September 1999 – The “Road Show”
We had targeted September 23, 1999 as our IPO date (which happened to be the day before my 30th birthday). You may recall the volatility of the NASDAQ in late 1999. Daily swings of 200-300 points were not uncommon. Getting out wasn’t going to be easy, and we had no idea at the time how important it was to get out soon. You can see in the chart what was waiting for us in 2000.
Way too much is involved in an IPO to possibly mention here, and I apologize, in advance, to our CEO and CFO for this gross simplification of their herculean “roadshow” effort. Dave Tolmie, our CEO, and Dave Menzel, our CFO went on a whirlwind, multi-day, multi-state roadshow to get commitments for the $37M we hoped to raise with the IPO from institutional buyers. It was the “Dave & Dave” show. Our CEO sent us daily “Notes From the Road” emails to let us know their progress. I recall there was a lot of rain and travel hiccups, but they pulled it off. Hurricane Floyd wasn’t going to stop Yesmail. We had gotten our commitments.
September 23rd, 1999 – The IPO
The day finally arrived. It was happening. In April, we weren’t even Yesmail and, here we were, 5 months later, going public. We flew to Deutsche Bank’s Baltimore office to watch the trading start. Now, most people’s image of a company going public is seeing the CEO standing up at the front at the exchange, ringing the opening bell, and watching a flurry of loud trading on the littered floor. That’s the New York Stock Exchange. This was the NASDAQ. It was all electronic. If you were watching Yesmail go public, you would have seen us sitting in a quiet white room with a plate of cookies staring at a computer screen with ticker symbols scrolling.
While it wasn’t a spectator sport it was incredibly exciting. The NASDAQ opened at 9:30 am EST. “Going public” officially happens when one of your shares is sold to a retail investor (the public). We were priced at $11/share. We only had to wait a few minutes. I believe it was 9:43am when Vulcan Capital, the multi-billion investment arm of Microsoft co-founder Paul Allen, bought the first shares of Yesmail at $13/share. We spent the rest of the day watching the screen and eating cookies. They probably brought us lunch, but I didn’t feel like eating.
Our IPO was a bit underwhelming. We peaked at $19 and ended the day up 19%. Not bad for an overall down day in the market. Either way, we had our $35 million (after almost $2M in fees). This put our valuation at about $223 M. Pretty good return for our investors in May who came in at a $20M valuation!
September 24th, 1999 – My 30th Birthday, Las Vegas
My friends and partners joined me in Las Vegas to celebrate. Nothing to report.
December 1999 – An Unexpected Offer
Having recovered from Las Vegas, we were now back at work building our public company (YESM on the NASDAQ). We definitely had a sense of relief that the breakneck pace to reach the IPO was over, but we had lofty goals to hit as a public company. All of the employees had a scrolling stock ticker on their screen so they could calculate what their options were worth in real time. I did too. We were all subject to a 6-month lock-up after the IPO so all we could really do was watch.
We had only been public for about a month when CMGI began discussions with us about an acquisition. CMGI was a conglomerate of Internet companies and was looking to add some Internet marketing companies to its portfolio. CMGI ended 1999 with a market value of $41 billion and had been the best-performing US stock of the preceding five years, returning 4,921 percent. Their stock was highly traded, especially compared to our thinly-traded Yesmail stock. We were interested.
The NASDAQ had continued its vertical climb and by the time CMGI announced the acquisition on December 15th , we were a $523M company. It was a 100% stock deal. Our stock was then lock-step with theirs through the due-diligence period. Notice the crazy, near-vertical spike of the NASDAQ during this period. CMGI was rising even faster, and us with them. When we closed on March 3rd the deal was worth over $700M. Let me remind you of the disclaimer at the beginning of my story. Plus, the founders and key executives were now subject to an additional 6-month lockup, until September, 2000. I think you can see where this is going.
March 10th, 2000 – The Decline of the NASDAQ
Obviously, there is still more to the story. We all know what happened just one week after the sale. The NASDAQ hit its all-time peak and began its subsequent meteoric fall. Had it been an all-cash deal, the timing would have been brilliant and our exit would be considered a wild success. In reality, we were very fortunate that we went public when we did and that CMGI purchased us. Had the sale been delayed by even one week, the deal probably would have been nixed, and we would have been stuck with a rapidly falling stock that we couldn’t sell. CMGI’s stock peaked at $163.50 and plummeted to $10 by the end of 2000, but was still highly liquid.
March 2000 – 2003 – Yesmail Post-Acquisition
After the acquisition, Yesmail was fortunate to be flush with cash as the Internet was imploding around it. We were ramping up when the rest of the Internet was being forced to ramp down. We had an awesome office space on a half-floor of a downtown Chicago highrise, pool tables, stocked fridges, etc. We peaked at about 200 employees. Dave Tolmie stayed on as CEO until the end of 2000 and handed the reigns to, then CFO, Dave Menzel. Although we were able to delay the effects of the Internet implosion, the hard times did eventually come, and, with it, layoffs. In 2003, when CMGI’s stock was down to $.80, they sold Yesmail to InfoUSA.
March 2000 – My Exit from Yesmail
Personally, after the CMGI acquisition, I had a mental shift regarding Yesmail. First, I realized that I had replaced myself, which, of course, is the goal of truly “exiting”. The company had grown beyond me and didn’t really need me anymore. Second, I didn’t own Yesmail stock anymore. I was now an employee of Yesmail, but owned CMGI stock. The acquisition, although critical for my liquidity in 6 months, took away my motivation. It had been 5 years and I was ready to move on.
So, with little fanfare, in March 2000, employee #1 left, me. Within the year, Keith, Ken, and John had moved on as well. Because of our lock-ups, my partners and I couldn’t sell CMGI stock until September of 2000 when it was at $40, but we still did fine and feel very fortunate. I think I sold my last shares at $7.
It was the ride of a lifetime, and I’d do it all over again.
I’m proud to say that the company that I started in my dining room still exists today and is doing well. It’s been sold a few times and the current owners and employees have no idea who I am or even know this story. But, I don’t care.
Please recall the disclaimer from the start of the story. This wasn’t an instruction guide on how to build and sell your startup for $700M. If you figure out how to do it, let me know.
Here are my take-aways, 15 years later, of what we did right.
- Get a partner. Don’t go it alone. If you can’t convince someone to join you, you probably have a bad idea.
- Formalize your legal agreements well before you feel like you have a real company: create your Buy/Sell, define ownership, etc. You’re going to save a lot of headache later and potentially save your company.
- Get a good accountant and lawyer early. They have a wealth of great advice and connections.
- Don’t be greedy and check your ego. It’s okay to want to make a lot of money, but greed and ego will prevent you from bringing on the right people or enough funding.
- Create a Board of Advisors early, even if they are unpaid. Seek out other’s advice always.
- Be prepared to pivot. I call it Focused Flexibility. Your Business Plan is wrong. I guarantee it. Don’t be so married to your ideas that you don’t consider viable alternatives.
- Know what game you’re playing and the other players. Your competitors may be in a whole other league.
- And, most importantly, whether you are a startup or a company that has been around for 20 years, create your Exit Plan, not just a Business Plan. You must be prepared to take advantage of an opportunity to exit or avert a threat when it presents itself. Create a roadmap that leads to an exit to prepare your company for a sale whether you plan to sell or not.
The Exit Advisors
My focus with TheExitAdvisors.com is to help business owners with established companies look at their businesses more strategically and create an Exit Roadmap/Plan for their business 3-10 years ahead of any potential sale. I help owners identify and focus on the key drivers of value and help them create a valuable/sellable business through a combination of coaching and consulting performed in-person or remotely.
If you’d like to learn more, I have several free white papers that you can request. I also invite you to subscribe to The Exit Planning Review ™. It’s a free newsletter designed for business owners and their advisors. It’s an advertising-free, highly informative email newsletter delivered with discussions about specific topics that directly affect business owners.
Also, feel free to contact me if you’d like to schedule a complimentary consultation to see how we may be able to work together.
I hope that you enjoyed my story.