GovDelivery is a Minnesota technology company that helps government agencies communicate with the public using email, text messaging, RSS and social media. It is also a Minnesota technology success story. What started as an idea in 1999 was valued at $22M this past fall when ICG (NASDAQ: ICGE), which now owns 90% of GovDelivery, partnered with management to buyout all other investors. We reached out to Scott Burns, CEO and Co-Founder, to ask him about doing business and raising capital in Minnesota.
MB: GovDelivery does business with many federal and international government agencies that aren’t based in Minnesota. Given the location of your clients, why did you keep your headquarters in Minnesota?
SB: I believe that St. Paul and the state as a whole are great places to build sustainable high growth technology businesses. We have an amazing workforce, low employee turnover, high quality of life, and low cost of doing business (if you consider all the relevant costs). GovDelivery is a knowledge business and we need people at all levels of the company that can work creatively and effectively in building our products and serving our clients. GovDelivery is part of the new breed of software companies that serve clients in a software as a service or on demand model. That means we have ongoing, and hopefully permanent, relationships with clients. We have great people that learn our market and do great work year in and year out to ensure that we provide an ever-improving level of service to our clients. GovDelivery has clients from Alaska and California all the way to London. Our highest concentration of clients are along the west coast and in D.C., so geographically, Minnesota is a nice central location with convenient air travel to both coasts. However, when it comes down to it, we could locate the business anywhere so we’re here because the founders wanted to live here and the location has supported our plans well.
MB: Tell me about how GovDelivery was funded.
SB: Our initial funding came from angel investors. We relied heavily on people I had previously worked with at McKinsey & Company and elsewhere, but I also drew on my personal networks. We were fortunate to have some local family funds that I connected with through networking invest in the business, and as we got larger, The Dolan Company (NYSE: DM), provided much of the funding and ultimately owned 30% of the business when we brought on a new lead funder in December 2009.
MB: Which of those funders were based in Minnesota?
SB: The Dolan Company is in Minnesota. Of the $3M we raised in capital prior to 2009, over 50% came from Minnesota.
MB: Looking back, would you have done anything different with fundraising?
SB: I would have been born rich, won the lottery, or come up with the idea for Facebook. Hindsight is 20/20, but our overall approach and deal worked out quite well for everyone involved considering that we had to weather the dotcom bust, 9/11, and the most recent financial meltdown. That combined with starting the business at 24, I don’t know what I could have done differently except make more calls sooner. I was a little to picky about taking meetings early on, but ultimately, I reached out to anyone that showed a willingness to hear our story.
MB: Describe a bit more about your experience raising money and looking for investment in Minnesota specifically.
SB: It wasn’t easy, but it’s not easy anywhere. There is a lot of whining about lack of investors in Minnesota. However, I think entrepreneurs here don’t realize how, while there might be 50X more funding in California, there are also 50X more technology entrepreneurs and ideas. There are plenty of people out there complaining about not getting funded as well. In my experience, great ideas with proven management get funded quickly, everyone else has to work hard for it, give in on valuation and terms at some point, and give up some control. Good thing, because you have to work even harder to build a decent business so hopefully the funding process toughens people up and helps them build out there plans. I think too many people look for funding when they should focus on bootstrapping. That wasn’t the right model for us, but it’s the right model for many startups.
MB: When did you stop considering yourself a startup?
SB: When we were funding operations with revenue.
MB: Why did you make it through the startup phase?
SB: Because we were very persistent and hired awesome people, had incredibly supportive investors, communicated very well with everyone involved, focused on delivering compelling value to clients, and had several lucky breaks. We made tons of mistakes too, but we tried to learn from all of them and get better over time.
MB: What advice would you offer to other startups? Specifically, start-ups in Minnesota.
SB: My first advice for entrepreneurs is to get as much high growth company experience as you can before you go out on your own. You might think up Facebook in your college dorm room, and in that case, by all means, don’t take my advice… for the rest of us, every year of experience helping someone else build a business will dramatically increase your odds of success. For startups that are already moving, I recommend talking to anyone you can about your business. Don’t just meet with people you think can give you money. Meet with everyone you can, encourage them to give you honest feedback, keep them up to date on your business, and if they believe in your business, ask for their help. With staffing, hire at least 1-2 people that see the world differently than you do, encourage dissent, be as open with people as you can, admit when you make mistakes individually and as a team, and encourage everyone on your team including yourself to embrace continuous improvement. Keep track of what’s going on in the community or communities that might buy your product. If you focus only on investors, you might lose your edge in the marketplace. If that means getting on a plane, train, bus, or bike, to go see people in person, you have to do it.
MB: What’s next for you? For the business?
SB: 90% of GovDelivery was bought from existing investors on 12/31/09 at a $22M valuation. All of our historical investors and all of the employees that had built up some options over time got a good payout. Now, we are partnered with ICG (NASDAQ: ICGE). They own 90% and management owns the rest. I feel like we have “reset the clock” and now have some time to take the business to the next level. Our management team and ICG share a vision for continuing to expand the role GovDelivery plays in government communication to encompass all channels and all types of communication. We purchased GovLoop, a social network for people working in and around government, last September, and we expect to make more acquisitions as well as continue to invest in organic growth here and overseas. My focus is on building an awesome company that does awesome work for our clients so a key part of my focus is recruiting, cultivating, and helping to guide the team members and leaders that can make that vision a reality.