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Vista Equity Could Supersize PayLease

CEO: Dave Dutch

Revenue: $80 million in 2017, estimated

No. of local employees: 170

Headquarters: Sorrento Valley

Year founded: 2003

Description: Provides payment and billing services to property management companies and home owners associations.

The company’s casual attire is apparent with employees Jesse Ignell, Victoria Rees, Amey Dashpande, Joey Atkinson and Casey Cabral.

Some startup founders are reluctant to relinquish any control over the companies they are building. PayLease founder Ty Kalklosch’s comfort with collaboration has set the rapidly growing software company on the path to $100 million in revenue in 2018.

Kalklosch and co-founder Yann Phung, who left PayLease in 2014, were working at payroll processer ADP when they started the PayLease in 2003. They realized that while the digital revolution had impacted many businesses, property management companies, for the most part, were still receiving payment from renters via check.

Today, PayLease provides 4,500 property management companies and home owners associations with payment and billing services. Nearly all of its revenue comes from convenience fees residents pay to use the platform to transmit funds to cover rent and other charges.

Since its founding, the company has been bought thrice by private equity firms.

Vista Equity Takes Over

Its most recent owner, Vista Equity Partners LLC, has one of the nation’s top-performing large buyout funds of the past five years, according to Seattle-based business intelligence platform PitchBook. Vista Equity, which has offices in Austin, where its CEO lives, and in San Francisco, announced the deal June 28. It paid between $300 million to $400 million for PayLease, which reported revenue of $50 million in 2015.

The private equity firm has been known to follow a roll-up strategy, in which it acquires complementary companies and brings them together to form a much larger entity. It’s operating out of a fund of about $10 billion, which closed in 2016.

About a decade ago PayLease hired its first employee, Nate Taylor, now PayLease’s senior vice president of sales and marketing. They also brought on software engineer Henrique Ferreira to rebuild the PayLease platform, which had begun slowing as its usage had increased. Ferreira, who is also still with the company today as chief architect, relaunched the platform in 2008.

In 2009 the company brought one of the nation’s largest home owners association management companies onto the platform.

“At that time, we were really focused on the single-family (and) multifamily rental space,” Kalklosch said. “That opened the floodgates on HOA.”

Mainsail Saw Opportunity

That year Kalklosch received a call from Sheldon Lewis, then with San Francisco-based growth equity firm Mainsail Partners. Lewis had been searching for startups with potential for significant growth, but it was an incident that happened outside of the office that led him to PayLease.

“I was trying to pay my rent in San Francisco, and I couldn’t find my checkbook anywhere,” Lewis said. “I thought: I live in the tech hub of the world. Why can’t I pay my rent online?”

He reached out to the handful of companies, including PayLease, that were facilitating online payments.

Mainsail and PayLease struck a deal in 2010. Lewis said the firm’s first request from its new backer was to help it hire a CEO, not a typical move in the tech world.

Kalklosch and Phung, with backgrounds in sales, knew they needed an executive to help them manage and accelerate the company’s growth.

“Many bootstrapped entrepreneurs who haven’t taken any money can’t imagine not being in control and having someone else come in,” Lewis said. “That wasn’t the case here.”

CEO Onboard

They decided on Dave Dutch, who joined the company in 2011.

Dutch’s first day, which happened to be the first of the month, showed him exactly how much the company needed someone to manage its growth.

“I walked into the office and there’s 12 people, including the two founders, and they all have phones and they’re ringing out loud: ring, ring, and everyone is saying, ‘This is Paylease; can you hold? This is PayLease; can you hold,’ ” he said. “It was like a comedy.”

He found Ferreira, the only IT employee, with the company’s sole server, which was in a nearby closet, covered in thin tangled wires and cooled by a motley assortment of fans.

Dutch, at the time, was executive vice president of CDS Global, an international provider of transaction management services. He had previously held executive leadership roles in sales, marketing, operations and financial management with software and telecommunications companies.

Before joining the corporate world, Dutch served eight years in the U.S. Navy’s special operations forces. His time in the military — and growing up as one of 10 children — gave Dutch an appreciation of and a passion for the power of teamwork.

Hiring Team Players

“I’d rather have a team full of ‘B’ players who are committed to each other and connected than a team of ‘A’ players who aren’t,” he said. “Teams can far outperform talented people without that connection.”

On his first day at PayLease he started a tradition he has kept up since: talking for a few minutes with each employee every work day.

That 10-minute task is now a daily hours-long endeavor. PayLease employs about 240 people, about 170 at its Sorrento Valley headquarters.

Dutch hosts monthly social activities and insists all employees participate in the company’s annual day-long event called the “PayLease Olympics.” The colorful San Diego office is decorated with the company’s mantras and displays of team spirit, such as the wall of handprints to which each new employee contributes a palm print. There is no dress code, and both its founder and CEO favor flip-flops as their office footwear of choice.

More than half of its workforce is millennial-age, and turnover is low. But the laidback atmosphere belies the company’s trajectory.

“We have a rocket ship of a business,” Dutch said.

PayLease went through a second acquisition in 2014 being bought by Francisco Partners, a private equity firm with offices in San Francisco and London. Mainsail retained a minority stake.

The following year PayLease acquired Chicago-based billing and utility management solutions firm Ocius, broadening the services the company’s platform could offer to customers and giving the firm a second location.

PayLease’s revenue rose more than 300 percent in 2015.

$1B Goal

The Vista acquisition was announced this summer. Mainsail exited its investment, while Francisco and company management kept “significant” minority stakes. (Mainsail’s Lewis, who ended up joining PayLease in 2013 to do business development, left the company after it was sold to Vista; after a travel stint, he plans to remain in San Diego and focus full time on investing in software startups.)

With its new backing from Vista Equity, Kalklosch expects PayLease to grow via acquisition as well as organically.

“The goal is to get to that $1 billion number, and we think we’ll be able to make it happen,” he said.

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