How iD Tech Went From the Verge of Extinction to a $200 Million Acquisition in 12 Months

Transcript

Disclaimer: Transcripts may contain a few typos. With most episodes lasting 60+ minutes, it can be difficult to catch some minor errors.

John Warrillow:

The subtitle for my book, Built to Sell is called Creating a Business That Can Thrive Without You. Why? Because I think that’s the ultimate poker hand in the game of life. If you’ve got a business that can succeed without you doing all the work, you’ve got lots of options, right? You could sell it. You could bring in a manager. You could sell part of it. Lots of options. And I think the prerequisite for building a business that can thrive without you is having standard operating procedures.

Having a set of guidelines, where you can delegate your most important tasks and projects to your team and have them do them just as well as you would do them. We’ve just developed a brand new ebook and you can get a free copy at BuiltToSell.com/sop. It will give you the instructions for creating SOPs. It’ll tell what to document.

The difference between auditory learners and visual learners and kinetic learners and how you can make sure your SOPs relate to all those different types of individuals. Again, go to BuiltToSell.com/sop to download a free copy of the ebook.

Welcome to Build to Sell Radio. My name is John Warrillow, and this is the podcast where we help you punch above your weight when it comes to exiting your company. And my next guest, Pete Ingram-Cauchi did just that. He built a company called iDTech. He sold it for $200 million. There are a lot of lessons, Pete share in this story. Couple of the ones that I want you to take away is the pros and cons of doing a private equity round of investments.

As you will hear, Pete took a minority shareholding from a private equity group and he talks about the pros and the cons of that. Overall, the experience was excellent. And that’s the first thing to note. However, he does have a few cautions and he’ll list out three things you’ve got to watch out for, if you’re going to take private equity investments. I’m not going to ruin his, or steal his thunder. I’ll let him describe those three things. But I want you to listen specifically for that, because I know you’re probably getting pitched all the time by these private equity groups and at least understanding both the pros and the cons of taking some money is exactly what Pete Ingram-Cauchi does in this wide ranging interview. Enjoy. Pete Ingram-Cauchi.

Pete Ingram-Cauchi, welcome to Build to Sell Radio.

Pete Ingram-Cauchi:

Thanks for having me.

John Warrillow:

iDTech, you guys started doing camps for kids who wanted to learn about technology in particular coding. Am I getting that right?

Pete Ingram-Cauchi:

We started in 1999. My parents were both educators and my sister and I had recently graduated from the University of Washington in Seattle. My dad being an educator and a principal in Silicon Valley, he was like, “What’s all this computer stuff?” All of these kids are talking about computers, but we have no idea what’s going on. So we just thought that there was this little niche that we started with running a couple of summer camps on university campuses here in Silicon Valley. We grew the business organically and 20 years later, it eventually led to the next chapter, which is why I’m talking to you today.

John Warrillow:

Love it. So the original concept was camps on campuses. Stanford is obviously the most storied campus. Did you ever do anything on Stanford?

Pete Ingram-Cauchi:

Stanford. Our camp held at Stanford was massive. And then we rolled out to campuses like long standing relationships camps held at MIT.

John Warrillow:

Awesome.

Pete Ingram-Cauchi:

At Caltech, UCLA.

John Warrillow:

Did you borrow…

Pete Ingram-Cauchi:

Then we expanded in Asia.

Yeah, go ahead.

John Warrillow:

Did you borrow the brand equity of those schools in order to increase the cache? I don’t mean in a nefarious way or a way that is in any way legitimate, but did you say, “Hey, come to the Stanford campus and get an iDTech course on how to code”? Was it part of the marketing?

Pete Ingram-Cauchi:

I think that we didn’t really realize that that may have had some importance, but that was really never the goal. What we wanted actually to do was introduce kids to these technical topics and give them a taste of being on campus at a university. How cool is that? And part of this was I think expressed through my own childhood when I would go to camps. I went to a camp several years at Santa Clara University and just being exposed to what is it like to stay in the dorms and eat the food and rub shoulders with college students and learn technology from really energetic staff.

John Warrillow:

That’s so cool.

Pete Ingram-Cauchi:

It influences your thinking as a kid and then over time, it was more than anything beyond maybe the marketing. It was just really the… It was a great business model, right? We were able to replicate the model and expand to 150 locations, top university locations in the US and into Asia and into UK.

John Warrillow:

So cool.

Pete Ingram-Cauchi:

And then COVID hit, and now we’re rebooting those summer camps. We pivoted to digital and now we’re rebooting the summer camps for summer 2022.

John Warrillow:

So I want to get into that. And again, I relate to this. My kids are just kind of getting into that college stage where they’re starting to evaluate where to go to school. I’m trying to describe what a university campus is like, and for them it’s so esoteric, so weird. I’m like you got to go, you got to be on camp. You got to eat the food. You got to see the square and you got to kind of feel it. So this was a cool glimpse for young kids, K to 12, but I’m assuming mostly high school kids to really get a true sense of these campuses.

Pete Ingram-Cauchi:

Kids will come to our camps starting at age seven.

John Warrillow:

Wow.

Pete Ingram-Cauchi:

And how cool is that? They get a little… Let’s say here in the Bay Area, in Los Angeles or New York, and they’ll try… Okay. Let’s just take New York. They could try our coding classes or game design classes at NYU, and then to also try a week at Columbia. Right? I mean, so that we have a lot of different campuses and it gives you exposure to the feel of those campuses and a lot of parents, I mean, love that.

I love that for my own. All three of my kids have gone through iDTech for several seasons. It’s kind of like before you actually invest in that, whatever $60,000 a year education, maybe try a thousand dollar camp with iDTech and get that exposure and the technical skills before you make that huge investment. Right?

John Warrillow:

It’s such a good concept. I’m surprised there weren’t more competitors. I want to ask you about competitors, but before we get to competitors, just tell me the business model. So let’s say Caltech. Caltech’s dead in the summertime. You’re like, “Hey, let’s do summer camps.” Do you rent the space for them? Do they give it to you for free? What’s the business model piece behind the scenes to the extent that you can serve?

Pete Ingram-Cauchi:

Every contract we have is customized. Some can be rental agreements. It really depends on the need of the university. Some of them are looking to us as a marketing vehicle, right? So they look to us to provide exposure for their future students, and it’s more of a pipeline story. So it really depends on the university and what their needs are.

John Warrillow:

And we were talking-

Pete Ingram-Cauchi:

Some universities… Yeah, go ahead.

John Warrillow:

I was just saying, we were talking offline when you started, it wasn’t some Silicon valley finance business with hundreds of millions of dollars of that. you bootstrapped it from the beginning. Did that ever change? Did you bootstrap all the way or did you raise money at some point? What was that like?

Pete Ingram-Cauchi:

We raised money at year 15 when we were quite profitable. And really the impetus for that was my sister, my mom, myself and our key employees had not really ever taken any chips off the table. So we’ve been investing and we didn’t pay ourselves much money at all. So we wanted to take care of some of our employees. And at that moment we created an employee’s thought pool. Basically, gave 20% of the company to our employees, which you fast forward seven years later, it really benefited a lot of our employees, which we feel great about.

But yeah, we bootstrapped the entire way. So I know as an entrepreneur, the day of I’m answering phone calls at three in the morning and delivering brochures, driving around to Los Angeles. Literally delivering flyers and brochures to schools like getting the word out about the program.

I mean, we all did that, right? We did all the marketing. My mom, bless her, did all of the staffing the first year. She wasn’t super familiar with Excel spreadsheets. It was all on pencil and big pieces of paper. That’s how we did it. And I think that magical moment, we just did it. We didn’t think about what could go wrong. We just did it.

John Warrillow:

That’s awesome.

Pete Ingram-Cauchi:

We look back at that, it feels great that we built the business and grew it organically with zero funding.

John Warrillow:

So ballpark, and again, tell me if you can’t share.

Pete Ingram-Cauchi:

I’ll let you know if you’re pushing too hard. All right?

John Warrillow:

Yeah. Where were you in the trajectory of the business like in terms of revenue, ballpark, when you decided to take some chips off the table 15 years after starting?

Pete Ingram-Cauchi:

We were probably, I don’t know, in the 40 million net rev stage.

John Warrillow:

Got it. Got it.

Pete Ingram-Cauchi:

Right?

John Warrillow:

Got it. Okay. And so how did you value the business at that stage of the game? Was there a formula you were working from?

Pete Ingram-Cauchi:

I think that we had, at that stage some advisors. We had a concept of what might be a fair valuation. I think it’s interesting. We had an idea, ultimately evaluation is driven by the market and it’s driven by a buyer and a seller. So we ultimately had to arrive at a number that we felt where we were being valued and the business was being valued fairly.

I don’t think we overreached, but I think our investors got a great deal and I think we got a great deal. So we ultimately just came. We had an idea in mind of what we thought the business was worth, and that number was honored.

John Warrillow:

So when you got investors, who invested in the business at that stage?

Pete Ingram-Cauchi:

At that stage, I just called, still very good friends of mine. So Paul and Bryan from Anthos Capital. So they were fantastic partners in the first leg of the journey for the seven years that I worked with them. I can’t say enough about them as a team. They just really believed in our concept and our model. And they were great partners.

John Warrillow:

So let me get this straight. So the first 15 years, you’re bootstrapping. Your mom is doing stuff. Your sister is doing stuff. You’re dropping off brochures, but it’s growing because you got the 40 million. So it was definitely growing every year, it sounds like.

Pete Ingram-Cauchi:

Right. And I should say in the early days, I was driving brochures. Obviously things evolve. One of the stories that I have is, I mean, we talked about the treacherous Highway 17, but I was coming back from-

John Warrillow:

Yeah. Between Santa Cruz and Los Gatos.

Pete Ingram-Cauchi:

I was driving computers in a U-Haul from our campus at UC Santa Cruz, driving them over Highway 17. I was so tired I had forgot to lock up the truck in the back. Apple had lent us 200 computers to use for the camps. And I had boxed up computers flying out of the back of the truck. This is a real story. To which somebody called me back in my Nextel phone. Remember the Nextel phones? [crosstalk 00:13:48]

John Warrillow:

Yep.

Pete Ingram-Cauchi:

Yeah. Happened to call me because they saw me driving off and they couldn’t get a hold of me. So I did stop the truck and I lost four computers. So somebody had picked those up somewhere. But these are just the fun stories of the startup days. So they retired my license and said, “You stick to building the business. We don’t need you driving the truck with computers around anymore.”

John Warrillow:

Got it. Got it. So you build it up. So tell me, because I think it sounds like Anthos Capital. Am I pronouncing it correctly to say Anthos Capital?

Pete Ingram-Cauchi:

Yeah.

John Warrillow:

Okay. That would be a private equity. We would think of it as a private equity group, but I’m assuming… Again, if I’m going to detailed, you have to push back. So I’m assuming it was sort of a second bite of the Apple deal where it’s like we’re going to buy a chunk of your equity. You can give some to your employees, but you’re going to keep some in the business. And then if we’re successful years down the road, that other chance of your equity will be worth-

Pete Ingram-Cauchi:

Exactly. So we’re just going to go out. And they were influential in helping us. They brought in a couple of incredibly great board members, which brought in insights to help with scale. So one of the board members was Howard Behar. One of the first C-level like founders and employees at Starbucks, who worked with Howard Schultz. They were known as H20.

So Howard to this day, I mean is an incredibly great friend and he helped us scale, like really pushed on us to open up in Asia. And we did all those things. So he gets some of the credit. Anthos brought to us not just additional capital to help with growth, but also brought in helped us create a deeper bench in the company as well.

John Warrillow:

Got it. And it allowed you to take some chips off the table, get your mom taking care of you and your sister, some employees.

Pete Ingram-Cauchi:

Right. It took pressure off because out of 15 years maybe on paper we had a lot to show for it, but we had never really taken any money out of the business. Everything was just being used to plow back into the business. And we paid ourselves very modest salaries. So we just felt that that time was right.

At that time, we bonused out all of our employees as well. We just thought that it was a good time and it turned out to be that that was a great decision.

John Warrillow:

Got it. Are you able to share a multiple at that stage that you sold for or that you got [crosstalk 00:16:24]?

Pete Ingram-Cauchi:

Yeah. I don’t know where the confidentiality agreements come into play. So I’m probably just not going to answer that because I don’t think… I’m not sure exactly where the threshold is there and I don’t want to go back and dig up contracts. I would like just suffice to say that it was when you’re bootstrapping money, like when you’re bootstrapping the overall valuation was one in which like we had to be relatively excited about or else we wouldn’t have done the deal.

We were excited about it, but the deal was still a minority deal meaning Anthos came in and they were okay taking a minority position in the company, which really suited us well. That meant that we could take care of our employees, take some chips off the table, really focus on growth for the next bite of the apple, which we knew it’d be many, many years away, but everything happened the way that we envisioned it.

John Warrillow:

I love this because there’s so many people right now being pitched this deal from the private equity community. Of course, private equity, as you know has got tons of cash. They’re trying to find deal flow. They’ve moved down market a lot. So oftentimes they’re looking at companies with 5 million in dollars in sales and 8 million and 10 million. I mean, much smaller than you were.

Again, the deal they’re getting is like, “We’ll buy 60%.” In your case, they bought a less than majority.

Pete Ingram-Cauchi:

To be honest that was the deal breaker for us.

John Warrillow:

You wanted to keep majority.

Pete Ingram-Cauchi:

Yeah. If they wanted and that’s the reason that we spoke to them. We were introduced because we had spoken with others and it was like other private equity firms. And right off the bat was like, no, we take majority. We take majority. We take majority.

We’re like, well, we don’t need that much capital. And we are so fired up by the way that we do things with our culture and kind of the special views that we take on the business. We don’t want to sacrifice any of that. I don’t want somebody coming in like telling you one story and then saying, “No, we’re going to fit this square peg into a round hole.” No, we’re not doing that.

So the reason that we ultimately ended up doing a deal with Anthos is because we thought they were, A, great people, very aligned with our mission. They loved what we did. You know when someone is actually excited about your business, by the questions that they ask by the time that they take with you versus somebody who’s just trying to get a transaction done.

And then ultimately we got the valuation and the fact they were willing to take a minority deal meant that they trusted us to move the business forward. Right? They trusted us.

John Warrillow:

They sure did. Just to be clear, when you say minority, if all the employees of which you gave 20% of the equity and the new entity it sounds had ganged up against you and the Anthos team were all voting in the same way. Would it-

Pete Ingram-Cauchi:

I know. The employees were given commons. They weren’t given voting rights.

John Warrillow:

Okay. And I’ve heard a lot lately where people are using these super voting shares where they’re worth 10 to 1. Did you get involved in any of that so that they could have outvoted you if they really wanted to?

Pete Ingram-Cauchi:

No. We really put together a very meat and potatoes, very simple, simple structure, which was important to us. There was no gamesmanship. It was all very, very simple and straightforward. So anybody, even our employees could understand it because there is that perception that can come with like you talk about the super shares, et cetera. That just wasn’t for us.

John Warrillow:

Yeah. I can hear the dog barking in the background. I love them. What kind of dog do you have?

Pete Ingram-Cauchi:

I’m sorry. Okay. So another story. I did go to the office. I haven’t been to the office in quite some time, but I wanted some quiet spot to do this. So I go to the office and the internet was down. I had a board meeting this morning, so I had to let everybody on the board know I was going to be 15 minutes late. So I had to come back home, jump on the board meeting, then jump on with you. So I apologize for the dogs.

John Warrillow:

I love it.

Pete Ingram-Cauchi:

I know you wanted a quiet space, but this is the real world.

John Warrillow:

So what kind of dog do you have?

Pete Ingram-Cauchi:

We have two rescue dogs.

John Warrillow:

Oh, great.

Pete Ingram-Cauchi:

They’re absolute mixes and really, really great.

John Warrillow:

Okay. So we’ve got a straightforward deal, because I think people are listening to this and going, man, this is like a dream come true to be able to hold on to control and take some chips off the table, put some money in your jeans and continue to run the business. Were these folks at Anthos like, were they buddies of yours that were like, “You know what, we never do this, but because you’re our friend, we’re going to do this”?

Pete Ingram-Cauchi:

No.

John Warrillow:

How did you get them to give you that deal?

Pete Ingram-Cauchi:

They’ve structured several deals that way. And I think that’s a competitive advantage for them. I believe, and you’ll have to check the notes. But as an example, they invested in Honey and then they took a minority position and then Honey ended up being acquired by PayPal. And it was like a $2 billion valuation or some something crazy.

So they have an incredible way of, I think finding talent and finding great businesses that are maybe flying a little bit below the radar, but they really differentiate themselves by betting on the entrepreneur. Right? They never came in and said, “Hey, we want to restructure everything. And you’ve got to look through it. Look at this business through our lens.” They basically came in and said, “Hey, how can we help you grow? What do you need?”

John Warrillow:

What triggered the initial conversation? Did you shop the business? Did they come to you? How did that-

Pete Ingram-Cauchi:

I think word got out probably after a decade that, wow, iDTech is becoming this pretty awesome ed tech brand. Our profile was raising. So we had like DC firms and PE firms hitting me up literally every day. So I mean probably 100 firms. And I really wasn’t interested in any of them because they all had the same… I probably didn’t give it enough time and I’m sure there would’ve been a lot of other good partners as well, but Anthos just stuck out by the… I mean the founders came and they flew in.

They spent time with me. They really got to understand the business. And then like I said, just like the structure and the they organized or helped us organize the deal, just everybody felt good about it.

John Warrillow:

What was that like to get that amount of money? I’m trying to visualize you, your sister, your mom. I mean, I read some of your back stories before we hit record and I think I saw a quote saying, again, correct me if I’m wrong, but you didn’t grow up in a lot of money. It wasn’t like you had a ton of very affluent, crazy life growing up. You’re bootstrapping, dropping off the brochures at the schools. And all of a sudden someone comes along and not only pays you a whole bunch of money, but also your mom and your sister. I’m trying to imagine what that would feel like. And I would love to know what does that feel like?

Pete Ingram-Cauchi:

Well, you know what’s interesting? I’ve had a lot of discussion about this with my wife and with my family and we didn’t go out and buy a fancy car or a big house or fly on private jet. Nothing really changed because I think it’s just the way that we were brought up pretty humble. I don’t need a bigger house to be happy. I don’t need a faster car to be happy. So I was driving around in my Ford Escape and the next day I was still driving around in my Ford Escape. It was great. We had the money. We put it in the bank and then we forgot about it.

It was just like, “Okay. Keep building the business.” I mean, that said, my parents, as I said, were educators and we lived growing up, we live month to month. So I know what’s that like. My dad worked as a line cook because he was a principal in Milpitas, but he worked as a line cook to bring in extra income on the weekends. So we know what real white collar work is, blue collar work too.

I think that really rubbed off on my sister and I as we built the business and with a lot of my… Like just the viewpoint that we had in building the business, we weren’t afraid of hard work.

John Warrillow:

Was your mom a shareholder at that time?

Pete Ingram-Cauchi:

Yeah. Yeah, absolutely. I said she was instrumental and like planting the seed for quality. Whatever we do, it’s going to be quality. That’s going to cost a lot. Don’t care. It’s quality, it’s quality. And I think that really differentiated what we did versus… If you think of a typical summer camp and really mission driven people, but maybe not super professional or maybe not really well trained or maybe they’re not dressed in their best. You have that perception of what a campus is. We really professionalized it. Right? And we cared about the quality from customer service to every…

One of the hallmarks to what we do is we teach in small groups and we guarantee our ratios. It’s not like 20 kids in a class. We’ll have like five kids in a class or three kids in a class, a lot of personalized instruction. So I’m just trying to illustrate, there’s always that dedication to put in the customer first and really delivering a great product and the rest takes care of itself.

John Warrillow:

And your mom kind of really carried that torch it sound, like really beating the drum on quality.

Pete Ingram-Cauchi:

Yeah. There was no in between. You either do it the right way or don’t do it. That was it.

John Warrillow:

Where were you when the wire transfer hit your bank account when Anthos invested? Were you in the same room as your mom?

Pete Ingram-Cauchi:

No. I was out at camp because it happened in July. It happened in July. Was that 2013 or 2014? Like I said, we knew it was coming. I wish I could create this idea that there was like confetti popping and fireworks going off, but I guess it goes back to maybe it’s more meat and potatoes. We were really glad that the transaction happened and it was like the next day just like back to work.

John Warrillow:

Yeah. For a son and a mom, that bond is so… And daughter for that matter, but it must have just… I just can’t imagine being your mom and the pride she would have felt to see your idea validated, the security that you bought for yourself. I mean, she must have been very proud.

Pete Ingram-Cauchi:

Yeah. I mean, I know how proud my mom is of my sister and I. And she’s also gotten a chance to meet so many of our teammates that have been with us for 20, 21. Now going on 22 years. She knows, it’s very much family oriented. So there’s a lot of pride there. It makes me really happy that we’ve given through all of our collective hard work that we’ve given the family. And I say the greater family, not just my own immediate family, but all of our employees kind of some space to do to live their best lives from a financial perspective.

But from a creative perspective, I mean, I don’t really think that… When you talk about somebody’s trajectory at a company in Silicon Valley, most people are here for two years and then they jump for three years and they jump. People have been with iDTech for 15 years, 20 years.

John Warrillow:

Yeah. In your case, 20 years.

Pete Ingram-Cauchi:

And that’s really special, you know?

John Warrillow:

Yeah. So look, I think a lot of people… I want to switch to life after the Anthos investment, because I think a lot of people are sitting here and they’re getting calls like you did. Maybe not the same frequency, but they’re getting calls from private equity groups that says, “Hey, let us invest. Maybe a minority, maybe a majority. You’ll get the second bite of the apple downstream.” And frankly, I’ve done a lot of interviews, Ryan Moran comes to mind where it ends up being a disaster.

The private equity company ruins the culture. They bring in outside management. New managers don’t know what they’re doing. It’s like a big disaster. So in your case, it sounds like the opposite. I mean, I want you to tell me what that was like once Anthos invested, what changed?

Pete Ingram-Cauchi:

Okay. There is going to be more emphasis on growth, right? So that took some getting used to part of… I think one of the lessons that I learned is when you are shift to the growth mindset, that’s great, but you cannot do it at the expense of your culture. You got to make sure the communication doesn’t break down. You have to bring people with you. And the real world is that you’re going to start bringing in some people from the outside, but you damn well have to make sure that those people that you’re bringing in are really good cultural things. I learned the hard one.

John Warrillow:

Tell me how. Describe the story. Did you bring someone in from the outside?

Pete Ingram-Cauchi:

You bring people in with the idea and this is me when I was a little bit younger. You bring people in who think that maybe they know more than you or there’s… Oh, yeah. You might start doubting yourself thinking like, “Hey, maybe we’re doing everything wrong. Maybe this person does know. Maybe they have figured it all out.” But the reality is they may have figured it out somewhere else, but they got to figure it out here. They got to work with-

John Warrillow:

Did that happen in your case? Can you tell me a story without the name of the individual, obviously, can you tell me a story of where someone came in and it just-

Pete Ingram-Cauchi:

Yeah. It doesn’t even matter. I’m just saying in any role, but as an example, if you bring in and I’m going to, I’m going to be a little bit direct without being direct because I don’t want to name names, but if you bring in somebody that all of a sudden is going to run marketing for you and I give that person as a leader, I give that person say, “Hey, you’re going to run marketing.” But I didn’t really try them on. I didn’t see how they were going to interact with our people. I didn’t ensure before I gave them all that responsibility. I didn’t ensure that they were meshing with the people that they were listening to the ideas, maybe giving it three to six months before we said, “Okay, you’re ready. You’re ready to do this.”

I just said, “Here, take it.” And if it’s a bad cultural fit, or you even may have what we kind of… This isn’t me, but I think this is Reed Hastings talking about the brilliant jerk. Right? You can bring in somebody that may be super book smart, but if they don’t know how to interact with people or lead people or know for us like servant leadership and what that really is, they can absolutely create chaos and decay very, very quickly. And I learned that lesson.

John Warrillow:

Yeah. How did you dig out of it though? I mean, did you… Yeah, go ahead.

Pete Ingram-Cauchi:

Again, go back to a good partner, basically, I worked through it at the board level and worked through it with our investors and our leaders and basically just said like, I waited too long to exit some of those faults, but ultimately I made the right decision. I got there, and I think our entire organization learned less. As you’re growing, it’s okay to bring new talent in, but it’s got to be the right talent.

You hear about this and you read about it in every business book imaginable and you hear it. You hear people talking about it, but I do think there’s… Until you’ve actually lived it, you don’t actually know how much damage can happen in an organization. You can melt down a company very quickly and that can happen in a sports team.

It can happen in any sort of organization. Right? If you have something that’s working pretty well, we wanted to be open minded about bringing in a new talent. So did that, but we just happened to bring in the wrong talent. And maybe those people would’ve been great somewhere else, but they weren’t great here. So lesson learned.

John Warrillow:

Okay. So a couple key lessons. So if you’re going to take private equity money, one make sure that just because they recommend some C-level executive that’s worked at some famous company that it’s a cultural fit, not only a fit on paper, but also a cultural fit.

Pete Ingram-Cauchi:

Absolutely.

John Warrillow:

Got it. That’s helpful. Number two, the second piece I took away is expect them to want to grow. They’re not going to invest a truckload of money for you to just say flat or slightly grow. They’re going to want to grow.

Pete Ingram-Cauchi:

It doesn’t matter. Majority deal, minority deal, there’s going to be more pressure than ever to grow. And that’s not a bad thing if you’re ready to scale. It’s not a bad thing if you’re very mission driven. For us, we want to educate millions of kids all over the globe and both people that can pay and people that need scholarship.

So the way for us to like really do good and fulfill our mission is to get as many kids educated in all of these technical topics that they’re really not getting an education for in school. And it’s not easy. So for us, in order for us to see as many kids in the pipeline as possible, we got to grow. There’s a lot of alignment with our mission. So for us, that’s very, very helpful. Right?

John Warrillow:

How did you structure it? Because of course there’s a difference between being a shareholder in a company and being the CEO of the company. As I was saying, you and your sister were very much co-leaders of the business. You handled sales and marketing business development and she was more on the operational side. Is that right?

Pete Ingram-Cauchi:

Yeah. I mean, there were a lot of shared services and a lot of great dialogue. She oversaw accounting, finance, human resources. I was more product and marketing in general. But a lot of overlap in discussion. Yeah.

John Warrillow:

So how did you structure it with Anthos? Again, this is my ignorance coming through, but were your shares, were you required to stay in the business as employees in addition to shareholders? Or could you have sort of brought in somebody else and stepped away and just held your shares so to speak?

Pete Ingram-Cauchi:

Yeah. I mean, I think technically on paper like contractually, my sister, Alexa, she could have left. I could have left. I mean, Anthos understood. And that’s where that trust came into play. They weren’t making a sign an ink that we had to stay. They just really believe our story that we have a lot of work to do and we really want to grow the business.

And they were right. I can see as an investor, how you may want to contractually oblige somebody to stay. But the fact that they showed us so much trust, again, was why they got the deal. So I guess that’s the investor dilemma.

John Warrillow:

Yeah. How did the strategy change? It sounds like Anthos really pushed you to go global and be serious about Asia. What else changed in the strategy with the new partners?

Pete Ingram-Cauchi:

I remember actually being in a boardroom in our office with my COO, Joy and with Bryan Kelly. So one of the investors and we were talking about… It was the first year that we had done the deal and we were talking about growth rate. We were proposing that we grow 20% and he’s like, “What’s keeping you guys from growing 30%?”

I looked at Joy and I said, “Joy, what’s keeping us from growing 30%?” And she just looked at me in saying like it was a really funny moment. Just looked at me and said, “I know where this is going.” She’s like I’ll get everybody revved up. We know where the new number is now.

I mean, we were making decisions pretty much like that. It wasn’t like massive discussion. And it was more about the challenge. I think that year, we probably ended up growing about 25%. So we didn’t hit the 30%, but it was helpful to have that kind of stretchy mindset. Right? And that’s okay.

I think that’s one of the things that we constantly grapple with as leaders is trying to set stretchy goals for ourselves, but you also want to feel like you accomplish something and hit a goal. So there’s a delicate balance there between making goals that are stretchy, but also achievable. Right?

John Warrillow:

I love the term stretchy goals. I’ve never heard that before, but I love it. So walk me through what triggered the decision to sell the second time effectively to emeritus. What triggered? What changed?

Pete Ingram-Cauchi:

It’s fun for us for completely different reasons. So let’s walk through where we were in 2020. In 2020, we were gearing up for our biggest camp year ever. Things were going great. We’re heading into January. Numbers are looking fantastic. And then we start seeing signs in February, right? You start getting news reports coming in from Asia, coming in from all over. Then March broke. It was like literally the business just stopped. So this is COVID, right?

John Warrillow:

Gosh, that must have been hard.

Pete Ingram-Cauchi:

So we had our business… Now, remember, we’re already geared up for our biggest season ever, which means we already have a huge full-time staff. We’ve already onboarded. Like we’re actively starting to train close to 2,000 instructors. We already have contracts.

John Warrillow:

What’s your top revenue for year ending 2019, ballpark? It was 40 in 2020.

Pete Ingram-Cauchi:

Rounding, let’s call it 70.

John Warrillow:

70 million?

Pete Ingram-Cauchi:

Right. So we’re gearing up for our biggest season ever. And then literally the breaks just slammed on when we went from… Let’s just call it the $70 million business to a $0 business. Right? In the span of a month or two.

John Warrillow:

Man, thousands of employees.

Pete Ingram-Cauchi:

Talking about-

John Warrillow:

Are those contract employees? Full-time?

Pete Ingram-Cauchi:

The 2,000 instructors?

John Warrillow:

Mm-hmm (affirmative).

Pete Ingram-Cauchi:

Yeah, sure. I mean, we recruit people all year long to come and work in our camps. Like we’re at that scale. So we have an army of people that are coaching them up and training on. We’ve built out curriculum. We’ve bought thousands of computers because everything is really elegant. We have contracts to 150 universities. We paid deposits. Not to mention all the millions of dollars we spent in marketing costs, et cetera. Right?

You can’t get any of that back. So talk about a dilemma. Here’s the silver lining though, while we always wanted to make a push into the digital space, like delivering classes online, and we had been tinkering, we had said actually in a plan, because I’d gone back and look at board meeting decks from previous year.

So six months prior we had said, “Look, our five-year projection is that we will be doing $5 million in online business.” Not a big piece of our business. It was like, “Okay, cool. Good job.” But the bulk of our effort and mind share was in delivering me in person.

Well, COVID hit. We ended up pivoting within… We didn’t have virtual tech. So we stood up a product called virtual tech camps that same summer. So all of the in person is shut down. We stand up a product called virtual tech camps, which far, far, far exceeded our expectations from a sales and delivery standpoint.

We did it at an incredibly like high quality so that the net promoter score was excellent. And that got the investor community like a massive amount of attention started flooding in on us.

So just the metrics behind a digital business or an online business versus in person are completely different, right? The valuations that are attached to an online business versus an in person are very, very different.

So even though the virtual tech camps was considerably smaller than the in-person business, the valuation on that revenue, because you don’t have facilities fees. And it’s completely scalable. People were coming at us left and right saying, “Hey, we want to invest in you.” Even though we’re a much smaller business from a revenue standpoint.

So Anthos put in more money to help kickstart now the digital revolution at iDTech. And then that got noticed, and then that’s what led to the next deal, which was, I had this really thoughtful guy from Emeritus. His name is Ashwin who’s the CEO. He had been hitting me up on LinkedIn. We finally connected. He and I just started conversing over a series of three months. And every call, he was asking me such thoughtful conversations about our business.

I’m like I like this guy. Very much driven by mission, by culture. And I’m like, “Wow, I can see myself working with this guy. I really like this guy.” So then this was actually… As the conversation unfolded in the fall, I was actually the one that said, “You know what? We may want to talk about a bigger deal. We may want to actually talk about something because I can see by what you’re doing.”

So what Emeritus does is they work with executive ed clients and they work with adult learners. They deliver short and long courses delivered at like skilling up. So maybe you’re somebody who’s looking to… Maybe you’re a teacher and you want to get into IT or maybe you’re in this job and you want to now do data science.

So they work with universities to deliver these certificates to upskill the adult population. But we do K-12. They work with universities. We work with universities. They deliver certificates partnering with MIT Open Learning. Well, we’d like to, but we have in-person camps at MIT.

So we started just talking about this really incredible potential long-term pathway of learning. They could start at age seven and maybe go to age 50. Imagine one company that is really, really guiding that learning for not a year or two, but maybe a lifetime. We just got really excited about that idea. So that’s really what led to the conversation which led to the deal.

John Warrillow:

It sounds like a peanut butter chocolate kind of marriage. If you’ve got the K-12 and they’ve got the… I want to go back to something you said earlier, which was the valuation.

Pete Ingram-Cauchi:

Sorry, dogs are barking.

John Warrillow:

The puppies are hungry, man. They’re like, feed me.

Pete Ingram-Cauchi:

I’m so sorry.

John Warrillow:

It’s great.

Pete Ingram-Cauchi:

They’re running around.

John Warrillow:

A little ambient noise never hurt anybody. Okay. Take me back to something you said earlier, which is about the relative valuation on a dollar for dollar basis between kind of in person camps and the digital business. Can you give me a sense of, again, roughly-

Pete Ingram-Cauchi:

It’s like on a dollar per dollar, at the most modest measurement, it’s two to one. But I think like the market even now today, even the past six to 12 months, the markets are even more frothy most likely. It might be three to one or four to one now. It’s just because the digital businesses, they’re highly scalable. But I will say it’s incredibly competitive. It’s very, very hard to do. Customer acquisition is at an all time high.

Effectively anybody can launch a coding class. That’s not the magic being able to do it with a real opinion about pedagogy and how you teach and really driving value and getting the customers to stick with you. I think the early days prepped us for creating those experiences. Right?

John Warrillow:

Yeah. So if I’m understanding this correctly, you have your 70 million ballpark doing camps on campuses. Bit of an analog business, if you’ll allow me to use that expression. But people centric and so forth. You go to zero in COVID in the first couple months of COVID, but you get some more investment and build out the digital side of the business and that… Even though your revenue dropped, because it was so valuable on a dollar for dollar basis, that it actually eclipsed your-

Pete Ingram-Cauchi:

You nailed the story.

John Warrillow:

… your old valuation, if you will.

Pete Ingram-Cauchi:

Yep. You nailed the story.

John Warrillow:

I think Emeritus, if it’s okay, Emeritus announced in their closing comments, they said that they were expecting annualized 45 million in revenue for the year that ended, I guess this year. Is that right? Is that what they reported or is that what you reported?

Pete Ingram-Cauchi:

Yeah, I don’t know report you’re referencing, but I’ll take that at face value.

John Warrillow:

I think it was the press release, but I’m not 100% sure.

Pete Ingram-Cauchi:

Yeah. I’m just going to basically, because we’re not going to break out numbers in a great amount of detail. I’ll just put it like this. We’re going to be this incredible hybrid company running in-person experiences. But we’re investing a bunch in the digital side and mostly by mind share because that’s where we think the future is, is investing in the digital side.

When we put those two together, I mean, ultimately what I care about is going back to our mission is delivering great experiences however our kids want to learn. If you want to learn in person, great. If you want to learn from home, great. The experiences both have to be great. And that’s one thing that’s really cool about our ecosystem, the entire ecosystem talks, and we know how to deliver both, which makes us very special and very differentiated.

When we put the digital and in person together, we will be significantly larger than we’ve ever been in the history as opposed to if we were just doing in person, let’s put it that way.

John Warrillow:

Yeah. Because in person, I guess, is now coming back a little bit. Is it that possible to do in person now?

Pete Ingram-Cauchi:

Yeah.

John Warrillow:

Great. How did it go from… You’re having these LinkedIn conversations and then you’re having good conversations with Emeritus guys. You’re like, “Hey, we should do something more significant.” Did they read into that as like, “Okay. You want us to acquire you?” How did it go from teacher conversations to-

Pete Ingram-Cauchi:

Well, the original talks were… Let’s just do some sort of a commercial arrangement where because they have established partnerships and collaborations already with top university, global universities in the world. So they were saying, “Well, can we just develop some pre-collegiate certificates and iDTech will deliver them and we’ll bring the partnership to the table, et cetera.

And then I started just thinking like if we’re going to go through all of that and all the complexity of that, we may as well put a bigger conversation on the table and I love this about Ashwin. He didn’t bring it up before and he’s like, “Look, I’ve been thinking about it,” but it was almost like, “Hey, we understand, Pete like you really believe in this business. We don’t want to get in the way. We don’t want to distract you. We’re going to prove to you that we can deliver what we say we can. And then maybe we’ll hold off on that conversation for the next 12 months.”

I mean, talk about being very thoughtful. That was incredible. And that was just another sign where I’m like, “Look, they’re not just looking out for themselves. They’re thinking about our business.” So it goes back to finding any entrepreneur who’s thinking about maybe selling a stake in their company or bringing in capital. You got to find people that you really jive with that are not just thinking about themselves and thinking about your best interest too. You got to talk to a lot of people to get to that point.

John Warrillow:

I’d love to know, and again, this is ignorance coming through, but you’ve got Anthos as a minority shareholder. I guess they became a more significant shareholder in the whole conversion into digital. How much of are you having the conversation with Emeritus and how much is the Anthos team involved? Do you guys draw the line? Because that must be kind of squishy, I’d imagine where you’ve got this big shareholder and then you’re the leader, but there’s this other company. How do you guys think-

Pete Ingram-Cauchi:

Anthos had been in the business for six or seven years I wasn’t going to bring just any deal to the table. I was only going to bring a deal to the table if I felt that, “Hey, wanted to work with this company, that it was a very high quality potential organization to work with that my team would buy in on the cultural side,” because we’d already learned the lesson about the downside of bringing in the wrong people or the brilliant jerks.

So I felt the timing was great and there was absolutely hesitation from Anthos to be totally candid about it. They’re like, “Wow, we’re going to be the next ed tech unicorn.” And I’m like, “Well, I still think we can be that ed tech unicorn.” But I think we can actually get there a lot faster with this partner because they’ve laid some of the foundational groundwork in international markets and they’ve already… Because the roots business was in person.

Eruditus was the in-person arm and then the digital arm of the company… Sorry, the digital arm of the company is Emeritus. The in-person arm was Eruditus. But they started as Eruditus, the in-person just like iDTech. And over five years made this massive transformation into digital. I could see that happening for iDTech as well. So it made sense strategically for us.

I think either path, we want to be… Eruditus is already that ed tech unicorn multiple times over. So now the story we’re telling is we’re going to be the unicorn inside the unicorn. Right? So how cool is that? But now we just have resources, I think more resources to invest to even go faster. Strategically, it’s been a great move for us in order to usher in that change.

John Warrillow:

If people are listening to this thinking, “Oh, I’m going to bring in a private equity group and we’re going to get a second bite of the apple,” whatever. I’m assuming that when it comes to that second bite of the apple, selling the entity on after they’ve invested, they should expect some tension, potential tension because the private equity group generally are going to be financial investors who are looking for the best return on their money.

It’s likely that you as a founder are going to be looking for the best cultural fit and the best strategic fit. That could create some tension with-

Pete Ingram-Cauchi:

Absolutely. So that’s why we had to get a good valuation that Anthos would feel good about and that I would feel good about. So Bryan Kelly and Paul over at Anthos, myself, I had an idea of the number that I would feel good about. It goes back to when Anthos first invested. At the end of the day, I knew that there would be a certain range of a number to get people on board.

If Ashwin and Emeritus couldn’t hit that, then we just wouldn’t get a deal done. We would just wait and we’d see where we were in a year. Which is fine. That was definitely an option. But we brought a deal to the table that was good for everybody.

John Warrillow:

And how did you arrive at that number? What was your calculus?

Pete Ingram-Cauchi:

I mean, look, you pay attention to the signals that are going on in the marketplace, but at the end of the day, when you’re a private company, it is ultimately the number is the number that you’re going to feel good about. And the number is the number that you feel you can get a deal done with especially now that you have investors.

I actually knew what that number was in my head and I pitched the number to Ashwin and he said, “I think we can get there.” And I said. “All right. Let’s keep talking.”

John Warrillow:

I mean, the number is not a secret. It’s in the press release. Right? So do you mind if I say it?

Pete Ingram-Cauchi:

No, go ahead.

John Warrillow:

It’s a big number. So it’s $200 million. So it’s a round number. I noticed that immediately when I saw it, I’m like it’s not like some arbitrary, multiple of earnings, that’s a dream number. That’s a number someone has got in their mind that says that’s what my company’s worth. Is that why it’s such a round number?

Pete Ingram-Cauchi:

Yeah. Well, I knew the number I would feel good about. And I told Ashwin like if you would’ve come in at a dollar less, I would have said no.

John Warrillow:

Why was that number a number that you felt good about? What was it about that number that made you feel good about it?

Pete Ingram-Cauchi:

Paying attention to what’s happening in the markets like seeing what other ed tech companies were getting. Just looking at multiples, looking at the growth prospects of our business. Just putting the whole thing together. It was a pretty narrow range. I think we could have pressed for little bit more to be frank, but I also knew that there’s a lot of work ahead and we’re going to need some capital, and it just felt like the right number.

I felt like if we would’ve pushed a whole lot harder, we probably would’ve had to get more complex with structure. So there’s always a give and take there. It just felt like the right number. I’d love to say, it was completely scientific.

John Warrillow:

No, I think it’s great. I think it’s way better if it’s not. I love it. I think it’s awesome.

Pete Ingram-Cauchi:

At the end of the day, what I care about is like in this next phase is like, I care that we do continue to grow that we’re great partners to Emeritus and vice versa, and that we do become the next unicorn. I think we’re probably two years away from that, but we’re going to get there. We’re going to get there with their help, which is great.

John Warrillow:

Which is awesome. And it’s a good way to end it. Pete, I know your time is precious, so I want to be respectful. Where can people, if they want to reach out, can they learn more about iDTech, the ed tech space in general? You’re a LinkedIn guy. What’s the best way to reach you?

Pete Ingram-Cauchi:

Yeah, I mean, they can certainly hit me up that LinkedIn. Just Pete Ingram-Cauchi. There’s not too many of us on the planet. They can do that. They can also, if they’re interested in any specifics, they can go to info@idtech.com and just shoot us an email and that’ll get routed appropriately. Those would be a couple ways. Or you can direct message us on Instagram. Again, just iDTech.

John Warrillow:

I need to get my kids looking at iDTech camps next summer. I think it’s going to be-

Pete Ingram-Cauchi:

Let’s go.

John Warrillow:

Cool.

Pete Ingram-Cauchi:

You got to get them ready for the future.

John Warrillow:

Yeah, absolutely.

Pete Ingram-Cauchi:

I guarantee they will learn something and they will be better equipped for the future if they go for one of our summer camps or one of our year round programs, get a private tutor with us. We’re just all about creating that motivation, so the kids want to learn more and learn more and learn more.

John Warrillow:

I love it.

Pete Ingram-Cauchi:

And that’s really the secret, right? So, hey, I got to run.

John Warrillow:

I love it. Thanks, Pete.

Pete Ingram-Cauchi:

Thank you so much for your time.

John Warrillow:

Thanks, Pete.

Pete Ingram-Cauchi:

All right. Fantastic.

John Warrillow:

Take care.

Pete Ingram-Cauchi:

It was so much fun to talk to you. All right. Talk soon. Bye-bye.

John Warrillow:

Bye. Hey, if you like today’s episode, you’re going to love my new book, The Art of Selling Your Business. The book was inspired by the cohort of my guests over the years who have been able to negotiate an exit far better than the benchmark in their industry. Sometimes two or three times more than I would’ve expected. I was curious to understand the tactics and strategies of these entrepreneurs and what they do differently from average performers.

The result is a book for punching above your weight when it comes to selling your business. To learn more, go to BuildToSell.com/Selling, where we put together a collection of gifts for listeners who order the book. Just go to BuildToSell.com/Selling.

Built to Sell Radio is produced by Haley Parkhill. Our audio and video engineer is Denis Labattaglia. If you like what you’ve just heard, subscribe to get a new episode delivered to your inbox each week. Just go to BuildToSell.com.

Outro:

Thanks for listening to Built to Sell Radio with John Warrillow. For complete show notes with links to additional resources, visit BuiltToSell.com/Blog. John is the founder of The Value Builder System™. To find out how to improve the value of your business by 71%, visit ValueBuilderSystem.com. John is also the author of Built to Sell: Creating a Business That Can Thrive Without You and The Automatic Customer: Creating a Subscription Business in Any Industry. Connect with John at Facebook.com/BuiltToSell or on Twitter @JohnWarrillow, W-A-R-R-I-L-L-O-W. Thanks for listening.