How aDolus Grew to Just Under $600K ARR with 3 Enterprise Customers in 2021 (Interview with CTO Eric Byres)

Introduction and What aDolus Does

Nathan Latka

00:00Hey, folks. My guest today is Eric Byres. He's a leading expert in the ICS 13 supply chain security industry. He invented the Tofino firewall, the world's most widely deployed ICS security appliance. Eric is now CTO of aDolus Inc, a SaaS company focused on the production of software supply chain in critical infrastructures. Eric, are you ready to take us to the top?

Eric Byres

00:18>> Yep, absolutely.

Recent Threat Example and the SolarWinds Problem

Nathan Latka

00:20Okay, so what does that mean? Like, talk to me about like a recent threat that you guys found and you protected the company from?

Eric Byres

00:28>> They're not threats that we find necessarily. So take, for example, the whole SolarWinds problem. We didn't find SolarWinds. Nobody has a silver bullet to solve a problem like SolarWinds. But what we've seen in our customer base and we've heard in government disclosures is that companies don't even know if they run SolarWinds. And so what we're really good is finding out what software you have through second party, third party, fourth party, fifth party. Where's your software coming

01:01>> from? And trying to unravel that mess called the software supply chain.

Pricing: What Customers Pay

Nathan Latka

01:06Interesting. Okay. And so what are people paying you per month on average to use this?

Eric Byres

01:10>> Sorry, say that again.

Nathan Latka

01:11What do your customers pay you per month on average to use this technology?

Eric Byres

01:15>> You know, it depends on, you know, we have big customers and little customers. Customers will pay as little as 5,000 a month. Some of them are paying, oh, probably north of about 40,000 a month.

Nathan Latka

01:29Is that your biggest customer, about a $500,000 a year contract?

Eric Byres

01:32>> Yes, that's correct.

Company Timeline and Product Launch

Nathan Latka

01:33Wow, very cool. Put this on a timeline for me. When do you guys launch?

Eric Byres

01:37>> We, the company started in 2017. We actually launched product in 2019.

Pre-Revenue Funding: DHS Grants and Seed Rounds

Nathan Latka

01:44How did you fund yourself while you were pre revenue?

Eric Byres

01:48>> Got US Department of Homeland Security Silicon Valley Initiative Program grants, about $800,000 worth of research grants. So that kept us alive for the first couple of years. Then we did two seed rounds, basically a safe round that raised about another 1,200,000.

Nathan Latka

02:05What year was that?

Eric Byres

02:07>> One in 2019 and one just last year at the start of COVID.

Nathan Latka

02:13And so what was the amount there in 2019?

Eric Byres

02:15>> In 2019, we raised about $650,000 somewhere around there. We were looking for $500,000 and got $650,000. So we're pretty happy.

Valuation History Across Rounds

Nathan Latka

02:22Congrats. Yeah, that's exciting. And I guess that's sort of a pre seed round. What valuation did you raise that at?

Eric Byres

02:28>> It was basically raised around 4. I think it was 4,000,000.

Nathan Latka

02:34Think that was a fair number? 4,000,000?

Eric Byres

02:36>> I think I think it was a bargain, actually. You know? But, you know, I didn't have a crystal ball to know that

02:46>> President Biden would be releasing executive orders about supply chain, I didn't know that SolarWinds was going to happen. So it was, yeah, it was an absolute bargain. But with the information available, I think it was a fair number.

Nathan Latka

02:59And then you raised a little bit more last year. How much?

Eric Byres

03:02>> Oh, no, that was the last year. That was the one last year, $650,000.

Nathan Latka

03:06When was the other round?

Eric Byres

03:09>> The other round was 2019, which is just over $500,000.

Nathan Latka

03:12Okay, got it. And what was that raised at?

Eric Byres

03:14>> That was raised at 3,000,000.

Team Size and Hiring Pace

Nathan Latka

03:16Okay, got it. So it's a nice little increase there in valuation. Talk to me about sort of where you're at today in terms of team size, how many folks?

Eric Byres

03:24>> So I think we have 19 people, maybe 20. I guess maybe we have 20 on Monday.

03:30>> So, we've been growing our team pretty aggressively. We've been bringing somebody in just about every month for the last eight months.

Nathan Latka

03:37Okay. And how many do think you'd at by the end of the year?

Eric Byres

03:41>> I'm pretty sure we'll probably add another five or six by the end of the year.

Nathan Latka

03:47So total would be what? 25. Thirty five?

Eric Byres

03:50>> Twenty five people total.

Nathan Latka

03:53And you folks are engineers.

Eric Byres

03:55>> Okay. There's probably engineers, developers and data scientists probably account for of the current 20 people, probably 14.

Product Onboarding and Pilot Process

Nathan Latka

04:04Okay. And give us a sense, like for people that might want a product like this who are listening right now, how would they sign up? How would they use you? What's the activation on the onboarding look like?

Eric Byres

04:14>> So we're an enterprise play. It's typically we get contacted. People can go and poke at what we call the free portal where they can just submit some samples. But mostly, in fact, everybody who's a client or even a prospective client or running a pilot contacts us and say, hey, we'd like to set up a pilot. We'd like a demo. Then we'd like a pilot. And then from there, we'll do a pilot. We'll set up basically what

04:41>> we call a prototype portal and they can try using the package to analyze what software, to analyze some sample software packages. And then we'll roll that into either an API contract if they just want to make API calls or if they want to use the web portal. Basically, that's the role. That's the way it rolls.

Customer Count and Pilot Pipeline

Nathan Latka

04:59And Eric, how many customers today?

Eric Byres

05:02>> Right now, we don't have a lot of customers. We've got three primary customers and about six large pilots running right now.

Annual Revenue and Contract Structure

Nathan Latka

05:08Okay. So three times $5,000 a month, you're doing about $15,000 a month in revenue?

Eric Byres

05:12>> A little less because we got some little ones. So right now we're doing

05:20>> let's see, what is it? Well, I can tell you annual revenue. That's easier. We're doing a little less than 600,000 a year.

Nathan Latka

05:27A little less.

Eric Byres

05:28>> Large contracts. I tend to think annual because what we found is our large contracts are you know, our contracts include people like Honeywell and Caterpillar. They hate, for some reason, I don't understand why they hate monthly contracts. They always drive us to an annual contract.

Nathan Latka

05:43So just to be clear, if I take 600,000 divided by three customers, they're paying you way more on average than $5,000 a month. You've got that one big one at $500,000 a year, and then it sounds like two others that make up the other $100,000. Is that right?

Eric Byres

05:56>> No, it's a little more divided than that. I'd actually have to I mean, you're talking to the CTO, so I'd I'd have to go and talk to the cash guys, but I think it's probably about half with one client and then the rest are sort of divided out.

Nathan Latka

06:09I see. But I guess what I'm saying is your monthly recurring revenue is much greater than $15,000 per month. $600,000 divided by twelve months is much closer to

Eric Byres

06:17>> Yeah, that's right. Yeah, that's correct.

Nathan Latka

06:18Yeah. And what does growth look like?

06:21So exactly a year ago, where were you?

Eric Byres

06:23>> So a year ago, we had exactly one, basically what you'd call a design partner, development partner.

06:32>> We're expecting to close probably two more pilots this year, and we expect to be somewhere below a million annual recurring revenue by the end of the year.

Nathan Latka

06:46Well, you already are below a million, right? But do you think you'll break a million No, by the we won't break.

Eric Byres

06:50>> Just under it.

Nathan Latka

06:51Okay, interesting. And so it's fair to say you've basically gone from nothing to $600,000 a year in the past twelve months. You weren't really doing much revenue at all a year ago.

Eric Byres

06:58>> Yeah, that's correct.

Growth Strategy: Inbound and Conference Keynotes

Nathan Latka

06:59Interesting. Okay, how are you going to go from three customers to 15 customers? Where are you going to find them?

Eric Byres

07:04>> Well, you know, it's interesting. And again, it's partly because of the dynamics right now. Want at this point, we're getting phone calls. It's literally inbound stuff. Stuff's coming in. People all are saying, hey, we have a supply chain problem. Are you interested? We have really, really good media relationships and conference relationships. I do probably a keynote or a conference

07:32>> presentation, one a week right now for virtual conferences. So we get a lot of inbound. And right now, that's where we're finding them. We've just brought on a full time VP of sales to basically take all those inbounds and turn them into sales or into real clients. And we also brought in a person dedicated to running pilots as well. So

07:57>> that's great.

Nathan Latka

07:58All in the near future or no?

Eric Byres

08:00>> Say that again.

Nathan Latka

08:01Any plans to

Upcoming Fundraise Plans

Nathan Latka

08:02raise capital in your future or no?

Eric Byres

08:03>> Absolutely. Yeah, we're probably going well, not probably we plan to do over the next month or two as one more seed round and then go for an A this spring.

Nathan Latka

08:14And how much in the seed round right now?

Eric Byres

08:17>> You know, we'd like to do we've done these two five hundred ones. So we'd like to do, say, 1,500,000, something like that. You know, we've had this really good growth. So we'd like to do the same thing to the seed round.

Nathan Latka

08:29And you last raised a $4,000,000 valuation. What would you like to raise the 1,500,000 at?

Eric Byres

08:34>> I would say we probably do a raise. I think a reasonable raise. And in fact, we had some term sheets land on our plate. Probably it'll be below 15. It'll be probably somewhere below 15.

Nathan Latka

08:48But above what?

Eric Byres

08:50>> Definitely above 10. So somewhere between ten and fifteen.

Nathan Latka

08:54Yeah. So let's say it's worst case 10. I mean, are you comfortable selling 15% equity? Obviously, that dilutes you a little bit, too.

Eric Byres

08:59>> Yeah. You know what? I mean, the important thing to me is making this company a success. I mean, we're just in the middle of crazy growth, not just me, but the whole marketplace. I mean, just the dynamics of the supply chain software bill of materials market is, you know, a year ago, nobody knew what a software bill of materials is. Now people are regulated to supply them to the US government. I mean, it's it's a crazy

09:25>> market. So for us, it's probably more important even it's most important for me to keep this Us moving forward aggressively and bring on salespeople and bring on people to support, you know, incoming calls.

Equity Ownership

Nathan Latka

09:40And Eric, so when you look at your equity today, how much do you own?

Eric Byres

09:46>> Can I park that one?

Nathan Latka

09:48You can park it or give me a big range that you're comfortable with, if you don't want say specifically.

Eric Byres

09:52>> I own more than 50% and I own less than 80.

Nathan Latka

09:56Okay, well, 50 to 80%. So you're, I mean, really a sole founder then, right?

Eric Byres

10:00>> Yes, that's correct.

Recruiting a CEO and the Cap Table

Nathan Latka

10:01Yeah, yeah, very cool. Got it. And so how did you recruit in? Whoever is the CEO, how did you recruit them in? Did you have to give them equity?

Eric Byres

10:09>> Yeah, I definitely gave them equity.

10:12>> The way we set it up is we don't get paid a lot. We're, you know, both of us are basically driven by equity. He came from my board recommended by a long term board member who said, hey, here's a guy you just got free. He's a long term CEO. He actually came out as CEO at doing very, very good, successful

10:35>> growth and acquisition plans for insurance companies, etcetera. So he really knows the acquisition of the growth. Actually, was a VC for a long time. So we just hit it off. I interviewed a pile of potential people. I thought, who would I like as a CEO? Look after the money, look after the fundraising and let me focus on making sure we have technology that rocks.

Nathan Latka

10:57And Eric, if you own between 50 and 80%, who owns the other 20%?

Eric Byres

11:01>> So definitely, you know, all those previous seed rounds, it's safe, but they'll all get diluted out. Some early founders that we had that were involved and then just different investors. And, you know, I'm I'm talking about a diluted table when I so the CEO, board members, early investors, things like that.

Nathan Latka

11:24How much do the early investors own, the ones that put in the two seats so far?

Eric Byres

11:29>> About 20%.

Nathan Latka

11:3020%. Got it. Got it. Got it. And when you say early founders, what do you mean by that? Do you have founders that you bought out or something?

Eric Byres

11:35>> Yeah, they went they got interested in other projects. And so they're early but silent founders.

Nathan Latka

11:41They own less than 10% together?

Eric Byres

11:43>> Correct.

Nathan Latka

11:44Interesting. Why not try to go buy them out so you get that equity back?

Eric Byres

11:48>> You know, I'm really letting Rod, our CEO, just sort of completely strategize on the cap table. That's been less of my focus now. And just sort of figure out like what is going to make it the nicest, cleanest cap table that is not going to get in our way. So we may do that. But at this point, that's not been his strategy.

Famous Five: Books, Tools, and Life Lessons

Nathan Latka

12:10Good stuff, Eric. Really fascinating. Let's wrap here with the famous five. Number one, what's your favorite book?

Eric Byres

12:16>> Number one book, you know, I think my favorite book was the Lincoln and the Bardo. I just thought that was a brilliant Lincoln in the way. I'm assuming you're talking about fiction here. Lincoln and the Bardo. I love that book.

Nathan Latka

12:33I haven't heard that. I've looked that up. Number two, is there a CEO you're following or studying?

Eric Byres

12:39>> You know,

12:41>> no, I don't think so. Not at this point. I mean, I've, Steve Mumford, I've watched very closely. But, you know, at this point, I'm not following anybody in particular.

Nathan Latka

12:53Number three, what's your favorite online tool for building your business?

Eric Byres

12:57>> You know, I think the tool that I spend the most time with is probably HubSpot. That's the tool that we've kind of really drunk the Kool Aid and we've been using that a lot.

Nathan Latka

13:09Number four, what how many hours of sleep are you getting every night?

Eric Byres

13:12>> How many hours of sleep? You know, I work on that. I try and get eight hours of sleep. I know that's I didn't do that in my last startup, and I don't think it was good for me. Rather I'd rather get to sleep.

Nathan Latka

13:26What's your situation now? Married, single kids?

Eric Byres

13:29>> Married. And my wife really understands this. She was on the executive team and super active in my last startup. So she knows what the startup life is. And so how

Nathan Latka

13:39many kids have any?

Eric Byres

13:41>> Three. I've got three kids, all grown. All have got their careers together. So it's pretty nice.

Nathan Latka

13:47Eric, how old are you?

Eric Byres

13:48>> I'm sorry?

Nathan Latka

13:49How old are you?

Eric Byres

13:50>> How old am I? Did you I'm 63.

Nathan Latka

13:5463. Take us home. Last question. What's something you wish you knew when you were 20?

13:59Wow.

Eric Byres

14:01>> You know,

14:04>> think two things I wish I knew. I wish I knew how fast time would go by. I never, ever thought that I'd be beyond this at 63, you know, that that much time would go by. And the second thing that I wish I knew at 60 at 20 was more of a balance. I think I burned myself out and didn't do my self a service back when I was 20. I think life balance actually matters. You

14:30>> end up becoming a better CEO or CTO.

Nathan Latka

14:32As adolus protects you from dangerous software and it's a good security blanket for your business. They launched in 2017, now doing about $50,000 a month in revenue or $600,000 a year, up from almost nothing a year ago. They've raised two rounds of funding, one in 2019 at a 3,000,000 valuation, another $650,000 about a year ago at a $4,000,000 valuation. Looking to raise 1,500,000 now between a 10,000,000 and $15,000,000 valuation. Team of 25 growing very, very fast,

14:57which we love. Eric, thank you so much for taking us to the top.

Eric Byres

15:00>> Thank you very much.

Nathan Latka

15:03One more thing before you go. We have a brand new show every Thursday at 1PM Central. It's called Shark Tank for SaaS. We call it deal or bust. One founder comes on, three hungry buyers, they try and do a deal live and the founder shares back end dashboards, their expenses, their revenue, ARPU, CAC, LTV, you name it, they share it and the buyers try and make a deal live. It is fun to watch every Thursday, 1PM

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