Sramana: There are a lot of companies today that are bootstrapped with very small amounts of capital. Some of them raise capital later and others don’t. The big change is that you can’t go public with a $20 million company anymore.
Tom Kemp: No, you can’t. You have to be a lot bigger now. When you look at how competitive things are, it makes it difficult to bootstrap all the way although anything can be done. You can bootstrap to the point of shipping a product and perhaps up to version two. Most people are finding that if you want to reach $100 million in sales, then you have to raise capital. It’s a question of when, not if.
Sramana: Yes and now. We have lots of case studies in our program that illustrate how companies have hit $200 million in revenue without any outside capital. Zoho is a perfect example. Your point is well taken, a lot of companies do raise capital. We are fine with companies raising capital later after they have bootstrapped to get a better valuation. I think those are good best practices in terms of building ownership value.
Tom Kemp: I agree with you. I think things have also changed in other ways. At Centrify when we raised our Series A, there were a handful of people we approached with a PowerPoint. We did not have anything to demonstrate, not even a prototype. We raised $7 million from Mayfield and Accel Ventures with a PowerPoint.
Sramana: That stuff does not happen anymore. You can’t raise any money with a PowerPoint these days. Forget $7 million, you can’t raise $70,000 on a PowerPoint.
Tom Kemp: That is another thing that has changed. When we raised our money 10 years ago, there was nothing that was demonstrable that we could show. Now days you have to bootstrap to the point of, at a minimum, of a PowerPoint.
Sramana: So you raised some money when it came to starting Centrify, and you had bootstrapped NetIQ. Is that right?
Tom Kemp: Yes. With NetIQ, we bootstrapped for a while until we raised one round and then we went public instead of doing a second round. When it came time to start Centrify, I just went out and raised money. The initial round was $7 million and there was only 5 or 6 of us in the entire company. There was only 5 or 6 of us in the company at that time.
Sramana: In 2004 there was a pretty significant down market. What is it about Centrify that enabled you to raise money.
Tom Kemp: The first thing is that I had just come off of a good success story at NetIQ. I was a guy who had a proven track record of success. It turned out that, independent of us coming up with this idea, both Mayfield and Accel had felt that identity would be a big issue. When I started talking to them about my idea, they had already recognized the problem area. I walked in and our presentation mapped to the thesis that they already had. We did not have to spend the time evangelizing and convincing them.