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This $150M Startup Skipped Its IPO And Sold To a VC Firm

This 18 year old company took a decade to figure out what it wanted to be when it grew up. Since then it sold itself to a private equity firm in 2012 and by 2017 it sold again to a venture capital firm.

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BY Peter Cohan - 01 Dec 2017

PHOTO CREDIT: Getty Images

The usual path for a successful startup is to raise capital -- including from venture capitalists (VCs) -- top $100 million in revenue, and then sell shares in an initial public offering (IPO).

Over four years ago, the CEO of a fast-growing tech company predicted that by 2017, his company would hit $150 million in sales. His prediction was correct. But instead of using that milestone to do an IPO -- he turned the process on its side -- selling the company to a VC firm.

Art Papas stumbled his way into a startup that generated so much cash that a private equity firm bought it. Now Papas has access to capital for acquisitions without the hassles of being a public company.

In July 2013, I spoke Art Papas, CEO of Boston-based employee recruitment software as a service provider, Bullhorn. Papas is a Tufts math major who in 1999 left a job writing software for Thomson Financial at 24 to start Bullhorn with a great salesperson he had met two weeks before. But it was not until 2008 that he really figured out what Bullhorn was good at.

He raised $4 million from GE Capital but by 2000 was down to his last $100,000 -- about enough for five more months. He had "failed -- now it's called pivoted" twice before he lucked into a winning strategy.

First, he tried and failed to make Bullhorn a platform for connecting freelance workers with employers. Then the same happened when he tried to make Bullhorn into a provider of software for procuring creative services.

But Bullhorn stumbled onto a problem that led to a very successful outcome. Papas met "Mike O'Donnell in Woodbridge, New Jersey who was willing to pay us to build a database for his recruiting firm to keep track of his operations over the Internet. Based on that, we were able to raise $750,000 from our original investors."

By solving that problem, Bullhorn put itself onto a path to a profitable sale of the company to a private equity firm that left Papas still in charge. "[In July 2015] we had 6,000 customers in 34 countries and raised $26 million in 2008. We reached $40 million in revenues by 2012 and sold our stock to a private equity firm for over $100 million."

In 2008, Boston venture capitalists Highland Capital Partners and General Catalyst Partners invested $26 million in Bullhorn. They evidently believed Papas' growth projections. "I told them that we are a $13 million to $14 million business that will be $40 million in three or four years. We have no meaningful competition. It's a simple story," explained Papas.

Bullhorn reached $40 million in revenues in 2012 and sold itself to Vista Equity Partners "in a nine figure deal that is closer to $100 million than $999 million," said Papas. While he aspires to an IPO, he decided that Bullhorn would need to be much bigger to get the kind of analyst coverage and long-term oriented investors to which he aspired. Otherwise, his shareholders would be "hedge funds and day traders."

In the meantime, he thought that low interest rates would provide Bullhorn with access to cheap capital for acquisitions even as he remained in charge of the company, enjoyed autonomy, and is betting on its future. He converted much of the cash he got from Vista into Bullhorn's equity in the firm at the valuation set when the deal closed.

By July 2015, Bullhorn had made two acquisitions -- adding about 80 people to its pre-deal 200 person staff. "We acquired Vancouver, Canada's MaxHire and St. Louis-based Sendouts. We had some redundancies but kept most of the people. And we train for weeks -- four to eight for onboarding and 12 for sales people. They must understand our values -- such as setting precise deadlines and meeting them."

Even after selling out, Bullhorn remained private and Papas was CEO. "We will wait until our revenues are between $100 million and $150 million and can command a $1 billion market capitalization before we would want to go public. We could get there by 2016 or 2017," explained Papas.

In November 2017, Papas emailed me to let me know that Bullhorn had reached that $150 million milestone. On November 23, he told me in an interview, "I was thinking about that article where I predicted we would reach $150 million in revenue. I was spot on. We will end 2017 with $150 million in revenue and about 650 employees, hits $175 million in 2018 and $300 million by 2022."

Instead of going public, Bullhorn sold itself to a VC firm. In October, Vista Equity, the private equity firm that owned Bullhorn, sold it to Manhattan-based Insight Venture Partners for an undisclosed amount -- Papas said "They got a great return [by applying Salesforce's price/sales ratio of 7.6, I estimate that Bullhorn was sold for $1.1 billion -- about 11 times what Vista paid]."

This money will help Bullhorn to reach $300 million in revenue. To help with that, on November 29, Bullhorn acquired Atlanta-based Peoplenet which "simplifies and automates time and expense collection."

To its credit, Bullhorn has derived growth from many of the five dimensions -- including getting a bigger share of its current customers, expanding geographically, and adding products -- which I discussed in my book, Disciplined Growth Strategies.

As Papas explained, "We're only 20% of the way to the transition to cloud-based systems. Now the costs of sticking with 20 year old systems are much higher than the benefits of switching -- competitors who are in the cloud can move faster which boosts their profitability. Since 2012, we have increased our overseas revenue from 10% to 50%. We will also get more revenue from new products -- some of which will come from acquisitions."

Papas seems to have good reasons for skipping the IPO. "Today there are many firms vying to invest in companies like Bullhorn and with interest rates so low, the cost of capital is lower and the valuation is higher when being acquired by a venture capital firm. We also have more operating flexibility and do not have to incur the costs of an IPO and the reporting requirements."