Sramana: You were raising money in 2003, which was not a great time in the technology industry. What was the reaction from industry?
Stan Nowak: We spent time in Boston, Connecticut, and New York. It was definitely not an easy time to raise money. Our first fundraising was with a firm we had a prior relationship with. They were a firm that focused on technology enabled services. They were very comfortable with the technology model although they were not a healthcare investor. We spent more than a year between our initial pitch and closing our funding. I was a first-time entrepreneur, and the markets were tough.
Sramana: How much did you raise in that round?
Stan Nowak: We raised $2 million.
Sramana: At that point you had a somewhat validated business model. What did you do with that money?
Stan Nowak: We started recruiting people and we built out our technology infrastructure. We moved our offices out of a house and into some professional offices in Burlington. We began hiring, and we continued to sell. We sold into existing accounts and acquired new accounts. With the limited amount of money we had from the first round, we knew we had to start raising our second round almost as soon as we closed the first round. I spent a lot of my time driving toward a second round of funding. We really focused on a high-quality healthcare investor for our second round.
Sramana: What were you able to show as progress between the two rounds?
Stan Nowak: We were able to quadruple the size of our business. We went from $20,000 in revenue our first year to $600,000 our second year. We had a pipeline in the spring of 2003, so we had positive direction to show.
Sramana: The healthcare investor landscape at that time was also very limited. The investor community there did not mature until the late 2000s. How did you navigate that space?
Stan Nowak: That is very perceptive analysis. Even the funds that did exist were substantially smaller. Fortunately, Boston is a center of excellence for healthcare investors. Sigma Partners was my first round of funding. In the funding world, you need a pedigreed investor. That opens doors, and we were able to use their support to find quality healthcare investors. We had to be very smart about which healthcare investors to approach because we were not a life sciences company.
Sramana: How much did you raise in your Series B?
Stan Nowak: We raised more than $5 million.
Sramana: How long did you expect that $5 million to last?
Stan Nowak: I don’t know how long I expected it to last, but we deployed that capital very effectively. We recruited some high-level talent, and it allowed us to really put some juice behind the company.
Sramana: It is incredibly unproductive for a CEO to be constantly raising money. Each time I have done VC-driven businesses, I find I am constantly raising money, and it distracts from the business. In a way, it is better to raise a round that gives you some runway.
Stan Nowak: I could not agree with you more. As you well know, the size of the fund is a material element of that. If a fund is a $100 million fund, then their governance structure will not allow them to invest more than 5% of that into any one deal. The limitation on the sizes of the rounds can be limited by the sizes of the funds themselves.