wasted one of the many mistakes I made was, okay. We’ve got a little product market fit on transparency.

Let’s go to The UK. Let’s go to Australia. And I got on planes, I wasted so much time, I went to dinners, and I didn’t understand my business. My business was state and local government in The United States. I gotta shrink the TAM and then even shrink it further, get to budget sizes under this and over that. And every step we took to shrink the product market fit segmentation and to get more focused on the ICP, the ideal customer profile, our growth rate ticked up. And so we literally we get an inbound.

If you if you gave me an inbound from the central office of The UK, we’re not responding. And our sellers, they can’t prospect outside the ICP segmentation. And so having real discipline and knowing the only thing you have is time. You have forty, sixty, eighty, hundred hours a week. That’s it. So how much ROI can you deliver on every hour of your time? It goes up if you shrink the TAM and shrink the PMF segmentation.

earlier, the better. You’ve gotta manage to keep the the the the cart on the tracks. That requires management. It requires leadership. Creating new products is part of the magic and pulling the trigger on bold bets, whether that’s a new direct a new product direction for the company. And sometimes people are crying in the streets like, no. I thought we were a budgeting company. Well, we still are a budgeting company, but we’re becoming a permitting company as well. It’s amazing the internal resistance you’ll get, but you gotta bake it into the DNA and the culture of the company.

Again, that’s just like leadership and execution. And some people get left behind. It’s all for service of the company and the mission.

Yeah. There’s been many, and the CEO has to give the energy. It’s one of the hardest parts of the job. It’s literally how much do you have to give? And you drag yourself out of bed. How do you give to your employees, your teammates, your customers, and just give your energy? There have been times where, like, you know, my mother died eight years ago in the middle of very hard times at the company, and it was absolutely brutal. And I’m having to come to work every day and kind of grieve while also telling people the company it’s gonna be okay.

It’s that juggle that people have hard things going on in their lives all the time. And so Ben Horowitz talks about this and the hard thing about hard things. I remember, like, cradling that book and reading it like it was a bible. Did you ever doubt whether it would work? The short answer is yes. All the time. I don’t know how I kept going because I felt for years like I destroyed my career. I’d made the worst set of decisions. I came back from Afghanistan in the summer of two thousand twelve.

I was like, wow. I used to be somebody. You know? I was I was a lawyer, and I was in foreign policy, and I was doing things. And now I’m, like, in this, like, dank three bedroom apartment style office hiring and firing and making, like, a total mess out of everything. And I was like, what have I done? But it’s a burn the boats kind of thing. I’ve already made the mess, so why don’t we why don’t we keep going?

Honestly, it got harder all along the way. The easiest rounds were early. You know, Joe had come out of Palantir, tremendous network and credibility. So I’d say the first the first few rounds kind of came easy. That was a blessing and a curse. It was a curse because we overspent. Like, one of the many mistakes I made was to overspend on sales and marketing before we had the product. And you’ll probably you probably see this in some of your companies. It’s very dangerous. If we didn’t have some of these unfair advantages, we would have been dead pretty early, like in 2014 or ’15.

As we got further along, I think we got more attractive in terms of raising money, but I also got way less interested in raising money. Like, I wanted to literally stop raising money for the past five years. But just because you hated it so much for the rejection state? Like, why? Well, it’s a huge time suck. It’s definitely not it’s not fun to get said no to, but that’s fine. I sell I’m you know, I sell every day, and that’s no big deal. It’s just it doesn’t actually create that much value.

A lot of people talk, oh, I raised this much hundreds of millions or at these valuations. It’s literally irrelevant. You will be you will be judged and weighed by your exit and by the liquidity that you can provide to people. And so there’s these tremendous roller coasters that go on between the time you take the money in and the time you gotta give it back. And I think a lot of people lose sight of that. You over capitalize the company. I mean, it’s just more you gotta that’s a higher pref stack, and it’s more dangerous for the common stock, which is management and employees.

So I just found it was kind of, like, not a great deal in many respects, and the tighter we got, the better we did. So we started to get to cash flow positive and EBITDA positive, and it was like, great. Like, let’s keep this going. I don’t I don’t wanna return to those days. What did you not do in the journey that you wish you’d done? I would move faster. I’d be more decisive. If I knew now what I, you know, didn’t know then, I’d I’d probably have saved three years, and I would move at a tempo that is a different tempo than I was moving for the first five years.

It’s removing people that aren’t working, product decisions, the sales machine, the enablement machine, the hiring machine, enterprise software rewards intensity and focus. You know, the the amp it up article from Slootman and his book, it just feels spot on. It’s not it’s not it’s not one philosophy. It feels like it’s kind of like the way these companies are supposed to work.

I think a lot of experienced CEOs really understand this and a lot of founders and and folks that are new to it, which is where I was for many years, I didn’t understand the board is for governance. The board is for governance. They’re to make sure that there’s no fraud, and it’s a real company primarily to hire and fire the CEO. They represent the stockholders. In the sales process that is fundraising, which goes both ways, a hot company, you know, is being sold to by investors, It’s easy to get confused and think, oh, these are my just my mentors and coaches and friends and, like, we’re in this together and we’re partners.

One thing I learned from from Marc and even even Joe in the later years is, like, we have natural conflicts. My job is to grow the share price. I need to, a, deliver on the mission and win for our employees and customers, but I need to win for our stockholders. That’s my principal job. When you go into the board meeting, you’re the chairperson. Whether you think that or you have that actual title, the CEO needs to run that meeting. The CEO needs to explain the direction.

Sure. Gather input. But, boy, there are times, Harry, where Marc would be like, I’ve seen this 10 times. You gotta go right. And Lonsdale or somebody else be like, nope. I’ve seen it 10 times. You gotta go left. And I’d walk out and I’d be like, what do I do? These are both, like, people I look up to. And it was through this process, I said, form your own opinion, become a real leader and a CEO, use your independent judgment, you’ve got more facts than they do, make the call.

I I I’m serious. I I if I was gonna do something again, I’m enamored by the bootstrap idea. You just you reduce a lot of conflicts. You own way more of it. Could OpenGov have been bootstrapped? No. No. No. No. Even the m and a. The the reason I executed the transaction we did earlier this year was I looked out and said, we could get ready for an IPO in a couple years, maybe less. And then what happens? We we could raise a bunch of money, but to truly live the destiny of this company, we’re gonna wanna buy other companies.

So you could do secondary offerings, and it just starts but then you’re, like, you’re on the quarterly game, and I’m like, a long term owner with very deep pockets that’s super mission aligned. This is how we’re gonna build the biggest company that’s gonna live its mission. No. Probably not is the short answer. So if I had to pick one investor, definitely be partner specific. I would go for kind of name brand, you know, as as good an investor as I could get based on the returns of that investor.

But I’d have a very serious chat and say, I’m running the company. Are you comfortable with that?

We sold the company in February for 1,800,000,000 to Cox Enterprises. This is a large family business in Georgia. They own the largest private cable company in The United States. They own the largest automotive company outside of the car manufacturers, and they’re diversifying their hundred twenty five year old family business. They understand growth durability. They understand customer acquisition cost. They understand regulated businesses. They understand services. I called them last August. I guess it’s almost a year and a quarter ago now, and I said, hey. You’ve been rubbing my thigh and whispering in my neck.

If you’d like to put a term sheet down for 2,000,000,000, I think this board would take it seriously. They produced a term sheet for 1.5. I rode my bike home that night, and I got really nervous. And I said, might have made a big mistake here. I don’t wanna sell the company for 1.5. And yet, I think this board is probably tired. They’ve been in for a long time. They might want this. I called the board meeting the next day, and they said, what do wanna do, Zach?

I said, I’m a no. And they were like, woah. Really? And I said, yeah. Shall we end the meeting? And then they were were like, you know, this is pretty serious valuation. A lot of deals aren’t getting done right now, and this is a good IRR and da da da da. And I said, look. We’ve talked about going to become a multi multibillion dollar company for a long time. Like, you and I seem conflicted. You’ve also incentivized me with a performance plan in ’21 to pursue $4,000,000,000 type valuations.

So I agreed to study the issue. We set up a whole we hired Rocktell. We set up a whole process. We spent, like, five months working on the deal. We got the board aligned, and we did price negotiation. We did a management incentive plan, and we put together what I think at the time was the third or fourth largest private software transaction of the last few years.

I mean, when we did the price negotiation, we were probably one ten, one fifteen, something like that. Very quickly, we’ve surpassed one fifty, you know, near 15 x at the time, and we’re burning it down. Now is an interesting deal in that I left a majority of my stake in the company. I’ll tell you about this. It’s it’s a supposedly common ish structure in kinda telecom and media, and I think it’s a little innovative in in your classic kinda software tech ecosystem. So I basically went we, as management, went into business with the Cox organization with a new investor.

All the existing investors were swept out and cashed out at the 1.8 valuation. The board was shrunk from eight to four. It’s me plus the the Cox team. Employees’ vested equity was cashed out, so it was essentially a large secondary for employees. But all equity plans remain in place. We got a large RSU pool to continue to attract great talent and compensate people, and we have defined liquidity at years three, four, and five. So, essentially, it’s a put right. You can sell a third at year three, two thirds at year four, and three thirds at year five.

And Cox has a call right in the out years so that if they want, they could eventually obtain 100% ownership of the company. I’m in very deep on the company.

You know, I I did participate in the secondary, so I took out 49% of my vested equity.

Look, these companies, the investors at growth stage kind of maturity end up owning like 80% of the company, 75 to 85% of the company. And management and employees and founders own the remainder. So my family’s safe. I’m in good position. I can tell you it has changed my anxiety levels. Those who knew me, I would come in some days tweaking and like grouchy and like very fearful because 98% of my net worth is locked up in the company. The last five or 10% of that anxiety is is gone.

Like, I can sleep most nights. I don’t wake up at 4AM at, like, a pit in my stomach and, like, you know, like, I’m dead. Like, we’re dead. That mostly has has gone away, but I’m still kind of obsessed. And that was the deal. Cox doesn’t wanna buy a company and not be in bed with the founder, and this was not just, sell it to Oracle, cash out, and buzz off after twelve months. This was a different type of deal. This was going into business with a new owner.

I don’t know. There there’s an old school Silicon Valley mentality on, like, keep the founder poor. Don’t give them secondary. I had a board member who said, I I wanted to sell, I think, like, $400 to, like I mean, I was in my, like, mid thirties. I’m trying to, like, paint my house and, like, get something set up. I got the if you’re selling, I’m selling. And I’m like, that’s pretty harsh. Like, I I don’t have much, and you do, and that’s a weird speech you just gave me.

What did you say to him? I mean, I did not say f you, but that’s definitely a little bit how I felt. Would you say f you now? No. Look. People are entitled to their views, and that is like a common view, and I I get the view. I just think I disagree at this point. I’m not less committed now. I’m honestly able to drop back and scan the field and throw passes in a way that I wasn’t before. It’s actually a decent way to encourage the entrepreneur to play small ball.

For somebody who grew up without a lot, you know, mowing lawns to go be able to make like x millions or tens of millions, it’s like as soon as you get to a certain stage, there’s a natural tendency potentially, you’re like encouraging the person to grip tight when actually what the VC wants more than anybody is for the person to go long and go really, really big.

Sure. That sounds right. I think it depends on what kind of crowd you run with and what you care about and your values and other things. I mean, if you, you know, if you want, like, a two bedroom in the suburbs, fine. If you want the flat in Mayfair overlooking the park, you know, and you get caught up in it, there’s always more. There’s always something better or a different crowd.

Yeah. Of course. You know, I’m starting a family, and there’s all So different keeping grounded is one of the reasons I love our company. Know, you find the end market boring as hell. We find it fascinating. We’re proud of what we do.

Yeah. So it was really wild. I spent probably the better part of six months on this. It was exhausting and nerve wracking. In December of last year, I started breaking down. I was, like, breaking. I got sick three times in December. I got hand, foot, and mouth disease. I didn’t even have a child. I got some Victorian era virus. I’m, like, breaking out in things. And this is the middle of the price negotiation. I remember Chamber saying, Zach, sometimes you gotta play hurt. And I’m like propped up talking about big numbers while I have a 103 fever.

That went on. We were supposed to close in January. I had like a baby moon or a pre moon booked in Hawaii. I went on the trip, the deal got pushed by a month, and this is at a point where it’s pushing and you’re wondering if it’s actually going to happen. These things do break, and I’m in Hawaii, I’m on the phone like two thirds of the time, the rest of the time I’m literally like in the gym trying to manage my adrenaline. The deal ended up happening in February, and Alex Taylor, the chairman, CEO of Cox, came out, and we announced it to the employees.

I was so amped up, exhausted at the same time, very excited, felt like I was making a good decision, but, like, I wasn’t present, if you will. Do you know what I mean? Like, I wasn’t, like, living the moments. And in terms of the signing, it was it’s literally just execution. The the number of deliverables and the number of variables, and even at the end, the amount of people that have to be aligned and the squirrelly things that happen, it just became like tunnel vision execution mode.

I spent a fair amount of the year literally processing and digesting and trying to reset because you know what I mean? Like, we’re amped up for the next chapter, but, like, we gotta turn the page.

I think overall, the venture asset and I don’t have all the numbers. You you might, but I think the venture asset class is not particularly impressive. Privates as a whole are probably not particularly impressive. I know there’s a lot of people who disagree with me or gonna tell me, I don’t have the stats. You’re totally wrong. I’m an LP in legit funds. Where’s the money? Where’s the money? How many years has to go by? People think these companies take, like, five, seven, nine, ten years. Not true.

Not true. They take, like, fifteen to twenty. That means your venture fund takes fifteen to twenty years to distribute the money, typically, unless you’re selling kinda secondary stuff, in which case you’re probably taking a discount. I think the asset class you have a very, very tough job. It’s hard to be a first class, you know, venture investor in terms of returns. I think the last few years have probably been pretty bad. And there were a lot of people that were like, I’m the best investor in the world, and yours truly made lots of stupid investments, like really stupid investments.

What was your most

Oh, man. I started writing bigger checks thinking, of course, I’m a genius. The the checks I wrote in thirteen fifteen seventeen, you know, fantastic companies, Flock Safety and Addepar and Qualia and Flexport and other things. And it’s like, oh, look, I’m good. And then I like write bigger checks into earlier stage companies and they go absolutely nowhere, even some frauds, you know, just straight up frauds where it’s like, wait, you said the numbers were this. They weren’t that. We just lied about it. So I think there are many more frauds than we think.

Oh, I think there’s loads of these. And a lot of entrepreneurs lose they either didn’t have the kind of morals and the anchor weights or they, like, lose it in the, you know, intense, pursuit of success. Look. I think it’s a really hard business, and I’m an LP in some of these funds, and I’m waiting for distributions. And to me, multiple on invested capital and distributions on paid in seem like a lot more important than, quote, IRR based on other funds marking things up to impress their LPs.

I can tell you post transaction, I’m getting hit up to invest in lots of companies or or funds, and it’s like, maybe I shouldn’t be so overweighted on privates.

Well, I wish obviously wish I’d taken any liquidity I hadn’t dumped it into the S and P five hundred early this year. I didn’t. What did you do with the money? I put it in some money markets and tried to catch my breath mostly. Paid down my mortgage and got back to work. Just stick it in the indexes and go do something else. Extremely hard to beat the market over the very long term.

That’s probably that that would be one. I I have tremendous respect for Ryan and Trey and what they’ve built. Which which fund are you in that you wish you weren’t in? Small checks into a few just to kinda support friends or investors in OpenGov, and that to me was overweighting on privates and just unnecessary. Making less investments is probably a good New Year’s resolution.

Cool.

There are two to come to mind. One, I pitched Peter Thiel. I was so green, and I’d just gotten back from Afghanistan. And I literally would go to work in slacks and leather shoes like a business lawyer looking type person. The Founders Fund guys, at least in those days, did not respect people who wore button down shirts. Literally, I got laughed at. That hurt. Number two, I had a few meetings with Mike Moritz. I was very excited. I think they would have been great investors. I was on maybe the third or fourth meeting, went to kind of partner level meeting, and I thought this was gonna be the one.

And I walked in, I could just see something on his face, and and I go through my spiel, and I’m like, something’s not right. And I just knew, you know, he just decided against it. And he was like, what have I done scheduling this meeting? And he walked me out and shook my hand without looking me in the eyes, and then just literally turned and walked off. And that brought out very bad feelings in me, like high school fist to cuffs level feelings. Those would be two.

He’s tough. He’s out to ensure governance and investor interests, and I learned a lot from that. But it was not I had a warm, loving relationship with John, with Catherine, with Marc is a lot of business. He took his role seriously, so it was a it was a I wouldn’t say it was transactional, but I’ll give you an example. I scheduled a two hour board meeting, and the board was opening up, lot of give and take, big discussion going on, some important issue. So I decided to let it run at, know, maybe it was 10AM to 12PM.

At 12PM, Marc literally just pulls his chair out, gets up, grabs his briefcase, walks out, slams the door, leaves the building, and we see him drive off. And everyone is just like, what just happened? And I text him afterward, and he was like, you told me the board meeting ended at noon. And it was like a pretty stark message of, like, manage the board meeting. Stay on time. Run it tight. Be in control. These were the type of I I wouldn’t call them avuncular lessons, but, like so it was

Snap judgments are very valuable. A lot of people tell you, you gotta be thoughtful. You gotta be balanced. You do, especially when as the organization gets larger, but you’ve gotta listen to your stomach and your gut. I often advise our execs or others when they’ve got a big decision, whether it’s personnel or or something else, go sit in the woods, go sit on the hill, look at the ocean, and what is your body telling you? It usually is telling you an answer, and you gotta listen to it.

And sometimes it’s telling you that really fast, like when you meet somebody or when you walk out of a meeting, you know.

Everyone tells you that it’s a life changer and you wanna pick the right partner and you gotta be in the right zone and all of that. And it’s washing over me like I’ve changed my life materially. I’ve changed it materially. I wanted to go I think I told you I wanted to go on that trip in November. Like, nope. Not happening. We have a five month old baby, and we’re not dragging the baby around the globe. So, yeah, my life has changed dramatically, and, like, I’m just coming to accept the new reality that I don’t think I really understood.

And a lot of learning is like that. It’s gotta be experiential because, at least for me, you know, people just tell it to you. It doesn’t doesn’t really sink in.

You know, if we hadn’t sold the company, what would life look and feel like if we were pursuing IPO? I still feel convicted that we made a great decision, and I’m very excited about the future and the vision and mission and the alignment and all of this, but that would be one.

Look. I think they have to. I’m a little surprised this has gone on the way it’s gone on. Databricks supposedly raising the largest private round ever, I think. I guess that’s your that’s really the point you’re making. But, you know, my read is and what what motivated me a little bit is, look. At some point, the you gotta deliver the money back to investors. They’re raising Databricks is raising most of that to deliver secondary to employees, including to deal with some tax issues. I know that’s what Stripe did, and Josh, I think, is doing most of these.

Look. I think that can continue, but, no, I don’t see how these companies don’t go public. I’m sorry. They’ve raised a ton of money. At some point, people need liquidity. That’s gonna come. I don’t know whether it’s in ’25 or ’26 or ’27. If I’m guessing, it’s probably ’26. I think these the the markets open up, and all these companies end up going public.

I’ve changed my mind on up and comers. I spent a lot of time hiring, been there, done that. I’ve grown a little tired of it, and I all I see the value of promoting from within. I see the value of hiring people that are geniuses and wanna work, like, all the time and grow their careers and learn and have kind of the growth mindset versus the, hey. Here’s how I did it at my prior companies. And, hey. Look. I’m an exec, and I’ve got a playbook.

I’m excited about growing and learning and promoting from within and, like, hiring, like, fresh talent that wants to get after it versus the been there, done that.

understand a company like Workday. Workday? No. Look. I’m an enterprise software. I’m I’m I sell ERP software. We’re almost like a verticalized Workday. Where I’m going with this, Harry, is, like, to run like a Microsoft, like, I would it would take me a lot of time to even understand their business. They have so many business lines and so many disparate sources of revenue. I think what Satya has done there is, like, it’s kind of incredible because I don’t have a clear understanding of that business and how it works and how I would what growth levers I would pull and how to carry it on.

Tend to not invest against Elon. And if I sat down with him and talked with him and said, are you, like is this real, and are you all in? And he’s I think he clearly is. I think that’s probably a a perfectly good investment. I think it’s similar to the OpenAI investment. I was at, an event, and Mary Meeker was there, and I talked with her. And I said, man, what a round that OpenAI. I said, would you would you do it at 01:50? And she said, to be clear, I’m not I’m not in the round, but, yeah, I would do that.

No question. I said, tell me about it. And she said, look. I don’t remember exactly, but she said, 60% chance that company crushes it and becomes, you know, a world changing trillion dollar company. 20% chance it goes sideways and you get the prep stack back or you get 80 you know, $70.80 cents on the dollar. And then, yeah, 20% chance it’s a big goose egg. And she’s like, that’s a nice bet.

the 10 You stroke the check. You know this better than probably most Harry or anybody, certainly. I mean, but when you stroke the check or when you’re writing your own money, it’s different. I’m writing a check with real money at a $150,000,000,000 valuation. So I I find the investing game fascinating because

Yeah. Yeah. Fair. And he’s going long on that and Databricks and others. And, yeah, I’m in the I’m in the fun, and so it’s it’s a little exciting and nerve racking, and I mostly just wanna watch and admire what they’re doing.

I thought you were gonna ask more about the struggles, like the super pain, and we did touch on some of those, but I thought you were gonna get a little more personal with me about how I grew up or my mother or, this kind of stuff. And I’ve listened to so many of your episodes and heard heard about some of your background. So I’m not begging you to do that. I’m just kind of being I was a little prepared to get, like, vulnerable and have a cry out with you.

Yeah. For sure. I grew up, you know, I had a difficult home life. My mother was severe alcoholic, and parents got divorced after kind of years of home war zone. I think there’s probably something like this in a lot of entrepreneurs. You would have more experience in it than me talking to so many entrepreneurs as you do. But there’s the, you know, wanting to prove that, you know, I’m good enough or I’m worthy that kind of is part of the drive in some of these companies.

This is not just a mercenary activity. This is mission plus that personal pursuit Did of

You know what’s funny? Yes, on the one hand, and the other thing is, and you often ask guests like, does money make you happy? It’s helped a lot. And I don’t mean that to sound trite, and I hope this doesn’t sound super pompous. But like, I grew up, I never felt safe. I never felt safe. I didn’t feel safe at home. I mowed lawns from the age of eight. I’d collect $20 bills and count them and go to, you know, literally deposit them and like been pinching pennies in one way or another for like most of my life.

There’s a sense of security that’s come from some of this that like I often will walk around and just try to tell myself like, you’re okay. Like, it’s safe. Yeah. I don’t know. I feel different than I did five or ten years ago. And no, it’s not going to produce happiness. I still need to probably go to the Hoffman process and visit Essilane and do all the things that your other guests do. I I I need to get on some of those trains probably. I’m not there yet, but, like, having a little, like, a touch of security and peace is, like, helpful.

A maelstrom. Like, I’m still in there, like like, I’m living daily and hourly and, like, working, like, most of the weekends and nights and just, like, cranking to make this thing go to the next level. It’s it’s it sounds kind of sick, but yeah, it’s a total treadmill. We’re on it until we’re not. I take my job super seriously, and there’s many hundreds of employees who are depending on me to do that as opposed to like buzz off and play golf in Ireland or something. And so, you know, while I’m here, I’m completely mission obsessed, and I wanna deliver for our customers, employees, and shareholders.

You serious or no?

You are you have to be one of the hardest working guys in showbiz. Okay? That is abundantly clear. I No. Listen. I can’t even keep up with your content. I mean, it’s insane how much you put out. It’s not because you cut it through Waves from Sunday. It’s because you’re literally, you are at it all the time, and you’ve been doing this, Harry, now what? Eight or ten years?

No. No. No. You really leave this dark room ever. You don’t know what’s on the outside.

What are you gonna do? You’re gonna do this for another thirty years or are you gonna, like, step back? What are you

You’re not going to the islands, and you’re not taking up golf. And No.

Do your guests ever ask you how much money you have? Fuck

It’s the craft, fraternity, or whatever you wanna call it. Yeah. I love that.

I was talking with my friend David Peterson. I was in New York late last week, and I caught up with David. And you know Ryan, I think, probably pretty well. And David said his dad was a computer scientist, a programmer, when we were growing up. And his dad retired early and had been retired probably for, like, twenty years. And we were talking about people who don’t and don’t stop. And he said, you know what? I think some of these people who are cranking in their eighties actually have a higher quality of life.

I said, tell me about that. He said, like, I went to on some trip with Nelson Peltz from Tryon, and this guy’s, like, still with it, and he’s still cranking, and, like, people wanna talk to him. He’s like, there’s something about the, like, stimulation, the relevance, the, like, being in it. He’s like, it’s it’s not just a need, it’s not just vanity. He’s like, I think they might have a higher quality of life than if you just buzzed off and, like, toot around in a golf cart.

And I thought that was interesting. I I I wanna look into it.

element too. It’s it’s something we didn’t talk about the work for work, work from work stuff, but I made a mistake on that. I went remote virtual and distributed in 2020. I’d been getting the crap beat out of me while we were we were in Redwood City and struggling to hire and struggling to compete, and things started to break before COVID. And COVID hit, I go, you know, move home with your folks or go to the beach, keep your salary. We’re remote virtual distributed, and company fanned out.

Catherine beat on me, by the way. She said, you’re the companies that get back to the office first are going to win. What are you doing? And I was like, oh, come on. You there’s been innovation in the world. You don’t know what you’re talking about. And the reality is I was dead wrong. We’re getting back into the office. The collaboration, the productivity, like, it’s not even close. And it’s very painful getting back into the office. And you know what is worse than that? It’s not getting back in the office.

It’s the disaffection. It’s the, I don’t want to be paternalistic, but my colleague Thiago, who one of our key leaders here, he said, look. People think they’re happier sitting at home, and they’re not. And they end up quitting like a week later. They say, no. No. I love working from home, and then they go quit. Why? Because they’re disconnected. They’re not part of it. They’re not with people. It’s not natural just to sit in a room and, like, crank all day without collaborating and whiteboarding and talking.

So I’m very excited about the track we’re on, and I’ve had to literally stand up in front of the company and say, was dead wrong. I’m sorry. I’m gonna own it, but this is where this is the direction we’re going. I wish remote virtual and distributed on all of my competitors.

I the feeling is completely mutual. I’m a a fan, but honored to be a friend too, and I’m really excited to be with you, Harry, and this is a lot of fun.