I *think* Daniel and I met at a VC happy hour many years ago. But outside of the history, he’s one of my favorite people to chat about the roller coasters of company building. He’s founder and CEO of Greenhouse, a ‘hiring operating system’ for companies which spans recruiting and onboarding tools for enterprises and SMEs. Originally backed by venture capital, in 2021 Daniel worked with TPG, a large private equity firm, to make them the majority investor. This means the company is predominantly owned by the management/team and TPG. It might ‘exit’ again at a later point (anything from a sale to an IPO), but it’s no long dependent on VC funding. There’s a ton of writing out there about getting *on* the venture curve, but not a lot about getting *off,* so Daniel’s advice below is especially important.

Hunter Walk: Before we dive into your company Greenhouse, give me one story from your childhood that foretold you were going to end up a startup founder.

Daniel Chait: Oh man, I have a ton of these! Looking back it was pretty obvious where I’d end up in my professional life. I was the kind of kid that (a) didn’t really buy into authority figures, and (b) loved solving problems and building stuff. I was also very fortunate to come from an entrepreneurial family; both my parents ran their own businesses.  My dad had a medical practice and my mom founded an HR company at the kitchen table and grew it into a global powerhouse in their industry.

To pick just one representative story… I was sent to the principal’s office one day in high school, probably for goofing off in class. I never did much that was all that bad, but at the same time, I was bored in school and often thought it all felt pretty pointless vs doing “real work” which I loved. So anyway, I was waiting in a little area outside the principal’s office for him to call me in.  As I sat there I was overhearing the secretaries complain about this new computer program  they had (WordPerfect, my guess is it was 5.1 for DOS), which they were struggling to use.  

Well, as it happened I was pretty much an expert WordPerfect user. Pretty weird hobby for a 15 year old kid but I had used it at my mom’s office and, sick of doing repetitive drudge work, had taught myself to program WP macros in order to automate mundane tasks for her. 

So back to the secretaries. I couldn’t help but pop over to them and start showing them how to do things, solve their problems, etc.  By the time the principal came out, the secretaries asked him if he could wait so I could keep helping them! I ended up leaving there with a part time job as their “computer guy.” I really loved getting to use my know-how and wits to forge my own path, make money, and get to work on cool computer stuff.

HW: Greenhouse, which powers the hiring process from sourcing to onboarding for thousands of companies, will soon be a teenager, having been founded in 2012. What does 2023 Daniel know that 2012 Daniel didn’t?

DC: As a lifelong entrepreneur, Greenhouse is now basically the largest company I’ve been a part of (and has been for several years) so I’ve had to learn a ton over the years about how to scale myself.  

That has mainly meant really figuring out how to be a leader and continuously refining my leadership approach as the company has grown.

My approach is centered around Patrick Lencioni’s “The Advantage” and Fred Kofman’s “Conscious Business” principles, each of which are really systems for building and maintaining culture and organizational health.

This is still very much a journey I’m on. I don’t profess to have it solved, but I’ve learned a great deal about how to scale my leadership approach that I didn’t know back when we started Greenhouse.

HW: Hiring, and PeopleOps in general, is an area where software has improved the quality and efficiency of workflows. Now AI has promised to take that even further. How is Greenhouse experimenting with AI-enablement? Is it an evolution or a revolution for your business and customers?

DC: I’m going to keep this brief, but if you want to the long version of it, I recommend reading our blog about it. I’ll summarize by saying it’s an evolution; one that will require experimentation and innovation with a discerning eye. We have conviction about AI’s role in hiring as an assistant, not a decider. Our goal is to develop innovative products and features that help make recruiters jobs easier, emphasizing the importance of humans making decisions in hiring. 

We know that AI can help hiring teams do more with less. In today’s workforce, where HR teams are stretched thin and resources are limited, AI can augment short-staffed teams by reducing menial, repeatable tasks and allowing recruiters to focus on what matters — finding the right talent.

HW: In 2021 you partnered with growth firm TPG to bring them on as your primary investor, which I assume gave your current venture capital partners a chance to at least partially exit the business. These sorts of opportunities can really realign incentives/expectations as well as give you a chance to reset on some decisions made previously. Can you tell us a little how this came about in the first place and what the day-to-day implications were of the shift in ownership structure.

DC: Here’s how this relationship came about in the first place: I had a longstanding relationship with TPG by way of the RISE Fund (TPG’s Social Impact investing fund). Greenhouse has a focus on social impact through our mission to make companies better at hiring, as we also help improve fairness for job seekers and candidates, improving the conditions for the workforce overall.

Coming out of the first half of 2020 we were experiencing a boom after the initial shock of COVID-19. Our customers were growing and hiring quickly, and as a result our business was growing fast. So we found ourselves in the position of needing a new capital partner, as well as wanting to seek out  expertise in scaling the business as we were thinking about maturing and growing as an independent company. As a result, we were considering relationships with a number of different large-scale investors including private equity firms. 

We ended up partnering with two different funds at TPG; the TPG Growth Fund and the RISE Fund.

The TPG Growth Fund invests behind companies, teams, and strategies that they believe in and where they can help accelerate their growth. It’s not “traditional PE” — meaning, a leveraged buyout fund where they try to cut costs and squeeze margins — it’s more like a later stage Venture Capital firm, with extra support capabilities to help companies as they scale. The RISE Fund, which takes a quantitative approach to social impact, aligns well with our core values and social impact mission. Because of all that, it was apparent that Greenhouse was aligned to the intentions and goals of both the Growth and the RISE funds. 

Since the relationship started, it’s really lived up to the promise. TPG is a great partner; they do what they say, they’ve really been trustworthy. And they bring great resources to bear. They help with issues of scale and growth, with operational questions, and even with things like purchasing and cash management. They’ve just been fantastic and incredibly helpful.

At the same time, being private equity backed also means balancing a somewhat different set of investor goals than you may be used to as a startup founder. PE firms are not looking for a risky approach that may return 10 times but may also flame out; rather, they’re looking for sustained, efficient growth and profitability. Steering the company in that way has been a growth area for me as an entrepreneur and something as a CEO that I’ve been learning to do well. It’s a different way of thinking and managing the business, but one that I believe helps any leader run a better business.

HW: We’re going to see many more software CEOs (and cap tables) look for private equity exits like yours. What are the most important questions founders should ask themselves about their business to help them understand if they’ve got the combination of scale, product, and leadership that’s attractive to a financial partner of this type?

DC: Yes – this is such an important question! If you’ve spent a bunch of years with VC partners, bringing on a PE firm can feel very different, so you really do need to be well informed here.

I would start by saying, you need to be comfortable giving up some control. Most PE firms focus on acquiring a majority of the companies they invest in, though this varies. PE generally thinks of their role as a three-stage journey “Buying > Value Creation > Value Realization.” That third one generally means “Selling” though that can take various forms, such as exiting via IPO, paying themselves a dividend, etc.. And they really want a lot of influence and control over not only how they create value (ie how the company is run and the choices you make about where to to invest vs cut, growth vs profit, etc) but moreso, control over when and how they sell.

 What you want to be sure to ask about is are you aligned with the PE firm about how they think about creating and realizing value. Because, really, when you take a PE investment, that comes with an obligation to  drive value for shareholders and in a specific way that aligns to their needs and risk profile.  

A few other things to think about: PE approaches debt very differently than VC firms. You should ask what they think is the right level of borrowing (they call it “leverage”) for your firm and make sure you’re ok with the answers. 

One other thing folks don’t always talk about with PE – they charge fees to the company for a bunch of the services they provide. Those fees can add up – millions of dollars per year in some cases – and make up a material way that many PE firms realize value. Ask up front how the fees work and make sure you understand what you’ll be paying them and what you’ll get. If you’re used to partnering with VCs this can come as a surprise, sticker shock included.

I will finish here. PE is not one just one thing. Know your firm and do your research. Find out the reputation of the firm, because they often have extremely different approaches and cultures. And, find out who your specific partner will be and learn about that person. Spend time with them – it matters a lot because after all, this is a hopefully long-term business partnership!  I feel very fortunate with my TPG relationship. They are an excellent firm and the people I work with are humble, hard working and smart.

Thanks Daniel – appreciate you sharing with me!