In our second part of the interview we delve into Exterprise, the first business venture by Manoj.
SM: What was your first company?
MS: It was basically a business collaboration platform, a company called Exterprise. We started that in June of 1998 and we sold it in March of 2001. We grew pretty rapidly from our five employees initially to over 240 people within 18 months. We sold it for $114 million to Commerce One. We had raised about $28 million in cash from very good VC funds like Morgan Stanley, Dell and Austin Ventures.
SM: Did you know these people from before, how did those connections happen?
MS: Well I didn’t know them and I didn’t know anyone in Austin when I left to start Exterprise. When I first started, I was told was that I had to have very good lawyers and accountants. So I went to the best legal forum in Austin, Wilson Sonsini. I talked to their lawyers and basically told them that I could not pay them their $400-$500 an hour bill; but, what I could do is buy them lunch at any place of their choice and get advice over lunch, and eventually, if I get funded they would become my lawyers. I didn’t want to spend the $200k credit card capital on $400 an hour lawyer fees. Through them I got introductions into people within town.
SM: Why did you pick Austin?
MS: I moved down from 3M for a business unit, 3M telecom here in Austin.
SM: So you had already moved to Austin. Austin was already your home base by then.
MS: Out of the eight years I was with 3M I was five years in St Paul. Then they moved me down in 1995 to run a portion of the telecom business.
SM: So Wilson in Austin put you in contact with some of their VC contacts.
MS: Right. Another executive from Synoptics, Shelby Carter, I got to know him and he wanted to get on board. At that time Shelby had a choice of going and running the campaign finance for President Bush, or to come be the non-executive chairman for my company. He was convinced and impressed enough to come in and join us as an investor.
SM: So that was your angel investment, from Shelby. And how much was that?
MS: About $200,000.
SM: And how far did that take you?
MS: If I remember right we raised our first venture funding in February of 1999, so seven months.
SM: And that got you to a protoptype, customers?
MS: Yeah, it got me the first couple of customers and it also got us to another version of the first prototype.
SM: And then you got your first funding? Any other highlights during that period of building Exterprise?
MS: Yeah, some of the things that stand out is the quality of customers we were able to get. It was 1998 when we started and 1999 when this whole thing started picking up. We had apretty impressive customer list: Bell Canada, John Deere, Dell and companies like that. One of the highlights was when Michael Dell stood up in a conference and demonstrated the Exterprise product as a way Dell was going to do e-commerce in the future. I look back at that as something significant. Then again, growing from 5 people to 240 in 18 months, that was quite a rush. Also, opening our offices in the UK and Southeast Asia. I think those were all some pretty good memories.
SM: How did you get into Dell?
MS: Dell again was one of the first things we had done. Michael Dell had his own personal investment arm called MSD Capital. They had looked into funding us and then they asked for some terms. I walked away from them because they wanted some terms that didn’t work. About eight months after turning that money down, Dell Ventures came to us. They had heard of Exterprise from other people as a high growth company and they came into talk to us and they invested in us. Following that we took that opportunity to go and sell our product to Dell.
Our Serial Entreprenuer series continues with a fascinating interview with Manoj Saxena. In this first segment we explore his background up to the point of his first venture.
SM: Where did you grow up?
MS: I grew up in India. A city called Hyderabad most of my life and then we were down in Bombay.
SM: Have you read any of my writings on the entrepreneurship in India?
PO: Yes I have, and we have talked some on this. What are you referring to specifically?
SM: Well I did a series under the title of Concept Arbitrage. If you look at Indian entrepreneurship right now there is a huge amount of concept arbitrage where you copy stuff that has happened in the US and it is less of really developing original software, hardware and chip ideas. By and large, in India, the latter style of entrepreneurship is still extremely immature.
PO: I don’t think I read that part. I did spend a week in Israel just before the war this year. I had to understand what happened in Israel that took them from oranges to high tech in about 15 years.
SM: What did you gather from that?
PO: It is very different from what you have described in India. There is not much of a local market, so everything has to be focused on software and telecom, usually in the US. Israel has developed a formula for building things and selling it to the rest of the high tech world. It is not just a cultural thing, but it is an intentional mindset of the government in the early 1990’s. The timing was just incredible. Israel produces a big chunk of the new technology coming to the world of enterprise software.
SM: I was actually in Israel last year twice. I was working with an Israeli client and it also struck me, that although the country is constantly in some kind of geopolitical threat, it constantly produces great entrepreneurs. This is a much more sophisticated entrepreneur population than the Indian entrepreneurs for sure.
PO: They are very sophisticated. Let me give you an example. A professor there at one of the top technical universities in the world, if he leaves his job and goes to work in industry, he will probably double his salary. In Singapore he will cut his salary by a third or half. In Singapore the best and the brightest come back to serve the army and they stay on there, and they keep serving as public servants and retire in that role.
In Israel the best and the brightest spend a bit longer than you would think in the army, in their late 20’s and early 30’s they are involved in the military, and afterwards they come out and start building businesses. That is what happens on a regular basis. I spoke to about 70 people in my 10 days or so there, and a lot of them have that background. It is an expected thing for the best and the brightest. Whereas in most of the other places, India, China and Singapore, the best and the brightest are not necessarily expected to start their own businesses.
SM: In India right now there is a big issue that all of the best and the brightest are sitting with very fat salaries inside of multinationals. They are not in academia because academia does not pay very well in India. If you are a high level, high powered IT person you are probably inside a Texas Instruments, Microsoft, Yahoo or a Google rather than an entrepreneur. Because with entrepreneurship you are going to have to slog for a while, work without a salary, whereas the top level managers are making literally $150K – $200K which is a lot of money in the US, and it is a hell of a lot of money in India.
PO: I agree. I guess my perspective is that as long as a significant number, not necessarily percentage, but a significant number of people are entreprenuers, their economies will be fine. The advantage of India and China is numbers. So even if only a tiny fraction of the good people do entrepreneurship, the countries are fine. Singapore, unfortunately, does not have that luxury. This is one of the things that will slow our growth after a while. If we do not create high gross margin businesses, the growth goes away.
This has been a thoughtful interview with Peng Ong. It is very interesting to hear not only how he started, but the goals and objectives he has for the future. After being a successful business entrepreneur he looks all set to become a socio-political entrepreneur.
After founding Interwoven, Peng Ong become involved in some unique projects with the government of Singapore and even tried retiring. However, he discovered he still had a passion for entreprenuership and founded his next company, Encentuate. We also gain some insight into his future goals.
SM: After Interwoven did you found Encentuate right away, or did you take a break?
PO: I tried to retire. I moved back to Singapore in 2000 which was actually very timely because Singapore had some economic hardships during the Asian crisis, so the administration convened an economic review committee and I was invited to be on that 20 person committee to study entrepreneurship and give recommendations. I headed up a focus group on entrepreneurship for that committee. It is eye opening working with an entire country opposed to a company. I spent a couple of years on various dealings in that area, and then I started Encentuate.
SM: So you wanted to retire, but that was not exciting so you decided to start another company?
PO: After a while you start asking yourself, “I am 36, what am I going to do?”. I decided to do what I knew how to do, and that was start another company.
SM: So, the situation with Encentuate, what is the idea and what stage are you at – what did you put in and what is your plan?
PO: Encentuate’s key idea is very simple. Today most enterprises have existing systems in place. If you try to implement something across these systems like single sign-on, authentication management across these systems, on of the biggest challenges you find is that you have lots of systems and they are all different. I call it the asymmetric problem. So, every system you have, needs to integrate in such a way that requires a significant amount of project time which is a disruption to the business.
The problem exists because each system requires a different type of integration. When we asked ourselves, “Where in the IT infrastructure can you plug in something that is symmetric?” we realized that it is not at the backend, but it is at the end point which is where the user comes in. That is where our technology sits, at the end points – the phone, the PDA, the PC – these are all end points where human beings come into contact with digital systems and that is where we can aide the enterprise and aide the users in doing what they need to do.
The way people think about IT will evolve to include a very concrete IT endpoint strategy, how to implement certain functions across the entire IT system. So we started off doing a single sign-on solution with authentication management. We have been identified as one of the hot companies for 2006.
SM: Great, congratulations! And you are still running the company?
PO: I am in transition. For personal reasons, I am moving back to Singapore.
SM: When you transition back to Singapore, are you still going to have an executive role in the company or are you going to hand over the operational part?
PO: I will be involved, and I guess it is a matter of how you define operational. I will go meet customers. My personal restrictions, I can’t travel too much.
SM: So what are you looking to do in the next phase of your life as Encentuate kind of gets a bit more on autopilot?
PO: It won’t get on autopilot for a while. My passion is entrepreneurship. I believe entrepreneurs, and the entrepreneurial mindset, is what brings about the bulk of progress on the planet. Whether it is on the social side or the business side, or frankly you can be entrepreneurial politically. So I would like to spend at least a chunk of my life pursuing that, and grow that both in Singapore and Globally. I am engaged with the government of Singapore trying to do that.
SM: Is that going to take the form of mentoring young entrepreneurs and investing in them, and that type of opportunity?
PO: It might include that. One of the challenges for Singapore, if you look at our population and our history, we have been very successful at brick and mortar businesses. Which means the business entrepreneurs we have are more from traditional industries. The next generations of entrepreneurs we need to have in Singapore are like what India and China are producing, the high gross margin IT entrepreneurs that produce businesses that customers pay a lot for in IT, not in cost of goods.
We continue our interview with Peng Ong and talk about his next venture, Interwoven. Here Peng addresses some very interesting topics and his personal philosophy on risk.
SM: So tell us the story of Interwoven. You put in your own money?
PO: I think the interesting thing if you look at my career, usually the one job before helped me in my current job. In match.com I saw all kinds of people trying to update the website and they were breaking things left and right. It was not just the engineer. It was the marketing person, the graphic designer, the sales person – all kinds of people were trying to get stuff on the website.
You stop to realize, in most cases in the world where you have lots of people trying to put pieces together for one deliverable there is usually a system. In a factory there is a production line. In the legal world there is document management. Websites were initially small, so you thought, “OK a few people can hack it up”, but when I looked at some of the early sites I realized that websites were going to be really big. The earliest one I saw was Cisco’s website when they had 3 Terabytes of storage. At that time you needed three or four machines to store three terabytes and literally thousands of folks trying to update the website. So it was problems like that I was sort of anticipating, but I did not realize the scale was going to be that huge, like Cisco, but I knew it was going to be big.
I knew, in every domain where this kind of problem existed, there would be two or three companies that would build significant and successful businesses out of that domain and I did not think the web would be any different.
SM: I think that was a perfect assessment of the lay of the land. It was brilliant opportunity identification.
PO: Because of the way I think of things, I tend to be less of an “out of the ball park” home run type person, and more of a guaranteed kind of moderate success. I tend to think of a domain which is significant enough, large enough, but it is not going to be everybody and their brothers that are going to want in on it. I stay pretty focused, not like Google or something that big.
SM: Let me take you back to the time when you were in the process of founding Interwoven. What was the level of risk that was involved? Were you putting in a substantial portion of your net worth to fund this company?
PO: Yes. If Interwoven had gone under I would have had to start over again, except for the house. I would have had to start everything over again. I was 32 when I started Interwoven, so I figured there was plenty of time to start over if needed. I think that is where the lessons from my Dad helped.
SM: I am an entrepreneur’s daughter as well, and it is a risk taking propensity that I think kind of gets built in if you are from that type of a family.
PO: Let me try and pose this slightly differently because I think this helps some folks even if it doesn’t help everyone. I am actually not a really high risk taker. I will explain why. It is how you look at risk. Most of us, when we think about risk we thing of dollars and cents. Now flip the situation around and think about something else; in my case I invite people to think about the time they have. You can always make money here and there later. If you don’t make some now you can make some later. You get a little bit smarter and you can figure out different ways to make money.
Time just keeps marching on. Most of us that I know of have a limited supply of it. The biggest risk to me is not that I loose money but I do not make use of the time I have as effectively as I can. When you look at it from that perspective it is very risky to get a regular job, not learn anything and not to experience very much. From that perspective, losing all of my money is lower risk to losing all of my time.
SM: Interwoven, after you seed funded it yourself you also raised some venture money as well. Who was your VC?
PO: The first one DFJ. Steve Jervetson was, I think, a rookie at that time. It was DF, there was not a J at that point. He and I got together, I can’t even remember how we got together, but we have been in touch ever since then. He saw what I was doing and he invested immediately, and we got off to the races.
SM: How long did that take you?
PO: I don’t remember all of the timelines. We got our series B probably less than 12 months from series A, and then series C came in. Series C was when Foundation came in with Excel and Martin Brauns came in, which was the guy who helped take us public and really ramped us up as a business.
SM: You were there the whole time?
PO: I resigned from the board in 2002.
SM: By that time it was public already, right?
PO: Yes, we went public in September 1999.
SM: Perfect timing, the absolute peak of the market.
PO: Yes, and we did our secondary in January of 2000. Imagine that! That saved us basically. We are still a world’s top 50 software company by revenue.
SM: In terms of dilution and valuation, what kind of ownership were you able to maintain until the exit?
PO: After the IPO I had, I think 10% of the company.
SM: Where you still running the company, or did you have a CEO?
PO: Martin Brauns came on board in 1998 as the CEO, along with a series B investment.
SM: And you were the CTO at that point?
PO: No, I took over services believe it or not, because that was an area in which we were having problems at that point.
Previously, we discussed Peng Ong and his background. Today we begin to explore his first true entrepreneurial venture, Electric Classifieds, which spawned the creation of Match.com, the worlds largest online dating service.
SM: How long was match.com?
PO: I spent probably a total of less than a year totally active there.
SM: So you were co-founding at an idea level, and you were there for a year, but you did not really bet on it completely.
PO: No, I did not. The reason is not the business or the partners or the people at all. If you look at my history I am a hardcore software guy.
SM: And match.com is a marketing business.
PO: A marketing business, a systems integration business. I realized I could help Gary articulate the technical requirements and help him find the right folks on the technical side, but I would not have the kind of fun I like to have doing that.
SM: Doing the hard core technology stuff?
PO: Yes, and I was upfront with Gary and he knew it going in.
SM: How did you come up with the idea? Were you looking for a girl friend? [laughing]
PO: No, Gary was! [laughing]. Just kidding, I should let Gary talk to that. I met Gary when he was at Sybase at the Software Entrepreneurs Forum in 1992, I don’t think it exists now. It was a very effective forum for a lot of entrepreneurs of my era; late 80’s early 90’s. I met Gary then because he had been doing another startup, Los Altos Technologies I think, and that was his first startup. We had similar backgrounds, both EE’s, and we both got along pretty well, so we started brainstorming on different things to do.
SM: So in 1993 you started match.com
PO: It was actually called Electric Classifieds, and the idea was larger than dating. Why should human beings process 50 newspapers to find what they are looking for? Why can’t you get computers to do it?
SM: So it was more a Craig’s List kind of concept?
PO: It was classifieds, somewhat like Ebay in a sense that it was vertical. The idea was to create a marketplace to facilitate using different kinds of exchange mechanisms (a Double Dutch auction for example). Classified ads were one of the models of doing the classified exchange. We zoomed into match making because when we did our research into classified ads we discovered a lot of newspapers generated a bulk of the revenues from the personal stuff.
SM: So that is where you went?
PO: We thought we would build our first vertical element with matchmaking. We actually were fairly early on in the dot com days, in fact we were debating whether we should do faxes, email , voice, that kind of stuff and then the web came along and we decided to just use the web. We got a lot of the vertical dot com addresses. We had cars.com, and a whole bunch of really good one word domain names. I can’t remember how much we got out of that portfolio when we sold it, but I remember we made something.
SM: How big did Match.com become in terms of revenues and scale before you sold it?
PO: I actually don’t remember because in the middle of all that, when they were selling match.com, I was already into Interwoven and was preparing to take it public.
SM: How did you fund match.com? Did you raise venture capital?
PO: Initially no. Gary actually funded it himself, but within 6 months to a year we got some VC’s involved.
SM: Was it a good exit?
PO: There are a lot of lessons learned there. It was the first dot com, and it was very early on. But I think we did the right thing by selling it, because through the handoff it is now the world’s biggest dating site. In some ways I look at Electric Classifieds as a failure because all it did was Match.com. If it had been successful it would have looked more like an Ebay. It would have had multiple verticals.
SM: And you sold it fairly early in the game?
PO: I think it was like 1998 or 1999, just as I was going out with Interwoven.
SM: So that was four years already?
PO: Yes. I had left operations by 1996, when I was in full swing with Interwoven.
Here is an interview with Peng Ong, the first in a new Serial Entrepreneurial series. This series will highlight those entrepreneurs who have repeatedly been able to come up with innovative ideas for new ventures, been successful in their endeavors, and also failed, but most importantly, have taken in their stride a certain way of life that includes risk and experimentation. We focus, here, on not only the businesses which they have created but the processes they followed.
Here’s an article from today’s New York Times on how entrepreneurs are shunning venture capital, and choosing to bootstrap their companies. While that is a very good strategy for web 2.0 plays where very little money is needed, and a 12-18 month exit is in the cards, is it necessarily the right strategy for all startups?
Let’s take the example of an idea-stage internet deal that, at first glance, looks extremely capital efficient. It will probably only take $5 Million to get to profitability in 3 years. Let’s assume, also, that it is not a built-to-flip, but rather, a built-to-build.
Beyond the 3 years, raising capital will become very easy for such a company. So the real question is, what is the right financing strategy for the seed and series A?
Here are the options:
(a) Bootstrap for at least 6-12 months, build up traffic, then raise a $5 Million Series A at a decent valuation ($6-7 Million). This may be all the capital the company ever raises, which
makes it a good deal for the entrepreneurs, who can possibly retain 47-50% of the company. It will, however, be a slower ramp than what a bit of capital infusion early can achieve.
(b) CRV Quickstart or equivalent – Take $250k debt, and raise Series A at a higher valuation of $5-$10 Million. If you can push valuation up to $9-10 Million in Series A, then you conceivably could get to keep over 55% ownership.
(c) Take a $1 Million seed round. Pre-money valuation will be around $2 Million, and hence the dilution ratio is very significant for little money. However, if you assume a $9 Million pre-money on Series A, where you raise $4 Million, the Founders still get to keep 40% of the company.
(d) A third option is open only to more experienced entrepreneurs. Raise $2-$5 Million.
(e) And finally, strategic investors are offering money right now as well, which fetches somewhat more attractive valuation numbers, although, may have strings attached.
Which is the right strategy? That decision is based on a number of qualitative factors, especially, who brings what to the table besides money, time-to-market, apetite for bootstrapping, etc.