The Cap Table: Ryan Denehy, founder & CEO of Electric

For this week’s exclusive, we caught up with Ryan Denehy, 3x founder, investor, and current CEO at Electric. Ryan knows a thing or two about getting on the cap table. We discussed:

Ryan Denehy, CEO at Electric

TCT: You’re a 3x founder with two exits to date, including SWARM Mobile (acq. by Groupon in 2014). What was going through your mind when Groupon first approached you? Were you ready to sell?  

We were certainly at a decision point. 

We had a new product and distribution strategy that enabled us to book several million dollars in ARR in the span of about 8 months. We were fired up about how well things were finally going. We could have easily raised a lot more money. The problem was, the market wasn’t going to get bigger — we just couldn’t see brick and mortar independent retail growing as a sector. We also knew that passively tracking consumers without their consent wasn’t a smart thing to rely on. That latter point sounds ridiculous now, but in 2014 the privacy conversation wasn’t there yet! 

Once we sat down with Eric Lefkofsky (co-founder of Groupon) in Chicago and saw where we fit into the strategic vision of Groupon at the time, it made total sense. Thankfully, we had only raised ~$3M in total and our revenue growth justified a compelling valuation - the combination of those two things made the deal make a lot of sense. At that point the conversation changed from “Sell to Groupon?” to “Sell to Groupon!” 

You’ve mentioned in the past that the inspiration for building Electric stemmed from your own painful experiences of managing IT solutions. When was the “aha” moment? 

At Swarm, we raised our Series A in 2013, which if you can believe it, was only a $2.2M round. (yes, $2.2M Series A!). 

Times have changed. 

In any event, we raised the money and had to hire a dozen people. I spent the whole weekend setting up laptops and figuring out how to provision software, and how to get the security side of things right. It seemed crazy that there wasn’t a piece of subscription software that would make basic IT management easy — SaaS, laptops, networks, basic security etc. 

We’re seeing a rise of new solutions like Electric that are an SMB first product. What’s the opportunity within the SMB & Mid-market space right now? Has it been overlooked? 

SMB is a big category, but it's actually composed of a lot of smaller sub-categories. That nuance is important. 

Our customer is a company in an office with budgets and leadership. Our customers are not what people typically think of as “SMB” — the shop on the corner, the lawn care service. So, even though the 25-500 FTE (Full Time Employee) sweet spot we sell into is technically “SMB”, the selling motion looks a lot more like a mid-market business. The segment is historically overlooked because it’s hard to make the economics work on high volume/low ACV contract structures. Which is a totally fair and correct reason to avoid a category. 

In our case, the economics mean that we can do it because they work well and continue to get better. For us, there’s 250,000 businesses that have no great solution other than us, so that’s a very exciting space to play in! 

You purposely HQ’ed Electric in NYC over SF. Do you have any regrets and can you explain why you made that choice?

No regrets at all. The reality is, it was a personal decision first — my wife (girlfriend at the time) was here so no matter how you slice it I was coming back to NY! But, I love this city. I love the hustle. I love the diversity. The tech community is great because everyone roots for each other here. We knew we’d build offices outside of NYC for cost reasons (which we’ve since done), so overall it’s worked out really well. 

What has been your most memorable experience to date with Electric? 

The business was two months old. There were four of us. 

We had two customers and ~100 users that we had just gone live with. After the end of the first week, we were flooded with tickets and realized “this is going to work! People need this!” 

Some companies chase product-market fit for a long time and us seeing it a week into launch was truly amazing.

What type of qualities do you look for in investors that want to join Electric’s cap table? 

Culture fit, first and foremost. You’ll probably be involved with us for a while and I really need to get excited about you as a person. I don’t really care how big the name is at the firm or what company you sold before. 

I find that if we start there the rest works itself out later on!

What recommendations would you give to first-time founders thinking about bringing in their first institutional investor(s)? 

People first, but only to a point. 

If push comes to shove your job as a founder is to make sure you don’t run out of money. So if it comes to it, take the check.

But, for the most part, companies with talented founders and a good story have options when they raise so make it a people-first game. 

Do not take money without doing backchannel references!!! (yes, with three explanations).

The references they give you will of course be positive. Find your own and really see what these people are like. Think of the best boss you ever had — that’s the bar you should set for an institutional investor early on. 

You’re an investor and hands-on advisor (Stadium Goods, Blackbird, Anchor Worldwide). What do you look for when investing in companies? As an advisor, what is the #1 thing you bring to the table? 

It’s cliche but the team is everything. No idea is worth much in the wrong hands. 

It’s taken a while for me to experience enough to know what “excellent” really looks like. 

But, now that I have become a much better judge of talent, and can also evaluate the business as an operator, I can make thoughtful, process-driven decisions around investing. I avoid stuff where I can’t be helpful unless it’s such a spectacular opportunity or team that I can’t ignore it. 

Having built three companies from scratch and made a ton of mistakes, I am the most helpful with: fundraising, team building, problem-solving, and to a lesser extent sales and distribution. Getting your team right and the goals calibrated will make or break a company early on and that’s where I can really help.

What’s your biggest cap table mistake? 

Thankfully I haven’t had anything truly terrible at any of my companies, but like anyone, there are always one or two investors who have given you basically no money and added no value who hit you up all the time for information or questions. 

I had one at Electric early on and I thought “Ah, I’ve seen this movie before” and just bought them out in a later round. 

Problem solved.

What advice would you give to a first-time angel investor? 

Just don’t do it unless you really have money that you are OK with never seeing again. 

Learning money. I got lucky and had two big returns very quickly but that is atypical. 

Do it for the right reasons, making money only comes into the picture after you get good at it (or lucky), and in most cases both take time.

What does NYC look like in 2021? 

NYC looks like it did pre-COVID though hopefully a place that embraces equality in a bigger way than it does in some respects now. My hope is that the city continues to reinvent itself. People forget that a lot of folks who live in the city don’t live here because they have to, they live here because they want to. New Yorkers stand up for what they believe in and I don’t see that changing.

What are your favorite productivity tools you use on a daily basis? 

I de-tooled myself a while ago. I email notes to myself at night or in the gym. I move stuff from email and yellow legal pads into trello and that’s it. Professional minimalism.

Thank you for your time and thoughts, Ryan. We look forward to the continued success of you and Electric!

API platform Postman delivers $150M Series C on $2B valuation https://t.co/4clJfONXSP by @ron_miller

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