Scaling with Angel Money Only in Canada: Joel Lessem, CEO of Firmex (Part 5)

Sramana Mitra: Talk to me a bit about the verticals where you have good adoption. You have a horizontal platform product. What vertical is your strongest?

Joel Lessem: Investment banking is 30% of our business.

Sramana Mitra: What’s the next one?

Joel Lessem: Law firms are 20%.

Sramana Mitra: Is there any other dominant vertical?

Joel Lessem: Resources are 17%. Life sciences are 12%.

Sramana Mitra: What head room do you have? For instance if you look at investment banking, how much bigger can that investment banking business be? Is there head room to grow the investment banking vertical for you?

Joel Lessem: I don’t think of it in terms of verticals so much. I think of it in terms of total addressable market for Data Room.

Sramana Mitra: That’s right. That’s exactly the question.

Joel Lessem: The total addressable market for Data Room is probably somewhere between $400 million to $800 million, depending on how you price your product.

Sramana Mitra: For investment banking or in total?

Joel Lessem: In total. That was the other reason I didn’t want to get a venture capital involved. They’re looking for that billion dollar company. You’re not going to get a unicorn in a virtual data room space. It just doesn’t make sense. For me, there was no point of going down that route because the game they play is a hits game. With $4 million in capitalization, building a $50 million to $60 million business and throwing $10 million to $15 million EBITDA is a win.

Sramana Mitra: Yes, totally. No question about it. How do investors interface with that decision?

Joel Lessem: They’re very happy because we pay dividends. We just started. For a while, they were like, “This isn’t Google. What are you guys doing? You’re not growing super fast.” I said, “Be patient.” It probably was in three to five years when they started to get a little impatient. They were not tech investors. They were real estate people. They were regular high net worth people. They really didn’t understand the tech space. All they understood was what they heard in the media. You invest in a tech company and you might make 10 times your money. To be honest with you, I didn’t really understand it either when I first went to raise money.

I’m a big fan of Warren Buffet. In fact, last night I was reading his letters. I’m on 1982. I really look at it very much like a mature business. The really cool thing about it is that we can build a business for the next 30 years. There’s none of this artificial time line. It’s more like, “Well now that we’ve got a business and now we’re considering some acquisitions, how would we do that? What would make sense?” The thing that really shocks me actually is that I never anticipated this. I might retire here. This is not a five-year journey. When I started out, I anticipated that this is going to be a five-year journey. It’s 10 years in and I figure, it’s now going to be a 30-year journey.

Sramana Mitra: You look forward to that. It sounds like it’s something you enjoy doing.

Joel Lessem: I never even contemplated it before. My first reaction being in the tech business as an employee was, “Oh. That’s not what tech people do.” You go from job to job or startup to startup. That was what you hear in the media. You see it. It gets hyped up a lot.

Sramana Mitra: The media and the startup world is driven by financing and exit. Our philosophy in One Million by One Million is entrepreneurship equals customers, revenues, and profits. Financing and exit are optional.

Joel Lessem: Right. To be honest with you, this is a new concept. First, I wasn’t sure if I was comfortable with it. Now, I’m actually finding it really quite intriguing because it really lets me plan not only just five years out, but 10 years out. The other thing that’s really helpful is being profitable, because it gives you options. For years, we were reinvesting everything back into the business just to achieve scale. Now that we’re achieving scale and we’re looking at the metrics, this is so consistent.

Then there’s the debate whether we should continue strictly in this TAM or should we start a portfolio product. The higher end of the TAM isn’t making money and maybe the cost of acquisition changes. I don’t have the answers to that by the way. Fundamentally, we think like what you just described. That’s the really cool part about it. I was friendly with a COO of a Sequoia-funded company. He said, “They make us do dumb things all the time. They want 200% or 100% every year. We do stuff that doesn’t make money. We do stuff that’s just stupid. We just burn money.” To me, that’s not my nature.

This segment is part 5 in the series : Scaling with Angel Money Only in Canada: Joel Lessem, CEO of Firmex
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