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Getting Customers to Prepay to Start Up, Then Building a $300M Business: RMS CEO Hemant Shah (Part 2)

Posted on Tuesday, Jul 23rd 2013

Sramana: It sounds like you were targeting insurance companies.

Hemant Shah: Exactly. From 1989 our initial business plan called out the insurance vertical world-wide as a core market. We served hundreds of insurers, re-insurers, and specialist hedge funds that take on financial risk directly or indirectly from earthquakes, hurricanes, floods, fires, global disease and pandemics. We cover any range of low frequency, high consequence catastrophe. We develop models to help them understand those risks and help them price appropriately.

Sramana: Let’s go back to 1989. You had a business plan. What happened next?

Hemant Shah: I received a lot of encouragement from the faculty and from my family. My father wrote the first 50,000 dollar check to cover the first round of business trips to meet customers. There was a lot of infrastructure at Stanford who introduced us to people and helped us refine the plan. They introduced us to venture capitalist who funded the initial round.

Initially it was very crazy. Early meetings with potential investors where like a bad Hollywood movie. They wanted to know about the size of our addressable market and our competitors. We were all aspiration with no assessment of what the available market was or who our competitors were. We were inventing something new. There was no market for the services we provided. There was no established competitive space that we were trying to get 7% of.

We thought, in principle, that if we better understood those risks that insurers, banks and others with risk could better price their exposure and better price their exposure which would bring more liquidity to the market. That would result in more capital being allocated which would eventually make these risks more manageable meaning that we could make a benefit to the betterment of society. In many ways insurance companies were just a way to get paid so that we could make an impact in the world by getting our information used in a commercial context.

Sramana: The VCs must have been asking what the hell you were talking about.

Hemant Shah: They were asking for business model and real world terms. We were all blue ocean thinking and big aspiration. We were talking about making the world a safer place and they were talking about TAM. We were 22 and 23 years old and it was all very idealistic. What was very discouraging was that I kept hearing about the investment community in San Francisco being used to taking big risks and backing aspirations. In reality, the sausage making felt like we were talking to bankers.

Our efforts to raise money did not work out too well. Our first two years it was all about friends, family and no salary. Employees would move into my apartment with me to save money. My dad wrote a 50,000 dollar check and friends and family wrote comparable checks. A lot of it was us going to our customers and evangelizing directly with them. The VCs did not necessarily get it, but we felt our target customers would.

This segment is part 2 in the series : Getting Customers to Prepay to Start Up, Then Building a $300M Business: RMS CEO Hemant Shah
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