Building Large Scale Enterprise Software Companies: Louis Tetu, Founder of Taleo, CEO of Coveo (Part 4)

Sramana Mitra: Just to get the facts straight, you have a bunch of Fortune 50 companies starting to adopt the solution. You did the seed round yourself. What about the venture round? At what point in that adoption cycle did that venture round come in? I’m not talking about post-IPO. I’m talking about the pre-IPO venture round.

Louis Tetu: We did two because we were fairly capital intensive. When I look at the amounts invested today, it’s still low. We raised a total of $36 million. That was back in 2000 to 2001. We raised a $10 million in 2000 and $25.5 million in 2001 with Bain Capital. The fact is that because we were selling subscriptions, from a pure financial perspective, we were financing customers. In addition to that, we had to build a server infrastructure which was also, at that time, very capital intensive. It was a double whammy from a cash consumption perspective that required quite a bit of money. In 2001, the $25 million round of capital with a software firm that only did $2.8 million in trailing revenue was pretty significant.

Sramana Mitra: When you look back on that time, what do you think clinched it for you? I do believe that, at that point in the history of the industry, without that venture capital, it would have been very difficult to build the company to the scale that you did build it to that fast.

Louis Tetu: Your question is was the venture capital important?

Sramana Mitra: I’m making the observation that the venture capital wasn’t important at that time. It’s not like you couldn’t have built it because you had capital from your previous exit. You could have built it but it would have scaled slower because it was really capital intensive to do all this.

Louis Tetu: I think that’s a mistake that many entrepreneurs make. They don’t put enough investments early on when they have a winning business model because presumably, they don’t want to dilute themselves too much. Yes, we could have financed it ourselves and gone slower. That would have been a mistake.

Sramana Mitra: That’s debatable, I would say. I have many case studies of companies who have built very sizeable companies without taking external financing. There’s a company in Boston, eClinicalWorks, that started doing cloud-based healthcare IT very early on. It didn’t have any financing and is a $300 million company today.

Louis Tetu: I guess we weren’t good enough to do that.

Sramana Mitra: My question to you is what convinced the VCs to put in that kind of capital? You said that you had a winning business model, but that wasn’t proven yet.

Louis Tetu: It was proven because we were acquiring customers at a fairly fast pace. We had the early signs of an inflection point.

Sramana Mitra: So capital came in when you already had signs of that inflection point.

Louis Tetu: That’s right.

Sramana Mitra: Once that inflection point becomes visible, it’s actually incredibly easy to raise capital. There’s a lot more money in the system than good businesses to invest in. So when VCs see the inflection point, they’ll come running after you.

Louis Tetu: Exactly. Capital is easy. You’ve got to make sure that you can fund to a repeatable model, so to speak. Getting money to scale is never a slam dunk. It’s always easy in hindsight. When you are raising capital, whether you’re taking a company public, running a secondary, or raising late-stage, it never is easy. I would never set the expectation with any entrepreneur that any of those rounds of capital are easy but they’re doable, to your point.

Sramana Mitra: Getting to that inflection point and figuring what is a repeatable sales model, what are the economics, how you deliver and acquire customers is really hard.

Louis Tetu: I go back to basics, which is I couldn’t insist on enough is the idea of very quickly going to customers. I’m actually a coach at an entrepreneurship school. I’m also an investor in a few other startups. I try to coach entrepreneurs as much as I can. I think the mistake that many entrepreneurs make is they have a good technology or they have something that is technically differentiated in one way or another but they look at development and customers as a waterfall. The idea is if you want to show adoption of a technology, then why not start with the customer. Inexperienced entrepreneurs will say, “We build business around technology.” Experienced ones would say, “You build businesses without people and very closely, right around customers.”

This segment is part 4 in the series : Building Large Scale Enterprise Software Companies: Louis Tetu, Founder of Taleo, CEO of Coveo
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