Today is a big day for Volition as we announce our latest fund, Volition Capital Fund III, with $250 million in capital commitments. This fund will have substantially the same strategy and focus as all of our prior funds – which we call small cap technology growth equity. We invest in high growth, principally bootstrapped, technology companies that are poised for market leadership. This is the same strategy that we have been executing on since Day 1. This strategy has been born from our collective experience over decades of investing, in up cycles and down cycles, with lots of success and lots of scar tissue. Our small cap technology growth equity strategy is not a marketing pitch – it’s our genuine, feel-it-in-our bones, part-of-our-DNA, belief about how to best steward the capital of our investors.
Nonetheless, we had to make an important decision with this fund. It was clear before our fundraising process even began that there was substantial demand from investors for what we do. If our primary goal was to be bigger, we probably could have raised a $500 million to $750 million fund – but it would have taken us away from our focus and who we are as a firm. Instead, we decided that bigger wasn’t our goal – our goal, as it has always been, is to be excellent at what we do. Our goal is to be the best small cap technology growth equity fund in the market – and ultimately, we decided that a $250 million fund would best suit that goal. So, we opted for a focused fund with a quick fundraising process – less than six weeks from opening the data room to a single close at our hard cap of $250 million all the while having the privilege to be able to add some of the most reputable investors in the industry to our LP roster.
As we look forward to deploying this new fund, Volition will continue to be a study in contrasts. Some folks at Volition refer to this as our yin and yang.
We will continue to be a conservative and aggressive firm. We are conservative in that capital preservation is baked right into the heart of our investment strategy. Quite plainly, we don’t like to lose money on any investment. However, we are an aggressive firm in that we will not make any investment that we don’t think has tremendous upside potential. If you’re with a Volition portfolio company today, it’s because we think your company can be an absolute home run. We are not just a conservative firm, nor are we just an aggressive firm. We strive to be both at the same time in equal proportion, and it’s that marriage which will help pave the way for unique success.
We will continue to be a creative and focused firm. We endeavor to be creative because you don’t generate great returns through commodity thinking. We have to think different to be better. We have to have differentiated ideas to have differentiated returns. We are committed to this belief. However, we are equally and deeply committed to focus because focus is the key to excellence. And our goal is to be excellent at small cap technology growth equity investing. We have complete clarity on who we are and, equally so, who we are not. Once again, we can’t just be abundantly creative without focus. And, we can’t just be abundantly focused without creativity. But, it’s the two together that is a foundational to our long-term excellence.
Finally, we will continue to be a firm that looks backwards and forwards at the same time. We look backwards to remind ourselves of the patterns of our success and to remind ourselves of the mistakes we aim to not repeat. We look backwards to remind ourselves every day of what got us here and to be consistent about who we are. Importantly and simultaneously, though, we look forwards with absolute certainty that the world of technology will change – change is the constant. We look forwards with the understanding that our pace of learning must exceed the accelerating pace of change that is endemic in technology markets. We look forwards with complete conviction that we can’t stand still – we must constantly grow as a firm and as investors. It’s this tension of looking backwards and forwards at the same time that we don’t just embrace as a firm, but is something we aim to thrive within.
This is who we have been and will continue to be as we take our next step forward with this fund.
We couldn’t possibly conclude an announcement of a new fund without a substantial word of thanks. To the founders and executives who provide the leadership, vision, and heart for our companies – we are here because of you. On behalf of all of us at Volition, we love what we do because we have the privilege to work with people like you. Thank you for your perseverance, fearlessness, and unbridled commitment. We appreciate that your companies are not just companies – they are part of who you are as people. And we are incredibly grateful for the very personal invitation to partner with you on your journey.
To our LPs and investors – we hope that many years from now, you will be able to make one primary statement about Volition: that we did exactly what we said we would do. That we executed on the strategy we said we would execute on. That we generated the returns that we said we would generate in the way that we said we would generate them. That we were the type of people we said we would be from the very beginning. Thank you for your substantial vote of confidence by entrusting your reputation and capital to us.
Finally, to all the Volition team members – thank you for all of the efforts that you make every day to help make Volition’s success a reality. Thank you for going above and beyond when no one is watching. Thank you for not just doing your job but also caring deeply about and taking immense pride in what you do. Job well done. It’s a joy to be on the same team. Onwards and upwards…
Following up on my prior post, “What Is Tag Management”, this second post will be specifically about why Volition Capital invested in enterprise tag management leader, Ensighten. Often when we announce a new investment, like we did with Ensighten last week, people ask me why we invested. Hopefully this post will serve to help answer that question. Let me emphasize that for any investment, the management team and the people behind the company is the most important factor. That being said, I will start with some other key factors on why we invested and end with the most important one, the team.
#1: Clear Competitive Separation and Market Leadership
When a new market emerges that we think will be a high growth and strategic market, like tag management, we want to invest in the market leader. While the term “market leader” is easily thrown around in marketing collateral, we use it sparingly when it comes to our investment decisions. Our analysis on whether Ensighten is the market leader in tag management rests on a number of objective measures.
The first sets of measures are financially oriented. Is Ensighten the largest and fastest growing tag management vendor? Yes and yes. We are very confident that Ensighten is the largest independent tag management vendor in the market based on revenue. The revenue difference between Ensighten and the next largest player in the market is quite substantial. We also believe that Ensighten is the fastest growing company in the market in terms of revenue growth. These size and growth characteristics combined suggests that Ensighten is scaling aggressively and expanding its lead over the competition.
A second key measure of leadership is competitive win-rate. When Ensighten goes up against its competitors in a sale process, they win 90%+ of the time. This is an astonishingly high win-rate. After talking to dozens of blue-chip, brand name customers who tested Ensighten against its competitors in proof-of-concepts (POC), we think Ensighten is winning because of superior technology. I will expand on the technology later, but a 90%+ win rate is a clear indicator of competitive separation.
A third important measure of market leadership is customer retention. Ensighten has a near 100% customer retention rate. This means that once Ensighten wins a customer, they almost always keep the customer. This level of retention indicates that the value the customer receives is extremely high. When you combine these attributes: largest company, fastest growing, 90%+ win rate, and near 100% customer retention – we think Ensighten has both established and is extending its leadership position in the tag management market. That’s a great dynamic to invest behind.
#2: High Customer Value – Must-Have Product
We talked to dozens of Ensighten’s blue-chip enterprise customers including Microsoft, Sony, Seagate, Symantec, United, Dell, and many others. Typically, Ensighten’s buyer comes from the marketing organization of these companies. The customers communicated to us, both with their words and their tone, that in no uncertain terms, the value they are receiving from Ensighten is exceptionally high. We think of value as the differential between how much pain the customer experiences from a problem and the delight of the customer when that problem is remediated. On both measures, Ensighten’s customers measured exceptionally high.
In their own words, the key problem marketing organizations have before deploying Ensighten is a fundamental inability to do their job. As I discussed in greater detail in my prior post, “What is Tag Management”, if adding, changing, fixing, or deleting a tag requires dependencies on IT release cycles that can run in intervals of many months – marketing is completely hamstrung. They can’t modify website analytics with ease. They can’t test different ad networks or tailor their website with ease. They can’t deploy and customize important customer centric apps like chat, voice of the customer, and recommendation engines without substantial dependencies on IT. They just can’t do their job. When marketers describe this pain point – it’s very clear in their tone that the problem is debilitating.
On the flipside, when customers describe what life is like after deploying Ensighten’s tag management system (TMS), the joy in their tone is obvious. It was clear to me that the dozens of customers we spoke with were smiling ear-to-ear on the other end of the phone when they talked about Ensighten’s value. That’s rare in customer references. Often times customers will say nice things to be polite to their vendors, but their tone will be more muted. In Ensighten’s case, the customers were raving fans. The reason is that Ensighten’s TMS gave these marketers unprecedented agility and control not to just do their job, but importantly, to do their job well.
#3: World-Class Technology
We spent an extraordinary amount of time evaluating Ensighten’s technology because the tag management space is noisy. Our conclusion is that tag management is one market where the distinction between complexity in servicing basic tag management needs and enterprise-scale tag management needs is dramatic. This market will evolve to be the tale of two worlds. We believe that low-end tag management is a relatively easy technical proposition and will be commoditized quickly. Conversely, we also believe that supporting the complexity and scale of large enterprise tag management deployments is one of the hardest engineering problems we have seen.
From inception, Ensighten has had four philosophical pillars underpinning all technology development. 1. All Ensighten products must be able to be delivered through a single line of code. 2. The platform must support all tag-based applications. 3. The platform must support any device (e.g. PC, smartphone, tablet, kiosk, ATM, etc.). 4. Everything must enhance page performance. First of all, this is an outlandish vision in many respects. Many would have said at the outset that it couldn’t be done. To those who would try, there would have been hundreds, if not thousands, of engineering decisions along the way where it would have been simpler to relax these constraints to get to market more easily and quickly. But, Ensighten pulled together a team with both the technical genius and discipline to architect the solution that stayed true to these principles.
Adherence to these principles is why Ensighten now stands in the position of having the only tag management solution that can truly meet the needs of any and every enterprise-scale customer. This is why Ensighten wins over 90%+ of the time against its competitors. Ensighten’s entire platform was designed from the ground up with rigid adherence to principles that would ultimately prove to be critical to servicing enterprise-scale deployments. After the conclusion of an exhaustive technical diligence process, we sat back and just said, “Wow.” It became clear that Ensighten has a brilliant technical team that cares deeply about their engineering – and the biggest beneficiary of that is their customers.
#4: Large Strategic Market Whose Time Is Now
A year ago, not many people knew much about tag management. We believe that a year from now, tag management will be known as one of the most strategic and important enabling technologies in digital marketing. While Ensighten aims to be the enterprise leader in this market, we believe that thousands of companies large and small will be deploying some form of tag management in the years to come. Large enterprises in particular will have to deploy an enterprise scale tag management system (TMS) like Ensighten just to be competitive. Not having a TMS will soon be an unacceptable position for any enterprise whose web and digital properties are mission critical.
Tag management will become a critical part of web infrastructure as it sits between a company’s digital properties and potentially every third party application that interacts with those properties. This position will be very strategic as the TMS will have potentially unparalleled visibility into the activity and data of a company’s digital properties. Therefore, we expect the tag management market to evolve as quickly and as pervasively as the web analytics market. We anticipate consolidation early in the lifecycle of the market, but also believe there is room for one or two significant independent companies – a position we expect Ensighten to occupy.
#5: Talented and Trustworthy Management Team
Let me finish this post with where my interest in Ensighten all started, the management team. Specifically, I connected with Josh Manion, founder and CEO, the first time in August 2011. He was kind enough to return the cold call of an associate who was in his first month on the job (related post: What Happens After The Associate Cold Call). I met with Josh five times before we seriously engaged in discussions on an investment. Josh is unique – home schooled through high school, chess champion, MIT grad, and grew up in a small town in Wisconsin. The first thing I came to appreciate about Josh is an alignment of values. He’s a nice guy. He’s trustworthy. He’s a grounded and decent person. He’s got old-school values which I respect. The second thing I came to appreciate about Josh is he’s just inordinately smart. The third thing I liked about Josh is he’s deeply competitive and wants to win. Don’t be fooled by him being a nice guy – he wants to dominate.
As I got to know the rest of the management team, I could see Josh’s characteristics throughout the team – off-the-charts intelligence, good people, and fiercely competitive. They also happen to be real domain experts in the field of tag management and passionate about the problem they are solving. At the end of the day, it was our confidence in the team that was the deciding factor on our investment.
So, there you have it – that’s why Volition Capital invested in Ensighten. Needless to say, we’re excited to be involved and honored to be part of the team.