Bootstrapping From Arizona To 36 Million Dollar Series A Valuation And Silicon Valley Venture Capital: Infusionsoft CEO Clate Mask (Part 7)

Sramana: We have a lot of entrepreneurs who are building companies outside of Silicon Valley. Summarizing your experience as an entrepreneur outside the Valley, you bootstrapped your company to the point of solid revenues and did late-stage financing with Silicon Valley investors.

Clate Mask: Exactly. We were able to get enough traction such that when we went to VCs, they were excited about the revenue we were already generating and about our existing customer base. That enabled us to attract the attention of Silicon Valley VCs. It was not our management team, technology, or business projections. It was a good solid model that they could see was working. All of the firms that visited us during that period were interested. They all wanted to move forward, and I was the one holding them at bay.

Sramana: You bypassed venture capital and raised group capital as your Series A. It is a great strategy, and I have a number of cases where entrepreneurs have done that. What was your Series A valuation, if I may ask?

Clate Mask: It was $36 million.

Sramana: If you follow that strategy, you can get high Series A valuations.

Clate Mask: There was a point early on when I realized that if I raised a little bit of capital through banks and friends, I would be able to incrementally increase financing over time. We did our financing incrementally and doubled our business through those small financing rounds. We never had to part with much equity early on. When it came time to part equity, we had a strong valuation.

Sramana: What has happened since 2007? What have your milestones been?

Clate Mask: In 2008, we did $12 million in revenue, and we decided to raise another round. We still had most of the $9 million left, but we raised capital for two reasons. First, we saw the market begin to do weird stuff late in the summer of 2008. We wanted to raise capital and get ourselves better capitalized. The other reason was because we have a grand ambition to become the sales and marketing system that small businesses use to grow.

We decided to go out and make it easier for customers to use our software. That meant we had to find a way to eliminate the large up-front fee they were paying. About half of our revenue to that point was up-front service revenue, and the other 50% was recurring subscription revenue. We wanted to become a pure subscription business because it would allow us to increase the number of customers we could serve. A beneficial side effect is that it creates a better valuation for the company because of the increased predictability of the revenue. When we raised the capital at the end of 2008, we did it with an eye toward changing our pricing and business model.

We raised that round in the middle of 2009. In 2008, we did $12 million dollars in revenue, of which $6 million were up-front service fees and $6 million were recurring subscription fees. In the middle of 2009, we changed our business model and removed the $5,000 up-front service fee. In doing that, we still increased our revenue to $15 million in 2009. Our recurring revenue went from $6 million to $12 million. In 2010, we became a 100% recurring revenue company and did close to $18 million in revenue. We are on a $20 million run rate right now. We are continuing to grow the company. We are cash flow positive.

This segment is part 7 in the series : Bootstrapping From Arizona To 36 Million Dollar Series A Valuation And Silicon Valley Venture Capital: Infusionsoft CEO Clate Mask
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