Not even Eric Yuan’s closest friends, oldest advisers and earliest investors thought Zoom needed to exist. It was 2011, and the market was littered with video conferencing systems from Google, Skype, GoToMeeting and Cisco, where Yuan had been leading WebEx’s engineering team.
“He came to a market that everybody said was done,” said Dan Scheinman, Cisco’s former head of corporate development who’s now an angel investor and Zoom board member. “He was competing with free and some pretty big incumbents.”
Yuan, who emigrated from China to Silicon Valley in 1997 at age 27, says the problem with those products is that nobody enjoys using them, adding that the buggy code he wrote for WebEx two decades ago is still running today. As a software engineer with multiple patents related to real-time collaboration, he also knew that our smartphones and tablets could do so much more with videoconferencing than what was available.
So Yuan ignored the skeptics and instead listened to users. His wager is paying off.
Following Zoom’s stock market debut on Thursday, the company is valued at $15.9 billion. The stock climbed 72% in its first day of trading to $62, after the company raised $356.8 million in its IPO.
Zoom’s rich valuation — about 48 times sales — is a reflection of 118% revenue growth in 2018 coupled with an unusual quality for an emerging software company: profit. Thousands of businesses use Zoom’s software, with many taking advantage of the free product alongside 344 companies that pay over $100,000 a year.
Yuan, who owns 20% of the shares, is tech’s newest billionaire, valuawith a stake worth about $2.9 billion.
It’s been an epic journey for Yuan, 49, from founding a small software start-up in Beijing to the stage of the Nasdaq and CEO of one of the country’s 10 most valuable cloud software companies. There are plenty of Chinese developers with senior engineering roles, but you don’t see them starting companies and leading them through IPOs. In fact, none of the 50 companies in the Bessemer Nasdaq Emerging Cloud Index have Chinese CEOs.
Yuan had to beat the odds just to get to Silicon Valley, as his visa application was denied eight times.
He finally made it in 1997, where he got a job building the early WebEx online meeting system. He barely spoke English at the time.
“For the first several years, I was just writing code and I was extremely busy,” Yuan said in an interview from New York on Thursday at the Nasdaq, where he was celebrating with about 80 employees, customers and investors. Yuan said he opted not to spend the time going through formal English training and, “I just learned it from my teammates.”
He rose to become the company’s head of engineering and held that position through Cisco’s $3.2 billion acquisition in 2007. He left the company four years after that.
Tea and a Demo
In April 2011, Yuan called Scheinman to invite him for tea and a demo of his new idea.
Scheinman had also left Cisco that month and was well aware of Yuan’s background in video and collaboration. They’d struck up a friendship while working at Cisco, where Yuan established himself as a strong and reliable operator in addition to his engineering credentials. But for Scheinman to know for sure that he wasn’t backing a closeted lunatic, he made two reference calls on Yuan, including one on his drive to the meeting.
By the time he arrived at Coupa Cafe in Palo Alto, Scheinman says, he had a signed a $250,000 check, and just needed Yuan to tell him what name to put on it because there’s wasn’t yet a company.
As of the market close on Thursday, Scheinman’s investment has multiplied by over 700-fold to just under $176.5 million, though he’s locked up from selling for six months.
“I said, ‘I believe in you and I don’t care what’s in that presentation, because this is about you,’” Scheinman said, in an interview. “He said, ‘For both of our sakes, can I show you the presentation?’”
Yuan says that other investors had committed capital but Scheinman “was the first one to wire transfer the money to the bank.” Scheinman also introduced Yuan to his cousin, Jim Scheinman, founding partner of Maven Ventures.
Jim not only became an investor and adviser, but helped Yuan come up with four possible names for the company: Zippo, Hangtime, Poppy and Zoom. They ended up picking the last one.
For the first two years of Zoom’s history, the company was just a small team – mostly engineers from WebEx. The first version of the product was released in 2013, and there were still so few people outside the engineering group that Yuan took it upon himself to email any user who canceled a subscription.
Yuan said he would try and get them on a Zoom call to talk through their problems and see how he could fix them. Sometimes those users would stick around and even turn into evangelists, Yuan said.
Zoom started getting viral adoption through the combination of a free product that anyone could use from their smartphones and, on the other side of the market, a suite of tools to sync mobile video with traditional conferencing systems. Rather than using Google Hangouts or Skype on mobile, WebEx or GoToMeeting from a PC and Cisco or Polycom gear for big conference rooms, Zoom wanted to provide all of it, with monthly subscriptions that worked for businesses of any size.
By the time Emergence led a $30 million round in 2015, the company was growing rapidly, with 65,000 companies using some version of the product. Santi Subotovsky, a partner at Emergence, said that two years earlier he couldn’t get investors excited because the prevailing view was that the market had been commoditized and that Skype and WebEx had it covered.
“Some of the smartest people I know wouldn’t take a meeting with Eric,” Subotovsky wrote in an email on Thursday. “He changed his screensaver to ‘It can’t be done’ and kept working.”
Oded Gal, who worked for Yuan at Cisco and left in 2011, says that Zoom not only had to go up against massive incumbents but also faced competition from a new crop of start-ups aiming to modernize the videoconferencing experience.
Gal was working at one of those start-ups, BlueJeans Network, around the end of 2015, when a friendly meal with Yuan immediately turned into a recruiting effort. Gal said he was torn on whether to leave because BlueJeans had much more market traction and had already raised about $175 million, quadruple the amount Zoom had raised.
He made the move in March 2016 to join what he called the core group of 14 founding engineers at Zoom – all people he worked with at WebEx and Cisco.
“I knew that team and knew it was the best team in the world at building such a service,” Gal said in an interview on Thursday.
A Commitment to People
Bay Area tech companies are full of fluffy catch phrases that define their mission and rally employees. Zoom appears to fit right in with a motto of “delivering happiness,” which also happens to be the title of a 2013 book written by Zappos CEO Tony Hsieh.
But Yuan has convinced the people closest to him that he means it. Last year, Yuan was awarded the top big company CEO honor by jobs site Glassdoor, which said the executive has a 99% approval rating among employees. Among other perks, employees get reimbursed for any book they purchase for themselves or family members, including children’s books.
“We want to hire people who are self-learners,” Yuan said.
Yuan’s commitment to people shows up in other ways, too. His oldest son just finished his senior season playing high school basketball and as a junior broke the conference’s single season record for three pointers made, despite not picking up the game until after fifth grade.
Yuan was there to see almost every basket, and he attended most practices too.
“Out of a team of 15 kids, Eric was the most involved parent from day one,” said Gabe Fodor, who coached Yuan’s son on a Silicon Valley club team several years ago. “A lot of these CEOs and founders barely have time to hang out with their kids. This guy didn’t only go to the games, but he was at the practices.”
Yuan notes that he travels a lot less than many CEOs. He prefers to hold meetings with clients and recruits using Zoom, so that he can show off the product and get real-time feedback on what works and where users get tripped up.
But he also said he’s committed to his family.
“No matter how busy you are you’ve got to spend time with your family,” said Yuan, who has another son in high school and a younger daughter. “I do not want to miss any important moments.”
Yuan is involved with the NBA as well, but for a very different reason.
In 2016, Zoom signed a three-year deal with the Golden State Warriors, providing the budding dynasty with video technology to communicate with fans online, putting Zoom conferencing rooms in Oracle Arena and, perhaps most importantly, plastering Zoom’s brand across digital signs and on the scoreboard.
Janine Pelosi, Zoom’s chief marketing officer, said the campaign is part of the company’s “practical approach” to marketing.
“People don’t wake up in the morning thinking about brands,” Pelosi said. “Sports marketing is fantastic because you can get masses of people enjoying the event, you get TV coverage and you take advantage of the hospitality. We definitely leverage that for bringing in prospects and customers.”
Momentum is now clearly on Zoom’s side and, after the IPO, the company has hundreds of millions of dollars in the bank and a hefty market value it can use to invest in marketing, acquisitions and to tinker with artificial intelligence. Yuan said he’s excited about the prospect of developing smart features that provide meeting participants with automated summaries.
Yuan has also started considering what to do with his money, now that he’s joined the billionaire class. Yuan said that Microsoft co-founder Bill Gates, Facebook’s Mark Zuckerberg and Salesforce’s Marc Benioff are all role models for him in finding productive ways to use wealth for good. Yuan has already pledged to donate money to schools.
For now, he’s enjoying the moment. On Thursday night, the dozens of employees and partners who were in New York for the IPO went to dinner at Gabriel Kreuther, an upscale French restaurant in midtown Manhattan. Yuan woke up on Friday to fly back to California for a celebration with his team at the company’s headquarters in San Jose.
Then it’s back to business, a message he uttered to his employees before seeing the stock pop dramatically on Thursday.
“I told our team after we finalized the price, we’re done with that,” Yuan said. “The price is out of our control. Anything out of our control, let’s not think about that.”