One memory lingers especially sweet in the mind of Matt Maloney. That would be the morning of April 7, 2014--the Monday after his Chicago-based restaurant-order company, GrubHub, raised a gratifying $192 million in an initial public offering. "We had gotten through months of work, months of secrecy, the road show, the pricing, the bell-ringing," says Maloney. "We came into the office and it was all cleared off our desks. We could look around and say, 'Let's attack.' "
And attack they have. Maloney--on-point and polished--is speaking hours after his fourth quarterly earnings call as a public-company CEO. The results he delivered were chest-thumping: a 50 percent year-over-year revenue surge, to $73.3 million. A big jump in active customers, to more than five million. And the acquisition, for about $80 million, of two delivery services--the latest part of GrubHub's strategy to control the entire takeout experience, from when an order is placed to when it appears at a customer's door. (Of course, restaurants will still do the cooking.)
"People say, 'Oh, I can't believe you went public. Aren't you focused on the short-term now?' The answer is absolutely not," says Maloney. "We are not looking quarter to quarter, but five years down the road. This is long-term investing, and it is really why we went public."
Not every entrepreneur dreams of going public. Many in the middle market (we define this as having an annual revenue between $50 million and $1.5 billion) can accomplish their goals with private capital and M&A. Others dread what happens after the IPO confetti settles. Public-company CEOs face costly and time-consuming compliance issues. They walk a narrow line on risk. And while long-term planning is possible, still the market's fingers are tapping ... tapping ...
But going public can also be just the accelerant that well-prepared, ambitious businesses need. With this issue, Inc. launches the Founders 40, an annual list comprising middle-market companies that have gone public in the past three years while still preserving their entrepreneurial spirit. These are classic fast-growth businesses: Almost two-thirds were among the Inc. 5000 between 2005 and 2014. Their founders still occupy the C-suite and the boardroom, and about 70 percent have held onto the CEO spot.
Such continuity is relatively rare. (See "Plan Your Own Demotion.") But tracking these companies after they've gone public offers a perspective on entrepreneurship that is more difficult to get when following private companies: one based on access to data on net income and cash flow, and other financial disclosures required of public companies. The opportunity to benchmark against other entrepreneurial midmarket companies is obvious, and we plan to exploit that advantage in future issues of Inc. and at Inc.com.
Data suggests that the Founders 40 have a lot to teach. Founder-CEO companies beat professional-CEO companies on valuation and stock-market performance, studies show. Venture capitalist Ben Horowitz cites the comprehensive knowledge and long-term commitment that founders bring to explain why his firm prefers founder-led companies. But Jacqueline Kelley, Ernst & Young's global and Americas IPO markets leader, has a more fundamental explanation. "The founder's passion is key to launching a company and will sustain it after the IPO," she says. "No one ever has as much passion for the company as the founder does."
GrubHub, with annual revenue of $254 million, helped create today's ubiquitous on-demand mobile economy. (It was so ahead of its time that it may have unwittingly lost an opportunity; under other circumstances, Uber today might be known as the "GrubHub for taxis.") In 2004, Maloney and co-founder Mike Evans launched a website that allowed the hungry and telephone-averse to search multiple restaurant menus and place orders. The company collected a 10 percent commission on whatever it sold. Maloney credits that Dick-and-Jane-simple model for much of the IPO's success. "When the business model is complicated, it's much harder to explain that value to investors and makes them less likely to buy in," he says.
When GrubHub decided to go public, the company was already thinking about capturing what Maloney calls a $70 billion "massive greenfield" of opportunity, one that urbanization is making ever greener. GrubHub, which swallowed New York City competitor Seamless in 2013, holds the enviable position of being the sole public company dedicated to takeout, but competitors are licking their lips. Restaurant ordering is now available through Amazon Local and, yes, Uber in some areas; Yelp, another of the Founders 40, is buying GrubHub competitor Eat24. While Maloney's company maintains front-runner status, "we are going to push it as hard as we can," he says.
And he's happy to be doing so in the public markets, despite their occasionally mixed blessings. In the past 10 years, many "private companies said, 'We don't want to be public, because it's such a pain.' I think that's bogus," says Maloney, citing the ease of GrubHub's recent acquisitions. "We have over $300 million in the bank. We are really active in recruitment. Restaurants have more confidence because we're listed on the NYSE. And the tactical restrictions of being public are really not that big a deal."
That attitude--seeing the IPO "not as a culminating event but as a steppingstone in a larger journey," to use Kelley's words--bodes well for the future. The companies on our list are still entrepreneurial, still hungry, still expanding on their creators' dreams. Professional CEOs may bring the experience. But founders carry the spark.