From Zero to $3.7 Billion: Jyoti Bansal’s Textbook Case Study of Building AppDynamics (Part 4)

Sramana Mitra: You do need to talk to people. The validation that you do in companies like that is the conversations that you bring to the investors. They use that as the validation.

Jyoti Bansal: Exactly. That’s what I learned. I should have a lot of conversations with customers. It’s also a challenge. How do you find these customers? If your target market is large enterprise, how do you find 20 to 25 customers that you can show as validation? I started using LinkedIn where I reached out to people and connected to people and said, “Can we have a 20-minute conversation about this idea I’m working on?”

With their permission, I would take notes. In my investor pitches, I would share those notes to show the way the pain is and the validation around it. The third part of the story is, you’ve to convince the investors about why it should be you. If there is a market and there is a pain there, why you?

Sramana Mitra: And what your domain knowledge is.

Jyoti Bansal: Domain knowledge and your ability to execute on it and recruit teams. You have to package and sell yourself as well. I did have domain knowledge coming from a prior company in a similar domain. I did have a lot of patents in that space. I did have domain knowledge but you also have to convince people from the business side. You are an engineer and a first-time founder. People don’t think you can do business.

I almost feel like if you are an engineer, an immigrant with an accent, and you are young, it’s hard to convince investors that you could learn to be a business person as well. Once those three things started to come out in my story, funding became easier. The way the venture business works, strangely, is after I got my first term sheet, I got six term sheets in a week.

Sramana Mitra: Who were willing to do a fat startup with a first-time founder?

Jyoti Bansal: My term sheets were mostly from top-tier venture firms. I won’t name the ones who I didn’t go with. We did go with Greylock and Lightspeed as the first two investors. The Series A was for $5.5 million.

Sramana Mitra: Was it Asheem from Greylock who led the round?

Jyoti Bansal: Yes.

Sramana Mitra: This is a very standard story – Asheem Chandna’s fat startup. What is your next step?

Jyoti Bansal: I had $5.5 million in the bank and just myself. Then the next step is, how do you build the right team. It’s almost like you keep going to the next level. In some ways, it’s almost like a video game. You go to level one and you go and solve something. Then you go to level two. Level two feels hard. The first level was raising capital. For a fat startup, you need to have capital. The next level was building a core founding team.

Sramana Mitra: Did you have people in mind that you would bring on board when you would have funding?

Jyoti Bansal: I had identified people. It’s not easy to recruit them even when you have funding. Out of the five people I had in mind, I was able to recruit 50% of them. It’s not an easy thing to build the right founding team and the right early team.

I raised the funding in April of 2008. When the crash was happening, a lot of engineers wanted stable jobs and didn’t want to work for startups. You still had to find people who will be willing to go through a startup journey when the market is crashing. That became the second milestone.

After that, the milestone was what everyone has of finding the product-market fit. You start your company with a thesis on a problem and you have a unique solution. Converting that into a product that people will buy in a broad way is complex. We went through that.

Sramana Mitra: How long till you found your first paying customer?

Jyoti Bansal: Our first customer closed in October of 2009. It was about 16 months since the beginning. Another challenge that we had was the whole funding market in 2009 was nil. I needed to manage the cash very carefully until we start generating revenue and we get to the next level. Raising a Series B would be pretty impossible without that.

Sramana Mitra: 16 months to your first paying customer. I have two questions. How much cash did you have left? How big was the deal?

Jyoti Bansal: Not too big. We were working with these customers as part of a beta program. We had the first three to four customers close almost at the same time. The average was about $25,000.

Sramana Mitra: This was $25,000 annual recurring?

Jyoti Bansal: Annual.

Sramana Mitra: You have about $100,000 of ARR booked.

Jyoti Bansal: Yes.

This segment is part 4 in the series : From Zero to $3.7 Billion: Jyoti Bansal’s Textbook Case Study of Building AppDynamics
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