Sramana: How long did your Series A funding last?
Ryan Allis: We ran on that money for three years. Last August, we closed a $40 million round of funding. My philosophy on venture capital is to never raise more than one time your annual revenue.
Sramana: Is your customer acquisition strategy still working?
Ryan Allis: It is working very well. The numbers are still great. There is a magic number in software as a service. If you can acquire a customer within one year of revenue payback, that is usually a good metric to aim for. We have always been right at that. We invest 12 months of revenue to get a customer, and that is the max we are willing to pay. Today we get $57 a month from a customer, so we will invest between $600 and $700 a month to get a customer.
Sramana: Your creativity in the early stages of the business allowed you to get to the point of creating this predictable model, which is what everybody in the venture industry is looking for. Experimenting with venture capital money is very expensive. Switching gears a bit, would you talk about how you structured your team?
Ryan Allis: Initially, we hired whomever we could convince to work for us. We could not pay market salaries, so we had no choice. We gave our first employee 7% of the company vesting over four years. He left after eight months. Our second employee we paid $30,000 a year, but he was a $200,000-a-year executive. We gave a more substantial portion of equity to him.
Sramana: Did you and your co-founder have an equal split?
Ryan Allis: We originally negotiated that Aaron’s company would get 25% for contributing the intellectual property. We then took and equal split on the remainder of the company. A critical lesson for any entrepreneur is to make sure you are good at negotiation. We would not have been able to get anywhere without a product. I would have preferred a 50/50 in hindsight, but he did bring in the product.
Our fourth employee, David, is our chief architect. He took over the day-to-day programming, and Aaron became the chairman. He is a tremendous asset to our company. We hired him for $54,000 a year and a little bit of equity. He took our product from what it was to what it is today.
Once we got through our first round of capital, we set up an employee stock option plan. Once we had capital behind us we could be more selective. We could hire a director of HR, use recruiting firms, and get top executives. We began building out our current executive team in 2008. Tim Oakley, our CFO, came through a professor who was also a venture capitalist. We also brought on four other senior leadership team members to run technology, sales, and service.