2016 IPO Prospects: Medallia Bootstrapped First, Raised Money Later

According to a MarketsandMarkets report, the global customer experience management market is estimated to be worth $4.36 billion in 2015. The market is expected to grow 20% annually over the next five years to be worth $10.77 billion by 2020. The growth in the market is driven by the increasing adoption of newer channels such as mobile devices, social media, and other digital platforms that the customers are using to connect with brands.

Medallia’s Offerings

Palo Alto-based Medallia was founded in 2001 by the husband and wife team of Borge Hald and Amy Pressman. The couple used to work at the Boston Consulting Group and while traveling for work realized that they preferred the service offered at smaller companies and hotels. The original idea was about getting benchmarking data for service organizations such as hotels and compare the customer satisfaction levels at these businesses not only with other services within the same brand, but also with direct competitors.

They worked on this idea and decided to start Medallia to equip companies with the tools to leverage the power of the Internet to improve the end customer experience. Medallia’s SaaS-based offering follows a three-step process of capturing feedback from multiple sources, converting this data to real-time analytics using easy-to-use visual dashboards and finally helping organizations make decisions to improve their customer experience.

Existing customer metrics are captured from multiple sources such as digital and paper surveys, mobile feedbacks, and social media chatter. Unlike other social media monitoring solutions, Medallia’s platform goes beyond the virtual world. It helps monitor physical stores and sites, such as a retail store or a hotel, and makes use of social signals to gather a complete picture regarding the customer experience. Medallia believes in creating a dialogue with its customers’ customers. It is able to initiate a dialogue through Web-based surveys that are offered after the purchase of a service. When the end customer fills out the surveys, the results appear on the application and the organization can take necessary steps to handle dissatisfied customers.

Medallia allows users to analyze this data through simple and intuitive models in real-time. Modules are customizable to meet the needs of an organization’s scope, customer segment, and time period. While there are some pre-existing dashboards, organizations can also build new reports easily. Its impact analysis tools are linked to the organization’s financial reporting system so that customers can change the drivers and see how they will impact their customer experience. The tool also allows for flexible and easy goal setting where organizations can define and track progress across targets at multiple business levels.

Medallia’s Revenues

Medallia is privately held and does not disclose its detailed financials. In 2011, Medallia was trending at revenues of over $30 million and delivering 40-50% growth rates. It landed its first paying customer in 2002 and became profitable by 2003. Its customer list includes names like Kate Spade, Tory Burch, Western Union, Best Western, Nordstrom, and Vanguard.

The company was bootstrapped for over a decade. Initially, Medallia wanted to get $10 million from an angel investor, but due to the 9/11 attacks, the deal fell through. It had no choice but to bootstrap, and finally it raised funding in 2012. It has raised $255 million so far from Sequoia Capital. Its last round of funding was held in July last year when it raised $150 million at a valuation of $1.25 billion. Medallia’s earlier valuation terms are not disclosed. Medallia is using those funds to expand its software platform including the text-analytics engine. It is also looking at expanding internationally. Medallia is looking to go public this year, but is in no rush.

The company offers its services across industries, but is more focused on the hospitality sector. It is sitting in a sweet spot because most of its competitors are market research firms whose products are not only more expensive, but slower when it comes to the process of gathering customer responses and converting them to actionable items.

This segment is a part in the series : 2016 IPO Prospects