Sramana: Can you talk about the technology required to accomplish the SMS market arbitrage? Typically VCs don’t like to invest in pure arbitrage model companies. How did you convince them you were a technology company as opposed to an arbitrage company?
Tony Jamous: The arbitrage was our minimum viable product. We did not have a lot of funding, and we needed to survive. That is how we got started. The strategy of Nexmo is to have many carrier connections. We started carrier relationships around the world, and that is where we created value. Every time we added a new carrier, we gained more traffic.
The other part of the equation becomes apparent when you look at the market. There are incumbent companies like Ericsson and Sybase, and it is difficult for a customer to deal with them. It takes several months to sign a contract, there are minimum fees, and you have defined commitments. We created a super-simple cloud API that allows developers to use. The innovation is not necessarily the product innovation, rather the process innovation. We took variable in the value chain, from sourcing to distribution, and streamlined the processes.
Sramana: What did you envision the developer API would be used for? Was it to enable bulk messaging on your platform?
Tony Jamous: We are the low-level infrastructure API. Custom applications are built on our low-level API. Let me give you an example. Airbnb, a person-to-person hotel booking site, is one of our clients. When you book a room on Airbnb, they create a virtual communication, through SMS, between the seller and the buyer, and they do that through us. We give them virtual phone numbers to receive SMS and outbound capability to deliver SMS to any phone.
Sramana: What does a deal structure look like for you?
Tony Jamous: It is very simple. They sign up online and they get some credits. They can build their application with a few test credits that we provide. When they are ready to go live, they top off their account. We charge on a pay-per-use basis, so essentially we charge them for every message. There is a different price for each country. When they send a message, we reduce the appropriate fee from their account.
Sramana: How much revenue did you do in 2011?
Tony Jamous: We did not do a whole lot. We generated around $2 million.
Sramana: What was the next step? Did you raise financing?
Tony Jamous: We needed to get the right investors on board to allow us to build our network and get connected to the industry. We got approached by a super angel company called Initial Capital. They build companies like Playfish and Glu Mobile. We really liked them because they understand what the entrepreneurship process is. They have been incredibly helpful to us. We raised funding in January of 2012.
Sramana: How much money did you raise from Initial Capital?
Tony Jamous: We did not raise much at that time. We raised $330,000.