Sramana Mitra: In your situation, having worked in finance, very often, there tend to be good friend investors. As angels, they act as friends and family angels. I love what you said that you raised money from your customers. It’s something that we’re talking about from a methodology point of view.
We have done a few case studies of entrepreneurs who have basically raised money from their customers, which is a fantastic way to raise money because not only do you get the customers in as investors and promoters of what you’re doing, you’re also getting actual revenue into the company from these customers. Across the board, it’s a valuation-building methodology. It’s a word-of-mouth building way of doing business. Personally, I love the idea of raising investments from customers.
Greg Besner: My first customer was Deutsche Bank. My lead investor helped.
Sramana Mitra: How long did it take you after that to launch the service?
Greg Besner: We were located at 12th Street and University in New York. We were funded on September 29, 2000. We started building the team and the product. We were scheduled to go live with Deutsche Bank on September 15, 2001. Obviously, 9/11 happened four days before that. We were selling to financial services firms. We were in New York downtown. The servers for our software were located at the World Trade Center. These are our customer servers.
Our first couple of customers were on-premise. By our third customer, we’d converted fully to SaaS. It was quite a horrible day at New York for everyone. The fate of my company didn’t seem quite important as some of the bigger challenges that we all had living in the New York area. Most of us lost someone we knew. That was a pretty big challenge in the middle of this company. Of course, I didn’t have a lot of capital sitting around to weather this time period, which no one knew how long would it last. Even the NYSE was closed. Nobody was buying or selling restricted stocks.
We got past that period. We survived 9/11 as a company. It took us all the way to April of the next year to go live. By that point, we signed up Charles Schwab, Bear Stearns, and Lehman Brothers. We ended up having a lot of success building a team and product. We sold the company seven years later. It was Halloween of 2007. I started the company right after the market crashed and I sold it right before the next crash. At least, I got sandwiched in between.
Sramana Mitra: I have a couple of questions on that before we switch to the other company. You were selling direct, I imagine, to the banks?
Greg Besner: Correct.
Sramana Mitra: What was the pricing model?
Greg Besner: After Deutsche Bank and Charles Schwab, our third customer was Bear Stearns. We convinced them to let us host. As you know, that’s a big deal. The SaaS term didn’t exist yet. We ended up co-locating servers at IBM. We told Bear Stearns that we would not charge them for hosting. Back then, it cost us $12,000 a month to maintain our facility. Our goal was if we could convince Bear Stearns to let us host their system and their data, we can convince others.
Sure enough, every customer from our third customer on was a SaaS customer. For our large financial institutions, it was a pure enterprise sale. It was an annual contract. Even with the first two customers that hosted on-premise, we still didn’t sell it traditionally. We always charged with an annual subscription. Back then, the term SaaS didn’t exist. People didn’t talk about the cost of acquiring customers. People didn’t talk about long-term value.
We had to make a lot of these things up along the way, but we were very fortunate that we had structured our company. The reason we did was we were such a young company, we knew we’d be changing the software so frequently that it was really important to us to host it so we could update it without having to schedule with these big organizations’ large IT projects. It was less of a strategy but more of just having a more agile process and being able to update our product.
Sramana Mitra: Through all this, were you doing deal sizes in the hundreds of thousands range?
Greg Besner: The average contract value was $120,000 for our enterprise business. After 2002 when we started selling a corporate version, the average price was closer to $10,000. That was a higher velocity sale. For our large enterprise account, it was one company at a time. When we started selling to HR, we would schedule twice a week on-boarding. We’d have 10 companies on an on-boarding call. We’d train them all at the same time. It’s a different model than selling to Charles Schwab.