How Salesforce’s acquisition of ExactTarget helped Indianapolis’ tech community flourish

Five years ago, SaaS giant Salesforce acquired email marketing software company ExactTarget for about $2.5 billion. In Silicon Valley, that type of acquisition would make news — but it wouldn’t be unprecedented. In Indianapolis, where ExactTarget was founded, it was the largest-ever acquisition of a tech company.

Cities looking to emulate the Silicon Valley ecosystem often hope for a large IPO or acquisition by a local company in order to facilitate the creation of more startups. In Silicon Valley, one of those companies was Fairchild Semiconductor, founded in 1957. Fairchild alumni played a role in the development of such notable companies as Intel, AMD, and venture capital fund Kleiner Perkins.

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But having a local startup achieve success doesn’t always translate into gains for the rest of the tech community — as the Fairchild example shows, the key is having alumni who go on to start new companies or assist other startups in their community.

With that in mind, VentureBeat decided to take a look at how Indianapolis’ tech community has changed, five years after the ExactTarget acquisition. ExactTarget isn’t the only Indianapolis startup to have been acquired in recent years. But it’s still the area’s largest acquisition in recent memory. And as the company had 1,800 employees at the height of its success, we wanted to see where some of its former employees and executives have gone.

VentureBeat spoke with a few of ExactTarget’s cofounders and other members of the Indianapolis tech community to understand exactly how the startup community has improved and what resources entrepreneurs in the Hoosier State still lack.

What’s changed

More community support

When ExactTarget’s three cofounders — Scott Dorsey, Chris Baggott, and Peter McCormick — started the company in 2000, the most recent big Indianapolis tech exit was Software Artistry, which IBM purchased for about $200 million in 1997. But excitement around tech companies had started to fade as the dotcom bubble burst.

“Systemically, we weren’t really aligned to support tech,” Dorsey told VentureBeat in a phone interview, citing a lack of funding and organizations to promote the startup community.

“You had to be a little bit crazy to join a startup,” Megan Glover — CEO of water-quality testing startup 120 Water Audit and a former marketing manager for a handful of Indianapolis startups, including Angie’s List — told VentureBeat.

These weren’t the only obstacles. At the time, Indiana didn’t adhere to Daylight Savings Time statewide, and the Indianapolis airport didn’t have a direct flight to San Francisco — both seemingly small things, but changes Dorsey said he pushed for as ExactTarget started to become a larger employer in the state.

Now a greater number of people are eager to work for or invest in startups, says Baggott. Tech startups have also received more support from the state government, as evidenced by the recent push to exempt SaaS companies from sales taxes. The state legislature also recently approved the $250 million Next Level Fund. This fund previously invested in lower-risk asset classes, but the legislature has now approved investment in higher-risk asset classes, like venture capital.

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“I’ve never found a parallel of another city and state where government and business are working so closely together to move an ecosystem forward,” Dorsey told VentureBeat.

Experienced founders

Many ExactTarget alumni have gone on to start other ventures. Dorsey started “venture studio” High Alpha. The studio portion of the firm helps launch and scale enterprise cloud companies, providing them with access to necessary infrastructure, such as marketing and design services and mentors. On the capital side, High Alpha has invested in 24 startups, participating in seed, Series A, and Series B rounds.

High Alpha’s portfolio includes startups with ExactTarget ties, such as Sigstr, Zylo, and Pattern89. Baggott left ExactTarget in 2006 to start Compendium, a content marketing platform that was acquired by Oracle in 2013. He’s also a cofounder of 120 Water Audit and of food delivery startup Cluster Truck. And then there are all the ExactTarget employees who have gone on to work for other startups.

Access to seed stage capital

As with any mammoth acquisition, the ExactTarget deal created more angel investors. Dorsey told VentureBeat that he has personally invested in dozens of local startups. According to PwC’s MoneyTree tool, Indianapolis has seen a steady increase in seed stage capital compared to other stages of capital — from $1.05 million in seed capital invested in Indianapolis startups in 2013 to $14.8 million invested in 2018.

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Interest from coastal tech companies

By the time Salesforce acquired ExactTarget, the company was already a big employer in the city, with about 1,000 workers. But when a coastal tech giant like Salesforce decided not just to acquire an Indianapolis company, but to keep an office in the city, it proved to other companies that this was a viable place to do business.

Salesforce announced last year that it plans to hire 2,200 employees in its downtown office in the coming years, while IT giant Infosys pledged to hire 3,000 workers in Indianapolis by 2023. Additionally, the city made the shortlist for Amazon’s second headquarters earlier this year.

What hasn’t changed

Access to scale-up capital

Since 2013, just six Indianapolis tech companies have raised Series B rounds, while only two have raised a Series C, according to Crunchbase. “Definitely, the seed and angel capital has been where we’ve seen the most traction already — we’ve had more time at it though,” TechPoint CEO Mike Langellier, a self-described “growth accelerator” for the Indianapolis tech community, told VentureBeat.

Diversity of talent

A lack of diversity was one of the biggest challenges respondents cited in a survey of the Indianapolis tech community conducted earlier this year. Of the 250 tech workers surveyed, 9.61 percent identified as an ethnic minority — a lower percentage than the non-white population of Indianapolis.

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B2B startups remain the city’s bread and butter

Nearly all of the startup hits in the last five years — ExactTarget, Angie’s List, Compendium — have been B2B or SaaS startups. A quick scroll through TechPoint’s directory of 350 Indianapolis startups shows very few ecommerce and hardware startups.

This makes it difficult to recruit talent looking for a more diversified tech community. However, it also gives local tech startups that operate in other sectors an advantage when it comes to recruiting local talent, says Glover. She added that prospects are attracted by her company’s social mission — she came up with the idea for 120WaterAudit after reading about the Flint water crisis.

Access to experienced middle management

Even with Indianapolis’ startup successes, you won’t find managers with the level of experience you would in more developed startup ecosystems — like sales directors who have worked in multiple startups pressured to double or triple revenue year-over-year. Like many other startup communities in this part of the country, Indianapolis startups are focused on attracting middle managers with the lure of more affordable housing and a greater emphasis on work-life balance.

“At ExactTarget, that was a big thing — I know as soon as LinkedIn came on, we were looking for someone five years out of Purdue that had a 6-year-old, and we would tell them, “You know, if you worked here you could be home watching your kid play T-ball every night,” Baggott said.

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