Communitech file photo: Anthony ReinhartCourting a Valley VC: Inside Vidyard’s big raise Anthony Reinhart January 14, 2015 Columns, Communitech, Ecosystem, Small to Mid Size, View from the ‘Loo Photo: Vidyard CEO Michael Litt with his much-smaller team back in 2012, before the company moved out of the Velocity Garage in the Communitech Hub When you’ve met “the one,” you just know. This might be one of the biggest relationship clichés out there, but then, clichés wouldn’t be clichés without a good deal of truth behind them. The courtship story behind this week’s news that Vidyard had secured an $18-million Series B round led by one of Silicon Valley’s top venture investors is steeped in that kind of truth. Like many great relationships, it began with a spark of mutual attraction followed by a long and uncertain period of second-guessing, cat-and-mouse manoeuvres, breakups, outside flirtations and finally, a solid commitment based on trust. Some of these details surfaced in media accounts of the funding round this week, but other interesting bits remained hidden in a nearly 4,000-word account of the Vidyard-Bessemer engagement, written by Donna Litt and based on interviews with her husband, Vidyard’s CEO Michael Litt, and Bessemer partner Byron Deeter. Ms. Litt kindly shared with me a draft of her torrid narrative, in which I not only got an education in the courtship rituals of budding tech stars and top VCs, but some fresh perspective on the value of relationships, and of the help – often unseen and unsung – that can be pivotal to a young entrepreneur’s success. In Michael Litt’s case, that kind of help came early, in the form of Brett Shellhammer, a then-Communitech Executive-in-Residence who mentored Litt and co-founder Devon Galloway through Vidyard’s infancy in 2011. As told in Donna Litt’s account, Litt and Galloway were excited to explore possibilities for the IP they had developed around that time: software that could precisely analyze how viewers interacted with online video. So, they reached out to their EIR, Shellhammer. Impressed, Shellhammer made an intro to Eloqua, the Toronto-founded marketing automation software firm where he had served as senior VP of Product Management. Eloqua, it should be noted, had raised a $23-million Series C round led by Bessemer Venture Partners (BVP) in 2007, when Shellhammer was at the company. Bessemer’s partner on the deal was Byron Deeter, the same Silicon Valley-based partner who brokered the Vidyard round announced this week. In addition to Bessemer being one of the oldest and most respected VC firms in the United States, Deeter is one of its star partners, having appeared on the Forbes Midas List of the world’s best tech investors for three years running. During those early days of Vidyard’s incubation at the Communitech Hub, after introducing its co-founders to Eloqua, Shellhammer handed Litt a few pages of wisdom he’d printed from a website. “When he placed it in Litt’s hands, he held on for a moment, and with a steady gaze and serious voice, told Litt: ‘These guys are going to invest in you one day. Read it,’ ” Donna Litt writes. The paper was a copy of Bessemer’s Top 10 Laws of Cloud Computing and SaaS (software as a service), among whose authors was Deeter. Litt, a cloud computing whiz kid who was skeptical of these so-called laws, stuffed the paper in his bag and forgot about it until a few weeks later, when he pulled it out en route to Silicon Valley for a meeting with the C100, a group of influential Canadians in the Valley. The meeting was set up by Iain Klugman, Communitech’s CEO. “Impressed by the contents of the article and somewhat abashed at how much he still had to learn, Litt decided then and there that one day he would work with BVP,” Donna Litt writes. What followed was three and a half years in which Litt and Galloway drove Vidyard aggressively forward, starting with a formative stint at Y Combinator, the Valley’s fabled startup accelerator. Their success at YC helped them land a $1.65-million seed round from seven investors, including Netscape co-founder Marc Andreessen, YouTube co-founder Jawed Karim and Gmail creator Paul Buchheit. Months later, Litt had a phone conversation with Jeremy Levine, a Bessemer partner he’d been introduced to, and made a passionate pitch for video marketing as a massive market opportunity. Levine was not convinced, so Litt, undaunted, decided to play the field. The ultimate result was a $6-million Series A round, announced in early 2013, with Toronto-based OMERS Ventures leading. By this time, Vidyard had left the Communitech Hub, spent a few months in a small house near the Tannery that it quickly outgrew, and moved into its present location on the top floor of an old building in the heart of downtown Kitchener. All the while, Litt kept Bessemer in his sights, if on the back burner. In early 2014, less than a year after the Series A raise, he got an email from Bessemer’s Talia Goldberg. She had a lot of probing questions about Vidyard that, coming from a lesser investor, Litt might have turned away. Instead, he was transparent, because he knew he still wanted to work with Bessemer. Still, this wasn’t enough to secure a deal. The timing, a critical factor in any romance, wasn’t right, but Litt and Goldberg agreed to keep their channel open. “And then it happened,” Donna Litt writes. Last summer, Bessemer invited Litt to its Menlo Park, Calif. Offices to meet with Byron Deeter. Litt, a frequent Valley visitor who had already booked other appointments for that time, cancelled one to make the Bessemer meeting. He noticed that Deeter had a unicorn head on a shelf in the corner of his office – an odd accoutrement whose significance Litt eventually realized: Cloud SaaS companies worth $1 billion or more were rare, but Bessemer has a knack for picking them, and the firm predicts an explosion in their numbers in the coming years. With Litt determined to build Vidyard into just such a unicorn, and Deeter eager to test the company’s potential to become one, the two hit it off, bonded over their mutual love of fast cars, and agreed to keep talking. Last summer, incidentally, was when Litt and Donna were preparing to marry in an informal ceremony in Kitchener’s Victoria Park, across the street from their home. Deeter offered to put off further talks until after the wedding, but “Litt knew more than anything, timing mattered most,” Donna Litt writes. And so, on his wedding day, the Vidyard CEO took a phone call from Deeter, who was entertaining CEOs of Bessemer investee companies at a race track in Napa. It was thus a festive day for all concerned, until “Deeter informed him that they still couldn’t come to terms with the Vidyard opportunity.” Left at one altar, the unflappable Litt happily moved to another, where he married his beloved and got on with his day. He then skipped the honeymoon and went back to work, reaching out to other potential investors just as he had done after his fruitless chat with Bessemer’s Jeremy Levine two years earlier. But this latest speed bump did nothing to diminish either side’s fondness for the other, nor their desire to find a way to make things work. As buzz built around Vidyard’s first user conference, Ignite, in San Francisco on Oct. 1 last year, Litt sent an invitation to Deeter. Much as he wanted to, he couldn’t attend, but he insisted on meeting with Litt and Galloway two weeks later at Salesforce’s massive user conference, Dreamforce, also in San Francisco. At Dreamforce, Litt received a text message with instructions on how to find Deeter: “Meet with Byron next to the Metreon [a shopping centre] where there will be a table that has a blue cloth on it, next to a table with an orange cloth on it. That’s where they’ll be sitting,” Donna Litt writes. When Litt and Galloway reached the gardens near the Metreon as instructed, they were confronted with the sight of 200 tables covered in blue or orange tablecloths, all of them occupied. Finding Deeter would be no easy feat. Then, as they searched among the tables, Litt received an email. It contained a term sheet from one of the other investors he’d been courting. When he looked up from his phone, Litt spotted a colleague of Deeter, standing at a table and waving wildly at him and Galloway. On the table was a stack of papers detailing all the previous correspondence between Litt and Deeter, and all the business documents they’d shared. Clearly, Deeter had come to discuss the relationship. After some light chat about Vidyard’s activities at Dreamforce, Litt decided to play his ace card – the term sheet he’d received moments earlier, from one of four other investors he’d been actively courting. Quoting Deeter, whom she interviewed, Donna Litt writes that he could “sense that the deal was running away from us and we weren’t going to get it done,” and was left “wanting to close [his] eyes and pay whatever price it is, and just go for it.” But it would be a couple more weeks yet. In late October, Deeter boarded a plane and flew to Kitchener to finally get a close-up look at Litt and Vidyard. He was charmed by their shabby-chic downtown workspace, but more impressed with what he found in the people – or Vidyardians, as they call themselves. “It became clear to Deeter that Vidyard was hard at work inventing the future,” Donna Litt writes, “a difficult task that strikes a chord deep within the heart of BVP’s investment strategy.” Deeter had been wondering whether Vidyard could find the world-class employees it would need to keep growing in Kitchener, but the strength of Vidyard’s talent and culture eased his mind. Over dinner that evening at Marisol in downtown Kitchener, followed by “many beers and many hours,” Litt, Galloway and Deeter hammered out terms they could all live with, and finally shook hands on a deal. It was “the very same restaurant where Litt and his wife had their very first date,” Donna Litt writes. Once I finished reading her account, I walked through the Communitech Hub to find Brett Shellhammer. He was in a meeting room, working hard on another startup, the second one he’s launched since he left his EIR role to return to entrepreneurship in 2012. “I’m excited for them,” he said of Vidyard. “I’m really, really excited for them.” Shellhammer recalled handing Litt the copy of the Top 10 Laws back in 2011, with which he was familiar from his days at Eloqua, after Bessemer had led that company’s Series C round. “Byron wrote that a couple of months into Eloqua,” he said, “and it quickly became the Number 1 publication on how to run a SaaS business, because Eloqua was one of the first SaaS companies.” When Litt and Galloway were in California for their Y Combinator stint, Shellhammer paid them two visits. During one of the trips, he went to see Deeter, and their conversation turned to YC companies like Vidyard. Bessemer, Deeter explained, felt YC companies were overvalued and generally avoided them. But nearly four years later, during which the young founders matured and video marketing has revealed itself as a growing market, it’s now a different story. Vidyard was the first company Shellhammer mentored as an EIR, and while he was instantly impressed, he wasn’t sure whether it was simply because they were his first company, or because they were onto something. Before long, he realized it was the latter. “They’re really the guys who taught me to trust my instincts on companies,” Shellhammer said. “I really felt that that’s how marketing automation was going to go; video was coming up. They had gotten some questionable advice before, and [Litt] will tell you that I’m the first adult who believed in their business.” The most significant aspect of the Bessemer investment in Vidyard is that Deeter is handling it himself, Shellhammer said. “Byron’s in the top, top of venture capitalists, so the fact that he didn’t kick it over to his guys in Boston or New York, but that he stayed with it . . . I mean, he doesn’t like coming to Toronto in the wintertime,” he said. “He’s a) one of the most experienced guys they could find to help them, b) one of the most successful venture guys in Silicon Valley, and c) they sold Eloqua for almost a billion dollars,” Shellhammer said. “So, that’s a big deal.” And not just for Vidyard. “This will inevitably bring more thought leadership to the community; it will definitely draw some attention to the community as well,” Litt told me this week. “It’s a new investor to this community, and it’s a Tier 1 investor in our space who is now interested in what’s going on here.” That much was evident in comments Deeter made in a blog post on Wednesday. “It reminds me of the early days of marketing automation and our work with Eloqua – both because of the parallels in the markets, as well as how cold it is to fly into Toronto, Canada this time of year!” he wrote. “That’s right . . . I’ve signed up to spend more quality time in Kitchener, Canada and the Waterloo area, because they’re that good.” As Litt said, “Every single time we can introduce a new group of individuals who have proven success in other locations – not just in Silicon Valley, but all over the world – to this region successfully, it’s going to result in good things.” Robust as Waterloo Region’s startup infrastructure and culture of collaboration are, Litt said “the best thing that this community can do for itself is produce really great companies that change the world, produce a ton of value, and ultimately create many jobs. “That’s certainly what we’re lined up to do, and I can’t wait to see how it all unfolds.” 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.