Todd Chaffee, general partner at Institutional Venture Partners, spoke about the recent $20 million investment in Lindon-based business intelligence company Domo, his impressions of Josh James, founder and CEO of Domo, and the nature of enterprise business in an interview with the Deseret News.
Todd has led investments in many tech companies, including James' Omniture, which sold to Adobe Systems Inc. for $2.8 billion.
The following are portions of that interview.
Todd Chaffee: Josh James is up there in the Bill Gates, Larry Ellison, Mark Zuckerburg category. Whenever you get an opportunity to invest with someone like that, you do it.
Deseret News: Why is he in that classification?
TC: He’s incredibly bright, super passionate, brilliant, competitive, fun, a great leader. He’s got all the attributes to look for in a great entrepreneur as a VC.
Those of us who have been around for a while know it's all about management. You find really great managers and you can back them and you’ll generally do pretty well.
DN: What investment round were you in at Omniture?
TC: We did a public investment. We actually do public investments as well. It was a pretty good return. We had 214 percent IRR (internal rate of return) on our investment.
DN: Some people claim that entrepreneurs that hit successful, as Josh did, can’t always hit another one successful. What is your opinion on that?
TC: There is that theory if they aren't hungry. But, Josh is hungry. Josh wants to build a Fortune 500 company. From our perspective, the fact that he had a $2 billion exit (at Omniture), that’s the floor. Anything below that is going to be a failure for Josh.
DN: Was the fact that Josh is at the helm your biggest factor in making a decision, or was this a decision made about the business intelligence space?
TC: We go thorough our normal process of deciding how big the market is. The answer is, huge. Business intelligence, workforce collaboration and social enterprise — those markets are more than a $10 billion market now. Obviously you got a super strong management team led by Josh. You have to create a robust management team and proven business model. The fast business model has been proven by other companies, and Josh knows how to do it. He's done it before.
DN: What’s your time horizon for the investment?
TC: Normally our model is to make 3-5 times our money in 3-5 years, which equates to a 40 percent IRR. I think this is more like a 5-10 year hold. This will be one where Josh really wants to build a Fortune 500 company, and I think he’s going to do it. This is one where you put in the money and ride it for a long haul.
DN: From an investor’s perspective, what are the biggest hurdles are for the company to grow at that rate?
TC: Enterprise businesses are different than consumer businesses. The ramp can’t be that steep cause you have to make the sale. You can still have a steep ramp, it just won’t look like these rocket ships that we’ve seen in our portfolio.
DN: You tried to get into the first round of funding, but Domo closed it. How much valuation did you lose?
TC: Not much. I’ve got to give benchmark credit. We were talking to Josh and they outbid us. It was a smart move by those guys. But the reality is, we came in six months later and it’s not that big of a step up. I think we’ll be fine.
DN: Are you hoping they close the doors for a while so that grows a lot? What are your thoughts on the equity stakes?
TC: We are currently investing a big fund and would like to write $50 million checks if we can. Josh knows how to acquire a company, so I can see a situation where he might want to acquire a couple companies, and we'd be happy to provide additional capital there. This is kind of venture creation at a higher level. Sometimes you have a typical venture creation where you have a guy, gets a seed round, who scrapes together a million bucks and gets 2-5 from early stage VC’s. This is a bigger deal.
DN: Josh told us it is taking longer than expected to develop and release a product. Are you concerned at all about deadlines being pushed back? When would be a comfortable time for a product launch for you?
TC: Not concerned at all. When we came and did our onsite due diligence with Josh's team, we were blown away. They were far beyond what we thought they would be in terms of developing a platform. It was a much broader scope than we thought. It’s actually whole new way to manage business. From that perspective, we aren’t worried at all about the timeframe.
DN: What will be your role with the company?
TC: We basically are a resource, and our whole partnership is a resource to Josh and his team for whatever they need. The usual areas are strategic guidance, business development deal, international expansion, recruiting, formation of board and getting ready to go public. We also learned that the best thing we can do with good management teams is stay out of the way.
DN: Other than Omniture and Domo, are there any other business intelligence companies in your portfolio?
TC: Not really. We have a lot of enterprise plays, but not a true BI (business intelligence) company. Again, Domo is beyond BI. Doesn't apply for us.
Visa would be a perfect candidate for this.
DN: Do you think that the product will find better roots in the financial services, manufacturing or any other sector?
TC: I think it's horizontal play. I think it has more to do with scale. Larger organizations will want it more.
DN: Are there any Utah companies you would invest in?Comment on this story
TC: We’ve looked at a couple. We should’ve invested in Altiris. One of my guys looked at it, and it was too late. It turned out to be a pretty good deal. If you guys have any, let me know. I love Utah. Call me, tell me and if it’s a hot new company I’ll get on a plane.
DN: What is your typical investment amount?
TC: We’re mainly later stage in growth equity, so our minimum is $10 million and we can invest up to $100 million. Occasionally we can make an exception and go down to 5, but that’s pretty rare.