Founder Spotlight: Gerrit Nagelhout, CEO and Co-Founder of Aterlo Networks

Welcome to our Founder Spotlight Series interviews, where we'll share insights, experiences, and advice from some of our client founders. In this interview, we sat down with Aterlo Networks CEO and co-founder Gerrit Nagelhout to learn more about their journey creating solutions for wireless internet service providers.

Founders have numerous choices to make when building a startup, from identifying their ideal customers, to pricing their product or service correctly, to knowing when to start hiring.

These decisions can have significant impacts on a startup's journey. Hiring the wrong person can damage the company's culture. Pricing the product incorrectly can starve the company of needed revenue for growth or investment.

For the Aterlo founders, their combined 30 plus years of combined experience with global network technology pioneer Sandvine gave them the footing they needed to tackle these questions with confidence.

Well, almost all of those questions.

Founded in 2014 by Gerrit Nagelhout, Dan Siemon, and Scot Loach, Aterlo started by creating a streaming solution called NightShift for Netflix customers who lived in areas with low-quality internet service. While downloading content to watch offline is a core feature of Netflix today, that wasn't always the case. NightShift monitored what a customer was streaming on the service and would download additional episodes overnight that could be viewed later.

Today, their primary product is Preseem, a solution for wireless internet service providers (ISPs) to identify and solve network issues that can help lower support costs and improve the subscriber experience.

Looking back at his road to entrepreneurship, Nagelhout said he was looking for a new challenge after a successful career at Sandvine. Both Sandvine and Aterlo are part of a long history of startups and founders who trace their start to one of Waterloo's early success stories—PixStream.

Aterlo CEO and co-founder Gerrit Nagelhout had just returned from living in Jerusalem on an assignment for Sandvine when he realized he needed a new challenge.

"After 12 years of being at a company, it was time for me to try something different. I looked for other people that were interested in doing this too."

He approached Siemon and Loach, who said they were thinking the same thing. It was then that Nagelhout said he saw things lining up. For Nagelhout, it was a chance to take some time off and focus on learning everything he could about building a startup.

The founders were also spending time brainstorming product ideas—which led to the creation of NightShift. As Siemon and Loach focused on the engineering research for the concept, Nagelhout started the process of understanding the market, customers, and competitive landscape.

"I did customer calls, research, all kinds of stuff. Around June 2014, we felt like the idea had enough legs. We had different customers in different potential market segments that expressed an interest in doing this—we needed to start building this thing."

Siemon and Loach left Sandvine in August 2014 and the three founders incorporated in September to start building NightShift.

As their small team started work on NightShift, they applied and were accepted to the Google For Entrepreneurs program and the Communitech Rev accelerator. As experienced engineers, Nagelhout said those programs taught them sales and marketing. After finishing Communitech Rev, Nagelhout applied to the Accelerator Program here in October 2015.

Nagelhout said the Accelerator Centre gave them a physical space for a reasonable price to work together. While Siemon and Loach focused on the engineering side, Nagelhout took it upon himself to not do any coding.

"I wanted to do everything else. That meant learning a lot about the sales side with help from mentors including Kevin Hood. We felt we had a lot of engineering depth among us already. It was the sales and marketing side that we needed the most help with," Nagelhout said.

The help paid off in March 2016 when Aterlo announced a $1 million investment round from MaRS Investment Accelerator Fund, the Business Development Bank of Canada, and Sandvine.

"The Accelerator Centre and Communitech had all kinds of resources to help with pitching and getting ready for investors. We used a lot of those things as well because I had never done this before," Nagelhout said.

Even with the funding, the team knew they needed to generate revenue quickly. Nagelhout attended trade shows and conferences to showcase NightShift's benefits but returned without making significant inroads.

"We tried to go directly to large satellite companies. We tried niche markets like mining camps and cruise ships and yachts and things like that—anywhere that people might be willing to pay money for this technology—but we ran into one problem after the other."

NightShift was dependent on external technology, including device encryption and the tech inside Netflix. By the end of 2016, Nagelhout said they had reached a fork in the road for the product. The manufacturers of the devices that would connect to NightShift started adding encryption that NightShift couldn't support. Then Netflix did something they said they would never do—offer offline support for subscribers to download content.

Nagelhout said he was glad that all of these issues seemed to happen at once.

"When those things hit at the same time, I knew that this was not going to happen. I called a board meeting with our investors and said we had two options. We can either shut the company down or we can try something else."

While the founders didn't know what that something else would be, they did see that they enjoyed the process of coming up with an idea and trying to make it work.

"We were still friends and we enjoyed working with each other. We wouldn't mind trying it again. The board asked us if we wanted to try and we said yes," Nagelhout said.

To figure out what that next would be, Nagelhout made a list of criteria that they needed to pass for new products to consider building it. From their time building NightShift, they knew that B2C wasn't right for them, and they needed an enterprise product. They also knew that they wanted to sell directly to their customers.

"We had tried various reseller channels and dealer channels, but they didn't give us the direct feedback we needed."

Lastly, Nagelhout said they needed a product they could develop quickly and start generating revenue.

"We had about nine months of runway left and we couldn't raise any more at that point. We had been to a trade show for the wireless ISPs and made a bunch of contacts there and felt it was a great market for us to go after. We really felt we understood that customer segment from past experience and we learned more a lot about their problems as we tried to talk to them about NightShift."

The Aterlo team found an underserviced need in the ISP market where newer technologies such as network telemetry could help ISPs deliver better service for their subscribers. Those technologies were brought together into their second product, Preseem, which launched in 2017.

They signed their first beta customer in March 2017 and had revenue coming in by May.

"By that May, we had a couple of customers. Then in June, we started getting more demo requests. It turned out somebody put a post on a Facebook group that was used by ISPs and that helped a lot," Nagelhout said.

But by September, the founders were at the end of their runway with not enough revenue coming in. Nagelhout said they sat down to make a difficult call.

"We had to make a decision whether to put our own money in or not—and we ended up putting in our money to keep the lights on for another year. The reason we chose that, even though the revenue was very modest, was that Preseem ticked off all those criteria we had written down."

That October, the Aterlo team attended the Wireless Internet Service Providers Association (WISPA) trade show, WISPAPALOOZA. The teamNagelhout went to the closest Best Buy near the convention centre and, with a limited budget, bought the most inexpensive TV he could find.

"We did demos on a small table with that TV and our laptop—but our paying customers were there and they started spreading the word. We did over 120 demos at that show and afterward, sales came in and our revenue curve went up."

By the end of 2018, Aterlo reached $50,000 MRR—making them a profitable company of five employees.

"That felt good. And then one of our investors said this is fantastic, you should raise now. We said you know what, no. This feels really good. We're going to grow organically for a while."

Growing organically means hiring when they need to, not just because they can. Nagelhout said growing organically has given the team the time to hire the right people and grow their culture to benefit Aterlo for the long term. The steady leadership and sales have enabled them to buy out some of their early investors as they grow the business.

"The beauty of the market we're in is that it's large enough for us to do very well in what we call customer funding. It really lets us focus on the long term. We don't need to worry about hitting short term targets, or runway, or anything like that. But if we were to raise $10 million, you'd go hire a bunch of people, you start burning money like crazy with the hope that you would make that up again."

The stability of their business model also gives Aterlo the freedom to do something Nagelhout said is critical to their long-term success—focus on their customers.

"We aren't in this to make a quick buck and sell the company. We have an incredibly loyal customer base. Being able to focus on that and keep solving their problems is a super pleasant way to operate."

# # #

Want to take your startup to the next level? Learn more about AC:Incubate, our flagship program supports entrepreneurs from the early ideation stage all the way to global operations today.