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ExactTarget stays patient as riches from IPO await

May 21, 2011

ExactTarget Inc. just raised another $30 million privately and shows no signs of plowing ahead with an initial public offering—even though this is the strongest IPO market in years.

In fact, one of the marketing software firm’s top competitors, San Bruno, Calif.-based Responsys Inc., just pulled off a blockbuster IPO of its own. Demand was so high for the April 22 offering that the stock shot up 28 percent in the first day of trading.

Though Responsys had just $94 million in 2010 revenue, its stock market value has ballooned to nearly $700 million. Applying the same multiple to ExactTarget’s $134 million in 2010 revenue yields an eye-popping valuation of $1 billion.

So why hasn’t ExactTarget taken the plunge? After all, the downtown Indianapolis company has started down that path before. It filed in December 2007 for an $86 million IPO only to yank the deal months later because of horrid market conditions.

Dorsey Dorsey

During an interview with IBJ, ExactTarget’s 43-year-old CEO, Scott Dorsey, didn’t sound worried he’ll miss a window of opportunity if he keeps his company on the IPO sidelines for now.

His bigger concern was that going public could get in the way of his quest to exploit the tremendous opportunities he sees for the business.

“As a private company, you have more operating flexibility to make long-term investments and not have quarter-to-quarter pressure,” Dorsey said.

Indeed, the company is investing with abandon to innovate, build market share and expand overseas. In the past 24 months, ExactTarget has bought three companies, launched an international division with operations in the U.K. and Australia, and added 500 employees. Its work force now tops 900, including more than 600 in Indianapolis.

The company, founded in 2000 as an e-mail marketer, plowed $27 million into R&D last year. That’s $16 million more than Responsys spent, according to the prospectus for that company’s IPO.

In a 2009 study of e-mail marketing service providers, Cambridge, Mass.-based Forrester Research put the two companies at the top of the heap.

“Responsys and ExactTarget edge ahead in a tight pack of eight leaders,” the report said. ExactTarget earned a perfect score in six categories, including “strength of management team.”

Players in that segment are pushing beyond e-mail marketing to allow customers to build relationships with customers via mobile marketing, social media and landing-page marketing. ExactTarget’s new “interactive marketing hub,” which brings all those offerings together in a single platform, won Innovation of the Year at TechPoint’s Mira awards this month.

Both ExactTarget and Responsys are growing at a blazing rate. Revenue rose 41 percent at both firms in 2010. ExactTarget says its first-quarter revenue shot up another 52 percent.

And that’s just the start. According to Forrester, U.S. spending on interactive marketing is expected to increase to nearly $55 billion and represent 21 percent of all marketing spending by 2014. Spending on e-mail, mobile and social media—the primary channels used for relationship marketing—is expected to increase from $2.9 billion in 2010 to $6.5 billion by 2014.

In short, Dorsey said, “We are operating in a very big market that is growing very quickly.”

Big-name backers

Heavyweight venture capital firms have taken notice.

The latest $30 million comes from a group that includes Palo Alto, Calif.-based Technology Crossover Ventures, Waltham, Mass.-based Battery Ventures, Foster City, Calif.-based Scale Venture Partners and Baltimore-based Greenspring Associates.

All four began investing in ExactTarget within the last five years and have money in other upstart technology stars. Technology Crossover and Battery, for instance, also back Chicago-based Groupon, the red-hot daily deal website.

ExactTarget now has raised $200 million in private investment, including $175 million just in the last two years.

Along the way, ExactTarget has provided opportunities for existing investors to sell holdings. Because investors could gain liquidity without selling the business or taking it public, Dorsey said, management has been able to focus on what’s best for the company.

“A lot of entrepreneurs feel pressured to find an exit event before they have reached their full potential,” Dorsey said.

That’s not to say ExactTarget won’t go public one day, though Dorsey declined to predict when that might happen.

“Over time, we will keep our eyes on the public market,” he said.•

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