One of the reviewers of EJ2: Bootstrapping, Weapon Of Mass Reconstruction on Amazon wrote: “I don’t think it was appropriate to even mention venture capital or angel investors in this book.” My response was, “One of the nuggets that I have picked up from my experience navigating the entrepreneurial waters is that it is wise to bootstrap early on, and develop negotiating power, but there is nothing wrong in using that negotiating power to then go and raise venture money at a good valuation, and with relatively little dilution. That is a theme that I have illustrated repeatedly in the book, through the stories of Greg Gianforte, Cree Lawson, even Manoj Saxena and Murli Thirumale.” In Coverity’s story, we have yet another example of a successfully bootstrapped company that raised its first financing only after thoroughly validating their business model.
Software vendor Coverity, was founded in 2002 by Seth Hallem, Ben Chelf, Andy Chou, and professor Dawson Engler. The group had worked together in Stanford’s Computer Systems Laboratory from 1999 to 2002. The resulting research, known as the “MC Checker”, was published in October 2000 and gained approval from research and industry experts. The San Francisco-based company was founded to commercialize the four colleagues’ research; all except Engler, who continues to advise Coverity from his position at Stanford University, are at the helm of Coverity today.
Coverity’s model aims to help companies improve software quality, security and performance early in the lifecycle so that software can be developed more quickly and with greater integrity. This ensures that the final applications produced are not subject to costly recalls, compliance violations or devastating security breaches. Its award-winning static analysis product, Coverity Prevent, is used by developers to find and eliminate software defects early in the development cycle. This is extremely important as it is estimated that developers spend more than 10 times the cost of writing code on repairing or fixing broken code, which becomes a significant expense and competitive liability for organizations.
The company claims that it knows what the most common software bugs are, whether one is building a gaming application or software for a medical device. Further, Coverity regularly shares this knowledge industry-wide to help advance the science of producing high integrity software. In May 2008, Coverity released the Coverity Thread Analyzer to analyze Java source code. On April 14, 2009, Coverity launched the Coverity Integrity Center, which brought all of its software precision analysis products together into a single offering. New products include features that have been specially designed for companies that use open source software in their commercial offerings. The company prices Coverity Integrity Center by the number of lines of code, with unlimited users so that almost everybody at the customer site can use and become familiar with its offering. The company makes exclusively direct sales in the US. Though it sells directly in Europe, the Middle East and Africa (EMEA) and Asia Pacific Japan (APJ), Coverity also works with partners in those regions.
Any developer who is looking to develop software for a failure-intolerant environment is Coverity’s target customer. The company has worked with over 600 firms in a variety of industries including electronics, semiconductors, networking, telecommunications, medical devices, military/aerospace, gaming, financial services and many other privately held and government organizations. Under a contract with the U.S. Department of Homeland Security, Coverity examined over 150 open source applications for bugs. On March 6, 2007, the company announced that over 6,000 bugs across 53 projects found by the scan had been fixed.
Coverity estimates that its technology has scanned over 2 billion lines of commercial and open source code, saving development organizations over $250 million to date. Further, the company estimates that over 100,000 developers worldwide use its precision software analysis capabilities to improve the integrity of their code.
The company was bootstrapped for the first six years of growth and has remained cash-positive since its inception. In 2008, Coverity closed a $22 million Series A round of venture financing from Foundation Capital and Benchmark Capital to execute an aggressive growth strategy and expand its product line. In March 2009, it closed its biggest quarter ever: revenue was up 47% and it surpassed the 600th customer mark.
This segment is a part in the series : Deal Radar 2009