The Ten-Year Run
The IAA asked me to write an article for the Podium. I have been sitting here staring at the suggested topics for an hour. I do know a little bit about each one and was about to pick one when something inside helped me find my voice. I do have an article to write or really more of a story to tell. I hope you all enjoy reading it as much as I have enjoyed living it.
This last decade has been a true transformation of our industry and I have been able to witness it from the only place better than a front row seat. I have been out there on the playing field. I have scored more than a few times but believe me I have also been run over and pounded into the ground.
Listen up, I think you will find it both entertaining and enlightening. I had a family auction company called Dove Brothers that my brother Kirk and I took over from our Grandfather and Dad. We competed nationally on industrial plant closings and were a leader in technology auctions. It was the late 1990’s and I was very proud of our fifty person firm and content. I had joined the Silicon Valley Chapter of the Young President’s Organization (YPO) and was in a forum with very bright and successful people. Seeing their accomplishments was motivating me to take our company to the next level. We had a special strategy meeting where they said come up with a list of ten new things you could auction and be innovative. I don’t remember too many items on the list, but do recall airplane landing rights, satellite airways, and motion picture rights being rejected. They sent me back to the drawing board.
Then it happened. I was in a bar in New York and I saw a CNN show talking about EBay being worth billions and revolutionizing the auction world. They were showing pictures of beanie babies. I told everyone at our table that I could do something much bigger with corporate assets. The obvious question was “Who is going to give us the money?” “And where is the cocktail waitress?” Two weeks later I went back to YPO and told them my idea to build an internet marketplace for the billions of dollars in industrial assets that sell every year. Several people told me it was a great idea and that I should write a business plan that models the size of the market, the costs to build the business and potential revenue stream. I, of course, said, “Screw it,” and asked, “Where is the cocktail waitress?”
One of the smartest guys in our chapter ran a venture capital firm. He said, “Ross, it’s not that hard. I can help you. Me and you can spend a few weekends in front of your computer doing research and building models. With the right case study we can probably get you funding.” I was forced then to tell him it wouldn’t be that easy. First, I would have to buy a computer and he would have to teach me how to turn it on.
It happened. I found out how little I knew and how much I knew at the same time. It was primarily a two weekend question and answer session. He would say, “Which verticals do you want to focus on?” I would say, “What’s a vertical?” He would say, “What is the estimated residual value compared to annual domestic manufacturing capex?” I would say, “Let’s go get a beer.” Two weeks later, we had a twenty page plan. I remember the first sentence: “According to the Forester Report over 100 billion dollars of excess and obsolete industrial machinery and supplies trade annually. The market is highly fragmented with no dominant firm.” One week later, I had completed a six million
dollar series A funding and was the new Chairman of the Board of Dovebid, a hot venture-funded, seventy year-old, “Start Up.” My brother, Kirk, joined our board and we were told we needed a CTO immediately. Neither of us even knew that “CTO” stood for “Chief Technology Officer,” until he had thirty engineers and the six million was gone.
In those days, building the website cost a fortune, because people stayed up all night coding and recoding and saying the redundant back bone was not scalable for launch. At the next board meeting, the CTO informed us that it was a joke and embarrassment to work for an undercapitalized start up and he couldn’t afford to stay unless we were serious. To prove how serious we were we gave him six percent of the company and promised we would raise a Series B and give him as many millions as he wanted.
Back at YPO I told them it was impossible for me to fly around and keep doing auctions for our clients and get the launch up. They had the answer. You’re not scalable. Go hire a president who has a demonstrated track record. Before you knew it, we were the only auction firm with an Arjay Miller, Stanford Scholar, who led public offerings with Goldman Sachs, on our team. He advised us to immediately launch because we were in an incredible “race for eyeballs;” he also warned us that hundreds of other firms were raising much more money with a plan to disintermediate us. I am a fighter and was now in full gear. I told the board not to worry that the auction business was my game and nobody was going to do that to me. We would disintermediate all their asses.
They were very excited that now I got it, and we were going to dominate the B2B space. They said we are in a real war with Trade Out, Zonetrader, Asset Trade and about one hundred vertical niche trade-up, trade-everywhere guys. I said we might start losing some of our regular auctions to the other industrial auctioneers but I would kick-butt in the eyeball and content war.
We got serious. We raised another 140 million fast. Everywhere I went, people said “we’re in” and my existing guys said to be careful, because their money was too expensive, and to watch out for ratchets. But we all agreed we had no choice. So we did the smart thing. We decided to raise the value of Dovebid to 350 Million in our Series C to not get diluted. I felt great, even though they ratcheted me, my 20 percent was worth only seventy million. It was now 2000 and we had compromised with each other and integrated to some extent.
Our company now had two clear groups. The auction guys and the “smart people.” We met for hours and agreed with the smart people that we couldn’t all agree on our strategy of whether we were going to be a market place or market maker where we keep doing onsite auctions along with our new EBay style online auctions. Together with our board we agreed it was now time to bring in the “really smart people” and pay them millions to pinpoint and target both our key metrics, positioning and brand strategy. We, of course, decided to bring in the world’s largest and most prestigious consulting company.
It was quite an education. They were astounded to find out I had gotten this far without a full time public relations director and we immediately needed more articles, positioning, and eyeballs. Off I went on a press road show and completely abandoned the old auction business to Kirk Dove. While he was signing auctions to pay for the old people I was out doing photo shoots on press tours. Boy was I cool.
I actually made the cover of Forbes. Back at the ranch, Kirk had really made headway. Our website was a great compromise of his pragmatic approach to merging old line auctions with webcasts and he had created featured online auctions that were actually working.
We now had content and eyeballs but the board said we must immediately change our strategy and adapt to the new B2B market. All of a sudden, it still didn’t matter how much money we lost but we now must have a very rapid quarter over quarter sequential growth. Nobody, including the smart people or the really smart people, knew how to do that. They said that only Kirk and I can do that part because we had “domain knowledge.” When I said, “What does that mean?” They said, “You know both the sellers and competitors. What do you recommend?” I said, “Why don’t we just go buy everybody and post all their auctions and dealer assets on Dovebid so we can always have Q1 to Q2 sequential growth.” And so we did. We weren’t very worried about the cost because we were now a dominant player in the B2B landscape and a hot IPO candidate. They said we must get 50 million in revenue to file an S1 because we were late to the game.
With the help of our newly acquired companies and as early leaders doing both webcasts and internet auctions we hit our number. We filed our S1 and got ready for the road show to make us a billion dollar market cap. Then our bankers advised us to cancel the road show because we were once again late to the game and the B2B landscape had changed and is was a dotcom blowup disaster. The investors were now demanding a demonstrated “path to profitability” along with the Q to Q sequential thing. This was real bad. We were all in shock. There was an emergency board meeting where I was warned to get real or I would never be a B2B billionaire and was at serious risk of becoming a dotcom bomb.
Fortunately all the other dotcom bombs needed auctions and we got super busy and appeared on a path to profitability. The only problem was we were running out of money pretty fast and also on a path to poverty. We had another emergency board meeting. I was told I had to stop losing money and had seven days to produce a cash positive pro forma with new metrics. I said, “What kind of metrics?” They said, “You are now being measured like a regular company. We demand your opex is immediately lowered to current revenue stream.”
There was only one answer. Fire people. The good news is that if I showed them I could properly restructure they would give me a final few million dollars in a “down round.” But never again. This began the down round phase. Trust me, during this period I downed more rounds than you can imagine. Amazingly, we actually got it almost right and I was now a hero again. We did reasonably well integrating fifteen auction companies worldwide; buying all the trade out and trade zoners and building a true global footprint and leading our industry. We had all the numbers and metrics and, man, was it hard to do.
Dovebid was now real and ready. We had over 100 million dollars in revenue, successful and growing industry exchanges, online auctions, 650 employees in forty countries and our first quarterly profit. Investment bankers were now fighting for us again. We chose one of the world’s most impressive investment bankers. We did one final final final down round to pay for the accountants and lawyers to write another S1. The day it was finished we headed off for the road show. Our banker informed us we had 90 very very tough meetings because the NASDAQ was once again in free fall and we must race to close before they shut down on us. Therefore, we would charter a G5 aircraft and take the Concorde to Europe.
Halfway through the road show, we were told the NASDAQ did in fact free fall from 1800 to 1100 but everyone still liked our story and we were going to make it somehow. I was so proud. I called my Brother, Wife, Mom, Dad, and a ton of employees and said to meet me at the Helmsley Hotel in New York for our IPO party next week. The rest is hard to write, even to this day. We decided the markets were so bad we would immediately head to London and catch the Concorde to New York. We had a board call and decided to lower our cash requirement to only ninety million because we were very worried about after market float. I, of course, was in panic mode about needing at least
ninety million since my stock would only be worth fifty million and I wasn’t at all ready to stop flying around on G5 airplanes.
Then came the moment I will never forget. Everyone was at the party. My wife, Kelly, had laid out the new suit I was going to wear to ring the opening bell for our public offering in the morning. The evening before the NASDAQ opened, I got a call to come to Wall Street before the party. To this point I have intentionally omitted names and, of course, many details over three quarters of a decade. One name must be mentioned. Christina Morgan from JP Morgan put her arm around me and said, “Even Ross Dove has the right to cry. We just couldn’t get sufficient orders to price your IPO.” I did cry and sat alone with her high above Wall Street. She said, “Ross Dove get up and stay up. You invited me to a party and people are waiting…let’s go.”
And so we did.
It was quite a party. The rest is history.
It was a long and hard fight after that and quite a lengthy down round. But my brother Kirk stayed by my side and we fought long and hard. We had to let great people go, many now are IAA members and industry leaders. We kept the firm alive. Kept most of our clients. But never did get our fourth one filed. Eventually, we sold the firm my family had founded and today it’s part of a London Stock Exchange public auction and valuation firm. I wish them well.
As you all know I am proud to be back in the IAA and have partnered with Kirk Dove to form Heritage Global Partners, and continue our family legacy. We are now down to two metrics that matter: do great work and have fun.
The next round is on me.