January 1999 – The Game Had Changed
Now, four years into our company, the game had changed. We’d now taken someone else’s money and we still needed to raise another $4 Million (we initially only were shooting for $5M). We had to figure out how to get to the finish line. We made some key hires: CFO (Dave Menzel), CTO (Peder Jungck), VP of Marketing (Tony Priore), and VP of Sales (Michael Mooradian) and many more. Van also moved to Chicago to help with Business Development. This was a smart, polished group that looked good to investors.
We’d done a commendable job getting the company to where we were ($4.6 M in revenue in 1998 with about 30 employees), but we knew we needed their help to get it to the finish line. Also, we had to come to the realization that, no matter how confident we were in our abilities, to investors, we were still 4 young engineers. Even though we passed our titles to the new hires, we were all working even harder than ever to reach our goals.
February 1999 – Goodbye WebPromote, Hello Yesmail – Pivoting
The next part of the story is my favorite. We planned a one-day strategic retreat with the original partners, new partners, board members, key executives, and a facilitator. We had to figure out how to make WebPromote more attractive. Eighty percent of our historical revenue was from web-marketing services. Labor intensive and unscalable. Not very “sexy”. Plus, we were competing with several big, funded players on multiple fronts. We had to find an area where we could be the “best”. The other twenty percent of our revenue was permission (opt-in)-email marketing. Very scalable, relatively new, few competitors. We had assembled a few permission-based lists over the years to which we could send very targeted marketing which performed considerably better than banner advertising. Our WebPromote Weekly Newsletter alone had 150,000 opt-in subscribers! We’d found our angle.
In that one meeting, we decided to change our name to Yesmail.com and focus the business around permission-email marketing. This also meant that we would stop doing what was currently generating 80% of the revenue. Scary and exciting. But, this was unique. This was a story. Yesmail could get investors excited, we hoped. There was one initial problem right after the meeting. Yesmail.com was already being used. I was given the task to acquire it, which was much more difficult in 1999 than it is in 2015. Yesmail.com was in Japanese and appeared to have something to do with email. We negotiated a price, mailed legal, notarized agreements and nervously waited for the actual transfer to occur, which I believe took a few weeks. But, we got it.
April/May 1999 – Completing the Series A Round
The investor group had some aggressive plans. With the right positioning, they felt, we could be acquired within 12 months for $100M. That sounded so crazy. Going public was even more of a long shot. We felt the pressure to move fast. We had to get Yesmail.com launched and continue with our Series A round of funding. That $1M wasn’t going to last long. Interest in Yesmail became so strong that our $5M raise turned into $9M from primarily angel investors at a $20M pre-money valuation. In the end, the local investment firm that had passed, Platinum Ventures Partners, decided to make a substantial investment as well.
For the remainder of the story, consider the following NASDAQ chart as its backdrop. Remember that in May 1999, we had no idea what this chart was going to look like. The NASDAQ had just climbed 66% in the previous 6 months. Even though we didn’t know what lay ahead, there was an overall sense of urgency.
April 1999 – Launching Yesmail
The conversion to Yesmail.com was so fast and the initial launch so strong that we seemed to come out of nowhere. When you raise $9M you’re supposed to spend it, right? Almost overnight, we were the “leaders” in permission-email marketing. This was a new and growing area of marketing in 1999. Social Media didn’t exist yet. We were focused on building the brand, sales, our technology, and creating partnerships that would quickly grow our email lists.
The partnerships were happening, our revenues were growing and we began to think that an IPO wasn’t so far fetched. There was a buzz in the industry about Yesmail. So, to be ready, we had a group of auditors from Arthur Anderson sit in our back conference room for many weeks auditing 4 years of our financials, which were a little messy.
May 1999 – This Exit May be Real
We, the initial partners, hadn’t devoted much thought previously to cashing out. We needed professional advice about protecting this potential windfall. We each met with a Wealth and Estate Planner who gave us great advice. He recommended that we create trusts for family members and transfer stock at a lower valuation now and utilize our lifetime gift tax exemption to transfer up to $650K tax free (of course, now the exemption is $5.43M). Our parents and siblings were pleasantly shocked. This underscores the importance of making decisions and creating agreements even when the business doesn’t feel quite “real” yet. If we had waited until it was “real” we would have paid considerably more in taxes to provide this gift.
June 1999 – Going for the IPO … Wait
So, shortly after we’d raised our Series A funding, an IPO looked like a real possibility. Being the first permission-email company to go public would give our stock a big boost and Yesmail a competitive advantage. We filed with the SEC for a July IPO. We engaged Deutsche Bank Alex. Brown, Thomas Weisel Partners, and Volpe Brown Whelan as our Underwriters.
We then had a crippling setback that could have derailed our IPO or at least put it on hold. Two of our partners with their own IPO aspirations pulled their lists after they decided we were now competitors (which we were, honestly). We wouldn’t be able to hit our revenue projections. A few days before Dave was ready to put the IPO on hold, a huge order came in that made up 40% of the loss.
The SEC approval took longer than the standard 30 days, which was a good thing. It gave us more time to hit our numbers and shoot for a September IPO.