$370 million in an all cash deal for NRI's Spasm Company


Sunil Paul, Founder & CEO, Brightmail Inc. (Born in Punjab)
Spasm Guru

May 22, 2004

Early this week, computer security firm Symantec scooped up Brightmail Inc. for a hefty $370 million in an all cash deal just when it was about to go public. Industry experts say the Symantec-Brightmail deal, coming alongside the Google IPO, points to a revival in the tech industry.

In 1997, When Paul's wife Michelle began complaining about the appearance of spam junk mail in her America Online e-mail account, Sunil decided to create a way for users to control their email.

Brightmail, Inc. dedicated to giving users control of their email. Prior to starting Brightmail, Sunil created FreeLoader, Inc., the first company to offer a web-based push service. In 1996, Individual, Inc. acquired Freeloader for $38 million, making it the best and second-best performing investments in the VC portfolios of Euclid and Softbank, respectively.

Before launching FreeLoader, Sunil was with America Online (AOL) as that company's first Internet Product Manager, successfully creating most of AOL's Internet capabilities. Before AOL, Sunil was a policy analyst at the U.S. Congress' Office of Technology Assessment, where he specialized in information technology and telecommunications, including the then-emerging Internet. Prior to that, Sunil spent three years working on NASFreeLoader specialized in a product designed to push information at you -- it was a program that downloaded content from the Net while you weren't at your computer. Brightmail, ironically, aims to do the exact opposite. Brightmail's mandate is to fight spam -- to keep information you don't want from getting into your computer by filtering it out of daily mail traffic. Paul's transition from push to anti-push is a neat little metaphor for how our relationship to the Internet has changed over the past few years, but that's not the only reason we should pay attention to him. Internet start-up entrepreneurs are a dime a dozen these days, and many of them come off as fairly wet behind the ears, fresh from posh business schools where they seem to have excelled mainly in courses that could have been titled "How to pitch vaporware to a venture capitalist" or "Six easy ways to convince the press to cover your company." Paul is young, still only 34 years old, but already he has a track record of involvement with the commercialization of the Net that few others can match.A's Space Station Information System. Sunil has a B.E. in electrical engineering from Vanderbilt University.

Brightmail's software uses filters and other proprietary technologies to block spam at the customer's Internet gateway, the point at which Internet traffic enters the public network. The times are especially good for companies dealing with computer security and spam. Recent estimates say about 40 per cent of all e-mail sent last year was spam, up from only 8 per cent when Paul's wife first began complaining about it.

• Brightmail, Inc.

Biography:

Born in Punjab, Paul was four when his family migrated to America in 1969 . He spent his early childhood in Nashville, Tennessee. In 1987, he graduated with a degree in electrical engineering from Vanderbilt University, Nashville.

Buoyed by the news of the American space program, he moved to Washington to work at NASA. But the experience was not very rewarding. "I regretted taking up the job with NASA because I expected to do more engineering work but ended up doing operational and maintenance work," he says. From there, the restless Paul moved to a consulting firm that worked for NASA and then joined a Congressional agency that gave advice on different policy options.

The Nemesis of Junk Mail
Shanthi Shankarkumar

Of course, spam -- or junk e-mail -- is a waste of time and money. And the most that most of us do is slowly destroy the delete key in annoyance. And among the freshest of solutions in the market is Sunil Paul's brightmail.com.

Brightmail Inc has advanced e-mail services and software to enhance the quality and utility of e-mail. But its initial product, the Brightmail Anti-Spam Service, fights unsolicited commercial e-mail.

Sunil Paul's anti-spam program, launched in October 1997, covers nearly 35 million e-mail accounts provided by its 25 partners.

Brightmail has formed technology and distribution partnerships with Netscape, Sendmail and Software.com. Other partners include AT&T WorldNet Service, Concentric Network, EarthLink, Excite, FastNet, FlashNet, Juno Online Services and usa.net.

Brightmail runs a 24-hour operation center where it identifies new and existing spam and then forwards information about the spam to a "spam wall" assigned to each user. The spam wall uses software to identify and block spam messages before they reach a user's in-box, Paul says.

Almost 50 per cent of e-mail users say they get spammed six or more times a week, according to a recent study of 13,000 e-mail users commissioned by Bright Light and conducted by the Gartner Group. Users want their ISPs to protect them from spam, the study found.

Paul, chief executive officer of Bright Mail, was inspired to develop a better solution to the spam problem because his personal email accounts were overrun by spam.

What makes Brightmail effective?

"The biggest difference is that it works. There are a number of approaches out there that are able to stop 10 to 20 per cent of spam and some proprietary approaches that stop up to 50 per cent. But nobody else can match us for both effectiveness and accuracy. The big difference is that we have got people and technology," says Paul. The fact that the spam filtering is done at the ISP levels rather than the user level makes the Brightmail service unique.

So how does it work?

"We basically set up large numbers of e-mail addresses all over the net, those addresses are set up to receive spam and only spam. Those addresses are forwarded to an operational center and there we have people develop new techniques to stop any new spam attack. Those techniques or rules are sent out to our customers. Spam is sent to a temporary holding area where it is automatically deleted after a while," he says.

"The world of policy warts and engineering geeks appealed to me," he says, laughing. The Internet was a young domain then and Paul would spend evenings after work exploring it. He eventually convinced the agency to have a web browser put on every desktop -- those were the days when Mosaic was the only web browser available.

The world of government was too slow-paced for this man who liked to leap his way through life.

"After three years, I realized I was not cut out for the government. I needed to get things done quickly and feel the impact of what I was doing and not have to wait years to make a difference," he says.

He then joined AOL, where, as an Internet product manager, he was responsible for introducing Internet services to AOL.

AOL's size made him worry if he could make the impact he was looking for, but he need not have worried.

"I definitely made a significant impact and helped contribute to AOL's Internet strategy," he says.

But a year later he was ready to enter a new phase in his work life. He had a burning desire to be an entrepreneur and so joined up with a friend to start a pioneering "push media" company, Freeloader.

Paul has no regrets about leaving AOL.

"I needed to have greater control over my destiny. It was as much an emotional decision as a financial one. In fact, on a financial level one might have done well just staying on," he says.

Paul says he not only learned about the Internet at AOL but also the company's "insane focus on the customer."

He says he is amazed that no other ISP have been able to replicate this single-minded focus on the customer. "They used to call it 'Steve's phenomenon'. Every time anybody came up with a new idea, they'd ask, 'Would Steve's mom be able to use it?' and if the answer is 'no', then the idea died!" says Paul, with an admiring chuckle. Steve, of course, being Steve Case, AOL's CEO.

Of course, Paul also realized that he likes being the boss.

"I don't want to work for someone," he said. " I have great faith in my ability."

Prior to starting Brightmail, Sunil created Freeloader, Inc, the first company to offer a web-based push service. In 1996, Individual, Inc acquired Freeloader for $ 38 million, making it the best and second-best performing investments in the VC portfolios of Euclid and Softbank, respectively.

Less than a year later, Freeloader closed down. But for Paul there was no looking back.

The money made from the sale would eventually lead to the starting of Brightmail, which, ironically, keeps information away from your machine, by filtering out spam from your mail.

The Brightmail story has been celebrated in a number of magazine articles; CNN too has run a feature on it. But Sunil Paul feels he has taken just a handful of steps.

"There are very significant announcements coming up. We are going to roll out big customers," he says.

"We are also planning to go into anti-virus and other products that will make e-mail an indispensable tool. Money is not really the motivating force. The real motivator is making a significant contribution to the world before I leave it. I see a lot of things that can be improved."

The Problem's Getting Bigger: Sunil Paul
Spam is costing the industry tens of millions of dollars a month in bandwidth, customer service and systems administration. Between 15 to 30 per cent of the average 14 million e -mail messages that America Online gets daily, is spam.

Most large Internet Service Providers have four to six people dedicated to combating the problem. UCE (unsolicited commercial e-mail) or spam costs these companies roughly $ 1 million each month, which works out to $ 1-$ 2 per subscriber. A one-million-person ISP will typically lose about $ 7.7 million a year because of spam.

It is the odd economics of the Internet that created the junk e-mail problem. Unlike a piece of paper mail which costs 25 cents to a dollar to send, there is no per-message charge to send e-mail- it is included in your monthly fee. All a spammer needs to send out a million messages is a dial-up Internet account, a million e-mail addresses and a computer.

"This is a problem that's only getting worse," said Paul who launched Brightmail in July 1997 to fight spam. A survey has also found that the amount of spam increases the longer you have an account with an ISP.

In the past the best way to protect yourself from being spammed was to be very careful about disclosing your e-mail address. If you avoided putting your e-mail address on a web page, if you did not participate in on-line discussion groups or chat sessions, you were pretty safe. But hiding your e-mail address is getting difficult by the day. More and more spammers are sending e-mail to any address they think is valid. If the message gets through, they are jubilant, if it doesn't they don't care.

According to technology columnist Simon Garfinkel, the real spam problem in the coming year will not be from fly-by-night operations and scam artists. It will be from legitimate companies that view unsolicited bulk e-mail as a way to market themselves more effectively.

Another survey conducted earlier this year by Chooseyourmail.com has shown that pornographers are responsible for 30.2 per cent of the spam on the Internet today. There were two particularly disturbing aspects of this kind of spam. Some of them were quite graphic in the description of content being offered while many were very vague using ambiguous and misleading text to disguise the true nature of solicitation.

Just behind the sex sellers, 29.6 per cent of spam hawks get-rich-quick and work-from-home schemes, many of them illegal. The remainder advertised different products and services and a small percentage illegally offered stock tips.

Legislation and lawsuits don't deter spammers. Portals and ISPs have fought spam with mixed success. AOL won a lawsuit in 1997 that prevented one spammer, who offers striptease shows on the Internet from soliciting AOL members. One of the frustrations is that it is increasingly difficult to track down spammers. The Federal Trade Commission estimates that 50 per cent of spam is fraudulent, therefore 50 per cent is already illegal, yet that has not stemmed the tide.

State laws are already in effect, but they have not had any success in stopping the spammers. Unlike telephone, fax and physical mail that have been regulated successfully by law and agreements, e-mail has managed to fall outside the jurisdiction of the law.

"If a US law is passed, it will not help spammers in India and Belgium," he said.

Sunil Paul, CEO of Brightmail, explains what it takes to be a two-time winner in the Internet economy.

- - - - - - - - - - - -
By Andrew Leonard

In June 1996, Sunil Paul and his partner Mark Pincus cleared $38 million from the sale of their pioneering "push media" company, FreeLoader. In a way, it was a seminal Internet moment -- FreeLoader wasn't even a year old and had never generated a dime in profit, but little details like that just didn't matter in the new economy of the Net. So what if the stock price of the new parent company soon plunged, or if FreeLoader itself was closed down less than a year later? For Sunil Paul, a one-time Internet product manager for America Online, the experience was fruitful -- and a springboard for his second venture, Brightmail.

FreeLoader specialized in a product designed to push information at you -- it was a program that downloaded content from the Net while you weren't at your computer. Brightmail, ironically, aims to do the exact opposite. Brightmail's mandate is to fight spam -- to keep information you don't want from getting into your computer by filtering it out of daily mail traffic. Paul's transition from push to anti-push is a neat little metaphor for how our relationship to the Internet has changed over the past few years, but that's not the only reason we should pay attention to him. Internet start-up entrepreneurs are a dime a dozen these days, and many of them come off as fairly wet behind the ears, fresh from posh business schools where they seem to have excelled mainly in courses that could have been titled "How to pitch vaporware to a venture capitalist" or "Six easy ways to convince the press to cover your company." Paul is young, still only 34 years old, but already he has a track record of involvement with the commercialization of the Net that few others can match.

Which is not to say that his patter isn't as slick as the next CEO, business school-trained or not. Paul started out as an electrical engineer, but he speaks with the smooth confidence of someone who has honed his persuasive skills through countless money-raising sessions and marketing campaigns. If there's one theme that runs through both FreeLoader and Brightmail, it's that Paul's companies know how to get press. The craze over push media may be long gone and nearly forgotten, but it's hard to imagine anything on the Net that aggravates the general public more than e-mail spam. A company that fights the plague of junk e-mail is an obvious marketer's dream -- Sunil Paul placed his second round of start-up cash on what looks to be a pretty good horse. Last week, he talked with Salon Technology about his experiences steering two companies through the fast-moving waters of the Net.

Your career over the last five years has captured every up and down in the Internet economy. What's it been like to be part of this thrill ride?

It's definitely been a roller coaster. Everybody talks about how the Internet bubble is going to burst, but the truth is that it has already burst many times. It all came tumbling down in the fall of 1995 and also in the fall of 1997.

And even before that. As far back as 1994, when you were at AOL, the consensus of many people covering the Internet was that AOL was going to get wiped out by the Net -- that AOL didn't get the Net at all.

I was on the inside thinking the same thing -- we've got to get our act together! But we did -- AOL successfully incorporated the Internet into what it was doing, and made it a clean and easy experience. Certainly that was what I was advocating.

Why did you leave AOL?

I left because I had great ambition and desire to be an entrepreneur. It was more of an emotional decision than it was a financial decision. On the emotional criteria it was a huge success. On the financial side it was probably a break even. I would have done very well if I'd stayed there.

Push media seems such ancient history these days. Can you give me a sense of how the competitive environment for an Internet start-up has changed since those early days?

The noise level has gone up a huge factor. There are so many other companies out there that are doing Internet-related things -- either existing companies that are waking up to the realities of the Internet, or just other start-ups. It used to be, when we started FreeLoader, that everything from getting visibility in the press to getting visibility among prospective investors or employers was easy. There just weren't as many Internet companies around. That's maybe the downside.

But there's definitely some upside too: Everybody knows about the Internet now; you no longer have to educate people about what e-mail is and what it can do. That's a big advantage -- the story has moved from being one that is kind of techie-focused to one that is a general consumer story or a general business story. So, for example, in the case of spam, we no longer have to pitch purely to the technical press. The general consumer press is interested in the topic because it's something that affects almost everyone.

When you started FreeLoader, you and your partner fit the classic start-up entrepreneur scenario. You maxed out your credit cards, worked out of your homes, and so on. What's it been like the second time around?

It's been a hell of a lot easier. You don't have to bang against the credit limits of your credit card anymore. I think the big difference is the ability to hit the ground running -- you don't have to worry about going into debt, and you don't have to worry about immediately turning around and raising money. I put several hundred thousand dollars into the company in the beginning and I still had a number of people join me early on who either worked without salary for a period of time for more equity in the company, or at a reduced salary for a fairly long period of time for, again, more equity. What that let me do was get the company further along before having to raise money -- I was able to hold on to it for a little bit longer than I would have been able to otherwise.

Are there specific lessons that you learned from FreeLoader that you applied to Brightmail?

Yes. There's a technology lesson -- deploying and maintaining client software [software that is installed on individual users' machines] is really hard. There is also a lesson in the desirability of finding a real problem, a real need, and satisfying it. Finding a need is a more straightforward job than inventing a need. It's a tricky balancing act though, because there's always a little bit of creation of need involved: At the same as you address a new problem, you are creating new opportunities. Brightmail is out to do both -- our initial products are aimed at solving a very obvious problem. But future products will address the opportunities that we create by solving that problem.

Can you talk more about those future products?

Unfortunately we're not really ready to talk right now about future products. But they are all oriented toward improving e-mail, making e-mail a more useful medium than it already is. The overall strategy of the company is to introduce spam control and use that as a beginning for many other services in the same way as other companies like Yahoo and Netscape and Amazon used their first very simple product -- a directory, a browser, book sales -- as a way to build up the market, build a brand name, build awareness, and then layer other products on top of that.

You say that one of the things you've learned is that deploying client software is really difficult. With Brightmail, you are primarily targeting Internet service providers as customers for your software. Are ISPs a big-enough market for striking it rich?

In the spam business? We know that spam is a real problem and it costs a lot of money for ISPs and corporations. We estimate something like a billion dollars a year is lost due to spam. A one-million-person ISP will typically lose about $7.7 million a year because of spam. Is that opportunity big? Yes. Is it capped? Yes also -- but between here and that capped opportunity is a lot of revenue. We see an opportunity to go grab a pretty reasonable, healthy stake of revenue, and create a core business big enough to build a lot of relationships.

And then leverage those relationships with your new products?

Exactly.

One of your closest relationships is with Sendmail, the open-source software company. Right now, your software is proprietary. Do you see any threat from the open-source software development model, as far as Brightmail's prospects are concerned? Could the open-source community develop its own spam-control methods?

That's an interesting question. It would take a massive coordination, and while the Internet helps coordination in an asynchronous mode, its pretty hard to do in a synchronous mode. Part of the value that open-source software companies like Red Hat offer is that they add a layer of support on top of this asynchronous coordination of writing software. Similarly, what we basically do is that kind of support. We are the ones that are accountable, we're the ones that are writing the spam-filtering "rules" on a minute-by-minute basis -- and it's expensive to run a 24-7 operation like ours. It would be pretty difficult to do what we do in an open-source manner.

There's a saying in Silicon Valley these days that there is no shame in being involved in a failed start-up -- on the contrary, I've heard it said that venture capitalists look favorably on entrepreneurs who've failed a few times -- they are supposed to have learned from their mistakes and have a better idea of what it takes to succeed. It's hard to know whether to call FreeLoader a success or failure -- you certainly picked up a nice chunk of change, but the company itself was closed down and the product doesn't exist. Did that help you or hurt you the second time around? Is it true that failure looks good on a Silicon Valley résumé?

I don't know. It's true and it's untrue. I've heard people say that -- but there's a difference to pay attention to. Did you try with gusto? Or did you just whimper along? I see lots of companies and I interview people who just sort of puttered along and didn't really go for it, and I don't think anybody respects that. I guess if they end up being a big success people respect that. But what people really like to see -- and by people I mean investors and employees and people you're doing a joint effort with -- is that you are willing to swing for the fences. If you don't quite get there or if you struck out once before, that isn't necessarily such a terrible sign.