Sramana: How did Avangate get started? What was the genesis of this company?
Carl Theobald: It started in 2006 in Europe. The founder and a very bright technical team built the core platform and got a good solution up and running. They grew 75% a year and achieved profitability in 2010.
Sramana: How did Avangate get from zero to 1 million dollars in revenue?
Carl Theobald: In the very beginning the company was started by repeat entrepreneurs who had previously started RAV which was an antivirus company. RAV was acquired by Microsoft to be part of the antivirus that is built into Windows Defender today. That team is still with Microsoft today.
A couple of them left and started another company called Avangate. They were inspired to build Avangate after their experiences with RAV. They had wanted to sell their software online and they had to develop their own capabilities to do that. They realized that what they had built worked really good and they felt it would work for other companies as well. It worked well not only for the first time purchase but also for the ongoing subscriptions. They basically took that concept and they created a self-service capability for software companies to sign up.
They did a lot of online marketing to drive awareness and traffic to their site. They were smart about where they spent their advertising dollars and they ended up getting other small startups who wanted a very easy to use solution that they could get up and running quickly that did not require a lot of startup fees. It does not make sense for every startup in the world to build its own ecommerce platform.
Their business model was revenue sharing. As they signed up other software vendors who started selling through the platform they started to collect revenue. They scaled to 1 million dollars fairly quickly and they achieved profitability rather quickly. That is impressive because they bootstrapped to that point.
In 2010, with a profitable company, they went out and solicited their first round of investments as a means of funding growth and establishing a presence in North America.
Sramana: Tell me a bit more about the revenue sharing model. So you do not have a SaaS fee model and run a strictly revenue sharing model?
Carl Theobald: That is correct. Unlike the traditional perpetual license model and the SaaS model, our model is pure revenue sharing. There are a lot of folks who pay for subscriptions but don’t use the full extent of that subscription. Our model is a pay as you go model. If one of our customers sells a subscription then we will take our percentage from that transaction and our customer takes the remaining portion. We only make money when our customers make money and our customers do not have to pay a lot of money up front for something they might use.
That is very attractive, especially for small startups that are working to get to their first million dollars. If they do not sell anything on our platform then they do not pay anything.