SaaS Interviews with CEOs, Startups, Founders
944 Why He IPO'd CyberSecurity Company and How He Did $230m in 2017 Revenue
23 Feb 2018
Chapter 1: What is the main topic discussed in this episode?
This is the Top Entrepreneurs Podcast, where founders share how they started their companies and got filthy rich or crash and burn. Each episode features revenue numbers, customer counts, and other insider information that creates business news headlines. We went from a couple of hundred thousand dollars to 2.7 million.
I had no money when I started the company.
It was $160 million, which is the size of many IPOs. We're a bit strapped. We have like 22,000 customers. With over 5 million downloads in a very short amount of time, major outlets like Inc. are calling us the fastest growing business show on iTunes. I'm your host, Nathan Latka, and here's today's episode. Hello, everyone. My guest today is Felipe Corto.
He's the founder of a company called Qualys, which helps organizations streamline and consolidate their security and compliance solutions in a single platform and build security into digital transformation initiatives for greater agility, better business outcomes and substantial cost savings. Felipe, are you ready to take us to the top?
Absolutely.
Okay, good. So tell us about the company. What does it do? And what is your business model? How do you make money?
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Chapter 2: How did Qualys grow to $230 million in revenue?
So our company, in fact, we had the vision that we could use at the time internet technology to essentially help automate and streamline security audits, identifying your vulnerabilities on your parameters and on your network so you could protect yourself better. So the way we make money is essentially it's a subscription-based model. It's try and buy. We deploy very well.
We have today more than 70% of the foreclosures 40 of the fortune 1000 and 25 of the forbes global 2000. so how many total customers is that added up we we work around 10 000. okay and in in 106 countries that's great yeah and i cut you off tell us more about what the company does
Yes, so essentially, we'll help you identify all of your global IT assets, whether you're a small company or very large companies. And then from there, give you the continuous view of the security and compliance posture of those assets. We also allow you to identify those assets which have been compromised by malware. And then we do that in a very cost-effective way and absolutely in real time.
And of course, you don't have to buy that plethora of security enterprise solution. So in a way, we are the kind of the Salesforce.com of security, helping you consolidate a lot of these different applications that you may have. And also we help you, which is very unique, to help you also secure your digital transformation efforts.
In other words, either what you have on Amazon or Azure or as well as on your private cloud.
And Philippe, on average, what do people pay you per year or per month for this?
It varies from very, very small companies who pay us $100, $200 a year to very large companies who pay us multi-million dollars per year.
Got it. If I forced you to pick an average, what would you say?
It depends on the segment. So on the enterprise, we have enterprise, the mid-market, the SME and the SMB. So I would say the average of the enterprise will be above $100,000 a year. On the SME, it will be around $50,000 a year. And on the small businesses, it will be more like $5,000 a year.
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Chapter 3: What is Qualys's business model and how do they generate revenue?
Are you bootstrapped or have you raised capital?
We were very reasonable. In fact, we raised, all total, we raised about $65 million altogether. And as you can see today, we have a market cap of a bit more than $2 billion. We were cash flow positive.
What do you mean by that, Philippe? When you say a market cap of $2 billion, what do you mean?
We're a public company. So today our stock, the value of our stock today, it's equal to $2 billion market capitalization.
And I cut you off. You were going to continue.
No, no, that's fine. I made the point.
Okay. So you said you were very reasonable. So of the $65 million you raised, how much of that was pre-IPO and how much did you raise when you IPO'd?
So, yeah, absolutely. So we're both reasonable on both counts. So we raised $65 million before the IPO. And at the IPO, we raised about a bit less than $100 million. Okay. And we have about... more than close to $300 million cash. So we're a very, very profitable company, very stable company, growing well, and with a large global customer base.
And what were you at, well, I guess right when you went public, the month before you went public, what was your ARR run rate?
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Chapter 4: What challenges did Qualys face when launching in 1999?
That was the internet bubble. So I had to invest my own money. How much of your own money did you put in? I put about $25 million. Okay.
And you were, so you were the founder, you bootstrap, bootstrap, you raise capital. And then you eventually in 2012 had to put in 25 of your own, of your own capital.
Correct.
Where did you get that money from?
Oh, from previous successful, uh, you know, I'm the kind of a serial entrepreneur. I've built about five or six companies, which, uh, either is I've sold a couple of them. I took public one and, uh, And so, you know, hard work. And, you know, I did that in mail with CC Mail, in search with Verity, in internet payment with Signio and Qualys, of course. So, yeah.
And so when you look around the cybersecurity space now, when you've got low ARPU kind of solutions like KnowBe4, and then you've got, you know, companies like Centrify and Malwarebytes, you know, Malwarebytes we just had on the show, you know, they've got 3,000 or 3 million customers doing about 10 million in MRR, so about 120 million ARR. Do you think a company like that will go public?
And do you see them playing in your space?
I think we're more than one moving into the space of a lot of security companies because we have a platform, a real, true cloud-based platform. And that's what gives us a significant leverage. It took us a long time to build that platform at the scale at which you need to build. If you look at security, security first has to be an issue of accuracy. And that's why that industry is so fragmented.
No false positive, no false negative. Then it becomes an issue of scale. You have to be able to look at your global network. Now it has become an issue of immediacy. You cannot do that with a traditional enterprise solution.
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Chapter 5: How does Qualys ensure customer security and compliance?
And you guys know, I love money and I love only focusing on the leads that are going to close. So I encourage you to try prosper works or sponsoring the show. Check them out at prosperworks.com forward slash love your CRM folks. That's again, prosperworks.com forward slash love your CRM.
Would you ever use some of the capital on your balance sheet to go make an acquisition of some of these private security companies?
We have already started. We didn't want to do that early on until we had enough build of the back end because it's all about the architecture. But now we've already started. We're quite a small company in Indian Navy. And we're looking now much more actively at acquiring smaller company, good engineering, good architecture, good people. That's our mantra.
And what is your target kind of size? Like you're looking for companies in the $20 to $30 million ARR range or what size are you looking at?
Most maybe smaller. I think it's not even the size that guides us. It's first of all, the architecture. You have to have the right architecture.
You're talking about the tech architecture.
Yeah, correct. Absolutely. And then, of course, then it's the people. Now, if the architecture is not that good, typically, you know, you don't have good people unless these people realize that they made some mistake in their architecture and they are changing it. And that's fine. So, but it's architecture and then the people and then the valuation.
We have no reason of paying a significant amount of dollars for something that we could build ourselves. So it's a question of also time to market. So everything we do, we try to really be a good home for the company that we acquire. So we need also the motivation of the people and doing things in a reasonable way. At the end,
is a very challenging domain and you want to really satisfy your customers, which means you need to give them tools that they can deploy easily, that does the job and protect them at the end of the day. So it's a serious business.
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Chapter 6: What are the average costs for Qualys's services?
Got it. So you, let me just make sure I understand, over the next, you know, over 2017, the revenue that you've expanded customers from 2016 is more than the revenue of churn customers.
Absolutely.
Very cool. And what is the, walk me through what that expansion sale looks like for you. So is it a, are you selling more seats? Are you selling more features? What's it look like?
It's a combination of all. So what we do, first of all, is that our customers can, we speak more in terms of IPs than C, because we scan your devices, et cetera. So they could decide to do more, but we also have additional solutions. that they can acquire, for example, compliance solution or detection of malware, or so we have now a portfolio of solutions.
And what's very unique with our platform is that our customers, they don't need to install really anything. They can try and buy. So they can, from their own, from their application, they can essentially go and try these new solutions that we have. And of course, it's very easy for them to expand.
So as a result of that, the cost of deploying and of maintaining everything is centrally managed and self-updating. So the customers, they don't have to worry about updates anymore. We update all of that automatically. So we save a lot of cost for the customers. We make it much easier for them to adapt, to try the technology, and then, of course, deploy it.
Felipe makes a lot of sense. I appreciate those, that feedback there. Let's wrap up with the famous five. Number one, what's your favorite business book?
Oh, it's a, it's a long time since I've read some business books, but I think it's a very, very long time. So today I'm more into the doing people tell me you should write a business book. And I said, no, I'm sorry. I would do things, but I've read a lot of business books. I would, uh, I, I shy away, you know, from giving a name, uh,
So if you tell me who is the person that from a business standpoint, I admire the most is Jack Welch.
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Chapter 7: What strategies did Qualys use to go public in 2012?
And I think then you learn through life. So it's not what happens to you, it's what you make of it. That's what I've learned going through life. So I wish I would have learned a little bit more of what is more fundamental in life. But, you know, I've discovered it. as I want. I think I would like to live another 150 years and continue inventing and looking at things.
But maybe one day, not for me, but for the generation to come, I think we'll extend the human life significantly.
There you guys have it from Felipe. Always stay curious, no matter what, no matter what. He obviously has had many successful exits. His most current one is Qualys, which he took public after sinking in $25 million of his own capital. The company raised over $65 million total. By the end of this year, they'll pass $230 million in annual recurring revenue.
Founded in 1999, they've now got a team of 870 people, heavy engineering between India and Silicon Valley, serving 10,000 customers as their end-to-end IT security and compliance backend. Thank you, Philippe, for taking us to the top.
Okay, thank you very much. It was a real pleasure.
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