Ryan Disraeli is the cofounder of TeleSign which is the leading provider of single-platform global communications and trusted identity data solutions. The company raised $78 million from investors like Telstra Ventures, March Capital Partners, and Summit Partners. Ultimately it was acquired for $230 million by BICS.
In this episode you will learn:
- The importance of a solid relationship with co-founders
- How to be capital efficient
- Managing the process of an acquisition
- Building a powerful culture
For a winning deck, take a look at the pitch deck template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Moreover, I also provided a commentary on a pitch deck from an Uber competitor that has raised over $400 million (see it here).
Remember to unlock for free the pitch deck template that is being used by founders around the world to raise millions below.
ACCESS THE PITCH DECK TEMPLATE
About Ryan Disraeli:
Ryan Disraeli was born in San Diego, California. Ryan Disraeli cofounded online security company TeleSign in 2005 as a sophomore at the University of Southern California.
TeleSign pioneered mobile phone-based two-factor authentication, a security service protecting billions of online accounts globally.
The company has raised $78 million in funding and its account security platform protects billions of end-user accounts in more than 200 countries, offering localization services in 87 languages. TeleSign now has nearly 300 employees, with annual revenues of more than $100 million.
Telesign got acquired by BICS for $230 million.
Connect with Ryan Disraeli:
* * *
FULL TRANSCRIPTION OF THE INTERVIEW:
Alejandro: Alrighty. Hello everyone, and welcome to the DealMakers show. Today we have someone from the West Coast, from San Diego, originally. I think we’re going to learn quite a bit on the acquisition process, on starting the business with two co-founders, great co-founders that they have had a good relationship over the course of time. So without further ado, I’d like to welcome our guest today. Ryan Disaeli, welcome to the show.
Ryan Disraeli: Hey, Alejandro. Thanks for having me. I’m really excited to be here.
Alejandro: How was life in San Diego growing up? Did you do a ton of surfing there? How was it?
Ryan Disraeli: I’m the rare San Diegan that didn’t surf, but I can’t complain. It’s one of the best places ever. I do a lot of international travel now for a business and for personal reasons, and I can’t imagine living outside of Southern California.
Alejandro: Very cool. Your father, your grandfather, and everyone was a dentist, and you’re the exception. What happened?
Ryan Disraeli: Yes. I have two brothers, as well, and this generation ended our dynasty of dentists in the family. My father is a dentist. His father is a dentist. His father is a dentist, and probably if you go farther back, there are more dentists. I was the first in the family to be in tech, and I have two younger brothers that followed there. I think, for me, what was interesting in growing up is, I was very interested in the owning-your-own-business element of dentistry and the off-road element, but not so much at looking in people’s mouths. It definitely took things away from my upbringing, but certainly not dentistry, which was definitely not in the cards for me.
Alejandro: I’m sure that you were able to see how your father was running the business, the practice, and I’m sure that got you thinking as to how you run a business and perhaps the idea of becoming an entrepreneur. Do you remember if there was a point in time where you said to yourself, “One day, I’m going to have my own thing, and I’m going to really build something”?
Ryan Disraeli: I don’t know if there was one point, but you’re exactly right. Growing up, the questions I would always ask were, how do you acquire new clients? How do you manage your practice? How do you manage the people? So there were always questions around that, not so much around how do you identify a root canal or anything that’s dentistry-related. Growing up, I was always trying to start small things. I was very much interested in running my own thing and taking the off-road journey from a young age.
Alejandro: You went to USC, and business was the major there. One thing got you into the whole idea of startups and incubators. What happened there?
Ryan Disraeli: I ended up going to USC, which had a great business program and, specifically, a great program around entrepreneurship, and it’s still one of the top programs today. While I was in school, I got introduced into an incubator. It was an interesting opportunity to almost be an internal entrepreneur, so without needing to take capital out of my own, and be involved in the early stage of starting companies and helping manage early-stage companies, which for me was really exciting. It also got me exposed and introduced me to some great people.
Alejandro: What is the difference between the typical accelerator that people can think of like YCombinator or Techstars, and an incubator. What’s the main difference?
Ryan Disraeli: I’m not even sure this is a typical incubator. This may be an exception, but this incubator was started by an Israeli guy who had made a good living on some offline businesses and was passionate about technology and entrepreneurship. He brought in a bunch of young people, including myself, to go work on different projects and different companies. I think that’s atypical and not the normal type of incubator that you hear about. But for us, it was a good learning opportunity. For me, it’s where I met some great people, and ultimately, we did some great things.
Alejandro: Obviously, this was the segue to you starting TeleSign. What happened there? How did you meet your co-founders, and what was that process?
Ryan Disraeli: I met the two co-founders of the company. Along with myself, they are Darren Berkovitz and Stacy Stubblefield. They both worked at the same incubator that I did. TeleSign was earthed in that incubator based off of a problem that the nephew of the owner of the incubator was seeing where he was running an online backend company based in Israel and was seeing so much fraud. This was the start of fraud for online transactions. What they started doing is manually making phone calls to every single user after they placed an order. It would have a call center where after every order was placed, a call would be placed to that user. It would say, “Just wanted to confirm this order.” The user would say, “Yes.” They would hang-up and call the next person. We recognized this was very inefficient, and that this was a potential business opportunity. If this company was seeing fraud, that it was probably something that was across other different types of companies and other different types of industries. We went out and using outsource engineers, built an IVR platform, which was sending an automated voice call that would ring a user and say, “Hi. Your code is 1234. Once again, your code is 1234. Goodbye. The end user would type that into the website to verify that they are who they say they are. Today you see that anytime you’re logging into your Facebook, Google, Microsoft, or almost on any type of online transaction. But back in 2005, when the company was started, it was a completely new process and completely foreign for end users.
Alejandro: How old were you guys when you started the business?
Ryan Disraeli: I was still a teenager in college. Darin and Stacey are a few years older than I am. The company was started in 2005. If you look back in 2005, that’s before the iPhone. I think the iPod Nano was the top-selling Apple product. Facebook was just getting started. It was a totally different generation, and this type of concept was totally foreign when we went to talk to companies about it.
Alejandro: What ended up being the business model, Ryan?
Ryan Disraeli: The business model wasn’t very good on day one because we were charging per transaction. Every time we would make a phone call, we would get paid, but our costs were actually higher than what we could charge for the phone call. So, on day one, it was a pretty bad business model because the more business that we got, the more money we were losing. But we quickly reverted that and started trying to acquire customers on a more profitable model. That is what we tried to do very early on. Fast-forwarding to a few weeks ago, I was speaking at our kickoff for our sales team. In those early days with Dan Stacey what we had spent our time on was customer acquisition and more specifically, almost being SDR, sales development representatives, going out there and doing everything we possibly could to get potential customers to respond to us and take a meeting or take a call. Our focus in the early days was around how do we go out there and how do we acquire customers not only to pay ourselves but also to learn and to be able to evolve the products equitably?
Alejandro: The three of you guys have had a very special relationship. You guys have remained co-founders and with good relationships. It’s a long time since 2005. Quite a journey. What do you think made those relationships so unique between the three of you guys?
Ryan Disraeli: I think in many ways, we got really lucky. I’d like to say that we’re brilliant, and the three of us got in a room and realized we had very different skill sets, and personalities, and we get along perfectly and complement each other, but that’s just not the reality. We knew we liked each other, and that we worked well together, but we also got lucky, too, that our personalities and skill sets balanced each other. I think when you go through tough moments early in a company, it’s impossible to not build and strengthen bonds between you. We’re a rare group of co-founders in the sense that while we debate, disagree, and argue on almost everything, it never gets personal; it never impacts our work, and it never impacts our trust with one another. I wish I could say there’s some magic formula, and the three of us got a room and realized that we would be perfect for each other, but that’s far from the truth. I think we got a bit lucky and, over time, realized there’s a perfect match and that we had so much trust between each other.
Alejandro: Very cool. During the early days, there were quite a bit of outages. How did you deal with those?
Ryan Disraeli: Luckily, we didn’t have many transactions in the early days, but we were very much bootstrapped. There were three of us working full-time on the business. We had some other contractors involved that were working-part-time, but our original servers were actually in the kitchen of the incubator, which you would be surprised that we had many technical issues and outages. In the early days, we were lucky because we didn’t have many transactions. When there would be an outage, we could see every transaction coming through our system. Stacey would pick up the phone and make the call herself. She would call the user pretending to be a robot and deliver the PIN code herself. At some point, that became impossible to scale. If that happened today, that would be impossible. We do billions of transactions every month. When you’re doing just a few transactions every minute or so, it becomes possible to have a human intervene every time there’s an outage.
Alejandro: Absolutely. For you guys, the journey of securing that first big customer while you were doing all the bootstrapping was quite a challenge. What happened there?
Ryan Disraeli: We were able to always get small customers, but we knew that wasn’t going to grow the business. We kept going after large logos. On the positive side, we got good validation in the sense that these customers were interested in launching with us. But as soon as they started doing diligence on the company, they would realize we were just a couple of people without any venture funding and any background. Hopefully, they didn’t even do checks on our servers and where we were located. They would immediately drop out, and we were just too risky for them. It would be like the concept — they thought it would be valuable to the business, but moving forward with the company like TeleSign, it would be challenging. There’s a perfect case of this, and of course, I can’t mention the name, but it’s a top ten website in the U.S., probably globally as well. We literally sold them three or four times, and every single time, we would sell them, we would always go back to procurement at the end of the day and always land on this woman’s desk, Nicole’s desk. Every time it would somehow make its way back to Nichole, she would reject us because our financials didn’t look good, and we were just too risky to do business with. Our lucky break was that the first big customer we ended up acquiring is still a very big customer. It’s a large web property that, at the time, was still a top ten website in the U.S., but they, like TeleSign, were quite small. They were about 25 people, and they either didn’t check that we were only three people or they didn’t care. So we were able to acquire them as a customer. That was the biggest game-changer for us. We realized that we actually had a real business and could afford to add some fuel to grow. It was acquiring that customer, with a lot of persistence, but with that one final big customer a bit of luck as well that they didn’t do a lot of diligence on the company before transacting with us.
Alejandro: Here, you guys were able to scale up the team to 10 to 12 employees, but then, there was a very important conversation that happened, and that was about bringing an external CEO to the business, which is not common to do this. Why did you guys decide to have that conversation?
Ryan Disraeli: We drew the company to about 10 to 12 people. We had acquired some other big customers. I think our revenue run rate was almost a million dollars per month, so not a tiny business by any means, and we had good traction. As you can imagine, when you start to see some traction, other VCs started circling the business, and we were not an exception to that. We started to get calls from a ton of VCs. Many of them would fly down to Los Angeles, where we were headquartered and meet with us. Candidly, a lot of them didn’t differentiate themselves. They looked that same, dressed the same, talked the same, would ask the same questions. We were trying to look for differentiation. One of the partners that we met with was like, “I have a great potential board member or advisor for you guys that you guys should go meet with. This guy has sold companies in your space and is well-known and admired in the industry.” We ended up meeting with this individual, and under the pretense that he could be a great board member and advisor for us. After meeting him, the three of us got together, and we were like, “We could get this guy full-time onboard to help run the business. It would be really big for us.” What we didn’t know was that he was also looking to leave his current job as CEO of another company. He went back to the VC, and he asked, “Do you think these guys would be interested in bringing me on?” It was almost like a blind date that resulted in the three of us unanimously supporting bringing on a leader and hiring a boss for us. But it wasn’t something that we ran a whole process and went on and did a big search and interviewed ten different candidates. It was a bit opportunistic. It was through a VC that introduced us, and it was a really good match.
Alejandro: What were some of the things that you knew that this person needed to have, and what was that day like when you guys fully aligned and said, “This is the one.”?
Ryan Disraeli: For us, a lot of it was credibility. We could go talk to customers, and we didn’t have any credibility. We were very young, which now, if we were starting a business might be an asset. But back then, it would certainly not be like that. We weren’t connected. If we wanted to hire a VP of Sales, for example, we didn’t have anyone on our network we could hire. We had to hire a search for me to do that. The second piece, which I touched on earlier, was that we didn’t have a structure that could scale with three of us making every decision, getting in a room, and debating, and arguing. That worked well to that point and lifecycle of the company, but it certainly wouldn’t have helped to scale the company beyond that. So, luckily, the three of us were aligned on bringing someone in. There wasn’t a ton of debate. It was one of the few times that we were all aligned. What it also did was, it meant that formally we could leave the incubator and make sure that TeleSign was run as a stand-alone business that brought in its own people and had complete independence from the incubator.
Alejandro: When it comes to raising money, obviously, you guys ended up getting an external CEO, started making some good sales, scaling up the operation. How much capital did you guys raise in total prior to the acquisition?
Ryan Disraeli: The original plan was that we would take VC money from the company that introduced us to the CEO. Everything would happen at once. We’d hire a CEO, we’d raise money, and we’d be off and running. What was interesting to us was that we wanted the CEO, we wanted the talent, but we didn’t feel like we needed the money at that point. We were able to eloquently back out of taking the money. When I say eloquently, the VC has started to have some concerns on the business, and we had an opportunity to basically pull out of the deal. I think that was mutual, at that point. A few years later, we decided that we wanted to acquire a company in our space that was a vendor of ours and had some interesting assets that would help us control our supply chain and also, innovate in the space. So we ended up going out and raising about 29 million dollars (that’s a random number) for a Series A, which we raised from the same firm that showed us the CEO, but at a much higher evaluation, so certainly a win for us. That was a good deal. We acquired a London-based company that had a big presence in Belgrade and Servia, which we continue to grow today. Then a few years later, we raised more capital with the idea of ultimately going out and buying more companies, so we raised about another 50 million dollars, Series B, and across a few different firms. We actually never used that capital, so we didn’t identify anyone that we pulled the finish line. We evaluated tons of companies, but nothing that ultimately made a ton of sense. By the time we were acquired, we hadn’t spent any of that money.
Alejandro: Let’s talk about the acquisition. How did the acquisition by BICS happen? What was that process like?
Ryan Disraeli: TeleSign started getting approached by a bunch of different companies that were looking at the company and interested in potentially acquiring it. For us, we had been in the business for a long time. Darin, Stacey, and I personally, TeleSign was our entire career and all of our networks. If something were to happen to the business and something disruptive, we’d be back at zero. Along with the board and management founders, it was a universal consensus that time was right to start seriously looking at some of the interest in the company. We engaged bankers to help us run that process, which was very helpful. As part of that process, they talked to BICS, which was one of TeleSign’s vendors, and becoming one of our largest vendors. It became clear early in the process that they were a frontrunner. The deal made a lot of sense for both parties. BICS is a part of Proximus, which is the largest telecom in Belgium. For them, it helped them establish a big presence in the U.S., but also with the digital properties. TeleSign customers are all the largest web properties of social networks, email platforms, 20 of the top 25 biggest properties in the world are customers. To let them go out there and acquire a U.S. presence and a different vertical and help them bridge their current customer base with TeleSign. Then for TeleSign, BICS provided a few things. One is, it provided assets to help TeleSign become more cost-competitive, and also have some differentiation in the market. Because I think the deal made so much sense for both parties, BICS emerges as a frontrunner and we were able to ultimately put together a deal with them. We announced on April of 2017 for the company to be acquired.
Alejandro: How much was the acquisition? What were the terms there?
Ryan Disraeli: The cash considerations were 230 million dollars.
Alejandro: At this point, when it was announced, how old were you, Ryan?
Ryan Disraeli: I was in my late 20s.
Alejandro: Wow! What a ride. It’s unbelievable. What was that day when this was signed, and what was that for you?
Ryan Disraeli: It was a bit overwhelming. I had never gone through an acquisition process from this side of the table. We had acquired companies before but never getting acquired. It’s amazing that in that journey how many times a deal falls apart and how stressful it can be. For us, I don’t think we’re unique, but it was a deal where it felt like it was over, and it was going to fall apart, and then it would recover, and then it would fall apart again, and then recover. Until the last moment when the deal was signed, it felt like it was falling apart again. There was language being negotiated until the last possible moment. It was an overwhelming experience. Certainly, for me, that process from beginning to end was quite long and quite stressful. It added a bunch of grey hair that year and lost some hair, which will never come back.
Alejandro: You had some experience, as well, from being on the buy-side. Now, here you are. You’ve done it on the buy-side, and now you’ve done it on the sell-side. What would you say have been your biggest lessons when it comes to acquisitions?
Ryan Disraeli: It’s the same lesson that I would take from the whole TeleSign journey, which is 1) patience and perseverance, and 2) those tough moments when it feels like it’s over. When you look back at is, it’s usually something that’s transformative and required you to change what you were doing. In the early days of TeleSign, there were multiple days where it felt like the company was going to be out of business. It felt like it was game over. When you look back at each of those times, a year later, it forced us to do something differently, whether that was to launch a new product or think differently about how we were approaching a problem. Without having those challenging moments, it’s possible the company wouldn’t have survived, and we wouldn’t have had those great breakthroughs. The acquisition process was quite the same, where it took a lot of patience, perseverance. There were tons of those moments where it felt like they were all over, and it wasn’t going to happen, but we just kept pushing through. I think in this sense, we had two parties that wanted to make something happen. When that’s the case, it increases the likelihood part of it.
Alejandro: In your case, it took a year for you to be there, and then you decided to leave. The idea was to take six months to take your time to start thinking about what would be next, but then you receive a call. What happened?
Ryan Disraeli: I agreed to stay on for a little bit, post-acquisition, but frankly, for me, my interest was to try to go do this again and start from scratch. I really enjoyed those early moments, and I wanted to go recreate that. Shortly after the acquisition closed, I informed the CEO and the board that I was going to be leaving. I was asked to stay on for a few more months, which wasn’t a problem for me. I wasn’t in a rush, but I just wanted it to be the next thing. My plan was to take six months off and then go start from scratch. My plan for six months was to travel and enjoy life, to see family and friends and folks that you neglect over your founding and building a business, and I was busy with TeleSign. I did that. I was enjoying life. I thought that going into it, I would be bored after a few weeks, and I shocked myself that I wasn’t. I traveled. I was evaluating different things. About four months into my six months of time off, I was given a call from the CEO of BICS, who is the company that acquired TeleSign. He was going to make a leadership change, and he asked if I would come back and help out the business for a bit. So, I agreed to do that. My first or second day back, I was on the phone talking to CEO recruiters trying to help him identify the path forward for the company and the leadership for the company. Within a few months, I was having a ton of fun. The company was doing really well. I enjoyed this passion about this team that we had built and the direction that we were heading. 1) I decided that I wanted to stay, and 2) I think because the company was doing really well, they agreed that it also made sense that I stayed. We agreed that it didn’t make sense for the company to go out and acquire an external CEO. I formally became CEO of the company, and it’s been a really fun ride. For me, it was very surprising, as well, when I left the company. I didn’t have anything negative at all. I left on very, very good terms and great terms with everyone and gave a ton of notice. But also, I never expected to be back. It was shocking to walk back in the office in that role. It was definitely very surprising, but I’ve been having a ton of fun and really enjoying the ride until the next evolution and the next phase for the company — the very beginning to bringing senior leadership on, acquiring companies, getting acquired, leaving, coming back, and running it. It’s been a wild journey.
Alejandro: When you left, probably during those four months while you were away and meeting your friends and going out and celebrating whatever that was, I’m sure that you had some time, as well, to reflect and look back. Perhaps, even now, being completely detached from the business and being able to see it from the outside, which gives you a different perspective. Obviously, at this point, you were very well off after such a good acquisition, a 230 million cash acquisition plus whatever other incentives, so it was not a thing about money for you. What was the trigger where you told yourself, “I’m going to go back”?
Ryan Disraeli: There were a lot of things that I certainly reflected on during that time. A lot of it was self-improving and getting better at doing things myself. I tried to pick up things like meditation and tried to have a more balanced life as opposed to just being married to work. But, also, when I came back, it wasn’t that I had to go learn everything and define a new strategy. I knew what needed to be done. Honestly, when I came back, my plan was to be there for a month or two and help out and help the company find leadership. For me, it was a no-brainer. I loved this company. If I could help out for a bit and put it on the right track, then the timing made sense for me. I had done a lot of the things I wanted to do in my time off. I hadn’t jumped into something else. I could give up a few months and have a lot of fun doing it. To me, it was a temporary thing. I’m not sure if it had been a permanent thing at that point if I would have jumped onto it, but it ended up working out very well.
Alejandro: One of the typical questions that I ask the guests that come on the show is — TeleSign has been quite a ride for you. A company that you’ve been involved with from the start in 2005 to even now, 2020. Fifteen years. It’s quite a good amount of time. Now, Ryan, if you had the opportunity to go back in time and have a chat with that younger Ryan, that younger Ryan that was still at USC and maybe getting into that incubator and thinking about building business. Knowing what you know now, what would be that one piece of business advice before launching a business that you would give to that younger Ryan and why?
Ryan Disraeli: There probably would be two things that I think are interrelated. First would be constantly be willing to adapt. I think that was what we were very good at early on was not being too rigid about the idea, or the use case, or the customer segments that you’re going after, but constantly evolving and constantly adapting. That would be the most tangible advice. The personal advice goes back to what I said, which is that success is not linear. There are crazy moments and ups and downs. In those moments, it feels like it’s game over, and the company is going out of business. Those are the most important moments because they force you to transform, and they force you to go to great things. It’s really challenging to think of those things in the moment, but even today when we get tough news today, luckily we don’t face moments today where the company could go out of business overnight, but we get tough news, and I still have to remind myself, to this day, that those types of moments where it feels like it’s game over, or you go home with a pain in your stomach, those are the most important moments in doing something great. It’s not forcing you to change. It’s not forcing you to innovate. It’s not forcing you to do things differently.
Alejandro: Very cool. Ryan, for the folks that are listening, what is the best way for them to reach out and say hi?
Ryan Disraeli: LinkedIn is easy. I think I’m the only Ryan Disraeli, so it shouldn’t be a problem finding me there. I’m a bit worse on email due to the volume of emails. But you can try there as well. Any variation of my name will get to me. RyanDisraeli@telesign.com. If you misspell it, it will get to me. I get a lot of emails, so LinkedIn is probably the best place to go.
Alejandro: Amazing. Well, Ryan, thank you so much for being on the DealMakers show today.
Ryan Disraeli: Thanks, Alejandro. I had a great time, and thanks to everyone for listening.
* * *
If you like the show, make sure that you hit that subscribe button. If you can leave a review as well, that would be fantastic. And if you got any value either from this episode or from the show itself, share it with a friend. Perhaps they will also appreciate it. Also, remember, if you need any help, whether it is with your fundraising efforts or with selling your business, you can reach me at firstname.lastname@example.org.