It is a well kept secret that some of the leading companies arrived at the top without taking early venture capital funding. I sat down with Ratmir Timashev, founder and CEO of Aelita Software Corporation, to learn how he created a company that achieved an almost 100x ratio of exit value to capital used.
Founded in 1997 and headquartered in Columbus, Ohio, Aelita Software was acquired by Quest Software. Aelita Software provided systems management solutions to organizations that relied on Microsoft Windows technologies. Aelita’s proven expertise with Active Directory and Exchange helped customers improve productivity, system availability and security. IT professionals chose Aelita solutions to administer, migrate, recover and audit these critical systems. The company’s customers and partners included Bristol-Myers Squibb, HMS Host (formerly known as Host Marriott Services), Kmart Corporation, Pitney Bowes, Textron, Inc., Hewlett-Packard and Microsoft. Aelita was acquired by Quest Software Inc. in 2004.
Exit Value: Sold to Quest Software Inc. – $130 million
Exit Value to Capital Used: 100x
Ratmir Timashev probably never imagined that his plan to start one of the first computer retailers to sell products exclusively on the Internet would lead to the development of a company that would ultimately be acquired for more than $115 million.
As a graduate student and teaching assistant at The Ohio State University in the mid-1990s, Timashev decided to start a side business selling computer supplies online. He enlisted his college roommate Andrei Baronov – who had just finished doctorate in Russia – to come to Ohio and help build the retail web site. Baronov was a self-taught programmer, who developed the site using Windows NT. In the process of the web site development, he built a tool to scan passwords in the Windows NT environment, and shared it for free on newsgroups – resulting in hundreds of downloads in just a few weeks. Timashev thought there was a great business idea in developing these types of tools, but it took him almost a year to convince his friend to join force on a formal business plan developing software tools.
Ratmir spoke with me about how, within a few years, he was able to turn this idea into a company that was one of the leaders in Microsoft systems management solutions and was ultimately acquired by Quest Software Inc. for $115 million in 2004.
Javier Rojas: What was the foundation for the systems management business?
Ratmir Timashev: When Andrei had success with the software tool he shared through the online newsgroups, I saw that there could be a potentially large market for these kinds of solutions. We were making about $3,000 a month reselling computer parts at our online store, and we used that income to start building our systems management business.
We released our first system toolkit in 1997, and with Internet marketing of our product, our revenues started growing.
JR: How did the business grow from there?
RT: In 1997, the market was good because Windows NT was proliferating fast. As a result, we started making our tools more scalable and delivering enterprise-grade offerings. Around this same time NetIQ – one of our direct competitors – got venture funding and had an experienced management team in place, so they had a bit of an advantage on us.
In 1998 – at the beginning of the dot-com boom – we realized we needed to grow faster. Andrei moved back to Russia to scale our development activities there, where experienced and talented programmers were seeking work and were less expensive than in the United States. Though it took us a few years, by 2001 we had caught up with NetIQ because we had a lot of talent in our organization and consistently worked hard on improving technology for the Windows systems management space.
JR: What type of growth did Aelita experience, and to what do you attribute to the company’s success?
RT: Our company saw double-digit growth virtually every year. In 1998, revenue was $1.5 million. Then in 1999, it was $3.5 million and grew to $7.5 million in 2000, $12 million in 2001, $18 million in 2002, and $33 million in 2003.
I believe we were successful because of the attention we paid to three key aspects of the business:
- Customers – We opened direct lines of communication between customer and our development group because we believe that was the best way to ensure that our products met our customers’ needs.
- Technology – We dedicated more than 60 percent of our resources to R&D – a much higher level than most software companies – to ensure continued improvements in our product offerings.
- Focus - We were the only company dedicated to the migration, administration, security and recovery of Windows-centric environments; and this focus of our technology resources gave us an advantage against our competitors.
JR: Did you raise venture money at all during the course of this growth, or was the company self-funding?
RT: In 2002, we raised $10 million. But we didn’t need the money at the time because we had $8 million in the bank. In fact, we probably only put about $10,000 to $20,000 seed money and a lot of sweat equity in the company at the beginning, and built the rest on profits from our business.
However, because we had the opportunity, we took the investment for a number of reasons. One of those reasons was that we got tired of making mistakes. We didn’t have a lot of business experience, so we made a lot of mistakes. For example, we didn’t know how to find the right people. One vice president looked very good on paper and had solid references, but did not perform as we had expected, so we lost almost 9 months, a lot of money and numerous opportunities.
And while we learned quickly from those mistakes and improved, we thought it would be a great idea to have a good partner and learn from them. We also thought that an investor would eventually help us with our exit and position us for sale, which is what they did. They had a great relationship with the buyer that ultimately acquired our company.
JR: What advice would you have for other bootstrapping entrepreneurs?
RT: Don’t be afraid to make mistakes, as long as you can learn from them very quickly. I believe it is better to try and not get it right – as long as it’s a learning experience – than to not try at all.
Javier Rojas is a Managing Director of Kennet Partners in Silicon Valley. Kennet provides growth equity capital to bootstrapped companies in the US and in Europe. Kennet focuses on capital efficient businesses with annual revenues of $5M to $50M. Kennet works with founders to build high value outcomes and preserve equity value through capital efficient growth strategies.
Link to original article: https://sandhill.com/article/conversation-with-ratmir-timashev-founder-aelita-software-corp/