Successful Pivot to $5M in Revenue from Chicago: Cohesive Networks CEO Patrick Kerpan (Part 2)

Sramana Mitra: It sounds like that company was bootstrapped because it’s unfinanceable given the landscape of the time?

Patrick Kerpan: What we find hard for bootstrapped companies is, ultimately if you have a mixed model and you have family, friends, and angel investors, those are discreet investors. They’re not portfolio investors. When you run into a portfolio investor, they say, “Why aren’t you growing faster? What haven’t you raised more money? Why didn’t you just shut it down?” If a VC loses money, their LPs lose money. If a VC makes money, they make a lot of money and their LPs make a little money. It’s a great game.

Even if discreet investors are grown up, there’s a part at the back of their brain that’s going to be like, “Pat owes me a million dollars.” I take the commitment to your investors to heart. There’s a commitment to your employees and customers. I go back and forth on who’s first, second, and third at any one time. It was a nice deal for the investors. Everybody got more than they put into it. I call it my $2 million MBA because there are just things that you can’t intellectually be taught. People who have more entrepreneurial experience than you can look at what you’re doing and they can say, “This is going to be a problem. You need to change this a little bit.”

I read some of your blog posts especially the things that you’ve learned while mentoring entrepreneurs. There are some things that I’m convinced you can intellectually hear the words that are said – you cognitively understand their meaning – but until you make some of the mistakes and bear the scars, you don’t have the visceral limbic system necessary to go on to your next venture.

Sramana Mitra: That’s exactly right. It’s emotionally hard to grasp the concept. You said you did your two-year MBA with this company. It was bootstrapped with friends and family. In terms of revenue, how far did you get?

Patrick Kerpan: We were dribs and drabs of revenue. We were just interesting research in progress for how you would have online development tools.

Sramana Mitra: You bought some technology?

Patrick Kerpan: And a team.

Sramana Mitra: How much did Borland pay to acquire you?

Patrick Kerpan: They didn’t publicly disclose, but it’s sub-$10 million.

Sramana Mitra: My real question there is did you have enough money to start your next company that you were able to bootstrap with your own money?

Patrick Kerpan: It certainly helped. There was about 40% holdback on the deal paid out over four years. They made everyone’s holdback dependent on me staying because they knew that if everybody’s money depended upon me staying there, there was no chance, no matter what money I’d gotten, that I’d leave. I stayed five more years in Borland where I became the CTO. I was very proud of that. I came from a very small acquisition.

What that led to is, Borland ended up buying two companies. They bought Together for about $225 million. On the same day, we bought another company. We combined that with our research and progress. That really became one of the most important business in Borland even though, virtually, they paid nothing for it. I ran a business unit there that did about $40 million to $50 million. I learned a ton about go-to market without any resources because mine was the tiny acquisition. The big acquisition got all the resources. I learned a lot about leveraging sales people. I learned guerilla marketing and how you leverage relationships. We grew a really nice revenue stream out of that.

As part of the acquisition, we had to move to San Jose. I had to move out there with my wife and two children. In a company like Borland, except for a week a quarter where you do your quarterly reviews, everybody’s on the road all the time. We lived in California and I was gone roughly 60% of the time. I’m calling my wife from our home in Chicago and she’s with the children in our home in California. Finally after about three years, she said, “You know… we’re moving back.” I commuted for a while.

This segment is part 2 in the series : Successful Pivot to $5M in Revenue from Chicago: Cohesive Networks CEO Patrick Kerpan
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