Mulesoft; from first check to IPO

The holidays are a good time for reflection on the past year. This season, I found myself drawn to the topic of our recent MuleSoft (www.mulesoft.com, NYSE: MULE) IPO, and perhaps in a fit of nostalgia, dug out their original investment memo. This digging took a little longer than expected as I had forgotten that their prefunding name was not MuleSoft. Before I get too far down memory lane, I should pause to thank the founders and the whole team for letting us be a part of the fantastic journey (so far) for MuleSoft. They created something much bigger than just a blockbuster IPO. MuleSoft is consistently ranked as one of the best companies to work for in San Francisco, has driven the creation of a brand and platform that will endure for many years to come, and has built a culture around execution that is staggering to observe. Thank you to all the Muleys…

As I dug through the original investment memo from our files, I couldn’t help but smile as MuleSoft was a “straight up the fairway” investment we would do anytime, almost the definition of the prototypical investment we love. HWVP was the lead investor in the company and put money behind a two-person company with an open-source project that was challenging a big, old, slow legacy category. A fabulous founder, a big market, and a product that had some impressive early indications of being something really special.

Here’s what I learned from this holiday rumination:

1. VISION. The team built exactly what they set out to build from day one. I could copy the description from our internal checklist from the Series A and past in onto the description on the S1. This is a surprising and refreshing situation in a startup world that is full of stories and advice on pivots.
2. REAL DISRUPTION OPPORTUNITY. The MuleSoft founder was right about the ripeness of the legacy market here for startup disruption. At the time of our first investment, he made the case that the legacy solutions were aging, creaky, and not up for the tasks as software was modernizing. Most of these existing software products were over 10 years old and were being held together by services that were getting worse over time from a customer perspective, especially in light of the emergence of SaaS and modern open software. I would argue that MuleSoft accelerated this trend with their success substantially as evidenced by the amount of PE activity on the legacy vendors over the last 2-3 years.
3. OPEN-SOURCE-BASED BUSINESS MODELS. We spend a fair amount of our internal discussion on the open-source nature of this business trading off the risk and opportunity factors. It is hard to go back to this time given the other open-source companies that have since emerged, but the validity of building a business based on an open-source software project was a wild unknown at the time. We saw clear benefits on the development side: the shortened sales cycles as customers could download plus implement before they called for a quote and the ability to leverage the community to build/share the myriad of connectors that would be needed to be successful. An interesting note here is that MuleSoft is not an open-source company these days, but that’s probably a topic for another blog post.
4. TEAM – We backed a small team including the CTO, Ross Mason, who is still one of the leaders of the company today. I don’t have much to add on this except that it made me smile as I read it.
5. DISTRIBUTED WORKFORCE – At the time of the funding, the team was already very distributed (for instance, Ross was living in Malta). We find this to be increasingly true of our companies that we are lucky enough to fund today thanks to communication software like Slack and because the costs of hiring in San Francisco are so nuts. Without giving specifics, MuleSoft today remains largely distributed and devotes a significant effort towards building a strong culture while not being co-located. This includes large annual physical/internal conferences and a commitment by the management team to both travel and telepresence.

Before this list gets too long, I want to point out that we didn’t get everything right from the first investment. Most notably, the revenue model we had listed in the investment memo at the time was one based on the old-fashioned perpetual software with upfront licenses. Luckily, wisdom prevailed and subscription licensing was the model they chose – the revenue power of MuleSoft looks a lot more like a recurring SaaS business such as Salesforce than a legacy software vendor. We also wildly underestimated (or at least that’s what we wrote in the memo) the market size. HWVP strives to have a big enough market category to support an IPO when we invest, but the power of SaaS and mobile trends in this market has been a wonderful upside surprise that the Mule team saw and captured over time. I guess I’ll take that mistake.

Thanks again to the team at MuleSoft. It’s been a great ride (so far).