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The Building of a Market Leader (That Almost Didn’t Get Built)

The story behind the 850 million dollar acquisition of Intacct’s by Sage, the largest U.K. tech company, began more than a decade ago, but the memories of a difficult time that tested our conviction are still vivid.

In December of 2006, Intacct was out of money. We had interest from two corporate buyers, but suddenly they both backed out. There were no co-investors to help, so without additional funding from Emergence Capital, our only option was to shut the doors.

We made our initial investment in 2005, and the results had been disappointing since the beginning. Bookings growth was anemic, and despite our efforts, we had been unable to make the key management hires we were targeting. After missing several quarters, we realized that our cash wouldn’t last as long as we planned. In the summer of 2005, we did a major RIF to extend our runway. I introduced Intacct’s CEO to some of our favorite co-investors, but they were not impressed with the momentum or the management team. Reluctantly, we hired an investment banker to explore potential buyers.

In the meantime, my partners and I discussed our options. “Intacct is targeting enterprise financial management, the largest application market on the planet, and they have the best product. Why wouldn’t we step up and fund the company now?” my partner asked. “Because no matter how much we believe they can emerge as the leader, it won’t happen if we are the only ones who will write a check. It will take twice as much money as we have reserved if we can’t get co-investors to join us,” I argued. “They have a huge lead so it will take years for anyone else to have a competitive product. We can’t wait for other investors to see the opportunity,” my partner responded. I was feeling dizzy – I was losing hope, but my partners convinced me that we could help Intacct become a market leader.

In many venture firms, this decision would have been career suicide --- with accusations of throwing good money after bad. With no one else willing to make this bet, I would not have placed it without the strong conviction of my partners. Together we came to the decision that this was an opportunity we had to take. We encouraged our co-investors to participate, but Emergence was the only ones to write a check that day. We knew we had to make some major changes to capitalize on the opportunity, and decided we would have to terminate half of the management team within the next two weeks.

The following 11 years were not easy. Selling financial management software is similar to selling heart transplants- nobody wants a new accounting system, even if they know they need one. Customers want a proven product with no bugs or hiccups, so Intacct had to execute flawlessly -- there were no shortcuts. From the earliest days, the company faced a strong competitor in Netsuite (recently bought by Oracle), so we could never let our guard down. We knew that Intacct’s success could only come from the success of its customers, (and now those customers give Intacct the highest customer satisfaction ratings in the financial management market).

I have seen many successful startups since I began my career as a VC in 1988, and every one was built not solely by a charismatic founder, but by a team. There are many people who deserve credit for Intacct’s success, and I have deep gratitude to everyone who put their hearts and souls into its progress along the way including Rob, Marc, Taylor, Dan, Derek, Ian, Haris, Clark, Mike, Dan, Jerry, Andrew, Bob, Scott and many others.

Rob Reid deserves special thanks for his leadership as CEO since 2009. His superpower is leading teams to world-class execution, and I am honored to have supported his efforts on behalf of the Intacct shareholders. He knows how to build a software company that employees and customers love.

I also want to say a special thanks to Aaron Harris and Kathy Lord, who were part of the core team that we supported in 2006. We invested in their commitment and drive, and they never let us down. It’s been a pleasure to watch their professional growth power the growth of Intacct. Their success validates our belief that a few entrepreneurs with conviction and passion can change the world.

Emergence Capital seeks to build market leaders, like Intacct, and we are proud to be part of the team that brought them to this juncture. Sage (UK) is a leader in financial technology worldwide, and is an ideal partner to leverage Intacct’s many strengths. We wish them success with their purchase of Intacct.

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