Building a Technology Product Company From India: Varun Singh, Founder and CTO of ScaleArc (Part 6)

Sramana Mitra: You have good defensible IP.

Varun Singh: Very good defensible IP. That started a few conversation with other VCs. I started a conversation with BV Jagdish from NetScaler. I was one of BV’s largest customers in India. I knew him through Net Magic because he was on the Board. He introduced me to Justin who is our CEO right now. At that point in time, I had hired Justin as the COO. He did about six months of consulting with us before that. Before that, he was the VP Sales at Juniper.

Sramana Mitra: He hadn’t been a CEO before?

Varun Singh: No. This is his first CEO gig. For about two years, he was the COO. All that while we essentially kept hiring people from his network and our network. There’s a lot of ex-NetScaler DNA in the company.

Sramana Mitra: What about subscription businesses?

Varun Singh: That’s something that Excel taught us. Till we did our Series B, we were still selling perpetual software and doing subscription on the cloud. It was a diverse model but different models for different places, which is typically what all the older vendors had got into. We had to make a complete shift to subscription, but we really wanted to figure out how to do it in a way that the guys who still wanted to capitalize on it, could still do so. We could still go ahead and offer something to customers even if the subscription ran out.

It was a bit of an experiment. It was also a bit of a re-pricing. When you’re selling appliances, you’re saying, “I’m delivering you box A. This has this much capacity and this is what you pay for that capacity.” If you’re delivering software, you can have dynamic capacity. You really have to go ahead and figure out how to re-price for that. We decided to do the pricing based on core. All software that ScaleArc sells will be based on core pricing.

We then needed to make sure that both of those are ratio changes and not different models altogether. It made it easier from a maintenance standpoint as well. We decided to sell one-year subscriptions, three-year subscriptions, and five-year ELAs. The one-year subscription would basically be, let’s say, $100. The three-year subscription would turn out to be about $240 but you pay all of it upfront. You don’t pay it annually. That’s what we did because we wanted cash flow to fuel our business. We were getting those cash flows from perpetual but we wouldn’t get that from subscription. So we had to make that trade-off.

Sramana Mitra: The problem is revenue recognition.

Varun Singh: Yes.

Sramana Mitra: It’s not an issue with you right now.

Varun Singh: It is starting to. That’s fine as long as you can go ahead and keep an eye out for ARR. You can’t let ARR slip regardless of what you do.

Sramana Mitra: Series B was with whom?

Varun Singh: Excel. Samir Gandhi from Excel led the round. Nexus and Trinity did pro rata.

Sramana Mitra: This was in 2013.

Varun Singh: Series B was December 2013.

Sramana Mitra: Where are you now ARR-wise?

Varun Singh: ARR is slightly less relevant at this point because from a cash collection standpoint, we’re far ahead.

Sramana Mitra: But still.

Varun Singh: It is. In terms of ARR, we’re still under $5 million. As far as actual cash collection is concerned, we are much higher than that. It’s allowing us to keep funding our business with cash flow and then we can go ahead and keep hiring. When we did our Series B, we were about 35 people. Right now, we’re close to 85.

Sramana Mitra: How’s that split between Silicon Valley and India?

Varun Singh: We’re about 45 people in India. In the US, some of them are in Silicon Valley and some of them are all over the place.

Sramana Mitra: Sales engineers.

Varun Singh: Exactly.

Sramana Mitra: Where are you in India?

Varun Singh: We’re in Navi Mumbai and Pune. We consciously chose that because we didn’t want to be in Bangalore. Pune is very product-centric. There’s a lot of product companies in Pune. We could hire from Pune and within Mumbai. Bangalore is 80% services people.

Sramana Mitra: The base however is much larger in Bangalore, but it’s very unstable.

Varun Singh: Yes. They quit very quickly. We’ve had extremely good retention. We still have our first set of engineers. We still have our first product manager. We still have our first VP of Sales. They stuck around.

This segment is part 6 in the series : Building a Technology Product Company From India: Varun Singh, Founder and CTO of ScaleArc
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