How JAGGAER Got Started Part 2: From “Irrational Exuberance” to a Leader in Spend Management
In my last article I related the story of how the company that is now JAGGAER got off the ground and raised its first investment of $700,000 from friends and family Shortly after that I became CEO when co-founder Peyton Anderson suggested that we needed him more focused on business development and me on selling the vision. To be honest, I wasn’t really interested in the role, I just wanted to see the vision come to fruition. I had no doubt that we would be successful; it was just a question if we could be first to market with our “winner take all” business model.
But we were still not a software company; we were still an online catalog marketplace for biomedical organizations, and it took a lot of legwork to get to the next level. We were attending about 20 trade shows per year and doing the rounds at f research departments at American universities, printing out thousands of flyers and posting them around laboratories.
Maxed-Out Credit Cards
We got a lot of interest but in the meantime, we were running seriously low on funds – the four founders were living on a whole bunch of maxed-out credit cards we had acquired back in 1995 before quitting our jobs!
It sounds crazy but it was perfectly legitimate at the time. In fact, we did it on the advice of a fellow entrepreneur that Peyton and I met at University of North Carolina Business School who told us, “Fill out every credit card application that you can, and send them all in at the same time.” If we had not taken risks like that, JAGGAER would not be the big successful company that it is today. Even in 1997, when our funds were running out, we still only had sales revenues of a few thousand dollars.
We needed money to develop the technology. In 1998 we spoke to just about every venture capitalist in Raleigh-Durham, Charlotte and Atlanta. Lots of interest, but no money. So, I told my colleagues I was jumping on a plane to the west coast and would not return until I had a deal in the bag. And I meant it!
I had a lot of meetings including one with Benchmark Capital, the company that provided the funds to set up eBay. It was very interested but wanted a co-investor on the east coast and referred me to Greylock Partners in Boston. By this time, we were flat out of money and the whole team had to take the train up to present. Greylock were interested but would be unable to do the due diligence for weeks.
When Noro-Mosley Partners and the Wakefield Group got wind that Benchmark and Greylock were interested, they immediately sent us a term sheet with a commitment for a $2.5 million round of investment before Benchmark and Greylock squeezed them out. They gave us all the terms we asked for – virtually unprecedented for VCs. They introduced us two more firms Bessemer and Trinity Ventures and we raised $10 million in total and in 1998 we started hiring like crazy to build up the company. About a year later we raised $38 million in a private equity round. We assembled some amazing talent and after our IPO in 1999 we were sitting on $150 million in cash. We were given a further boost when our main competitor, Chemdex (later Ventro), expanded into other verticals, giving us a clear run to roll up the entire industry of life science, pharmaceutical and university eProcurement organizations.
The Dotcom Crash
We didn’t know what was coming. Just as our excellent CFO Jim Scheuer and I were conduct a secondary offering, the stock exchange collapsed, and the dotcom bubble was over. Our valuation tanked; we missed most of our financial targets. Already in the late 1990s every large supplier was launching their own online e-commerce sites, seemingly overnight, to avoid paying commission to middlemen like SciQuest. Worse, the largest suppliers refused to pay us our marketplace commissions and our first customer service manager Beth Thoreson had to hire more than 100 representatives simply to fax the orders we received online to the suppliers. It was a nightmare and the rapidly changing marketplace posed a direct threat to our eCommerce value proposition. The outlook was terrible, except for the fact that, thanks to Jim, we still had a ton of cash.
Continuing to grow in this environment required a new business model. In 2000, the company had to decide if we were going to remain as a tool enabling researchers and scientists to buy lab supplies, or offer a comprehensive procurement solution. We chose the latter. Rather than simply taking a commission on sales through its digital marketplace, SciQuest transformed itself into software company. The first step in this transformation was our acquisition of EMAX for $10 million early in 2000. It was a contentious decision, but it saved the company. This was the time of “irrational exuberance” – companies came and went. If you wanted to survive, you had to be flexible and agile.
EMAX’s ERM (Enterprise Reagent Manager) software product delivered immediate value to our company’s existing pharmaceutical clients. There was just one big snag – none of us knew anything about software. We had to acquire new talent. I told the Board that I was the wrong guy and we had the wrong executive team to take SciQuest forward and started looking for my replacement. We found him in Steve Wiehe, who built the software team.
We still faced an uphill struggle. In 2002 we were ready to shut up shop. Jamie Duke, who we recruited as Chief Operating Officer in 2001, asked Bobby Feigler and Chuck Ballaro (who is still with JAGGAER) why they were spending so much time on GlaxoSmithkline. We only had one paying customer at the time! Chuck said, “I believe the future of the company depends on it.” We presented to the GSK leadership in Research Triangle Park, Philadelphia and the United Kingdom. We were up after Ariba, who took 90 minutes longer than scheduled. Things did not look good, and they got worse when they said there was no internet available. “Tough luck, chaps,” said the leader of the UK contingent.
In fact, we did sign GSK and Genentech followed shortly afterwards. A further turning point was the acquisition of HigherMarkets in 2002, which opened up the universities market, still a large part of JAGGAER’s recurring revenue stream.
I stuck around on the Board and helped the product and marketing teams until 2003 – I was the last of the co-founders to leave – by which time the company had transitioned to the exciting and disruptive eProcurement software as a service (SaaS) model that has served it so well. I have no regrets. Leaving was the right thing to do – after seven years of hard work every day and all the ups and downs it was time to do something different.
But I still love the company I helped to create and equally importantly the amazing relationships with exceptional people who have helped build it for more than 2 decades!
Check out the video below!