John Dilenschneider didn’t need money. He wanted a partner that could help GovQA capitalize on its leadership position in the growing market of enterprise workflow software.
“When you’re looking for a partner, you need a different level of sharpness,” says Dilenschneider, the company’s co-founder and CEO. “You need someone who can say, ‘Here’s what we did over here. This might not work for you in government, but you could try to do it this way.’ If you have someone who can talk to you that way and help you find new ways to grow, that’s valuable stuff.”
Last month, GovQA announced a significant equity investment by Charlotte-based Frontier Capital, a growth equity firm focused on B2B software companies. The investment is intended to support GovQA’s rollout of its Exchange Workflow Platform to nearly 700 government agencies across the country.
“We could learn how to be a much bigger company on our own,” Dilenschneider says. “But if we could tag team with some guys that knew how to do it, that could get us to the endpoint much more quickly.”
We spoke with Dilenschneider about keys to finding the right investment partner to accelerate your company’s ability to grow.
Engage in dialogue
For the last seven years, Dilenschneider, has grown GovQA’s Exchange Workflow Platform to handle high-volume workflow processes for some of the largest cities, counties and state agencies in the country. Governments use its secure SaaS-based platform to process a variety of work streams for open records, interagency, subpoena, correspondence and other complex workflow and case management activities.
“We started in commercial technology, but switched into government technology because we had a system that helps service citizens and helps government,” Dilenschneider says.
Things began to take off and Dilenschneider began to field calls from private equity firms.
“They'd ask a little bit about the GovTech technology and where it's going and where it's headed,” Dilenschneider says. “We'd ask them what they focus on. Are they looking for a majority stake or a minority stake? Are they investing in bootstrap companies? How do they run? So we trade a little bit of information about the market for a little bit more about them.”
Dilenschneider took the same approach with bankers and with potential strategic buyers.
“You're talking to all these guys and they're all providing information,” he says. “But you're educating them and you have to be careful about that because you don't want to spend all your time educating private equity guys.”
In other words, make sure you’re getting at least as much useful data and information out of the dialogue as you’re giving.
“They're trying to do a little bit of homework on you and a little bit of homework on the market, which they know is igniting,” Dilenschneider says. “So you do need to spend a little bit of time. You're trying to figure out what their focus is as well.”
Think a few steps ahead
Frontier rose to the top of the list of potential investors, largely due to the firm’s focus on software companies and their experience in the government sector.
But before a deal could be done, Dilenschneider needed more information. He wanted to talk to CEOs who had worked with the firm and could share their experiences with Frontier.
“We got experience talking to them and learning from those CEOs,” he says. “They have great stories about why they did an investment, how they did an investment and why they picked Frontier. You talk to them and you end up finding a pattern. It helped us.”
The research you do on potential investors — and the questions it forces you to consider — is pivotal in making an informed decision.
“You start to figure out, OK, if we were ever to take money, what would that look like?” Dilenschneider says. “Would we want to do a majority or minority? Would we go with a firm that has a formula that wants to make us an add-on or would we want to stand alone?”
After the research and due diligence was done, GovQA agreed to an equity investment from the firm’s $700 million Frontier Fund V. Frontier Partner Michael Ramich and the firm’s vice president, Tim Bechtold, also joined the GovQA board to help the company continue to expand its reach from point solutions to a broader, more accessible platform solution.
“There are some guys who just want to streamline you and then turn around and sell you,” Dilenschneider says. “What we were trying to do is find a partner who is fun to work with, who knew what they were doing, who knew the government space and who could grow with us. We wanted somebody who had the same personality and style that that our management team has.
“You pick the right guys, they'll make it easy for you and they'll make it fun.”