From an EIR Experiment to a Fast Growth SaaS Company: Joe Kinsella, Founder and CTO of CloudHealth (Part 7)

Sramana Mitra: How much did you do in 2014?

Joe Kinsella: We don’t disclose our revenue numbers.

Sramana Mitra: How many customers did you close in 2014?

Joe Kinsella: We went from nine customers in 2013 to around 60 in 2014. It grew to 300 in 2015 and we’re 600 plus now.

Sramana Mitra: What is your pricing model?

Joe Kinsella: It’s a percentage of spend. Companies consume cloud infrastructure. We needed some way to approximate the complexity of what we do for them as a SaaS product. We arrived at percentage of spend. If you spend a million dollars on the cloud, our list price is 3% of what you spent.

Sramana Mitra: What scale of customers are you finding your sweet spot in?

Joe Kinsella: Today, we have a channel that goes after all sized customers. Primarily, where we focus as a direct business is the biggest and most complex customers. We have many customers who have 10,000 plus servers running in the public cloud. We have many customers with 10 plus petabytes of storage running in the public cloud. If you were to take, as an example, Amazon’s top 50 customers and you look at our top 50 customers, you’d probably see a surprisingly high correlation across them.

Sramana Mitra: What else is interesting in the story?

Joe Kinsella: There are multiple parts to it. After getting to the original idea and then the product–market fit, we were trying to scale it up and hit one of the classic challenges of scale. Years ago, the business was me. Today, we are somewhere around 120 people. To achieve that, we went into hyper-growth. We started to deeply understand how to build the best of market-leading products in the industry.

We started to acquire some great brand companies. Our portfolio companies are as good as it can be both for the enterprise and for fast-growing technology companies. It’s like a who’s who list. One of the great advantages of that is not just the logos that they brought in but we also had the opportunity to work with some really smart people who helped steer us in the right direction.

Sramana Mitra: While you were doing all this, what was the competitive landscape like? Was there any other major competitor that you were seeing in deals a lot?

Joe Kinsella: I like to think of it as the five pillars of managing infrastructure. There’s cost availability, performance security, and usage. The platform that we built out is intended to solve all of those. Particularly on the cost side, what we found is that companies often start to feel the pain in cost. There’s this cloud journey that customers go on in terms of how they unravel the pain around managing infrastructure.

In the cost space, we saw a handful of companies. Our biggest competitors were internal systems. I built my company around fast-growing technology companies that were born in the cloud and built out sophisticated internal systems to solve the problem. They didn’t want to build these internal systems and they wanted to replace it with something else. They needed our product to have feature parity and to seamlessly drop in and replace what we’re doing. That was common. It forced us to build more of a platform and less of a product because of the sophistication of those use cases.

Sramana Mitra: You raised more money in the process?

Joe Kinsella: We did. We closed, in February 2014, a $12 million round with Scale Venture Partners. I went to the West Coast to talk to investors. Last month, we announced our $20 million Series C with Sapphire. We have a total of $40 million invested into the business. Our A Round was classic Don Quixote type where we signed the term sheet in five weeks. A lot of that was luck and timing. Had the luck and timing not gone in our direction, we might have taken another six months to raise that round. The B round had some pretty decent metrics in the business at that point, but we didn’t have a lot of metrics. We had multiple term sheets. There was a fairly sizeable interest among people who really understood our space.

Sramana Mitra: You have quite substantial traction at this point.

Joe Kinsella: Right.

Sramana Mitra: You raised a lot of money. Is your revenue scaling at a pace such that you will be able to get to the numbers that would do justice to $40 million raised.

Joe Kinsella: It is. Our revenue grew 400% last year. We didn’t need to raise a C round. We set a bar and said, “In the current economic environment, if someone is willing to come above this bar, we’d be happy to have a conversation with them.” The majority of our B round was still sitting in the bank because our revenues were rising so quickly. We didn’t burn it down as fast as we predicted. The fundamentals of our business are great. We really have a highly efficient smart growth model. It was very popular among investors as they look at the economics of our model. We’re small in comparison. We have a long way to go.

Sramana Mitra: You just want to make sure that everything is structured right because the market right now is full of people who raise too much money and have not delivered enough in terms of revenue. Unit economics are terrible. There’s going to be a shake out this year and next year from that category. It sounds like you’re a healthier company in general.

Joe Kinsella: We’re seen by most investors who gave us term sheets as one of the most efficient companies that they were looking at at that time. I don’t think there are a lot of excesses in Boston per se.

Sramana Mitra: The froth usually happens in Silicon Valley.

Joe Kinsella: Yes, it didn’t quite reach Boston in the same way.

Sramana Mitra: Thank you for our time. Congratulation on everything that you’ve achieved so far and good luck going forward.

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