Axcient Disrupts SaaS Compensation Model with Up-Front Pay for VARs

Backup and disaster recovery technology provider Axcient is making a play for the value added reseller (VAR) market by launching a new and disruptive payment model that matches the typical VAR business model. Axcient is funding its ability to offer this model through a $25 million round of venture capital. Here are the details.

Axcient’s new model compensates traditional resellers up front for up to 2 years of margin, CEO Justin Moore told MSPmentor.  “Up front” are the key words in that sentence. Rather than offering VARs the monthly annuity that comes with cloud computing, “We are going to give our resale partners the first 5 months of revenue on day one,” Moore said. “If a partner sells a $1,000 per month solution we write them a check for $5,000 up front.” Axcient’s minimum deals require a year-long contract.

In terms of selling to VARs who have not adjusted to the software-as-a-service (SaaS) monthly annuity business model, Axcient’s new compensation structure is highly disruptive and could give the company a big leg up versus competitors in the VAR space.

“Resellers have a cash flow business,” Moore said. “Traditional SaaS 1.0 vendors have not adjusted. There’s a disconnect.”

Axcient learned from experience

Moore knows that because Axcient’s initial attempt to make inroads in the VAR market didn’t work. It followed the SaaS monthly model. VARs did not respond.

“We tried to take it to the VAR community a number of years ago,” he told me. “We failed in that we tried to impose on traditional resellers our SaaS-based retail model, which is compensated monthly. We went and tried to impose our model and force them to change their model, their business.” 

So Moore took his plan for an up front compensation model to venture capitalists, looking raise the funds required for the capital structure that would support the model. Axcient’s most recent $25 million round is the result. The E round includes new investors Industry Ventures and private equity firm Silver Lake. Silver Lake is also providing a significant debt facility.

Disruptive compensation model unique in SaaS space

The funding works a bit like distribution financing does in technology product sales. It gives Axcient an advantage over other providers of recovery-as-a-service that are trying to infiltrate the VAR market. No one else is offering such a model, as far as I know. (If you know of a company doing it, please tell me in the comments section below.)

Axcient is already working with about 30 VARs after a soft launch of the new program.

“We raised this round because we believe the broad recovery as a service market is growing. We want to double down on our R&D and invest heavily in sales and marketing,” Moore told me.

Milestones for 2014

Moore reports that 2014 was a strong year for Axcient with a more than 50 percent growth in new customers. The company partnered with CharTec, which standardized on Axcient. Plus, it expanding its partnership with Ingram Micro. And Axcient grew its headcount by more than 50 percent, Moore said.

And while much of the focus of Axcient’s new funding round is on VARs, the company also plans to continue its expansion with managed service providers, too. Moore’s goal is to acquire somewhere between 200 and 400 new MSP partners in 2015.