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South African Peter Bauer, who just over 18 months ago listed his email management startup Mimecast on the Nasdaq, once turned down a R30 000 offer for his then business in the late 1990s, only to sell it a few months later for R20-million.
Mimecast, which Bauer started in 2003 with fellow South African Neil Murray, listed on the Nasdaq in November 2015. The company’s stock price has since doubled and trades at about $24 per share, bringing its total market cap to $1.2-billion.
In the late 1990s, after selling his stake in a school stationery and goods supplier and after having travelled a bit and completed a Microsoft engineering course, Bauer started a tech business developing niche software and applications for corporates.
“We were running on scant liquidity again, and so were very tempted when less than a year into it, we were made an offer,” he explains. It was from a larger IT company who wanted the business for R30 000. He and his two partners decided to hold out for R40 000.
’18 months later the dot-com ridiculousness was in full swing and we sold for R20m’
The would-be acquirer called their bluff, and headed back to Johannesburg with a closed chequebook.
“18 months later the dot-com ridiculousness was in full swing, and we sold for R20m,” he added.
But he explains that they only got to that point because the three were able to secure funding from friends and family. “We each did what it took to bring R100 000 in. My dad had just retired as a teacher, and kindly gave me a meaningful portion of his retirement fund.”
In 2002 Bauer left for the UK with the proceeds from the R20m sale he made on his then tech business, intending to export South African tech services to a hard currency market, and profit take on the arbitrage.
It never panned out, as he met Neil Murray, and within a year Mimecast was born to fill the gaps they saw in the state of email security and archiving offerings. His own capital had been dented by the failed software exporting venture, so the two never had buckets of money to start.
“The need for money shouldn’t be at the expense of control, he believes. “We ran very lean for years,” he says.
“At Mimecast, we only got formal venture capital six years in. It came from Index Ventures, and it was very helpful, but we were able to negotiate it largely on our terms.”
In this and subsequent rounds, the two exchanged capital for reduced-voting stock. Bauer and Murray wanted to maintain control of their business, and they had a view on how it should grow, and at what pace.
“We could probably have sold Mimecast for $300m in 2013, and it would obviously have been the wrong route.”
Had the two not maintained control, the billion-dollar valuation that eventually came may well not have materialised.
“Things can get wrong-headed quickly, and it’s important to stand firm and play the long game if that’s what you’ve decided.”
He advises that founders understand the benefits of control, but not at the expense of growth. “Retain control, structure properly, take on capital very carefully in order to grow.”
On the question of why he left South Africa, he says, “It wasn’t driven by the smallness of the South African market. But I had just come out of what was, for us, a huge exit, and I wanted to move into an environment where I would have to learn, stay sharp and start again.”
‘Mimecast is a global company, with London roots, and a South African background’
He says he fielded similar questions when he and Murray decided — because of the bigger bang it would make — to list on the Nasdaq and not in London where Mimecast was based.
“I always tell people Mimecast is a global company, with London roots, and a South African background. I think South Africa would benefit from more South African businesses thinking of themselves as global — or potentially global — from the outset.”
Bauer also recalls how he dropped out of a business and marketing course during his first year to pursue a business supplying South African Model C schools stationery and other goods. His partner was older, wiser and had an MBA, and they bootstrapped the business out of a Cape Town garage. “I learnt very quickly how to optimise limited capital,” he recalls.
“Founding with a partner is better than going it alone, but I learnt some important lessons about what to look for and avoid in a co-founder.
“The business succeeded, but I never fully realised the difference between ownership and employment, so when my partner pressured me to sell my equity to him for a bigger share of the year’s profits, I went for it. Once the realisation set in, and we fell out, I left.”
He says he was devastated at the time, “but if it hadn’t happened, I’d probably be the king of the Western Cape school supplies game now, so it was for the best”.
This interview with Peter Bauer, alongside 28 others conducted with South African ecosystem players, form the foundation of a report called “Unicorns, Gazelles and Rockstars” by Levin, due out later this month.