IVCA Profile: The 2014 Private Equity Portfolio Company of the Year, Fieldglass

The honoree profiles continue for the 2014 IVCA Annual Awards Dinner on December 8th. The Private Equity Portfolio Company of the Year is Fieldglass. Founded in 1999 by Jai Shekhawat, Fieldglass is a cloud-based Vendor Management System that facilitates control for companies of their non-employee workforces, including temporary staff, independent contractors and services arranged through Statements of Work. This ‘total workforce visibility’ solution has helped companies reach their program costs, compliance, worker quality and efficiency goals.
Fieldglass got a huge funding and support boost from Madison Dearborn Partners. To tell the story of Fieldglass, the IVCA spoke with company founder/CEO Jai Shekhawat and Doug Grissom, Managing Director of Madison Dearborn Partners.
IVCA: Jai, you founded Fieldglass in 1999. What are the origins of the idea for company, and what steps did you use to secure your main investor financing?
Jai Shekhawat: I first heard of the concept from a close friend, the founder of Syntel, who I worked with for 5 years – but when I began my research I discovered that this was a rapidly developing category with five companies already in existence. I almost stayed away but upon analyzing their approaches and business models, I felt were there were inherent flaws that would magnify over time. I spoke to a lot of potential customers and designed a different type of business model. That initial assessment turned out to be correct, because none of them emerged as viable players in the long run.
The initial financing was provided by a combination of angel investors and the Prism Fund in Chicago. The angels were friends and former colleagues. We met Prism thru Steve Vivian who was a B school classmate of our first hire and former CTO, Sean Chou. We eventually raised $38m in venture capital over about six years.
IVCA: Doug, how did Madison Dearborn Partners get involved with investing in Fieldglass? What description of the company created interest in your firm, in the sense that you knew it would be successful?
Doug Grissom: The way we got involved in Fieldglass was through Jai Shekhawat, the CEO. He and I had worked together at McKinsey and Company out of business school, but really got to know each other because we both played squash. Jai was going through a sale process with an investment bank to take out his six long-standing Venture Capital funds, and  his company fit perfectly with our emphasis on business services.  We are able to convince Jai and his owners that we were in the best position to deliver value to the existing owners while providing the company and its management team with the right kind of support and resources to take Fieldglass to the next level.
Fieldglass was a fast-growing, high-margin business that was emerging as the leader in its category. There were only two other significant competitors, and we believed that Fieldglass would come out on top, which it did over the next three-and-a-half years.
IVCA: Jai, from your point of view, what contributions did Madison Dearborn Partners make to facilitate the growth of the company?
Shekhawat: MDP took time to understand the nuances of our business and were highly involved without being intrusive. They were a partner in all respects and made it safe to discuss anything. Specifically they helped us in the following areas – putting a better governance and reporting structure in place, doing a bottom up assessment of talent at the firm, introducing us to experienced people, and helping us with our global expansion plans. Plus most importantly, they helped us prepare the company for a highly successful exit.
IVCA: Doug, what specifically did MDP contribute in partnership with Fieldglass?
Grissom: It was three things.
First, we helped Jai upgrade his management team, allowing the company to triple its size over the next four to five years – basically we got the right team on the field.
Second, we focused a lot on international sales. We asked an MDP executive partner to advise Fieldglass on how to open an office in Australia. We also introduced the management team to the management of one of our other  portfolio companies that helped them create a plan to enter Asia. Fieldglass mostly served customers in the U.S. when we first invested; when we sold three-and-a-half years later, a third of the new sales were to international customers.
Third, we decided to bring down the company’s margins to invest in growth – adding more salespeople – and investing in new products and services. We consciously brought down margins to keep the growth rate around 30-40%.
IVCA: Jai, what were the key factors in making the core idea work, which created your company's growth when paired with the influence and contributions of your investors like MDP?
Shekhawat: We choose a problem that we understood better than most – the issues around a contingent workforce. It is a large yet hidden problem at big corporations, and it took a global recession for those institutions to see it. This is why it took us six years to get to break even. We built our model around a true SaaS platform with a single code line that could be used by anyone – from banks to airlines to oil firms, all around the world – with no customization, only configuration.
Remaining a software firm, without layering in services as a revenue stream, was a core design principle and we stayed true to it. We partnered with staffing firms and directed these service revenue streams to them. Finally, we developed an internal philosophy of keeping the customer at the center of everything. We don’t get paid unless there are successful customer outcomes.  They can leave at any time but almost never do – our lifetime revenue retention rate is better than 99%.
IVCA: Doug, how does the IVCA help Madison Dearborn Partners and other investor firms do business in Chicago and the Midwest?
Grissom: It’s great to have an organization that is thinking about Venture Capital and Private Equity in the Midwest - whether it’s helping us build relationships with other firms, or helping us have one voice on whatever the issue of the day is.  Illinois has always been a leader in the private equity community and we believe the IVCA has been instrumental in helping the industry maintain an important role in this region.
We’ve gotten some bad press as an industry over the last several years, so it’s important to have a cohesive voice, either about new issues or just expressing that we’re focused on growth and creating jobs. Our objective is always to grow companies, create opportunities for employees, and enhance enterprise value.  Fieldglass is prime example of how our approach produces results.
IVCA: Jai, what does the honor of Portfolio Company of the Year mean to you and your company, and how does the IVCA contribute to the industry that made your success?
Shekhawat: It is obviously a tremendous honor for our team. We have seen so many good venture backed companies come out of Illinois, and to be considered in those ranks makes us stop and want to soak it in for a moment. I have presented our story to many of the people in the association over the years, and many have became good friends and advisors even if they didn’t all become investors. There was much less of a community when I started the firm 15 years ago, and  I’ve enjoyed seeing the local ecosystem of investors, entrepreneurs and advisors emerge and grow together through the IVCA, in addition to finding each other right in our backyards instead of always looking outside the state.
The 2014 IVCA Awards Dinner, presented by Kirkland and Ellis LLP, will take place on December 8th, 2014, at The Four Seasons, 120 E. Delaware Street, Chicago. Individual tickets and tables are still available, click here for information.