Bootstrapping a $175 Million Business with Services: TEOCO CEO Atul Jain (Part 6)

Sramana Mitra: What happens next?

Atul Jain: Since then, we have become a global company. Today, we are about 1,300 employees and doing about $175 million in revenue. We are global with 50% of our revenue coming from outside of North America.

Sramana Mitra: Your target customer base is still telecom?

Atul Jain: Yes, still in telecom software. We only do telecom software.

Sramana Mitra: You have a whole suite of products within the telecom space.

Atul Jain: Correct. We have three main umbrellas under which we sell. We call it financial analytics, network analytics, and RAN (Radio Access Network) analytics.

Sramana Mitra: Is the employee base still North America?

Atul Jain: No, it’s a worldwide employee base. Today, we have employees in almost every country you might think of. We have customers in over a hundred countries. We have employees in Dubai, South Africa, and Latin America. We have eight offices in North America. We have three or four offices in India. We have an office in Israel. We have offices in London, Italy, and Australia.

Sramana Mitra: These are mostly sales offices.

Atul Jain: No. For example, we have a very large R&D presence in Israel of 200 people that came from an acquisition. We have a sizeable presence of about 100 people in London. A good percentage of the people are in R&D. We have a sizeable presence in India where some of the work is a bit more BPO oriented, but some of the work is software and delivery oriented. We also have customers in India. We truly have a global presence today with presence in any major location where you would expect a telecom software company to possibly have presence.

Back in 2009, it was close to 98% North America. I never imagined that the day would come where it would be 50%. I thought for sure it would be very difficult to bring North American revenue below 70% but through a combination of acquisitions and organic growth, we have been able to build a pretty global client base and diverse revenue stream and employee base.

Sramana Mitra: What about financing? Was TA Associates financing the last round?

Atul Jain: TA Associates was not really a round of financing because only $3 million came in. Pretty much, it was almost nothing. We have not raised capital from anybody. We have, at times, taken bank loans to do acquisitions and have paid them off. The last time we took a loan was to buy a company in Israel. It was a three-year loan for $20 million, but we paid it off in two years. Now, we have done another large acquisition and taken a loan, which is still outstanding. We have not created any dilution to shareholders other than giving stocks to new employees.

Sramana Mitra: What is your profit margin?

Atul Jain: In terms of EBITDA of the $175 million, we probably have $30 million.

Sramana Mitra: So it’s a profitable company.

Atul Jain: Yes, we are solidly profitable. Next year, I expect our EBITDA to be $40 million.

Sramana Mitra: What is your growth rate?

Atul Jain: You can compute it from the $20 million to the $175 million. Some of it is through organic growth but a good bit of the growth in the last two to three years has been through these acquisitions, which has also slowed down organic growth because a lot of your energy goes into integrating the acquired companies. We typically buy what we call distressed assets and it takes a ton of energy to understand what is broken, how to fix the bleeding, and fix the business. So far, every acquisition we have done has been less than 1x revenue. Meaning, it’s always distressed. If we buy $10 million of revenue, typically we pay less than $10 million.

Sramana Mitra: If you just look at the kind of financial trajectory, what kind of growth are you achieving?

Atul Jain: I would say to you that, chances are, with the combination of our organic growth and acquisitive growth, we’ll probably end up growing 15% to 20% a year.

Sramana Mitra: It’s a sizeable company and very profitable with a 20% steady growth. What do you peg the valuation at?

Atul Jain: I’m not going to answer that. I have no clue. You guys are experts.

Sramana Mitra: It’s definitely a $1.5 to $2 billion valuation.

Atul Jain: I would feel that is overvaluing the business.

Sramana Mitra: Why do you say that?

Atul Jain: My view is that in our industry, you don’t get 8x revenues. I feel that in our industry valuations run, in a good case scenario, 3x to 4x of revenues. I feel that the valuation will be somewhere between 2x to 4x revenues.

Sramana Mitra: Your industry operates in the principles of the software industry, right?

Atul Jain: Telecom software is valued differently than enterprise software.

Sramana Mitra: Really?

Atul Jain: Yes.

Sramana Mitra: You’re running a SaaS company and you have a recurring revenue business.

Atul Jain: First of all, not all of it is recurring. Number two, our business revenue stream has a tangible amount of services even if it is recurring. Let’s say you buy Salesforce. Salesforce doesn’t have to do anything other than giving you access. Even in our cost management model, we have to load invoices. We get their invoices sent to us. We are loading the invoices into the system. We are responsible for tracking which invoices we get. We are responsible for making sure that they’re properly loaded. So our business has a services component to it. We are not a true SaaS company in the sense of Salesforce.com.

This segment is part 6 in the series : Bootstrapping a $175 Million Business with Services: TEOCO CEO Atul Jain
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