Accela CEO Talks Growth and New Investment

All right, welcome back to our In Case You Missed It. You may realize it is not Friday, but we've got some breaking news that Joe and I wanted to break down for you all. On the heels of some record-breaking traction that was announced in the latter few months, Accela has announced today that they have taken on a second private equity investor amid this growth to kind of help accelerate them into the next stages. And so we're going to dive into that. In fact, GovTech has a great piece on this written by our own Thad Roeder. So we encourage you to check out this article. It's got some great quotes, but we're gonna bring those quotes live here today. Joe, you ready to dig into this exciting episode?

Let's go.

All right, so let's bring Gary Kovach, CEO of Accela, Andrew Cowell, partner of Francisco Partners, and John Neuger, the managing director of Berkshire Partners, to the virtual stage here. as we dig into this exciting announcement. So thank you guys for carving some time out to join us today. We figured we'd do that press release in video form and set some context for the wider government technology community. So Gary, I want to start with you. Can you maybe give our listeners a brief overview of Accela's journey thus far and how it's positioned itself as kind of the trusted provider of cloud solutions for government operations?

Yeah, and thanks for having us. It's a It's a great day and it's exciting to be a part of this. Government hadn't moved very fast, and I don't think I'm breaking any news by telling that. And but it could, and it could be enabled. And 5 and a half years ago, we set out on a journey to make it as simple to interact with state, local, federal, or county government the same as you would with Amazon or any other online. We knew that we had to be that trusted partner where we could provide the solution that made it just simple to do the everyday things. It made it simple to permit, it made it simple for firefighters to do inspections and so on. And it took a lot of work and it took a lot of trust, but the journey started 5 and a half years ago by building unbreakable customer relationships. So really understanding what our customers and potential customers wanted and how they wanted to move and what was acceptable to them. And then delivering a cloud platform, the first in the industry, and migrating and putting all of our new customers on that so that they could make changes, they could update, they could change the website all without bringing down the service. And it's really bringing governments closer to their citizens. I mean, which ultimately is what the goal is. And we then get out of the way. And that's exactly what we've been focused on for 5 and a half years by doing the little things Just in a way that we're not recognized, but that everything works. And that leads us down the path. We have incredible customer relationships. You mentioned some of the results. And, and the retention and the trust that is served into us and with us and created with us is really the cornerstone of the company. And that leads us to the announcement today, which is to stimulate additional growth and much more rapid expansion of providing more function more services to our customers because that's what they're asking us to do. They want to do more with fewer trusted providers, and we're perfectly positioned to do that. And with the addition of Francisco Partners and the continued bedrock of Berkshire Partners, we're in a perfect place.

Love that. So how do you envision this new infusion of capital will impact Accela's current growth trajectory?

Yeah, so, um, we've We set that vision 5 years ago to create the platform that we could build on. So I envision this is gonna continue the journey that we started. There's going to be some meaningful acquisitions that we will add to the portfolio, things that our customers are already asking us for, and we're gonna be very thoughtful about it. We're not gonna rush to anything, but really that's how it's envisioned with the infusion of another private equity partner. And I have to emphasize, and I know John will talk about this as well, the continued support of Berkshire Partners, then we have an opportunity to, to do much more and roll up some of the other, I'd say, very valuable technologies that we could just add to the portfolio and integrate into our Civic platform, making it seamless for the customer, which is ultimately what matters.

I totally agree. So, you know, Francisco Partners has a notable history of partnering with technology businesses. What are some of the synergies that you saw between their vision and Accela's mission?

Well, they have been— and I know Andrew does a better job at this than I do— so it's— they have been looking at the space and involved in the space for a long time. They've looked at Acela before, and I think that the texture and the style that Acela is now is a very good fit. And they share the common alignment and the common vision that we can expand on the platform that we have so lovingly built over the last 5 years. And so that's going to take additional investment, and that was their thesis that led to the discussions and the introduction of the 2 firms. So that's what we're doing together.

That's great, and thanks for sharing that. Andrew, kind of building on that, you know, obviously the Fed has been on our radar forever. We heard from Gary, he references doing the small things really well. Those small things have translated into some really big results in and across state and local government. But more specifically, what made Accela an attractive investment opportunity to you, kind of given your focus on technology?

Yeah, well, great. Well, first, thank you very much for having us here, and we're excited to talk about this transaction, excited to talk about Accela. If I were to break kind of our thinking on the investment into 3 categories, the first thing I'd say is it starts with the market. We think this is a large market and really a market with a growing need rely on technology to meet constituents where they are, how they want to engage, and adjust the reality of constrained resources within state and local governments. And that, I think, ties well to what Gary outlined in terms of the mission. The second piece, and what I think we really loved about Accela, was the product and product-market fit. And certainly in your audience, people live it every day and know better, but at least in the research that we did on the market, and not just around this transaction, but extensively and focusing on the government tech market. 2 of the most important issues are, one, getting to the cloud, and 2, narrowing the list of vendors and complexity. And this is really where we think Accela stands out. Not only is the core Civic platform feature-rich, it's configurable, it can meet a particular customer's needs, but they've made substantial investments in migration tools and processes to help both existing customers and new customers get to the cloud. So it could really meet that imperative. And then on the second point I mentioned in terms of consolidating vendors, reducing complexity, you know, what the product offering can do with the unified workflow, with a common vendor, with a trusted partner to deliver a capability across different agencies and pockets within a government, we think again really meets the challenges and priorities of the customer. Lastly, what I'd say, it's a nice business with great scale, attractive business model, great customers, and we think we can help the company and the management team continue to drive value for the customers and all stakeholders. So really that encapsulates why we were excited and are so excited about Accela.

You know, the market, specifically licensing and permitting from our perspective, has been one of the hottest segments of GovTech for some time. As you, you know, had Accela on your radar and you were doing all that market research, that you mentioned. Were there any unique value proposition or other attributes that stood out to you in terms of compared maybe to your other potential investments in this space?

Yeah, I touched on some of them in terms of the backdrop and how we thought about the investment, but I would say a couple of things we really like. Number one, there really is a mission-driven orientation to the company and Gary and the management team, and we really were drawn to that. And and the clear sense of strategy and where we want to take the business. So we were very much drawn to that. But I would say the things that we were watching and really stood out for us was what the company has done and where it came from in terms of when Berkshire first invested, when Gary and the team really stepped into the leadership roles, there was real work to do in terms of, okay, you have a lot of different products. How do we bring them together in a unified way in the Civic platform? And I think what they did is truly exceptional. And then secondly, the way they built the product and the capability and the on-ramp to cloud. And as we looked around and looked at many, many businesses in the GovTech space, what really stood out about this company was the fact that they really had a unified product as opposed to a disparate portfolio, and then can deliver that product and that value to the customers in a single way with a single product. That's challenging to do. And as you guys know well, there's lots of vendors in the space that haven't quite made the investment and the priorities to deliver on that proposition. And we give tremendous credit to Berkshire, Gary, and the team for delivering on that promise with Accela.

Love that. And before we bring John in from Berkshire, Gary, I had a couple more questions for you. You know, Accela recently closed its 2023 fiscal year with some pretty impressive growth numbers. What would you attribute that success? We know this is a hot market, but, you know, scaling in this market really takes the right combination of effects. What do you attribute the success to?

The primary thing, and almost the only thing, is the focus on the customer. We definitely now build a really great product. It's bulletproof, it scales. As Andrew just said, we can add to it, we can update it. There's lots of different things we can do seamless to the customer, but the focus on the customer, and that really extends everything from the sales cycle. I know that sounds salesy, but it really does. It's not a sales cycle, it's a consultation, and we build right on site with them and for them, to our service and support, to our after-support service and our follow-up, to the leadership visits, to our user groups, to our user conferences. And we have user groups all throughout the country, and they really support each other. And that leads to the biggest, I'd say, factor, which is references.

They—

cities don't compete with each other, towns don't compete with each other, municipalities don't. So they talk to each other, and if one is happy, they convince the others, and it just creates this momentum. And we focused very specifically on that reality, and over the last 5 years, it has just snowballed. And right now, we see a lot of inbound because of that, and I think that's the biggest thing that attributes.

Well, it's clear you guys are doing a lot right. John, thanks for being patient, and, you know, now I wanna welcome you to the conversation. You've been with Accela, you know, obviously, partnership, I think since 2017. I'd like to talk to you now a little bit about how and what you've seen evolve at Accela.

Yeah, sure. And thank you guys both for having us. We're excited to be here and excited to continue talking about Accela. You know, my answer to that question, Joe, it's going to be a little redundant, frankly, with what you've heard, but in a good way. I think there's 3 things that really stand out to me reflecting on the past 5 and a half, 6 years with Accela. The first is the focus on the customer. And, you know, thinking back to when Gary came into the business in 2018, how relentlessly that became our North Star and how effectively the team has organized and focused around caring for the customer, making sure the customers were happy, served well, the products were effective. The second thing I would note picks up on something that Andrew said, which is over the last several years, the company has evolved from a platform that could do many, many things to a platform, but that was productized around a set of specific use cases. And so it's building and planning, it's environmental health, it's short-term rentals, it's alcohol and beverage control. And it's always been the same platform. That platform has always been very powerful, but productizing it to improve the time to value, to help customers understand exactly what these products can be used for and how they can be used and how they can get them up and running. That's been a really important change and something that this team has just done an exceptional job with. And the third is something both Gary and Andrew mentioned, which is the transition to SaaS. This wasn't a SaaS business in 2017. There were some early steps, they were bumpy, and the tech wasn't ready, the product wasn't ready. And fast forward to today, where all of our new customers are coming on to SaaS. a large portion of the customer base has been migrated to SaaS and they're happy, they love it, the process has gone well. That's a really hard thing to do. And in particular, the way that the company has taken an approach of really meeting the customers where they were and sort of going out to customers and saying, whenever you're ready, we're ready. It's not a forced migration. It hasn't been carrots and sticks. It's been a, hey, we're here to hold your hand. And when you're ready to make this move, we're here to support you and make sure that it goes as smoothly as possible.

Great.

Any other particular milestones maybe that stand out to you over those, you said, 5 or 6 years?

Yeah, I mean, I think, well, certainly the transaction on Friday was a big one too. But yeah, I mean, I think those are, I think, the biggest ones. I think that the growth, the continued growth in the business and the continued acceleration of that growth as well, Joe, has been really notable to see. And And I think it all sort of cascades down from the things we talked about. It's the fundamentals of get the customer relationships right, get the product right, get the tech right. When you care for your customers, that's where you see net retention increasing so meaningfully, gross retention increasing so meaningfully, customer satisfaction increasing so meaningfully. And so it's been really gratifying to see the progress in all those dimensions and sort of the building blocks that have gone into that.

When you look across your portfolio, how do you see the GovTech industry in comparison to the other sectors? And are there any unique challenges or opportunities that stand out?

Yeah, I love that question. You know, at Berkshire, we have a holistic investment strategy across all of our sectors, not just tech, which is we're trying to find growing end markets and companies that are winning within those end markets. And what has always attracted us to the GovTech vertical is the growth dimensions. It's a market where you're continuing to see new software adoption, new technology adoption, new migration from legacy systems, paper-based processes. Even more so than that, you've just continued to see all these needs emerging. So the pandemic, which forced digitization, short-term rentals, which was a problem that didn't exist 10 years ago, And, you know, the consumerization of everything and the expectations that citizens have that they're going to get a consumer-grade technology experience when they interact with their city or town, those are all tailwinds that have created an opportunity to provide better software, provide more software, and also provide an opportunity for Accela to differentiate. They provide these levers, these wedges where if we execute right, on the product, on the marketing, and on how we're helping customers, they create an opportunity to differentiate. And so at a detailed level, it's very different, but at a macro level, it actually fits the themes pretty well in terms of what we look for. I do also like the comment Gary made, which has always resonated with me. The great thing about selling to governments is you know exactly how many they are, they never go out of business, and they're not competitive with each other. And so there's a flywheel When you start getting things right, there's a sort of positive feedback effect of customers actually want to go shout to the rooftops of how they've been helped by a vendor. And that's something that we've started to see with Accela, and we're really excited about.

Andrew, do you have similar observations or anything different from your views on GovTech?

No, I think that generally dovetails. I mean, I talk about some of the attractive market characteristics, and I think John encapsulated that very well. At Francisco, we only are investing in technology businesses, and we therefore go pretty deep in the sectors we go on. And the GovTech market has a lot of characteristics, much like John said, that we think are very attractive. You know, large spend environment, identifiable customer base, true need and leverage that comes with technology, and the ability for vendors to really differentiate by getting close to the customer and understanding kind of the needs and pain points and how to solve them. And so I think about other areas that have been very active for us at Francisco Partners, areas like education technology, healthcare IT, industrial software, elements of infrastructure software that have similar characteristics, and we really think those are fertile grounds, not just as financial investments, but really opportunities to drive value to the customer. And at the end of the day, it all starts and ends with the customer. And again, we talk about, you know, characteristics of a seller we really like, the mission-driven nature of the company, the customer orientation. Those are things that we find at the end of the day, if you get the customer right and you get the product right, everything else will take care of itself.

That's great. John, I got one more question for you. As you look at your partnership, any lessons that you've learned or insights that you've gained that might apply to other investments in, in GovTech or even beyond?

Yeah, there's 2. The first is, you know, it's sort of one foot in front of the other, right? And it's, you can cover a lot less ground in a day or a week or a month than you think. And you can cover a lot more ground in 5 years than you think. And that in some ways is how I think about the Accel investment. And it's, there have been times, you know, not everything has gone perfect. There have been times that have been hard. But there's always been a really clear mission, vision, strategy, and you just march 5 or 10 miles every day, and before a while, you've covered a lot of ground. The second thing for me is, and this is again redundant, but just so important, the customer's king, and everything flows from happy customers. And the thing that we will always credit Gary and that Gary got so right stepping back 5 years ago was, First, make the customers happy and healthy, put all of our resources against that, and then get at, well, if there's anything they're not happy about, what do we need to do better? How do we improve on that? And, you know, to see where the company is today, where our net promoter score, our customer satisfaction has continued going up, our net retention is 117%. The Francisco Market Work would say it's the highest customer satisfaction among all of the competitors in the space. Those are things that the company and the team should just be incredibly proud of. No company's perfect, and there's nobody who's going to say, you know, everything is perfect or that, you know, we don't make mistakes, but that's really important progress and I think just sets a nice foundation for the future.

Yeah, well said. Well, as we look to wrap, Gary, I want to bring you back in and, you know, ask you what message would you like to leave with our audience, you know, thinking government, thinking industry, but, you know, how should they kind of take today's announcement into consideration and what does this mean for you know, the future of Accela and the GovTech industry?

That's really simple. We're just getting started. It's been a company that's been in business for nearly 25 years, and over the last 5 and a half years, we've done yet another major shift into the cloud, into a different type and character of customer relationship. The next 5 years are going to be even more significant, but we will never waver. We will never stop working directly with our customers The vast majority of the top 100 largest cities, for example, in the United States are Sella customers, and they're happy. And they're happy not just because we do the right things, they're happy because they trust us. We build that with them and they build that with us. So to the market and to all of our customers and all of the prospects out there, we're just getting started. You haven't seen what we're going to be capable of, like, over the next 5 years. It's going to be So stay with it.

I can't wait to follow that. It's been a fun journey following you up to this point. What advice do you have, Gary, for other, you know, leaders in the GovTech space as they're trying to navigate this? You know, maybe they're building a company in the market, maybe they're in government right now and they're trying to make sense of all of the craziness. Any advice for them as you've kind of navigated this with Accela?

We had a saying years ago that 3 gets you 50. And what that means is 3 really happy, delighted customers that you choose correctly and they choose you get you 50. Trying to spread yourself across a whole market and not really paying attention to the details and just moving on to the next transaction, it never scales. That's the only thing that matters in this space. It's, it's, they're great people. They're career government employees in many cases. You do right by them, you do the right things, you, you follow up, you take ownership when you do make a mistake, you fix it, you don't nickel and dime them, they are with you for life. Not because they have to be, because they choose to be. And that really is the platform we're standing on right now for this continued investment.

Yeah, I love the 3 gets you 50. We couldn't have asked for a better 3 to join us today, and we thank you guys for taking time out of your day to share this exciting announcement. with us. If you're looking for more information on the announcement, you can go to govtech.com and read the editorial coverage or go to accelera.com for the press release. But beyond that, we want to thank you all for taking time out of your days on this Wednesday to join us for this exciting announcement. We wish you all the best.

Thank you.

Thank you. Yeah, thanks for your time. Thanks to your listeners as well. We appreciate it.