Is 2015 just like 1999? Here's why I don't think so.

Last week, Fonality was invited to present at a leading investment conference in Manhattan. What I saw there struck a chord with me and caused me to question whether or not we're currently in the midst of a boom/bust business cycle. I think a lot our customers would want to know the same thing, so I put together this blog post about it. 

First, let me start off by describing what an investment conference is. Then, I'll describe what I saw while I was there that raised this question for me. Finally, I'll tell you how I came to the conclusion I did.

"One way investment banks acquire customers is by hosting investment conferences, which are meetings of investors and companies in which companies present to a group of investors and field questions from them."

Here's some background. Investment banks are institutions that help companies grow by either helping them buy other companies, sell themselves to another company or the public markets, or raise capital from investors. This is a very big business, more than $140 Billion/year according to the Bank of England, so the banks themselves have a lot of money available to spend acquiring new business customers, like Fonality. (Why is Fonality talking to an investment bank? See the postscript below.)

One way investment banks acquire customers is by hosting investment conferences, which are meetings of investors and companies in which companies present to a group of investors and field questions from them. It always involves both formal presentations, but often also includes social time.

In this particular investment conference, the sponsoring bank didn't spare any expense. There were basically three phases:

  • Pre-event: Before the event began, I was given a login and password to a site to upload our standard presentation deck and sign up for "available meeting times." I didn't think much of this at first, so I did what I was asked. Lo and behold, the day before my arrival, I received an email with my presentation time and a completely full schedule of folks that wanted to meet with me.
  • Scheduled meetings: First off, the scheduled meetings that people had booked with me were very good. Everyone showed up on time, asked intelligent questions, and was interested in our story. Second, the presentation I gave was well attended - filled room - and I had lots of follow-up questions. All good.
  • Social serendipity: Cocktail hour and dinner for hundreds of folks - this is where the magic happens.  I met a bunch of other companies at various stages, and all were doing some pretty amazing things and succeeding.

So with that backdrop, let me share some things I heard over the two days I was there, mostly paraphrased:

  • Anonymous company X: "Yeah, we're losing $10M this year instead of $5M like we planned, but that's what our investors wanted us to do."
  • Anonymous company Y: "We just closed a $250M pre-money valuation round, now it's time to lose some more money so we can put that to work."
  • Anonymous investor Z: "I don't think it feels like 1999. I mean, I'm still investing in tech companies, but I have my broker on speed dial just in case."

There's a lot of optimism out there right now, and it felt great. Companies are starting, growing, investing, and selling shares at great prices. Customers are highly valued, you hear more about inbound marketing than Google ads, and people know what it means when you talk about NPS and MRR. And the professionals in the market today are mature enough to remember the irrational late 90's dot-com days of bad decisions. These are all good signs. 

In 1999, things were different. I saw a lot of companies with nothing more than a business plan raise crazy amounts of money. I saw retiring relatives ask me for stock advice, and more than one would have changed their LinkedIn title to "Daytrader" if LinkedIn had existed back then. I also remember the frantic pace at which companies were raising money and going public, so I thought it would be illustrative to look at IPO volume and dollars raised over the past 15 years or so. Check it out:
Venture_Capital_Investment_Chart_Q1_1995_-_Q1_2014

So where do I land? Squarely where I expected – this isn't a bubble (yet ... watch the IPO trends for one indicator) and the market values great businesses highly right now.

Now...on to that postscript. Why was Fonality at an investment conference?

Some of you with a financial inclination who been following Fonality for a long time may know we raised tens of millions from rather large and illustrious investors many years ago – folks like Draper Fisher Jurvetson (DFJ), Azure Capital, and Intel Capital.

Over the years, we spent that money transforming Fonality from a predominantly one-time revenue business into a full SaaS machine with 88% recurring revenue, low churn, high ARPU, and industry-leading LTV:CAC. We're in a market that's worth $25B, and all providers combined address only 15% of that market today. And, oh, by the way, Fonality is profitable, cash flow positive, and growing under the steam of new customer growth and existing customer add-ons, not new venture investment. So why would we go to an investment conference?

We have two paths before us, and our management team and board are carefully considering the options. Should we pour gas on the fire to meet this rising tide of demand, or should we continue to grow only under the power of our own profitability to make new customer acquisition investments?

"Should we pour gas on the fire to meet this rising tide of demand, or should we continue to grow only under the power of our own profitability to make new customer acquisition investments?"

It's an age-old problem, and one that cannot be solved without first collecting more information. So we're talking to really smart folks – bankers, investors, and industry analysts – so we have enough data to make a decision. If we raise money, we could spend a lot of it on new sales and marketing growth, on inorganic growth (buying a competitor or two), expanding our product line through R&D, and on becoming more efficient in our operations to continue to help us scale. We don't need the money – that's a wonderful thing – but we could certainly put it to use. Great problem to have!   

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