Last summer, legendary entrepreneur Dave Duffield predicted that his newest startup, Workday, could become the second coming of PeopleSoft — a company Duffield founded and grudgingly sold to Oracle in January 2005 for $10.3 billion.
Whether or not that proves true, Workday — an enterprise resource planning company that delivers its software online — has been gaining traction fast. It now has 340 employees and roughly 80 customers, including numerous Fortune 500 companies like Chiquita Brands and Flextronics (workforces of 23,000 employees and 150,000 employees, respectively).
More, investors have wholeheartedly bought into Duffield’s vision. In addition to several past, mostly undisclosed, rounds of funding totaling $75 million — money from Greylock Ventures and Duffield himself — the company has just raised an additional $75 million in a Series E round led by New Enterprise Associates, which chipped in just north of $45 million. Duffield and Greylock contributed the rest.
NEA has the money, of course. A recent filing with the SEC shows the firm has locked down $2.15 billion for its newest fund, which will back both nascent and growth-stage companies.
Yet Greylock may have an even greater stake in Workday. Not only has it sunk a significant amount of money in the startup, but Greylock partner (and former PeopleSoft executive) Aneel Bhusri cofounded Workday with Duffield in January 2005 and remains its president.
I talked with Bhusri this morning about Workday’s future, why $75 million was the right amount of capital for the company right now, and how he’s managing the day-to-day operations of Workday while remaining an active VC.
First, how is it possible to be the president of Workday while juggling your obligations at Greylock, where you were actually ranked number 8 on the Forbes Midas list this year?
I’m full-time, running Workday. I still sit on the boards of four companies at Greylock, and some of those deals have matured, which might explain the Forbes thing; I’m not sure how those lists work. But I’m very much full-time at Workday.
So it’s unlikely you’ll be part of Greylock’s next fund?
I will be part of Greylock’s newest fund, but Dave Duffield and I have worked together for 16 years now, and Greylock understands my relationship with him.
Workday has raised a massive amount of money. Is it fair to say that Greylock and NEA now own at least a quarter of the company, or is it more?
We’re not disclosing any breakdowns, but before this new round, it was mostly Dave and Greylock but Dave was Workday’s majority owner, and he continues to be the major stakeholder in the company.
I assume if the round was $75 million and the company has raised $150 million altogether, the new round puts the post money valuation at around $600 million. Is that right?
We can’t discuss valuation.
Do you think this will be the last round of investment for Workday?
There’s a set of scenarios where it is. It depends on our growth rate. In the software-as-a-service business, the faster you grow, the more cash you consume. But this is likely to be our last round of funding. The only reason it wouldn’t be is if we wanted to grow faster.
How long do you expect round to last given you have 340 employees and are probably spending probably $30 million or more on headcount alone, assuming a fully loaded employee costs about $100,000 to $120,000 per year? A couple of years?
It will actually lasts quite a bit longer than that. We’re up to 80 customers and have signed quite a bit of business over the last couple of years. In on-demand software, you accumulate payments from customers as they pay over time, and we’re beginning to collect; [the money] is beginning to kick in.
Also, as a percentage of our employee base on the services side, the professional services and implementations staff, those people get billed out at an hourly rate, so we’re at least breakeven on that part.
So under base case, we won’t need more capital under our current business model.
What about R&D and your other offices? You have an R&D facility in Dublin, Ireland, and five offices across the U.S.
[My projection] does include those costs.
How long until Workday breaks even?
Again, that’s subject to how quickly we grow, but probably a year and half, as a guess right now.
How does your role as president compare with that of Dave Duffield, the CEO?
Dave focuses on working with customers, and on our culture as a company, and he’s very involved in thesales cycles. He worries about what’s happening outside the company, in other words, while I worry about what’s happening on a day-to-day basis inside.
We actually sit in facing cubes and talk all the time. It’s hard to describe, but we’ve worked together for so long, we just have a great relationship.
Oracle is buying a lot of companies these days. What’s your relationship with the company? Are you in its flight path?
Can you imagine being acquired by it or is the idea anathema to Dave, considering he didn’t want to sell PeopleSoft to Oracle?
We’re a private company and so have the luxury of choosing our options. We’re not building Workday to sell it, though. If everything works out well and we hit our milestones and there’s an IPO market some day down the road, we’ll hopefully take the company public. But we don’t have any ill will toward Oracle.
If the idea is to go all the way, do you have any sort of guesstimate as to when the company could go public, assuming the economy turns around in the next two years?
If the IPO markets come back and we continue to perform, I think there would an opportunity two to three years from now. If market gets better faster, it could be sooner. But right now we’re counting on economy staying where it is.