20-Year Journey of a Fat Startup with Major Pivots: Scott Sellers, CEO of Azul (Part 5)

Sramana Mitra: From 2002 to 2008, you already had a lot of VC in the company. It’s already six years, so the VCs are starting to get antsy. How did you handle that?

Scott Sellers: It was one of the most challenging aspects. We needed to change our investor base. The current investors had invested in a hardware business model. We had raised a ton of money. We had started to reach the limits realistically of what the existing investor base could do.

We had to bring on a new set of investors. It was a hard decision. When you change the cap table like that, the existing investors were voting to dilute themselves. Those are hard conversations to have. Ultimately, they all voted for it because they believed in the vision going forward. We needed to have a fresh cap table. It was very hard to do.

Sramana Mitra: What was the revenue level you were at when you were making this shift?

Scott Sellers: We were doing about $10 million a year.

Sramana Mitra: So new investors and new software business in 2008. What happens next?

Scott Sellers: It takes a while.

Sramana Mitra: Was that the point when you changed your name to Azul?

Scott Sellers: No, right after we founded in 2002, we changed the name to Azul. People ask us where the name comes from. It dates back to those days when we were a hardware company. We thought of ourselves as Little Blue. Azul, of course, means blue in Spanish. It was also a simple and easy name to remember.

For the software part of the business, you can think about it starting from scratch again. Even though we had a bunch of software that ran inside the hardware appliances, moving that to a commodity computer was a very complex thing to do. Around the 2012 timeframe, we had the software to the point that it was capable of running mission-critical workloads for the types of customers we had. That represented the beginning of Azul as a pure software company.

Sramana Mitra: This 2008 to 2012 time frame, you had just one round of financing?

Scott Sellers: Yes, we did it in stages. The new investor, which was a European firm, wanted to make it more milestone-based. We all recognized that it is not an easy thing to move from hardware to software. Most companies fail to make that shift. There’s always risk involved. Even though the terms of the financing were all agreed upon, they would continue to fund as we hit milestones.

Sramana Mitra: What happened in 2012 once the product hit the market?

Scott Sellers: The response was fantastic. What happened at that time was what happened to most new emerging infrastructure software companies. You start to win some accounts. You learn a lot about the product through real-world experience. You have some great successes. You run into some bugs. You continue to evolve.

What fueled our continued enthusiasm was the uniqueness of the product, the customer feedback, the market segment, and clear technology differentiation. What we were selling at that time was a subscription software product. It had our proprietary technology in it. It was clear that you wanted to sell subscriptions.

The other thing that was emerging was more customers looking for a cheaper alternative to what was now owned by Oracle in terms of enterprise Java support. Not a better version of Java – the same but in a more consumable fashion. We launched an open-source product called Zulu in 2013 which was adding to our product portfolio so we could address the masses of the market with a replacement for Oracle that was at a much lower cost.

This was similar to what Red Hat did in the early 2000s by displacing proprietary Linux. That was the second prong of our product portfolio strategy. We continue to have the Zing product which has high-performance speeds. We now had a two-product strategy.

This segment is part 5 in the series : 20-Year Journey of a Fat Startup with Major Pivots: Scott Sellers, CEO of Azul
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