From an EIR Experiment to a Fast Growth SaaS Company: Joe Kinsella, Founder and CTO of CloudHealth (Part 6)

Sramana Mitra: At this point, you had a bunch of customers. You had validation. Did your venture fund write you a check?

Joe Kinsella: They did not. Along the way, I had a series of advisors. I had six advisors. The goal there was to really find people who complemented my skills. I had just two questions I wanted to ask them. One is, “Should I continue bootstrapping this business or should I raise money? If I should raise money, will it be a seed round or an A round?” The second one is, “Do I hire a CEO?” It was a great discussion.

The net result was to go straight for an A round and hire a CEO. Before I raised the A round, I figured I’ll bring the CEO on board. Dan was CEO at Silverback. I sat down with Dan and reviewed everything together. He looked at me and said, “Why am I not your CEO?” At that time, Dan had been building out the Entrepreneur Center over at UMass Boston. I knew from earlier that he had been thinking about doing a startup at some point in the future. The timing just aligned.

Dan came on board in December of 2012. We put the plan in place to go raise an A round in January. Northbridge was one of the companies that we were targeting. Northbridge had a series of challenges going on at that time. They had a new fund they were raising. I actually never pitched Northbridge nor did they turn me down. I never got a chance to pitch at Northbridge. It took five weeks. We focused exclusively on Boston venture firms. In five weeks, we signed our term sheet. Our Series A was signed with 406 Ventures and Sigma Ventures.

Sramana Mitra: How much did you raise in that round?

Joe Kinsella: $7.1 million.

Sramana Mitra: That’s quite a lot of money actually. What happens next?

Joe Kinsella: We chose a location. It’s a couple of blocks from South Station. We brought on board the first people to join the company. I brought on board my first couple of engineers who I had worked with at Silverback. We brought on board someone to head sales and marketing. We started executing the business. One of the big surprises for us was we thought we had product–market fit. We have a very talented VP of sales. It’s really hard to find a great VP of Sales who can do everything you need to do in the early phases.

He closed deals but the pace at which he closed it and the size of the deal told us that we were not at product–market fit. We launched the first public version of our product in September 2013 and signed the term sheet in February 2014. The money was wired at the end of March. We were in our offices at the beginning of April. We spent almost a year from April 2013 to February 2014 trying to get to product–market fit.

Sramana Mitra: What was wrong? What were you finding in the market that wasn’t fitting? What worked in the first accounts and what didn’t work in the second set of accounts.

Joe Kinsella: It wasn’t one thing. It was product features. There were several product features that we were missing. We had to figure out the product features. We had to figure out how to target prospective customers. We had to figure out the sales process. Product–market fit really was the business. It was a lot of learning that we had to do.

If you look at our revenue graph from the beginning of time to now, it has this fantastic slope. It’s the slope that every investor wishes to see across their portfolio companies. When you look at the very beginning of the graph, the slope rises slowly. That was when we were trying to get product–market fit. Then around February 2014, it just started to rocket right up. It was working with these early customers.

Sramana Mitra: You had product–market fit on your MVP for the first few customers. When you went to the larger market, you actually discovered that you had something missing.

Joe Kinsella: The CTO of one of our early customers took me out to lunch. He had a hard conversation with me in that period of 10 months when we were driving towards product–market fit. He said, “I love the vision. I love where you want to go but you’re not delivering what I need today.” He just basically laid out a handful of things that he needed me to go do. It lined up with everything else that customers were telling us in different words. We just need to put the last pieces of the product together.

This segment is part 6 in the series : From an EIR Experiment to a Fast Growth SaaS Company: Joe Kinsella, Founder and CTO of CloudHealth
1 2 3 4 5 6 7