Sramana: Once you brought the new technology to the market, how did it do? How long did it take for it to find its stride?
Steve Cotton: The impact was immediate. Our expectations were very conservative, but within two quarters our entire customer based flipped over to our product as opposed to the other products we were selling. We did well because we were the trusted advisor. The box was the trusted enabler of the service.
Sramana: What is the revenue growth from 2009 to 2013?
Steve Cotton: We grew in that phase and burst through the $10 million point. Last year we did a $22 million private equity deal with Columbia Capital, and our revenues were close to the size of that deal. We basically bootstrapped to that point.
Sramana: Why did you turn to private equity rather than venture capital?
Steve Cotton: Typically you will see VC money applied to investment thesis–type concepts.
Sramana: There is a late-stage VC business that is looking for heavy revenue, established companies. The late-stage business is where most of the VC money goes these days.
Steve Cotton: We were at the point where we were already an 18-year-old business. When we talked to some of the late-stage VC firms, they were looking for the next big thing. They did not get what it was that we do. We talked to a blend of VC firms and private equity firms. We are in a unique space and we have a niche, but each data center, cell tower and wind farm needs what we sell. We just were not sexy enough for a lot of the VC firms that were looking for software or application companies.
We liked Columbia Capital. They had invested in operators of data centers. They knew the pain of not having our services and there was an immediate “ah ha!” moment with them. Their portfolio companies are now companies that we are doing a lot of business with. It just clicked. A lot of it is about the people you are sitting around the table with.
Sramana: What is the TAM you are operating in?
Steve Cotton: If you look at what we are selling, backup power systems, you will see that we now have an end to end electrical solution. It is about a $15 billion to $20 billion global operating market, depending on how you slice it.
Sramana: That does not sound like a top-down number.
Steve Cotton: If you look at our competitors on the end-to-end solution, there are three global competitors. When you add up what those big three are selling with UPS, batteries, and cabinets, you will see that 70% of what they sell are what other people make. They are really system integrators and integrators. It is a low margin business because they don’t make the batteries.
When we partner with Toshiba, we probably make as much margin as the UPS manufacturers do when they resell it. Our challenge is to become a global service provider and deliver our services on a global level. That is one of the reasons we raised capital.