Bootstrapping First from Colorado, Then Scaling with VC Funds: Faction CEO Luke Norris (Part 5)

Sramana Mitra: Talk to me a little bit about the co-labelled and white-labelled channel partnerships that kicked in gear. How did they come about?

Luke Norris: We had established an early go-to market motion. The key to this next level of success was NetApp. We were able to co-label with them where they were signing up service providers to resell and help us sell our service and solutions. That virtuous circle is what helped expand us on the map rapidly.

Sramana Mitra: What’s the next inflection point?

Luke Norris: Just to put a bow on that, NetApp financed all of my capital equipment needs and at 0% interest. Instead of using a very expensive VC equity, I was able to use NetApp’s balance sheet and make it so that they won’t charge any interest, which continues to drive my product contribution margin and gross margin through the roof.

Sramana Mitra: What year does this bring us up to?

Luke Norris: 2017. 

Sramana Mitra: That $9 million and the NetApp deal were the only financing?

Luke Norris: I’ve done a Series AA and a Series BB. The series valuations were pre-negotiated between Meritage and Sweetwater on a multiple of revenues. That let us bring in $20 million at this point.

Sramana Mitra: Where is the revenue in 2017?

Luke Norris: Heading towards $20 million in revenue.

Sramana Mitra: What’s the average deal size?

Luke Norris: ACB is greater than a hundred thousand dollars. 

Sramana Mitra: The channel is producing well?

Luke Norris: It is but it’s starting to slow down. Other brand names are starting to chip away at the idea of the white-label. We’re having to figure out something different and new for ourselves at this time. 

Sramana Mitra: When you faced that competition, what is the positioning that lets you differentiate?

Luke Norris: At this time, that’s exactly it. We have some differentiated positioning around our network IP of connecting enterprise data centers to our data center as an extension.

That value proposition, although unique for some customers, is not that important to other customers. Selling that through a channel is becoming increasingly difficult. We go through a rebranding exercise at the end of 2016. That’s when Faction was born. 

Sramana Mitra: That’s just a change of name.

Luke Norris: Correct. We want to get our own brand identity and transition to our own name.

Sramana Mitra: Functionally, what is the difference? What causes a customer to choose you over an Amazon or Google?

Luke Norris: At this point, we can place storage in between Amazon, Microsoft, and Google. We can use our patented networking to connect Amazon, Microsoft, and Google together.

With our storage in the middle, we can fix the data gravity paradox. You can instantly move features and functions. You can arbitrage them between the cloud providers. You don’t actually have to move the data between the cloud providers. You can have workloads on Amazon. The second they’re cheaper on Azure, you just press one button and run on Azure.

Since our storage is always connected between the two, our process takes an instant. This is a hard sell. Entreprises are very afraid to put 18-wheelers of data on us. They’re putting all their crowned jewels there. Even if they move it up to Amazon and get stuck, it’s still a safer solution for them.

This segment is part 5 in the series : Bootstrapping First from Colorado, Then Scaling with VC Funds: Faction CEO Luke Norris
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