Note: This talk was recorded on Dec 2, 2021. Edited transcripts.

Rohit: Welcome to another live from Upekkha. Today we have with us Akash Mahajan, Co-founder & CEO of Kloudle and Vishnu Raned, Co-founder and CRO of VideoKen, and I will be a host for the day. My name is Rohit, and I head the data team within Upekkha. So let's go alphabetically, Akash, would you like to take a minute and introduce yourself and your company, please?

Akash: Hi, I'm Akash. I'm a cyber security person, and I solve digital security at Kloudle. Basically the world has moved to a place where there's just too many cloud accounts, too many SaaS accounts and these digital assets hold all the value. And because clouds are dynamic environments, they change rapidly, and one misconfiguration can lead to really big data breaches for you. So we're trying to automate all those aspects simply because there's just not enough qualified people out there. So that's what Kloudle has built and is expanding on now.

Rohit: Wonderful. Thank you so much, Akash. Vishnu?

Vishnu: Hi, I'm Vishnu from VideoKen. And while Akash is a cyber security guy, I'm a career sales guy. VideoKen is about five years old. What we do is we make videos more interactive by using AI to index them and make them easier to consume, because now more than ever before videos are used all over the place, especially when it comes to training and webinars and trade shows. But the problem is most people don't watch these videos. We are trying to transform these videos so that people can actually watch them with ease just the way you would read a book.

'Sell first and then raise, whatever it is': Vishnu, VideoKen

Rohit: Wonderful. Thank you so much, Vishnu. I'm keeping my fingers crossed and hoping people are watching our video. So let's set the agenda for the day. Today, we are discussing 'Your best bet on funding your SaaS startup: Your revenue is your capital' So before we dive into that, I would like our audience to understand your own experience with funding.

Vishnu: So we did a round of seed funding way back when we started, this was in early 2017. We actually raised a seed round... We got commitments even before the company even started.

Rohit: The dream, right?

Vishnu: Which is, yeah, what a lot of people dream about, which is fine.

The key thing is that in hindsight - again, all these things are in hindsight - I think we would have probably gotten to our product market-fit and the growth we are experiencing now much earlier if we hadn't raised that round of funding. One of my philosophies - and I strongly believe in it - is sell first and then raise, whatever it is.

Again, we raised an early round of funding but we had to struggle to get to the product-market fit, and when we got to the product-market fit, the money that we raised was already spent.

So then we almost had to bootstrap our way to where we are today primarily by using customer revenues as capital and that's probably the best source of capital you can get with no strings attached.

Rohit: I hear you. So we will deep dive into your experience, understand why you said what you said. So before that maybe we'll hear Akash's experience.

Akash: Yeah, at Kloudle, we've raised one safe round. I don't know if it's even called a round. We were bootstrapped. Very, very comfortable, I would say. It's just that the signalling for the industry that we are in and the kind of engineering talent that we need for the next phase meant that we had to go down this path. What Vishnu says is absolutely the way to do it. And what we are experiencing is also absolutely the way to do it.

There is a vision or a dream that we want to get to, and funding acts like some kind of resource. With any resource, some things get prioritized, which means that there is waste, there is inefficiency in other areas. And it's like a trade-off between money and time, primarily.

Rohit: Absolutely.

Akash: And mostly environmental factors make a huge difference.

Rohit: Absolutely. So I think it'd be very safe to say that it's highly contextual for each on their own. And I think what we can do better to provide justice to our audience is to understand your context better and why you did what you did. So now, furthermore putting an umbrella over here, both of you are Upekkha portfolio start-ups. You've being a part of Upekkha, I think Vishnu, for over three years now?

'Value SaaS is not anti-fundraise, it's about efficiency': Akash, Kloudle

Vishnu: Yeah, 2019, yeah a little over two years.

Rohit: A little over two years. Got it. And Akash, one year, right? So we all know that Upekkha practices and propagates Value SaaS. So could both of you take turns and explain What is Value SaaS to you? And do Value SaaS and funding go together? Are they complementary? Are they not? Does Value SaaS say you should not raise funds?

Akash: See, for me it's never been a question of that it's an either/or. Value SaaS primary teaches us that go figure out what's your best domain. Figure out your best high-value problem you can solve. Figure out the pain point and act as a painkiller, and then go about building the product based on demand side. When you do that, whether the money is coming from customers paying you or you have something upfront, it's just another tool, it's a resource. So I don't think Value SaaS ever says, 'Don't raise money.' it's more about how you use the capital.

Akash: It's about efficiency and especially the one thing that they (Upekkha folk) keep reminding us is, 'It's easier to earn a dollar than a rupee.' So if you have the opportunity to utilize the arbitrage - like in the previous two decades the companies from the western world came to India and used the opportunity - now that's the opportunity Indian SaaS founders are getting.

So I don't think they're exclusive at all. There is an emotional component to raising money, as Vishnu explained, and they experienced it. It's like when people have money in the bank, they're like, 'Okay, yeah we can.' I think it's human nature to be a little complacent and be less efficient than you would likely be, but it does unlock a lot of other things. And typically as a founder, I'd feel better if I know that I have money in the bank for my team for a year and more.

Rohit: Absolutely right.

Akash: That's the first metric we look at anyways. When that happens, then maybe that makes me more comfortable to plan bigger. But some people may want the other way. So for me, this is what Value SaaS is.

Rohit: Wonderful. Thank you, Akash. Vishnu, your take on Value SaaS?

Vishnu: Yeah. Well, look, Value SaaS is a methodology, it's even a faith. Funding is just a resource, which is part of your journey.

Funding is like a bus, people get on and get off. Funding is very similar. But Value SaaS, for me, is the bedrock on which you build the company or the business model and also the value that you deliver to people who are gonna pay you.

So it's a very, very clear differentiation for me. Value SaaS is the foundation, is the bedrock. Funding is just a resource. At different times you need different resources. Sometimes it's equity, sometimes it could be debt, sometimes probably you have enough profits that you are actually returning. It doesn't matter, it's just a resource. But yeah, Value SaaS is definitely the foundation.

The downside of raising funds too early: The VideoKen experience

Rohit: So now moving forward, Vishnu, when you opened the conversation you mentioned that maybe you would have reached product-market fit earlier if you wouldn't have raised that round. Now, this is where we deep dive. Can you give us good context as to what happened in 2017? How much did you raise? From whom did you raise? How many pitches did you have to do? How much time did it take for you to raise? How many months did you burn this in?

Vishnu: Sure, you're asking me to dig up ghosts of the past.


Vishnu: Okay, so without spending too much time, as I said, the company started in Jan of 2017 and because of the founders and the credibility of the funders, we raise a round a funding, we build a team, build a product and then go to market, which is how a lot of founders, or wannabe founders, also think today. So we got a commitment, we raised - and this is public information - we raised a million dollars in equity.

Rohit: Even before you started?

Vishnu: Even before we started. But we got commitments. And also at that point, our thesis was that we wanted to build the video-based learning management system (LMS) because we had the IP, we had the know-how, and we thought since videos are mostly used today and it's so popular as a medium, we will build a video-based learning-management system. And we started talking to people, we started building it out from the word go, and we got a few pilots and we also got a very large customer who came and signed up. Which again in hindsight was not the right thing that happened to us because that was the only customer we got for the product. We just couldn't get product-market fit because, look, LMS is like a saturated market; most companies we approached had two LMS, if not one, and here we were going into a third one.

Vishnu: So while the technology did solve a problem, I think what we went to market with was probably the wrong product. And this is where the funding comes into picture. If we hadn't raised a round of funding, our backs would have been to the wall, and we might have realized that sooner than later and made a pivot, which we eventually did. But this was a year later after going through that painful process of building.

Rohit: So in a year, had you burnt the million (only if you are comfortable to say)?

Vishnu: Almost, not fully, but yeah. And so that's again hindsight, sell first and then raise. We could probably have done that, but again that's all in hindsight - things we cannot change. But I think what we had was a very good technology around which positioning and messaging had to be built.

We had to go after the right ICP (ideal customer profile), which is where the whole Value SaaS methodology came into picture. Once we did that, I mean the same product, we just started selling it repeatedly without making any effort. So then we got to product-market fit and the last two years has been only funded by customer revenues, recurring customer revenues.

Rohit: Wonderful. So there's been no funding after that...?

Vishnu: So with money we couldn't get product-market fit but without money we were able to get to product-market fit, identify our customer who was buying repeatedly, who sees the most value and then grow from there.

Rohit: Got that. Vishnu, if I may ask, and again if you choose to answer, you raised a million for how much equity?

Vishnu: So not much. The majority is still owned by the founding team and the employees. Over 70% is still owned by the company. So we've got a pretty good valuation when we started. But again, all those things are on paper.

What really matters is - are we building a business that has the potential to be large, sustainable and profitable. And I think now we're in a position where I think we can build a really, really strong and faster growing business.

Rohit: Wonderful, got that. So hypothetical question, if you were to raise a round, when would you do it now, given the current situation of the company?

Vishnu: Good question. So at this point in time, for us to continue in our current trajectory, we don't need any external funding. We have a very a strong core set of customers who come and buy from us year on year, and the wallet share that we have is also growing year on year. And we should be able to build a very capital-efficient business just the way we have done in the last one to two years. But what we want to do is try and get through that inflection point and grow faster. So if we were to look for a fundraise, it will probably be sometime in 2022 when we start looking at a growth round.

But at this point in time, I believe we have product-market fit, we have repeat customers, we earn more than we spend, even on sales, but now the questions is... how do you scale it? Now I have say 15-20 core customers who are repeatedly buying from me, now I need to go find the next 200. We will get to the 200, the question is how quickly can we get them?

So that's the only reason we would raise and that will probably be next year, but not for working capital, not for paying salaries, for that we are pretty self-sufficient.

Rohit: So Vishnu, if I have to sum it up, would it be fair to say that your advice would be to not raise funds to get to product fitment but get to product fitment and raise funds to scale and grow and for that massive growth?

Vishnu: Correct. And this is what I tell a lot of founders who I meet; I'm like, although we raised money, it didn't work for us, maybe there are other startups that are smarter than us, I suppose most of them are.

Rohit: Yeah, that's true.

Vishnu: But in most cases it's good to build that minimum sellable product before going and raising funding. Again, take it with a grain of salt. This holds good for software, SaaS and all those things, unless you're an IP-heavy business, where you're creating a new medical technology or a medical instrument, or like you're working on a research for cure of whatever, some crazy disease, then your gestation period is like 5-10 years. So then you need that capital upfront.

Vishnu: But for SaaS companies, I think you should be able to get to that, get a few customers. I think even if you are able to show a handful of customers who love your product, who are coming back for more, that is good enough.

Vishnu: If you are able to build four-five products with that MVP (minimum viable product) - not MVP I call it MSP (minimum sellable product) - they should be willing to pay, then I think you can go and say, 'Okay, I've established this and now I want to go there.'

'Money in the bank is assurance': The Kloudle perspective

Rohit: Wonderful. Thank you so much for sharing that with us, Vishnu. Now shifting focus to Akash. So Akash, you mentioned earlier that you have raised a round through SAFE instrument. So maybe we could take a quick 30 seconds and explain what SAFE is, and why did you go for a SAFE instrument versus an equity round? And then the third question would be, who did you raise it from and what was the rationale behind raising it as a SAFE?

Akash: Okay, so I'll start with the third question.

It's SAFE simply because that is what came recommended. And very sorry to disappoint you, I don't really have an extensive philosophy about fundraising. For me, it's like one of the things that's required for us to build something. For Vishnu, they had the ability to build something that works with video and ML and AI, which is a very, very deep tech, right?

Rohit: Yeah.

Akash: Whether the money was there or not is immaterial; they had that access, they had the ability so they had the option. For us, we started at being absolutely clear that we had a minimum sellable product, we were bootstrapped, we were operationally profitable. We still are operationally profitable but the reality of the market that we're in.. for us, 0-1 is a milestone, $1-10 million ARR is a milestone, $10-100 is a milestone, it's too far away; can't really plan for it.

But when you think about it, we are in the cloud security industry and here digital is basically depending on Cloud. Cloud for the big three, currently in 2020, was a $60 Billion  annual revenue. We're all saying we could be at $1 trillion each in seven years - Cloud spending will be $1 trillion, security is going to grow accordingly.

The competition that we have, the companies that we look at, and we're like, 'Oh, they're offering something similar', they're already have raised half a billion dollar. Obviously, they started early, they have hundreds of engineers and they're doing more and more. In order to build anything comparable, we realized that there has to be money in the bank.

Rohit: Absolutely.

Akash: When there is money in the bank, we will have choices, whether it's founder's travel or it's office set-up cost, go to market, just to get in the marketplace for AWS security, there is money that we have to spend; It's as simple as that. So keeping all that in mind, we started by saying, 'Okay, let's start with step one, which is what do we have available?'

Upekkha has an amazing thing called Up Funds, which I think started as a consequence of the Upekkha folks realizing that pandemic is tough. I remember that conversation where this was announced; we were not sure what we would do with that money 'cause we were like, yeah, we are making salary? We don't really need money to do things. But then as we tried to hire senior engineering talent and other senior roles, they would feel that, 'Yeah, here you are, a bootstrapped company in a domain I hardly understand and here is a funded company. I won't bet my career on that.'

Akash: We identified that hiring is going to be a challenge. One of these was that people joined you at an early stage if we have great PR, which requires money, or we are able to crack social media somehow, which depends on founder's personality. I don't really have that. I come from a world when we did not really need to broadcast our breakfast everyday. So it's a different way to think about it. So at one point we're like, 'Okay, money in the bank is assurance,' which allows us to say that, 'Yeah, let's go get that compliance that all the mid-market and enterprise expects.' That compliance costs money. It has to be maintained, that costs money.

SAFE allows us to do two things. One is that we got some money for a future promise, and if we look at that valuation that has been set, we have given away less amount of the company in equity and we have money in the bank. This has given us a minimum bar that when we do go out to raise more money, we should really think of our valuation being a little higher than that.

Value SaaS has taught us that it's not a fundraising leaderboard.

If you have money in the bank, things can happen. If we had access to that talent without it, if the founders were able to understand security domain and also code whatever engineering that we need, then maybe money is not the resource we would have looked at. We would've looked at something else.

Eventually it just boils down to the fact that if you want to be in a brand-heavy, trust-heavy space which is growing so fast, if you go raise money and put it to use, some of it will get wasted. There is no denying that. So trade the time it'll take for you to get there, or just move fast because the world has moved to a certain place.

Rohit: Thoroughly understand it. So would it be fair for me to say that given the environment that you were in, raising this round would give you the ability to not worry about a few rudimentary things and go ahead and express yourself better as a founder and as a team in a high-paced growing environment, and that is why you went ahead and raise this around?

Akash: Yeah. I think it's a little simpler than that, it's not even abstract. When we talk to senior techies who we believe would be a great force-multiplier for us to go towards product-market fit, we will be able to talk without the disadvantage we have currently. Big one.

Somehow in this day and age, being bootstrapped is saying that there's something wrong with you. If they really understand business, they would get it that, 'Yeah, this is far better in making technically wise decisions on a bunch of things,' but that's not the world we live in. And where I got this understanding is Value SaaS. Just like you're selling to the customer, you're selling to the future employee, and when you start talking their language and what their expectation is, you realize that this is what will help us get past whatever their fear is, and that's where we are. It simply is a signalling mechanism for us and money we'll put into use. There is no denying that.

SaaS capital abundance: 'The people who made the most money during the gold rush in the US were the shovel-makers'  

Rohit: I want to pick up another thing that you said: 'In this day and age, people have this perception that if you're bootstrapped, there is some problem with you. Rather let me put it like this, maybe you're a fool to remain bootstrapped because there's so much opportunity out there, there's so much money out there, everybody wants to invest in good companies. So what is your general take on the money that's available and the way companies are mushrooming, raising, going bust, etcetera, etcetera?

Because in SaaS we've noticed that maybe 20% of the top-performing companies have gone ahead and raised rounds. Maybe they would have raised small rounds, but they are not typically a company that's based on funding. These are all primarily built on customer revenue. So when you have these polarities, when you know everybody in the market is behaving one way but the top performers have done another way, then why do you think people are behaving the way they are?

Vishnu: I think it's about the loudest voice in the room. There are good examples on both sides. There are companies that have bootstrapped and grown well and there are companies that have raised external funding and grown wealth; there is no right or wrong.

Rohit: Yeah.

Vishnu: You have amazing examples like Freshwork who raised multiple rounds. Right? It grew so fast that they got to IPO very recently. At the same time, you have companies like LatentView that went IPO in India, which is not as easy as going IPO in the US. Completely bootstrapped, profitable, under the radar, nobody knows about the company, hardly anybody has heard about it. Then there's like Zoho, there is Zerodha.

The funding frenzy is because it's probably written about and spoken about so much. But I think it's only a small percentage. Because as founders, you course correct almost every few quarters, at least in the early stages. There might be a time when you don't need external funding, but at the same time, there may come a time where you wanna grow really fast, build up on the momentum for which you raise external funding. Even going IPO is external funding, it's just from retail, whereas the funding that we hear and we are talking about right now is from institution investors. So there is no right or wrong. It just depends on the company and the situation and also the kind of market you're in.

Some markets are probably not as too hot, again, it also depends on a lot of other factors. There's a herd mentality on both sides, there's a herd mentality on founder's side. And the same is in the case of investors. It could be VCs, it could be institutional investors, it could even be people like us. When you see a lot of people go after a particular mutual fund, you do the same thing?

So I think it's a bit of both and as founders you need to cut through the frenzy. I can tell you, at least in my case, until a couple of weeks ago when my team came and said, 'You're not helping the marketing team enough.' As a founder, I started going and posting stuff on LinkedIn. Before that for a year, I never logged into LinkedIn. The only person who logged into LinkedIn was our HR associate, she would use my login to go and post about jobs. So as a result I don't even read or hear about anything.

It depends on which side of the newspaper you start reading from. You start from the last page, you read about sports, cartoons, and by then it's time to go to work. So yeah, as founders you need to cut through the frenzy and have a very really clear mind about what you're doing, whose problem you're solving and how deep you are solving. Everything else is just noise.

Rohit: Thank you, Vishnu. Akash?

Akash: Wow. Vishnu covered everything. Otherwise, think of this, okay? I'm gonna tell you, don't think about an elephant. Okay, don't think of an elephant.

Rohit: Got it. And you're thinking about the elephant the minute you say that.

Akash: Yeah. I want you to understand that the frenzy is because right now you personally are involved in a place where you think about this day in and day out.

This is a point of view that employees have. You see people who are amazing engineers, but they're like, 'Yeah, I don't think I'm gonna startup. I don't have that founder-drive, but I do wanna go on that early ESOP, get some equity so that I can build some wealth for myself because others are doing it.' So that's one point.

Then there are other founders who are so well-versed with business and sales and marketing that they're like, 'You know what, let me just get a decent idea of one specific incremental improvement in an area and I can take care of team building and whatever,' right?

Even without COVID, if the pandemic had not really caused such disruption, we have never lived in a time where so many people who don't have wealth have the tools to create wealth. Now, what are the means for them - those can change.

Today I was reading about someone, this TikToker called Ms. Excel; she basically posts about Excel shortcuts, MS Excel. And because of that she earns six figures daily from training, Excel training. Her entire marketing channel is TikTok and when TikTok was about to be banned in the US, she moved to Instagram or something, but she has some millions of followers or whatever, all she's doing is talking about Excel.

So that access, to a lot of people who really want to use it, is like access to market without upfront knowledge barrier or the infrastructure costs of setting that up. The techies are going to go start a server and build their API, the content creator is gonna go figure out where they'll be appreciated for and put their content up for this thing. Stock market lovers are going to go get on these apps like Robinhood and Iris and be like, 'Oh, let's beat the market or let's beat the analyst who thinks that they know too much.'

That's what happened before. What's happened is, at least in the English speaking world, the governments have realized that they cannot really do much. So private enterprise, even if they don't really have very encouraging policies, governments are like, 'Let's step out of the way.' And that's the whole thing with the Internet and smart phones and 4G, these are like fundamental shifts, even without COVID. It's just that with COVID it all accelerated, so it seems like a frenzy.

There will be some people who will say, 'Okay, let's take a shortcut. Everyone is becoming a founder with fundraise, let's go become a founder.' There will be some who say, 'I will be able to work independently, or I'll be able to do the work of three people - of team leader, engineering manager and architect' - even when they're not qualified because they feel that they will miss out. The same thing investors will go through. Right?

There will be no structured, nice way where new enterprise will emerge. It will always seem noisy. This happened in 2008 after the banking collapse. A bunch of those companies that we think are Decacorn now, basically emerged out of that.

I started freelancing because the company I used to work with stopped outsourcing in India. So I was like, 'Go find another job or just become a freelancer.' I was in network security, I used to write rules for packet analysis. Then I said that 'who will need that in Bangalore?' Bangalore is full of app companies, mobile, it was the new thing at that point. And I was like, 'Let me go teach security to app companies.' So whenever some events happen, things become easier.

Companies were not dying six years ago or five years ago; in 2019 they were. Bootstrapped companies were dying, funded companies were wasting money, and on the other end of the spectrum, bootstrapped companies were doing really well but nobody was talking about them. Funded companies could have been doing super well, but the mainstream media was busy discussing some war or some presidential election.

When we start writing those stories, we will realize that we got most of it wrong, some of it right. But we have survived the pandemic with money in the bank, and for me the biggest win was that we didn't have to let go of any person in our company because of funding.

Rohit: That's beautiful.

Akash: So for me the frenzy is not there, it's just that I have clarity. Like Vishnu said, once you have clarity on what value you'll bring to the customer, then we care about the other aspects. So that's where we are.

Rohit: Wonderful. I think we started with funding, but somehow the conversation has taken us a little above funding, even though that was the gateway, and both your answers, both Vishnu and Akash, have kind of put it out that at the end of the day, it's a life perspective. And to dumb it down, it's context right, where you are, what works for you, do that. And things around you keep happening, don't think of the elephant, don't talk of word if you don't wanna think about it, as simple as that. Wonderful, that's lovely.

Rohit: So I had a few more questions, but I think we are shy of time, so maybe what we could do now is maybe quickly give both of you a quick minute to add any closing thoughts, anything that you predict or you see about SaaS and how it's going to emerge and how capital is gonna play a game over here. I think we have new things like RBF coming and I think capital is gonna become more and more accessible. So quick closing thoughts on any of those.

Akash: I'll go first. I am very very bullish about this decade in terms of value created on top of Cloud in SaaS and it's almost gonna look like a gold rush. The people who made the most money during the gold rush in the US were the shovel makers.

That's why we are very clear that Kloudle will be the security provider for your digital assets, whether you are SaaS or Cloud or Crypto, and that's the plumbing we're gonna provide. And our vision is that if you are in the Cloud and you're doing your job, you're making life great for your customers and you focus on that, because we take care of security for you, I think it's a fairly challenging and interesting thing to solve in this decade.

And there'll be various instruments for fundraise or getting to the next level, based on where we are and how we proceed, and maybe with sheer dumb luck, we will hit the right notes and be a success.

Rohit: Keeping fingers crossed, right? [chuckle] Great. Vishnu?

Vishnu: Yeah, I think this is gonna be the ticket for SaaS. The category has been defined for a while but I think now it's also easy to do it because, as Akash mentioned, the Cloud is available, it's easy. It's very easy to spin up a service and start serving customers. So we're gonna see a lot more SaaS companies and I think more importantly we'll probably see SaaS being used in areas that we never expected.

Right now it's mostly around billing payments, buying software and things like that, but I think it's gonna move beyond that. Media is already looking at subscriptions, right? So you're gonna see more business segments being offered to consumers in the form of SaaS, as a result of which there's is gonna be more opportunity for SaaS software makers to solve problems that are going to come up. Because every time, wherever they scale, there's gonna be a problem. So yeah, that's my view.

Rohit: Wonderful. Thank you Vishnu and Akash for sharing your views. I think it's a great time for SaaS, and to borrow Akash's words, yes, it's a gold rush. And in a gold rush, when you try to find gold, you might find gold, you might not find gold. But the sure-shot way of making money is by selling shovels, because everybody wants to dig gold. That's great.

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