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Bootstrap First, Raise Money Later from Houston: Onit CEO Eric Elfman (Part 2)

Posted on Tuesday, Sep 22nd 2020

Eric Elfman: The data search idea was to remove the paper invoice system and switch to electronic invoices directly from the law firms and run them against the rules and validate them. The result of that was a 5% to 10% savings on the money they were spending with the law firms just by enforcing guidelines that were already set.

At the end of the day, it was like someone in the supply department was checking the box of all the paper clips they received and validating that you are getting what you are paid for.

That’s all we did. We brought that to the legal department and we had to invent a brand new space because the electronic invoice format for law firms didn’t exist. There was a lot of foundation building that had to go on, but that was the heart of the idea. 

Sramana Mitra: What city were you doing this from?

Eric Elfman: It was in Houston even though our customers were all over the world. We weren’t Software-as-a-Service because it was physical software, but there was an online component to it.

I’ll back up even more because there was one more reason why I got into the legal industry. There were a lot of adjunct professors in the Rice University program. These were people who were working in an industry, so you were getting practical knowledge. One of the professors used to say that in the land of the blind, the one-eyed is king. What he meant was why would you take this shiny new MBA or go start a company in a space like investment banking and consulting where all the smartest people in the world were already competing.

Why not go to a backward or a slower industry where you don’t have to bring rocket science. You just need to bring a little innovation that could be repurposed for something else. That led me to legal departments because it was traditionally technology backward. 

Sramana Mitra: What year did you start the company?

Eric Elfman: In 1998.

Sramana Mitra: Talk a bit about fundraising. You said you raised a lot of money for this company. What was it like to raise money in Houston in 1998?

Eric Elfman: It was like the backwater. I had two things going against us. One was Houston. There was an investment community that had been built in Austin, but Austin might as well have been an ocean away from Houston, which is a traditional oil and gas company hub.

We also had legal technology against us because there hadn’t been good examples of companies selling software to lawyers that had been funded. We had to fight this notion that VC’s generally don’t sell to lawyers or doctors because they are partnerships and the money comes out of their back pocket.

It was tough. There were also no accelerators at that time that we could take advantage of. There was no Rice Alliance for Technology and no Houston Technology Center. None of these institutions existed. It was kind of a backwater. We had to find a way to prove what our ideas were without using someone else’s money. 

Sramana Mitra: So you bootstrapped?

Eric Elfman: We were bootstrapped to start with, then eventually raised money. I had to consult with folks like JP Morgan Chase and Ameritech. It was the first thing I did at the company I started and that was to have the money to fund the software development that we would sell back to solve this problem in the legal department. 

Sramana Mitra: Were you consulting for the legal department of JP Morgan?

Eric Elfman: Yes, and they were helping build the products. Not only would I be providing services to them in the legal department, but they also needed the software that we were building. It was a little bit of co-development as well, but I was providing 10 hours of service to these two companies a day while trying to write the software that we eventually sold to them both.

We eventually got to a place where we had five Fortune 500 customers using our software. They were run-on servers in a closet in the spare bedroom of my apartment at that time. This was in the early days where people weren’t thinking about where this data was flowing through.

It was only at that level of proof point and half a million dollars of revenue where we could raise money, but even then it still wasn’t a venture capital play. I eventually raised $10 million of angel capital in the early formation of that. 

This segment is part 2 in the series : Bootstrap First, Raise Money Later from Houston: Onit CEO Eric Elfman
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