Building a Mid-Market Security SaaS Company from Canada: J. Paul Haynes, CEO of eSentire (Part 4)

Sramana Mitra: Where did you raise money? You said you worked with some investors that you had prior relationships with and who wanted to get in early. Are these Canadian investors?

J. Paul Haynes: The first investor was Venture Link, which was Toronto-based. They came in fairly early. They have another affiliate firm. The government put a program in place that encourages venture investment. We were able to take advantage of an interest-free loan that was non-dilutive. There’s a window of eligibility that we just happened to take advantage of. The first round was in June of 2011.

Sramana Mitra: You said something which is a bit unusual. I want to explain that to the people who are reading this so that they don’t misread the implication. You raised money to organize yourselves as a product company switching out of a service company model. The fact that you were able to raise money to do that was because you have a track record and investors were wiling to give you the money to do that.

For a first-time entrepreneur, that is usually not an option. You have to do all that and come into the financing round with all that stuff done. That’s something we’ve done a lot of case studies on – bootstrapping with a paycheck. It shows up all the time.

By the way, it’s a tried and true method of building product companies by starting off as a services company.

J. Paul Haynes: I wouldn’t want to minimize what had been built already. It was very much consulting with renewed contracts versus a subscription SaaS model. It had to be a cleaner cut to the SaaS business.

Sramana Mitra: Where are we in the time-frame and how long did it take your to turn this services business into a product company?

J. Paul Haynes: Just to be clear on that, we turned a consulting model business into a subscription model business.

Sramana Mitra: We consider SaaS as a product company. The business model may be a subscription business model but it’s not a services business in the sense that it’s not a consulting services kind of company.

J. Paul Haynes: We deliver the stuff that our R&D team develops on a piece of hardware. We deliver that as part of a monthly fee. The humans that are running it are also included in that single-line item.

Sramana Mitra: When did you get this transition completed?

J. Paul Haynes: The marketing version of that was fairly quick. Certainly in a year. Then we had to grow into the rest of it. The business of automating or creating the infrastructure behind the delivery model is ongoing. We’re still doing that to be frank. The customer doesn’t get a different experience. It’s really all about our operational efficiency. Our gross margin, for example, was in the low 40’s when I started. We’re now in the 70’s range. That’s a bit of measure for me on how scalable we managed to make our technology service delivery model.

This segment is part 4 in the series : Building a Mid-Market Security SaaS Company from Canada: J. Paul Haynes, CEO of eSentire
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