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Bootstrapping Using Services First, Raising Money Later: Rohyt Belani, CEO of PhishMe (Part 5)

Sramana Mitra: One of the things that’s obviously a huge benefit of this model is valuation. I imagine your Series A valuation is way larger than many others who would try to go raise money early. We did the story of Tableau. Tableau raised Series A at a $20 million pre-money valuation. They bootstrapped for two years and they were $6 million before they raised their first round of financing. Their first round Series A valuation was $130 million. What was your experience in terms of valuation and where were you raising money?

Rohyt Belani: Our primary institutional investor has been Paladin Capital based in Washington DC. Especially in this latest round, we had a lot of interest from Silicon Valley investors. As you rightly pointed out, the valuation was pretty wide. By the way, I’ve read quite a few of your blog posts and I find them very intriguing. I’m not one of those entrepreneurs who’s solely focused on valuation. That’s not a criterion of success for me. A lot of people get the Unicorn status but they signed away for liquidation preference. I’m more of, “What’s the deal holistically?” If you seduce me with >>>

Bootstrapping Using Services First, Raising Money Later: Rohyt Belani, CEO of PhishMe (Part 4)

Sramana Mitra: Walk us through the process of building the company. You spun the company off at what point? Did you already have clients when you spun it off?

Rohyt Belani: We did. We had about 20 customers at that point. It was a tightrope walk. As you can imagine, a product company in its early days does lose money. What we did first was, before we spun it out completely, we actually made PhishMe a subsidiary of Intrepidus Group for a year so it could still share financials. That gave us a year’s worth of overlap to figure out what exactly would be needed from a financial standpoint. A year later, we also realized that we had to get a blessing from the IRS to do a tax-free spin off. We were able to spin it out completely with much more of a level of comfort when we understood what it would take financially to support PhishMe. We then started looking for capital.

Sramana Mitra: How were you charging these 20 clients that you had before you spun off? What was the financial arrangement with these guys? Had you zeroed in on a pricing strategy for your product?
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Bootstrapping Using Services First, Raising Money Later: Rohyt Belani, CEO of PhishMe (Part 3)

Rohyt Belani: Just to lay it out, Farm Stone was acquired by McAfee. I worked there. Then I worked at Mandiant, which was acquired by FireEye. The group I had founded with Aaron was also acquired in 2012. Along that journey at Intrepidus, we had already come up with the product idea for founding PhishMe. PhishMe has been around since early 2011. It had a bit of an overlap with the Intrepidus Group. We’re coming up on five years of existence this January. We’ve set out to solve a problem, which is still the problem of the day when it comes to cyber security, which is targeted phishing attacks.

Sramana Mitra: Let’s go back to five years back when you were starting PhishMe. You had already gone through several exits, whether you co-founded or not. I presume that you, at this point, had a bit of capital available to yourself?

Rohyt Belani: We actually bootstrapped the early days of PhishMe because it was incubated inside of Intrepidus Group. >>>

Bootstrapping Using Services First, Raising Money Later: Rohyt Belani, CEO of PhishMe (Part 2)

Rohyt Belani: Here I am on a student visa with eight weeks to go till graduation, and I was starting to scramble for a job. Then, I just ran into a job. I ran into a gentleman, literally, in the hallways of Carnegie-Mellon. I was introduced via email to him. He was an Adjunct Professor. He was teaching a security course that I was not taking. I ran into him. I was naïve enough to not think of it as an interview. I literally showed up dressed in flip-flops, shorts, unshaven for three days, and looked completely sloppy. I met this gentleman who was the founder of a security company and an adjunct professor at Carnegie-Mellon. 45 minutes into the conversation with him, he actually offered me a job at his company.

Sramana Mitra: This was all happening in the Pittsburgh area, right? >>>

Bootstrapping Using Services First, Raising Money Later: Rohyt Belani, CEO of PhishMe (Part 1)

Following up on our ‘Bootstrapping Using Services‘ and ‘Bootstrap First, Raise Money Later’ case studies, here’s the story of PhishMe, a cyber security company that has scaled nicely.

Sramana Mitra: Let’s start at the very beginning of your story. Where are you from? Where were you born, raised, and in what kind of background?

Rohyt Belani: I am originally from India. I was born and raised in India. I was there till the age of 22. I did my engineering in India.

Sramana Mitra: Where in India are you from?

Rohyt Belani: Bombay. I came to the US to pursue my graduate studies at Carnegie-Mellon back in 2000. >>>

Bootstrapping with a Paycheck: Aytekin Tank, CEO of JotForm (Part 4)

Sramana Mitra: Were you seeing the same kind of conversion levels from free to premium?

Aytekin Tank: I can’t actually recall the numbers right now.

Sramana Mitra: This is a very big question. Whenever people are doing freemium products, it’s a question that we ask. It’s something that people are trying to understand. What are the dynamics of a freemium business. It seems like your business is a freemium business. You’ve talked quite a bit now about the benefits of releasing your first product as a free product. Really, the way to make a business work out of that is that conversion rate. It’s a critical issue in this interview that we should cover. In your second year, you did have a freemium product. You were actually monetizing in 2007. You had three products in 2007 that were all in that freemium mode?

Aytekin Tank: Subscription businesses like SaaS start very slowly. With the free version of JotForm, we had a $9 premium version. >>>

Bootstrapping with a Paycheck: Aytekin Tank, CEO of JotForm (Part 3)

Sramana Mitra: Did the market accept that you had a better product?

Aytekin Tank: Yes.

Sramana Mitra: Who were the competitors that you faced at that point?

Aytekin Tank: JotForm came out in February 2006. Before that, there were many forms products. All these products had old interfaces. Most of them are not very popular these days. After JotForm came out, some really good products came out. This was back in 2006. That was an important time for many web applications because there were many new things that were possible.

Sramana Mitra: How were you acquiring customers? Was it organic search, paid search, or online digital marketing? How were you finding customers?
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Bootstrapping with a Paycheck: Aytekin Tank, CEO of JotForm (Part 2)

Sramana Mitra: What was the revenue level when you quit your job and went full-time with the business?

Aytekin Tank: It was a little higher than my salary, but it wasn’t too high.

Sramana Mitra: I can’t gauge from that. What are we talking? Are we talking $10,000 a month?

Aytekin Tank: It was less than that.

Sramana Mitra: So somewhere between $5,000 to $10,000 a month is what you were making from the business?

Aytekin Tank: Yes. I don’t think I can give revenue numbers because one, it was so long ago. I might not remember the exact numbers correctly. >>>