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David Phillips successfully exited a business that had raised $120m in capital. Then he successfully exited a bootstrapped business for $18m. And then, he actually failed, forcing a pivot into his third and current business – Fondo, a company that aids startups in bookkeeping and taxes. After this roller coaster ride, and as an angel investor in 25+ startups, David knows what it means to start, scale, and sell a company.
Learning To Code
The first company David would build was called Banjo, a location based networking app that went on to become a pioneer in A.I. technology. At the time, David worked more on the accounting side of things, but developed a desire to learn to code.
He would soon get the chance when the founder of Dev Bootcamp, Shareef Bishay, posted that he could teach people to code in 8 weeks with a job offer at the end.
David applied for the class, but found out he was too late; it was already full. Not giving up, he continued to check in with Shareef until a spot finally opened and he was able to finagle his way in. This would be the first cohort for Dev Bootcamp and as promised, at the end, David landed a job at a startup as a developer.
David’s friend Christian helped to teach the class and noticed a difference in how men experienced the class vs how women did. This gave David and Christian the idea to start a women’s only bootcamp, and so they started Hackbright Bootcamp in 2012. Their first cohort was only 10 women, but all received job offers at the end of their training. David and Christian continued to scale Hackbright until they had 500 students a year and was ultimately bought by Capella University in 2016.
A Lucky Acquisition
David says they were lucky to have Capella reach out to them at the right time for the right price. After Christian left the company, David was over stressed and burnt out. He started looking to either get another new CEO or sell the company. He was proactive in reaching out to possible new CEO’s or company’s willing to take over Hackbright.
Advisor to Hackbright, Sharon Wienbar, would eventually step into the CEO role and was instrumental in the exit process. She advised David not to take what she considered lowball offers. Then they got the call from Capella asking what their company’s valuation was, and David came back with $20 million.
David says Capella was impressed with their metrics, not just in revenue, but in building the right team and the number of students graduating and getting jobs. Sharon would lead the acquisition, and while David still met with the team from time to time, he wasn’t an active part of the acquisition.
Not All Acquisitions Are Created Equal
David’s next venture was investing in startups and trying out new ideas over the next two years. In 2017 David would start BloomJoy, a company that made it easy for individuals to create content and grow audiences, where he served as CEO. To start David chose a metric goal to work towards over the next three months before pitching the idea to thousands of investors. The business was scaled to reach 22 million readers per month and $2 million in advertising revenue within a year. However, a lot of their business was built on top of Facebook, and with a change in algorithm the business cratered.
David knew they had built a great team and had an interesting business, but it was time to sell. There were a couple of companies interested, and they began to pursue a deal with one. As the company was low on cash they had this new company hire on the team and begin to service the customers. Eventually the deal would get caught up on some terms and fall through. BloomJoy then bought back their shares. David says their downfall was not managing their cash flow as well as they should have.
Noticing And Fulfilling A Need
Before any of these endeavors, David was an accountant and often started each company doing the bookkeeping before outsourcing it. However, David realized there wasn’t a default bookkeeping and tax startup that everyone was using. This led David to start Fondo, a company that aimed to help founders to understand, protect, and extend their runway, taking care of bookkeeping, tax, and more. Too often bookkeepers were coming to founders with questions that they couldn’t answer, Fondo wanted to make it easy to translate bookkeeping and taxes into terms everyone could understand. One of the reasons BloomJoy fell apart was because they weren’t apprised of their runway standing.
What Would You Tell Yourself Ten Years Ago?
David says if he could tell himself anything ten years ago, it would be to enjoy the ride. While it’s important to have big goals and ambitions, it’s just as important to enjoy the process. He would also tell himself to enjoy the build because that’s where it all happens, the exit is just one moment in time. Most importantly, he would tell himself to build a company that he loves to work at because that’s where you’ll create the value.
To Learn More
If you’d like to learn more about Fondo, visit tryfondo.com. If you’d like to connect with David, he can be found on Twitter @davj or on Clubhouse @djp.
PODCAST TRANSCRIPT
Steve McGarry:
All right, guys. I am here with my good friend, David Phillips, the CEO and founder of Fondo. How’s it going, David?
David Phillips:
Good, Steve. Great to be here with you. Thanks for having me.
Steve McGarry:
For sure, for sure. So, David and I go way back. He was actually the first investor that we had for my previous startup, and he has been doing a lot of really exciting things over the past few years, and this is like our first time to actually catch up, which is exciting that we’re able to do this with such a great audience. So, David, let’s get the origin story first so everybody knows your background, and what led you to initially start Hackbright back in the day?
David Phillips:
Yeah, so we started Hackbright back in 2012, the beginning of the bootcamp era, and before that I had been a sort of non-technical co-founder had been doing different startups and different projects, and I always wanted to learn how to code. And so, my co-founder was teaching me how to code, I was learning front-end development, starting to help contribute. We started doing some consulting, because we ran out of good ideas and we needed to make some money. So we were doing some consulting and it was like, “Well, I could definitely bring in more revenue for the company if I could actually code,” and so I was going on that journey of learning how to code.
And Shereef Bishay, who is the founder of Dev Bootcamp, posted on Hacker News like, “Hey, I’ll teach you how to code and get you a job. I’ll teach you how to code good enough to get a job, and get you a job in eight weeks for free,” sort of. And so, this post went viral on Hacker News. I applied for this, which ended up being the first Dev Bootcamp cohort, and I remember the class was full by the time I had applied, and I just emailed him so many times being like, “Is there a space open for me? I really want to do this.” And finally, somebody dropped out or something and there ended up being a spot, and so my co-founder Christian and I went to meet up with Shereef, and Christian, who’s a great programming teacher, offered to help teach at Dev Bootcamp. And so, he was there helping teach the first cohort of Dev Bootcamp, and I was in the first cohort of students.
And so, it was just such a awesome experience. I learned how to code, you got a job offer afterwards to work at a startup as a developer, and just totally life-changing. And so, that was just an amazing experience, and it was just a really powerful thing, and Christian just had a great experience teaching people how to code, and he was the best teacher of all time. Everybody loved him. He was really good, and one of the things he noticed as a teacher was just the different experiences that people had in the classroom, and the differences between the women’s experience in the class and the men in the class. And one of the ideas he had was, “What if we did this, but did a cohort that was exclusively for women? Would that be a better experience for all the women in the class?” And I thought it was a great idea and we decided to start our own bootcamp, and we did it with that premise.
One of the things he noticed in teaching was just that yeah, the experience [inaudible 00:03:51] different, and little things like pair programming, sometimes men would have the tendency to hog the keyboard, for example, or just random little things like that that would lead to… So anyway, we did the class, we decided to do it for all women, and it went really well. That was in the summer of 2012, we had about 10 students, and all of them got job offers at the end of the first cohort. And so, it was crazy that it actually worked, and so we kept doing it and we just continued to work on the Hackbright, continued to grow it, and we ultimately grew it to like 500 students per year, about four years later in San Francisco, and then we got acquired by Capella, which is a publicly traded university in 2016. And so yeah, so I just had that whole experience of learning how to code myself, and then we started the school, scaled the school, and then ultimately sold it, which was quite the journey.
Steve McGarry:
Yeah, and I remember that the Dev Bootcamp, the first class spawned multiple bootcamps. It was pretty much a group of entrepreneurial people. You guys were all in there together, the kind of guinea pigs of Dev Bootcamp, which is the kind of first big bootcamp, and I think Hack Reactor came out of there, multiple well-known-
David Phillips:
Yeah, yeah. So Tony Phillips, the founder of Hack Reactor was in there, Kush Patel, founder and CEO of App Academy was in that class. Yeah, it was a good time,
Steve McGarry:
Yeah, a very famous cohort, for sure. So how did the initial conversations start? So you guys are up to 500 students a year, you’re crushing it. I remember there was a lot of buzz around Hackbright. How did the initial conversations with Capella begin for you guys? Did they approach you? Did you guys kind of start reaching out to people? How did that work?
David Phillips:
Yeah, so it’s interesting. I feel like we got really lucky in that they reached out to us, so Capella had engaged an investment banker help them find… They wanted to get into the coding bootcamp space, and so they hired someone to help them do that, who was researching a bunch of coding bootcamps, reaching out. It turns out they had talked to a bunch of my friends too, but yeah, they reached out, I had a conversation with them, and then we just kind of moved the ball forward from there, like one conversation after another.
But that’s how the Capella deal started, but we had been, in one way or the other, actively, or maybe passively being interested in selling the company for like a couple of years. We were a couple of years into it, my co-founder had left the company, I was really stressed out. It was a really hard job, I think. And anyway, I was pretty burnt out, and so I thought the best thing for the company would be either hiring a new CEO, or finding a new company to own the company to take Hackbright forward.
And so, for about two years, I would say, or maybe a year or so, I was talking to people, potentially trying to recruit a new CEO and trying to find someone who was interested in acquiring Hackbright, and so those conversations were always like me initiating, being a little proactive, and I pitched it to all of my friends, Kush at App Academy, Tony at Hack Reactor, and we had offers to sell the company before that, but they were much lower than what we ended up selling. And my advisor at the time, Sharon Wienbar, who ended up being the CEO of Hackbright, she was like, “Do not take these deals. Hackbright is a really interesting and valuable organization. I know you’re burnt out, but don’t take these, at the time, like one to $5 million deals,” because she believed that there was a lot more value there.
And so, it didn’t end up selling, continued again, trying to recruit a CEO, and meanwhile also running and building the company. And ultimately, we got this call from Capella and it was like, “Wow, like someone’s reaching out to us now. This is interesting,” and in that very first call, they were like, “Well, what’s your valuation?”, and it was like, “Well, I know that we’re not going to sell for like five million, so what do I tell this person?” And I was just like, in my head, “Well, if we were to go raise money, what valuation would we do it at?” And so, I was just like, “Yeah,” I was like, “20 million.” And then I just waited to hear their response, and I was like, “Are they going to just hang up?”, and they were like, “Okay,” and then we just set up another follow-up call with next steps from there. And so yeah, that’s what kicked everything off.
Steve McGarry:
Got it, got it. And in terms of the metrics that you guys were tracking, because you have a background in accounting, and before we get into what you’re working on now, what were you guys tracking? Obviously, like you said, you threw out the 20 million valuation number when Capella was asking. What were you guys tracking internally in terms of, was it the 500 students per year, was that the success metric that you guys were tracking? What were some of the metrics you guys were tracking, just so listeners can kind of get a sense for what you were tracking?
David Phillips:
Yeah. I think there’s a couple of metrics. I think as a bootstrap company as well, revenue was also really important. And so, and all the discussions we had had, with other folks, it really came down to the revenue and the profit of the business. But at the time for us, we were just thinking about growing the top line revenue, and that was one important metric, versus growing profit. And so, we were building the team, the right team that we needed to grow Hackbright, and that meant that we weren’t profitable, but we were growing our number of enrollments, and job placements, and revenue. So I would say those three metrics for that business are important. The number of enrolled students, the number of graduates getting jobs, and then yeah, and revenue.
Steve McGarry:
Got it. And the exit experience itself, like once the acquisition goes through, you guys signed on the dotted lines, everything went through perfectly who we could say, what was that like when you guys were transitioning? Because as an entrepreneur myself, I know the itch to start something else comes pretty quickly thereafter. So what was that transition like? You guys had already hired a CEO, right? And then the Capella group came in. Did people stay, or how long did you stay, and how did that work?
David Phillips:
Yes. So I mentioned Sharon Wienbar, she was an advisor to Hackbright for over a year before she joined as CEO. And so, I really partnered with her during the whole acquisition process. She really led that, she was really the spearhead in getting the deal done, and she had a ton of experience doing deals, and so she was super helpful in that process. And then as the leader, our CEO and leader, she led the transition, which was, as you mentioned, it’s always a lot of work and a lot of work from everybody at the company. And so, our whole leadership team, Stefan, who you know, Angie, Joel, who is our Head of Education, everybody really just had a plan for the transition, but I personally was not involved in the transition. So I had been transitioned to chairman about six months before the deal closed, and then after it closed, I was still involved sort of meeting with folks on the team periodically, but I wasn’t really actively involved in transition. So I don’t have a lot of insight on that, other than I know that it’s hard and complicated.
Steve McGarry:
Other than that. Yeah, yeah.
David Phillips:
Well, so that was a long way of saying like, “Shit, I have no idea,” but I know it was hard and complicated.
Steve McGarry:
Yeah. Yeah. So the acquisition happens, you take a deep breath. I remember you and I met and had coffee after the acquisition happened, and you were talking about the next venture. So what happens after Hackbright? And we can go from there as to what you’re working on now.
David Phillips:
Yeah. So after Hackbright, I started investing more in startups and trying a bunch of different ideas over a period of, I guess, two years, and then ultimately, I started working on this idea called BloomJoy, and we did Y Combinator in the winter of 2018 with that.
Steve McGarry:
Mm-hmm (affirmative).
David Phillips:
Yeah.
Steve McGarry:
Mm-hmm (affirmative). And so, what was that kind of experience? Because I’ve heard that it is like a breakneck speed kind of, right when you get in there, you’re growing hand over fist. So what was the Y Combinator experience like?
David Phillips:
It was really interesting. It was a great experience. I mean, basically with YC, from day one, you basically set a goal, which is your demo day goal. So you know Y Combinator is like a three month process, at the end of the three months, you have a demo day where you pitch your company to, I think it’s thousands of investors now. And so, yeah, so like as soon as you start, you set a goal for your demo day, whether that’s revenue, or users, or some other metric that’s best for your company, and then all of your energy is focused on making that metric move up towards that goal, and you’re in an environment where you’re presenting your results every week to your group partners as well as your peers, and that sort of holds you accountable to this goal.
And so, it’s not only a goal that you personally have pressure on yourself for, but you have all this peer pressure and you want to succeed, and so it just forces you into this cycle of just working really hard and doing whatever it takes to hit these goals. So yeah, because you have such hardcore accountability. So anyway. So yeah, so that’s three months and then yeah, and then you have demo day, and then we raised a small round after demo day, and then it was sort of back to a more steady, normal startup life, which as you know, is always a lot of work too.
Steve McGarry:
Yeah. Yeah. So, what happens then? You do the demo day, you raise a round, and then you’re working on BloomJoy, and then now, what are you working on?
David Phillips:
Yeah, so we were working on it for a while. It was in the media space, and a lot of the business was built on top of Facebook and getting a lot of traffic from Facebook. And so, Facebook has made a lot of changes over time to all parts of their business, but our business was really affected by this algorithm change, and really effort to stop clickbait on Facebook, basically. And anyway, our business just sort of cratered at that point, and we had built a great team, we had a pretty interesting business and we thought, “Okay, we should probably try to sell the company. We’re not able to keep up the revenue with our expenses. Maybe we can find a good home for the team and help get our investors a return, and that’ll probably be the best path forward for BloomJoy.”
And so, we ran that process and we had a couple of companies interested in buying the company and working with the team, and we pursued one. We had a couple of term sheets, we signed one, and yeah, we proceeded with that company and that term sheet, and did a couple of things that we shouldn’t have done, which is, because the company was low on cash, we had this potential acquire bring on our team to their payroll, and so, effectively hiring our team, and then also servicing all of our customers. And so, at least the big ones, so they started servicing our customers, they hired our team, and in the meantime, we ran due diligence in ironing out the final terms of the deal. And ultimately, the deal just, we got cut off on some terms and it just wound up that nobody was going to make any money from this deal, so that meant none of our investors were going to get a return on their investment, founders were not going to get anything, employees weren’t going to get anything, but our team would have a job, which was important.
And so, that part kind of already happened. The team had a job, had a place to work, our customers were taken care of, but yeah, the deal just didn’t make sense, so we decided to not do the deal. And we had a little bit of cash left in the bank, and so my co-founders decided to leave the company, and basically the company bought back their shares and at that point, it was just me and I was thinking, “What should we do? I think we should pivot the company and try to create some value here. We have a little bit of cash left in the bank, let me try something versus shutting the company down.” So, that brought us to Fondo, which is what I’m working on now, but yeah.
Steve McGarry:
Yeah, I think it’s a wild ride. I remember getting coffee and talking about it, and I think that it’s such a good story because people hear your first company before Hackbright, that we kind of zoomed over where you raised over $120 million for, and then you exit a bootstrapped company for 18 million, and then you get this amazing media company through Y Combinator, and it kind of gets Zucced, I guess we could call it, Zuckerberged, where they proceed to change their terms of service, it changes the business, and you have to make a decision to pivot into Fondo, which is what you’re doing now and that is such an interesting kind of up and down story with what happened with BloomJoy after these pretty massive companies, I would say. I mean, the first one was Banjo, right, before Hackbright?
David Phillips:
Yeah.
Steve McGarry:
So I mean, two huge brands, and going into your startup where you pivot into basically what you were doing, first of all, so your skillset, which was in accounting, right?
David Phillips:
Right.
Steve McGarry:
So wanted to cater to startups to accommodate them for accounting. So what is Fondo, that you’re working on now, and what’s the offering?
David Phillips:
Yeah, totally. So yeah, I mean, I think it’s, as you mentioned, everything’s such a roller coaster, as you know, and you learned so much from every experience and that definitely increases your chances of success, but it doesn’t mean everything is going to be successful. So, Banjo has been successful, and luckily with Hackbright, Hackbright was successful, and then BloomJoy didn’t work out, and one of the big things with BloomJoy was we just didn’t manage our cash flow as best as we could. We were in the media business, and so in the advertising business, and so all of our customers would pay us net 90. And so, we’d have maybe two, 300 grand in revenue for a month, but we wouldn’t receive that cash in that month. It would come in three months from then, but we started hiring folks as if we were getting that 300K that month.
And so, from a month to month revenue standpoint, it looked like we were profitable and making a lot of money, but from a cash flow perspective, we weren’t, which is what sort of drove us to the point where we had to make the decisions that we made. And so, had we maybe looked at our cash flow differently, or looked at our numbers differently, or had a different bookkeeper keeping us on top of our numbers, we would’ve realized this maybe six months before we actually did, which would’ve given us enough time and enough cash to slightly pivot the business, instead of doing a complete new business, because we had [inaudible 00:23:00] cash left. So, anyway, so it was just kind of like a reminder of how important it is to know your runway and know how much cash you have, and how much you’re burning every month.
And so anyway, before all these startups, I was an accountant, and so, at each company that I started, I started out doing our bookkeeping, and then I started outsourcing it to different accountants or different startups to do our bookkeeping and tax. And at the point where we started Fondo, it was just kind of like, “Okay, why is there not a default bookkeeping and tax startup that everybody is using?” It seems like on the tax side, you’re lucky if your accountant doesn’t ghost you, basically, and it’s just kind of a pain.
In accounting, there’s all these accounting things that accountants need to get their job done and oftentimes, that means they’re asking founders questions that make no sense to the founder that are accounting questions, but there’s ways that you can translate accounting jargon into something that’s easy for… We basically just want to make it really easy for founders to get their bookkeeping and tax done. From a compliance perspective, you need taxes to stay in compliance, right? It’s required every year, and bookkeeping is an essential tool for you to have a good handle on your business, and how long you have until you either need to raise money or become profitable. And so, anyway, these are two essential things that we just want to make really easy for founders to get done.
Steve McGarry:
Got it. Well said, well said. So the one question that I ask across the board, just to kind of have everybody wrap up, knowing what you know now, what would you tell David 10 years ago? After all of these learnings, you raised $120 million, you exit an $18 million you have all this. What would you tell yourself,
David Phillips:
Enjoy the ride, and definitely, it’s important to have big goals and be ambitious, but enjoy the process, and try to enjoy the process.
Steve McGarry:
Yeah, yeah. Enjoy the build.
David Phillips:
Enjoy the build, because the build is where it all happens, and the exit is like one moment, which is great. We all aspire to something, and I think exits are an aspiration of a lot of founders, and I think it’s also important to enjoy the build because that’s what you spend most of your time doing. So that’s what I’m trying to do now, is really build a company that I love to work at with people I love to work with, certain customers I love to serve, and focus on creating value versus just thinking about, “Okay, how big is this going to get, and when?”
Steve McGarry:
Mm-hmm (affirmative). Beautiful, beautiful. Well, those are all the questions I have for you, David. In terms of where people can go and learn more about what you’re working on, where do you want to send people?
David Phillips:
Yeah, you can follow me on Twitter @davj, and I’m on Clubhouse, I’m DJ P on Clubhouse. Are you on Clubhouse, Steve?
Steve McGarry:
Yeah, yeah. I just got on there. Super cool. Super cool.
David Phillips:
We got to do a hangout on there.
Steve McGarry:
Yeah, yeah. We will, we will. It’s tryfondo.com, right?
David Phillips:
Yeah. Yes. So let me just say that again. Yeah, you can check us out at tryfondo.com, and I’m @davj on Twitter.
Steve McGarry:
Excellent, excellent. Well, wherever you guys are listening to this, on iTunes or Spotify, definitely check the show notes. All the links that David mentioned will be in the show notes, but once again, thank you so much for coming on the show and sharing your experience. David,
David Phillips:
Thank you so much, Steve. Great to see you.
