247 ai Revenue, Valuation & Funding (2023)

hello everyone my guest today is pb canon he's the co-founder and chief executive officer of 247.ai a global leader in intent driven customer engagement he holds more than 30 patents issued and pending and has been featured in several books as cx thought leader in his new book the age of intent is now available on amazon pv you're ready to take us to the top yes what the hell is a guy like you doing uh wasting his time writing a book they make no money they're a lot of work and they just take time all of them are true but i think the world deserves to know how the customer service world can be fixed and uh you know there's a lot of you know wrong information floating around and i thought let me just correct it by writing a book okay good so um tell us what the company does what we do is essentially use uh artificial intelligence to automate customer service interactions right so you know the conversations you have with brands uh you know today's on-demand customer wants you know resolution right away they don't want to wait they don't have patience and artificial intelligence helps and kind of taking doing the heavy lifting yep okay good and is it pure place ass yes it is pure sass okay give me a general sense here of sweet spot describe like a sweet spot customer for you a sweet spot customer is you know a brand that has millions of consumers where it's really challenging to you know handle all the inquiries that come in through email chat messaging you know phone calls and so on and so forth so anyone who's got you know over a million customers and they have to you know in a demanding industry which is service oriented we are a perfect fit so i want to get more your back story but give me a kind of a general sense here of average right so look cook across your entire customer base on average what's going to pay kind of year one to use your technology it may on an average 250 000. okay so you're very much in enterprise sales motion yes yeah okay cool we'll get to that more later give me the back story though when you launch what year we launched the company in 2000 2000. yeah and it's evolved over a period of time so when we started the company it actually we teamed up in my background as my first company in the 90s developed chat as a customer service vehicle right and uh you know i went through the dot-com boom and then i had an opportunity to visit contact centers in all around the u.s and was just blown away by a number of people who are servicing you know the us economy so i started asking myself in this new age of digital is there a better way to do this you know uh because i what i noticed in the contact centers is chat is still being treated like a phone call right they'll say how can i help you and then you know go through the same script that they did if you were on the phone but if you think about the 800 number system it was really designed for the 80s when nothing else existed right today customers are on web on apps they're like well informed so the whole paradigm of how can i help you is kind of almost uh obsolete the new paradigm is you should already know what the customers are doing and how you know with leveraging ai in the back end in real time be able to predict what they are attempting to do right and then be you know supportive of what they are trying to do online not like trying to do the task for them which is kind of what the and you know customers love wanting to control the experience and do it themselves so and especially when you talk about 2019 uh everything is pretty much on demand right music content food name anything you know you can just click an app order and get it and the only thing that's missing and full of friction is customer service yep right so what i mean so your this was your beachhead 2000 is launch date help me understand this kind of size today right how many customers are you serving actively we're serving over 150 customers okay and the company is roughly about 300 million in revenues that's great so did you do this bootstrap or decide to raise capital uh the first round of funding was done by the two founders that's me and co-founder nags and then we did one round of funding with sequoia in 2003 so mike morris is on our board that's great so how much total in the company today oh we raised over 20 million total i lo so you're a breath of fresh air because i get so sick and tired of having folks from the valley or new york on it's like we've raised 180 million and their revenue is like 30 million i like a founder where their ar to funding ratio is like six right your your revenue is way more than what you race so the i the question then back at you is um why raise the money at all it sounds like you're on a rocket ship why couldn't you fuel this with customer revenue you know it's a good question we're actually profitable when we raise the money uh what i think in silicon valley especially is whether you like it or not uh the type of venture firm you partner with uh kind of sets up your brand right so with a thousand companies startups around and like you said now it's even more you know frustrating because there were a thousand companies who are all funded you know 100 million 200 million and 300 million so when you're competing it cannot be that you're only competing with uh you know salaries and benefits is the only thing it has to be great interesting work and that you belong to you know uh you know a venture community where you know you're treated special yeah so it's picked by uh it's like having the right producer for a movie right um so you know we viewed that as uh you know edge and talent uh and that's why you know we uh uh had uh you know we have this partnership with sequoia and it's been a great partnership by the way so i want to dive into that in a second but pv one of my numbers here is wrong right so if i take if i take 150 customers times that arp who you gave me earlier of 250 that puts you at 3 million a month you're doing more like 30 million a month so where is my math wrong you ask for a typical customer so we do have customers who spend 30 000 a month for 30 000 a year right and the 250 000 we're talking about is per year right yes the same question though not everyone spends 250 right so our average is if you do that it's about 2 million a year right that's about 200 000 a month yeah yeah i was going to say that that's exactly what i was building to right so that's how you get to where you're at now back in 2017 you put out a piece on reuters right uh rashika published it saddam that basically said you guys saw revenue crossing 400 million in fiscal year 2018. why'd you miss that we missed it because we had in a security breach um so you know we have we had to like pause and uh you know our sales pipeline essentially vanished so it took about a year to recover now we are like we you know last quarter was our best quarter in the company's history in terms of new revenue bookings so and you know what was that what was new revenue bookings growth like 10 20 30 in the quarter uh you know it's about 20 growth yeah well i mean at your scale that's pretty impressive right who are you who are you i mean i can only think of a couple other private b2b sassios with your scale of revenues right so reggie at cvent comes to mind and there's maybe only two or three others who do you talk to to brainstorm with you know uh the sequoia portfolio is a very good portfolio so we have events and other structured uh you know time and i also spend time with other sequoia partners not just mike moretz uh because they're all helping enterprise companies so you kind of like you know lean on them to get advice and inputs as to you know what goes on and i have my own network of ceos here that i spend time with so you know like you said you pick the right person for the right type of problem because some folks that i talk to are very good with people issues some are good with customer issues some are good with talent issues like what kind of talent do you hire because you know as you grow the company for every stage you need the right management team and the right people underneath uh to help scale the company and we've seen it with whether it's facebook or uber you see that you know submatures different types of leaders different types of leadership styles start coming into effect right what is your team size today how many folks um you know the companies the technology side of the company is about 800 people okay why do you say it like that is there another side of the company we also have a services business so you know one of the secret sauce of what we do is we also employ human agents to teach ai so you know we have a few thousand agents in that uh you know category as well contractors or fts uh both the combination interesting okay when you look at the kind of revenue over the past 12 months what percent was pure sas versus some kind of other consultative professional service revenue two-thirds sas when you when you do an analysis on your customer base where you have put professional services touch on them do you see significant lift in terms of net revenue retention on those customers you've put that extra touch on yeah i mean you know what happens is in that model you're delivering an actual outcome right it's not just you gave some software and walked away so without a doubt like what he said is if that service goes to solve real problems and then achieve real uh project goals then without a doubt the retention you know is very high have you broken 140 percent net revenue retention across the base what can you share where you're at right now you know about 100 about 100 okay so peel that onion back for me what's gross revenue the churn is about uh eight to ten percent okay and then expansion is the same to get a hundred why is so that's a bit of a surprise to me actually that these acvs you typically see expansion revenue being significant to the point where net revenue retention is like 120 130. why don't you have that pattern in your business very good question uh you know the customer success function you know we've actually doubled down recently so if you have a strong customer success function that's what drives what you're talking about right um so i don't think we paid that much attention in the earlier years so there's a lot more of investment in making sure every single account that we have is covered as opposed to a coverage model which was very biased towards the larger customers yeah interesting okay let's talk about growing into additional customers right so how aggressive are you being with cac will you spend the full let's say it's a 2 million year on acv will you spend the full 2 million up front to get the customer we categorize our customers into you know those who can spend over 10 million a year with us uh and then you know where you know the potential is probably a million or less and maybe less than half a million right so the we are much more aggressive in uh spending a lot more in the uh greater than 10 million right and a lot more conservative if it's less than half an hour pv that's like a no kind of answer right so if i ask on on a on a relative basis no matter the cohort are you optimizing for a 12-month payback or an 18-month payback or more aggressive uh we are paid optimizing for a 12-month payback okay and you're at that right now or you're still above that oh that's great okay good and no plans to change that you that's the sweet spot for you you can scale there i mean right now we are at that and uh you know we hired a new chief revenue officer last year so his first thing is let me go get the you know things stabilized uh we'll re-look uh these metrics as you know we want to pump up the growth level then we need to get more aggressive right yeah what was gross so 30 million are today where were you or 300 sorry where were you a year ago we were about uh the same oh because of the security breach yep yeah so let me ask you a question i mean you know a company like vista just raises 14 billion dollars they have to figure out how to deploy that money there's not a lot of companies they can buy right or that's not like around a small rounding error to them you're potentially one of them i mean why have you not sold them for like you know five six billion dollars that's a good question i think you know it's it's about what the aspirations of uh the founders and the management team is i think you know an ipo is more kind of like what the team wants to do and what i would like to do uh and you know we've built the company for the long run so it's not about you know uh get it to some stage and get out yeah yeah okay i mean obviously when you talk to brian or robert and they they hear you say we wanna i wanna ipo i don't wanna do it they're obviously gonna try and convince you of the other direction right what are some arguments that they would use to try and convince you to you know join their team because by the way you know they love companies like yours because of their ability to cross-sell your tool into other portfolio companies it's like natural built-in economics so how do they try and convince you to you know work with them i mean you know as a profitable company you know when i meet any private equity investor they're very interested like you said right because it's kind of a sweet spot size scale profitability so you know a lot of the problem solving has already been done right the question is how much value can you extract all by on your own versus teaming up with private equity right um so we believe you know uh we can extract a lot of value and then continue to serve our customers better by just being stand alone yeah would you ever do kind of the same reason you bought in mike and sukhoi would you ever do a sec you know call it a billion dollar secondary just to get vista a little piece of the thing sweeten it up or no you don't see them as strategic i mean you know we'll do it if there is a good reason right a good reason could be you know let's say we want to acquire uh someone in the space that's interesting and it's going to cost a lot of money you know let's say it's going to cost 300 400 million right so then it's a great thing to partner up with someone like vista or you know the other private equity players allow them to be part of the you know investment family and then you know grow the company together if you are a betting man not that you have any insider information or anything will we see a 300 or 400 million dollar acquisition from 247a in the next 12 months you never know [Laughter] all right very good last question on profitability mentioned you're kind of in the sweet spot problem's already solved are you talking like 20 to bottom line or more uh bottom line steady state will get to 20 we are not there yet now and then we're at about 10 okay and what will get you to 20. obviously you're not going to cut costs or cutting the bone what will get you to 20. i mean you know if you're looking for a great year of growth this year uh when we talk you know sometime this uh month next year you'll know the full story oh good so you don't hate me you're going to come back on in a year we'll have a lot of fun [Music] that means i did my job all right pb let's wrap up with the famous five number one what's your favorite business book my favorite business book is actually uh what's the tom peters book that came out in the 90s um crossing the chasm jeffrey moore i like that book i really like that book i also like the uh you know the innovators right so it's a it's a very interesting book um yeah those are all good classics number two is there a ceo you're following or studying uh i admire about jeff bezos and mark benioff number three what's your favorite online tool for building your company favorite online tool for building your company favorite online tool for building the company um you know we we use uh you know messaging a lot internally right so currently we use slack to collaborate globally so it's a good tool pv number four how many hours i sleep to get every night i get about seven and a half hours and situation married single kids uh i'm married and i have three kids three kids and how old are you i'm 52. 50 and what's your social security number i'm just kidding last question what do you wish your 20 year old self knew uh you know it's all about uh you know having the courage to you know um you know i i always think that i delay decisions uh you know and when it comes to people having the courage to execute faster on people and move on when you know uh you've reached a scale of growth and they're not supporting the business anymore guys 24 7 ai north of 300 million dollars in ar flat year over year because they dealt with cyber security kind of a breach issue but again well on track now to drive growth uh they are profitable only 20 million dollars raised to date which is obviously great taking 10 free cash from the bottom line helping to grow that 20 monthly in terms of profitability here shortly 10 churn uh annually on a gross revenue basis but 10 expansion for 100 net uh spending up to call it 12 months of first year contract value to get the customer in the first place as they look to scale with our team of 800 again in the chat and customer experience space pb thanks for taking us to the top thanks