Towards Paperless Contracts: EchoSign CEO Jason Lemkin (Part 3)

SM: What were you doing while all of the drama was going on with BabyCenter?

JL: I briefly worked with one of my co-founders of EchoSign at a small consulting firm. We were then helping other 1.0 companies work on some issues, and we helped some with the BabyCenter issues. We then got recruited by some VCs to join a company called NanoGram, which was a technology platform play. They wanted someone they knew could come into the market and analyze what other market opportunities existed for this technology. I joined that company towards the end of 2001.

The company made a decision at that time to focus on telecom. I did two things: I told them that if they were going to focus on telecom to do it right, because it was a tough time to focus on that sector. We went out and raised $35 million with no revenue. I then took the technology they were interested in and founded my own company around it. I used the same technology, but I was using it with batteries. Today that is sexy with green energy, but in 2002 batteries were the worst. You had to be an idiot to invest in that. It was horrible. The company I got the technology from tried to sell it for $50,000.

It took eight months to get the money, and right before we were going to fund it, the investors pulled the term sheet. I had to make two payrolls myself, so I ended up guaranteeing with a $750,000 note based on my house after the investors left. After about four weeks of drama we pulled together another term sheet and closed that round. Working at it, 15 months later we sold this little piece of technology that nobody would buy for $50 million to the company that would not buy it for $50,000.

SM: Wow. What were the grounds on which you sold the technology?

JL: We commercialized it. Instead of talking about how valuable it was, we went out and took this technology, prototyped it, signed $10 million in customer contracts, and we proved it was viable. The core use cases for these batteries were for implantable medical devices like pacemakers. It had a special nano-materials process that enables these devices to last longer. If you are going to plant something in someone’s body you want to make it last longer! It is an area where there had not been any technology advancement in 25 years. We disrupted the market at a time when that market started to explode. While the rest of the market was bad in 2002, the market for implantable medical devices was growing 40% per year. When you are talking about a $4 billion market, that is fast growth.

In terms of an entrepreneurial lesson, we acted instead of talked. I had no money because the investors pulled out. I convinced a company to build prototypes free by telling them we would give them business. We built them and showed them to the customer.

SM: Who did the prototyping for you?

JL: They were our outsourced manufacturer. They were in Canada. We did not have enough domain expertise in our company, so we did not have the luxury of doing it offshore because we did not know how to manage it. The prototypes enabled me to get the funding we needed to launch the company.

SM: Who funded the company?

JL: We had a couple of investors, but the two largest were Bay Partners and Venrock Associates. It was Bob Williams at Bay Partners and Ray Rothrock at Venrock. We had a couple other investors as well.

SM: That is good investing.

JL: There are some lessons for entrepreneurs there. They invested at the worst time of the market. In 14 months they made a 400% return, but it was not a huge absolute return. None of the investors came to the closing dinner. They could not be bothered to come because it was not interesting enough to them.

This segment is part 3 in the series : Towards Paperless Contracts: EchoSign CEO Jason Lemkin
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