Photo courtesy of Donna LittA man and his dog: How the Vidyard Series C round was raised Anthony Reinhart January 27, 2016 Columns, Communitech, Small to Mid Size, View from the ‘Loo When Michael Litt stepped outside and closed the door behind him, a sinking feeling would soon follow. It was early evening on Thursday, Oct. 29, 2015, and the Vidyard CEO was flying solo at home while his wife, Donna, was out of town. He had just popped out for a quick walk with their dog, Pepe, before an important dinner with a visiting venture capitalist. But, as Litt went to put Pepe back in the house, the door was locked, with his phone, laptop and wallet still inside. “Pepe is a hairless Chinese Crested, and he freezes in the slightest amount of wind,” Litt recalled. “I didn’t know what to do, because I had the dog and I had to go to dinner.” And so, the 29-year-old entrepreneur, with Pepe in tow, headed on foot for the Walper Hotel, not far from his house in downtown Kitchener, where the dinner was about to take place. “I used their phone to call my father-in-law, who came and picked [Pepe] up so that I could do the dinner.” It’s a good thing, given that the dinner, with Battery Ventures partner Michael Brown and a pair of his associates, ultimately led to this week’s news that Vidyard had raised US$35 million in Series C financing. In an interview at Vidyard’s Kitchener offices, Litt recounted a fateful series of events that began to unfold last spring, just a few months after the company announced its US$18-million Series B round led by Bessemer Venture Partners in Silicon Valley. While the Bessemer deal followed a sometimes-fraught, years-long, cat-and-mouse courtship, the Battery deal was practically a shotgun wedding by comparison. Despite Vidyard having just raised the B round last January, a Battery associate named Sanjiv Kalevar came to visit in May. “Funds reach out all the time, and funds generally have these teams – they call them associates or analysts – who are junior people; they cannot write cheques, but they are just there to contact companies,” Litt said. While some argue it’s a waste of a founder’s time to deal with associates, since only partners can write deals, Litt sees it differently. “The issue is, they sell the partner on your behalf,” he said. “And so, if you can make them fall in love with your business, they will help the partner fall in love with the business, because they know how to make the partner fall in love with the business and you don’t.” In the specific case of Kalevar, it didn’t take long to break the ice during that May meeting – his brother had been a classmate of Litt’s at the University of Waterloo. “His brother’s name is Prem,” Litt said. “He was a startup guy locally; now he’s in Toronto at a company called Minuum… So, when [Sanjiv] walked in, I thought it was Prem. I was like, ‘Wow, small world,’ but it was his older brother and they look almost identical. So we had a good laugh about that.” At the time, Vidyard wasn’t looking to fundraise for another 18 to 24 months – and Battery was well aware of that – but the firm was “thinking about video marketing and the video platform space in general, as an investment thesis,” Litt said. Far from being a waste of time, Litt said, the meeting gave Battery time to size up Vidyard for future investment potential. For Vidyard, meanwhile, such an early meeting “affords a position of leverage for us,” he said, because it meant more time to shop for better terms with other VCs long before it needed the money. As subsequent events have shown, Battery clearly liked what it saw – though it would take several months, during which Vidyard met with several other suitors, to move the relationship to the deal stage. Litt had planned to visit Boston last summer to meet with a Vidyard sales rep based there, and check in with Battery at the same time, but the trip didn’t materialize, “so we just kind of kept lightly in touch,” he said. Other opportunities for Vidyard and Battery to meet would present themselves in the fall, thanks to a pair of conferences in San Francisco: Salesforce’s massive annual Dreamforce gathering, or what Litt calls “the South by Southwest for B2B tech companies, in September; and Space Camp, Vidyard’s high-energy user conference, in early October. “So I pinged Sanjiv and asked them if they were going to be [at Dreamforce], because I was meeting with probably nine different funds during the course of Dreamforce week,” Litt said. “They were, but ultimately they decided not to show up because they wanted to come to our conference instead.” Clearly, Battery’s specific interest in Vidyard was intensifying, but Litt wasn’t going to make it easy. “This time around, I invited seven different funds to Space Camp in San Francisco,” he said. “So, a 600-person conference over two days; Commander [Chris] Hadfield was the keynote; roughly 20 per cent of the audience was customers; and the rest were just industry people.” Litt met personally with people from three of the venture funds that attended Space Camp, which featured an open bar with space cocktails, freeze-dried food and other space-themed elements. Battery was one of them. By that time, Vidyard’s fundraising window had shrunk to 12 to 18 months. “So [Battery] went away, and then followed up in about a week’s time and said, ‘Hey, we’d like to bring Michael Brown, the partner, to your office in Kitchener to do a deal,’” Litt said. But Battery weren’t the only ones, as it turned out. “I had heard the same message from another fund, just a day prior,” he said. So Litt reached out to Byron Deeter, the Bessemer partner who had led last year’s Series B round, for advice. “And he said, ‘There’s no way that they want to bring a partner up to Kitchener unless they’re really interested in doing a deal, so if you guys aren’t formally raising, don’t waste your time; don’t push for it.’” In a bid to cool things down, Litt picked up the phone and started making calls. It would, perhaps not surprisingly, have the opposite effect. ‘Look, we’re not raising; it’s not worth your time,’ he told Battery. “And I said that to three of the funds who ultimately wanted to come visit, and one of them said, ‘OK, sure, we’ll hold out,’ but the two other funds, Battery included, said ‘We’ll be there.’” Brown, the Battery partner, made his intentions as clear as he could: ‘We will be as aggressive as we need to be to get this deal done,’” Litt quoted him as saying. Given Pepe’s hairless status, cool autumn winds are not to be trifled with, Michael Litt says. (Photo courtesy of Donna Litt) Which brings us to Thursday, Oct. 29, the day Brown, accompanied by Sanjiv Kalevar (now a Battery VP) and Roland Anderson, an associate at the firm, arrived in Kitchener – and the day Litt locked himself out of the house with Pepe the dog. Once his father-in-law came to rescue Pepe, Litt proceeded into TWH Social, the Walper’s swanky downstairs restaurant, where he and co-founder Devon Galloway sat down to dinner with Brown and crew. They talked about Vidyard’s recent acquisition of California-based Switch Merge, and then the discussion turned to a customer Vidyard had been trying to land – a germ-fighting robot company called Xenex – which happened to be in Battery’s portfolio of investees. What happened next would go a long way towards sealing the Vidyard-Battery partnership – eventually. “During the dinner, Michael Brown looks at his phone and starts texting with the CEO of Xenex, and ultimately passes the phone to me,” Litt said, “and I have a quick conversation with the CEO and move the deal [to sell Vidyard software to Xenex] along. So, [Brown] closed a massive deal for us at the end of our quarter, which brought our quarter across the line.” The following day, the Friday leading into Halloween weekend, the mood was festive inside Vidyard’s offices. The team had just released an Addams Family-themed video, and Brown and the Battery team were visiting. As Kris Lawson, Vidyard’s VP of Customers, finalized the Xenex deal, Brown was given the honour of ringing the bell – a Vidyard ritual whenever someone makes a sale worth more than $30,000 – as company employees cheered him on. “It was like this Hollywood moment,” Litt said. It’s common for investors to offer help to investees, as Litt – having dealt with numerous investors before – was well aware. Still, he was struck by Brown’s gesture, “and he did that before he’d even invested, before we’d even talked about terms on the deal. To me, that was a sign of good faith. “We had a good conversation, a good meeting here,” he said. “They left, and I think with the whole bell-ringing and everything, it just felt good for both parties.” A strong verbal offer from Battery followed within days, but Litt and Galloway had client meetings looming in Silicon Valley, and they weren’t about to accept Brown’s offer without seeing what else was out there. Indeed, while in the Valley, they received another offer. “The second offer was at a higher valuation with more money, so the dilution principle was roughly the same,” Litt said. “But we’ve sat here and watched [other startups] get written down at the growth stage by Fidelity and BlackRock . . . and ultimately this investor would have been less involved with the business. So we made the decision to ultimately go with Battery, predicated on the fact that they were a better partner for the business.” Battery had also invested in ExactTarget, a digital marketing company acquired by Salesforce for $2.5 billion after going public. And with an IPO now on Vidyard’s radar, an East Coast partner like Battery will be a good one to have, Litt said. When we sat down to talk last week, I asked Litt, whom I first met almost five years ago when he and Galloway had just returned from Y Combinator, the famed accelerator in California, if he remembered what he imagined Vidyard might become in those early days. “It’s a tough question; rocketships don’t have rear-view mirrors,” he said, adding, “I have a memory like a goldfish.” What he does remember is being extremely optimistic after leaving YC and raising a $1.65-million seed round from high-profile Valley investors, a network that has proven to be a strong foundation for growth. Litt also remembers being tempted by the lure of being acquired – there were overtures during that period – and the overnight success it would have provided to him and Galloway. “However, we recognized that you can’t optimize for that, because if it doesn’t happen, you’re going to fail. You can only optimize for building a sustainable business and sound unit economics,” Litt said. “And so, that’s when we started dashboarding and planning and really pushing the sales agenda and focusing on growth, and once we started doing that, the Series A came together, then the Series B, and the rest is kind of history.” In those early days, their lack of knowledge, which they offset with pure chutzpah, probably helped, he said. “I look back to a lot of the naïve things I did and they worked out very, very well in retrospect,” Litt said. “We’ve been through some crazy stuff, and if you’d told me I was going to have to face those types of challenges, I might have just hung up the towel right there.” Having said that, Litt had some cogent advice for young people considering the startup life. “Starting a company isn’t something you should do for a great thing to talk about on a resume in your application to Google or Facebook or Apple,” he said. “The outcome for you personally can be much, much more significant if you actually put yourself outside of your comfort zone and build a business.” Granted, locking himself out of the house with a shivering hairless dog might have been a step too far outside that comfort zone, but in the end, it all worked out for Litt. “After the dinner, I went over to my father-in-law’s house and picked up the dog,” he said. “How did I get in the house? Somebody must have let me in; I think my brother had a key.” Update: Upon reading this story, Michael remembered it was his mom who dropped off a set of keys to him at TWH Social. Anthony Reinhart is Communitech’s Director of Editorial Strategy and senior staff writer. View from the ‘Loo looks at the issues, people and events that shape Waterloo Region’s technology sector.