Fresh off of closing a round of $9 million that included Kleiner Perkins Caufield & Byers, Google Ventures (their first in the southeast), TechOperators, and others, Adam Ghetti, founder of Ionic Security, sat down with Scott Henderson to share the framework for how he raised money on his idea.
The process of raising the $9 million round was meticulously crafted and thoroughly engineered. Ghetti’s clear articulation of his strategy, which is found in the ten-minute video below can be summed up in this statement:
“…It’s all about how you know who you know…you want to find somebody that has the respect of who you are trying to get to…” – Adam Ghetti, Founder at Ionic Security
Adam Ghetti’s idea for Ionic Security, formerly Social Fortress, was not originally built as a company. It was built to solve a personal problem. Around the time of the initial conception of the technology, Adam was frustrated by Facebook’s lack of simplicity in terms of privacy. So, he did what any coder would do, he built a code that fixed a problem. When he shared this code with Atlanta investors and entrepreneurs, they all encouraged him to build a company around it.
Transcript services provided by TransciptsHQ, a proud Atlanta startup
Scott Henderson, Hypepotamus: Adam Ghetti, welcome to the hot seat. I’m excited about this because you just closed a round, you have sold an idea – Ionic Security, which was previously known as Social Fortress. Ionic Security was the first company in the southeast to attract Google Ventures and Kleiner-Perkins lead the round. How much money did you just raise?
Adam Ghetti, Ionic Security: Just about 9.5 million.
Scott Henderson: So you have 14 years of experience building up large scale systems, complex systems, and complex task automation. You are a co-organizer of Hack Atlanta, security technologies entrepreneur, and just closed that much money. Walk us through this process. How did you do it?
Adam Ghetti: Good question. If you go back more than two years ago, I was actually talking with Alan as we were going into FlashPoint about here is where we are, and, “Here’s some really crappy demo code on my laptop,” and “Here’s where we want to be. Here’s what that looks like. What’s that process?”
Every step had multiple options and every step was thought through with folks like Alan Taetle, Christopher Klaus, Sig Mosely, Paul Judge, and others here in town. And we walked backwards from where we wanted to be to where we were. We said we want to meet within a year’s time, do a seed round with some very strategics both here in Atlanta and folks from outside of Atlanta – just to have alternate perspectives and we did that. So in May of last year we closed two million dollars with some folks here in town, some folks out of New York, and some folks out in the Valley. Then we said that within a year’s time we would like to go find one VC that has strong internet security, enterprise internet security expertise, has enterprise software expertise, but also has consumer expertise, because we eventually see ourselves providing value to them.
So here is where we are again today. Here’s where we want to be again, how do we walk backwards from there? That means we needed to attract certain team members to round out the team because at the time when we raised that seed round, it was still just me and my operating business partner, Roger. So we knew we needed to put a solid enterprise class; VP Engineering in place to go build out an enterprise class engineering team, which is not my expertise and is not my background. We needed to get enough traction with product and hiring to then go attract a solid CEO that possessed the proper enterprise security software background so that when we were going to talk to the global 2,000 enterprises and a few other organizations, that it wasn’t just going to be a team of technologists – it was going to be a team of very thoughtful operators they were already comfortable with.
From there we needed to get a few customer traction points. And then we knew once we got that, we could start having conversations with our existing investors, several of which were high net worth, several of which were tied to more structural seed capital funds, and we could determine whether it was the right time or not, and we could constantly validate it based off of internal relationships. And at the right time, we take that back out and we did. So in February, there was the largest information security conference in the world called RSA and it’s out in the Valley. It was an area where we knew there would be security on the front of everybody’s mind and a time that all the VC’s that were in the space would be in town from all over. So we put a strategy in place earlier this year to buy RSA, have enough traction points in an organized fashion to tell our story and that we would have the right meetings lined up. And then we spent probably a good 30 days, a solid month, on actually determining what was the right way to get it to the right person for the funding.
So you will hear a cliché all the time from folks saying, “It’s all about who you know.” I certainly like to take it one step further and say, “It’s all about how you know who you know.” A lot of people can make introductions for you. A lot! What you don’t really know is what is that person’s real relationship with the other individual? It could be they met at a party and have each other’s contact info. That is a worthless introduction. Sorry to anybody that has ever done that. It is just truly worthless if you are trying to get something done. You want to find somebody that has the respect of the person you are trying to get to, but not just any respect. Do they have respect from a technology point of view? From an investment point of view? From a customer point of view?
So we took the entire network that we had – investors, advisers, our team members, and said, “Who here has the best relationship for the right reasons and with the people we want to go meet with?” We lined up the meetings. We had the meetings and we kind of whittled out a few of the ones that weren’t going to be interested in our time frame and at the kind of philosophy we were taking from our business. So we got a short list of about five firms put together at that point and we had second follow-up meetings that week. Since we were in town already, and we knew they were going to be in town all week, we arranged the first set of the meetings early on and arranged the second set of meetings that week and from there, whittled it down to three firms very quickly. And within that period of time, starting basically the 3rd of March to April 19th we closed the $9.5 million by going through another process that I could talk to you ad nauseum, not here. We try to think through every decision we make at this company in a very open, transparent, and logical way. That’s the kind of thought that went into doing what we just did.
Scott Henderson: So let’s go to the bottom of this whole concept called Ionic Security. When did that idea pop into your head to the point that you had to build it?
Adam Ghetti: That’s a great question. So Ionic Security, formerly Social Fortress, was not originally created as a company. Ionic Security, Social Fortress Technology Stack was created because back in 2010 Mark Zuckerberg kept changing the privacy settings on Facebook so many frickin’ times in so many different ways, that you really couldn’t get comfortable with the fact that if I sent you a message in some form or fashion, that that’s where it would end. And so in one week I changed all my privacy settings and I felt fine. And a week later, I posted a message on your wall and I realized that two of your friends commented on my message, and I’m like, “But why did they see it, I don’t understand? It’s set to just friends, right?”
So that got me a little agitated with the situation. I’m a firm believer that privacy is not about something to hide, it’s more about having a set of trusted relationships that you feel you can be confident and confide with versus kind of that mainstream “You’re hiding something.” The way I like to think of it is really simple. Say you’ve got 500 Facebook friends and you have kids, because I ask all married people this question. You have 500 Facebook friends, how many of them would you have over to your house for dinner? Most people will normally say, “I don’t know, a 100 of them?” Okay, cool. How many of them would you have watch your kids for the weekend while you and your wife went out of town? That number normally drops down into low double digits and sometimes single digits. That’s privacy. That’s your personal life. It’s not that you are not hiding anything, it’s just a different way of thinking about it. So Facebook got me agitated and there wasn’t a solution on the market to fix that so I built it for myself, started sharing it with some my close friends that happened to have strong information security backgrounds; people from Lockheed, Christopher Klaus, and they are the ones that said, “Dude, yeah, go do this!” That’s kind of how this thing came to life.
Scott Henderson: So you were meeting a personal need? Solving a personal pain problem, shared it with folks who had expertise in the domain, and they’re the ones that pointed to you. That connects us back to the story where you are engineering this whole thing. Now let’s talk about the gap between, “Alright, I have to go build this now, these guys are telling me to do it. There should be something here,” and then getting this meeting with Alan Taetle with your crappy code as you were calling it on your laptop. What was that process?
Adam Ghetti: So I built the prototype before I met with anybody. It was working and I tried it myself, right? Then folks like Ben Halpert and Christopher Klaus said, “Hey, this is something very interesting…” and Klaus said “I’ll help you build the business if you focus on it full time.” This means a lot for those that don’t know Chris. He doesn’t get involved in many other peoples’ businesses. So I spent a few months of research before I basically completely agreed. And it was, “Let me now go try to understand this market, because I don’t know enterprise, it’s not my world.” Once I validated internally that what they thought the problem I was solving from their perspective was the problem that was going to be solved by what I had built then I said, “Yes! Let’s go do it.”
One of the folks I had met six or seven years ago was Mr. Taetle. From the first meeting I ever had with him, I had so much respect for him because he said exactly what he thought every second of every day and all of his feedback was actionable. So, I don’t ever care if somebody gives me positive or negative feedback, I just hate neutral feedback. I knew that from a business building perspective, not necessarily a particular product perspective, Taetle would give me the lay of the land, like, “This is never going see the light of day, I don’t care what Chris or anyone else thinks…” or, “This is something really interesting.” So it was Taetle that made that jump and we ended up getting introduced to Flashpoint and we went from there.
Scott Henderson: Thank you.