Building Enterprise Software Companies that Reach Large Exit
Oni Chukwu, CEO of etouches
Introduction: The term serial entrepreneur is frequently used in technology circles, but it often lacks true meaning. Many use it to describe an entrepreneur who has tried multiple times to build a successful technology company, and perhaps succeeded once. Rarely is it used to describe an entrepreneur who has had multiple large exits, in particular multiple exits above $100 million in size.
Given the rarity of reaching successful exit in the tech industry, individuals who have succeeded in reaching multiple large exits should be studied closely. They can impart valuable knowledge about key company decisions such as choosing a target market; building a product that customers desire; scaling sales and marketing; growing via acquisition; and choosing when to exit. All of these nuanced decisions and the actions that result from them can the difference between success and failure.
Oni Chukwu is one of the rare individuals, and we had the chance to interview him. Oni has played a key role in three companies that have reached exits of $100 million or greater in size. He has been a part of six software company exits in total.
These exits notably include TriplePoint Technologies, a provider of commodities management software, which was acquired by Ion Trading for $900 million in cash. This acquisition was one of the largest financial technology acquisitions of 2013, as well as one of the largest tech deals in Connecticut history. His exits also include Healthcare Software Synergy (HSS), a provider of technology solutions to streamline healthcare reimbursements, which served over 600 hospitals and the top 6 U.S. health management organizations. Oni served as CFO of the company, and helped the company reach successful acquisition by United Healthcare for $250 million.
Most recently, Oni played a key role in adding etouches to that list, where Oni is currently CEO. Etouches is a fast-growing SaaS provider of enterprise Event Management Software, which has 1400 enterprise customers in 50 countries. Oni has been CEO for four years, and over that time he has played an instrumental role in the company’s growth. In May of this year, etouches was acquired by private equity firm Huntsman Gay for well over $150 million.
All of these successes place Oni in elite company in the technology business. However, what is perhaps most impressive about Oni’s success is where he started. Oni arrived in the U.S. as an immigrant from Nigeria, studying for his MBA at the University of New Haven. He didn’t have family connections in technology, or elite networks that would place him on the fast track. Instead, he identified the potential of the technology sector, and methodically built his career based on performance. His is a powerful story in the context of the ongoing debate over immigration in the U.S.
How has Oni done it? What are the secrets to his identifying unique technology companies can reach large exit? What operational processes do he and his team put in place to help those companies to grow? What are the key aspects of team and culture that he looks for in the early days, and how does he scale those aspects as a company grows?
We had the opportunity to ask Oni all of these questions and more. Please see the interview below, and following the interview, we provide key learnings and take-aways.
Interviewee: Oni Chukwu (OC), CEO of etouches
Year Founded: 1998
Interview with Oni Chukwu:
Q: Oni, thank you for joining today. Could you take us back to the early days of your career in technology? How did you first get into the software industry, and why did you choose to enter this industry?
OC: I first got into the software industry in 1994. I was finishing business school. I made a conscious effort to get into technology — I felt it was the place to be; I saw it as the future. My business school classmates were going into other industries, or they were going to work internationally. I was focused on technology, because I saw the potential of the industry.
I started first with Weseley Software. This was a logistics software company. Armed with a strong background in finance and my MBA, I became VP of Finance of the company. Logistics technology was a burgeoning, hot area then. The company was founded by Mitch Weseley and provided transportation management software for shippers, to enable them to manage complex logistics projects.
The company was sold within one year of my joining for $48 million to McHugh Software. This was an all-cash deal. McHugh Software eventually became Red Prairie, one of the largest providers of warehouse management software.
This was a great result. At that point, I started to see that if you had vision, worked hard and were lucky in the technology industry, you could have a big impact and great reward.
Q: What did you do after Weseley Software?
OC: I then joined Lexibridge as CFO. Lexibridge provided technology solutions for COBOL, specifically for converting legacy COBOL code to client/server applications. The company was acquired by Level3, which immediately went on to have a very successful IPO.
I then co-founded an online business called Styletrader.com. This was in 2000, when you could raise a venture capital round with an idea on a napkin. I started the business with a partner, and it didn’t go anywhere. The company went under, and I had to regroup.
I learned a lot from this experience of failure. I learned that it’s critical to have a good business model. I also learned that it’s critical to be in a market that you believe in. I learned more through that failure than I did in some of the successful companies I have been a part of.
Q: What was your next step after Styletrader.com?
OC: I was then headhunted to Healthcare Software Synergy as its first CFO. HSS was a SaaS provider of technology to 600 hospitals and the top 6 health management organizations. The company was focused on enabling healthcare reimbursements and compliance — an arcane market in a regulated industry.
I was with HSS for 2+ years. The company was bootstrapped. We were in a market that not a lot of people know about, but there was a lot of demand for our product. We sold the company in 2004 for $250 million.
I then went to Netkey also as EVP and CFO. Netkey provided enterprise software for self-service kiosks and digital signage software. Netkey had previously raised a lot of money from VCs during the dotcom boom. We were eventually acquired by NEC, and I then I joined TriplePoint.
Q: Could you tell the story of TriplePoint? What did you see in the business? How did you guys grow the company from when you joined them?
OC: I joined TriplePoint when they were at an interesting stage. When I joined, the company was doing $17 million of revenue, and was 55 people. The company had two co-founders, Peter Armstrong (CEO) and Allie Rogers.
The company was in an exciting market: energy trading and risk management. But when I joined, the company was at the point where it needed to pivot and expand its market. We were running into a ceiling on growth. Working shoulder-to-shoulder with peter Armstrong (co-founder and CEO), we made the conscious decision to expand into commodities management, and we decided to also extend our solutions functional footprint through small strategic acquisitions.
So I built a corporate development department. At that point, the company had never done an acquisition. So we needed to learn a lot. We ended up doing 8 acquisitions, the largest of which was $30 million. Our acquisitions were mostly cross-border deals. We also didn’t raise a lot of capital to do these deals.
What was most interesting was that we were being acquisitive when other companies were being gun-shy. This was during the period of 2008 to 2010. We were bold, and some may call it a big gamble, but we ended up buying very good companies. Given this firm foundation, TriplePoint grew quickly over an 8-year period at an 8-year Revenue an EBITDA CAGR of 35% and 51% respectively.
Q: You mentioned executing on several acquisitions at TriplePoint. When you are sizing up an acquisition, how are you evaluating the team? For example, how do you assess the management team of the target company, and whether your team can work with that new team? How do you assess subjective team characteristics?
OC: Most of the acquisitions we did at TriplePoint were bolt-on acquisitions. So, because the acquired teams must stay in order to realize the goals of the acquisition, the people and culture fit was paramount. We had spent a lot of time cultivating relationships with the founders and management teams of those companies. That is very important. The thing that makes any acquisition work or fail is usually the people, and rarely just the technology or market fit.
So we would test the management teams on both sides. You bring the management team [of the target] into your culture, and figure out of it will work. That’s an important and gating step.
You also need to tie the compensation of the target’s founders and management to the deal. You should create an equity piece to the deal to make sure everyone is aligned.
You need to have a roadmap and a rationale for doing the deal. What is the deal rationale? Does it make strategic sense? Can you accomplish similar things without making the deal? And you need to have put the metrics in place, at due diligence, to measure and manage the first 18 months after acquisition in order to ensure that the deal objectives are fully met.
All of the 8 acquisitions we did at TriplePoint became immediately accretive. When we decided to sell the company, potential buyers and investors consistently remarked that they couldn’t believe how successful the acquisitions had been.
Q: You have been able to strike gold multiple times as a software executive. What is your analytical framework for assessing a new opportunity that you might seek to join?
OC: I start with the quality of the founder(s). Is this person a partner that I can work with? Is this someone that I can believe in? Will they listen to what I have to say? The founders need to be people that I can put my faith in, and I have to be able to work closely with that person. And this goes both ways, of course! They have to see me as that trusted, competent colleague.
I also pay close attention to market. A big market can be a lot more forgiving than a small market. The market needs to be big enough for the company to scale. It also needs to be a global market. That allows optionality!
Q: When you’re evaluating a new business, what are the key financial aspects that you’re analyzing? Which metrics are on your financial dashboard? What are the key characteristics that you like to see before joining a company?
OC: I look very closely at customer unit economics — these are important. I look closely at how a company approaches cost of customer acquisition. I also look closely at net churn: revenue gained vs. revenue lost. I analyze revenue leakage. I establish the key revenue characteristics. I also look at revenue CAGR.
I believe it’s very important to run a business with an eye toward profitability. I never joined a company to exit a business. I always look to see if the business can sustain itself over the long term. The exit is the success end product of building a solid company.
Q: You have raised many equity capital rounds over your time as both CFO and CEO of software companies. What are your key considerations when thinking through whether to raise equity?
OC: Almost every founder I’ve worked with has stressed that they don’t want equity dilution. I make sure to take that into account, but you have to be strategic. You need to be smart enough to know when you have to raise money. It’s better to have a smaller piece of a much larger pie, than to have a big piece of a very small pie.
Q: Let’s go back to acquisitions. You mentioned that TriplePoint was able to expand the company’s target market via acquisition. That is very interesting. As investors, we often times analyze a company’s potential market via organic growth, but acquisitions have the ability to diversify a company’s revenue. Could you expand on that? How do you think about market expansion via acquisition? What are the different levers that you can pull?
OC: I’ll discuss how we approach market expansion at etouches, as an example. There are multiple ways we can expand. We can expand based on product features, for example expanding into marketing automation or into ERP. The way to do this is to build interfaces into adjacent markets, and looking closely at newer technologies. We can also expand into analytics and data, to provide deeper insights for event organizers. We keep our primary goal at the forefront — to solve problems for event organizers. We can’t know the absolute return on investment for these acquisitions immediately. But we’re always keeping our eyes open to future opportunities.
We also can expand geographically. This is something we have done at etouches, by expanding with our customers. We listen to our customers and when they are going into new geographies, we go with them. However, in the final analysis, the key measure is the trade off between build vs buy and the desired speed to market.
Q: Finally, how do you approach potential exits? How do you know it’s the right time to sell?
OC: I always have the potential exit in the back of my mind, but I don’t focus on it. You need to focus on building a company to achieve long-term goals. You have to focus on growing a business and executing on the plan.
If you do this, the exit will come. I don’t try to time exits. That is counter-productive.
Key Learnings from Oni Chukwu:
· To be a great technology entrepreneur, you don’t have to be the company founder. While Oni has not been the founder of either of the three companies that have reached large exit, he brings a unique skill set to the table when he joins. His assessment of team, market, and customer demand enable him to effectively filter company prospects to identify the businesses that have sufficient potential. When he joins a business, he brings the skill set to help the business scale. He has a deep understanding of technology finance and financial operations, which helps him maneuver companies though fundraising, growth via acquisition, and eventual exit.
Aspiring technology entrepreneurs and executives should learn from his example. While being a company founder is glamorized, aspiring entrepreneurs should also consider building the skill set to join a business in its early days as CEO or COO, to help the business scale after it has reached initial product-market fit.
· It pays to be contrarian during down market cycles. A key to Triple Point’s success, and eventual $900 million sale, was making acquisitions at a time when the market was frowning upon them. During the period of 2008 to 2010, the financial markets were languishing, and companies were not making acquisitions. TriplePoint saw this as an opportunity to buy good assets inexpensively. This is a key point in the technology business, because the market often moves in boom and bust cycles. The time to buy is often when the market is sour on the technology sector, and good companies can be purchased at inexpensive multiples. Oni and his team saw this, and used acquisitions to significantly expand their addressable market. Rather than doing large, transformative acquisitions, TriplePoint focused on “bolt-on” deals where a company’s product could be easily integrated into Triple Point’s sales and marketing channel.
· Acquisitions are about people more than anything else. Technology acquisitions are often driven by financial engineering and promised “synergies”, Oni makes the point that they are all about people. When analyzing a potential acquisition, he and his team spend a lot of time getting to know the target company management team. He looks closely at organizational fit. Where he sees an opportunity, he structures the deal to ensure that the management team of the target company continues to have skin in the game via equity ownership.
· Don’t waste too much time thinking about the exit. Oni’s approach to exits is relatively simple: if you build it, they will come. While he remains cognizant about exit opportunities, he focuses on profitable growth and is always looking for ways to expand a company’s market opportunity. He doesn’t time exits, but instead builds businesses to scale over the long term, knowing that if he does this, the eventual exit will likely take care of itself.
· Oni is an American success story, and his example is a valuable example of the importance of diversity in the tech industry. Especially given the current debate on diversity in the tech industry, as well as the broader debate on immigration in the U.S., we are well-served to learn from Oni’s example. Oni arrived in the U.S. in the early 1980’s from Nigeria. Born in Lagos as one of nine children, Oni’s family was displaced during the Biafran Civil War. Oni arrived in the U.S. to study finance, and worked as a dishwasher during his MBA to make ends meet. This was a smart move in more ways than one, because in addition to making some money, he also met his wife, who was working as a waitress at the time.
Starting his career from scratch, Oni built a track record of success through a combination of hard work, strategic thinking, and risk-taking. Oni’s interview reveals an individual who was able to think very long-term, and someone who has a very high level of resourcefulness.
Almost 25 years later, Oni’s career is filled with successes, but he’d be the first to tell you that he still has a lot more to achieve. In the midst of today’s debates on multi-culturalism and inclusion in the U.S., Oni’s story is a powerful example of the importance of inclusion, and the potential of the U.S. to provide opportunities for truly exceptional people to achieve great things. The technology industry should do more to embrace diversity, and ensure that talented people with high potential receive the opportunity to achieve their best potential.
Note: We’re very pleased to note that Oni Chukwu is a Limited Partner and advisor to 645 Ventures. Our firm has benefited significantly from his input and perspective.
In addition to his investment vehicle, Frontiers Acquisitions, Oni in 2011 set up the AfricaPlan Foundation to, among other things, assist budding entrepreneurs in developing countries.
 Red Prairie eventually merged with JDA Software for $1.9 billion in 2012.