Building an IPO-Ready Identity Software Company from Colorado: Andre Durand, CEO of Ping Identity (Part 7)

Sramana Mitra: What is the financing history beyond that $2 million Fidelity and General Catalyst round?

Andre Durand: I would say after about two years roughly, in very traditional fashion, we started raising money to fuel our growth. I think we raised about $30 million in total between 2003 and 2012. In 2013, we made a decision to switch our business model from a perpetual software license to a subscription business model.

Sramana Mitra: You waited till 2013 to make that shift?

Andre Durand: We did for a couple of reasons. Number one is we were selling infrastructure to big enterprises. While they are open to buying applications on a subscription model, their infrastructure decisions are measured in 3 to 10 year increments. They didn’t really want to be buying infrastructure and visiting a subscription decision every year. Almost all of their infrastructure was purchased on a very traditional basis. That was number one.

Number two was that it wasn’t until we began offering our own cloud service that our own business model was bifurcated. We knew that was not optimal. We knew we wanted to have a single business model for the company irrespective of whether or not we were licensing software or licensing a cloud service. It was really our own decision to say, “We see the writing on the wall. We have a  growing cloud business. How about we normalize it?”

That brings us up to the last $80 million in financing, which we did over the last two years. That financing was solely for the purpose of managing our cash flow through the subscription shift. If you switch, cold turkey, to subscription, you essentially collect a third of the cash of what you were collecting a year before. Somehow, you have to fund the difference in cash flow.

Sramana Mitra: That $80 million was all cash that went into the business. That wasn’t taking liquidity out for the founders or early investors?

Andre Durand: That’s correct. The cash flow was solely used to fund the shift to subscription.

Sramana Mitra: What scale are you at right now?

Andre Durand: If you wouldn’t mind, in the last 15 minutes, I’ve had Mike Sullivan join us because I thought you might go there with some financial questions. We’ve been a little bit more open than some historically. You can read about what we’ve said earlier in articles on TechCrunch. Let me just introduce Mike and he can share a little bit about where we stand.

Mike Sullivan: As Andre mentioned, about three years ago, we initiated the shift to subscription. Fast forward to today, we’re entirely a subscription-based company today. We no longer even offer a perpetual license. We really didn’t see any slow down whatsoever in terms of customer desire or willingness to buy this type of product on a subscription basis.

Sramana Mitra: The market has made a pretty complete shift into the business model of the cloud, so that doesn’t surprise me at all.

Mike Sullivan: Three years into this, our recurring revenue is expected to eclipse $100 million later this year. I’m measuring the annual value of all the client relationships we had. Sum total of the licenses out there on an annual basis is set to eclipse $100 million. The retention rate is terrific in the company. If you look at net churn statistic, it adds all the additional sales that we’re able to generate within existing customer base and subtracts the cancellation of the churn, we grow at north of 25% on just the existing base.

Obviously, we have a good inventory of new logos and new relationships pushing the company’s organic growth to well over 40%. We’re seeing a good number of recurring relationships come in now at seven-figure price points, which indicates the value of the tech and the capability that we’re serving into these enterprises. We see good growth now at scale.

Sramana Mitra: Are you looking at an IPO window right now?

Mike Sullivan: Going through the last three years has been a lot of hard work as you an imagine. As Andre said, it consumed some capital. There have been a lot of fundamental changes in the business. I joined Andre’s team about the time the transition happened. I have previously been the CFO of a Colorado-based company called IHS, which was a company that we took public back in 2005 at a billion dollar valuation initially and then grew it to about $6 billion market cap company that it still is today. It was entirely a subscription-based engine.

I came in knowing one thing, I knew how subscription businesses looked, reacted, and behaved. We probably got a case study here on some of the intricacies. We did a nice job of maintaining investment in the business despite deferring some cash and profit in the early years. That came at the cost of raising capital to support the transition. Obviously,  the shareholder base is very supportive of that. Coming off the backend where we are today, we start the business with nearly a $100 million recurring base.

We’re at a point now where we’re able to continue to invest meaningfully in the company. This is a very important point. We operate the company at a near breakeven basis. We set a very healthy minimum level of cash in the business. We can have it all. We can continue to invest nicely. The liquidity dividend that we are in puts us in a place of complete flexibility against a lot of the peer companies and the other high-growth companies that we read about.

Certainly, every company has its eyes on a monetization company. We feel this company has the platform characteristic to be a viable standalone company in the identity space. We’re at a scale where we’re large enough. We feel that we’ve got the cards on our table and we’re not terribly worried about the state of the market at the moment. We’re going to continue on growing the business and accelerating the rate of growth and putting some dust on the business. When the market is ready, we’ll look at our options at that point and make a decision.

Sramana Mitra: I have one last question. Just looking at the length of time that this company has been in business and you have had investors all the way from 2003 and we are now in 2016, venture capital works in a seven-year cycle. How are those investors who have been in the business for 13 years reacting?

Mike Sullivan: Like you’d expect an investor to be thinking when they’re sitting in a high-growth position that they feel is creating value each year. It’s true that for a few of those firms, the ownership period has run a little bit beyond their normal period. In their words, as long as they feel that the jewel at the end of the line was worth the size of the dive, they’re at a good place. There’s not under pressure to do something there.

Andre Durand: The market is on fire right now and they see that. Certainly for the investors that had been with us for a while, we’ve always spoken of the strategic importance of identity. To now see so many companies starting to come around and see that themselves, it does build patience into the group. Ping is a leader in an extremely important space that, by every indication, only looks like it’s going to become much more strategic and relevant.

Sramana Mitra: I think you have a couple of companies in the IPO pipeline. Okta is going to go public as well. The space is going to get publicity and scrutiny. I think there is momentum that is going to build around the space from an IPO and analyst point of view.

Andre Durand: That’s the way I see it. I think of identity as the centrepiece of security. You look at how large, in three decades, the security has become. If you ask me, I’ll say that, over the course of the next 5 to 10 years, we will see a shift from traditional security spend, which was really about putting asset on a single location and blocking them off, to identity, which I think is the strategic enabler of the digital enterprise. As that shift and spend begins to occur in a significant way, I think it will support a lot of successful companies in the space.

Sramana Mitra: Congratulations on what you’ve done so far. It was great talking to you.

This segment is part 7 in the series : Building an IPO-Ready Identity Software Company from Colorado: Andre Durand, CEO of Ping Identity
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