Bootstrapping to 25 Million, Then Raising A 23 Million Series A: Coverity Cofounder Andy Chou (Part 4)

Sramana Mitra: What was the next major event after you raised your funding?

Andy Chou: We had the financial crisis, which hit every company pretty hard. That caused us to re-evaluate our company. The good thing is our customers stuck with us because they saw the value we provided even in the dire economic environment.

Sramana Mitra: Absolutely, software still needs to be developed and tested. Any automation to that could save companies money.

Andy Chou: We did not grow as fast, but we were able to continue with our growth. We had a little bit of time to breathe. Instead of hiring new people, it gave us time to figure out our internal processes. Every company needs to mature, so we spent some time maturing. Once we came out of the financial crisis our next bit step was to hire Anthony Bettencourt as our CEO.

Sramana Mitra: What had you settled on for your business model and pricing model after you emerged from the mature stage of your company?

Andy Chou: Very early on we followed the example of other software companies and sold perpetual licenses. One of our board members recommended that we switch our model to a term-based license. The idea is that you get a subscription to software for a period. That revolutionized our business. It meant that we collected recurring revenue from our customers, and it stabilized us as a company.

Our model is to sell to a customer based on an entire software project. We size them physically by length of code. The cost of our annual license is based on the number of lines of code in your project. We sell licenses in one-, two- or three-year packages.

Sramana Mitra: What are the price points?

Andy Chou: Retail cost is 8 cents per line.

Sramana Mitra: What was the competitive landscape like when you started, and how has it changed?

Andy Chou: In the beginning, the static analysis market was very small. My estimate was that it was less than a $20 million market as a whole. The technologies were not ready for prime time back then. Over the past few years that has fundamentally changed. Our revenues have passed $50 million in the past year. We are bigger than the entire market was less than 10 years ago.

If you look at the competitive space, there were products that did minimal standards enforcement, but they were not used widely by developers. Since then, many competitors have cropped up who use this core technology in security, quality, embedded software, enterprise Web applications, and many other vertical markets. Our major competitors are IBM and HP, which have product lines that address some of the things we do. They are not best-in-breed products like we are. Customers come to us looking for something to solve their product problems, and they want the best they can buy. They ask us to integrate us with our competitors,so there is a degree of ‘cooperative competition.’

This segment is part 4 in the series : Bootstrapping to 25 Million, Then Raising A 23 Million Series A: Coverity Cofounder Andy Chou
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