Capital Efficient Entrepreneurship: Neil Vaswani, CEO of Corestream (Part 3)

Sramana Mitra: How did you get it off the ground? You said you raised money right away?

Neil Vaswani: Yes. My co-founder and I wrote up a two-page executive summary. We started spamming VCs. We got some calls back.

Sramana Mitra: What year was this happening?

Neil Vaswani: This is 2005. Not exactly the best time to be raising capital, but we did get some responses. It took us a while to get us warmed up. Eventually, we landed three different suitors who were really interested in funding us. We decided to walk away from one of them, because it didn’t feel like they aligned with us from a cultural standpoint. We don’t want to be in the board room with them. We narrowed it down to two. We ultimately found a great partner for seed funding and closed that round in 2006.

Sramana Mitra: How much money did you raise?

Neil Vaswani: A million dollars.

Sramana Mitra: Other than the fact that you had this experience with Citi and you knew this was a problem with large enterprises, you didn’t really build anything when you went out to raise money?

Neil Vaswani: No, we didn’t. There was not much else other than a concept and a use case.

Sramana Mitra: Then you got your funding in 2006. How long did it take you to build the first version of the product? Was Citi Group your first customer?

Neil Vaswani: No. When I left that company, I signed a non-compete agreement with them. I did not go after Citi Group. I went to hunt on my own. We launched the first version of the product somewhere in 2007. We landed our first client in 2008, which was Applebee’s. I was selling it myself.

We just were persistent and that helped establish some sort of credibility. It took us a while. I made two big mistakes in the early part. We started whale hunting, which is mistake number one. Because the first use case was Citi Group, it was built with a larger organization in mind. You needed a larger addressable market to make the economics work.

Unlike other SaaS solutions, the concept is not to charge per employee per month. We were leveraging the commissions to fund the platform and ultimately generate revenues and profits. Our revenue is 100% predicated through commissions and placement fees. You need a larger addressable market to hit that ROI because the implementation cost and the integration cost were heavy with no guarantee that we would see that ROI unless people bought the product.

The larger the employee population, the more likely we’d succeed. We started whale hunting as well as disrupting existing distribution. I did not understand distribution at scale. I was more focused on the product and completely ignored and underestimated existing distribution. Existing distribution in our market are brokers.

My original thesis was that brokers couldn’t present the value proposition that we added. Those relationships would eventually expire because people would want to move to technology. People who didn’t believe in technology would ultimately retire or leave the corporate world. We just underestimated the stickiness of those golfing relationships that those brokers have. We struggled with distribution over our first five years. From 2006 to 2012, we only captured about 75,000 end users.

This segment is part 3 in the series : Capital Efficient Entrepreneurship: Neil Vaswani, CEO of Corestream
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