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Metaserver’s $25 Million Man
CEO Schultz on rapid growth, why New Haven — and what the heck his company does, anyway
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Business New Haven
12/11/2000
By: BNH
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Richard K. Schultz is co-founder, president and CEO of Metaserver Inc., a New Haven-based creator and marketer of process-integration software for e-business applications. In July Metaserver raised $25 million in third-round financing. He spoke with BNH November 30 in Metaserver's Connecticut Financial Center offices.
What exactly is 'e-business process integration software,' and what does it do?
Metaserver's focusing on an emerging market for process-integration software. It's a challenging area that's evolved sine the beginning of the Internet. What's we're seeing in the need to be able to take services that companies have been offering for years - for example, insurance companies have rating services, claims-processing services, billing services. With the emergence of the Internet as the mechanism to connect the world, organizations are struggling with how to take the services that they've been offering internally and through sales forces, and extend those out over the Internet as a unified process. When you type in cnn.com on your laptop, the news magically appears as though it's on your laptop. To an unsophisticated user, it seems as though the entire world is on that laptop. From the processing-capability perspective, we have yet to reach the same level of functionality: You can look at the news, but you have a harder time getting an insurance claim processed over the Internet, because those [claims-processing] systems are sometimes manual processes, sometimes mainframe processes, sometimes PC processes. What process-integration is all about is taking those disparate systems and tying them together into a single spot that people can then access using the Internet.
How did Metaserver get off
the ground?
Metaserver was founded in November 1996 as a spinoff of another company here in New Haven, Scientific Computing, a company focused on supercomputing software. They had developed some network computing technology for a different set of problems: financial simulations, oil and gas exploration, weather prediction - the classically hard computing problems. What we recognized that business-process integration and automation is [also] a classically hard computing problem, and people weren't necessarily taking full advantage of implementing those kinds of technologies.
So what we set out to do was what Cisco had done in the network world, which is to build a piece of infrastructure, a product, that solved a very important and complex set of problems for doing process-integration, which could be reusable from customer to customer and wouldn't have to be custom-built for each installation.
How did all that unfold?
We spent the first three years of our existence doing product develop and aggressive R&D, giving ourselves the ability to actually have an infrastructure to take out to market.
How does your current workforce break down between those designing product and those
selling product?
Initially it was mostly people working on the product, because [then] it didn't exist. Today we've transformed into a sales- and marketing-driven organization. About a third of our workforce is still high-level engineers, a little over a third are sales and marketing, and the rest is operations.
What's the head count?
About 75. We expect that number to double in about 12 months.
Is your client base mostly large companies?
Mostly large companies. We started out understanding that an interesting approach to getting infrastructure software to market was to leverage existing channels to provide the distribution mechanism. So we rely heavily on integrator partners, other software company partners, reseller partners to bring us into markets where they have been addressing these kinds of problems - simply without infrastructure. We started with a small direct sales force to give ourselves some key accounts. So companies like Liberty Mutual Insurance, Motorola, Salomon Smith Barney, Foxwoods Casino - those companies we've sold to directly. We still have a strong direct sales force, but that sales force is focused on large accounts, generally in insurance and manufacturing. But at this point still have a larger number of channel partners than we do direct-sale customers
You are the co-founder. Who's the other co-founder?
The chief technology officer, Ashish Deshpande.
In July you raised an additional
$25 million in third-round financing. What are you using it for?
We have had an interesting approach to raising money. When we founded our company we wanted nothing less than to sell our stock; we wanted to keep as much of it as possible. So our approach to raising capital has always been to raise the minimum amount required to grow operations to keep up with our business. The first step for us was to build our product, to develop our technology. Developing the technology doesn't [require] a high marketing budget or [employing] 50 sales folks. In fact, the first rounds that we raised were significantly less money, but enough to get us a year and a half down the line of development where we'd be in a much stronger position to raise additional capital at a much better valuation.
The most recent round has enabled us to ramp up our sales and marketing force. We hired a vice president of sales and marketing [David G. Bourque] from BEA Systems about a year ago, and he has since July basically built up the entire sales and marketing organization in support of our rollout to our channel partners and our direct sales clients. So this round was to take us from an infrastructure product company to an infrastructure sales –and-marketing company.
Why New Haven - aside from
the fact that you spun out of a New Haven company? You could be anywhere.
That's true. The reason we're in New Haven is that we're very closely affiliated with Yale. We've tapped into a significant percentage of the brainpower in the computer-science department and in the business school over at Yale. So, really the answer to why we're in New Haven is people. When you think about it - and a lot of our customers and partners have commented on this very fact - you don't expect to see the kind of software that we've [created] from a small company, and especially a small company in New Haven. But when we point out the fact [of] our relationship with the university and with Scientific Computing, we're actually based on a larger foot[print] of intellectual capital and intellectual property and human resources [than would otherwise be possible]. What Metaserver's been working on isn't something that was developed by two guys in a garage over a couple of weeks.
What will it take to attract a critical mass of technology companies here to create the kind of little tech Mecca that everyone talks about but no one really defines?
We don't necessarily know the answer to that. A couple of success stories help to create momentum and incubation opportunities - not just new opportunities, but modifications to existing businesses. Metaserver itself was a spinoff of Scientific Computing, or we might not be in New Haven.
Are you aiming the direction of an IPO?
Yes, absolutely - which is an interesting statement to make in today's market climate [laughs].
What will it take to get from here to there?
What we're focused on doing is building value for shareholders, and we're doing that through growing our revenue base, our strategic alliance base - and growing the number of satisfied customers were have for our product and for our solution. When you do that, people are interested in owning your company.
The main motivation for us now targeting an IPO is two-fold: The first is to have an exit strategy so that our investors can recognize the value that was built. The second is to raise capital to continue to fund growth. And we're beginning to look aggressively at some acquisitions, some M&A activity. And these acquisitions are much more easily structured with a liquid asset than with [other means].
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