MindTouch says no to acquirers, takes funding instead

He took his time about it but MindTouch CEO Aaron Fulkerson has finally taken some outside money. As he said to me: "Happy 2016! We're not selling the company."

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myrzik137 (CC BY 3.0)

Aaron Fulkerson and his company MindTouch are old-timers in the enterprise software space. Founded back in the dark ages (well, over a decade ago, anyway), MindTouch was one of the early companies pushing a new way of doing enterprise software. MindTouch's customer engagement tool is to traditional knowledge management tools what the Tesla is to Henry Ford's Model A. It is a way to bring the formerly disparate worlds of customer relationship management and customer self-service together. In doing so, MindTouch drives better customer experience and better supplier economics.

Fulkerson was a regular at the (now defunct) Enterprise 2.0 conferences and was one of the earlier vendor voices alongside Jive to be talking about how social engagement between organizations and their customers would drive multiple benefits for all concerned. Since that time, however, an entire raft of new companies have arisen to articulate a similar message -- Slack, Atlassian, HubSpot and a number of others attack different parts of a similar puzzle. In that melee, MindTouch has been somewhat overshadowed by well-funded companies and their marketing budgets.

That's not to say that MindTouch hasn't been executing well; it has gained its fair share of customers -- both new economy and old. Organizations as diverse as Whirlpool, MakerBot and Remington join tech vendors such as Code42, Zuora and Docker to use MindTouch to use content to connect buyers and sellers.

"Content today is the nervous system for a company's buyer and customer channels, and I'm not talking about listicles, tweets or blog posts," said Fulkerson. "The customer's journey from initial research to purchase and post-purchase interaction has become self-paced and self-serviced. We make a company's existing product and help content become the core of their customer engagement strategy. And this is happening across all departments as companies are willing to explore every avenue to engage customers throughout their life cycle together."

The company looks set to be able to gain some more attention and throw some cash at marketing with the announcement of a $12 million Series A raise. The fact that this company is raising a Series A well over a decade after its inception is pretty staggering and points to the fact that MindTouch has been following a far more organic approach toward growth. So why take funding now?

Fulkerson told me that he turned down multiple acquisition offers last year but those offers made him realize that getting some cash to help scaling would be useful.

Said Fulkerson: "So why did we seek investment after building the company through self-funding for so many years? Capital was the limiting factor for our ability to help more companies realize their potential and become disruptive with how they engage their buyers and customers. While the interest to acquire MindTouch was flattering, as founders we decided to take our first outside investment and fuel growth. We're excited to scale the business while maintaining our company culture. We see the investment as a means of increasing the impact we have as a positive disruptive force."

In a blog post to comment on the news, Fulkerson gave some unusual clarity around the performance and economics of MindTouch. According to his post, for every $1 the company spends on sales and marketing it yields about $2 in new annual recurring revenue. MindTouch also enjoys negative gross customer churn. It retains around 95% of its customers, and even when it does lose a customer, revenue growth from existing customers more than makes up for that loss.

Fulkerson goes on to further highlight why this fundraising will be positive:

"In summary, this means we double every dollar we spend on sales and marketing in the first year in the form of annual recurring revenue (ARR). And we've been increasing that ARR in each subsequent year without any account management. That's … unusual. Our superlative performance is expressed by other key indicators as well. Indeed, many venture capitalists I spoke with while fundraising cited our stats as being one to two standard deviations better than the best-in-class SaaS companies' performance. For example:

  • Our gross margins float around 93%. 
  • We've got great product market fit, evidenced by our Net Promoter Score (NPS) floating consistently above 70. 
  • While we've been self-funded up until this financing, we've posted impressive growth. In 2014, we grew our annual recurring revenue by 71% and in 2015 we grew it by 55%. We've been growing quickly without posting losses for years. That's … uncommon."

This cash will be used to reverse MindTouch's model to date of zero outbound marketing. The company will, to put it simply, pour money into filling its funnel. While those impeccable SaaS metrics might dip a little as the funnel gets more course, something tells me that the 12 or so years of experience that MindTouch has will help it make up for that.

Copyright © 2016 IDG Communications, Inc.

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