Achieving the Exit with Drew Sievers and mFoundry

Shareholder Representative Services’ latest Q&A features Drew Sievers, who led mFoundry to an acquisition by FIS, the largest global provider of banking and payments technologies. Sievers is an entrepreneur with the ability to recognize a seminal moment and pivot. He discusses creating a culture of partnership, selling to financial institutions, and working with strategic investors with competing interests.

(Editor’s note: Total consideration for mFoundry was $165 million, with FIS purchasing 78% of the company that it didn’t already own, according to Thomson Reuters, publisher of peHUB. MFoundry raised approximately $51.85 million between 2004 and 2011 from investors including Apax Partners, GRP Partners, Ignition Venture Partners, Intel Capital, Motorola Mobility Ventures, NCR Corp., MasterCard, FIS and PayPal, Thomson Reuters reports.)

Q: What are the advantages of having a marketing and advertising background as a founder and CEO?

A: Background is not that important. What makes successful entrepreneurs really comes down to a few things. Are they creative? Are they tenacious? Do they believe in their idea? And are they humble enough? Let’s not use the word humble. Humble is a bad word because none of us are humble. Are they practical enough and opportunistic enough to realize when their current strategy is flawed, and are they willing to shift in order to move into a new opportunity?

If I had been a slave to form, I would have stayed in the application platform business. If I had not been open to the idea of completely shifting the business and betting it all on black, which in this case was mobile banking, it would not have gone well. When I think of the traits of a successful entrepreneur, it’s not whether someone came out of banking or marketing or technology that really matters. You need someone who’s got the belief, the creativity, and the desire to do this, and then they either need to have the skills to execute it themselves or they need to have the right management team.

In my case, I was very good at selling. I was good at strategy, and I was really good at getting partnerships. I also had a very talented founding partner who excelled on the technology front, but also was uniquely creative and strategic — brilliant really. Finally, I had a management team that was phenomenal at executing the business, selling, and running a very tight organization with good financial controls. It’s a team sport. There are cults of personality, but if you don’t have the right team, then nothing else matters. The best, most successful businesses always have a great team. The ones that fail rarely do so because of the business idea. It’s almost always about the team.

Q: How did you land strategic partnerships, and was that what enabled financial institutions to trust you as a startup?

A: Surprisingly, no. We couldn’t have landed the partners if we had not been the technology partner of record for so many big banks. It was our bank clients that allowed us to credentialize ourselves. Most people assume that you work with an FIS and they give you credibility. The reality is when a financial institution or a client wants to find something innovative, their first thought is not their standard provider. If it were, then that product would already exist. It doesn’t because there is inherent risk in terms of R&D and execution, so the banks either have to build it themselves or find another provider. There’s always a startup. There’s always some founder who has a dream and somehow talked his wife into allowing him to do it.

In our case, we got Citibank first, then we got BB&T, then PNC. Once we had those three, we could walk into any financial institution and tell them we work with three of the biggest banks in the country. Then we added BofA, and then we added more. All of a sudden, we could go to FIS and partner with them to go after the smaller banks. It is opposite of what you would expect.

Q: So how did you get Citibank?

A: Citibank was a happy accident, which is the way these things happen. One of my venture investors had Citibank as a limited partner. Citibank called them and asked if they had any companies in the portfolio that do mobile technology, because they wanted to create an application. So we sat down with Citi and pitched against three or four companies, and we won that piece of business. It was a seminal moment. I did a quick back-of-the-envelope market analysis and changed the entire strategy to dedicate the company to focus 100% on mobile banking. We resigned all of our other business as a result, and we bet the farm on mobile banking.

Q: Is there a key to forming effective partnerships?

A: There are some companies that can do it and some that can’t. It comes down to a few elements. The first is that you need to have a culture of partnerships, so if your culture is not one that’s based on people working together and wanting to work with outside parties, then you are never going to be able to work effectively. That’s particularly true in the sales organization. If you have a bunch of coin-operated mercenaries in your sales group, they’re never going to want to send deals over to the partners because they won’t make as much commission. That’s critical, and we had a great sales team that understood the bigger picture. We had competitors who didn’t, and as a result, they didn’t do as well.

You also need to have a technical approach that you can actually deliver with partners. My founding partner and CTO understood this better than most. If you developed your technology in a vacuum without thinking about it being used by partners, then when you are in a sales pitch against a company that has built a product for partners, you’re just going to get kicked in the teeth. You will lose every time. In the end, when we sold mFoundry, we had 900 financial institutions. Our closest competitor really only had a couple hundred. We destroyed the competition because we were the guys who had all the partners. If you have technology that works for partners and is geared for partners, you have a sales organization that understands that partner sales are good and they are compensated appropriately, and you have a culture that’s partner focused, then you’ll do well. If you’re not really into it and you’re just kind of playing at it, you will do horribly with partners.

Q: How did you determine when the timing was right to combine forces with FIS through a merger?

A: One key consideration was how much business we had with FIS, and what our other options were. We had a big relationship with them. Multiple millions in revenue was swinging both ways. It was a valuable relationship for both parties. At the same time, we had a couple of people come in and say they were interested in the company. We also evaluated alternatives like a public offering in about 18 to 24 months. We did the math. We asked what we would raise in a public market and what the risks were. We did an NPV and put a value calculation on what the business was worth. In the end, we felt the FIS offer was fair, considering the reduced investor risk and ability to provide the shareholders liquidity.

Q: How should a CEO work with other strategic investors in that process?

A: You don’t, candidly. The strategic investors don’t take full board seats, per se. Some of them are competitive and conflicting. You follow the law of what you have to in your investor rights agreement. If required, you tell them you have a serious buyer. If the other strategics are interested in the company, great. You cannot tell them the offer and ask them if they can pay more. That is not aligned with what you should be doing with the potential buyer, and it’s also not a reasonable way to have a discussion with your other strategic investors. So, you just let your strategics know that a process is underway. They have an opportunity to participate in that process if they’re interested, but if they’re not interested, that’s fine. Then they have to let it play out and see where it goes.

Q: Did you do anything along the way to align the interests of your rank-and-file employees with that of senior management and your investors?

A: Ultimately, when you think of the employees, management included, they’re all common shareholders, so the alignment there is to ensure that common is not in a disadvantageous position when you exit. It’s not in the shareholders’ best interest to put the employees in a bad spot. In some cases, I know of companies where management has issued themselves preferred shares with different multipliers and all sorts of crazy stuff, and that is not what you want to do. You want to make sure everybody is financially motivated and feels like they have a dog in the fight.

Let’s get real though. You can’t please everyone. Not every employee of a small startup fully understands how equity actually works. You’re always going to have people who have unrealistic expectations because they read an article about a guy from Facebook who made $10 million or something. You manage that with communication as best you can. In general most of the people who work for us — in fact, almost all of them — were just extremely reasonable and very happy with the outcome, but you can’t please everybody.

Image credit: Photo courtesy of ShutterStock

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