Editor's note: In early 2019 Qualtrics was acquired by SAP for $8 billion. Inc.com reported this article on the business in 2013, when co-founder Ryan Smith was still coming to terms with the value of venture capital.
Ryan Smith and his father, Scott Smith, bootstrapped their data-collection and -analytics company, Qualtrics, from the family's basement to more than $48 million in sales in 2012. So when investors came calling, the Smiths weren't exactly eager to meet with them. It took some persuasion from a company adviser before Ryan agreed to a few meetings. Eventually, Ryan talked with investors on Silicon Valley's Sand Hill Road; at Qualtrics's Provo, Utah, headquarters; and even at a Brigham Young University basketball game.
Ryan's next challenge was persuading his three business partners, who were even more skeptical of taking outside funding than he was. In 2012, after carefully vetting investors for their experience and interest in the company, Qualtrics finally closed its first round of funding--a $70 million Series A round. "It wasn't about the money; it was about their value as partners," says Ryan. Here's how they did it.
2002: A Company is born
When Scott Smith was found to have throat cancer, his son Ryan left a promising internship at Hewlett-Packard to look after him. At the time, Scott was a professor at Brigham Young University's Marriott School of Management, and he was frustrated with the lack of options for conducting market research. To solve his problem, Scott hired engineers to develop an online survey tool. Ryan saw potential in the software and encouraged his dad to join him in launching Qualtrics.
2003-2008: Off to a quick start
Within a year, Scott was recovering, and Qualtrics had landed 20 university and business customers, including Kellogg School of Management and Royal Caribbean. Working out of their basement, the Smiths were joined by Ryan's brother Jared and co-founder Stuart Orgill, a friend of Ryan's from BYU. By 2006, the company had reached $100,000 in monthly revenue without raising a dollar of outside funding. At the end of 2006, Qualtrics moved out of the Smith family basement and into its first official office space.
2009-2010: Investors come calling
From 2009 to 2010, Qualtrics landed more than 1,000 new clients, including Barnes & Noble and Zappos. That success generated significant buzz. Ryan, now the company's CEO, was overwhelmed with calls from potential investors. He found help at a golf tournament in Mexico, where he met R. Duff Thompson, a fellow Utah entrepreneur. Thompson's advice: "When it comes to investors, don't marry anyone on the first date." Thompson agreed to handle investor relations until the Smiths felt ready to raise capital.
February 2011-January 2012: Meeting the suitors
By February 2011, Thompson had persuaded Ryan to view investors as more than just deep pockets. The right investors would provide contacts and expertise that could take the company to a whole new level. The two of them began a round of meetings with Bay Area VCs. Ryan calls this the company's "dating" period. "It felt like we were interviewing the investors, rather than them interviewing us," says Thompson. By early 2012, Qualtrics had seven term sheets on the table.
May 2012: Accepting a proposal
After much soul searching, the Qualtrics partners accepted a $70 million Series A investment from Accel Partners and Sequoia Capital. Both are well-established Silicon Valley VC firms that have backed a storied list of tech start-ups between them, including Apple, Google, Facebook, and Groupon. Aside from the money, Ryan felt an intrinsic connection with both outfits. "They really got the vision of what we were doing and were just as passionate as we were," says Ryan. "We didn't just want to go with the highest offer. It was unanimous that if we were going to do this, these were the people we wanted to do it with."
Today: Taking on the world together
Qualtrics now has 300 employees and roughly 5,000 customers that collectively send out more than a billion surveys a year. The funding will help the company launch products and expand internationally. "Too many people think raising money is the destination," Ryan says. "In our circumstance, it definitely wasn't. It was more about getting the right team in place to attack the world."