The Next Rocketship - Sponsored by The Johnson Graduate School of Management at Cornell

Q&A: Yext Founder Howard Lerman On Fundraising, Attracting Talent and the Future of Cloud Computing

The Next Rocketship

How did the idea for Yext come about?

I think we have a really unusual story in that we started our company in 2007 with the vision of making it possible for gyms to actually find leads online, and through a series of trials and tribulations we actually built a company and spun it out, and [later] sold it in 2011, and then basically restarted an entirely new company to build the world’s local data cloud.

It’s interesting because what’s happened is that the internet is a series of connected services that [users] and businesses consume. And Yext’s vision is to make it possible for brands and for marketers to get their local data into all of the places that people are looking, whether it’s Yelp, Yahoo!, Bing, Google, [as well as into] mobile ads and into local landing pages. So we’ve been focused in the past three years on building out this cloud.

What were some fundraising challenges you faced early on?

At every financing we’ve ever had we’ve typically been chased. And that’s a little unusual, but I think it’s because we’ve always been focused on building a software/cloud business with real revenues and [had] significant revenue growth and cash coming in right away. [And as far as] the cloud computing industry as a whole [is concerned], it’s very hot right now. You see companies like Box and companies like Marketo, and obviously Sales Force is kind of the leader, and there are a lot of investors that want to get in that space.

Was Yext’s funding the first time you went through the fundraising process?

I actually had been through it a couple other times. I had been through a couple M&A [mergers and acquisitions] processes, which is even more crazy and stressful than raising money, because I sold my first couple companies, so I had seen it before.

Having been through that process, I think there’s a lot more capital out there than there are good ideas, and than there are good entrepreneurs. I’ve always been of the mindset that what you do is you get an amazing group of people together, and you execute against a huge market, and you continue to iterate and tweak [your product, and eventually] you will [hit on] something big.

Do you find that after the first round of fundraising there’s a momentum that makes it easier to raise the second and third rounds?

I hope so! If not you can be in trouble. There’s a huge focus for every entrepreneur on raising capital, and my strong advice is to wait as long as possible. When we raised our first round we were already doing a couple million dollars a year of revenue. And that has a couple of benefits: number one is that you don’t raise money for the wrong idea. And secondly, you don’t dilute yourself as much.

A lot of entrepreneurs think fundraising is the goal and hooray, we’re done, we raised money, and let me tell you — that is just one leg of the journey. Even going public is simply a financing event.

Has the high valuation of Yext put extra pressure on you?

We don’t pay a whole lot of attention to that stuff. What puts pressure on me is our customers and our employees and [the drive to build] a great company. The real people that [valuation] affects in some way are the employees —VC financing doesn’t 100% drive the options price for an employee, but it is a key thing in a 409A valuation, which is the price by which you issue stock options for your employees. And so they are actually the most affected party.

To the extent that people want to feel like their options are moving forward even though they’re not liquid yet, that’s important. But I don’t feel any pressure [from] it, [and] I don’t think the management team.

How do you prepare for the possibility of a VC climate that isn’t as hot?

I guess what I would say as it relates to the industry is that we think that when VC money becomes tight, what you find is that the squeeze typically affects the companies that aren’t doing so well. The best companies and the biggest companies and the ones that are growing the fastest aren’t really affected by that. There will always be water for those weeds to keep growing as fast as possible.

Regarding raising money for the future, we don’t have a need for that for a very long time. What I would say that our financing strategy has always been is to build a great company. And if you build a great company the VCs will come.

Looking ahead, where do you see the market for cloud computing services like Yext heading in the next few years?

The world is evolving to the point where the biggest companies are fundamentally service companies. And when I say services I don’t mean services like people, I mean connective services that span across multiple devices in all kinds of areas. And that’s why you see the behemoths like Microsoft struggling to transition from desktop software [to a company that] can turn their products into services that can be consumed, whether it’s on an iPhone or a Windows phone, or a Windows PC or a Macintosh or a web browser.

And so the most successful companies are the ones like Google: I would argue that Google is a cloud computing company, you can basically use Google in everything. What’s really fun for developers is that you can begin to stack all different kinds of services together to make higher order kinds of end services for consumers. If you think of Google as a layer or Foursquare as a layer, look at how Uber, for example, has built an amazing car service based off of their professional taxi network which they’ve then layered on top of a Google map, which they’ve layered on top of Foursquare. And these are the kinds of things that are just really exciting because a lot of the low level problems have been solved. Uber, for example, did not have to build a digital map to bring you a black car. If they had, they never would have been able to do it. [These services] are sort of building blocks that [developers] can all use.

And so for us, we help marketers get their local data into a cloud, and the Yext cloud makes it possible for marketers to basically deliver digital, local experiences wherever people are looking, whether that’s a business listing or a display ad or a mobile ad. You’re going to want to have the nearest local offer for a Starbucks or Home Depot that you’re [close to], or you want to find the phone number of a place, or if you see an ad [it’s going to be tailored based on your location].

So by making it possible for marketers to put their local data in the cloud, and then have the cloud have services that connect to it [in order] to leverage that local data, we’re enabling a new set of local, digital experiences for users, and that’s pretty exciting for us. So I think you’re going to see a lot of cool things happening from people who, in many ways, are creating mashups of services.

And what are some goals that you have for Yext in the next couple of years?

[The same way] a consumer company would look at users, we kind of look at subscriptions as our key metric. We’re getting close — we’re not quite to 200,000 subscribers. We hope to double that in maybe a little more than a year. I think you’ll [also] see a global version of what we do coming out pretty soon. There are a lot of really awesome things you can do with all this local data, and when we have all these big brands and small businesses putting their local data in the Yext cloud, we’re going to be enabling all kinds of new experiences.

Take, for example, local offers from mobile ads. That kind of thing has been talked about for a long time, but with all that data in our cloud we’ll [actually] be able to enable that kind of behavior –— we’ve already started doing it. And [in the next few years I think] you’re going to see a whole wealth of new types of services being  built on top of the data from the Yext cloud.

This interview has been edited and condensed.

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