The $3 billion sale to Twilio: how Tim started, ran and sold SendGrid
Tim Jenkins is a founder and ex-CTO of SendGrid, world’s largest email delivery platform that sends as many emails per day as Twitter generates Tweets. SendGrid IPO’d in 2017 and was acquired by Twilio for $3 billion dollars in 2019.
On this episode of the Startup Exits Podcast, we chat with Tim about:
- SendGrid’s experience with TechStars
- What makes a great CTO?
- Startup culture
- Remote operations for startups
- How startups go public
- SendGrid’s relationship with Twilio
- Timing of startup exits
- Exit strategy for startups
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ANDREW VASYLYK: You guys went through Techstars which has obviously worked very well for you, but my first question for you is not related to Techstars, it is actually related to another accelerator.
There was an interview between Paul Graham, who is a founder of Y Combinator and Jason Calacanis. And Jason asked Paul if there is any company that Y Combinator rejected that they regret. Paul didn’t mention any names but he did mention a company that applied, got rejected, received a very low score by one of the partners of Y Combinator and was labeled as a spam company. That company then went to another accelerator and became a huge hit.
So, my first question to you is – did you guys ever apply to Y Combinator?
TIM JENKINS: Yes, we did apply to Y Combinator and TechStars at the same time. And we were rejected by Y Combinator.
VASYLYK: So, you guys were the ones that got away, but nonetheless, I think TechStars has worked out pretty well for you guys?
JENKINS: Yeah, we’ve been very happy with what TechStars has done for us.
VASYLYK: Yeah, and I think the value goes both ways, in the sense that you guys were the first public company that came out of TechStars, and are regarded as one of the largest successes that ever came out of the program.
But when you guys first came to TechStars you were not known as SendGrid, you were known as SMTPAPI.com. Who came up with that name?
JENKINS: That was Isaac. It rolls right off the tongue, right?
VASYLYK: Yeah, and I think you guys won the geekiest name that came out of TechStars, is that right?
JENKINS: Yeah, definitely, it was nerdy enough that people knew what we were doing, but also so nerdy that we were mocked relentlessly for the first week of TechStars until we changed it.
VASYLYK: So, you guys changed the name pretty quickly and what also happened very quickly for you guys is you reached product market fit very early on and that’s a very big milestone to hit for any startup.
Do you feel like the fact that you guys hit the product market fit so early had anything to do with the fact that you guys, when you started SendGrid you were solving a problem that you guys had? So, in other words, you were potentially customers of your own product therefore you knew the needs of the customers better, you could hit the product market fit soon, is that kind of the way it all went down?
JENKINS: I think it definitely helps, the fact that we, as developers, know what developers need and think that way. I think that it really helped, along with the fact that a lot of times people try and create companies that fill a portion of a need that some other competitor doesn’t fill, versus we were really filling an industry that didn’t exist. And, I think, that it really helped with initial adoption where people were like, “Well we’re willing to give this a try because it fits 80 percent of what we need and we’ll work on the rest as time goes on”
VASYLYK: I think, product market fit is one of those things that means different things to different people in different companies. What would you say product market fit means to you?
JENKINS: That’s where the product that you’re developing fills the needs of the market that you have adopted.
VASYLYK: And how would you gauge that? Was there ever a point in SendGrid’s history where you guys had this “Eureka moment” where you hit product market fit?
JENKINS: Oh man, I mean, just launch day really. We had done demo day there at TechStars and we’re like OK, we’re going out and are going to celebrate tonight and go drink some beers, we’re gonna go have fun. Instead the TechCrunch article hit about our company existing and we spent the night provisioning accounts and taking support chats and, basically, working. The need that the industry had at the time that we launched was so big that it was really overwhelming.
VASYLYK: And did you guys raise on demo day?
JENKINS: We didn’t raise, but we got a term sheet shortly after that and I think we definitely talked to the investors that gave us the term sheet there at Demo Day.
VASYLYK: So, there was a point in the early days of the company where you guys had an acquisition offer for somewhere north of $10 million. At the same time you guys also had an investment offer from a very well respected VC, the Foundry group and you guys had to take one or the other. Ultimately, you decided to take the investment from Foundry group and not to sell.
What stage was that investment at?
JENKINS: That was pretty early on it, like March of 2010. And basically they came with the offer for funding and that prompted a buyout offer from another company that was interested in acquiring us and we were originally like “Yeah, I’ll take the money and run” but, fortunately for us, Mark Solon from our board from highway twelve was like: “You know guys, you’ve got a lot of potential we invested in you because we believe in you in the long term. Lots of people believe in you in the long term. Believe in yourselves.” And I’m very glad that we listened to him.
VASYLYK: And was that the same round where the founder of Techstars David Cohen came in as well?
JENKINS: I think that was in the December round. We called it Series A, or something like that, I don’t know what it would be nowadays, we raised about $700k, so it’s not quite the Seed round, but I think that the Foundry was the only real investor and everyone else just put in a pro rata.
VASYLYK: So, both of your co-founders, Isaac and Jose, as well as yourself are all very highly technical people, but ultimately you were the one that became the CTO and you stayed in that position all the way up until a couple of months after the IPO.
In your opinion, what makes a great CTO?
JENKINS: I think that it’s really understanding tech and the industry and where things are going. The job of the CTO is really to steer the technical direction of the company and also ideally help steer the technical direction of the community that you’re in. And it’s really just understanding the trends. What are the things that are gonna be beneficial, what’s the stuff that’s bull and is gonna drag people down
VASYLYK: And how about managerial side of things?
JENKINS: Yeah, I sucked at that. The managerial side is really about knowing where you’re at and figuring it out in the company that you’re at. It’s such a broad role, that it’s something that can work for where you are and not necessarily be pigeonholed into what somebody else has done.
Startup culture begins with founders
VASYLYK: So, besides reaching product market fit very early on and having insanely fast growth, as you mentioned previously, SendGrid is known for its culture. You guys are consistently ranked as one of the best workplaces to work at, period.
If you had to start a new company and you had to build culture from the ground up, what would your approach be?
JENKINS: I think the approach is really about defining what the culture is. With SendGrid, we talked about the four Hs (Humble, Hungry, Happy and Honest), and it’s really about instilling that in people. Keeping it short; we tried at first to do it in like thirteen points and no one could remember even two of them it’s way too much. Keeping it simple, and keeping it something where people can apply it to themselves. Things where people invoke the cultural mantra and keep it in mind and just always when you’re interviewing, when you’re talking about people and performance reviews, all those things. Just keeping those cultural objectives in mind is key to making sure that it sticks.
VASYLYK: And when you guys hired Jim Franklin, he came in as a CEO, he brought this concept of four Hs from his previous company. Do you feel like this concept of four Hs could apply to pretty much most companies out there or was there anything about the SendGrid that made this concept apply to you guys so well?
JENKINS: I think that, in a lot of ways, it embodied the founders and the people that we’d been hiring. Obviously the founders help a lot driving the culture, you’re gonna hire the type of people that you want to work with. And so, it would be very tough for some place that had a “win at all costs approach” to go and say, “well, we’re going to do four Hs now”. It’s something that you have to necessarily embody and then, I think, you can lead the charge.
VASYLYK: So, in the recent years we’ve seen many more startups go remote and SendGrid now has offices in many different cities and many different countries. How do you maintain culture when you have remote or distributed operations?
JENKINS: So, one of the things that SendGrid does is they hold an annual kickoff, we call it “Kiko: Kick Ass, Kick-Off” meeting where everybody gets together to try and actually mingle and make sure that, at least, some connective tissue. When Samir came on, he even added a summer version, so that it was every six months that people would get together and do that, and that way you don’t get this just completely separated culture. But even then you still get where the feel of the company is going to be different in each location. And as long as those locations still adhere to the core principles, that’s fine. But just you should expect that if you’ve got 40 people who mainly are together in one area they’re going to have slightly different culture than 40 people who are separated from them.
VASYLYK: Is there anything that you can do virtually, besides the offline things and meeting a couple of times a year? Is there something that could be done online to maintain culture across different offices?
JENKINS: We would have a weekly all-employee meeting to make sure that you at least keep the rest of the people in mind. Otherwise, it’s like if you don’t have that meeting, you just completely forget about those people if you’re not working with them. You definitely get [a situation] where, as managers who do have roles across offices, you’ll be a lot more aware of what’s going on. But in the day to day, I’m not sure that people who don’t necessarily interact with the other offices at all get those kinds of results other than at the weekly all-hands.
IPOs are boring
VASYLYK: So, let’s talk a little bit about your exits. Your first exit is an IPO in 2017 and you guys raised about $130 million. You opened up at $16 per share, which was above the expected price, and you guys ended up selling more shares than you anticipated.
So, all around it was a very successful IPO. But nowadays we see fewer startups go the IPO route. What made you guys wanna go public rather than trying to raise another round?
JENKINS: So, there was really no big motivation for raising another round. We had raised Series D the year earlier just because you want to make sure you have money in the bank. And so, we had quite a bit of money in the bank and we were profitable. So, we weren’t burning any of it. So, there really was no reason for that. The IPO versus acquisition, it’s just about timing, at some point you do want to provide liquidity for your investors and your stockholders, it was felt that was a good time and opportunity to go and do that. There were acquisition offers during the IPO process, but none of them were appealing enough. It’s like we think we were going to go and do well which we, obviously, did. And so it’s about that belief in your company and what it’s going to do.
VASYLYK: Can you share with us how the IPO went down?
JENKINS: So, the IPO itself is a boring thing; it’s a whole lot of paperwork and months of management, writing reports, making sure everything’s good. The CFO and the CEO have to sign on their life and blood that everything is true. And then they go and do the roadshow and find out how many bankers and come back and everything is done.
We went to New York, SendGrid was nice enough to fly all of the employees who had been there for at least five years out to New York for the [IPO] opening. And so, we had dinner the night before and Yancy said: “Just so you guys know, the IPO has already happened. We already sold all the shares today. Everything is good. Tomorrow’s just the opening of trading.” But the IPO itself is just a boring already-done type of an event.
The actual opening ceremonies part with a lot more fun being able to get there, ring the bell, be there on the floor, talking to the market makers and understanding how everything works. That was pretty exciting.
VASYLYK: And for those who are not familiar, could you share how these details with IPO are negotiated? Things like share price, number of shares to sell; these kind of things.
JENKINS: The share price is really based on demand. When you go out and do the roadshow, there’s a whole lot of talking to people: “Hey, will you buy at this [price]? Will you buy at that [price]?” The number of shares, you have to have a certain amount of float just to be viable. Twilio might have even been here when they first IPO’d, where there just weren’t enough public shares out there. And so it creates too much volatility for the stock. That’s why we had the secondary public offering earlier in 2018 because there just wasn’t enough public float for all the demand. And it really messes with the market.
VASYLYK: And how long did the whole thing take?
JENKINS: Oh gee, I mean, a year after it was like “Yeah, we should probably go do this” before it actually happened.
VASYLYK: Once everything was said and done, how did you guys celebrate? Or did you guys celebrate at all together?
JENKINS: There was a lot of celebrating the night before. The night after most people went home, I stayed in New York and actually hung out with an old DevRel employee of ours who worked for Twilio. He’d left us to go to Twilio and so, we hung out. It’s kind of ironic now.
SendGrid and Twilio, a match made in heaven
VASYLYK: So, a year and a few months after the IPO, which is just a few months ago, Twilio has announced that it has reached a definitive agreement to acquire SendGrid for couple of billion dollars, and some would look at SendGrid and Twilio and see a match made in heaven. You guys started roughly around the same time and you guys both have pretty close ties to TechStars, you both dominate your own separate fields of communication and there’s just a lot of overlap when it comes to vision, mission and values.
But I’m curious to know was there ever any sort of healthy competition between both companies?
JENKINS: I would definitely say there was healthy competition for the DevRel employees. As I said they stole one of our best big bastards but I think that most of the time we were very friendly to each other. I think that there was a lot of synergy without getting in each other’s way. I think that we were pretty much friends all along. At least I felt that way.
VASYLYK: And was there ever any indicators of an incoming acquisition by Twilio given the fact that you guys are both in communication and there’s just a lot of similarities between both companies?
JENKINS: If there was more about that, I didn’t hear about it, but it certainly was something that made a lot of sense. When I heard about it, it was like: “Oh yeah, of course, why not?“
VASYLYK: So, on the topic of exits. Exits are obviously very positive and very sought after events, but timing is very important. There are some cases where companies sell too early, which then go on to become very big hits, and there are other cases where companies wait too long to sell and they should have taken in an earlier offer.
How would you approach timing when it comes to acquisitions or IPOs? Are there sort of indicators that founder should watch out for that may tell them that it’s a good or a bad time to sell?
JENKINS: Timing is always a hard thing because it really requires that you know the future. There are always those cases where something bad can happen and mess everything up. I think every startup founder has the stories of, “oh, we were so close to a deal on this and then …” And so it’s about remembering that something bad can always come along and screw things up. If you’re striving to build a successful company and you’re succeeding at that then you’re in control of your own destiny.
SendGrid didn’t sell to Twilio because they had to. It’s not like SendGrid was in any kind of dire straits. They sold it to Twilio because it made sense and it was believed that was going to provide the best shareholder value. So it’s more about being in a position that if timing goes wrong it’s no big deal. [And] if you’re in a position where it’s like “Oh man, yeah, we were in deep trouble if we don’t get this sold” – then that’s a different story.
VASYLYK: So, this is a question that I like to ask all of my guests. Founders are told to have an exit strategy. Did you guys have an exit strategy and if you did what were some of the companies that you had in your sights?
JENKINS: We’d certainly talked about, well, we could sell to this company, could sell to that company. The companies kept having to get bigger and bigger as our valuation kept going up.
It went from “well, we could sell to Return Path, we could sell to Engine Yard” to “maybe IBM, maybe Microsoft, maybe Salesforce”. As you keep growing, the target of who you could sell to has to keep getting bigger also.
Future of email: strong in some areas, down in others
VASYLYK: So, my last question to you is related to the future of email. Some people are speculating that the era of email is coming to an end, and this has been influenced by the rise of social media, the raise of messengers.
In your opinion, what does the future of email look like?
JENKINS: So, I think people confuse how email is used. Person-to-person email is definitely decreasing. It’s like you sent me an email to set this up, but chances are now you have my contact info, you might send me a text instead, or if I was actually on social media much you would use that. It’s not the common communication medium for person to person.
But from B2C I still see it as the best form of communication for most of the cases that people use. I don’t want a sales receipt coming through SMS to me, I’m not going to get it as an in- app notification, I certainly don’t want it sent to my Facebook page, and while there are sections of email that are definitely decreasing, email as a whole from the B2C standpoint is increasing and is still very valuable and viable.
VASYLYK: So as we’re getting ready to wrap up here, Tim. Tell us about what you have going on in your life now and if you have any plans to start another company in the future?
JENKINS: Yeah, so life is pretty good, other than playing Fallout 6 a lot, I spend a lot of time with my kids and my wife. I keep extremely busy. I do a lot of mentoring for other people who are in the startup scene and for the university around here for some of their entrepreneurship programs. I do have another company that I’m working on, starting up. I’ve got another co-founder working with me on it. It’s not quite ready for me to chat about it here, but you’ve got to do something to keep the mind busy.
VASYLYK: Yeah, and I think it was a very well-deserved break for you. Tim, I wanna thank you very much for being on the show. It was a pleasure to have you on.
JENKINS: All right thanks. Thanks for having me.