Chris Onan sat down with Dan Daugherty to discuss what it took to build a multi-million dollar Denver based company that eventually led to a $165MM all cash acquisition deal with K12, Inc.
Dan Daugherty: Welcome to this episode of The Big Exit. Today I have Chris Onn, a good friend, entrepreneur and one of the co-founders of Galvanize, that earlier this year sold for 165 million. Chris, it is so awesome to have you on the show.
Chris Onan: Well, thanks for having me, man.
Dan Daugherty: Let’s get started by giving our listeners a brief overview of what Galvanize is and why you guys came together really almost a decade ago to start it.
Chris Onan: Yeah, I want to say it was first quarter of 2012. So gosh, eight years. That’s crazy! Galvanize fundamentally at the core was an education business. You know, we looked at the problems that tech companies was my construct, that were just having trouble finding tech talent or enough of it, and particularly in Colorado. And we said, Look, there’s gotta be a better way to do this, and Eric Mitisik called me one day and said, Hey, I got these two guys and they’re working on something, but they need you. And that was really where it started and I met my co-founders over a couple glasses of wine, up at the venture capital Meraki’s Conference, something we as a venture capital community used to hold in kind of Denver Boulder because we couldn’t find investors from the coast to come and look at deals in Colorado. Well, that’s changed. That conference outlived itself, it’s not necessary anymore, investors love coming to Colorado. And I met my two co-founders and I was like, Whoa, that’s a lot because at the time I think it was really focused on being a real estate play, and I’m trying to raise a fund and then maybe also do some software training, and I just said, Hey, have fun storming the castle guys. It’s just way too complicated. And one of my co-founders called me a couple of days later and said, Hey, look, you know, we haven’t figured it all out, you know, why don’t you help us? What’s the downside? And I was like, don’t use logic on me. It works. And so I just started kind of banging on it and we started revving it and tweaking it, and I was the reluctant co-founder. It was a little bit like the girl you’re dating that you don’t want your friends to know about, and then six months later, you know, you’re like in a relationship. It’s a little bit like that. And it was kind of a three month process, you know, where we were just kind of white boarding and kind of grinding, and we basically decided, Hey, let’s flip real estate on its head. If you think about, you know, for a high growth business, if you have to sign a lease for a fixed amount of square footage for a fixed term, two years, three years, five years, it’s not only not helpful because, a hydro startup is either gonna grow fast or shrink fast, one of the two. But it’s not going to stay the same in most cases, and if it is staying the same, then it’s generally not working out. And so the kind of classic real estate model is not only not helpful for entrepreneurs, it’s perfectly orthogonal. And that was why we said, Look, no leases, no contingent liabilities. If your company’s growing and you want more space inside a galvanized campus, awesome. If your company is shrinking and you want to go back to the garage and just come for events and come to find students and mentor, wonderful. It really was. The ethos was set up to, you know, make life difficult for commercial real estate owners and make life better for entrepreneurs and operators. And the key way that was gonna happen was providing these young and growing companies with access to tech talent because if you’re Google or SendGrid or Ping Identity and you have money for the free lunches and the massages and all that stuff, you can attract better talent and the start up companies that are smaller really
needed to find more junior talent. What’s that line from the Untouchables? Marie says: “You don’t go to the barrel, you go to the tree.”
Dan Daugherty:Yeah, right.
Chris Onan: And that was a little bit of the thesis of putting software to offer training at the core of Galvanize, because that educated kind of workforce that was coming out of the Galvanized Software audit programs was enriching the surrounding community. And then we always wanted to have a small seed fund to investment in things that bubbled up from the campuses, either people who came for events or companies that we’re doing while we’re students, in some cases who left and started something. And it took us a little while longer to make that happen. We opened the first campus in Denver, 30,000 square foot building, people told us we were insane. It wasn’t really even ready to be open in September of ’12 for member startup week, but we opened anyway, and we hosted a ton of the kickoff events, the big parties and, on, I want to say we had, like, 10 companies move in the first kind of day, and we’re all standing around eating pizza one afternoon and the floors are wet and it’s dark and I was like, Man, is this gonna work? And it was one of those, like check yourself moments and then, you know, on January 24th of 2013, so 3, 4 months later, we had our first software developer cohort of 24 students start. And the night before I was like an expectant father. I was basically like are they gonna show up for the class tomorrow? Because if they don’t show up, then we have empty spots. You know the planes already taken off. You can’t have people join midstream, they’re late, because the pace of learning is so fast. And it was really kind of a magical day in Galvanized history when those 24 students showed up, and the energy in the classroom. And we hosted a cocktail party, I can’t remember if it was that first night or or that week with the surrounding community members, and you probably remember this. And the energy of having the students who were there to learn and want to access this amazing tech world and entrepreneurship, were surrounded by all the companies that were doing exactly that, right? And if you remember, we had your company, we had Uber’s Colorado headquarters was in the offices. I mean, it was just a, you know, Kevin McInerney’s company, Active Junkie. I mean, it was just a really crazy fun vibe. And as we looked around at the cocktail party and saw what was happening, you know, I think the three of us who started Galvanized were like, we’re onto something.
Dan Daugherty: You know, I remember precisely even before that time, you gave me a hard hat and we walked around that facility, the first facility that you had, I think it was off of Delaware.
Chris Onan: Yeah, I’m pretty sure Lisa thought we were crazy.
Dan Daugherty: Lisa thought you were crazy, but I just saw the vision of what you guys were doing from that very early stage, and I knew there was something there. It’s funny how getting the perspective from you once it launched, was it going to be successful? And then once you started getting all of these great companies in and even the students that started, I mean, it was, you guys were building a community that was so vibrant even from the very beginning. That was, for me the turning point of wow, these guys are going to be really successful.
Chris Onan: Yeah. I mean, I think people bet on us early, like you and Lisa bet on us early with Rentbits and Doug Llewellyn, who was running Manta and which was a really big company in Ohio, that he was running it out of Colorado because that’s where he lived. Kevin and Danny from Active Junkie, Will from Uber, Danny Neumann’s company Roximity. And we had a lot of early community members just basically say we’re gonna do this, we’re gonna be a part of this. And we also had one of the things that we did early was we couldn’t just be a real estate place to work, right? It had to be an enriching community that was focused on entrepreneurship and tech and growth. And so one of the other things we did is we asked people like Joe Zell of Grow Tech Ventures, Luke Beatty, multiple time serial entrepreneur, Andre Durand, to be mentors and come and hold office hours for the community. And people did that in droves. It got to be such a thing that people would reach out cold and ask if they could come and be mentors, and we had to kind of say, np, we had to curate it because we didn’t want people hucking services. What we really wanted was seasoned entrepreneurs and investors and operators and angel investors coming and being a part of the Galvanized community. It was great, but we benefited. One; it was the right time, right? Denver was kind of ready for entrepreneurship to really start to be recognized and enriched. I mean, Denver startup week was first year, Denver startup week was the first year we started Galvanized, so kind of perfect timing. You know and what Ben Data and Eric Mitisik and Tammy Door have done with Denver startup week is nothing short of incredible. I think its the largest free entrepreneurial event in North America, and they just started it in 2012 and I believe it’s gonna be all virtual this year, but kudos to them. And I think Galvanized really benefited from that tailwind. And I think the entrepreneurs and the investors in town were ready to have more of a sense of community. And it was crazy how many people were like, Yeah, cool. I think we’re in. We’re gonna be a part of this now, and I would I would be like, really? You are? I was always surprised when companies like yours were like, No, no, no. We’re gonna anchor down this place. We’re going to do this. And it was very awesome, people were so good to us and, you know, I remember Greg Becker, who is the CEO of Silicon Valley Bank, came and checked out the first Galvanized campus on Delaware, maybe 3, 4 months before we opened. Josh Dorsey, who ended up being our banker, brought him and Becker walked through and heard the pitch and he goes, Yeah, we’re in. What do you need from us? And I was like, Really? That’s great! I was just totally stunned. It was awesome.
Dan Daugherty: There’s a lot of those experiences that we had. Now prior to Galvanize, you were deep in in venture capital. So you had the timing that you just mentioned, you had the team, and then obviously, this was a pretty capital intensive venture that you guys then went on to raise additional funds. Correct?
Chris Onan: Yeah, no. You’re absolute right. Fundraising was a huge part of my life for the approximately five years that I was with Galvanize and just with, you know, I had been with three or four different venture funds and probably invested at the time, maybe invested in 100 some companies, but a recurring theme kept coming up when I was on a board or when I was an observer. You know, CEOs were more than happy to have me help them with work, you know, if they needed a study on it. Okay, what member of my team should have what percentage of
options? What commercial real estate broker should we hire to find space? You know, if you’re willing to do that leg would work, CEOs will spend time with you, but when it came to like, strategic advice, I probably had CEOs tell me well, you’ve never really done it, you haven’t been an entrepreneur. You haven’t been an operator, so you don’t really know, you know, because I’d really just been a consultant and an investor, which probably means I hadn’t really created any GDP in my career. And again, you know, the opportunity to be part of, you know, the founding team at Galvanize was a chance to give that a try and see if I had the chops to be an operator. And now, in my post Galvanize career, I think CEOs are a little more willing to listen to me because of what happened at Galvanize. But back to your question, I think you were asking about capital. Yeah, no. Galvanize was a big swing, even from the early days and capital raising was like job one and I think in my time at Galvanize I ultimately raised 60 or 70 million in capital. And the first 20 to 30 million of that was family office and angel capital, and we had some amazing people believe in us and bet on us really early and probably, you k now, we were maybe a little early for them to bet on us, but we were very fortunate. And as it turned out, I loved fundraising. It was probably my favorite thing.
Dan Daugherty: So that was one of your favorite things. What was one of the least favorite things of starting a company and running a company?
Chris Onan: I mean, I think it was pretty much five years of shear terror. We were never within, like, you know, 60 days of running out of money. But I would say we were constantly somewhere between 90 and 150 days of running out of money. And so it was you know-
Dan Daugherty: For five years?
Chris Onan: For five years straight, yeah. And then that’s what ultimately led to me deciding it was time to go, was in August of 2016 we closed a $45 million series B led by ABS Capital Partners and had a bulletproof balance sheet and I felt good about the team, and I could kind of gracefully depart and have a more sane pace of life and then not have all those angels and family offices that came in early, be pissed that I left the company in the lurch. And a lot of those people that came in early, you know, I still work with, you know, on things today and continue to appreciate their support in the early days.
Dan Daugherty: Was your cap table a mess or did consolidate a lot of stuff?
Chris Onan: I think different perspectives from different folks. Our series A lead would say it was messy. He made a comment to me, he was like, whoa, raising a retail? You know, kind of taking a dig because he was a New York Money guy who ended I up loving and working really closely with for years. To this day, we work together. But I didn’t think it was that bad. We probably had thirty or 40 folks on the cap table, so I didn’t think it was absurd, but it certainly could have been cleaner.
Dan Daugherty: So you left, but you still had an active role. Were you still on the board?
Chris Onan: I wasn’t on the board, but I had a good active dialogue with the series A lead, Daniel Bianco from University Ventures and the series B lead, Paul Mariony from ABS Capital Partners. And if they ever needed my help and that happened a lot after I left, I was more than happy to help them.
Dan Daugherty: When did you guys decide to potentially sell the company? Was it a while ago? Was it, you know, six months ago, prior to the acquisition? Was it always on your mind?
Chris Onan: No, it was pretty clear to me when the board brought in Carl Meyer to be executive chairman and then promoted Harsh Patel, who had been CEO of Hacker Actor, which a really good business based in San Francisco that Galvanized acquired, I think, Galvanized acquired Hacker Actor in gosh, I think probably I think that closed in the summer of 2018, that they were getting the business ready to sell. Carl has a long history of coming in at late stages of businesses and providing real professionalism to set things up for an acquisition. And I think it probably happened sooner than the board and Carl thought because there was inbound interest. Carl and Harsh and team had done a nice job improving the unit economics and the fundamentals and K 12 education came along, I think, you know, made them an offer that they said, Hey, we have to do this and that decision was obviously handled at the board level by the preferred investors. But I think ultimately a great outcome, particularly with the benefit of hindsight of what’s happened here in 2020, right? The face price was 165 million in cash. There are some other things that make that a bigger number. And look, you know, the Galvanize board made the best decision they could at the time. K 12 stock is up three X since January of this year, largely because they have a distance learning component to what they do. And so I’m not throwing rocks at the Galvanize board. I think they made a good decision, but, gosh, if they’d taken stock, instead of a five or $600 million exit, which is, you know, that’s a really big one in Colorado.
Dan Daugherty: Let’s talk about that briefly. So some entrepreneurs will be lucky enough to get a term sheet or potentially be acquired, and that question usually comes up. Should I take all cash? Should I take all stock? Should I take some cash?
Chris Onan: Or an earn out.
Dan Daugherty: Or an earn out. Right, what would you recommend to entrepreneurs that are lucky enough to be in that position?
Chris Onan: Every situation is a little different, and it really depends on the acquirer, right? There were definitely some rumblings in the early days that WeWork wanted to try to acquire Galvanize and use their paper, you know, their stock to do so. Now based on the timing of that, it probably still would’ve worked out. But we just didn’t like that business. Co-working is a stand alone, it wasn’t something that got us excited. We liked the kind of membership component for tech companies because it enriched student experience and that’s why it was such an important part of the community. And so every situation is a little bit different. I’m trying to think of a recent
acquisition here. Look, Brand Folder was just acquired and Smart Sheets really hot Seattle based company that’s public, came along and offered a mix of cash and stock, and my guess is that Luke and his board decided they wanted some stock because they believed in what Smart Sheets was doing, and they probably did a lot of diligence and drilled in the financials and bookings and said, Hey, you know, we’re not gonna take it all in stock but we’ll take a third. That would be my guess, in stock, so that they could ride that a little bit further. Plus I think they believe that Brand Folder is gonna continue to grow inside Smart Sheets. Or maybe there’s a situation where it’s a really slow growth kind of mainline industry company that’s been around for 20 years, and when they come to acquire, you probably want to take all cash. It’s really evaluating. And then there’s also the personal situation of the founders and the investors who are gonna receive the bulk of proceeds, Right? If you’re in a good situation and you want to swing for the fences, then maybe you ride more stock. If you want to have the personal balance sheet and apologized to your spouse or significant other for the past 5 to 10 years of hard work and neglect, then you maybe take more cash.
Dan Daugherty: Right. It’s kind of funny that you mentioned Smart Sheets in, it must have been February, for my 41st birthday. My wife Robyn, of course you know, she sent me out to Vegas and I was playing blackjack and next to me is Mark Maitre, who is one of the founders and the CEO of SmartSheet and we just started talking. And, of course, Luke who you and I know well, as you just mentioned I think they sold 100, I think it was 110 million, maybe more, but that was just announced I think three weeks ago-
Chris Onan: I think 155 million. So that’s a really nice deal. I don’t think they raised a ton of capital, so it’s highly efficient, which is so Luke’s strategy, he’s a hell of an operator and investor and entrepreneur. It’s a good story.
Dan Daugherty: Right, because he also sold Associated Content to Yahoo.
Chris Onan: That’s right. That was a deal that I tried to get into, but I was late and it didn’t happen. I’m always bummed about that.
Dan Daugherty: What are your biggest regrets as it relates to investing in companies?
Chris Onan: Like deals that I missed out on?
Dan Daugherty: Yeah.
Chris Onan: Oh man, Alberts, that was one that Nick Lyman on our Galvanize Venture fund team found I think it was the summer of ’15 and we were out in San Francisco and we were doing like, a strategic offsite after a board meeting. And I had, like, these horrific stomach pains, I ended up going to the hospital, getting an MRI and all this stuff, and I basically came back and I was like, Okay, I’m probably well enough to go meet everybody at the bar and have a drink, and Nick introduces me to this guy who’s got this shoe that’s made out of this woll and it’s all cool. And I’m
just like, yeah, I can’t process this right now, I was basically like nice meeting you, I’m gonna come back to the hotel and take a nap, and you know, we never did that deal, and that was a huge mistake. So kudos to Nick for finding it.
Dan Daugherty: Now and I believe you were really in Uber though?
Chris Onan: I can’t claim full credit for that. Where I was early was Chris Coggins, Tim Connor and I made a small investment in David Cohen’s for Seed Fund, which at the time was called Bullet Time Ventures. Now it’s Techstars Ventures. But I think David raised five million bucks from you know, people in the community who were in and around tech and Techstars. And, you know, we put a little LLC together and gosh did that end up being a heroic investment because SendGrid, Twilio, Uber and there’s a couple more in there that are just monsters. It’s just an amazing vehicle. So kudos to David Cohen and it was fun just to be able to follow the Uber story and have a dog in the fight.
Dan Daugherty: If you could guess what was that original, would you say three million or five million? What do you think that turned in to?
Chris Onan: The investment in Uber?
Dan Daugherty: Yes, Uber and SendGird-
Chris Onan: How can I say this in a way that doesn’t give away confidential stuff? I think you know, I think it was like a $5 million vehicle, and I would bet you that on a multiple of capital, it’s one of the top 10 best performing funds in history.
Dan Daugherty: So fantastic.
Chris Onan: Yeah, I mean, it’s amazing. I don’t think David gets enough credit for how good he is at investing, because he doesn’t publicly disclose a ton about the returns, but it’s pretty impressive. You know what? Let me put it this way. It was a small investment at a time, and it became much less small.
Dan Daugherty: What is a good success rate for these-
Chris Onan: In terms of like percentage of deals that win or like on a combined basis? Because there’s a few different ways to look at that.
Dan Daugherty: Let’s look at it from a percentage of deals within the portfolio that gain-
Chris Onan: Let me answer it slightly differently. There are different types of investors at different stages. And you know angel seed investors, it’s probably less about what percentage return capital. Because if you’re playing angel seed, return of capital is not answering. Two X is not interesting. You really need to have one in there. That’s like a 30 50 or 100 X type deal. If you’re in the seed Angel World. If you’re a series A maybe maybe you want half the deals to produce returning. You want you know one of them to be a 20 to 30 X growth equity investors. You know, underwrite to a three X and hope for five, and they assume that 80% are gonna deliver that. So they’re kind of, you know, it’s much more your mood, your private equity. But you’re moving that way where it’s all about show me demonstrated track record and he’s gonna turn the crank and I’m gonna get us reacts. And it’s just different. Different roast risk profiles as he moves through the life cycle of entrepreneurship. But the seed in Syria’s a world that’s all about finding these home run deals on a home run is like 50 102 100 x. And I see inexperienced cedar angel investors, you know, cell like an early winner for, like a 234 x, And I’m just like, Come on, that’s not the game you’re and you’re not a growth equity investor. You have that you have to ride winners, and you have to put more capital into them if you can. And that’s the hard part. When you’re a seat angel investors. As the big capital partners come in, you get closed out of your allocations because they want every dollar they could get. Do you try to do pro rata rights on every single deal that you. So if you’re a cedar angel investor, you definitely you try to get those in or you get them in. But what happens is the rest of your investors wave those when the big when the big investor comes along and it’s a nice markup for everyone was like, Oh yeah, sure, they can have as much they want. It’s a real problem for a seat in Angel Investor. You want to get one of work. You you backed it early. It’s working. You want toe double down and and sometimes you can’t. And that’s why having really good relationships with the founder and management team is that’s what drives everything, because then that team will will make sure that you have a place. What are you doing now? Posts operating post founder rule? Yes, it’s fun. I have much more sane pace of life, and I get to sit on boards and do some advising, and I’ve really had a chance to work with some cool cos um Brad Cope. It’s an artifact uprising. Artifact was an early galvanized community member company that was started by two awesome sisters who built it and sold it. Toe Visual supply company Visco on Excel Splendid Company in the Bay and in spring of 2017 Bread Cope. It’s paying me here’s own it, weakened by this thing out and I’m gonna do we should. And so that happened. Kevin McInerney. Josh got myself, Brad, and that happened in August of 17 and Gash breads done an incredible job with it over the past four years is just amazing. Entrepreneur in Operator. It’s a fun, small world galvanise story, because Brad was working at Active Junkie on one side of the galvanized first campus and left after junkie to go work with Jenna and Katie it artifact Uprising on the other side of the campus. That was something that we had talked about. We were like, You know, there’s gonna be some poaching of talent inside the walls and and what we said was, Look, we can’t restrain trait If that happens, that happens. But Kevin, who is a dear friend, was really upset with me when it happened. And he’s like, Do we might have believed allies. This is what’s gonna happen. I’m like I get it. I understand, I said. I probably would have preferred that you know the people who were Brad and come and talk to you like college football. Coach, Can we talk to your coach? But again, we didn’t want to restrain trade, so artifacts been a really fun one. Another company that I enjoyed working with arrested on the board is vinyl Me, please. It’s Ah, vinyl record Membership Club that bootstrapped. It’s wait a 10 million in in annual revenue and 28,000 members. It’s awesome. There’s amazing operators since I think that story is more and more common in Denver, where you’ve got these people who start something and and don’t raise capital. But just focus on
grinding and build a good business. And Matt Fiedler, Cameron and Tyler, who who are the key guys, um, have honored me, please, and now, more recently, about it, Lloyd Star and in an awesome finance professional like they’re just people who put their nose to the grindstone and make it happen. There’s a lot of those stories within Denver, even even rents bits. My last company had never raised money, cash flow positive and ah, and you know, I gotta say galvanize was really a key to that. Just building that community and building out the network. Um, so, you know, I’ve never actually had a chance that Thank you. Thank you. Wait, What did S o r pleasure? And to your point, I miss it. I miss being on the campus every day, surrounded by other officers. They’re doing exactly what we were trying to do. And that’s I think that’s why galvanized formerly worked is the We galvanize itself. We were doing the same thing that all of you were doing. We’re tryingto figure out our business model and build a business. And so I feel like we we were authentic to the community, and the community was authentic to us. And, you know, I totally missed that five. Obviously, in a covert world, it’s It’s probably a little difficult toe have that, you know, physical presence. But I miss I miss the energy and being surrounded by people were building stuff every day. Let’s take this out with one last question. If a new entrepreneur came up to you and wanted to start a company, what advice would you give out your personal spending cut? Your personal himself was much runway as possible, That is. You know, I’ve never heard that before, but that is dead on. You have so many people that even might be working at a job today making a good amount of money. They might have a mortgage or two mortgages, maybe a couple cars, and they want to start a company. But they want to keep everything that they had in the past. And, uh, it all comes to even personal cash flow. Yeah, you got You got to cut your spending 100% right? You got to stay in the game you get So it’s like poker. You can’t hit gamblers room. You have to have enough enough chips where you can continue to sit at the table and and and hang in this. You know, if you if you run out of money and you have to shut it down, you know the answer. If you can hang around, you have a chance to continue to build something that’s right. And in poker, it’s called the Bankroll. And professional poker players understand that you’re gonna have your ups and downs. Um, and you have to make the right bets at the right time when you’re up, and that happens a lot. I dated a basis. You’re gonna have, uh, really highs, really high highs and low lows, and they could fluctuate on. Yeah, that’s the thing, right? Everything is amplified in the noise stage company. Right? If you let’s say you close a $10 million deal and you work it Google. Yeah. No big deal, right? It didn’t really change the direction of the business. But you close a $10 million deal in a company that’s doing two million a year in revenue. That’s a really high same thing. You miss out on a $10 million deal at Google. OK, no big deal. We’ll go get the next one. But if you’re in a small business, it’s, you know, low lows. Also, it’s just crazy. Everything is amplified.
Dan Daugherty: All right, Chris, I want to thank you again for taking the time to show your experience with with our listeners. And hopefully I could have you on soon again.
Chris Onan: Thanks again. Appreciate it.