Sramana Mitra: Was it a large recruiting firm?
Art Papas: It was mid-sized. There was about 45 people. It wasn’t a huge business. For them, all of a sudden, they’re able to service national accounts. It was a big deal during the recession. He was really looking for ways to get his business going. He was now able to deliver an outsized growth rate even in the recession compared to the rest of the industry. It was a great outcome for him.
We went to our investors and said, “We have this amazing thing that we’ve stumbled into. We should be a CRM for vertical markets and focus on these niche industries.” The investors hated it. They wanted nothing to do with it. They were like, “The Internet thing seems like a fad. Who’s going to buy a CRM software from the Internet?” We could not raise money from an outsider.
We transformed from a venture-backed startup to a bootstrapped startup with about $250,000 left in the bank. My founders and I went on a full starvation diet. We had no paychecks. We were working for equity at that point. We were able to convince some angels to give us about $800,000 to get us to profitability. I challenge you to find a SaaS company at our size that got to profitability at about $1 million. We customer-funded our way.
Sramana Mitra: That’s awesome. That’s the best way to build businesses.
Art Papas: It’s absolutely the best. As we started to grow, we became super-focused on the impact of every dollar. That almost worked against us because there’s a point where you do have to invest in customer acquisition. We were just never comfortable burning money after that point. I got addicted to profitability. We were growing fast. We went from $1 million to $2.5 million. We were almost doubling every year and with profits. The VCs in the Boston community heard about that and they were like, “We have to invest in this business.”
Sramana Mitra: You had your original VCs still in there?
Art Papas: We did. It was 2008. Highland Capital and General Catalyst came along. I wasn’t looking for money. They said, “We want to invest.” We did an investment round where we actually took more money towards buying out the original shareholders. We only put about $8 million on the balance sheet.
Sramana Mitra: It was almost like a private equity transaction.
Art Papas: Yes. It was almost a management buyout.