March 2024
Matt Compton
Venture investing is a long-term game. The very best companies are solving a hard problem and building something important – and that takes time. That’s why one of the questions we ask when first meeting a founding team is “Why do you want to dedicate your life to this for the next 10 years?”
We know we’re on to something when we hear an entrepreneur talk about a business problem they’ve personally experienced that keeps them up at night and that they MUST solve... oh, and there is a boatload of potential customers with this same problem.
Back in 2008, in the early days of Oregon Venture Fund, that is exactly what we heard from Jama Software co-founders Eric Winquist, John Simpson, and Derwyn Harris. Companies building complex products had no good way to track product requirements and the interdependencies in an organized, shareable way. Eric and team were on a mission to solve this pain point and to build a company here in Portland where employees would love to work.
With Jama’s $1.2 billion exit this week [Link], we now have a 16-year story arc to look back on and see how it compares to the original vision and our original assessment of the opportunity. Gulp.
Our investing memo was, shall we say, less sophisticated back then but kind of elegant in its simplicity. The core of it was built around identifying three concerns and three positives that we would consider in our decision process. Here’s what we debated in 2008 and ultimately got us to a yes.
Concerns/Questions
1) Competition includes large, higher priced incumbents & “no/low cost” solutions (Word/Excel/wikis).
Hindsight: This was the right competitive set for the first phase of the business. This space had not yet been SaaS-ified (more on that in #3) and in hindsight this was a clear opportunity with an aging old school incumbent at the high end and DIY on the low end.
2) Impact of economic downturn on business software spending.
Hindsight: This definitely hurt the company in the beginning through 2010, or so. Eric and team were determined, scrappy and found a way through the lean years of the Great Recession.
3) Current perpetual license model requires continual customer acquisition. Successful to date but need to continue in order to scale.
Hindsight: This was probably the most interesting concern to think back on. SaaS was just starting to get real traction in the enterprise and the downside of the continuous (re)selling required by perpetual license/non-recurring revenue models was clear. Yet, at the time, SaaS was not yet the obvious choice for larger customers. The timing to convert to SaaS was a hotly debated decision for management and board in the first few years after the investment.
Positives
1) The initial product was in market with line-of-sight to $1M in revenue, had broad appeal across multiple industries, and is sticky once adopted.
Hindsight: There was a bit more services in that initial product than we probably realized and it took 9 years rather than the planned 5 years to get to $30M+ revenue, but the company blew past the original revenue aspirations, was loved by customers from a wide variety of industries from aerospace to semiconductors, and became a high performer in revenue retention. Directionally, it felt like we got this one right.
2) Minimal future cash needs. Company is developing integration relationships with potential acquirers.
Hindsight: The company was very capital efficient and grew to $15M in revenue over the next 4 years without an additional equity raise. The company then went on to raise significant rounds, but that DNA stayed with the company as it continued to grow revenue with efficient operating expenses.
We were short sighted and missed on the second point. It suggests there was a medium-term exit opportunity with large integration partners. Instead, Jama became a category creator and long term, standalone company.
3) Strong team.
Hindsight: The founding team went on to hire incredible employees and leaders, built a lasting culture, and made the hard choices when the team needed to evolve as the company grew. In a founding team we still look for three characteristics that we’ve found are correlated with success: a continuous learning mindset, humble conviction, and a “We” over “I” orientation. Check, check, check. This was a team to invest in.
In the end, the positives vastly outweighed the concerns and, on balance, we got more right than wrong in our analysis, but we would be remiss not to mention luck. Right place, right time is a real part of venture investing. Building lasting relationships and staying in the game over a long duration allows the time and space for a fund to invest in incredible founders and companies like Jama.
We are so grateful and honored to be part of the journey with Eric Winquist and the founding team, Scott Roth the growth stage CEO, who Eric hand-picked to transition to, and Mark Osofsky, the scaling CEO through today and going forward. We also want to thank all the Jama team members over the years. You built something special and are an important part of the startup ecosystem here in Oregon.