How A 17-Year-Old In India Bootstrapped To $7M In Revenue

By Dharmesh Shah on November 8, 2012

The following is a guest post written bySanket Nadhani. He previously headed Marketing and Sales at FusionCharts and just launched an eBook on the complete journey of the company on its tenth birthday.

FusionCharts was founded in 2002 by my brother, Pallav Nadhani, in a quest for more pocket money. The charts people used on the web those days were Excel-type charts that were a pain to use, sat heavy on the servers often sending them crashing and burning, and generated deathly-dull output at the end of it all. FusionCharts came in with sexy, animated and interactive charts that were a breeze to use and installed the copy-paste way. Today, it has 20,000 customers and 450,000 users in 118 countries, powers more than a billion charts per month and clocks $7M in annual revenues. But that's not the interesting part. The interesting part is that this is the handiwork of a 17-year old with no business knowledge whatsoever living in India — a land that was nowhere on the product map a decade ago. In this post, I will share the unconventional problems that came our way and the lessons we learnt. Even though I moved on from FusionCharts a year back, I am still going to refer to it as "we" wherever required because that's how much a part of my identity it is. Also, brevity is good.india flag

Wanting to make money is not a bad reason to start up

Ask any entrepreneur why they started up and the reasons would vary from “The project management tool we had didn't cut it for us to “The world of education had been languishing in the dark ages for too long.” And of course, there's that thing this Steve guy said that people love to repeat — I wanted to make a dent in the universe. But “I wanted to make money” is not something you hear of often. It sounds shallow, and most entrepreneurs shy away from it. FusionCharts started as a quest for more pocket money when as a teenager, Pallav needed more money to go bowling and hang out in cafes. Creating an interactive charting library isn't world-changing. It's not even sexy. But it solved his problem of making more pocket money.

It's not just about the product, it's the complete package

People don't want to know what a product can do, they want to know what a product can do for them. So throwing a feature list in their face, no matter how nicely done, is not going to cut it. They need to have the this is itfeeling as soon as they hit your website. And more so, when you are sitting in India trying to sell to Fortune 500 companies around the world. Right from the early days, FusionCharts has had real-life business demos on its website. Sales dashboards, KPI monitors, network monitoring systems, and all of them with actual business data. Of course, we could have just put out the product with an extensive feature list and expected people to give us all their money. But instead we decided to put in hours conceptualizing the demos, gathering real-life data (dirty dirty job!) and then finally implementing them. But the end result was worth the effort. Project and product managers from large enterprises would come to the website with a picture of the dashboard they need in their head, see that we have a sales dashboard, click on it and go wow. This is exactly what I am looking for. They would then ask their development team to check it out and let them know if it was good to go. So what would otherwise take three phone calls and seven emails took all of five minutes of the manager's time, and no involvement from us at all.

Fighting fraud with freemium

Every time an organization is faced with a big problem, the kind that shifts the ground beneath their feet, they just start throwing resources at it. Big money, top people. But it doesn't have to be that way — big problems often have small inexpensive solutions. FusionCharts was commercially open source from day one. The idea behind making the source code available was that people would feel safe about buying from an unknown company from India. Even if FusionCharts turned out to be a fly-by-night operator or went down in crashing, burning flames for whatever reason, they could keep their charting up-to-date by building on the source code. However, this credibility-establishing factor almost spelt doom for FusionCharts. A company from Eastern Europe picked up the source code, made some small changes to it and started selling it as their own product for a cheaper price. Of course, they had to be sued. But going the legal way needed a lot of time and money, both of which FusionCharts didn't have at that point in time. So when a new version of FusionCharts was launched, the previous version was launched as FusionCharts Free. It was free to use in both personal and commercial projects, no strings attached. What the infringers were selling for slightly cheaper could be had from the original developers itself, for free. No one has tried pulling that trick ever again.

Marketing isn't just about money

The release of FusionCharts Free not only helped fend off the infringers, it also helped get the FusionCharts brand name out in markets that were tough to reach otherwise. Developers who are wary of playing with a trial version, believing it comes with some gimmick, got playing with the product and liked what they saw. Some developers built plugins and wrappers around FusionCharts Free for different platforms including GWT, Drupal and Joomla. Startups, who were low on money started using the free version in their product and when they had paying customers, they came back to get the paid version. In essence, FusionCharts Free has done more marketing for FusionCharts than even the best of traditional marketing campaigns.

If you have a picture of the US President using your product, tell the world about it

In 2009, the US national CIO unveiled the Federal IT Dashboard which was designed to give the public a look at the status of thousands of ongoing IT projects in the government. It also tracked the effectiveness of the government's overall IT spending — 600 billion dollars of them. The dashboard was using FusionCharts in plenty, something even Tim O'Reilly made a mention of in an article he wrote. That was a great story to go tell the world about, but it got even better. One of these nights, while idly browsing the web in the middle of the night, we came across a picture of Barack Obama using the Federal IT Dashboard. While we could have told the world how Barack Obama was using FusionCharts as a part of the Federal IT Dashboard, we decided to be bold and shortened it down to Barack Obama uses FusionCharts. And then we went to the mass media with the story. We were covered in many of the leading publications in the country. In fact till today, every coverage on FusionCharts makes a mention of Obama using FusionCharts in one way or the other. After all, how many companies can claim that White House uses their product with a picture to prove it?

Give people more reasons to remember you than just the product

Business isn't just about your product and offering. A large part of it is how people feel about you. A genuine conversation, a good story, they all add up. Every time we have gone to a tradeshow, we make a list of objectives which includes generating sales leads and getting press coverage. But another of those objectives, and a very important one, is to radiate warmth and happiness to every around. Even to people we spend only a minute with. And it reaps rich rewards when we come back to emails from people saying how much they enjoyed meeting us. There have been times when people have commented on a FusionCharts article somewhere on the web just to say that the team is very friendly. Words like those can brighten up even the toughest of days. And then of course, there's the power of a good story. People love stories, no matter how left-brained they are. So when FusionCharts completed a decade of being in business, we decided to write an eBook on the complete journey of the company, with warts and all. And the feedback we have got within a week of launching the book has been touching, to say the least. People who did business with us half a decade ago are writing in just reminiscing about the good old times. Entrepreneurs and aspiring entrepreneurs are writing in about how inspiring they found the story. Existing users and customers are writing in to say how they feel like a part of FusionCharts now. There's nothing like a good story.

Final words

A startup founded by a 17-year old in a country without a product ecosystem as such can never be smooth-sailing. But what it can be is extremely satisfying, as you tackle problems both usual and unusual. And extremely satisfying it has been. If you like what you read, check out the complete story of FusionCharts in Not Just Another Pie In The Sky.

What are some of the most unusual lessons you have learnt along your startup journey? Would love to hear your thoughts in the comments.

Topics: guest story
Continue Reading

Surprising Insights From HubSpot's $35M Mezzanine Round

By Dharmesh Shah on November 5, 2012

The following is a post from my friend and co-founder/CEO of HubSpot, Brian Halligan.
HubSpot just closed its mezzanine round, so I thought I’d share some surprising things I learned during the process. I’m by no means an expert in this field, so these are just the observations of one entrepreneur.

A Surprising Number Of Potential Investors With Widely Varying Value Propositions

My impression is that times have changed in the growth equity game. It used to be that early stage venture folks just did early stage investing, late stage venture folks just did late stage investing, and public equity investors only invested in publicly traded stocks.  What surprised me is that now, it seems like everybody invests in late stage private companies.describe the image

This is certainly not the “official” way to look at it, but here’s the way I ended up bucketing types of investors in my own head.

  1. Typical Early Stage VC Firms with Growth Equity Funds – These are folks like Sequoia, Accel, General Catalyst, Redpoint, DFJ, etc.,  that have typically started new funds with new teams focused only on investing in late stage companies.  They write checks from $15 million to $100 million as far as I can tell, and I think they’re pretty valuation sensitive as a group. They usually want to take a board seat and can add a lot of value in terms of knowledge, connections, and pedigree -- Sequoia led HubSpot’s last round and has been huge on those fronts. 
  2. Late Stage VC Funds – Think Meritech, Adams Street, August, Norwest, Tenaya, Questmark, SAP, and DAG. These folks only do late stage equity and write checks from $10 million to $40 million as far as I can tell. I think they are less valuation sensitive than the traditionally early stage folks. They are typically a bit more arms length in their level of involvement which often translates into a board observer seat -- they seem to follow-on the top tier early stage folks and rely on them for their advice and connections.
  3. Big Check Late Stage Funds – GA, TCV, NEA, etc. seem to only do late stage equity and write checks north of $40 million. I think they are relatively valuation sensitive, but keep in mind I only have a small sample size here. It seems they’ll want a board seat and to be very involved – and they can add a lot of value.
  4. Private Equity Funds – TA, Summit, etc.  are the types of firms I know the least about, but my sense is that these folks do late stage investing and write “biggish” checks. They seem to be wired to buy out existing investors, put in some working capital, and raise debt. This can be a great approach for a company, but it’s probably hard to work for a firm that already has a lot of venture money in it. My sense is that they want to be involved and are value-add.
  5. Public Funds – The last bucket is folks like Fidelity, T Rowe, Janus, Cross Creek/Wasatch, Altimeter, Tiger, and Morgan Stanley. They invest out of public equity funds, seem to write checks from $10 million on up, and tend to be slightly less valuation sensitive (we’ll talk about why below). They are financial investors and do not want to be overly involved, which means no board seats or observer seats for the most part.

That’s my sense of things based on insights from HubSpot’s mezzanine round of funding. If I’ve missed some funds, please do include them in the comments section so we can make this article as useful as possible. 

The Surprising Value Of Public Investors Investing In Your Private Company

We went with public funds -- #5 above -- not private funds for three main reasons that made a lot of sense for us, though they might not make sense for your company:

  1. Public investors tend to buy more of your shares after you go public, while private investors will typically look to sell their shares after you go public.  The venture funds incentive system is set up such that they are supposed to sell the shares and distribute the profits to their investors after a reasonable time elapses following the IPO. My sense is that the period of time between when you go public and when they sell varies widely, and the better the firm’s footing the more likely it is they will hold. Having said that, I think it’s pretty rare that the traditional venture folks actually buy more in the public markets.  It’s important to note that this does not matter if your most likely outcome is a trade sale.
  2. Public investors can “recycle” their capital while most venture funds can’t really do that easily. Huh? If Fidelity gets a 70% return on their investment in your company in a year and a half, they are pretty happy -- they can turn around and reinvest that money into other stocks. If Accel gets a 70% return on their investment in a year and a half, they are actually pretty unhappy -- they need to return that 70% to their investors and can’t really reinvest it. In order for venture funds to make their math work, they need to get a 3X return on their investment. So what? Well, this means that the late stage venture folks will likely give you lower valuations and more “structure” (i.e. participation) in their deals to try to reach higher return levels, while the public folks will likely be more flexible. 
  3. We are generally very happy with our board and were not looking for new members or even new observers. 

Now, that’s HubSpot. Every company is different. Let’s just say, as an example, that you are a travel technology company that’s doing well, but you need some help on the board, some VC pedigree and connections to improve your team, domain expertise, and maybe some money to buy out existing investors and their board seats. In that case, you’d be nuts not to go with, for example, General Catalyst or Sequoia. 

The Surprisingly Common Use of “Structure”

In our A through D rounds, the concept of “structure” did not come up. In fact, when one of the potential Series E investors asked me, “Are you open to ‘structure’?” it caught me off guard, because I didn’t know what it was and didn’t want to seem like a complete rookie. So I said, “Let me check with my board and get back with you.”  That turned out to be a good answer, by the way.

Structure is a fancy word for preferential terms set up to increase the return of the new investor, or limit the downside of the new investor. As I mentioned earlier, private investors typically need to get a 3X return on a late stage deal, and they’re nervous that they will invest money into a company and six months later it will sell for 75% more than they invested. For someone who can reinvest that capital, that’s a great outcome; for a VC, it’s not. In order to protect themselves from that risk, they will ask for participating preferred stock that, for instance, will put a floor on their return of 2X. Given the VC’s incentives, it makes perfect sense, but that is a different type of equity that sits on top of everyone else’s equity that needs to be looked at extremely carefully. It comes in a lot of flavors and can work well to bridge a valuation gap, but can be confusing, so I recommend folks dig in and build the model on how it ripples through.

Another type of structure that VCs put in is a block on an IPO or trade sale of less than 2X (or something like that). This block makes perfect sense for the VC given their contract structures with their LPs, and it might make sense for you -- but you need to go into that with eyes wide open.

The Surprising Importance of Your Series A Terms on Your Mezzanine Round

It turns out that the terms from your Series A are most often cut and pasted into your later round deals. When you compromise on terms in the early stages, you will have to pay the price in the later stages. You generally don’t start from scratch and rehash the terms.

Surprisingly Rational Pricing

The initial pricing interest in our early stage rounds varied widely; but in our mezzanine round, the numbers came in much closer to each other. There are hard public numbers to look at with publicly traded companies and recent acquisitions by public companies. The pricing discussions just seemed much more “real” than the earlier stage deals. 

My advice here would be to get your arms around the public companies for your industry, and where those companies were when they were your size. We built a chart that showed every public SaaS company and what their revenues and growth trajectories were from their early days to where they are today. It was a useful tool in our discussions, particularly when we were getting compared to public companies that were growing at 25% and we were growing at 85%.

Surprising Value of Currency Valuation in M&A

Private companies buying private companies with stock is a tricky business. After our Series D, we acquired another privately traded company called Performable with a combination of cash and stock. The trickiest part of deals like this is figuring out what their stock is worth, and what your stock is worth. The nice part about just having finished a relatively late stage, clean round is that at least our side had a real number to negotiate from. If neither side has a recent number, those negotiations are really tough to sort out.

Those are some of the surprising things we learned in our recent mezzanine round. Am I missing any insights that you have on this topic? Feel free to leave a comment and let me know.

Topics: hubspot funding vc
Continue Reading

Community

Let's Connect

And, you can find me on Google+, Twitter, and Linkedin.

Recent Posts

Chat with GrowthBot

It's a bot to help you with your marketing and grow. You can research your competitors, improve your SEO and a lot more. http:/GrowthBot.org