Crowdfunding Startups: What Excites Me, What Worries Me

There has been a bit of action for a while now in the crowdfunding world, and certain startups have been able to get themselves off the ground using the Kickstarter / Indiegogo style sites. By and large, these types of financings have gone to companies that are building physical products, digital games, etc. Fundings have also happened for some causes, films, art projects that are typically not businesses. Equity crowdfunding isn’t legal yet in the US. But presumably, it will become so. In Europe, it is legal. Hopefully, other parts of the world will also start seeing the infrastructure develop.

For our audience, the primary concern is financing digital startups: technology and technology-enabled services. Typically, these are difficult to assess, high-risk companies, and amateur investors from the ‘crowd’ are unlikely to be able to perform adequate due diligence to have a sophisticated investment thesis.

However, there is one category of investors who will have an excellent vantage point from which to assess new ventures.

>>>

Who Are The Top VCs in Silicon Valley Today?

I have been having this discussion with a few people whose analysis of the venture capital industry I respect. The exercise is not just to assess who are the top investors, but more, to assess where the industry is going, and where the next generation of venture scale companies are going to come from. In this post, I will provide a framework for the discussion. Please weigh in with your thoughts.

>>>

Building an Open Source Software Company Around Cassandra, Seed-Funded by RackSpace: Jonathan Ellis and Matt Pfeil, Founders of DataStax (Part 7)

Sramana Mitra: What would you say are the key milestones that you have accomplished, based on almost four years of being in business?

Matt Pfeil: From my perspective, I think that open source as a business is really hard because you create something as an open source project that you don’t own. You throw up things that you could sell. So we have a clear-cut strategy on what our products will look like. I think we figured out how to sell it and we now have 20 of the Fortune 100 as customers. So the customer list backs that up.
>>>

Building an Open Source Software Company Around Cassandra, Seed-Funded by RackSpace: Jonathan Ellis and Matt Pfeil, Founders of DataStax (Part 6)

Sramana Mitra: Tell me more about what happened with that money? What were the Series B milestones? What were you able to accomplish? How did the product come together?

Jonathan Ellis: When we were pitching Series B, we had the blueprint of what we wanted to build for DataStax Enterprise. We knew that we wanted to deliver analytics on top of Cassandra and then search came later on. During the Series A, we didn’t know what we were going to build, but we were selling a vision and not an actual product. The goal of Series B was to actually build that and we were already working on that. DataStax Enterprise 1.0 came out in October of 2011, we added search capabilities for 2.0 and then security for 3.0.
>>>

Building an Open Source Software Company Around Cassandra, Seed-Funded by RackSpace: Jonathan Ellis and Matt Pfeil, Founders of DataStax (Part 5)

Sramana Mitra: Can you talk about the business model from that time? What were you charging? What were the deal sizes and so forth?

Jonathan Ellis: When we were first starting the company, we had a potential $80,000 deal. I told Matt, “You know if we can get a few deals like this, we might not have to raise funding.” That was kind of naïve for someone who has not done it before.

Sramana Mitra: Were you able to get the deal?
>>>

Building an Open Source Software Company Around Cassandra, Seed-Funded by RackSpace: Jonathan Ellis and Matt Pfeil, Founders of DataStax (Part 4)

Sramana Mitra: Let’s come back to the pitch to Lightspeed based on which you raised your Series A. How did you evolve from there? How did you build the business?

Matt Pfeil: We built out an engineering team for both the core open source project as well as continued to evolve OpsCenter. For practical purposes, it felt like that was one of the goals of the money. The OpsCenter was our first company-owned product as opposed to completely open source.

It was the management software for Cassandra and we built out a team for it. We continued standard support offerings and then started to hire full-time support engineers as opposed to engineers who were doubling duty. It was really good, based on customers signing up for those offerings. We had more revenue than anticipated and ended up hiring more people than we originally planned to. Our original plan was to hire 6 people in 6 months but within a year, we had about 20 people working for the company. We also hired two sales people.

>>>

Building an Open Source Software Company Around Cassandra, Seed-Funded by RackSpace: Jonathan Ellis and Matt Pfeil, Founders of DataStax (Part 3)

Sramana Mitra: Had you already moved to Silicon Valley before raising the money? This is another key question that a lot of entrepreneurs are wrestling with and making decisions on.

Jonathan Ellis: Yes. It actually wasn’t an explicit condition of the funding and we actually took another 3 months or so before moving the headquarters. They suggested it and we recognized the value of having our sales and marketing presence particularly in the Bay Area. When we were starting out, probably 80% of our customers for that first 6 months were Bay Area companies. That area is more used to taking a little bit of a risk on a new technology in the hopes of getting a big pay-off in terms of solving the scalability and performance problem. So Matt moved out as CEO and I stayed in Texas and continued building an engineering team out here which had a number of cost benefits.

>>>

Building an Open Source Software Company Around Cassandra, Seed-Funded by RackSpace: Jonathan Ellis and Matt Pfeil, Founders of DataStax (Part 2)

Sramana Mitra: I am going to probe you on a couple of different points. Did you start DataStax while you were still inside of Rackspace?

Jonathan Ellis: No. We were working on Cassandra at Rackspace but we started DataStax, originally called Riptano, after leaving Rackspace.

Sramana Mitra: So, by the time you left Rackspace and started this company did you know precisely what DataStax was going to do?

>>>