ZeroTurnaround is one Estonia's most promising startups, recently landing €6m in growth capital from investors including VC firm Bain Capital Ventures.
ZeroTurnaround is making its mark in the field of Java productivity tools, with two products: JRebel and LiveRebel. JRebel is a tool which allows the developers to instantly view code changes to a Java app in the browser, so there's no need to redeploy the application server, while LiveRebel lets operations teams eliminate server downtime during live-app updates.
The company's pitch is that the software helps makes programmers more effective, and so saves time and money — a pitch that around 4,000 customers in some 90 countries have taken them up on.
Along with a significant amount devoted to marketing, ZeroTurnaround's growth capital, announced earlier this month, will mainly be used to boost its sales team which is situated in the US.
Right now we have about 60 people working in the team in Boston, by the end of the year this number should grow to hundred, ZeroTurnaround CEO Jevgeni Kabanov told ZDNet. The Boston sales team, which makes up more than half of ZeroTurnaround's headcount, is key to the company's bottom line, convincing execs that may not be tech savvy of the software's use to the company's coders.
Usually the person who decides to buy our product and the person who is going to use it are two different people, so most of our sales process is about explaining to company's executives why their software developers need our product, Kabanov said. With one of its offices in Boston, Bain Capital Ventures has helped ZeroTurnaround to put together its sales team in the city, using its contacts and knowledge of the local market. The fact that the venture capital firm is situated in Boston played a major role in the company's decision to set up its US shop there, rather than the West Coast.
You can sense some overheating in Silicon Valley and it is much easier to break through with a regular consumer product there, Kabanov said. The smaller time difference between Boston and ZeroTurnaround's crucial European markets was also an important factor in why it preferred the city to the East Coast, according to the CEO. After Bain Capital Ventures' recent investment, the venture capital firm owns about one half of the company.
ZeroTurnaround was spun out of Webmedia, now known as Nortal and one of the largest IT companies in the Baltics. Kabanov, a former R&D executive in Webmedia, founded ZeroTurnaround in 2009 along with another colleague from the company. The startup was initially backed by Webmedia as well as its founders, with Bain Capital Ventures buying out Webmedia's share of the company in 2011.
Before the recent cash injection, the company was able to grow primarily just by using sales revenue. Last year, for the first time in the history of our company, we had a moment when we understood that our own cash-flow was not sufficient to do everything that we had planned and let us grow as fast as we wanted to, Kabanov said.
Aside from Bain's investment, the rest of the latest round of investment came in the form of a venture capital loan from California-headquartered Western Technology Investment (WTI), which has also financed Facebook and Google in similar ways in the past. Taking a venture capital loan remains quite exceptional among Estonian startups.
You can get the loan only if there is already some venture capital in your company. They [the lender] assume that the venture capitalist has already audited the company, they offer a higher interest than the banks and get also some options, Kabanov said. Usually the interest rate for such loans is between 11 and 15 percent and if the loan is taken out for three to five years, you only have to pay interest during the first one or two years.
Boston and Tartu
Despite the investment coming from US companies, ZeroTurnaround is still sticking to its Estonian roots: the financing will also see 10 more people hired in the Estonian city of Tartu, where the company's product development and management team is situated.
However, as the US business is growing, Kabanov has to spend more time in the US. Last year he spent most of his time in Estonia, but this year he predicts he'll be spending at least six months in the US. However, according to the CEO, it's Estonians that still decide the future of the company and that hold the important management roles.
Let's say that you can call ZeroTurnaround an Estonian-American company, Kabanov said. About a year ago the company announced its first acquisition, buying Danish startup Javeleon and its intellectual property.
Javeleon was founded just a year before that to commercialise technology built on research from the Maersk McKinney Moeller Institute at the University of Southern Denmark. The two founders of the company, Allan Gregersen and Michael Rasmussen, were relocated to ZeroTurnaround's home turf of Tartu.
According to Kabanov, the integration was smooth and the Danes really like the student town, which is the second biggest in Estonia. I've noticed many foreigners prefer the quieter and cosier Tartu to the capital city Tallinn.
Looking to the future
ZeroTurnaround has been actively developing the Javeleon technology over the last year, and integrating it into JRebel, Kabanov said. The resulting product is undergoing private beta testing and should be ready for prime time some time later this year. The benefit we got was mainly the competitive advantage, but also an opportunity for feature differentiation.
The company is also planning to release a third product this year to join JRebel and LiveRebel, but it's not revealing any details about the release just yet. With the new product on the way and headcount on the rise, Kabanov hopes that this year will be a year of growth for ZeroTurnaround. An IPO is possible in the future, but for it to happen the company has to grow approximately tenfold, according to the CEO. There are no plans to sell it in the near future.
It is still fun and I feel very motivated to see where it can lead us, he said.