Even after a fantastic meal there can be some cleaning up to do. Going into business can be very similar. Startup life can be a stimulating ride. Though, even if you make it to a grand exit there can be a lot of dirty dishes to manage. Then you get to start the fun of pepping for your next masterpiece all over again.
Matt Salzberg knows quite a bit about this roller coaster. He’s gone from being in private equity and the VC world to seeing his own startup scale through an IPO. Then on to investing in other ventures (listen to the full episode here).
The Perks of Going to College
Matt Salzberg attended Harvard around the time that Mark Zuckerberg was dropping out. In fact Matt was probably one of the very early users of Facebook. Many of his friends and schoolmates ended up going to work for the social network.
That’s a great atmosphere to be in for becoming an entrepreneur. Of all the angel investors and top founders I’ve interviewed on the DealMakers podcast, these schools have proven powerful for finding cofounders and gaining introductions to investors. Matt even went back after his first real job to get his MBA from Harvard.
As an undergrad he got his first taste of business working in a Harvard, student run cleaning business that was bringing in $400k to $500k per year.
Private Equity & VC Firms
Before finishing his MBA, Matt went to work for Blackstone. This was ’04 to ’08, which was kind of the heat of private equities. When Blackstone was doing $20 billion dollar public to privates every week. It was a fund that went from $6 billion dollars to $20 billion dollars. While he was there. Then the company itself went public. It now manages around $400 billion.
Although he loved his time learning as an analyst at Blackstone, he says it was also an 80 hour work week grind, with a lot of mindless work. After his MBA he decided he could benefit by learning even more at a different type of firm.
He went on to become a venture capitalist for Bessemer Venture Partners. He says, “I loved the business intellectual sides of investing, but I wanted to do something a little bit more creative in terms of creating something that can change the world, that consumers could be emotionally involved with and that could leave a legacy.”
He joined Bessemer after that to build out a network of early-stage investors, learn the pattern recognition that venture capitalists have for knowing what the elements of success are in the early stages of a company. So, ultimately, he could put in place something like that. It made him think about what an early-stage business idea was, and provided a chance to explore that on someone else’s dime while in venture capital.
Some of the biggest things he says he learned there were, how do you talk to investors, how do you say the right things and how do you speak their language so that you communicate your ideas as effectively to them.
Blue Apron – The Road to $900 Million
One day, debating launching his own venture, another entrepreneur in residence at Bessemer said to Salzberg, “You know? Why don’t you just go and start figuring it out, and I’ll be your first investor and give you $25,000.”
Matt and his team raised around $800,000 in capital for what was meant to be a crowdfunding site for science and research. Over a few months they actually brought in a couple hundred thousand of revenue. Then decided it wasn’t going to be the wildly successful company they anticipated.
He says they spent almost none of the money on that business idea. He didn’t pay himself a salary. Only paid his co-founder a small salary to get him to join. They abandoned it, for a new business idea, with all that money in the bank. That’s a pretty massive pivot for investors, but it didn’t stop them from raising even more money for Blue Apron.
They brought in angel investors for $800k. First Round led the Series A. Bessemer joined the Series B with $5 million. Stripes Group led the $50 million Series C round. Fidelity joined late. Just before the IPO. All together they brought in around $200 million in capital.
They rented a small 500 square foot commercial kitchen in Long Island City, quickly found customers were deeply emotional and loved the product. Over the next six years they grew it into a $900 million in revenue business.
Once you take money from a firm like Fidelity, you are essentially committing to an IPO. That’s what Matt says he had in mind from day one of the company. Yet, those big exit days aren’t always as fun and clean as you’d expect.
In fact, Salzberg says, “It’s grueling. We had a very tough IPO. We did an IPO in summer of 2017. We were the first company in our industry to go public. I was the CEO still at the time. We had around a $2 billion evaluation in the IPO, but unfortunately, our IPO priced well below the initial range that our investment bankers told us that they thought it could get done at.”
It definitely didn’t help that the day they launched their IPO roadshow Amazon announced the acquisition of Whole Foods. You do two full weeks of six to eight back-to-back meetings every day. When you’re the CEO, you’re talking the entire meeting, usually repeating yourself because the questions are very similar meeting to meeting, and the pitch is very similar meeting to meeting. You’re in, sometimes, three different cities in a day, traveling with the investment banks in their fancy private plane and pitching. It can be really, really tiring, especially tiring when your pricing is coming in below range.
Then after your IPO your staff can be consumed with the stock price. They can get distracted from their work and building the company and let the emotional roller coaster of the shares capture their minds and time. That’s a whole new thing to manage.
Listen in to the full podcast episode for all the details, as well as how to contact him directly with your ideas and questions (listen to the full episode here).