Bootstrapping to $30 Million from Czech Republic: Vaclav Muchna, CEO of YSoft (Part 7)

Sramana Mitra: Have you started seeing revenues escalate from that yet?

Vaclav Muchna: In the United States, this year we are going to be close to $3 million. Our business has a very long sales cycle. We expect that the bigger revenue growth is going to happen next year.

Sramana Mitra: You said you did $30 million in 2016, right?

Vaclav Muchna: Our fiscal year is from July to June. In the fiscal year that ended in June 2016, revenue was $30 million.

Sramana Mitra: This is all business that you’ve built organically. There is no outside funding?

Vaclav Muchna: There was no external funding. Everything was grown organically. Once we started to become profitable, banks were willing to lend us money. I’m this old school entrepreneur who, for some stupid reasons, believes that a profitable company and positive EBITDA is very important. But I feel that, these days, it’s more important how much you raise.

Sramana Mitra: That’s complete rubbish.

Vaclav Muchna: Yes. I always believe that the company has to be profitable. The profitability helped us to get bank financing. More than that, today we are talking about more than $10 million in funding. That comes from vendors. How did we do that? In B2B, software and service level agreements are very important. It is normal for companies to pay for that. We started to offer bundles of support for five years that was discounted. They basically prepaid support for five years because it was cheaper. So, we got money upfront.

Sramana Mitra: The partners were paying you, in advance, for services?

Vaclav Muchna: Yes. In our industry, when Xerox wants to sell their devices, they would engage in something called managed print service. They would lease you the printers and they would contract the volume. You would pay per page. You would have a contract for four or five years with them. We are selling them service that is aligned with their contract with the end customer so they are sure that they have their contract covered from us.

Sramana Mitra: They would pay you, in advance, for the full length of the contract to make sure that you are providing them what they need to be able to fulfill their contractors.

Vaclav Muchna: That’s right.

Sramana Mitra: How much of bank financing did you use to manage your cash flow and growth?

Vaclav Muchna: As of today, the split would be about 20% bank financing, then about 60% the deferred income, and the rest would be profit.

Sramana Mitra: The bank financing came in the form of receivable financing or credit lines?

Vaclav Muchna: Investment loans typically.

Sramana Mitra: Excellent. It sounds like you’ve navigated phenomenally well in a time when your country was not quite ready for entrepreneurship. It’s a superb story. I would like to know about what you’re doing with your venture capital fund very quickly.

Vaclav Muchna: Three years ago, the company was very profitable, so we were thinking of what we were going to do with all the cash. We always kept the cash in the company. We’ve never distributed profits. The company grew and we had 250 people. It’s not a huge company, but you start to be a little bit of a corporate. I wanted to give back to the community.

We invested in one or two startups. I started to like that as it reminded me of my old days. What I’ve learned in the United States is that the important thing is how you are different. I didn’t want to make just another venture capital fund today. Today, there are millions of them. I connected that with what we faced in the beginning – nobody invested in us because we were not sexy enough. We built a small fund which is a few million dollars. We invest in startups that have Internet of Things (IoT) and B2B projects. We fund these types of companies.

The standard venture capital is not able to provide them the value add in the beginning in terms of support for production, prototyping, and certifications. We have our production and prototyping facilities. So far, we’ve funded seven projects highly focused on IoT. It is really about giving back, particularly to startups who are going through the same thing. They are not just software. They need software and hardware.

Sramana Mitra: Are these all Prague-based projects?

Vaclav Muchna: Some of them are from Brno. Some of them are from Prague. We have enough startups in the Czech Republic. We have the biggest exposure in the Czech Republic.

Sramana Mitra: Great. Thank you for your time.

This segment is part 7 in the series : Bootstrapping to $30 Million from Czech Republic: Vaclav Muchna, CEO of YSoft
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