Jaswinder Jassi S. Chadha

Transcription

1 Jaswinder Jassi S. Chadha marketrx Inc

2 Introducing Jaswinder Chadha It is a surprising fact that some of the leading companies arrived at the top without taking early venture capital funding. Today s market will cause companies to be more prudent in how they apply capital to generate returns. In a series of discussions with entrepreneurs whose capitalefficient businesses are recognized return leaders, Kennet Partners Managing Director Javier Rojas sat down with Jassi Chadha of marketrx to learn how he created a company that achieved a remarkable 52x ratio of exit value to capital used. In the Beginning Having just completed PhD studies in operations research, and with a background in industrial engineering and optimization, Jassi Chadha began working for a small company that provided strategic consulting to the pharmaceutical, biotech and medical device markets. During his five years with this company, it became clear that companies in the life sciences market were not using technology advantageously to improve marketing and sales efforts. They were doing it the hard way, Jassi said, noting that most market analysis was handcrafted and the end results were quite dependent on the individual conducting that analysis. Jassi believed there was a significant opportunity for using technology to automate much of the analytics, and began developing plans for a new company that would help pharmaceutical companies optimize online advertising spending. With about $750,000 from 30 investors mostly friends and family he started his company, marketrx, as a pure-play online marketing firm. The firm evolved dramatically, abandoning their initial focus after 12 months but using the intellectual property (IP) it developed to become a leading provider of analytics and related software services to global life sciences companies. Ultimately the company was purchased for $135 million plus cash by Cognizant Technology Solutions Corp. (NASDAQ: CTSH) in the fourth quarter of Recently, Jassi explained how he built a company that achieved an exit value of $145 million and what he learned along the way.

3 Q&A Why did your business model change so drastically? We eventually realized just how far ahead of the game we were from the technology-adoption perspective and that the pharmaceutical market was not only conservative but also not an early adopter of new technology solutions. During that first year, we developed a lot of intellectual property to support our concept. But after a year passed and we weren t generating any revenue, we decided to leverage our past professional experience and pursue consulting work. We thought we could say that we had something new all the IP we developed initially and were still using in our business today. Ultimately, five years after we started the business, no revenue came from our original online marketing business plan. What ultimately made your business model successful? With the use of our IP, we defined ourselves as a product-enabled service business. While customers were willing to pay for new products, we had to focus our services around the IP, tools and software we already developed. We wouldn t take on any engagement for which we didn t have a solution. Our gross margins were between 45 to 65%, which showed that we had some serious IP coming out of the company. Additionally we evolved into a subscription business, which had strong carry over anywhere from 90 percent to 110 percent. How many rounds of funding did you get? We raised three rounds. Our first angel round $750,000 was in June Ninety percent of my friends and family who invested didn t understand our business model, but they believed in me. Then in October 2001, we received our second angel round of $3.2 million. At that time we had about $2.5 million in annual revenues, but had reinvented our business so what we did for the first year we abandoned completely. In many ways the service company we evolved to was similar to the consulting work I did previously, but it leveraged the technology we developed so that it was more effective, profitable and scalable. We raised this money from a number of smart Name: Jaswinder Jassi S. Chadha Title: President, CEO & Co-founder Company: marketrx Inc. Headquarters: Bridgewater, New Jersey Date Founded: 2000 Venture Capital Raised/Used: $13.5 million raised/$2.8 million used (Est.) Exit Value to Capital Used: 52x Sale: Acquired by Cognizant (NASDAQ: CTSH) in Company Description: marketrx enables customers at global pharmaceutical and biotechnology companies to improve the effectiveness of their sales and marketing operations. The company has received many notable industry recognitions since its inception in 2000, including Deloitte's fastest growing technology companies in North America for two consecutive years (2005 and 2006), PwC & Entrepreneur Magazine s Hot 100 fastest growing companies in the U.S. (2005), and Inc.500 s Fastest Growing 500 companies. people and were fortunate to get a lot from an advisory perspective. Our third round was Series C funding in November At this time we had about $1 million in monthly revenues and our model was well developed. In hindsight, we did not need to raise this round, but at the time we didn t know how the business/market would develop. Originally we had only set out to raise $3 million to $5 million, but in time we convinced ourselves that $9.5 million would be a safer target. We thought we needed the additional money as a safety net. There were three things we wanted to do with this money double up on R&D to build more IP, set up off-shore operations in India and focus more seriously on sales and marketing and we did them all. We were able to be so aggressive because we knew we had the funding in the bank if things went poorly. They didn t.

4 What do you feel was the biggest mistake you made as an entrepreneur? In hindsight I took more dilution than necessary with my last round, but it allowed us to expand aggressively, rather than having to be too cautious. The business developed in such a way that many of these investments were funded by profits. I believe I m one of the luckiest persons you ll ever meet, having been at the right place at the right time to build a business as successful as marketrx. But I still think entrepreneurs should think about how much money they really need. When considering funding, you have to ask yourself, Would you rather die of starvation or indigestion? I d personally choose to starve than overindulge with too much money. What other advice would you give individuals who are interested in starting their own business? We spent a lot of time picking our board. Our investors were very helpful and were a good sounding board for ideas and what we were doing. They were a great value add. Second, consider how much to spend on R&D. We had put about $17 million into R&D by the time we sold the company, and most of it was funded by profits. We needed some of it, but I m not sure if we really needed all of it. But because we were successful and could afford it, we spent on R&D. I think we should have spent more on marketing or buying other businesses. But since none of us had ever done this before, we had no one in the trenches to say, Why are you spending so much money in R&D at a services company? Additionally, I think it s important to grow as fast as possible while maintaining profitability. We were always conservative and I think that served us well.

5 About the Interviewer Javier Rojas Javier Rojas is a managing director at Kennet and leads its US investment activities. He is currently on the boards of Daptiv, Go Internet Media, IntelePeer, and Kapow Technologies. Prior to joining Kennet, he was a managing director of Broadview International and led their West Coast Software and Services practice. Javier specialized in advising high growth, earlystage companies on how to capitalize on emerging technology markets and partnering opportunities. He invested and/or advised on a number of successful companies and high value exits including Etek, Webex, Looksmart, Blue Mountain Arts, When.com and Rightworks. Previously, Javier was with Morgan Stanley. Earlier, he founded a software firm that developed products for capital markets interest rate and currency swap traders. He holds an MBA degree from The Harvard Business School and a BAS degree from Georgetown University.

6 About us Kennet invests in entrepreneurial technology businesses to help them take the next big jump in growth We re an experienced growth equity investor with a long track record of building global market leaders and achieving high-value exits. Since 1997 we have invested in over 40 companies in Europe and the US. As a growth equity investor, Kennet focuses on companies that have proven commercial success and are now ready for the next phase of growth. The companies we invest in often do not need money to survive. They have options. But the right investment from the right partner can help them keep ahead of their markets, expand internationally, ramp up their sales forces and lead to greater value for shareholders. Visit us at to learn more. Silicon Valley Kennet Partners LLC 950 Tower Lane, Suite 1710 Foster City, CA tel: +1 (650) fax: +1 (650) London Kennet Partners Ltd Nuffield House Piccadilly London, W1J 0DS tel +44 (0) fax +44 (0)