SaaS Interviews with CEOs, Startups, Founders
Henry Schuck turned down $40m for 70% when he was 24
02 May 2022
Chapter 1: What is the main topic discussed in this episode?
Founders, what's going on? You guys know I love in-person events and they are back. The recording you're about to hear is from our most recent event where we had hundreds of founders come together, share intimate details, templates, KPIs, OKRs about their business, and it was something special. Something special. We'd love to meet you in person.
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Action. Zoom Info is still founder-led. Henry Shuck is the CEO and started the company while he was in law school by putting $25,000 on his and his co-founders' credit cards. You know, we're investing for the long term. I'm focused on building this company into something much larger than it is today. Our team at Zoom Info is innovative. We're hardworking.
We're always looking to define new possibles. And we're just getting started. Three, two, one. Marketing platform ZoomInfo opened for trading earlier today. The company's CEO, Henry Shuck, joins us now remotely from his home outside of Portland. ZoomInfo helps sellers find their next best customer.
Whether you're a pallet manufacturer in Alabama or you're a Fortune 1000 technology company, ZoomInfo helps sellers find those companies and find the buyers of those companies. We've got ZoomInfo set to go public this very morning. How is the current environment affecting you? What advice would you give if another company was out there looking to come to market right now? Congratulations.
It's always a big deal. Let's do this. Guys, before we get back, guys, welcome to Better Talk. Peter, can I get a mic? So guys, Henry Shuck, we're thrilled to have him with us. Before you meet him, though, I just want to say, it's incredibly back in person. I hope it feels good. Does it feel good? It feels good. Drink lots of coffee, keep your energy high.
We've got outlets for every person, so if you get bored, you can just open your computer, look up occasionally to act like you're paying attention, and go back to your Gmail. It's going to be perfect. There's plenty of extra seats on this side of the room if you want to grab one of those as well. So let's get into some of the content here. Henry's story is really incredible, right?
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Chapter 2: What was the original idea behind ZoomInfo?
And so when private equity firms do a deal like that, they can increase their return if they fund a part of the deal with debt. So instead of it all being equity that shares in the upside, they do a portion of it in equity and then they do the rest of it in debt that the company has an obligation for.
and the company pays the debt down, but it juices their return because the debt doesn't participate in the upside. I'm just reading faces to see if people are following. I think they got it. They'll follow along. All right, so between 2014 and 2018, you grow the business, you grow the business. What was revenue in 2018? Revenue in 2018 would have been like pre, we made an acquisition.
2018 was post-acquisition, so $170 million. And so was this LOI pre or post the 1.51 valuation? Pre. Post the ranking acquisition, pre the ZoomInfo acquisition. Okay, you said post-Rain King? Post-Rain King. Pre-ZoomInfo. Did you know in this LOI that you were going to use a bunch of debt to go do the ZoomInfo deal? No. We didn't know we were going to do the ZoomInfo deal when we got this LOI.
This is the same firm as the other firm, who I wasn't going to do business with, but I really wanted to frame their bullshit offer next to one like a few years later that said $1.5 billion for much less of a portion of the business. And so a few years later, The private equity firms or venture capital firms who come in, they have a hold period.
They need to get in and out of investments usually within five years. And so within five years, whatever the business is going to do, double, triple the value, they have to exit either all of the business or a portion of the business within that period of time. And so this was four years post the investment. We had done an M&A acquisition.
So TA made this investment at $275 million, and now we're four years into the future. This offers for 1.5 billion. We ended up taking an offer at 2 billion, which TA ended up selling a portion of what they owned and then holding on to the rest. And then myself, my co-founder, and then we had an employee pool. I should talk about that.
We have an employee pool of shares all participated alongside that as well. This is actually interesting. So I had a co-founder. My co-founder left in 2015, left the business. When he left, he agreed to put 25% of his ownership and I put 15% of my ownership into a pot that we set up for employees. And so private equity firms are notoriously not great at giving equity down to the last employee.
So we were able to take this fund of our shares and then give it out to employees so that they would participate in the upside of the business. And so every time TA or Carlisle or anybody sold, the employees also had an opportunity to sell in those transactions as well. And so when we were out in 2018 selling a portion of the business so TA could get their returns internally,
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Chapter 3: How did Henry Shuck fund the business initially?
The employees, TA sold 33% at this time. We asked the employees, what do you want to do? They were like, we'll sell 50% at $2 billion valuation. The company's worth $20 billion now, so it was the best decision. So they sold 50% of what they owned, and people put a lot of money in the bank at that point. Did you sell any of yours? I sold 33% of what I owned. At that time? At that time. So I had...
And along the way, we missed a couple points, but along the way... Touch on where you pulled capital out. Yeah, exactly. That's what I was going to do. So TA makes the acquisition in 2014, and then they do this thing called a re-cap. where they go out and they add additional debt to the business and then dividend that debt out as a return to the shareholders. It's a weird thing.
I didn't know what it was. But we're like a year in, the business performed, and they said, hey, we have an opportunity to add another $25 million in debt or 40. Honestly, I can't remember. And let's say it was 40. When we put $40 million in debt on the business... The business is super profitable, so it can continue to support paying that debt down. So we're going to put $40 million on.
We're going to take $20 million as a return. And then you guys are also 50% owners. So Henry and Kirk will also take $20 million out of the business at that point too. So that's another capital return. That was the only debt recap we did. When you do those debt recaps, you get in a room. Have you ever seen a conference room at an airport?
I remember walking through airports and going, who does a conference in an airport? That sounds horrible. You do these conferences in an airport, deck conferences. That's what they're there for. So you go to an airport conference room, and there's a bunch of...
debt guys, people who work at SVB or NXT, there's like this group of companies that does kind of like mezzanine debt, debt that's kind of weird and takes specialization to understand. And then you pitch the business to these debt people and then they decide what they would give you and at what rates. Remote teams are all the rage right now.
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Chapter 4: What challenges did Henry face when considering a secondary deal?
Probably a smart idea. Don't say anything. It's a very big market. When we made the acquisition of Rain King, you have to get antitrust approval. And so we went, and the regulators didn't love the ranking acquisition because they felt very similar, two very similar companies. And so we actually went to Washington, D.C.
We met with a panel of Department of Justice regulators in the antitrust division and included lawyers and economists trying to figure out how anti-competitive these two companies coming together would be. They stretched it out until the last day of when they would basically deny or approve it. They approved it. We put those two companies together.
And then a year later, we acquired Zoom Info, which was another player in the market. That process was not as difficult. As Rain King? As Rain King. Wow. Did that surprise you? It did surprise me. How did you get that deal done? You're buying some info, I believe, from a private equity firm. This is a complicated deal from a debt perspective.
So what happens here, and the company wants to, you want to use debt as well as you can if you're a profitable business. Because, and I'll do this point again, every time you use debt, debt doesn't participate in the upside of the company. And so if I take $100 of debt and it has a 5% interest rate, And then for three years, my company grows 100%. The debt doesn't get 100% return.
It gets a 15% return over those three years. And the company participates in the upside. So when we went out to buy Zoom Info, Zoom Info was an $800 million acquisition, just under $800 million. And we... It took me forever for you to get the freaking number. You didn't give that number out. Yeah, I don't think we talked about that number. We got close, though. Yeah, yeah, it's close.
I got pretty close. Yeah. It's actually like 785, so it's pretty close. And so we had to go out and raise as much debt as we could, as much as the company could handle. And at these levels of debt, you actually have to go to Moody's and S&P. and get them to rate your debt, like junk-rated debt. I didn't know what this was.
And you go to S&P, and you go to Moody's, and you do the same pitch, and then they decide the rating of your debt. And based on the rating of your debt, a whole bunch of other people buy the debt at certain rates. What happened here was we ran out of debt room. We took as much debt as we possibly could. Which was how much? Which was $1.2 billion we needed. Against how much of profit?
With the combined business, you would have had about $100 million of profitability. So it was like 13 times levered, but less than that in the future. It was a lot. Yeah. And and so but there was no more room. So you could raise debt up to like nine hundred million. And then you had a hole. You had a three hundred million dollar hole and getting the deal done.
And so Carlyle, who was who came in in 2018, the Carlyle group stepped in and took a thing called preferred equity, which is equity that looks like equity but acts like debt. Jeez, it's like I'm a finance guy now. Disgusting. I wasn't going to talk about your tie. I was listening to you describe the bankers in the airport conference room.
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Chapter 5: Why did Henry Shuck turn down a $40 million offer for 70% of the company?
Do I have the best ones in my head? The employee bonus, it's complicated. But I had 2% somewhere else. Yeah, cool. So talk to us quickly as we wrap up here about Zoom Info today and what's next. Yeah, so a couple things. One, if you get to like $10 million of ARR, you don't have a great CFO. You should probably get yourself a great CFO.
And you're probably thinking, because I was you, like I got a guy who does the books and sends the invoices and does the bank stuff. Like what do I need a big expensive CFO for? What's bigspensive? Probably $300,000. You paid that higher for you? The first one, probably $250,000, $300,000. It's worth every penny if you get the right CFO.
The great CFOs are business strategists and they help you understand the rhythm of the business. They help you see where to invest behind the company and how the business operates. And you have a feel for it because you're a founder. CFO makes your life a million times easier. Don't wait too long for that hire. Look, we're public. The company's growing 60% a year.
It's doing it profitably at 40% operating margins. We've done 12 acquisitions in our history. We'll continue to do M&A. Who are you buying next? I try. You used to tell me everything. A little YouTube recording. Now I'm nothing. For what it's worth, Nathan has the best content on this stuff. It's why I'm here. It's why I respond to his emails. It's the most dead-on content ever.
And the way he asks questions in interviews, nobody really understands the SaaS space well enough to... articulate questions the way he does, which I think, by the way, is why people come on and why they share information, because usually you're talking to an analyst who doesn't understand your business or a journalist who really doesn't understand business, period.
But we're going to continue to grow the business. We help sales marketers and recruiters hit their numbers, find the best candidates. It's a SaaS platform. It's an annual subscription. There are multiple dimensions of it. How many, are there customers here? Raise your hand if you use Zoom info. Thank you guys very much. Nice.
And you guys should, they've got a booth right outside in the nourish area. You should definitely chat more. You've got some interesting new products coming out as well. But again, Henry, incredible growth story here. Anything you want to sneak in that I didn't ask? No, but maybe just a piece of advice. Please. Like someone asked me the other day if I'm having fun. I'm not, like, by the way.
The job is just too hard. It is just too hard. There are too many moving pieces. It is not fun. I am fulfilled. I am challenged. I would never do, there's nothing else I would want to do professionally, but it's not fun. And so I respect everything that you guys are doing. It is a hard job. You should embrace it. It does not get any easier. It's hard all the way through.
but it is the best thing I could ever imagine doing. Guys, Henry Shuck, Zoom Info, give it up.
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