Here’s how things go for the typical software startup: An engineer comes up with a product that he or she thinks is pretty cool. The engineer spends six months building a prototype, possibly in a garage. But to bring the product to market that engineer needs financing, and that’s a whole other challenge.
So the entrepreneur writes a business plan and hopes hard to get a VC or an angel investor interested. There are a number of problems with this approach, one being that people who are good at creating new products are rarely also good at creating new business plans.
There’s a better way. Gabriel Monroy, formerly a senior systems architect at Intuit, realized the market needed a user-friendly way for companies with little expertise in cloud infrastructure to host applications in the cloud. But instead of setting to work alone or with another engineer, he called two of his former Tufts classmates, Joshua Schnell and Yoni Gorelov both of whom were working in finance. Schnell had spent five years as an investment banker and Gorelov worked and stills works as a trader at a large firm.
It turns out there are some very good reasons to bring people from the world of finance into your startup from the very beginning. Consider:
With tech products in particular, speed to market can mean the difference between a blockbuster success and getting “scooped” by someone else. “We raised $1 million in 24 days in July and August 2011, which was not an easy time in the market,” Schnell says. “We did that through our Wall Street network, by creating our own private placement memorandum. That enabled us to be much more efficient, and it allowed us to get from idea to beta to the launch of a robust product in six months. People doing it in a garage would have taken a lot longer.”
How much revenue can you expect in the first year? How much should you spend on marketing? With financial experts on hand, you needn’t worry about questions like these. “We can make sure we manage a budget and are allotting dollars in the spots that will help us grow the business,” Schnell says. “Fortunately, having raised some money gives us more wiggle room and longevity.”
“The cloud computing infrastructure orchestration OpDemand does is highly difficult from an engineering viewpoint,” Monroy adds. “I know I can focus deeply on the tech side and leave all the financial stuff to the non-technical co-founders.” Having raised money also allowed OpDemand to hire other engineers to help Monroy write the code that powers OpDemand. And if they decide to sell the company later on, having finance expertise in-house will make things immeasurable easier.
In addition to Tufts, Schnell attended Columbia and the London School of Economics, and he used his contacts from all those places to help raise money for OpDemand. “Ultimately, you do wonders through networking. So much of where we get to is who we know,” Gorelov notes.
Both Schnell and Gorelov stress that OpDemand is Monroy’s vision that they respect and have no intention of changing. That wouldn’t necessarily be the case with more traditional financing. “With us on board, the money we raised didn’t come with any strings attached,” Josh says. “A VC or angel investor may want to overlay their own expertise or may believe they know more about the market than we do.”
Schnell, Monroy, and Gorelov were college friends who always dreamed of starting a company together. So they don’t believe they’re part of a larger trend for new start-ups to include finance professionals. But they could be. Gorelov and Schnell both report that there are lots of young financial hotshots out there who would love to get in on the ground floor of a new company.
“A ton of my network contacts are interested in doing it,” Gorelov says. “The ideas are harder to find than the dollars.” After a successful 6-month beta during which the company amassed thousands of "deploys," OpDemand recently launched to the general public.