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Peter Harris & Peter Seppi

An investment review from the University Growth Fund.

University Growth Fund Deal Breakdown – Simplus

A few years prior the University Growth Fund invested in

Recently, Simplus sold to a larger company and Peter talks with one of his students about the outcome, and what they learned.

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Episode Transcript

Peter Harris: Well, hello, my name is Peter Harris. I'm a partner here at the University Girls Fund. Thank you for joining us today for the University Growth Fund podcast. With me today, I've got one of our senior associate who's a student here at University Growth Fund, Peter Seppi. Do you want to introduce yourself to the audience?
Peter Seppi: Yeah, my name is Peter Seppi. I go by Seppi to help with the Peter and Peter confusion. I started with the fund four years ago, an undergraduate at Westminster College, and now I am at BYU Law School finishing up my last year.
Peter Harris: Awesome. And where are you going at graduation? Pretty soon here.
Peter Seppi: I'll be moving to the Bay Area to be working at Gunderson Dettmer, which is a law firm that specializes in venture capital fund formation and startup work.
Peter Harris: Awesome. So I'm really excited to have Peter Seppi on the show today with us because he was on the original deal team that helped us evaluate our investment in Simplus. So thanks for joining me. And so today we're just going to kind of recap our investment in in Simplus and talk about, you know, our investment thesis when we made the investment.
Peter Harris: Some things that we've seen kind of go along over the years, things that we learned and how we're applying that in our fund for future investments. And also kind of wrap it up with with how the acquisition came together. So I'm going to turn it over to you. Peter, Do you want to talk a little bit about what it was like being on the Deal team and and, you know, kind of walk through maybe some of the investment thesis aspects behind why we invested in Simplus?
Peter Seppi: Yeah, definitely. Yeah. So I had been with the fund for about three weeks when we started. I knew very little to nothing about venture capital, but thankfully I was working with some great senior associates and Peter Harris and Tom Stringham to teach me everything I needed to know. At that point in time though, what we were really excited about was first and foremost is the Salesforce ecosystem.
Peter Seppi: Salesforce now is doing over, you know, tens of billions of dollars in revenue a year, but at that time they were still growing really, really fast as a large enterprise as company. And we had done a lot of research around the Salesforce ecosystem. Which of these players that had sprung up to help implement Salesforce Solutions were companies that were using Salesforce and simplest with a quote to cash service that provides, you know, we're solving an integral part of that ecosystem.
Peter Seppi: So when we first started looking at it like we think Salesforce is going to continue to grow, the ecosystem is going to continue to grow, and a company like Simplicity is going to be really necessary for that growth along that line to when we make investments, we like to think about how does a company exit over time. And one of the difficult things with a lot of venture backed companies is that a lot of them are in new spaces doing things that haven't been done before.
Peter Seppi: And it's hard to figure out how does this company exit? Does it get bought by another company? Does it go public? And with simple as we actually had a pretty comparable consulting company called Cloud Sherpa that had grown, been really successful and actually been bought for over $400 million several years before we made the simplest investment. So when we made the simplest investment, we had modeled our, you know, what happens?
Peter Seppi: The best case scenario for simplest off of that cloud Sherpa deal.
Peter Harris: Yeah, that's great. You know, a lot of venture capitalists, I think, would have looked at Simplus and said, Hey, look, this is a consulting business. The assets of the business walk out the door every night. It's hard to make these things scalable. And yet you know, we moved forward with an investment there, which, you know, a little bit contrarian, I think.
Peter Harris: what are your thoughts?
Peter Seppi: Well, if you had told me that one of the best investments we were going to make from huge fund one was going to be into a consulting company, I would have thought, really. But I think it just it really speaks to solving a valid pain point for a really big market. And in this term, the earliest case, simplest was doing that.
Peter Seppi: There were a ton of companies that are using Salesforce but not using it well enough or not using it in the way they wanted to, and they really needed a solution to help them out with that. And software would have been a great product to produce for that. And you know, the creative process that is going to cash a software product is hadn't been created and probably won't be great for some time to deal with all the intricacies of, you know, building that Salesforce architecture as simple as does.
Peter Seppi: And so in this case, it was really a situation where do you think that there's a really valid pain point and do you think that this company is solving that pain point in the way that people want to pay for? And if those two know criteria are met, even though similar to the consulting company, it was able to scale like we would expect a software company to scale.
Peter Harris: Yeah, well, you know, and the challenge, right, is that in order to grow, the company just needed more bodies and seats to a certain extent. Right. And, you know, as I think through a lot of the things that made me nervous about that deal, I mean, clearly the trends were in its favor, right? Salesforce was growing fast.
Peter Harris: They, they were building this large ecosystem. more and more companies were not only using Salesforce but needed a very customized solution to get the full value out of Salesforce, which is where simplicity really shined both from their quote to cash services as well as just their straight Salesforce integration work. But yeah, I mean, I think there were a lot of things that made me nervous.
Peter Harris: Some of them were, Can this company continue to find great talent and add them and build that talent so that they could hit kind of their revenue goals? I think the other thing that made me nervous is that and in a real way, a lot of these transactions are one time deals, right? So I go in, I help a company build out, you know, their Salesforce integration, and then I'm done, right.
Peter Harris: And there might be some ongoing, you know, consulting or support revenue that comes from it. But the bulk of the, the work and the revenue is kind of a one time thing. So those are some of the things that made me nervous or anything make you nervous. And the deal.
Peter Seppi: What you said definitely made me nervous, but some other things too is that the company is Utah based, and although Utah has a growing venture capital and of ecosystem, in my opinion, it's really hard to know is this team, is this company that's based here, are they really the best in the world or one of the best in the world at what they do?
Peter Seppi: Yeah. And as a student, for me personally, I you know, I just started looking at deals and I was part of a team that was tasked with trying to understand is this management team, you know, world class quality, which is a hard thing for students when you, you know, you're doing basic classes and all of a sudden you're starting to evaluate leaders.
Peter Seppi: But I know you had some interesting insights into the management team. At simplest, and you've got some comfort around that question. If you wanna talk a little bit about what made you comfortable with the leadership team.
Peter Harris: Yeah, I know, that's a good question. So I got to know Ryan Westwood, the CEO there, primarily because we were on the board, he was the chairman of UVM, this local kind of entrepreneur and venture capital organization, and that I was on with him and just, you know, really impressed by his leadership abilities, his managerial abilities. But his nature is just like being a really good person, the kind of person that you would want to surround yourself with.
Peter Harris: So when the opportunity arose to, you know, potentially invest in someplace, yeah, I thought it was super interesting and felt like, you know, this is, you know, a young entrepreneur that's very hungry. He's had some real successes in the past. He's able to like, demonstrate that he can manage teams and lead people and sell people on that vision.
Peter Harris: And for me, that was actually a major merit of the deal to offset some of this risk around it being, you know, not your traditional venture deal. And I just felt like, look, I think, you know, he's the type of young, ambitious entrepreneur that that can go out and figure it out. But I wasn't exactly, to be honest, like, sure.
Peter Harris: How he was going to pull it all off because, you know, these were some pretty big challenges, like we talked about that he had to overcome. But, you know, over the years of being an investor in Simplus, one of the things that I think Ryan does that is world class by far, is that he doesn't settle for good enough, particularly in the types of people he surrounds himself with.
Peter Harris: And, you know, I think a classic example of that through the story of Simplus was how he brought on Paul Fletcher, the CFO. So, you know, I talked to him about this when he was in the process and he was basically like, look, I went and I talked to all the investment bankers in our space that deal with companies like ours buying, selling, taking in public, etc., and was like, All right, I want you to tell me who are all the CFOs of these companies, particularly ones that have been able to take a company to a successful outcome, whether it was an IPO or an acquisition.
Peter Harris: So he got that list. He went through the list, narrowed it down to basically like the top three people in the world at being a CFO for a consulting or services based business that had been able to take the company public or get acquired and so forth. And he went after them. Paul did not only come on board, but really to believe in the simplest story at a time when the company was way smaller than than the company Paul had last been at.
Peter Harris: And, you know, to me, that is such like a strong indicator of a great entrepreneur. He doesn't settle for good enough, right? He could have found tons of CFOs that would have been plenty qualified to, you know, prepare financial statements and so forth for the company and provide, you know, varying levels of strategic advice. But he wanted somebody that's been there and done it and taken a company through the various phases that he was taking.
Peter Harris: So plus through and had learned all of the things that were necessary in order to achieve success as well as like avoid pitfalls. You see that again and again and again with the type of people that he surrounded himself with, both at the management, the C-suite level, the VP level, the and at the board level, and even his advisor level.
Peter Harris: And it's something that's really stuck with me as I've evaluated entrepreneurs going forward is like, do they, you know, shoot for the stars and hustle hard in order to make it happen? Or are they good with kind of good enough, if that makes sense. And I just loved his very, you know, meticulous, well-planned out approach of saying, no, I want I want the best and I'm going to try really hard to get the best.
Peter Harris: And then it becomes this great, like self-fulfilling prophecy of like, if you can get the best and guess what, like everybody else's really good wants to be there, too. And so it gets even easier to build a great team, which I think is another piece that really addresses that key risk. Write your people in a service business are everything right?
Peter Harris: And if you lose people to other companies and other opportunities, right, you're going to have a really hard time building and scaling that business. And what Ryan has done is built this incredible culture that says like, look, we're on the winning team. We want you on our team. We're going to build this into something great and all of our people are great.
Peter Harris: And and so it just kind of feeds on itself and becomes this really nice, virtuous cycle. And again, I think you see that from how he approaches people at the very top of the organization all the way down to the bottom.
Peter Seppi: Yeah, I can speak that too. I mean, I have a close friend that came upon hard times in the last few years and found himself kind of working in a pretty low labor job and wasn't really sure what to do with his life making barely ends meet for him in his family had an opportunity to participate in one of the boot camps that simple as puts on.
Peter Seppi: Now he's employed as simple as, you know, making 3 to 4 times what he'd been making before. And he's loving his work and he feels like kind of the sky's the limit. But I do think that speaks to you. The available talent know the Salt Lake City, Utah ecosystem. Just that there are a lot of bright people coming out of the schools here looking for opportunities.
Peter Seppi: And I think that was one of the things that helped simplicity, you know, scale so fast, not only were they acquiring other companies and bringing them into the simplest parent company, but they also had homegrown talent here in Utah that's very cheap compared to what you might be paying on the coast, but are very capable as well. And I think that's how you help.
Peter Seppi: You see simplicity, you know, go from a small consulting firm to over 500 employees in the span of, you know, 3 to 4 years. Yeah, like a rocket.
Peter Harris: Ship. Yeah, definitely. And the program you're talking about, I think is another area where, you know, they're very innovative and you know, being a Salesforce consultant, like a certified Salesforce consultant is actually like, you know, a pretty good job from a, you know, salary benefits career trajectory perspective. And, you know, there's only so much talent that's being trained on that, right?
Peter Harris: Universities aren't teaching kids how to build that skill set, helping them get certified, etc.. And so some plus built their own boot camp and program in order to facilitate that, to provide more individuals with this type of training and background and really kind of give them a leg up. And the way they did it, I thought was great too, is that they they brought them in and they were immediately kind of on salary and earning money.
Peter Harris: And then as they trained and taught them and helped them get certified, then then their their income could increase. But it just creates, you know, a tremendous amount of loyalty to the organization, which, you know, I think is super important. And again, in this industry, there's a bit of a challenge of like, can you get enough people right to do this type of work that are trained?
Peter Harris: And I really thought this was a really kind of innovative solution to that problem.
Peter Seppi: So one thing that surprised me with the deal as we were looking back on our original investment thesis, yeah, I did not see the simplest acquirer as many other consulting companies as it did. I know they had talked about it. Ryan was really optimistic about those scenarios happening, but at the time it's hard. See, when you see 15 similar consulting companies, which one really scales to the top?
Peter Seppi: And I think that was one of the big drivers of Simpson's success, was able to take these other consulting firms, bring it into itself and with the culture it had, these other acquired firms fit in perfectly, and then they even accelerated in growth in terms of what they were able to do, which I think is very hard for a lot of acquisitions to actually happen.
Peter Seppi: I think a lot of times acquisitions don't work out well. But one thing that's interesting about how those acquisitions work is that there's a little bit of a a multiple play there. And when simplicity out buying companies, do you want to speak at all to how they were able to use those acquisitions to grow the value of the firm faster than they were doing before?
Peter Harris: Yeah, you know, it's interesting that you bring that up. So I think when we made the investment, we were kind of hoping that there'd be a little bit more of a software kind of play involved. You know, ultimately, certainly there was a little bit of that, but not nearly as much as we thought. And that ultimately ended up being the strategy that worked was this idea of we're going to build ourselves into like the dominant, the best preferred vendor, etc., etc..
Peter Harris: I mean, they were able to achieve their platinum certification from Salesforce two years before they thought they would, in large part just because they were so focused on and having a high level of excellence and then using that brand to go out and basically acquire these other businesses that either weren't growing as fast or maybe weren't growing and able to buy them for a relatively affordable price, whether that was in terms of like straight dollars or equity, but then bringing that team in, motivate them, get them working hard, like you said, and then get into a business where the multiple on that type of revenue or the premium you'd pay on a business that's actually
Peter Harris: growing was a lot higher. And so there's a little bit of this like multiple arbitrage game going on. that was super fascinating, but they only could be pulled off at the end of the day if, you know, you had a really good culture that can motivate that talent to actually continue to grow the business overall. So yeah, definitely kind of an interesting aspect of the deal that's fairly unique.
Peter Harris: I feel like multiple arbitrage is a very like private equity type of thing to do, but clearly, you know, played out really nicely in this particular venture deal for us.
Peter Seppi: And that was another surprise. Now I think about it just that when we had originally looked at the deal, we looked at other acquisitions in the consulting space to try and figure out at what point, you know, in the future, as simple as gets bought, what would it be bought for? And we had seen that worse performing consulting firms got bought maybe for 1.5 times their revenue.
Peter Seppi: And we saw that some of the really, you know, top performing consulting firms got bought for around, you know, 2.5 to 2.7 times their revenue culture. It was a perfect example of that. As I was looking back on our original investment thesis and looking at what actually happened, Samples was acquired for anywhere between, you know, 3.2 to 3.7 times their their revenue.
Peter Seppi: So quite a bit of multiple expansion that we expected to happen. And at one point that's also a testament to public equities. The public equities get in the stock market is, you know, all those have just increased over the last few years. But I also think it speaks to that level of accelerating growth that samplers was able to have even as a scaled past $50 million in revenue that the other consulting firms just weren't able to be keeping up with, which is really interesting.
Peter Seppi: I think, you know, being able to acquire those companies, bring them into the simplest brand and then have those teams working even better than they were on their own, I think really speaks to both Ryan's ability, the leader, but also just the organization that simple place built. Yeah, that was a pleasant surprise for sure.
Peter Harris: Yeah. No, definitely. Definitely. What do you what did you think of the acquisition process?
Peter Seppi: Well, first, I was extremely excited just because we write these investment memos. They're 50 pages, 70 pages, and we we talk about how we think the world might play out. And, you know, 5 to 10 years and emphasis was a company that we thought would be a perfect acquisition, I guess require of simplicity. And I mean, the deal worked out just along the lines that we thought might work out.
Peter Seppi: And I think that helps, you know, validate what we do here at UCF, trying to figure out, you know, how to our companies exit. But I also think that the valuation in terms of where simply it was bought was great. I thought the multiple is great with it as well. Ideally, you know it's hard just because simple was growing so fast and is, you know, going to continue to grow so fast.
Peter Seppi: But they were doing so well. You know, it's rare. We every quarter evaluate how our portfolio companies are performing and they knew these portfolio companies. They set expectation ones and a lot of them meet expectations. Some of them don't meet expectations. The simplest was, you know, exceeding where even they thought they were going to be. And, you know, on one hand, they would, you know, love for simplicity, continue to grow into $1,000,000,000 consulting firm on its own.
Peter Seppi: But I think the acquisition in terms of the price that they were able to garner, as you know, a premier or Salesforce partner, you know, the questions about where are we at in the business cycle, recession could be next year, it could be years away, but you never know. And these consulting firms, their valuations would really drop in in a recession.
Peter Seppi: So I think the acquisition makes sense. You know, as a venture capitalist, out of love for simplicity, you know, keep going on its own. But at the same time, the way that this acquisition played out right along the lines of how we thought it would play out just a few years earlier, I was pretty happy with. Yeah.
Peter Harris: Well, it's such a unique opportunity for you, right? So it's like one of the first deals you ever worked on. And now, you know, due to circumstances, you've been here at University Growth Fund much longer than our typical student, right? About four years. And so now you're coming to graduation. You get to see that deal from, you know, full cycle from early stage investment to successful outcome on the back end.
Peter Harris: I totally agree with you. On the one hand, you know, it just felt like Simplus was doing a great job, really good growth, consistently kind of outperforming expectations. And so, you know, certainly there's a part of you that's like, man, just, you know, keep growing, keep growing. Let's build this into something big. But, you know, I think to your point, look like emphasis, I think realized that Salesforce is now a huge, dominant platform and is going to continue to be a major platform.
Peter Harris: And they needed to have a play in the space that was really meaningful and simple. You know, acquiring simple has really helped accelerate that for them. And so, you know, they kind of in the market now to do that and and you know when an acquire like emphasis in your market like knocks on your door you definitely sit up and pay attention.
Peter Harris: You know I think to your other points like like it's really hard to know what the future is going to bring. I think, you know, recessionary environments, if you think through it logically. On the one hand, if you have a very person driven service, right, you know, maybe you see some cost advantages during a recession. And as the job market starts to tighten up, maybe not tighten up, but.
Peter Seppi: People need jobs.
Peter Harris: People need jobs, right?
Peter Seppi: Wages go down, wages go down.
Peter Harris: Right. But at the same time, you have companies that are maybe aren't growing as fast as they they needed or they were. And maybe they don't need quite the same level of of support. Right. So it's a tough thing to look in that crystal ball and and be able to plan things out perfectly. But, you know, at the end of the day, I think from a manager of a university growth fund, I think we're super grateful to have been able to partner with Ryan and be supportive and small ways to his and his team's success.
Peter Harris: Ultimately, it was a great outcome, I think, for everybody. And, you know, we're really excited to see what kind of things Ryan does with the organization at this point, because he's basically taking over that entire division of the company. And I think there's a lot of exciting things happening for both, you know, simplest as the organization under emphasis as well as like Utah and the ecosystem here and and everything else.
Peter Harris: So, you know, we're just really pumped to watch what happens in the future.
Peter Seppi: As you're speaking about that. It just made me think so. When I started at UCF, I was 21 years old. Yeah, I had just found out what venture capital was, was very excited about it, but knew very little. I worked on our team and learned a ton and I helped us lead that, you know, first investment into simplicity.
Peter Seppi: And it's weird. I'm 24 years old and I have the ability to say to my family when I go home. I worked on a deal that, you know, created millions of dollars of value for the universe. You're a fun brand. It's just a weird, weird place to be as a, you know, young 20 something year old, which I think speaks a lot to understand the situations that we get to be a part of.
Peter Seppi: Right. What 20 something year old gets to help lead, you know, deals where we invest hundreds of thousands or millions of dollars into into high risk startups. It's pretty cool. But that's not the only thing that we get a deal with by just, you know, leading investments and working on investment teams. We also get to do value out projects for our portfolio companies.
Peter Seppi: And I know that former UDS students had quite a role to play in, you know, things going on at simplest. Can you talk a little bit about what some of our our students have done with them plus over the years.
Peter Harris: Yeah. So you know, it's interesting, a large part of our value add that we pitch entrepreneurs is like, like you're trying to get 100 things done, you're lead investor, they're going to be really helpful in those top 50, hopefully, Right? We're going to try to be really helpful in the bottom 50 of that list. And you know, like we pitch it to a lot of entrepreneurs and I think generally like people like that, that concept right there, we'll roll up our sleeves and help and we really we really mean it.
Peter Harris: And I think Ryan did a really good job of taking full advantage of it, which honestly I love, right as an entrepreneur. Like he should be scrappy. You know, a founder should be scrappy and and using every available resource. And so, yeah, we did a bunch of projects where we basically put two of our interns into their offices and just cranked on things that they needed done, whether it was like evaluating markets or potential acquisition targets or helping them build our sales pipeline, all kinds of interesting projects and, you know, some that maybe weren't quite so interesting or glamorous, but that were really meaningful to the company.
Peter Harris: And that, I think, gave our students some really good insight into like key drivers behind a business that, you know, sometimes those things aren't very glamorous, but they need to get done right. So, yeah, fun working with Ryan and his team on on some of those value add projects. And frankly, like, I wish that more of our portfolio companies took advantage of that offering where we we could be more helpful.
Peter Seppi: Right for the students. It's quite a life changing experience for your resume. On one hand, you're a full time student, you're going to classes Monday through Friday and you know, then you're working part time at a venture capital fund trying to analyze deals and markets. And then on the other end, you're working, you know, at a portfolio companies office.
Peter Seppi: I remember we had two students where I hadn't seen them for a few weeks, and they came into the office for a staff meeting. Where you guys been? We just simply, you know, just helping out, just what a cool experience for young students to have the opportunity to get, you know, their feet wet, both not only venture capital investing only, but also in, you know, the actual operations, the company building.
Peter Harris: Definitely. So speaking around like experience and learnings, you know, as you look back through the simplest deal, what did you learn from it and how does that change you as an investor when you evaluate companies going forward?
Peter Seppi: I think the first thought is that you can't always follow the conventional wisdom of the crowd. If you told me that one of the most successful investments that I was going to make while working at UCF was into a consulting firm that was headquartered in Utah compared to all the other companies that we've invested in. First, I might think that really, but it's really turned out that way, and I think that's showing me that as long as a company is solving, you know, a really valid pain point and as long as they have a strategy about how they can really capitalize on that pain point, magic can happen.
Peter Seppi: And I mean, I think that's one of the biggest takeaways for me when I'm looking at a company. I don't think right away this is inventive. It doesn't fit the venture capital mold. I mean, there are some companies, obviously, that you wouldn't want to give venture capital to if they just can't scale that way. But I think this is going to open my, you know, my eyes to other companies that at first glance, I think we pass on this and say, I'll go, how does this work at scale?
Peter Seppi: How does this look like a big company and how do they get there? How about for yourself?
Peter Harris: Peter Yeah, you know, it's it's funny you say those things because I think a lot of the times it's I mean, it's this balance, right? On the one hand, you want to be able to move through and make decisions quickly. On the other hand, you don't want to miss out on great opportunities. And so there's this tension of like, is this a venture deal?
Peter Harris: Is this something that fits our thesis? Yes. No, I'm going to do I'm going to say no very quickly and move on to the next one. Right. But I think if you do that too quickly, you might miss out on opportunities like someplace where, you know, at first blush you could say, well, this is a consulting services business.
Peter Harris: This is clearly not a venture deal I'm going to pass. Right. And you would have missed out. You know, what I think was ultimately a really interesting opportunity. I also think the other thing that I've learned through the process is and it's something we've we've talked a lot about, so that should can come to no surprise is that great entrepreneurs can make a huge difference in the success of a company.
Peter Harris: You still need a really strong market, you need a well thought out strategy and and or product, right? But, you know, great people can kind of figure that stuff out. And I think there's also a certain amount of ensuring that that the person matches the opportunity and what needs to be done. And I think, you know, Ryan and his team kind of really exemplify that in terms of being the right types of people to run that type of business, if that makes sense.
Peter Harris: Right. Like if if Ryan was like a deep technologist and built like amazing tech products, like he could build like a great company, but he probably wouldn't have been successful running Simple as Right and Simple is really needed. Somebody that understood people, understood culture, understood how to sell vision and inspire people kind of above and beyond, you know, a lot of other attributes.
Peter Harris: And and so he ended up being kind of the right guy to really build that company into a great success suite. Well, any other thoughts you want to share?
Peter Seppi: Nothing that comes to mind at the moment, but it's been a lot of fun and I hope we continue to do these podcasts.
Peter Harris: Yeah, no, this has been great. Thank you for listening. And, yeah, watch for, for our next one. Thank you.
Peter Seppi: Thanks, guys.