Bootstrap First, Raise Money from Kleiner Perkins Later: William King, CEO of Zephyr Health (Part 5)

Sramana Mitra: That’s the beauty of this bootstrap first, raise money later model. You’re going out to raise from a position of strength as opposed to weakness. You’re not begging for money. You’re in the negotiating position. In any given time in the market, there is more money chasing fundable deals than fundable solid deals chasing money. If you are in that position where you have bootstrapped to a certain level of validation, success, and customer traction, the likelihood of you calling the shots in negotiation is high.

William King: Exactly. I appreciate that commentary. One of the things that was important to me is our mindset of not creating a one-off product. I’m here in Silicon Valley, but I think I’m unusual in the standpoint that I’m from Princeton and I worked for a traditional company. We’ve always focused on truly building a company. That is one of the most important lessons I’ve learned at J&J. The credo, culture, and this idea of creating sustainability—these are core tenets that made a deep impression on me. What I wanted to do was go out and raise money. That, onto itself, is a reason to celebrate, but you cannot declare victory. What’s more important is exactly what you just said. Let’s talk to customers. Let’s solve a problem. Let’s create value. Let’s make sure that the value we’re creating exceeds whatever the cost of that investment is. That, for me, was the most exciting part. Candidly, we got a lot of inbound interest from investors. We were definitely in a unique position in having positive cash flow and customers.

Sramana Mitra: When you went out to raise money, what was your revenue level and how many customers did that represent?

William King: Another interesting thing about Zephyr Health is that we operate in a global environment. We’ve got offices here in San Francisco, London, and India. Our customers are global as well. They’re pharmaceutical companies. Having a global presence was very important. That was a big consideration while raising money. Another thing I should say is we’re not only interested in pharma but also in devices. We wanted to prove the model both in pharma and devices. We had done that in 2013. That was the time in which we said, “Let’s raise funding. We’re going to use funding for expansion.”

From a growth standpoint, the company has continued to grow. We’ve grown over 100% in all of the right ways. This is another important point for entrepreneurs. What is your financial model? Pricing is critical but then how do you want to structure the pricing. There’s perpetual software licenses. We’ve decided to go with SaaS (Software as a Service).

Sramana Mitra: The industry has taken a huge leap towards SaaS. Today, people doing software companies almost inevitably will do SaaS. Very rarely will you see perpetual licensing at this point.

William King: Across all of the different flavors of companies?

Sramana Mitra: Absolutely.

William King: That’s great to hear. I think that makes sense. I’m curious to know why that trend is happening.

Sramana Mitra: First and foremost, it’s OPEX versus CAPEX. If you’re doing licensed software, you’re in CAPEX whereas if you’re doing subscription software, it’s OPEX. If you don’t need it, you can turn it off. There’s this illusion that you can turn it off and it’s up to the software vendors to prove to you that by performing and delivering value, that you cannot turn it off. IT buyers like that.

William King: You bring an interesting point. One of the things that we’ve done is we sell to the business. We’re actually selling to the brands in these big pharmaceutical companies. It’s interesting from a pricing standpoint because we were educating them a little bit on the product. Companies like Salesforce have done a great job of publicizing what cloud computing is. Bear in mind that our customers are brand managers for drugs or devices. They often inherit their tools. Usually, it’s IT that decides whether they go for Salesforce.com and then they roll it out to the different teams. In our case, we went directly to the business people and said, “Here’s a software.” We introduced Software as a Service. I think everybody understands what SaaS is but our buyers weren’t as deeply experienced in what SaaS really meant. We’ve got multi-year deals that we’ve put in place.

This segment is part 5 in the series : Bootstrap First, Raise Money from Kleiner Perkins Later: William King, CEO of Zephyr Health
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