Managing Risk: MetricStream Chairman Gunjan Sinha (Part 4)

Sramana: Zaplet had a certain technology set that you felt you could apply to risk management; they did not necessarily have risk management technology. Is that a correct statement?

Gunjan Sinha: Yes. It was something we felt we could leverage. I had already invested in a company called MetricStream. After I had some conversations with Vinod, I really narrowed down on risk management, which is when I essentially facilitated the merger of Zaplet and MetricStream. The new MetricStream company that came out of that merger focused on risk management and compliance. That occurred in 2004. I felt if we could solve the problem across a global enterprise in a holistic manner that gave anyone visibility into the full scope of risk and compliance, it would avoid some of the mishaps that occurred with companies like Enron.

It was not until 2008 that the world realized risk was a real problem. The collapse of Lehman Brothers made the MetricStream value proposition really shine in the marketplace. That was the year that we announced ourselves to the analyst communities. Prior to that, we were in an open R&D mode.

Sramana: How did you financially engineer the merger?

Gunjan Sinha: We took advantage of financial capital. I invested capital as well, but Advanced Equities was the primary investor in the merger. Vinod was moving out of Kleiner Perkins into Khosla Ventures, which he started in 2005.

Sramana: What happened to the $19 million worth of shareholders at Zaplet?

Gunjan Sinha: We did a recapitalization in 2004. At the time the company was running out of gas. We figured out a way to salvage some of that to get something going with risk. We essentially started the next round of recapitalization as the seed round of the new MetricStream. We invited all previous shareholders to participate, and folks like Kleiner Perkins did participate. We accomplished it as a merger. MetricStream had $6 million of investment at the time as well.

Sramana: Between 2004 and 2008 you said you were in an open R&D mode, and then in 2008 you really came on strong. Why did it take Lehman Brothers’ demise to make people recognize risk after everything that happened on 9/11?

Gunjan Sinha: People have short memories. When the U.S. economy started to improve, people started investing in the next bubble. In 2008 when the financial meltdown happened, the global economy felt its second major shock in less than 10 years. That forced people to recognize the need for risk management. It affects people and companies alike. Even the biggest of corporations can fail.

Sramana: From 2004 to 2008, what was it that your company built? You were obviously ready to capitalize on the Lehman collapse in 2008.

Gunjan Sinha: We had the vision from day one. We were looking at how to solve the problem of risk and compliance holistically. We combined Zaplet and MetricStream technologies into a unified platform for what analyst call governance with compliance. That terminology did not exist until late 2006, but that is essentially what we were building as early as 2004. We also launched a portal called ComplianceOnline.com, which is the largest portal for that community today.

This segment is part 4 in the series : Managing Risk: MetricStream Chairman Gunjan Sinha
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