The Trade Desk at IPO: getting to a $1bn outcome

Last week was an incredibly exciting week. For co-founders Jeff Green and Dave Pickles, it marked a new milestone in the history of The Trade Desk (TTD), as the company started trading on the NASDAQ stock exchange following an IPO that valued the company at $1.1 billion. This was a very well deserved outcome for two founders and a team that embodied determination, vision and execution. For me personally, it was a very proud moment, as I had the fortune and privilege of backing Jeff and Dave at my last firm, where I sourced and led our investment in The Trade Desk and subsequently served on the Board.

As an investor, you’re always continuously learning and looking to improve, both from mistakes and successes. Although it’s very hard to generalize lessons across different companies, here are 5 lessons that stand out in my mind as I look back on what made TTD so successful.

1. Team really is everything
I still recall the first time I met Jeff. I walked out of the meeting feeling a sense of excitement and wonder. As a VC, you live for these moments. These are magical interactions when you hear a founder articulate their vision and actually start believing they have what it takes to deliver on that vision.

Jeff had a variety of seemingly contradictory qualities. He had been a successful founder before, though at the same time he was one of the most humble CEOs I’ve ever met. He was an expert in his domain, though he was also innately curious and open to new ideas. His vision was incredibly bold as a big thinker, but he also had a concrete and tactical plan to execute that paid attention to detail. It was this sense of contradiction that made him so magnetic as a founder.

All this manifested itself in the quality of team he built around him. Across every part of the organization, he was able to attract top talent that complemented him. Importantly, Jeff celebrated every member of his team. One point that stood out from our diligence process was just how eager Jeff was for me to meet as many people as possible on the team. This may seem obvious, but it’s surprising how many founders don’t do this. One after the other, they all told me how this was the best job they’ve ever had in their career. The numbers backed this up, as the company had virtually no regrettable attrition.

Jeff also wasn’t afraid to take risks and bet on his team. He frequently championed people internally, and was biased towards promoting from within. The strategy worked wonders. It resulted in an incredibly meritocratic environment where top performers remained hungry for more. The word “culture” is one that gets thrown out a lot. But there really was something special about this place. You could feel it at every interaction and in every conversation. It was a real living and breathing thing that defined the company. And if you don’t believe me, just look at the inside cover of the company’s S-1 IPO filing.

2. Positioning matters, a lot
After we announced our investment in TTD, I was surprised at how often people generalized the sector with very broad strokes. Other investors dismissed the “ad tech” sector entirely. Entrepreneurs even started calling their businesses “marketing tech” to avoid the stigma. Now some of this was warranted, as too many companies either did not have sustainable business models or lacked any defensible IP (or both). But this reluctance to even consider the space fascinated me and sparked the contrarian investor in me.

Indeed, I believe a lot of The Trade Desks’s success has to do with the company’s positioning in the market. There were several core elements of our investment hypothesis. First, we believed that the buy side of ad technology would always be more valuable than the sell side. Second, we liked that The Trade Desk was a multi-channel offering across geographies. After our investment countless mobile-only, video-only or Brazil-only startups emerged, but we believed marketers would never think of their budgets in this way. They would want a single place to execute their media strategies, regardless of geography or channel. Third, we were not convinced that media agencies were going to disappear altogether. Yes, their business and delivery models were under risk of disruption, but that was cause for more innovation as opposed to complete wipe-out. From the beginning, TTD was focused on powering the most sophisticated buyers, which meant not bypassing media agencies if that’s what customers wanted. And fourth and finally, we believed that the path to defensibility included utmost transparency — around pricing and results — which TTD celebrated.

This view influenced product strategy and how the company executed its vision. It took us many months before we got comfortable in the space, but Jeff’s resoluteness around the company’s positioning allowed us to build conviction. Every customer or industry reference call we did also backed this view. Now that’s not to say it was easy, as even internally we had some healthy debate, but once we were in “we were all in”. And it was that nuance in positioning that allowed us to find the diamond in the rough.

3. Capital efficiency does not necessarily come at the expense of growth
In today’s market environment, most companies are deciding between how to balance growth and capital efficiency. Gone are the days where the market rewards growth at any cost. Rather, companies with strong unit economics and capital efficiency are being rewarded at a premium.

The trick is building both the culture and financial model to make that a reality. And the earlier a company starts to think about this, the more success it will have. At the time of our investment, the company had raised less than $10M in equity and was already EBITDA positive. Indeed, The Trade Desk did not raise any additional primary equity capital after the Series B. Subsequent fundraises were either secondary shares or venture debt.

Looking at the company’s S-1, revenue grew from $44.5M in 2014 to $113.8M in 2015, representing growth of 156%. Over the same period, the company’s adjusted EBITDA grew from $5.7M to $39.2M, representing 589% growth. No, that’s not a typo. That is a remarkable achievement driven by operating leverage and a sustaining financial model.

Capital efficiency has more to do with just numbers however. It’s a cultural point too. During my diligence, I was always amazed at how scrappy the team was. Even though this was a venture-backed company, the founders treated expense management as if they were bootstrapped. This resulted in a singular focus around building a winning product with happy customers that would drive recurring revenue growth.

A lot has been said about unicorns in the market and how much funding they need. The Trade Desk is an example of a real unicorn that did it all with incredible capital efficiency. SaaS companies today should take note, and treat capital as an accelerant once a scaleable and repeatable sales model is in place, all backed by a great product.

4. Build something for the long term
At the time of our investment, the real-time bidding (RTB) industry was relatively nascent. This created a whole host of challenges and complexities. New business models were being created while others were being sunsetted. It felt like the plate tectonics here were shifting often, which meant the company had to remain agile and long-term focussed at once.

Having Jeff as the captain of the ship gave us a lot of comfort here. Backing a company where the CEO is a thought leader in the space certainly has its advantages. In many ways, Jeff was not only building The Trade Desk. He was also helping to define where the industry was going — or should go.

To do this successfully, Jeff constantly pushed those around him to think about where the industry would be in 10–20 years. That may seem like very far away when building a startup with all the challenges of managing payroll tomorrow. But Jeff didn’t want to build a small scale company. He wanted to build a category-defining company that would shape the market as a whole. It was that boldness in ambition that resulted in something so big being created.

Importantly, this is an area where founders need to ensure there is alignment with the Board, as short-term pressure can change this resoluteness. Our fund was an evergreen fund with long-term heritage which measured success in decades, not months or years. I was also lucky to be co-investors with folks like Eric Paley and Roger Ehrenberg who also constantly supported Jeff’s long-term thinking. The battle to win was never internal, which meant the company could focus on what mattered.

5. Great companies can be born anywhere
The Trade Desk was founded in Ventura, CA, a town located some 65 miles west of Los Angeles with a population of just over 100,000 people. In the list of start-up hubs in the world, you’re unlikely to ever see Ventura show up. Patagonia (the outdoor clothing brand) is about the only other company I know that is based there. Many would say that this presented a structural disadvantage to The Trade Desk.

On the contrary, Jeff and Dave used this as part of their arsenal in building a great company. Where other startups paid attention to what competitors were doing, the team at TTD was heads-down building a great product and acquiring customers. Where other companies were spending lavishly on fancy offices in SoMa, TTD negotiated with the local government to get unbelievably cheap rates for their space. Where other companies were losing key talent over price wars, TTD was creating a family.

Indeed, Ventura became core to the culture of the business. Today the company has over 400 employees across 15 different offices around the world, but the Ventura heritage has never faded.

Congratulations again to Jeff, Dave and the whole team at The Trade Desk. Thank you for letting me be part of this incredible journey!