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Interview with Kim Kovacs, OptionEase

The world of software has seen a rapid shift towards software-as-a-service (SaaS) in the last few years, which has turned traditional software buying models upside down. San Juan Capistrano-based OptionEase (www.optionease.com) has combined the trend towards software-as-a-service with the new regulatory pressures companies have around stock options, and has developed software-as-a-service offering to manage stock option administration. We bumped into the company at the VentureNet conference last week, and the firm just closing an angel round and starting a Series A, so we thought it would be good to talk the company. We spoke with Kimberly Kovacs, the firm's CEO and founder. Ben Kuo spoke with Kim.

What is OptionEase?

Kim Kovacs: We are a software as a service company, and what we do is deliver compliance products to the CFO in new markets. First is for FAS 123R for equity compensation compliance. The challenge for the CFO is that they don't have time to become an expert in all these regulatory matters that are hitting them. It's not just public companies you'd think about who have compliance issues--it's now also private companies that are being affected. There are new rules they have to watch out for. What we do, is we provide tools to keep them in compliance with stock options, warrants, and other things to do with equity, and make it very easy for auditors to perform the function of an audit at the end of the day. They can go down, and drill into the application, and confirm their assumptions very quickly. It saves CFOs a lot of time and money.

What's the story on why you started your company, and what's your background?

Kim Kovacs: I blame Ernst & Young -- actually, I both thank them, and blame them. I was a CFO, and have been a CFO for both private and public companies for the last fifteen years. I started at Deloitte as an executive consultant, and migrated to the CFO role. As a CFO, as the accounting rules were changing, and Sarbanes/Oxley appeared, I began looking for something to manage stock options. However, the software market was focused on top tier companies--larger public and private companies--to develop solutions around. But, if you look at the Intuit model, there was no one addressing my market space. As a CFO for a company here in Orange County at the time, with a number of option holders, I couldn't find anything that met the needs of a smaller private company. Doing lots of research, I was going to have a development team I knew just develop a product for my own company, to track options and automate the process. Then, I thought--if I need it, others might too. I talked with other people in FEI and FANG-- the Financial Executives Networking Group, and others, and found there was a pretty substantial need for this, hence the company.

So how far along is the product--is this something people can use now?

Kim Kovacs: Absolutely. We are in the market full time--big time--with almost seventy clients now. It's up from sixty-two at the conference on Friday. We are garnering a very substantial section of the market. We are getting referrals from accountants, CPAs, auditors, other clients, attorneys, and also from venture groups, who need their portfolio ready to exit at any time. There are lots of referrals and lots of customers online with our products. And, it has not gone down since it was put up in product in March of this year.

What's the financial model behind the software--how do people pay for this?

Kim Kovacs: It's software as a service, through a subscription. It's fantastic, as a CFO of a smaller company, and you don't necessarily have resources like IT to manage a database driven or custom-installed application. Our subscription service takes your existing spreadsheets, and for a nominal monthly fee per option holder--about $10 per option holder per month, with breaks for bigger companies and catch up for smaller companies-- and on a monthly basis clients pay for accessing the applications.

Aren't any of the big guys competing for business in the space, isn't there a lot of competition?

Kim Kovacs: Part of this is because most application providers first go for larger ticket items. The larger companies--Oracle, SAP--are putting tremendous money into governance, risk, and the compliance market. They're very vocal about it. But, for the private and smaller public companies, there hasn't been any investment into the area. It's a green field. Why they haven't done so, is that they are going for Sarbanes Oxley and other, bigger ticket areas. Eventually they'll buy niche products to incorporate into their own software. Once we develop this market and our products, I think you'll see more interest and more spotlight, and others will start to follow. Our biggest competitor right now is Excel.

So this is something people are still doing on spreadsheets?

Kim Kovacs: Absolutely. I talk to almost 100 CFOs a week, and the primary vehicle for them in governance and compliance is working in Excel. They live and die in Excel. When I was a CFO, everything I did was in Excel. But, if you need it to be auditable, and to support and secure it, or have to have multiple users, Excel just doesn't work anymore.

Interesting. Finally, how's the company funded?

Kim Kovacs: We're angel backed. We are in the process of closing a round with the Tech Coast Angels and Pasadena Angels, and we have participation from both groups. We're looking for our Series A right now, which was part of why we were presenting at VentureNet. We also have had some early investment from some very significant angels as well.