$75M investment in ExactTarget may be Indianapolis record

E-mail marketing provider ExactTarget has in a short span landed what may be a record amount of venture funding for a private
company here—$75 million since October.

And that’s on top of the $69.9 million it received in May
from three venture firms on the coasts, in what was the third-largest venture deal in the nation during the second quarter,
according to the National Venture Capital Association.

That’s a total of $145 million in a mere six months,
and from venture-capital firms on the coasts who’d otherwise struggle to find Indianapolis on a map.

“For
a private institution” locally, “that’s got to be a record. It validates their business model in a huge
way, especially in this economy,” said Bruce Kidd, an Indianapolis venture veteran.

Dorsey

“It’s
one heck of a testament for the Indianapolis tech community. It really shows it’s not ‘about location,’”
said Scott Dorsey, co-founder and CEO of ExactTarget, a 9-year-old company that now employs about 500.

Dorsey
isn’t boasting: ExactTarget didn’t even bother to announce the latest two rounds: $5 million in October and a
$70 million round Nov. 20, according to U.S. Securities and Exchange Commission records.

The closest the company
came was an announcement last month that David Yuan, a principal of Silicon Valley venture firm Technology Crossover Ventures,
had joined ExactTarget’s board “following an investment” in the Indianapolis company.

Only
last year, ExactTarget put on hold plans for an $86 million initial public stock offering as the stock market tumbled.

Even with the massive new infusion, “we really feel that we can better execute our plan in the short term
as a private company,” Dorsey said.

“If you can raise that amount of money and stay private—all
the better,” Kidd said.

Still, it’s interesting to note the pedigree of Technology Crossover Ventures, which Dorsey said is the source
of the latest $70 million investment.

“Since its inception in 1995, TCV has guided more than 40 companies
through initial public offerings and currently has more than $7.7 billion under management,” ExactTarget said Nov. 20
in its brief announcement that Yuan joined its board.

For example, TCV in 1999 made its first of what would be
a $55 million investment in the early years of Netflix, a veritable unknown at the time but which later grew to become the
nation’s largest online DVD rental service.

Netflix completed an initial public stock offering in 2002.
TCV made additional investments, including $75 million in open-market stock purchases of Netflix in 2006.

Palo
Alto, Calif.-based TCV also has invested in such companies as Expedia.com, Orbitz.com parent Travelport Ltd. and RiskMetrics
Group, a New York company that owns Institutional Shareholder Services.

An earlier, $69.9 million round of investment
in ExactTarget last May involved three venture firms: Foster City, Calif.-based Scale Venture Partners, Owings Mills, Md.-based
Montagu Newhall Associates, and Battery Ventures, which operates chiefly out of Waltham, Mass., and Menlo Park, Calif.

Principals of Battery and Scale also joined ExactTarget’s board.

It’s a long, long way
from 2000, when Dorsey, Chris Baggott, Peter McCormick and Bob Compton tried to explain their concept of e-mail marketing
to potential investors.

“They couldn’t even raise $1 million,” recalled Kidd, now a senior
vice president at Indianapolis-based Walker Research, who admits to scratching his head at just what the entrepreneurs were
proposing to do back then.

ExactTarget’s software as a service model provides a cost-effective way for
companies to market their products to customers who consent to being contacted via e-mail. It may be ExactTarget client Papa
John’s e-mailing a coupon to loyal customers frequently ordering a pizza from the chain’s Web site, for example.

In a recent application of ExactTarget’s technology, passengers of the Orange County (Calif.) Transportation
Authority can send text messages to the agency to receive e-mails of arrival times for the next three buses for a particular
bus stop.

But one of the areas ExactTarget is most zeroing in on is the red-hot social-networking market.

For example, ExactTarget’s clients can send their customers e-mails embedded with social-networking icons,
such as Facebook. The recipient’s friends on Facebook can share the coupon. That friend then becomes another potential
candidate for ExactTarget’s client.

So far, the Indianapolis company has more than 3,200 clients. Most
pay between $10,000 and $150,000 in subscription fees. The client portfolio is diverse, with the largest representing only
3 percent of its business. The large client base and recurring revenue stream is like some reliable annuity to some investors,
explaining some of ExactTarget’s allure. The company also boasts of more than 30 quarters of successive revenue growth
and three straight years of profitability.

Between 2004 and 2008, revenue soared 524 percent from $11.6 million
to $72.3 million, according to Deloitte’s “Technology Fast 500” ranking, which listed ExactTarget as the
nation’s 254th-fastest-growing company.

Dorsey said the venture proceeds will go toward developing new
services, hiring additional sales staff, and making acquisitions. In September, it entered Europe by acquiring London-based
Keymail Marketing.

ExactTarget, with headquarters at 20 N. Meridian St., started the year with 375 employees
but should end the year north of 550 on the payroll, said Dorsey, a native of Chicago.

Indianapolis tech firms
often never make a blip on the radar of venture firms on the coasts if only because often investors “just don’t
know about this market,” said Kidd, former director of entrepreneurship and small business at the Indiana Economic Development
Corp.

The success of ExactTarget in drawing widespread attention from the coasts “is one of the several
tipping points we need to have,” said Kidd, who just returned from a trip to the Silicon Valley for Walker.

“We can build these kinds of companies here.”•

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