HYCU existed and was successful for a long time before it raised capital (and it's raised considerable capital: $140 million as of June 2022). CEO Simon Taylor says a lot of companies these days come out of the gate ready to hit the investor roadshow.
"The very first thing they do is take a PowerPoint and run across the street to an angel investor or a VC and try to raise a little bit of cash," Taylor says. "We took an opposite view, which was when you think about the data protection market and the explosion of data, we really wanted to garner as much understanding about that marketplace as possible before we raised money."
He says the company had in the neighborhood of 1,000 customers before it did any fundraising. Running a business without institutional capital meant that everything happens on a shoestring budget. It also means everyone is wearing multiple hats. But that approach led to HYCU growing 450 percent in 2020.
The company experienced an explosion of new customers during the pandemic because there was an explosion of data migrations — massive amounts of data were shifting from a data center to the public cloud and sometimes back again. The second thing that was happening was an enormous rise in ransomware attacks, which went from one every 60 seconds to one every 11 seconds during COVID.
"At that point, we saw the growth," he says. "We were getting a lot of inbound interest from VCs and PE firms. And I think that's the little-known secret; in business school, they teach you all about how to go and talk to a VC firm and put together a pitch deck. The reality is if you build a good business, they're going to find you. Then the question becomes who's the right partner? Who do you actually want to partner with?"
Taylor says he called Enrique Salem, the former CEO of Symantec and currently a general partner at Bain Capital Ventures. That led to having the right conversation with a smart partner who's seen the process enough to understand the value that HYCU had. That, he says, ultimately led to an $87 million A round.
If an owner fundamentally believes in the business and the partners the company is taking on, then the focus needs to be on creating shareholder value right out of the gate.
"So, rather than going into it thinking, how do I make sure I get every extra penny for myself or how do I make sure I maximize this, I fundamentally believe that that's the wrong approach," Taylor says. "The right approach is to think about the culture of the company you're building and the partners on the other side. And if you decide that the partners on the other side are the right people to work with because at the end of the day it's all people and I think we forget that sometimes — you read the books or you read the blogs and the articles and there's best practices and all these different things— but if you find the right partner and they believe in you as a founder and they believe in your business practices, they're fundamentally going to be incentivized to want you to be successful and happy."
In today's environment where companies are often many inbound offers, it's important to find the right buyer for your business. Taylor says founders and entrepreneurs can tend to be a little bit salesy when talking with potential buyers or investors. He suggests owners should stop selling the business and instead get to a point where they can have honest, open conversations with buyers, partners and investors.
"You need to start interviewing them," he says. "That doesn't mean be arrogant. It doesn't mean that you don't have to display value. You're going to be working with and partnering with these individuals for years to come and if you just look at the term sheet and you just look at the numbers and you decide to accept the highest valuation because it's the highest valuation, that may not necessarily be attached to the best individuals that you're then going to have to work with."
Taylor, along with Mintz's Kurt Steinkrauss, Health Express Urgent Care's Chris Whelan and First Republic Investment Management's Julie Rousseau spoke at the Boston Smart Business Dealmakers Conference about what you need to know about the personal and corporate side of readying your company for whatever tomorrow brings. Hit play to catch the full panel discussion.