Sramana Mitra: What was your original estimate of the TAM for your application in the financial services area? As the market was shifting, what did you estimate it down to that made you explore other verticals?
Brad Peters: The TAM for each application was probably $100 million. It had to be $100 million to get into it. The idea would be you could find multiple of these $100 million segments. We weren’t sure, but we figured that there are roughly 100 financial services institutions and 150 to 200 minor ones. If we could get a reasonable percentage of them, we’ll probably hit 50% of the TAM, or about $50 million. You can just keep cranking these things out from vertical to vertical. We started to see deals just get wiped away because all of a sudden, these purchasing decisions were being put on hold. We had a fairly fateful board meeting in early 2008. We call it the Burn the Ships and the Harbor Meeting where we sat down and said, “The trends don’t look good here.”
We built a lot of automation technology behind the scenes to make our people more productive so that we could sell and make money out of it over somebody trying to build up and sell. You have, in technology, the build versus buy. We built technology to make analytics a lot more productive. It ended up working better than we expected. That was an upside surprise. I have been toying around the idea of actually going directly to market with that – skipping going from vertical to vertical and going straight to the horizontal market.
When we could see what was happening in the market, my board members from Sequoia Capital said, “You have to decide what business you’re in. It doesn’t look like the business you’re in is doing real well. If you’re going to go to this new thing, you had better go. My advice to you is burn the ships and the harbor. Don’t look back and move on.”
We are continuing with our existing customers and maintaining the customers we have. We dropped the sales representative for that business. We focused hard on productizing the horizontal product which goes after a much larger market – $10 billion analytics market. We raised another round to take that to market. We raised that round when the market really started to go down. I remember we had signed the term sheets. The market started to drop 500 points, but the round wasn’t closed.
Sramana Mitra: Who was on your board from Sequoia?
Brad Peters: Doug Leone.
Sramana Mitra: Was this before the Sequoia rest-in-peace, good-times memo?
Brad Peters: That happened right after.
Sramana Mitra: By the time that happened, you had already lost the term sheet?
Brad Peters: No, that happened a month after we actually closed the round.
Sramana Mitra: So you were able to close the round.
Brad Peters: We closed it. Fortunately, our new investors said, “We figure the market is bad. Stuff like that happens. We’re behind you guys. Let’s go.” We were able to have funding through that whole process.
Sramana Mitra: Who was the new investor?
Brad Peters: DAG Ventures.
Sramana Mitra: That’s a very gutsy and interesting move given the timing. I’m always impressed and interested in acknowledging people who step up to the plate in times when things are really low.
Brad Peters: Yes. There was a lot of carnage during that time. Looking back, I think a lot of VCs regret not putting more money into companies at that time because the ones that survived are doing really well. It really shrank the market down. It was brutal but if you made it through, it was good.