Founded in 2006, Wistia was originally a confidential video sharing tool, raised $1.4 million prior to 2010
In 2017, Wistia closed a $17 million debt financing deal with Accel-KKR (10%+ interest, Company -$500k EBITDA)
Employee profit sharing made revenue grow from $18m in 2018 to $20m in 2019, $6m in profits, and 50,000 customers
Chris Savage’s video setup for our interview was Oscar-worthy. Hands down, one of the best looking shots we’ve had on the show so far. “I’m just at my desk, man. That’s just how it looks,” Savage replied to my admiration with a humble smile.
Nothing humble about this man’s success, though.
Wistia is, in Savage’s words, a “classic overnight success,” but it took the company over 10 years to get to that definitive night. Founded in 2006, Wistia was originally a side project by two get-rich-quick-crazed college graduates. A doorway into a life where no two days are the same, where Savage stopped freelancing and his co-founder Brendan Schwartz quit his day job.
So what actually when a founder realized the VC track was the wrong one for them?
What is Wistia Today?
In an interview with the Angel Invest Boston, the co-founders admitted that back in 2006, they were still very much trying things out. Among the many ideas that the young visionnaires had put to the test were a weird version of instagram where the highest bidder would occupy the largest number of pixels on the site, a website that acted as a countdown to the day the U.S. conflict in Iraq would be as prolonged as its WW2 one, and a portfolio-website for filmmakers.
The ideas were, unsurprisingly, difficult to monetize, so the founders needed to think on their feet. A video hosting platform sounded like a tangible money maker to fund their dreams.
Wistia was originally designed for artists to share their work—a logical extension to their portfolio website. So when Ezra, one of their roommates, said their medical device company was in need of a video hosting solution, Savage and Schwartz were hesitant to engage.
“We were like—no man, we’re for artists,” Schwartz laughs, reflecting on how Wistia landed their first client. “We’re not selling out. We can’t help you, you’re a business!”
Wistia Pricing At Start, First Clients in Healthcare Industry
The company filmed their surgical procedures, which they then needed to share with their doctors. Not exactly something you’d risk putting on Youtube. Before Wistia, the practice would shuffle these videos through DVDs via Fedex between South America and Europe. Back in the day, you couldn’t overnight a package from Chile to Watertown.
Looking for universal applicability, the founders were happy to realize that the problem they solved for the medical practice was widespread, and particularly present in the film approval process. Savage and Schwartz started to scour the landscape for industries that relied on Fedex’ing DVDs as means of private video sharing.
The ideal clients started surfacing—film production companies using DVDs for mid-production feedback, corporations using DVDs for training videos. It took Wistia 13 months to land the medical practice, but it only took 2 months to get their second customer. 8 months after that, they had a healthy 6-7 customers paying around $400 a month.
Download Wistia Video? A Video Player for Marketers
10 years into the development of their platform, sharing videos for right eyes only is still the core reason why clients choose the tool over, say, Youtube. The features that grew around it are very much designed to enhance that private, 1-on-1 video experience.
Wistia articulates their unique selling proposition in three categories:
- Superior hosting. While you wouldn’t expect Youtube videos to stutter, you might not trust a small startup to provide a matching loading speed and uptime consistency. Wistia emphasizes their global network of servers and adaptive streaming technology as safeguards to deliver seamless video experience to anyone on the planet, even for 3G users.
- Ad-free. In professional video environments, ads are a big deal breaker. Imagine an ad interrupting a big-shot producer watching your fresh-from-the-oven pilot piece. Here’s the pricing plan, thank you for asking.
- Marketer’s toolset. Wistia is primarily aimed at marketing departments, and is equipped to deliver. CRM integrations, custom audience tools and subscriber management are core features for marketers.
A 6-month Gig Turned Into $40 Million Revenue Company
They didn’t expect Wistia to be more than a 6-month side-gig. The first version of Wistia was put together using an old blogging website Schwartz built back in college.
A freemium business, Wistia’s client base spans across multiple cohorts, with SMBs making up the bulk of their clientele. “We’re mostly SMB, there’s some mid-market; there’s a little bit of enterprise there,” Savage says.
Catering mostly to SMBs, Savage and Schwartz had a couple major challenges to deal with along the way. These clients are more difficult to find and convert. And, since you’re relying on volume, the automated onboarding process must be seamless for the user.
Wistia Acquisition Offer at $18 Million Revenue, $1.4 Million in Funding in 2017
Before their acquisition offer in 2017, Wistia only raised two angel rounds for a total of $1.4M—$680,000 in 2008 and just short of $800,000 in 2010.
When the offer came in, Wistia was doing “around $18M” in annual revenue with “tens of thousands” of customers. The not-so-young startup which was essentially bootstrapped up to this point got approached by not one, but three companies interested in buying them out. First thought: “maybe something’s changing in the market,” Savage said.
Suddenly turning into the hot girl in the eyes of investors left the co-founders overwhelmed with attention. What was a quiet, home-grown operation for 11 years now seemed to be the “next big thing.” Savage soon found himself talking to potential buyers almost full-time.
“It just kind of evolved,” Savage said. “You don’t expect spending time [talking acquisition] and then you spend all of your time talking to people about selling your company. […] It became very time intensive.”
To Sell or Not to Sell? Wistia Founders in Dilemma
With the acquisition offers coming in, discussions on raising a growth round started coming in. If they want to buy, the market needs what we have. Things froze for a while: the founders were going through their options and looking through things like unit economics, the investors waiting for their decision.
Selling wasn’t an appealing option for the dynamic college duo. Savage and Schwartz had been working together for 11 years, so selling the company and leaving it 2 years later didn’t at all seem like a positive long-term solution.
“We realized in that moment a couple of things,” Savage said. “The first thing was, […] if we sold the business we would try to rebuild Wistia. And then we were like, ‘Why do we need to rebuild it?’”
For two 30-something entrepreneurs, that wasn’t really an option. At the time, they were aggressively investing into new hires and advertising, following the advice of “if you’re profitable, then you’re not growing fast enough.”
Few Million In Bank, Pressured to Make a Decision
The pedal-to-the-metal approach backfired at times. “If you lose $250,000 in February, and you’re planning on losing another $250,000 in March, but the revenue is gonna go up— Revenue doesn’t go up! And you end up losing $300,000. It can start creating some stress,” Savage said.
Having only raised $1.4M up to that point, Wistia were sitting on just a few million in the bank account before the rapid expansion phase. “We went from, like, living forever, to 7 months or something,” Savage admitted.
The pressure of having to deal with a short runway killed most of the company’s long-term marketing and product development initiatives and fostered a culture of a starving man. “Those things just kind of fell away towards short-term growth things” Savage explained.
7 months of runway can drive anyone towards rash decisions—like firing a bunch of people. Did Savage fall into this trap?
“We did not, we were very fortunate,” Savage said. “We decided not to sell. We realized that did create a misalignment with our angel investors so we had to do right by them. Because, of course, they want us to sell, because that’s gonna be a great return.”
Dealing with Wistia’s Angel Investors
Savage didn’t give an exact figure on how much equity these angel investors had purchased for their $1.4M back in 2008-2010. He did say that they owned “more than 10% and less than 50%.”
It makes sense. Why would these guys even consider selling the business they love if they weren’t pressured by their investors?
“That’s exactly right. It’s because [when] we raised our first round, our MRR was literally $1,000,” Savage laughed. “So they were very, very early and there was a lot of risk in the business. I mean, I give credit to our angels. If I saw a business that was just doing $1,500 MRR, I don’t know if I’d be able to make the investment.”
The shares that Wistia’s angel investors owned were preferred sheets. This meant they could block a sale as they had a seat on the board.
With no obvious solution in sight, raising debt started seeming like a tangible way out.
“We kind of took future profits and brought them now,” Savage recalls. “And we were to create a tender offer for our investors. I had talked to an entrepreneur who had done something similar. The idea got in there, and it was a very interesting idea because it was the same terms to everybody.”
Wistia Raises $17MM in Debt
The decision not to sell was official in June 2017. The decision to raise debt manifested in July 2017. By October, the terms were drawn up.
Accel-KKR agreed to finance Wistia’s debt, Savage explains: “They were willing to write the debt against a company that was not profitable. Like, we said we were gonna be profitable, but they had a growth fund side of their business, so they looked at the unit economics of Wistia, they understood [the] unit economics, and they could see a path towards profitability. […] They were taking a bet.”
The agreement specified a debt range: $15-$20 million.
With the deal closed, Savage and Brandon went back to tell the news to their investors—among whom many are early employees at the company.
“We went to everybody and gave them the exact same terms,” Savage remembers. “Like, here’s the valuation, you can decide how much you want to sell. But we told them, ‘Brandon and I are gonna run this business for a long term. We have common shares. If you don’t sell, your shares are gonna convert to common as well.”
Just Over $17 Million Used to Pay Off $600k (out of $1.4m) For Early Investors At 20x Premium
While some people jumped ship, most of the investors believed in the dynamic founder duo enough to agree with the terms. Of the $1.4m raised, only $600k worth of shares were bought back by Wistia. Early investors held on to $800k.
“We built up so much trust because they’ve known us for so long,” Chis explained. “And we had basically done what we said we were going to do. […] I think there was definitely a trust element involved.”
Trust—and a 20x multiple—it took indeed to convince those early shareholders to turn their preferred shares into common ones. Savage is not the kind of guy to throw around unrealistic 10x-return pitches. The private/branded video sharing market had also grown at a much slower pace than the founders had originally anticipated. That’s one of the things Savage says they “were very wrong about.”
The market indeed took its sweet time to reach the sweet spot. Ironically, that’s one of the reasons why Wistia succeeded.
“I look at the list of competitors we’ve had in the past and many of them were over-funded, actually—that’s why they failed,” Savage explained. “Because they tried to get the market, and the market wasn’t there. Then they had a giant team and they couldn’t support it.”
Wistia Downloads Skyrocket Company to 50,000 Paying Customers, Team Grows to 115, Revenue Doubles to $40MM
As of our interview in December 2019, Wistia employs “about 115 people,” 45 of whom are part of product/engineering teams. That’s 40 people more than they had back in 2017.
Since the debt deal a couple of years ago, Wistia has accelerated their growth. They’re serving over 50,000 customers. Savage says they’re “right past” breaking $40 million in annual revenue. A healthy reminder to entrepreneurs who’ve been sold on the VC utopia where no startup can double their revenue in a year without raising capital.
“I take inspiration from companies like Mailchimp that have done it without any funding,” Savage says. “I feel like a lot of direct-to-consumer companies are showing us what’s possible.”
Employee Profit-sharing Helped Cash Flow Go From ($500k) in 2018 to +$6 Million in 2019
Cash overflow can quickly lead to irrational profit sharing decisions. The team might be more incentivized to see a dollar in their pocket rather than investing that dollar profitably. Wistia didn’t have that problem, Savage says, as their profit sharing mechanism only constitutes a small part of the team’s payout, and they’re monitoring it rigidly.
“I think we’d get very different results if profit sharing was, like, 50% of the compensation,” Savage adds.
Wistia currently has 16 quota-carrying sales reps, a surprising number for a SaaS at that price point.
Wistia CEO Chris Savage: “SaaS Can Be Extremely Powerful When Matched With Debt”
The deal Wistia closed in 2017 had a 5-year term and a “higher than 10%” interest rate.
“It was okay to spend the money at that interest because we were thinking about what the value of the company would be in the future,” Savage says. “You’re kind of taking a bet: ‘would we be worth more than 11% a year?’”
The other thing Savage warns about are the covenants. How are they going to restrict how you run the business? The entrepreneur gives a few points to look out for:
- Minimum revenue requirements
- The amount of cash you have on hand to pay for the premiums
- Trailing EBITDA/Leverage ratio
Savage ends his message on a positive note:
“I think SaaS can be extremely powerful when matched with debt,” he adds. “Because if you can understand your unit economics with enough depth, if you understand churn, if you understand expansion, you can actually model out what should today’s revenue be worth in a year. It makes it much more possible to use debt as a tool.”
If your curious what a debt deal could look like for your company, here are 50 banks ready to help and their typical terms.
5 Questions With Wistia CEO Chris Savage
- Chris’s favorite book on creativity: Masters of Doom by David Kushner
- Is there a CEO Chris is following or studying right now? “For a long time, it’s been Ben Chesnut, the CEO of Mailchimp.”
- Chris’s favorite online tool besides Wistia: Sparktoro
- How many hours of sleep? Married? Kids? How old are you? “Trying to get 8.5. Married and two kids. I’m 36”
- What does Chris wish his 20 y/o self knew? “My 20 y/o self wanted to reinvent absolutely everything. […] Chris, you were wrong. There’s a bunch of other things that are just the same. You should’ve been more open to that.”
2007: $33k (7 cust paying $400/mo (1))
2011: $1M (Chris email)
2017: $18M (interview)
2019: $40M (interview)
2007: 7 cust paying $400/mo (1)
2011: 1,000 (Chris email)
2013: 10,000 (Chris email)
2019: 50,000 (interview)
2008: $680,000 angel round (interview)
2010: $800,000 angel round (interview)