How Salesforce’s acquisition of ExactTarget helped Indianapolis’ tech community flourish | Tech Industry
Five years ago, SaaS giant Salesforce acquired ExactTarget, an email marketing software company, for about $2.5 billion. In Silicon Valley, that type of acquisition would make news — but it wouldn’t be unprecedented. But in Indianapolis, home of ExactTarget, it was the largest-ever acquisition of a tech company.
Cities looking to emulate the ecosystem of Silicon Valley often hope for a large IPO or acquisition by one of their companies, in order to facilitate the creation of more startups. In Silicon Valley, one of those companies was Fairchild Semiconductor, founded in 1957. Alumni of Fairchild weren’t the cofounders of Silicon Valley’s modern day success stories like Facebook and Google — but its alumni went on to start the organizations that facilitated a role in their growth. Former Fairchild Semiconductor went on to start Intel, AMD, and venture capital fund Kleiner Perkins.
But once a startup reaches that pinnacle of success it’s not always smooth sailing for the rest of the tech community — as the story of Fairchild shows, the key is that the alumni of that company have to go on and start other companies, or assist other startups in their community.
With that in mind, VentureBeat decided to take a look at how Indianapolis’ tech community has changed, five years after the ExactTarget acquisition. ExactTarget certainly isn’t the only Indianapolis startup to have been acquired in recent years. But it’s still the area’s largest acquisition in recent memory. And with 1,800 employees at the height of its success, it’s easier to see where some of ExactTarget’s former employees and executives have gone.
VentureBeat spoke with some of the cofounders of ExactTarget, and other members of the Indianapolis tech community, to understand exactly how the startup community has improved, and what resources are still lacking for entrepreneurs in the Hoosier State.
More support for startups from the rest of the community
When ExactTarget’s three cofounders — Scott Dorsey, Chris Baggott, and Peter McCormick, started the company in 2000, the last big Indianapolis tech exit was Software Artistry, which IBM purchased for about $200 million in 1997. The excitement around tech companies had started to fade as the dotcom bubble burst.
“Systemically we weren’t really aligned to support tech,” Dorsey told VentureBeat in a phone interview, citing the lack of funding and tech organizations that had the goal of promoting the startup community.
“You had it to be a little bit crazy to join a startup,” Megan Glover, the CEO of water quality testing startup 120 Water Audit and a former marketing manager for a handful of Indianapolis startups, including Angie’s List, told VentureBeat.
That wasn’t the only way Indianapolis wasn’t aligned to support a fast-growing tech company with global ambitions. At the time, Indiana didn’t adhere to Daylight Savings Time statewide, and the Indianapolis airport didn’t have a direct flight to San Francisco — both seemingly small things, but changes Dorsey said he pushed for nonetheless as ExactTarget started to become a larger employer in the state.
Now, there’s a greater number of people who want to work for or invest in a startup, says Baggott. Startups have received more support from the state government, as evidenced by the state government’s recent push to exempt SaaS companies from sales taxes. The state legislature also recently approved a $250 million fund called the Next Level Fund. The fund previously invested in lower-risk asset classes, but the legislature gave the fund the OK to invest in higher-risk asset classes like venture capital.
“I’ve never found a parallel of another city and state where government and business are working so closely together to move an ecosystem forward,” Dorsey told VentureBeat.
More founders with experience at a fast-growing startup
Like Silicon Valley’s PayPal mafia, many of the alumni of ExactTarget have gone on to start other ventures. Dorsey went onto start High Alpha, a so-called “venture studio.” The studio portion of the firm provides very early stage startups with access to HR infrastructure, and mentors in product and design. On the capital side, High Alpha has invested in 24 startups, participating in seed, Series A, and Series B rounds.
High Alpha’s portfolio includes startups with ExactTarget ties, such as Sigstr, Zylo, and Quantifi. Baggott left ExactTarget in 2006 to start Compendium, a content marketing platform that was acquired by Oracle in 2013. He’s also a cofounder of 120 Water Audit and Cluster Truck, a food delivery startup. And this doesn’t count ExactTarget employees who have gone on to work for other startups.
Better access to seed stage capital
As with any nine-figure acquisition, the ExactTarget acquisition created more angel investors — Dorsey told VentureBeat that he’s personally invested in dozens of local startups. According to PwC’s Moneytree tool, Indianapolis has seen the most steady increase in seed stage capital compared to other stages of capital — from $1.05 million in seed capital invested in Indianapolis startups in 2013 to $14.8 million invested in 2018.
More interest from coastal tech companies
By the time Salesforce acquired ExactTarget, the company was already a big employer in the city, having employed about 1,000 workers in Indianapolis. But when a coastal tech giant like Salesforce decided not just to acquire an Indianapolis company, but keep an office out there, it proved to other companies that Indianapolis is a viable place to employ large amounts of tech workers.
Salesforce announced last year that it plans to hire 2,200 employees in its downtown office space in the coming years, while IT giant Infosys pledged to hire 3,000 workers in Indianapolis by 2023. Additionally, the city made the shortlist for Amazon’s second headquarters earlier this year.
Access to scaleup capital
Since 2013, just six Indianapolis tech companies have raised a Series B round, while only two have raised a Series C, according to Crunchbase. “Definitely the seed and angel capital has been where we’ve seen the more traction already — we’ve had more time at it though,” Mike Langellier, CEO and President of TechPoint, a self-described “growth accelerator” for the Indianapolis tech community, told VentureBeat.
The diversity of talent
A lack of diversity was one of the biggest challenges cited by respondents in a survey of the Indianapolis tech community conducted earlier this year. Of the 250 tech workers surveyed, 9.61 percent identified as an ethnic minority — a lower percentage than the non-white population of Indianapolis.
The city’s bread and butter is still B2B startups
Nearly all of the startup hits in the last five years — ExactTarget, Angie’s List, Compendium — have been B2B or SaaS startups. A quick scroll through TechPoint’s directory of 350 Indianapolis startups only shows very few ecommerce and hardware startups.
That does make it more difficult to recruit talent to the area that want a more diversified tech community. However, it also gives tech startups in the area who don’t operate in those spaces an advantage in recruiting local talent, says Glover. She says that most prospects are attracted by her company’s social mission — she came up with the idea for 120WaterAudit after reading about the Flint water crisis.
Access to experienced middle-management
Even with Indianapolis’ startup successes, you won’t find managers with the same level of experience as in other, more developed startup ecosystems, like sales directors who have worked in multiple startups that are under pressure to double or triple revenue year-over-year. Like many other startup communities in the middle of the country, Indianapolis startups are focused on pitching more middle managers to come work for startups in the area on the grounds that houses are more affordable, and there’s a greater emphasis on work-life balance.
“At ExactTarget, that was a big thing — I know as soon as LinkedIn came on, we were looking for someone 5 years out of Purdue that had a 6 year old, and we would tell them, “you know, if you worked here you could be home watching your kid play Tball every night,” Baggott said.