Q4’s Darrell Heaps on Taking a Company Public, Going Private with PE, and Leading Through 18 Years of Business Evolution

Darrell Heaps has experienced nearly every funding stage possible as CEO of Q4 Inc., the investor relations platform powering almost half of the U.S. publicly traded companies. In this episode, he shares the complete journey from bootstrapping for nine years to venture funding, going public during one of the worst market timing disasters, and ultimately partnering with private equity.

Heaps reveals hard-won lessons about evolving as a leader, managing team turnover, and why alignment trumps everything in business partnerships. With 2,500 customers and 18 years of growth, Q4’s story offers rare insights into building a durable SaaS business across multiple funding cycles.

Let’s get right into it.

Mark MacLeod:

In this episode I have Darrell Heaps, co-founder and CEO of Q4 Inc. Q4 powers the investor relations platforms for almost half of the US publicly traded companies. Over their 18-year journey, they’ve been angel funded, venture funded, they went public, and now they’re private equity backed.

So I explore this whole journey. We go deep into what it was like to go public, if you’re ever thinking about that, and then what it’s like on the private equity side, and how he grew as a leader over all of these different chapters and phases of the business. Lots of great actionable learnings here. I hope you tune in and enjoy the episode.

Darrell, welcome to The Startup CEO Show. It’s a true pleasure to have you here. How are you doing today?

Darrell Heaps:

Oh, very good. Thank you so much for having me on the show, Mark. I appreciate it.

Mark MacLeod:

Yeah, I’ve wanted to have you on for a long time. When you and I first met in person, I think it might have been in the first month that I started my investment bank. I had a temporary office in Liberty Village, and you were just down the street.

Darrell Heaps:

Yes, I remember.

Mark MacLeod:

And I guess you were already many years in then. And I guess first of all, just to set the stage for people who don’t know, just tell us what Q4 does. But then, yeah, I want to get in. I’ve got lots of questions.

Darrell Heaps:

Sure, I mean, I do remember that back in the day in Liberty Village, it’s one of those things, it feels like a long time ago and yesterday all at the same time.

Mark MacLeod:

That’s right.

Darrell Heaps:

So Q4 is a SaaS platform that public companies use to manage investor relations. And for those that don’t know what investor relations is, it’s a function inside of every single public company that manages all of the communication and engagement with primarily institutional investors, but also retail holders. But it’s primarily an institution-focused role, and we provide a platform that manages all the outbound communication as well as all the engagement with investors.

So think of website products, events products on the external, and then all that is managed internally on a CRM and analytics. And now all of that wrapped in AI.

And the profile of the business, we’ve got 2,500 customers today. About half of the S&P 500 run on Q4. So, although a Canadian company, it’s very much a US business, and it’s been that way for quite some time.

Mark MacLeod:

2,500? I don’t know what the total number of public companies is on big board indexes, but that feels like decent coverage.

Darrell Heaps:

There are probably about 5,000 notable public companies in the North American market, including the US and Canada. The number is larger as you get smaller, but we have a pretty sizable market share in the US market.

Mark MacLeod:

Are you focused exclusively on North America?

Darrell Heaps:

We are not. I would say we’re global as we have customers in about 120 countries around the world. But primarily US would be the dominant segment, and then in Europe would be a segment in Europe as well, but we’re certainly trying to grow and take those 120 countries and do a lot more business across those. But today would be dominant by the US market and then the others are more emerging markets for us.

Mark MacLeod:

So as we discussed, you and I met over 10 years ago, and you’re already several years in, and you’re in year 19 now, I guess. Is that right?

Darrell Heaps:

Yeah. Founded it in the fall of… I mean, incorporated it in the fall of 2005. That was like the incorporated entity. But the real point where it started would have been the following year, in the fall of 2006. So yes, 18 years coming up on 19 this fall.

Mark MacLeod:

So my big question is how have you personally lasted this long and not burnt out or, I don’t know, gotten bored or distracted or failed or just exited? Like, there are so many paths that you could have taken, and yet you’re still here. So I’d love to hear your thoughts on that.

Darrell Heaps:

I think when I set out to create the company, it was very much based on a belief that there was an opportunity to build a large and durable business. If we could sit in between companies and institutional investors in the public markets. And if we could have a solution that provided an essential service that sat in between those, that would be something that you could theoretically kind of build forever.

And I was really influenced. I mean, I’ve read a lot of books over time, but when I was starting Q4, I read a book called Built to Last by Jim Collins, and that was really inspiring in terms of really finding the core kind of demand dynamic and being able to build something that could last for a very long time.

So, I started out doing that, and then it’s really been many different chapters. So when I look at the founding story, the startup, the early startup, the scale up, going public, now private equity, each one of those chapters is a very different story.

And I’ve always been very motivated by setting goals, being goal-oriented, and striving to test myself and the company in terms of how far I could take it, how far the company could take it on its own. Because when you start to build something, it does get to a point where it has its own organism, if you will, in terms of its growth.

So, I always found that I think burnout comes from either being overwhelmed for a particularly long period of time, and you just feel like a sense of hopelessness, can’t get out of it, or simply becoming bored. You know, if I were doing something I’m really passionate about that I love, it’s unlikely I’m going to burn out from doing that.

So, that is always about this idea of setting goals that are far enough out that it’s going to be meaningful to achieve, but not a slam dunk. So, challenging myself kind of every day and challenging the company to be able to continue to grow. And that’s kept me engaged at every stage of the business.

But I would say the founding story is very different than what it was like five years later, than five years later. And we’ve had opportunities to sell and to exit, but in each step, I always felt that there was more to do, and I wanted to be able to see if the company could do that.

There’s this great saying that I love, which is that it never gets easier, we just lift more. And I love that mentality. Which is a great way to just look at life, I find, which is if I find myself, if I’m challenged and I’m striving for something and I’m engaged, then I’m not going to burn out because I’m welcoming the challenge.

Mark MacLeod:

I love that. That’s really good advice. I’m curious, are you a generally competitive person? Like, this notion of goal-setting fueling you, and did you play competitive sports when you were younger, or anything like that?

Darrell Heaps:

I did, yeah. Growing up being an athlete was a big part of my kind of early life, like teenage and early 20s. So I was a competitive skier, and I was a mobile skier. And that was a very formative part of my life, which was very orientated to goal setting and doing the work and getting better and progressing, etc.

I always found the difference between those two things, like setting goals in an athletic setting, in a lot of cases, it was much, much easier than business, because, at least in my athletic career, there was only me. So it was just a measure of how much better you can get. And there’s thousands that have gone before you.

So, the coaching regimen, the guidance, the technique, all that is pretty well known. You just have to sacrifice, put the work in, and hopefully you have the right DNA to get you to that level. And when you transpose that into the work world and building a company, there are so many vectors that you don’t control.

There are so many dynamics, human dynamics, that you have to learn in terms of how to evolve that it’s not just about one person, it is about a team and then a bigger and bigger team, dealing with a million different inputs that are changing constantly. It’s been a lot of learning over the years in terms of how to adapt to that.

Mark MacLeod:

You kind of alluded to this when you were talking about how you’ve lasted this long, but basically, doing work that you love, you’re going to keep going. Like, if you’re fascinated by it, you get energy from it. So I’m curious, over the years, have you explicitly designed the CEO role around things that you love, around your superpowers, or have you just said, “I’ll do whatever needs to be done, whether I like it or not.”?

Darrell Heaps:

I would say that that has been an evolution that in the early days, you do everything because you have to do everything, and you’re kind of the Chief Get-Shit-Done Officer. And that can mean the floor is dirty, it needs to be swept, to, oh, I got to pay this bill, or I got to chase this money, or I got to close this deal.

But over time, that changes. I would say it probably took me, maybe even, I would say like eight or ten years into the business to really understand that to take it to the next level was about delegating more effectively, not being the heart of everything, being able to really leverage a team, lead a team, lead the business in a very different way.

And that was a critical point. So I look at the kind of 2015 kind of timeframe. 2015 is when we really bootstrapped up until then, from 2006 to 2015. We had some angel money very early on that I raised, but then from 2008 to 2015 were running on our own cash, being scrappy, bootstrapping.

Then it was 2015 where took first venture money. And that’s when the business really accelerated. Then it was about like, raise, acquisitions, raise again, acquisitions, raise again. And the business grew exponentially. And that was in line with also my own evolution in terms of like how I was running the business and how I thought about the CEO role and what good looked like.

Because prior to that, it was more about, okay, I think I’ve got a lot of capacity, so I can be the driver of every single function in the business. But that becomes very limiting as the business starts to grow. You become the pinch point. And so, expanding and changing have been a key part of that.

Mark MacLeod:

So that’s important. That’s a pretty long period before taking on institutional capital. I think many founders think, oh, I just need to raise kind of right away. Were you a services shop in that early period, or whatever you got, you launched something, and you just kept it small to start, so you didn’t need to invest a ton?

Darrell Heaps:

It took a while. It took probably four to five years for us to figure out the model, to figure out what the business that we’re actually in. Because when I started it, I had no idea what investor relations was. So, I came from the website of things. I had two companies before that were really like web design development shops, so work with lots of different companies. But it was built for hire. You know, like, come build this project. Okay, here you go. It’s going to be this much. Pay the money, next.

And when I started Q4, I knew that there was this demand between companies and investors, and we could sell them a web content management system to manage their website, which was the first product, but I didn’t understand who the buyer was, didn’t understand what their motivations were, what mattered to them.

So it took from like 2006 through till really like 2010, 2011 for us to change the business model. And that was the period where it got redefined as IR is what we’re going after. That’s the customer. This is the value proposition. We know this is going to work. And then I always felt I had been a part of the peripheral of a number of different financings.

So I sold my first company. I was in my early 20s. I did okay. It wasn’t like retirement money or anything, but it was a good cushion kind of early on. And during that period and the second one I was on the peripheral of fundraising and I have some friends that had gone through some fundraisings too and heard some of the horror stories of VCs and I was really cognizant to not take any external money until I was really confident that we can pour gas on this fire and we’re going to be able to deliver a return.

I just felt that if you take it too early and you haven’t proven it out, you are gambling. And there’s a risk there that it’s not going to work. And then if it doesn’t work and you have outside money, we all know what starts to happen then. So I was really cognizant to make sure to wait until we knew what we were doing. And it was actually a market catalyst that happened.

So, at that time, the largest competitor sold to the second largest and felt that there was a dislocation that’s happening in the market, and we could really enter here and get a lot of market share quickly. It was that at that moment, okay, we have the product, we know what we’re doing, the market has changed.

And that’s when we then started this process of like, from 2015 to 2021, we did basically three major funding rounds, two bridges in between that went public and acquired five companies.

Mark MacLeod:

That’s a lot of legal bills in a short period of time.

Darrell Heaps:

Oh, no, we’re. I’ve got a lot of friends in the legal field and a lot of friends at legal firms, accounting firms, and consultants along the way. But it was once we felt we had that, then it was like, okay, as hard as we can go. And I’d also built a lot of relationships in terms of other companies. So that ability to raise and roll up really helped us deliver exponential growth from those periods.

Like, the company didn’t really grow a lot until 2010, 2011, and then from that point it grew much, much faster.

Mark MacLeod:

I’m curious beyond just hanging on for dear life, once you took on that capital, you started acquiring things, you hit kind of escape velocity. What did you do to make sure you were always at least one step ahead of the business? The business is doubling, you’re at least doubling.

Darrell Heaps:

That’s always something that I believed and have said is like the key thing that a CEO and a founder need to do is to evolve faster than the business. Because if not, then you become the pinch point, you become the element that’s slowing things down. So I always try to be in constant learning. So I think that also comes from an athletic background as well, in terms of constantly evolving.

And so I’m reading and studying on my own, but then also through mentors. Mentors have been very helpful, and different mentors along the way and different mentors for different things have been helpful. I found that working with some of my early investors was also very helpful.

So I would really lean into the boards. So I always felt that boards were something that I wanted to be very open and candid in terms of receiving feedback on my performance and what’s working, and stack rank me against your other CEOs, and where am I strong, where am I weak? And trying to be very, very open at all times in terms of my performance.

Because I mean, I never fashion myself as being perfect, but I try to be open and not defensive about feedback. And when you get feedback, it truly is a gift. I know that’s kind of a cliche thing to say, but it’s trying to really take that and use it to grow. And then it’s hiring externally. I’ve had coaches for myself during different periods. I’ve had coaches for my team.

So, my executive team and also running the executive team and myself through this is not officially what’s called, but I’ll call it group therapy, which is getting in a room, like at an off site, but not just talking tactically about the business, but really trying to understand human dynamics, personalities, how to work well with people, how to lead with strength and empathy.

Those are all skills that were acquired along the way. But it’s challenging, and I don’t want to profess at all that once we hit that first initial growth phase, that it was just some straight line. It was filled with some unexpected successes, some near-complete failures and burnouts, and some crazy situations, which thankfully we navigated through.

Some of those were market-inflicted, some of them were self-inflicted. Just poor decision-making, or too much risk taking on, or a system not being built out well enough. It was a period of engaging in learning, but also learning from mistakes and trying to recover quickly and leaning on everyone that I could.

Mark MacLeod:

You know, first of all, I love the humility with which you approach this, right? And like you’re welcoming feedback. Not everyone would.

I’m curious about the investors, right? You said specifically you wanted the feedback, you wanted the ranking. Were you transparent with them? Like, some CEOs hold off on sharing their fears with the investor because the investor might freak out and, in the extreme, replace them, you know. So, did you ever worry about that?

Darrell Heaps:

The one thing in terms of being open to humility. I think I always fashion myself as being very coachable, and that’s a strength that I’ve always wanted to be good at. And I think that comes from the kind of upbringing and sports early on, and knowing that if you want to be good, you have to get feedback. You can’t make it up on your own.

So, I think that’s where that came from. And then it’s a delicate balance in dealing with the board and investors. While I was always very open to feedback, I would do it in a constructive way and let them know I believe that I’m coachable, and I want to be coachable. So I’m going to ask you, what do you think? I would ask things like can you tell me what you think I should be doing more of, and what do you think I should be doing less of? And what would you describe as my strengths and my weaknesses as and extract that feedback out of them?

But I would never share my insecurities, my anxiousness, my perceived weaknesses, in any way to any board member or any investor ever. And that’s advice that I’ve given to many other entrepreneurs, and I’ve told a number of them, if you feel like that, call me and commiserate with me. You know, you can cry in your soup when you call me, but do not project that to your board because they’re there protecting their money and their investment.

And if you are crumbling in front of them, even if they say they’re your friend, their priority is managing their money and not you. And if you become a liability, then you’ll have to be dealt with. But I think you can do both. I think you can elicit feedback from a position of strength and a position of development, which is in their interest. But make sure that if you have a hard day, don’t call your board member, call your wife, call your friend, or talk to your dog. No, I’m just kidding. But you know what I mean?

Mark MacLeod:

No, for sure. I mean, VCs have this thing called agency risk. They don’t have their hands on the steering wheel. They succeed through the agent, which is you, the CEO, whom they back. Do you actually generate their returns or not? And so they get very nervous if they start to doubt that agent. They start to act in very self-interested ways.

Darrell Heaps:

Yes, absolutely.

Mark MacLeod:

I really like that notion of group therapy. It’s so needed. Like, it might be a little bit different in this remote world now, but basically we spend more time with, certainly with co-founders, with other leaders than we do with our spouses. Most of our waking hours are spent working, and that relationship has to work.

My last operating role was at FreshBooks, and there was one off-site in particular where, first of all, everyone did this thing called strength-finder, and on our desk was a listing of our strengths, and people knew how to work with us in that way. But we had a facilitator and did this big assessment where he showed each of the execs how to communicate with each other, and where we were not communicating with each other. So it was a really valuable exercise.

Darrell Heaps:

Yeah, that’s early on in the process, started doing a personality profile. So there’s one called disc. There are a bunch of them that are out there. So it’s not to say this is the be-all, end-all, but it just helps to characterize the personality traits of certain individuals. And then it allows you to understand when you know someone’s personality trait, how can you flex so that you work well with them.

Like, for instance, some people are very like myself. So I would be classified as a D. And DISC stands for dominant, which means that that is like ready, fire, aim. So that is like go, drive forward, move quickly.

Mark MacLeod:

Perfect as a classical founder, probably every founder.

Darrell Heaps:

It doesn’t matter if it breaks, we just got to learn and there’s no time for analysis, let’s just act. And then you have someone which like an I, an S or a C. Like C is conscientious and a C is something like if you get in a brainstorm meeting and it’s like, here’s all the data, let’s make decisions, they are going to say like, I just want to absorb it, I want to think about it, let me sleep on it and I’ll come back.

And in my early days, that would be a terrible meeting. That would be a meeting where I get frustrated and be like, come on. Like why? Like, let’s move, we gotta make a decision. And that would create tension, and I wouldn’t get the most out of that other individual. And they would then recede and think, oh, maybe there’s something wrong with me because I can’t make a decision on the fly.

But when you flip that and you say, okay, that’s great, I’m gonna step back. We don’t have to make a decision today; we can make a decision tomorrow. Think about it, do your work, and let’s come back, we’ll have a follow-up, and then we’ll make a really good decision tomorrow.

There are a bunch of different personality types, and when you do that, it really enables people more and allows them to flex their strengths. So if my strength is that I’m going to move quickly, I’m going to make decisions, there’s a vision, let’s go. My strength is not letting me get into the fine details of the data and analysis before making a decision. If that’s someone else, they’re going to drive a better decision by enabling that.

So, that diversity of personality, diversity of approach, is something which does drive better performance. And that was a real turning point. And that’s what the kind of group work is, that’s one of the pieces which is to really understand personalities and understanding how to work and building those muscles to step out of your own personality.

So like for myself, being dominant, being like, let’s make a decision to be like, okay, like I’ll pause even though everything inside me is like, don’t pause, make a decision now. But saying I’ll step back, let the process work. And then when you see that happening, that’s one of the elements that really helps.

And the other with group therapy, with leadership teams is it’s amazing how much you don’t know about your team members. So, you recruit, you bring them on, what’s your background? I can tell you, everyone on my team at any point in the stage, exactly what they’ve done, who they’ve worked for, what they’ve achieved, etc.

But there was a point back, it’s not the same now, where I couldn’t tell you, do they have kids? Where did they grow up? What makes them tick? Because it was just like, you are another piece of this machine. So, bringing that human element also gives you more empathy in terms of how you lead.

And I think you end up getting people who will go to the wall more. They will seek resolution rather than conflict when they know each other. Because it’ll be like, oh, if you and I don’t know each other at that level, there might be points where we will knock heads quicker. But if I know your background more and I know your personality, I’m going to be a bit more forgiving in situations, and we’re going to work better over time.

I found that that helps management teams just get through hard times easier. And you don’t get any situations, which is just the bullshit human dynamics of people bickering, and you get in those situations when people dig their heels in, or they get defensive, and you’re just like, this is a colossal waste of time.

And then you’ve got to try to deal with that. So I’ve always tried to be on the front end of that, of set the right environment so that no matter how chaotic the world is and how crazy what we’re trying to work through, whether it’s good or bad, that you’re able to not have humans get in the way of that, but actually leverage each other.

And that was all that. I mean, I didn’t know that for a long time. That took years to be able to figure out how to do that. And I would still say that I’m a student of all of that versus a teacher.

Mark MacLeod:

Yep, all makes sense. And long may you think that. It’s that old Zen proverb, right? In the beginner’s mind, there are many possibilities, and in the expert’s mind, there are few. So, may you have a beginner’s mind for a long time.

Darrell Heaps:

Yeah. And I would say, too, that is that, and we know this, but no two humans are the same. And no management team is the same. We think about the team dynamics and how people work, that is constantly learning because every single person is very unique, and how they interact with others is unique.

So it’s whatever worked, you think, oh, I did this before with the team and it worked perfectly. So then try it with a new team, and you’re like, oh, that didn’t land at all. Humans are complex, and so it’s constantly learning.

Mark MacLeod:

I’m guessing over the 18 years staying on your leadership team, you’ve probably had to reboot it a few times, and I’m just curious how you’ve approached that and any lessons for other founders. Because it’s a universal thing, like not everyone can keep up. And so at a certain point, you have to top grade those people.

Darrell Heaps:

I would say the management team turns over about every five years. I would say the business doesn’t exactly line up like this in my experience, but it’s every three to five years that is a new chapter. And that is either through that there is exceptional growth, or there’s some external thing that happens, or there is a challenging period where you’re not growing as much, or what have you, it seems to go in these cycles in terms of evolution.

And always being open to the fact that… I love this, this is the same too. I didn’t make it up at all. But what got you here is not necessarily going to get you there. And being able to identify where the weakness is. I’ve described my role as part of my role is hunting for weakness, which is just looking at every part of the business always, and being like, which part is not evolving fast enough? What is slowing down? Who is performing and not performing, or simply doesn’t have the skills.

And I would say not all, but a lot of the turnover on the management team is not because someone wasn’t trying hard or didn’t have the knowledge, but they just didn’t know enough to take the company to the next level. And then you get into a decision point where you’re like, okay, either we’re going to invest in this person and we’re going to go along the journey with them for the next three years to get them there, or we’re going to trade in order to unlock the growth that we need to.

And that’s something that evolved over time for me as well, which is I think of the business is a professional sports team. And when I look at what it takes to win? And this is how I’ve talked to people for a long time, too. When I talk to someone about making a change, it’s not because there’s something wrong with you as a person or your skill set. It’s just that I need a stronger right wing to win.

We’re weak on the right. It does it, it’s not working as well, but if we want to score, that has to be stronger. And I think I can trade and get a better right winger to be able to score more. It’s not a question of your value or your personality. It’s just that if we want to win, we have to trade, have to keep building the team.

So I think about that in terms of, from a sports analogy, and that is, that served me well and the team well because everyone knows as well, like we’re all in a role until there is a way that if there’s a trade that can take us to the next level, that trade should be made.

Mark MacLeod:

I love that. I mean, a lot of startups talk about we’re families, and that’s the wrong analogy. Of course, we’re not families, right?

Darrell Heaps:

Yeah, I’ve been asked that in the past being do you think it’s a family? And I would say I’d never ever describe the company as a family. And the reason for that, I mean, I love my family, but you don’t choose your family, and your family is not there to win. Like, that’s a very different dynamic, that’s a very different goal set. So it’s not about family and it’s not about love because you can have. I mean, there have been lots of friends that I’ve made over the years working at Q4 that don’t work at Q4 anymore, but we’re still friends.

And this takes skill, this takes evolution over time as well. I’d say some of the early people that I let go out of the business are probably not friends, but I got better at it over time. That also helps, just being upfront in terms of people’s performance and what the business needs. And so because it’s clear, it’s not like you just wake up one day and go, Bob’s not cutting it, so time to trade him months and months ahead that that’s not working.

So, trying to be above board and professional and make sure people know how they’re performing and what the business needs, so that when it comes time to make a trade, it’s not surprising. Yep. I wouldn’t say that’s always gone perfect. Like, I don’t want to play that off, but you strive for that.

Mark MacLeod:

You know, going back to this observation that people spend most of their waking hours working. When you’re not crushing it, you know it. You feel it. And so it actually sucks to be in a role where you’re not crushing it. So, I’ve let lots of people go, and it sucks in the moment, but every one of them has gone on to crush it somewhere else. They found the right role, the right stage where their skills are the right fit, and they’re way happier, you know.

Darrell Heaps:

Yes, absolutely.

Mark MacLeod:

So, let’s switch gears. You know, I forget the stats, but it’s somewhere between four and you may have a better stat, but what I’ve heard is between 4 and 7% of venture-backed companies IPO. You’re one of those. First of all, a lot fail, obviously. But then the dominant exit path is acquisition. You’re a retro on the public experience. Yeah, I think folks would love to learn from that because we don’t get to hear from folks who take companies public all that often.

Darrell Heaps:

Just tell the story? Is there anything particular that you want me to start with?

Mark MacLeod:

Tell us about I guess the decision, the process, and what life was like as a public company? Because my sense, one of the reasons why I left FreshBooks is Mike was starting to threaten about, hey, maybe we should go public. I was just like, I have zero percent interest in being a public company CFO. I’m gonna go do something else now. They clearly haven’t gone public yet. But they were thinking about it.

Darrell Heaps:

It’s funny how you position that as threatening to go public.

Mark MacLeod:

Deeply threatening.

Darrell Heaps:

So, it was always part of the plan to go public. And one of the motivating factors of that is when you consider what it is that we do. So we serve public companies. And I always felt that, and as a goal to say, like to get there, as a long-term goal, the BHAG is to get the business to a scale that we can go public. That was the BHAG for many years.

And so I also believe in that, too. You’ve got like your short-term goals, and how’s that going to build, but it’s also like I want to win a gold medal at some point in the future. So having that long-term big goal is really key to motivate everyone. And it was also that if we could get there, it would be an incredible input to our innovation because being able to eat our own cooking and use our own tools and learn from it would give us a tremendous input.

And I actually said the words many times that I want to feel the pain of being public. Mark, I gotta tell you, I did not know what I was asking for.

Mark MacLeod:

Careful what you wish for.

Darrell Heaps:

So, that was the motivation. And then we’d gone through our Series C. We did our Series C in 2018. After that, we did two more acquisitions. We grew a tremendous amount. We grew like crazy in 2021, and we were looking for the next step. So we were still in a mode of burning. So we needed investment and we started doing a dual track, talking to kind of growth equity firms and some PE. More growth PE, and then also starting a dual track of what it looks like to take the business public.

Going public for us, the goal was always to get to like 100 million in ARR and then take the business public. When we went, we were not at 100, we were more like 40-45, something like that. And so it was early, but when you look at it, the valuations were very high. This was like in the early part of 2021, we first started the process. So we’re looking at our best multiple we’ve ever seen, highest valuation.

The most efficient way for us to raise capital would be to go public. We could raise more at a higher level and achieve this fact of us getting public and being able to operate as a public company in terms of our innovation. And so we started that process, and we went down that path, and we were able to finally get that deal done in the fall of 2021.

And coming into that, the market was already starting to sputter. So this is when there were considerations around rates. They hadn’t raised rates yet, but it was coming. There was a lot of talk about the market being kind of like overheated in 2021.

So we went out on October 25 of 2021. And five days later, the market topped, and then the announcements came out. Fed raised rates, and the whole market just started to slide. And the statement that we’ve all heard is that a rising ocean floats all boats. Well, that goes both ways. So, when the ocean is depleting and it’s receding 10ft a day, all those boats go down 10ft every day.

And I think that’s what was really eye-opening in being public at that time is that all the benefits that we have on the upswing when the market is selling off like that, you have to hold on. And not having the experience in being a public CEO during that period, it’s very difficult because the stock price is something that you’re very pegged to, because everything leading up to that is all about what’s our valuation, what’s the round, what’s next?

You know, you’re focused on valuation a ton, and now you go public, and you’ve got a live indication of your value every day. And I wanted a piece of advice I got from a veteran in the space, and it’s very sound advice, which is, screw the stock price, do not look at it. It’s not a measure of value. It’s always going to change. Focus on your fundamentals. That’s everything.

It’s an easy piece of advice to hear. Living was very difficult for me because that was the scoreboard. So I think that took new muscles to be able to figure out how to operate. But the first like six months of being public while the stock was sliding, just really, really tough. Some of the most stressful periods.

But out of that, we did learn a tremendous amount about being public, about investor relations for real. What does it take in terms of engaging with investors and with analysts and the whole process, and where are the real pain points and the challenges? And I would say most of our product suite today has come out of that period.

So when I look at it three years later, all the roadmaps we’ve committed like we have a much better product now that really delivers on hitting these value points. So that all worked out quite well, and the business is substantially more profitable because one of the realities of being public, too, is we had to pull forward profitability targets, we had to optimize the business, we had to really narrow our focus, prioritize.

And so the health of the business during that process really improved dramatically as well. But then, for us, you get into a dynamic where your long-term holders are all very bullish on the company long term. And it’s very much as the market corrects.

Like, we had the challenge, not only the market selling off, so we get that downdraft, but our customers we sell into are also being affected by the downdraft. So, our ability to sell becomes more challenged, and we’re getting hit by the macro of the declining market. So it’s like a double whammy in terms of our ability to really deliver an outsized return.

So you know, you come into a situation where you’re like, well, we can, we can keep our head down, continue grinding on fundamentals, and at some point in the future, we will be able to see our valuation reflect the value of the company more accurately. Or we can take a step and look to do something with a private equity firm, take the business back into private, partner with private equity, and continue building that way.

So that’s what we chose to do. And so that’s been the next step in the journey. Before talking about private equity, that’s what the public journey was like for us.

Mark MacLeod:

It’s good advice on the stock price, and I’m sure it was very difficult. I don’t know if he still does this, but in the early days of Shopify being public, if Tobi caught anybody looking at the stock price, they had to buy donuts for everyone in their team.

Darrell Heaps:

Oh really? No, I didn’t hear that.

Mark MacLeod:

Yeah, he was really against it. He’s like, it’s a poor judge of valuation in the short run. You know, his outlook has always been long-term. And so yeah, he was very against it.

Darrell Heaps:

Absolutely. That same guy also said screw the lawyers. That came as the same bucket of advice. Both stock price and lawyers. And I was like, okay, perfect.

Mark MacLeod:

Sounds like some hard-won lessons on the part of that advisor. I’m curious, how was employee engagement in that period when the stock price was tanking? Like, did you find it was hard to be motivated?

Darrell Heaps:

I think everyone sees it for the same thing. So you look at it, and there’s a good rationale as to why it’s happening. And the key guidance to anyone is that now a lot of people are liquid in their holdings. So, before that, no one sees valuation, and you certainly can’t sell. So my advice during the whole period was always to hold. And what’s really important is not to sell because you’re going to lock in the loss, and it’s like the worst thing to do right now.

So everybody just believes in the business. We’re going to be able to keep growing. This will deliver a good outcome. And thankfully, that happened. So I think at the end of the day, as we went through the whole thing, a lot of people in the business did very well during those two transactions, go public and private. As long as they held through the trough.

Mark MacLeod:

Sure. I’m curious how much of your time moved to investor relations versus operating the business during that public period.

Darrell Heaps:

So that’s one of the things that’s quite interesting, and one of my pieces of advice for anyone that’s looking to go public is that when you do it, you create a second business. And the second business is the business of being public. And so you have your operating business that you do, which you make widgets, make money, etc.

You have that which has to run exceptionally well. I would say when you think about execution of the business, you want to be executing at your World Cup level when you go public, because that’s where the results of the business are crucial, that no matter what you do, if you have good results, then you have a lot of opportunity. If you have bad results, you’re going to feel that pain.

So, operating the business is really important to have the team in terms of executing. And then the other side is being able to make sure that you have the ability to run the public company. And running the public company is spending a lot of time, especially in the early days, educating banks and analysts, research analysts, so that they’re writing and covering your company. Hopefully that you have coverage. And there’s a lot of business out there that have no coverage, that analysts and banks don’t pay any attention to. That’s another challenge.

But if you get that attention, is engaging with the street to be able to make sure that banks are covering you and marketing your stock, and also spending a lot of time with investors on telling the story. You know, us coming to market, we don’t have a lot of peers. It’s not like we’re just another company coming into a well-known space. We’re a very unique company, a unique business.

So, spending that time to really educate and build the brand within the investment community takes time. Whether that is the CEO doing that or the CFO can also do that, they don’t have to be the same, but someone needs to be spending time doing that. So for me, I was spending a lot of my time doing that, both because I felt that it was a good fit for me from a role perspective, but also because I wanted to understand all the inner workings of the market in a way that we had been an observer of up until that point, versus being able to be a participant, which has been beneficial in terms of my learning and the company’s learning.

But it certainly is a bigger bite to do it. And I think public companies are, I really do believe that the public markets are one of the most amazing inventions of humanity, and it is the best, most efficient fundraising mechanism that’s ever been conceived of. I mean, you talk about crowdsourcing. The public markets are crowdsourcing on immense AI-driven steroids. And it’s insane how big it is and how much money there is. And when it works and you’re positioned well and the ocean is rising, it is an incredible funding device.

That’s what we had planned when we went public. It was going to be to do that. And then we had the ability to raise, acquire, and continue to scale. Now the market moved the other way on us. But I think it is an amazing vehicle to do that, but the business has to be ready to execute on it.

And so I think in today’s market, that means more scale, more profitability. But that’s not always the case. The amount of companies going public now is not as much as it was in 2021, which was like a peak year, or 2022. But that all comes down to valuation.

So, as valuations rise and as public company valuations rise, the public markets will always swing much more emotionally than private markets. Because private markets, there’s no liquidity. You’re locked into private companies. So they move in step functions.

Mark MacLeod:

That’s right. Once every 12, 18, 24 months, right?

Darrell Heaps:

Yeah. But in the public companies, that’s what leads the way. You see valuations rise. That’s going to happen first in the public markets, then show up in private, if history proves private goes even further, and then drives even higher valuations in public.

And then all of a sudden, it’s a great idea to go public, and all these companies go public because the pricing is right. So I think we’re in one of those cycles if you look historically.

Mark MacLeod:

I think one of the other issues here is just the amount of capital in the private markets. There’s just layer upon layer, right? We hear about venture, and they occupy a disproportionate amount of our minds. But that’s just one part. Like you mentioned, there’s growth equity, there’s private equity, there’s layers of private equity.

Like one private equity sponsor flips it to another, flips it to another. In my last year running Surepath, I had heard that there was 2 trillion dollars of dry powder in the private equity space focused specifically on software companies. Like, that’s a great reason to not go public because I can just keep resetting the clock on my cap table and not have to do the quarterlies, the compliance, and I can just keep going for a long time.

Darrell Heaps:

Yeah, absolutely. I mean, it does work with the fact of being larger. Like, I would say to go public in the US today, we went public on TSX, but if I were going to go public again, it would be on a US exchange. And I would say the minimum is 400 million top line, probably 30% profit margin. So you’re generating like 100 million in EBITDA.

That’s the kind of scale that starts to work because you want to be well north of a billion in valuation to be able to attract institutional investors, to be able to qualify or even screen to get into many of the funds out there. And so it does make sense that private equity is the step to get there before going.

But again, I think that that does change with valuation because that private money was there in 2021, but you saw a massive amount of companies go public because I think there is value in liquidity. So, being able to, at some stage in the company, the next turn being like, let’s deliver liquidity to all shareholders, does come. So I think the valuation will be there.

But I mean, private is massive, there is no doubt. But I do think public will always have a very solid place in the world’s markets.

Mark MacLeod:

So you’ve checked all the different investor categories. You’ve had angels, presumably in that bootstrap period. You’ve had VCs, you’ve gone public. Now you’ve got private equity. Maybe tell folks about your experience with private equity. Again, they might know a little less about that than venture.

Darrell Heaps:

I think when you look at venture. So, if you look at venture like ABC growth, and what’s the difference between a venture and growth equity, a lot of it gets quite mushy. So my characterizations will not be accurate in all cases. But to generalize, venture is all about growth, and it’s about spreading your bets. So if it’s the classic thing which still holds, if you’ve got a fund, you’re going to do 10 investments. One is going to be a crazy return, two or three are going to do pretty well, and like six or seven are going to fail.

And so you go out there, and so the dynamic with venture is like, welcome, you’re in the fun now, swing for the fences. We are going to get as much. So it’s a distributed bet. And there is way less operational rigor that comes from venture companies into portfolio companies. So, you’re going to report quarterly. It’s all about top-line growth in particular.

And the help that you get from those firms is not a lot, it’s not a ton. Now, some will say, well, we’re really entrepreneurial-friendly and we’re going to help a lot. And here’s everything we do to help you. In my experience, they’re not very connected to the business operationally, and that’s fine, that’s good because also a lot of the companies that are taking venture money, all that stuff’s being built, and it’s all immature anyways. So there’s not a lot of refinement. It’s really about, can we get onto this lightning rod of growth?

Private equity is a different approach, whose core thesis is concentrated bets and focus on operational rigor and excellence to deliver superior profit margins and deliver on a thesis. So, most PE is going to look at an investment opportunity, such as we’re only going to do one investment in this space. We are going to execute this thesis, and it’s going to deliver this outcome in three to five years, and that outcome is going to be a 3x return or something like that.

Whereas venture, they’re going to say we’ll do all this stuff and we’ll get a 20x return, and it’ll pay basically for everything else. So it’s a very different approach to risk. It’s much more systematic value creation, and it is much more operationally driven than venture.

So, they all have a place in the world as well because PE is not a good fit for a Series B company. Or if you’re early in product market fit or scale out, PE is not going to look at you because there’s too much risk in the execution. They want to build on top of an established platform and an established business and look at how we execute our thesis, which might be drive organic growth, or might be acquisitions, or might be maximizing profitability, or whatever the thesis is.

But they’re going to look at making those concentrated bets, applying their rigor, their expertise, in a lot of cases, more embedded in the company or a much tighter kind of operational cadence. And with the intent being we’re not here to drive a 10x return, we’re here to deliver this thing to deliver that return.

And I think that’s also why you see a lot of private PE firms do quite well over time, because they are very specific in terms of the bets they take and also the way they manage risk.

Mark MacLeod:

I like that. No, it’s a great distinction. Super helpful. I think one of the classic criticisms of PE is its focus on cost-cutting. And so you can take a thing that’s really good, and it’s death by a thousand cuts. You know, do the dividend recaps and all of that stuff.

Darrell Heaps:

There is an element of that for sure, and they’re not the same at all. So, not all VCs are the same, but there are like growth-oriented PE firms. There are ones that are pure arbitrage and leverage, which are exactly that, which is just like cost out, maximize profit, and then either run that for a long period of time to maximize cash or trade it for a higher EBITDA.

I think that’s the key thing in understanding that if you get involved with PE firms, it’s really understanding, from a firm perspective, how they approach making money. But then also the key thing for your company, what is their thesis, and how does that play out? How are they going to get paid? What are the key elements?

Because you want to make sure those things are aligned. If you’re like we’re at X, and my vision is I want to get it to 10x, and then do something, and we’re going to need a bunch of funding rounds to get there. Well, you certainly don’t want to get involved with a PE firm that’s looking to leverage EBITDA because you’re going to be at odds with them.

And in some cases, I think those are the right things to do with business. You know, you get to a certain point with businesses that it is what they are here for, and some businesses, at some points, now’s the time to maximize dollars out, and at other times it’s being more strategic to get to a larger scale.

But I think that’s the key thing: no matter what, they’re being very explicit on their end as to why and what they’re intending to do. So, making sure you have alignment is the key thing.

Mark MacLeod:

That’s such a key word, alignment. So important in any long-term relationship, be it personal or business.

Darrell Heaps:

Yeah, that’s where all the problems come from.

Mark MacLeod:

You know, if you and I are co-founders and I want to run right and you want to run left, it’s not going to be a good time, right?

Darrell Heaps:

That is absolutely true. I’ve always believed very strongly in alignment. Alignment and values are the key underpinnings of a well-functioning team and partnership. But you’ve got to constantly work at them because, assuming that if we’re in business together that you and I are aligned, we’re probably aligned when we start, but if we don’t constantly reset that and make sure we’re aligned, you probably aren’t.

Because again, my world that I’m living in, the view I see, and what I’m experiencing is not the same as yours. So, the likelihood that we’re continuing to be fully aligned is very unlikely. So, always resetting and checking in, I think, is something really important in the early stages.

I had a co-founder for the first like three years, and so learned that well.

Mark MacLeod:

So is that where the group therapy off-sites come in, I guess, or just recalibrated?

Darrell Heaps:

Well, that came much later. So I’d love to say that I learned my lesson earlier on. I didn’t. Those didn’t come until probably like seven or eight years into the business.

Mark MacLeod:

Well, Darrell, there’s so much more I could ask. And of course, I always put together a list of topics, and I never 100% get through them. I really appreciate you making the time, and I feel like maybe you just need to go public once every three years, get your roadmap, and go back private again. Just go and learn what it’s like to be a public company and then come back.

Darrell Heaps:

Yes, absolutely. Well, the other thing too, when we went public, taking it private, we also had an activist on our deal, which was another whole master class of learning about, like you’re trying to get a deal done in the public markets, and you have an activist against you, and how that all works, I didn’t ask for that one. That one was crazy. But that was another huge set of learning.

Mark MacLeod:

Awful. That. That shouldn’t exist. I remember that with Shopify as well. Just publishing stuff that was just like flat out wrong. And somehow it’s legal.

Darrell Heaps:

Yeah. Well, the crazy thing is the activist doesn’t have to be held to any sort of truth, where they can just spew rumors basically and make stuff up, whereas the company has a fiduciary duty to be truthful and disclosure laws, et cetera. So, it’s a challenging battle to be in. You feel like you’re fighting with one hand behind your back. Thankfully, we got through it okay, obviously. But yeah, it was another big set of learning.

Mark MacLeod:

Awesome. Well, I’m going to be cheering you on from the sidelines and excited to see where you take the business. Thank you so much for making the time to come on.

Darrell Heaps:

Thanks, Mark. It was an honor to be on the show, and I’ve listened to a bunch of them before. Please keep it up. It’s super engaging content, probably because being a founder and CEO, it’s just right down the fairway. But I really appreciate the time today, and thanks so much.

Mark MacLeod:

Thank you.

Hey, thanks for listening to the Startup CEO Show. If you’d like to connect with me, be sure to visit my website at markmacLeod.me, or follow me on LinkedIn at The Mark MacLeod, or X account @markmacleod_, and if you want to tune in again next week, be sure to subscribe on YouTube, Spotify, Apple, or wherever you get your podcasts. We’ll see you next time!