Rolling Up E-mail Security SaaS: Gary Steele, CEO Of Proofpoint (Part 5)

SM: How did you accomplish the financial engineering of the company ramp and product development?

GS: Series A was $8 million, which the company had in place before I arrived. That was enough to build the security product. We did a Series B in 2003 and from there we have raised a total of $80 million. For a SaaS business with a large breadth of product line, I think we have been extremely capital efficient. We look like a standard Silicon Valley, non-bootstrapped organization.

We have 275 people today with a large development shop in Toronto and field sales offices across the United States, London, Paris, Germany, Tokyo, Singapore, Mexico City, and Brazil. The business has been generating cash for over a year. We have been growing year over year at a growth rate of 30%. Our deals are six figure deals. This year we will do about $80 million and in 2003 we were probably around $1 million.

SM: So your ramp has been fairly steady?

GS: If I were to put our ramp on a graph it would be up and to the right. We were fortunate that when people were laying employees off in the downturn that we got to skip that. We kept experiencing growth. The market pulled back but it did not crater. We got to the cash positive mark in 2009 and still saw reasonable growth. We never cut salaries and we never did a mass layoff. We are prudent about how we manage.

SM: Where the two companies you purchased private companies?

GS: They were both private and they were both venture funded. When we go into those discussions we are very realistic that we are never going to be a premium bidder. We can’t be because we are not Symantec or Microsoft. We look for organizations where the cultures align and you could see the companies coming together and having it make sense to every single employee.

We work to build relationships with founders and key executives. At the end of the day it is not just about economics. It comes down to their ability to trust Proofpoint. Much of our strategy whe it comes to M&A is having a mutual “get-to-know each other.” We also try to establish reasonable value. Every deal we have done has involved some combination of cash and stock. There is a bit of black science when it comes to merging values.

SM: How do you define values with so many VCs involved?

GS: On the archiving side the company had two large partnerships. One was with Microsoft and the other with Symantec. The company had also decided they were ready to sell. I was very clear from the beginning that if they could get a better deal I would not be able to compete. We knew they were going to try to make that happen, but at the same time we worked hard to build a good relationship on trust and that we would follow through. I worked with our investors to make sure we had the same understanding. At the end of the day their investors and employees all thought it was good. It has gone well.

This segment is part 5 in the series : Rolling Up E-mail Security SaaS: Gary Steele, CEO Of Proofpoint
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