Sramana: What is your forecast for this year?
Phil Fernandez: We will do in the up $30 million of annual recurring revenue. We will achieve the same fourth-year revenue that Salesforce.com achieved in their fourth year. The difference is that they spent $250 million to build that market, and I have spent $17 million. It is radically more efficient to build a SaaS company today.
Sramana: You have taken companies public and have broad experience. What is your assessment of the public market as the IPO market opens back up?
Phil Fernandez: Barring some economic catastrophe that we do not foresee, I think there is going to be a sustained period where there is hunger for growth equity. People are looking for growth and for the ability to increase portfolio value after the values of nothing.
I don’t think that we will go back into a bubble like we had in 2000, but I do think that we will see some crazy stories such as LinkedIn. When I look at companies that people compare to us, Taleo and SuccessFactors, they are only two quarters ahead of us in terms of revenue ramp and they have a billion-dollar market cap.
Sramana: That market cap number is off. A company that is at your revenue ramp rate getting a billion-dollar market cap is crazy.
Phil Fernandez: That echoes of 1999.
Sramana: It is concerning because I know there are a lot of solid companies that are in the $20 million to $100 million range. I worry that because of the hype machine, these companies are going to go out and create a crash-and-burn situation.
Phil Fernandez: I think there is some risk to that. Certainly in the consumer space, which LinkedIn straddles. There are crazy private valuations there. There is a chance of a bubble there. In our space, unlike 10 years ago, people are valuing real revenue growth rates. Epiphany went public in 1999 when I was there with far lower revenues than today, and they had a $9 billion market cap.
Sramana: That is what worries me. Companies like yours are solid companies, and if you do it right and grow them properly there are great options. There are a ton of those companies in the SaaS market. I think LinkedIn is a solid company, but I am concerned that it is getting overvalued.
Phil Fernandez: I have had top quality bankers call me and try to convince me to do an IPO. I am telling them to go away. Everyone points to data points and they want to push the envelope a little more, which is how you get a bubble. At least they are valuing real revenue growth over hype. It is still a little bit of both. We are excited about the opportunity that the door might be open. We are somewhere between the craziness of the last bubble and a nascent bubble that is a bit more grounded.
Sramana: Very good. Thank you for your time and congratulations on your success to date.