One company, two sides of the funding debate. Medallia, #7 on Forbes’ 2017 top 100 private SaaS companies, bootstrapped for 10 years, then took $255M in investment from Sequoia Capital over the past 6+ years. Company co-founder Amy Pressman talks about the pros and cons of being bootstrapped vs investor-backed and provides tips for entrepreneurs about how to go it alone (even in Silicon Valley!).

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Announcer:  Please welcome Teddy Schleifer, Senior Reporter at Recode, and Amy Pressman, Cofounder and President of Medallia.


Teddy Schleifer:  Hi, everyone. Can everybody hear me OK? We’re here today to talk about funding and venture capital and what it’s like to be funded or not funded. Amy has an interesting story, because her company didn’t accept any venture capital for about a decade.

Then later on, it’s taken on four or five rounds since. We’ll get into what it was like to be on both sides of that. We’ll start with what it’s like to not be funded. What was it like?

Obviously, there was a 10‑year period where your cash position was not from a venture capital firm. It was not from investment. It was not from SoftBank. It’s just from you and just from what you were able to do with your own two hands. What was that experience like? Was it ever challenging?

Amy Pressman:  It’s always challenging. Just to give a little context, I’m the President and Cofounder of Medallia. We’re in the customer experience management space. The original idea for the company came from my experience as a consultant, traveling to hotels.

We were targeting hotels. We had planned to raise funding. We were simultaneously starting to reach out to investors. We were pitching a proof of concept pilot with a number of hotel chains.

On September 10th, we went to Hilton Hotels. We pitched the free pilot. We came back, and it was 9/11. The decision of whether we were going to get funding or not, we didn’t bother to pursue it at that point. Especially since we were targeting the hospitality industry, 9/11 was obviously pretty tough economically. It was particularly tough for the hospitality industry.

Teddy:  Was there ever a moment in the opening decade where you felt that because you hadn’t raised venture capital that you’re at some disadvantage? Or was it just watch, especially from a competitive perspective. Obviously, you’re an industry and you’re here in California where a lot of businesses do receive VC funding, which gives them…

Amy:  I would say there were advantages and disadvantages. The advantage was we had a lot of control over how we spent our time and our resources. At the time that we started with the .com implosion, it turned out that a lot of things that had previously been very expensive like office space, furniture, and hiring people became much more plentiful.

Even though it looked like a bad time to be bootstrapped, it turned out to be reasonably good. The disadvantage is name recognition. When you’ve got a top tier VC backing you, that gives you an instant credibility. You’ve been vetted. Now, we didn’t have that vetting.

We didn’t find that so much in sale cycles in part because we were targeting this industry that was hard hit by 9/11. They were open to us not so much because we were new technology and better, but because we represented a real cost savings. They were facing a real tough economic environment. There were pros and cons of being in that non‑funded stage. 

Teddy:  On name recognition, a lot of founders say that they have an entree to certain people because they have Andreessen Horowitz or Sequoia behind them. Did you ever feel there were people you couldn’t get access to, and you had no one to turn to in order to make a certain connection happen?

Did you have to develop a network of VC‑like people around you to get to know the Valley in a way that you didn’t because you couldn’t call up a firm?

Amy:  I simply had to be more creative in two areas. I don’t know how much the VCs would have helped us. We had to get creative of how we got on trade to our customers. We didn’t have a sales team for a very long time. We had to get creative about how we got engineering talent because at the time it was pre‑IPO Google.

They were vacuuming up engineering talent. We did some creative things. We, basically, opened offices in other parts of the world where we had local knowledge that other companies weren’t going to. We currently have a very large engineering office in Buenos Aires. That’s been great for us.

We had to get creative. If we had had that VC funding, we might have been in the more typical swim lanes. It’s a real advantage to be pushed to find other solutions and not just be in the swim lanes.

Teddy:  Is there an example of a time when you felt like you had to dig deep and do something personally more difficult that if you had a venture capital fund behind you would have been easy? Was there a moment that you felt, “Wow, I really am all on my own”?

Amy:  I didn’t. The reason that I didn’t is I didn’t have anything to compare it to. By the time we took VC funding, we were at a different stage. When we were in that startup stage I didn’t…Our investors have been phenomenal, Sequoia is our backer.

I don’t know what kind of help they would’ve given us when we were in that early stage, versus the help they’ve given us in the later stage. I just don’t have a…

Teddy:  Lots of venture capitalists would say the reason why their portfolio companies need their money, and their advice is because of the ambition that they’re trying to build.

They’re trying to build companies that are not just going to make incremental changes and make small impacts in the world. The reason they need a lot of money when there are risky ideas is because they have big dreams.

If I were to play counterpoint here, a venture capitalist would say, “By not accepting VC money, you’re building a less ambitious company.” Did you feel that your ambitions changed?

Do you feel that in that 10‑year period, when you weren’t taking venture capital, that you had different imaginations of what your company would become?

Amy:  No. Just keep in mind, that 10‑year period included both the bubble burst and then the great recession. Our ambitions were always what they were.

One of the things that we observed during the bubble burst, there’s a whole bunch of ideas that were good ideas died. Then they came back seven, eight years later.

The timing for putting all of that investment, and it wasn’t quite right, one of the things that we did is we started having inbound interest in investing in this. Not that long after, we started getting traction with customers.

We would evaluate it. We would look at it and say, “OK, is there something that if we don’t take 10, 20, $50 million, is there some opportunity that in this market right now we’re gonna miss?”

We would ask ourselves that question repeatedly. That was why in 2011, we finally decided to take money. At that point, it was a pre‑IPO Facebook, everything was social media. Everything was very frothy around all things social media.

Our customers were feeling that there was a sea change in how our customers, which are typically Fortune 500 companies. They were seeing that their customer relationships and what customers were saying about them out on social media was their brand.

The dollar started flowing more into like, “How do we make sure we’re showing up in social media?” We have a phenomenal solution to help companies deliver against their brand promise and to deliver the customer experience.

We saw the demand for our software take off. That was the time we started to take money from investors. Then we were like kids who had had their nose pressed to the candy store. [laughs]

Teddy:  There you go.

Amy:  Then we went back…

Teddy:  We’ll get to that.

Amy:  …three more times. [laughs]

Teddy:  You also speak with some founders today. There’s a new found realization of the fact that obviously when you take money from a venture capitalist, you’re giving up some ownership in the company that you started with.

Was that something you thought about at the time? I understand you were starting out. It seems like there was a bit of happenstance that you didn’t take venture capital funds early on.

Is that something you think about? Is that something you think budding entrepreneurs should think about, the fact that if you’re building a company, you’re not just getting 10 million bucks in the bank for nothing?

You’re giving up some equity in your own company. Was that important to you? Do you think that for people out there building companies today ‑‑ not that everyone’s in it to make a billion dollars ‑‑ but that that should be a consideration?

Amy:  You would want to think about what you want to do with your company. There are people that just want to run the company. They don’t want to grow it that big or whatever.

We saw a huge market opportunity. We wanted to grow it large. I wasn’t so worried about giving up ownership. At the end of the day, if you’re going to grow something large, you’re going to have a lot of stakeholders.

You’re going to have your investors. You’re going to have your employees. You want, and they will have some share in the company. What was a little scary is that during the time that we were bootstrapped, I was a member of a cofounder group.

I was the only one or one of two who was bootstrapped. Everybody else had investors. We would get together once a month and talk about issues. I would talk about things in the business and moving into new verticals and new products and whatever we were facing.

Everybody else was talking about board dynamics and problems with their investors. I was weaned on these horror stories. You get really, really fearful of it. At the end of the day, in our experience, this hasn’t just been about getting capital from an investor. We are a materially better company because of our partnership with our investors.

Teddy:  It’s truly also remarkable about the story. When you hear about a lot of companies that are bootstrapped today, lots of them are not based in Silicon Valley. You hear about companies. We get pictures about, “Cover my company that’s based in Chicago. We’ve had no…We don’t even know what a venture capitalist is. Aren’t we fascinating?”

I’m just curious if the geography was a player here. Obviously, you probably know VCs. It’s not like you didn’t know where to find them. Your company’s at Palo Alto.

Amy:  Yep.

Teddy:  It’s not like you didn’t know where to find them. To what extent do you think that it was harder to not raise venture capital, just being in this community world?

Amy:  It’s really expensive. One of the things that it forced us to do is get creative about real estate. We have our first direct lease with the landlord today in our entire history.

It forces you to get creative about furnishing your spaces, how to find people, how to identify untapped pools of talent. It is expensive here. The other thing is, early on, it makes you focused.

When it’s an expensive area, it makes you focus on products that your customers love. That is a great way to get successful. It is so clearly your lifeline. When you have more resources, it’s easier to get somewhat disconnected from that because you have a runway.

Whether you’re going to make payroll, depends on whether you’re delivering great products and services. It made us so clear in our focus.

Teddy:  You’re 2001, 2011. You have a decade of being bootstrapped. What changed in 2011? By that point, you’d existed for 10 years. Was the process easier because you weren’t just out of Y Combinator and “look [inaudible 12:01] .”

Amy:  Yeah. We got something like five term sheets from some of the top investors in different categories of investors. If you’re out there and you’re constantly pitching and it’s hard, it was not difficult.

We’d put up our slide of customers, we put up our retention rate, we’ve got our expansion rate, and we’ve had a lot of choices. That’s another reason that it’s a great thing to do.

Teddy:  What caused you to change your mind? It had been 10 years.

Amy:  We felt at that moment that if we didn’t grow faster, if we grew organically, the market was going to grow much faster. We wouldn’t be able to seize that market, because social media was driving up the demand for our product.

Teddy:  That wasn’t true in 2006, 2008?

Amy:  No. You have the iPhone coming in what, 2008? All this stuff started to come into being in 2010, 2011. That was perfect timing for us.

Teddy:  You felt like there was an opportunity cost in not taking cap?

Amy:  Absolutely.

Teddy:  That there would be some other company that would take those kind of [inaudible 13:09] ?

Amy:  Nature hates a vacuum. If we didn’t go for it, then somebody else would.

Teddy:  Did the money change your business at all? Obviously, you were wired some money one day that you didn’t have the previous day. I understand and I hear a lot of founders talk about the discipline that is instilled by not taking venture early on. I guess I’m asking, is that accurate that money does affect your discipline?

Or do you think because you had 10 years of not being lazy about financial decisions that it made it easier to take the money and spend it well?

Amy:  It was both, if it’s ingrained in you. We just moved into a brand new office space. I’m still scouring consignment stores for furniture, for parts that are just driving the designers crazy.

That’s part of that bootstrapped background. One of the things I look back on that I might’ve done differently. We would’ve built out, maybe, our finance team a little bit faster and put in place controls for that, map better with our quick growth.

When you have the money in the bank and you’re growing like that, there was some erosion of some of that early discipline.

Teddy:  There was some.

Amy:  Not entirely but there was some.

Teddy:  Is there anything you regret you wish you’d done differently?

Amy:  Spent less money on travel. [laughs]

Teddy:  Money on travel. Is that just the nature of having money, the fact that when there’s something in the bank it’s a human impulse to understand it?

Amy:  It’s a combination of that and the pace of our growth. Then what we took the money to do was to accelerate our product roadmap and to build out a real enterprise‑grade sales team.

Then you’ve just got a lot of people out there, traveling, whatever. At the same time that we were doing that, it would’ve behooved us to put more finance people in place at one time to make sure our financial controls were keeping pace with the growth.

Teddy:  One other thing that’s unusual about Amy is when they started taking money in 2011, I believe it’s four straight rounds that had been funded or led by Sequoia. It sounds like it’s all Sequoia.

Amy:  All Sequoia.

Teddy:  All Sequoia. Was that an intentional decision you made four times in a row? You don’t speak for them, but was this them realizing they had a great thing on their hands and they don’t want anyone else let in?

Amy:  Yeah. I’ll let Sequoia speak for themselves. As we took in the money, because we believed that there was a huge growth opportunity and that proved to be the case, then we continued to go back to the trough. Our last funding round was in July 2015, two and a half years.

Teddy:  During those four rounds, were you conducting what’s called a process where you were opening it up to not just Sequoia but other people?

Amy:  I’m such a fan of Sequoia that, no, we didn’t.

Teddy:  You didn’t?

Amy:  We’d gone out once. We had gotten term sheets and all those investments…

Teddy:  For the first of the four rounds.

Amy:  For the first round. They kept tabs on us. We continued to have inbound interest, but we had such a good partnership. It takes time. You can spend your time focusing on, maybe, moving your valuation up a little bit more and getting a little bit more money or whatever. We wanted to focus on the business.

Teddy:  You’re talking about the time focus on actually raising money.

Amy:  If you went out to multiple investors. Why do that when we had a great investor?

Teddy:  Do you think there’s any disadvantages? There are no venture capitalists under you guys’ board beyond Sequoia.

Amy:  That’s right.

Teddy:  I assume, beyond people you know socially, the investors you’re dealing with are from Sequoia. Do you ever worry about a lack of diversity of feedback, a lack of diversity of opinion, just knowing that if Sequoia has great advice, you’re in great shape?

If there’s someone who could give you a second opinion on something, they’re not at the table, at least, among venture capitalists.

Amy:  No, I haven’t worried about that. Both me and my cofounder went to the business school here at Stanford. We have a network of VC friends. We have good board members beyond that, and I have a network of other advisers and mentors. So no, I haven’t.

Maybe, I’m having flashbacks to that cofounder group that I was a part of when people talked about the board dynamics and the investor dynamics. [laughs]

Teddy:  If you only have one…

Amy:  We just haven’t had those problems, so yeah.

Teddy:  Your board has probably more independents than a lot of other companies have. Was that at all related to the funding decisions at the time? You said you had three or four independents, right?

Amy:  Yeah, it’s just me, my cofounder, and one member from Sequoia on the board.

Teddy:  My question is, was the large amount of independent directors on your board all related to the fact that there was no other venture capital? Did you want to have more?


Amy:  If you take a lot of rounds from a number of VCs, then you’re going to end up with more investors on your board. When we’re thinking about how to add board members, we’re thinking about who can give us really advice, who’s going to add real value. I’ve been very happy with the members that we’ve had on the board.

Teddy:  Your last round was in 2015, and you guys crossed a billion dollars. I just want to ask you about valuation.

Amy:  Our last valuation was about 2015.

Teddy:  It was like 1…

Amy:  1.25 post, and we’ve grown a lot since then.

Teddy:  I have two questions here. One, just for people here, there is sort of an allergy to talking about valuations. Obviously, as companies get bigger and people like reporters are good at their jobs at figuring it out. Was that important to you when you…I know some venture capitalists…

Amy:  No, we have super clean terms. I mean, a lot of people in order to get a valuation we’ll take some nasty terms. To me, what’s important is creating a company that is aligned as possible as it can be.

When you have cleaner terms, you have much more alignment between the management team and the investors and the company. What’s important is getting what you feel is a fair valuation with investors that you think are great, and then focusing your time on building the business.

Focusing your time on getting a higher on‑paper valuation is a waste of time and not particularly helpful.

Teddy:  To a certain extent though, there are employees out there who I’m sure you think about hiring who google the company and say, this company was valued at this last time. If I have shares…Not I could be rich, but it doesn’t hurt in the pitch?


Amy:  First of all, we were already a unicorn. We’re like number seven in the top private SaaS companies in the last year, so we were already large. Ultimately, I want to hire people who are excited about the market opportunity, about what we’re doing for customers, and about where this can go in the next year, in the next 5 years, in the next 10 years.

We have an opportunity to have an enormous company in a huge market. If the person is laser‑focused on whether the valuation is slightly higher or lower, I don’t know if that’s the right fit anyway. I want people on the boat who are really focused on growing that company.

Teddy:  We’re just bridging these two topics now but on Sequoia and valuations, I guess one counter argument to the fact about not running a big process is, you can’t shop it. There is no idea like, maybe, Sequoia would have said, “Actually you’re valued at X.” You would have said, “I think we’re valued at 1.25 billion.”

How do you come up with your opinion of what your company is worth when there’s not the proverbial walk down Sand Hill Road and see what numbers people throw at you?

Amy:  When you get to a certain size, they’re actually public companies that are smaller than we are, so there is some available data. I feel pretty comfortable that we had a good and fair valuation when we did that.

We didn’t have to go through a lengthy process where you suddenly are divulging all kinds of information to a whole bunch of people up and down Sand Hill Road. Ultimately, it was a great decision.

Teddy:  You guys have not raised since 2015?

Amy:  Nope.

Teddy:  Why is that? 2.5 years is not unusual but it’s…

Amy:  We took a large round.

Teddy:  Oh, your large round.

Amy:  It was a large round, so $155 million in 2015.

Teddy:  There has been no additional fundraising since then?

Amy:  Nope.

Teddy:  That’s intentional? That’s because you guys feel like you don’t need the money? I’m just thinking back to, obviously, at the beginning of your career at Medallia, I mean, you did feel like you didn’t need the money so you were able to not raise. Is that sort of the same position you’re in now where you had a ton of money from Sequoia?

Amy:  We are not making comments about our future plans.

Teddy:  The fact that over the last two and a half years, you felt you have not needed to raise cash. That’s been easy, or has that been a difficult decision at all?

Amy:  That’s been fine.

Teddy:  Do you anticipate…


Teddy:  Now we get to the news making part of this interview. Obviously, we’re not going to talk about future plans which is the appropriate pat answer here.


Teddy:  Do you anticipate ever raising private financing again?

Amy:  [laughs] We’re not commenting on future plans, but I appreciate your persistence.

Teddy:  Sure.


Teddy:  I got a whole notebook here of the exact same question.


Amy:  You wouldn’t be doing your job if you didn’t.

Teddy:  Let’s talk about public markets in general.


Teddy:  We’ll back into it. No, I’m serious though. Obviously, a lot of SaaS companies that are…Bankers at least will always say this is a good IPO year, but they say it every year. How do you feel about, if the topic is private financing here, how do you look at public markets? Does that worry you at all? Are you excited about it when you look at it in the big picture?

Amy:  We will continue to do what we’ve always done, which is to look at where we want to go and what the available options are, and then pick the one that makes the most sense in any given market.

Teddy:  You think more entrepreneurs should be excited about going public? There’s, obviously, some LPs you want to see their VC’s portfolio companies do that, but it’s beenwritten about to death.

People are scared, and you had an unusual funding history here in Silicon Valley. I wonder to what extent you think that fear is merited, or is that something that people should be…

Amy:  You’re talking about fear of entrepreneurs now, particularly in this time or just over the course of being entrepreneurs?

Teddy:  Companies staying private longer or just the…

Amy:  There are different opinions about it.

Teddy:  Just in general here, I want to ask about SoftBank because, obviously, they’ve played a huge role in private financing. We talk about being funded. There are companies out there that have taken cash from them, lots of times at a lot higher round size than anticipated. I just wonder as someone has an interesting view of how money moves here in Silicon Valley?

Do you think they’re a force for good here, or do you think that they’re making an impact?

Amy:  I don’t want to make any comment on SoftBank.

Teddy:  No comment on SoftBank. All right, last thing. I know this is important to you that the idea that your story you feel like is instructive for other entrepreneurs. To what extent do you think that’s true?

To what extent do you think that the fact about not taking venture capital for a decade in the company’s growth, and then taking a lot of cash only 10 years in, to what extent do you think that’s a story about your company versus someone else’s company today? Is that a message you want to send to folks? You feel it’s possible?

Amy:  It’s always possible. The uncle of somebody I knew, who was a very, very successful entrepreneur once said this thing that’s become my mantra, and said, “The definition of an entrepreneur is someone who gets motivated by the word no.” Essentially what you’re doing is you’re solving hard problems that haven’t been solved before.

Starting a company in Silicon Valley with the cost of real estate, and the war on talent, and all this kind of stuff that’s going on, it’s hard but it’s solvable. There’s a lot of creative things that you can do. For example, we never did this, but I know companies that have taken money from…

There are various government agencies you can get money for free. You have to do their reporting requirements and things like this, but you essentially can get a grant that has no strings attached. There’s stuff you can do.

I would encourage everybody who’s thinking about it. If you think you can only start it with money, do the thought exercise of, what might it take to do it without money?

What are the things I would give up on? What are the things I would focus on? You’ll find is you’ll get focused on what’s important, and you will be surprised at how much you thought you couldn’t do without money that you actually can do. We got very creative. The biggest costs, in my recollection, was the legal cost when we were getting started.

They don’t scale with the size of the company, so they’re not a big issue today. In the beginning, it was just the cost of lawyers and some of these things that we had to do to put in place a stock option plan and all this kind of stuff. Get incorporated. Found super creative ways to drive down the cost of legal cost.

There’s just a ton of stuff you can do. If you think that starting a company is about getting funding, then you got to reorient and think, the purpose of starting a company is to create products and services that customers want to buy. Funding is a way to do that, but there are other ways that you can get some financing.

I don’t know. I encourage people to get creative in how they think about it because it opens up a lot of possibilities.

Teddy:  Do a lot of people come to you with this question a lot? Do people know your story and say, “Hey, I just got a bajillion dollars thrown at my by this sovereign wealth fund.” Is it something you want to tell people, that you want to be a resource, and you want to be a role model for the idea that this isn’t the only option?

Amy:  For sure. Look, I’ve had a phenomenal experience with investors. They’ve been great, but part of the reason it’s been great is we have the ability to choose the investor that we thought was the best fit for us.

Teddy:  You need a little bit more leverage, maybe?

Amy:  Yeah, for sure. If anybody wants to start a company and think about some ideas about how to do it without taking funding, I’m chock‑full of them.

Teddy:  All right, guys. Thanks so much.

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