Sramana: During that 10-month time between starting HyTrust and getting funded, you still had living expenses. Did you guys have any financing? How did you live? What did you accomplish with that $200,000?
Eric Chiu: We did our own seed financing and followed the classic bootstrapped model. We spent only about half of the money we put in. The first thing we did after we incorporated was think very hard about the problem area we wanted to address. We sought out potential customer feedback on that problem area, and we did that with companies like Citigroup and lawfirms. We wanted to make sure that what we were thinking about doing actually made sense.
Once we knew the problem made sense, we recruited two additional co-founders. We essentially had to pay partial salaries to those team members because they could not go without pay. We also had to purchase our initial equipment to prototype what we wanted to build. Around March we had identified the problem area that we wanted to address as well as the architecture for addressing that problem.
Timing and luck is a big part of it. First, you have to have the courage to stand by your convictions. It is scary when you go without salary and you put your life savings into starting a company. You don’t have a safety net. You also have to have great strategic thinking, execution, and luck. When we were thinking about the architecture for HyTrust we were thinking about a few different approaches. Right around that time, VMWare announced a new architecture for its hypervisor called ESXi. That removed the service console from the hypervisor. The service console was a full version of Linux that was running in order to bootstrap the hypervisor.
With that new ESXi architecture, we could no longer deploy agents into the environment. That meant we had to figure out how to architect ourselves for the long-term vision. That is when we came up with the idea of pulling out functionality into the network as a transparent proxy. That timing was crucial. If we had started building an agent-based product that did not fit the new ESXi architecture, it would have been a tremendous waste of time and money. Those are the most precious commodities for startups. That fact that we had that view of the future of VMWare allowed us to architect our solution from the beginning. That same architecture is the same thing we have today.
Our product architecture is almost the exact same today. Our product functionality has grown substantially, but the architecture has stayed the same. That is a key thing. If we did not have that situation and we learned about ESXi later, then we would have had the wrong solution for the market.
Sramana: You had the right product on your first iteration.
Eric Chiu: Yes. Around March 2008 we also started raising money for our Series A. I knew a lot of the VCs and the partners at those firms, so it only took us four months end to end to raise $5.4 million. In the end it was a very fast process to get that first round raised. Was it easy and trouble free? No. One of the things you will find is that when you start fundraising, you get your nos before your yeses. When you have a small team and everyone is going without salary or has a reduced salary, you have to make sure you are honest with the team. Everyone needs to understand that there are a lot of firms interested, but you also had firms turn you down. It is a tough period to go through.