Sramana Mitra: How many clients did you have in 2007?
Kevin Groome: Brands under management were 40. Billing relationships were probably 15.
Sramana Mitra: What kind of revenue level were you at?
Kevin Groome: We were at around $1.6 million in subscription revenue. We used to call ourselves an ASP.
Sramana Mitra: I remember that.
Kevin Groome: I’m dating myself.
Sramana Mitra: That’s a great number to go out and raise your first round of financing. Did you raise money in New York?
Kevin Groome: This takes me back to Princeton. My best friend from college was an entrepreneur in his own right. I went to him and his dad for advice. I wanted to know how to model this company. We got involved in these conversations. It was a three-day weekend.
John decided to lead an investment. He brought together a group of friends and family. They bought out my partners. What was interesting was that we didn’t get a lot of capital.
We got an investment group that wanted to build a SaaS platform. Everybody knew that that was the strategy. That was when the next phase of the company happens.
Sramana Mitra: How long did it take you to complete that transaction?
Kevin Groome: I would say three to four months. This did not happen overnight. There was some dancing and a little bit of relationship-building. For my partners, this was an opportunity to realize.
There was also a lot of due diligence around what do we have around the software itself. We discovered the difference between building 25 similar solutions and building one solution that can serve 25 needs and hundreds of others.
Sramana Mitra: Given that scenario and that due diligence, how did you value the company? It wouldn’t get the kind of multiple that a fully camera-ready software company would get.
Kevin Groome: The investor group did the valuation. SaaS companies probably earn six times of revenues. John gave us a haircut on that. It was a substantial haircut, but it wasn’t as substantial as it could have been. He tried to demonstrate some recognition of the value of identifying the problem and finding product-market fit.
Sramana Mitra: It is of immense value. You could always rationalize the rest.
Kevin Groome: It was a hefty haircut off of what you would see a SaaS valuation, and deservedly so. It was richer than what I had always anticipated in the services business. In services, 1.5x revenue is a target. Sometimes, you’ll creep toward two. We were above that. I thought that was a fair valuation. Our valuation at that time was around $6 million.
Sramana Mitra: So a little over 3x.
Kevin Groome: Yes.
Sramana Mitra: That’s fair I think. Are we before the financial crisis?
Kevin Groome: Right before the financial crisis. For the first time ever, I have a Board. I have a partner. John functioned as COO. I had a day-to-day partner too to figure out how to lay all these different pieces on the shop floor. John was an English major just like me.
We had a common mission, which was to build the true multi-tenant platform. We have aligned the culture around that. That was something brand new to me. The culture that we’ve created up until that point was so client-oriented. We went through those learning phases in 2008. A year after the deal, the financial crisis hit.