When Mahesh Patel joined Druva as its CFO in 2014, the cloud-based data protection software company had a single product and $10 million in revenue. Today there are four product lines, and the company’s subscription offerings are generating annual recurring revenue of more than $100 million.
As with most startups, growth, not profits, is the name of the game. Patel says Druva, which launched in 2008, will not finally become cash-flow positive for two more years.
The 800-employee company has raised significantly less than some of its competitors by having secured just $328 million in private capital over 12 years stretched across six funding rounds, because overhead for a SaaS-based business is significantly less. Still, Patel says he can’t afford to have a conservative approach when it comes to capital allocation.
“When I walked into Druva five-and-a-half years ago,” he says, “people would ask me, ‘Can we fund it? Is it in the budget?’ Then they just looked at me. That was the mindset.”
Patel was and remains adamant to avoid the “CF-NO” stereotype, where one of the finance chief’s main roles is to quash expense-laden proposals unless it meets a threshold return on investment.
“Why is the startup world disruptive?” he says. “It’s because most legacy incumbents have not innovated. They’ve focused trying to preserve capital, efficiency, and maximizing today.”
That said, Druva doesn’t appear to be a wild risk-taker. Half of its research and development spend is for adding product features that customers are asking for right now. “We need to think about our investments [in terms of] what’s happening competitively in the near term,” Patel says.
A quarter of the R&D expense is aimed at yielding positive cash flow about a year out. Again, though, this is not for new product development, but rather enhancements and expansions of its existing platforms.
That leaves 25% of the R&D spending for innovating new products that won’t have a positive financial impact for three or four years. “It’s the risk we’ve prescribed for ourselves,” the CFO says.
“Probably only 50% of those ‘blue sky’ efforts will make it to market,” he adds. “But that’s the great part of innovation at our current scale and size. We can continue to invest in this. And if we don’t, we’ll inhibit our future growth. There’s enough capital in the market that there will be more upstarts. If we don’t invest in these new products, somebody else will.”
Much of what the company is selling today was in the “blue sky” development phase three years ago, Patel notes. However, when Druva nears the $500 million revenue mark in a few years, it’ll probably ratchet down new product innovation to 10% of R&D spend, he says.