Sramana Mitra: In terms of other vendors that you compete with, whom do you see in deals?
Eric Burns: Initially, we were quite afraid of what seemed like the incumbent player in the lecture capture market in the higher education, which is a company called Tegrity. I think it’s safe to say that we badly disrupted their market. We came in with what we believed as a superior technology, a better workflow and data model, and particularly support organization. We went after their core business, which was software-based lecture capture using web cams and cameras. Over the first couple of years, it was very much trench warfare, trying to win deals, and flying places for presentations. Almost invisibly, we stopped seeing them in real competitive situations and started to simply take business from them. By the way, Tegrity’s exit was they sold to McGraw-Hill. McGraw-Hill sold them to private equity. So that company, I would say, has passed its prime technology window.
We also competed with two hardware vendors in the space. One was called Echo360 and the other is Sonic Foundry. Sonic has done a better job of staying away from pure education use cases and has positioned themselves as the premium lecture capture of clients. It’d better be for $25,000 – especially when you can build the same thing for $2,000 and add Panopto on it. They went towards the high-end AV hardware. Echo360 went down market with their appliances. They were much more in price competitions and focused on holistic learning for universities. I’d say that we have been outperforming Echo360 in terms of customer acquisition, probably revenue, and certainly momentum. We’re less and less concerned with the education players.
Now we’re looking more into the enterprise space and the video content management space. We run in frequently with companies like Kaltura. Kaltura recently raised a large round. They’re the Linux of CMS – very complex, services-heavy business, highly customizable, but not something that is known for user friendliness. We see them as having a bit of a head start in the market. We started initially competing with lecture capture vendors on lecture capture technology. We have gradually been drawn into more of the digital library of huge archives of videos that you search, ironically enough, much the same way as you do with books.
Sramana Mitra: I’m going to go back to the 2007 to 2008 timeframe and step through some of your chronological process of building. We understand what you do and the competitive landscape. Let’s step through the granular details of what happened when. For 2007, how much funding was raised at the very beginning?
Eric Burns: We only raised a million. I say “only” because the thing that followed after raising that million was the crash of 2008.
Sramana Mitra: That $1 million took you through to what timeframe? How long did that carry you through?
Eric Burns: It didn’t last much past that. Right about then, we realized that this was not like any other correction. It was the big one. We immediately went back and got a bit of a bridge from Saturn and ended up bridging one more time with scraping the bottom of the barrel from friends and family. We scraped our way up to $2 million in total funding. This is something that I can’t believe happened, not because I think we’re great. It just seems highly improbable. We, with a hair-short of $2 million in funding, survived the recession and began to grow on revenue. At that point, we were well-positioned to go back for a Series B. We closed that on January 1, 2011.
Sramana Mitra: Between that first million and a couple of bridge rounds, what was happening on the customer side? How did the customer and revenue ramp in the 2008 to 2010 period?
Eric Burns: It was slow. Higher education was experiencing something it wasn’t accustomed to, which is cost pressures. We had public universities in place being furloughed and universities were cutting their budgets. We were clawing for every bit of revenue. It took us until 2010 to get to the point where we had a chance of funding what it took to keep the company operating based on income.
Sramana Mitra: When you went into the Series B funding round, it sounds like 2007 to 2011 had been a fairly slow-growth.
Eric Burns: It was actually rapid growth. It was a lot of small numbers. When you a have a low base to start with and you’re posting 100% or 200% growth rates, that may not be enough. It was fast growth from a low base.
Sramana Mitra: What was your revenue when you went into the funding round?
Eric Burns: For 2010, we did about $1.5 million. We’re coming up on 10 times that in 2013.
Sramana Mitra: Going into the funding round, four years into a million in revenue is not a venture scale growth rate, right? The reason I’m asking this question is this is one of the issues with the online education sector. A lot of entrepreneurs are facing this issue. This is a sector that often doesn’t grow very fast. In the first year after launch of the product, ventures want to see a million dollars in revenue. The year after, they want a lot more.
Eric Burns: That is simply not a behavior that you see from the education market.
Sramana Mitra: That’s exactly my point. This is why I’m asking you the question. How do you convince the VCs to fund you if the industry does not support that kind of growth? Venture capital, as an industry, has to look for that kind of growth because their entire model is based on that kind of growth.
Eric Burns: A couple of answers come to mind. The first is there’s this property of compound growth curves, which is depending on your scale, they all actually look the same. They’re all compound curves. If you can make a case that you are overtaking competitors, if the slope of your curve is steeper than the rest, and if your addressable market is gigantic, then that’s a pretty big prize. You must be able to demonstrate that you have the discipline for capital efficiency, which is essentially what we did between the initial funding and Series B, and at the same time demonstrate some proof points and moving outside of your market without hurting your growth rates in the current market. We were able to work with Hospital Corporation of America and New York Stock Exchange Technologies in 2010.
When you go out to the VC markets and you say, “We have the following year-over-year growth rates sustained for several years. We have this gigantic addressable market. We have traction outside of our core market in a multi-trillion dollar multimedia technology market and enterprise.” If you can paint the picture right and the story behind it, it’s more backable than a fast-growth consumer startup that basically is dependent on the whims of consumers.