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FurtherEd TV - Fridays @ 10:00am on Ustream

  1. Startups & Innovators: David Perla, Founder of Pangea3
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    • Today, we welcome David Perla to FurtherEd, former general counsel at Monster and founder of Pangea3, a legal outsourcing company
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    • David Perla: Through combination of hard work and opportunity, anything can happen.
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    • Perla was prototypical NYC corporate lawyer. Worked for five years in corporate law and then for the parent company of Monster.com. Hired lawyers and non-lawyers to do some of his work for him in this position.
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    • Sat down with college roommate at juncture in their 30s. Discussed whether they wanted to be in-house lawyers for the rest of their lives.
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    • Started to focus on India, global outsourcing in particular. Could legal work be outsourced to India, and thus transform the legal industry?
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    • David Perla: "I know law, HR and I know technology. I have to believe that with technology the way it is today, I could outsource my entire department to India for half the cost."
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    • Career and age factored into the thought processes of Perla and founders when trying to decide whether to start Pangea3.
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    • Did outreach to in-house clients and law colleagues to determine whether product would be marketable, profitable and viable. Would they actually pay for the service?
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    • Big breaking point: reached critical mass of lawyers who said they would pay for the product, if it was built well and thoughtfully.
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    • Cliff Notes version of business plan: The Golden Triangle. Did three things simultaneously:
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    • 1. Targeted clients that they recruited to sign up as pilot clients 2. Found investors who invested assuming they had clients 3. Went to India and found team that would be ready to to work on projects once the company began.
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    • Stone Soup analogy: soldiers have no food and tell everyone in town they are making stone soup. Everyone contributes one vegetable or food item, and by the end of the day, the soldiers have enough ingredients to make a hearty soup.
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    • Similarly, every piece of the Golden Triangle gave a portion so that there was ultimately a thriving, purposeful business (soup) in place. India team had faith in investment and client base, clients had faith in team and investment and investors believed claims of clients and team.
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    • Concluded that investors were most focused on team in India. Investors understood market and believed clients could be convinced based on David and his associates' backgrounds.
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    • Once office in India was established, they were able to secure a few early angel investors.
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    • Legal outsourcing encompasses a wide range of activities and services. Pangea3 only provides front-end legal services, sold only to in-house lawyers and law firms. To perform their services for the non-lawyer market would be effectively practicing law without a license.
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    • Pangea 3 does what lawyers already do: draft contracts, review contracts, summarize contracts, manage contract process, review documents related to litigation, draft patents, review patent claims etc.
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    • Are attorneys required to notify their clients that they are outsourcing some of their contract/document work through Pangea3, and thus pass along the savings?
      1. Typically, Pangea3 works with the legal department in large pharmaceutical and financial companies, so this is not necessarily the case.
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    • The smallest client at Pangea3 pays about $250,000 for their services.
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    • Time to first 5 million dollars in sales: the end of Year 3. This group consisted entirely of direct clients--all relationships were personal or individually cultivated.
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    • What are the margins at Pangea3's business?
      1. Gross margins: 70%, Net margins-20/30%
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    • In 2007, Pangea3 serviced over 100 clients, but no one client was a dominant part of the investments i.e. loss of a single client would not have been fatal. This was seen as a huge selling point and positive by investors.
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    • Growing from 1 million to 5 million is major threshold for most companies, breaking 5 million in revenue is major barrier for many companies as well. How did Pangea3 do it?
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    • A combination of psychology, adding larger clients and creating culture in business of resolute belief and no doubts.
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    • Raised 7 million in venture investments the same year they broke 5 million in sales (2007).
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    • Fallout from financial meltdown actually helped Pangea3, as efficiency was placed at a premium.
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    • Always spoke to venture capitalists and included them in discussions. Recommended as resources when growing a business, even if they are not directly contributing money, as they are frequently thought leaders.
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    • Venture community stays in touch, asks question to learn, which is somewhat different than straight business practice.
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    • What were your impressions of the capital raising stages of Pangea3?
      1. The first few 100,000 dollars you raise in the first round of funding is the hardest money to earn, and one of the hardest things he had ever done. After the first round, it becomes a little easier. There was enough interest, once Pangea3 was established, that later rounds were well forecasted so they were not as difficult or as stressful.
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    • Why the choice of co-CEOs?
      1. Because they were building a global business where the clients were in the US and Europe but all of the delivery and operations was in India, they felt strongly they needed equal business leaders in both areas.
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    • FurtherEd has a robust company culture. What is the culture of Pangea3?
      1. 10 commandments of Pangea 3 culture: entrepreneurial, ethical, urgent, transparent, aggressive, outspoken, disruptive, creative, client-driven and meritocratic.
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    • The company culture headers of Pangea3 fall into two categories: either reflections of co-founder's personalities or consciously chosen goals for company employees.
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    • Felt that company culture, especially merit, would make company attractive in Indian business arena.
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    • On the other side of the coin, aggressiveness and transparency are personality traits of David P. and Sanjay (the co-founders). It's important for other entrepreneurs not to copy the traits of their leaders. It needs to come naturally.
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    • Business environment in India is not incredibly transparent, thus transparency of Pangea3 was and is innovative.
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    • How did believing you were the best legal outsourcing company from day one, well before you sold Pangea3 for 100 million dollars as a top legal outsourcing company, help your growth?
      1. Wanted to lead the industry, not just be part of it. To be an entrepreneur, need to tell everyone that your goals are in fact the current truth, and wait for reality to catch up.
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    • Ultimate goal was to sell the business or go public. No fear when company was sold, because this was always in business plan.
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    • David S. always feels unaccomplished, as if there's always something to do, to grow.
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    • David P. feels similarly. If you feel you have accomplished everything you can, it is time to relinquish control. Constant aspiration is key.
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    • Final piece of advice for any business owner trying to grow or start their own business: "Never confuse a clear vision with a straight line." Envisioning the end of the road is always much simpler than the actual complexity of getting to that pinnacle.
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    • Hasta luego!
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