Sramana Mitra: It’s, effectively, becoming a competitor to Mechanical Turk and UpWork.
Stephanie Leffler: Absolutely. UpWork also happens to be our partner. We’re fully integrated with UpWork and have an API integration. If you’re hiring freelancers there and you want to scale your project, people will often use OneSpace. UpWork provides people but they don’t provide a software that lets you manage them at scale.
Sramana Mitra: In this mode, what are the metrics of the business? How did the services business ramp up? How many customers and what kind of revenue? Once you switched a few months ago, what are the early metrics of the new format of the business?
Stephanie Leffler: We are so early with the new format that I don’t even have metrics that I can provide you. Our software went into beta two months ago. Our first fully paying customer on the software is set to go live next week.
Sramana Mitra: How many customers did you have at the end of 2015 on the previous model?
Stephanie Leffler: We had just over 50 active enterprise customers. Our customers on the enterprise model are all north of $200,000 a year in spend. They’re all pretty big customers. That’s one of the things that we’re excited about. We can finally get to expand to some smaller businesses because in the managed service space, you have to be at a certain scale to make sense.
Sramana Mitra: Your expectation is that these 50 customers are going to switch to your software model as well?
Stephanie Leffler: Our expectation is that some of them will. I think many of these customers are the type of customers who are coming to us because they don’t actually want to manage their own on-demand workforce. They want someone to manage it for them. We intend to continue to do that. Even in the software model, if they come and buy our software and want somebody to handle all the management, we still have a team here who can do that.
Sramana Mitra: You’re keeping the managed services business and you’re introducing an additional SaaS business on top of that?
Stephanie Leffler: That’s correct.
Sramana Mitra: You will continue to recruit customers for the managed services business?
Stephanie Leffler: We will. The best way I can characterize it is we see the SaaS business as our growth engine. It can scale the fastest. However, there are big customers out there that will allow us to grow our revenue by continuing to provide managed services. Our priority is SaaS, but we are keeping an enterprise sales team to be able to effectively sell managed services to large enterprise as well.
Sramana Mitra: Talk to me a little bit about your financing strategy. You said you raised money from Highland. At what point, with what investment thesis, and how much?
Stephanie Leffler: In October of 2012, we raised our A round with Highland. They invested $12.5 in the business. We were very small at that point. It was well under a million dollars in revenue.
Sramana Mitra: Why did they invest $12.5 million at that point? That much money in an A round is a very large A round.
Stephanie Leffler: We were a bit different than others in that my partner and I had invested quite a bit of money in the business. Because we already had made a pretty large investment, while Highland’s investment is classified as an A round, they thought of it as more of an early B round. I don’t want to come off as being aggressive but at that time, we did have the money that we could have continued to fund the business with.
The main reason why we considered raising capital was because someone from Sequoia called us, “Are you interested in raising money? One of our portfolio companies uses your product.” We refused. For two weeks, I was stewing on it and wondering what that world is all about. I called the guy from Sequoia back and he said, “Let me walk you through what it’s like and what we could do for you.” That was the beginning of that process. Before I knew it, we had multiple firms who were interested in issuing term sheets to us.
Highland just happened to be our favourite firm. We had a lot of skin in the game. People like Amazon were talking to these investors and telling them how large they see the space becoming. We were able to get a really favourable deal because there was competition.
Sramana Mitra: Is that the last round of financing?
Stephanie Leffler: We just raised a B round in December of 2015 with Lewis & Clark and Highland. Our main reason for raising that round was, our SaaS launch was around the corner. We wanted to be able to bring on more dollars to invest in sales and marketing to put some feel behind the SaaS product when we launched. Lewis & Clark is a new fund. It’s based in St. Louis. We had a lot of familiarity with them. A couple of different things came together where we were in a position that we were thinking about it. We really liked the people who were participating in Lewis & Clark. We raised $9.5 million in our B round.
Sramana Mitra: At this point, you’ve raised over $20 million. You did more than $10 million last year?
Stephanie Leffler: Yes.
Sramana Mitra: What are you forecasting? What kind of numbers do you expect to reach in the next couple of years?
Stephanie Leffler: In the next three years, I think we’re capable of hitting $40 million to $50 million. The space, in an of itself, is exploding. The thing that keeps me up at night is if we have the right product that’s going to capture the attention of companies who are moving in this direction. I really believe the answer is yes, but until we’re out there in full production, there’s not proof until it’s happening.
What I do see is more than half of the spend on labor in the United States is on contingent labor. The big change that’s happening here is it’s not just companies wanting to be more flexible, but the level of talent available is totally different from a few years ago. I think it’s going to be something where we see companies pushing their traditional full-time position to the cloud.