From Zero to a Market Cap Bigger than General Motors: Keith Krach, Founder of Ariba (Part 5)

Sramana Mitra: You were basically selling license software at this point right?

Keith Krach: Yes, we were selling license software. We said, “If we’re ever going to do this again, we’re going to pull as much expense as we can and push as much revenue out as we can. When it came to recognized revenue, I said, “How conservative can we be?” What we did was we recognized that revenue over a two and a half year period. We were booking these deals and getting cash. From a cash flow standpoint, we were cash flow positive from our second quarter of existence.

Sramana Mitra: How much money did you raise from Benchmark?

Keith Krach: We raised $6 million in A, and $18 million in B. We went public after two and three-quarter years of being founded. When we went public, we had $21 million in the bank. We only burnt through $3 million in cash.

Sramana Mitra: Amazing.

Keith Krach: That’s by far the most efficient in history.

Sramana Mitra: The only other one that comes to my mind of something that I’ve heard of that kind of capital efficiency is Tableau. They have an incredibly capital-efficient situation. Veeva also.

Keith Krach: Yes, they were very focused. When we went public, the stock price quadrupled that day.

Sramana Mitra: How many quarters since your founding was the IPO?

Keith Krach: Two and three-quarter years. We founded the company in September of 1996. We went public in June of 1999.

Sramana Mitra: Did you continue to run Ariba for a long time?

Keith Krach: Yes. Ultimately, the market cap got to $40 billion. We went public before the big dot-com boom.

Sramana Mitra: You were at the peak of the dot-com boom. I remember that time very well. I also remember Ariba during that time. You were at the right time at the right place. You also were not fluff. Your company was a real company. It was not one of those fluffs that were floating around.

Keith Krach: I was talking to Kagle before a Board meeting. He goes, “Do you know we’re worth more than General Motors?” After every earnings call, I go on TV. We had four two-for-one stock splits. It was worth $150 a share. Multiply $150 by 64, that’s the share price if we didn’t reverse stock split. Kagle said, “How long do you think that’s going to last?” I go, “That’s forever.”

We were going to do three things. We were going to put as much cash as we can in the bank. We’re going to get 10 years’ worth of customers in the next two. Then we’re going to buy companies with their equity. We had one competitor Commerce One. To this day, Ariba got 80% market share and $1.7 trillion goes through Ariba network. It’s more than Amazon, eBay, and Alibaba combined.

Sramana Mitra: Until what point in the continuum did you run Ariba?

Keith Krach: From 1996 to 2003.

Sramana Mitra: During that period, you went above General Motors in market cap. 2000 to 2003 were very difficult years in the stock market for internet stocks. How did all that impact Ariba’s stocks?

Keith Krach: It was same as everybody else. It dropped. We probably got down back to the IPO price. Maybe even a little bit lower.

Sramana Mitra: That’s still very respectable valuation for the kind of revenue numbers you had at that point.

Keith Krach: Yes, very respectable.

Sramana Mitra: Technically, a $40 million company shouldn’t be valued at $40 billion valuation.

Keith Krach: Right.

This segment is part 5 in the series : From Zero to a Market Cap Bigger than General Motors: Keith Krach, Founder of Ariba
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