Algolia Revenue, Valuation & Funding (2024)

hello everybody my guest today is nicholas dussen he's a co-founder and ceo of coming out algolia the leading search and discovery api for websites and mobile applications launched in 2012 the company announced is used by over 5 800 companies around the world before algolia nicus spent over 12 years working on information retrieval at exilad and thales all right nicholas are you ready to take us to the top yes thank you for probably me nathan you bet so i'm hoping a lot of my audience has maybe seen your actually search tool kind of across some of their favorite websites but for those that have not used you before tell us what you do yeah so we basically help developers of the website apps like medium twitch under armor and users and powers their internal search so if you search on any of these companies you basically you are basically using us behind the scene that's great and what's the business model is it kind of a pure play sas company or how do you monetize your places it's only in the cloud so it's only subscription based we are going to have customers from like long tail of developers that are going to self-serve on the service we start at 35 dollars a month and we are going also to have up to bigger enterprises uh that can use us but we're speaking more of like upper six-figure deals per year there yeah um nicholas is going to be a tough question because your customers are so spread out but just because we are short on time if i forced you into an average what would you say the average customer pays you per month uh it doesn't make a lot of sense to be to look at the average uh long tail it's pretty small i don't even have a quick number there are you more focused on long tail or enterprise enterprise is eighty percent of our business today revenue let's say that five percent of our customers are going to bring about eighty percent of the revenue yeah there you go okay so let me ask that let me ask the question in your enterprise cohort i mean are we talking you know a thousand bucks a year ten thousand a million per year generally speaking what's acv there uh we're close to six figures uh in the range like 80 to 100k okay and the reason i ask that is i want to understand you know that's obviously a high enough price point where you can afford to put some touch on the sale do you have an internal sales team built out we do we do so we have like two go to market uh one is the self-serve side long tail of developers one is a really more higher touch sales driven very typical sas model where the team that is split in different segments smb mid-market enterprise with all the supporting functions from sales development to sdrs pdrs they are helping helping create more pipeline for the market and what's the ratio of how many sdrs responsible for how many aes oh that's a good question i'm not leading the cells it's about uh if i group strs and pdr together we're speaking about one uh between one and uh one four one one four two one sdr for supporting leads and demos for two aes or bdrs yes interesting and how do you i won't go too much deeper here but i am curious do you set them like they have to like cold email a certain number per month or per day or set up a number of demos like what what metric do you build around those roles uh when you look at the bottom line here it's more pipeline generated uh when we look at the rs and ptrs that's the most important for us so we also look at number of meetings i mean there is a lot of metrics we're looking at but at the end of the day what matters is how much taller dollars we can close and get in the bank so pipeline is the the the metric i looking at mostly on my side and what did you say total team size what out add everyone together uh you mean sales or like everybody on your on everyone in the company uh 300 okay 300 uh yeah over five offices today okay great so so spread out san francis headquarters central headquarters we started in paris who have a big team in paris all our engineering is there uh and what sales office is in london new york and atlanta oh very good okay and then you mentioned or in the in the intro you launched in 2012 so over the over the past six months how many logos have you grown too many paying customers uh we're about 6 000 customers right now oh great uh exactly the last six months i couldn't tell you uh but uh but yet six thousand today we're pretty much doubling over here sorry pretty much what uh dublin oh doubling every year that's great and then you said about five percent of those are actually enterprise so about 300 enterprise and the rest kind of long tail yeah that makes that good approximation yeah that makes good sense and then i mean i can kind of back into this right if you said kind of your enterprise acvs are getting close to that six figure mark that would put you somewhere around kind of 2.5 million today and that's just 80 percent of your revenue that's monthly is that generally accurate uh we're always looking at uh at the early thing uh yes that's pretty much the white ballpark we crossed the so we crossed the 20 million ar uh milestone last year and and pretty like we are going to close close to double this year so we're going to be over 40 minutes this year that's great um do you need these last 30 days to really get over the 40 hump or you're already over 40. uh we're we always want to get more so we always need the last few days to get even more yeah and as you know the holidays are a great forcing function to close your pipeline uh yeah i think the end of the quarter is the most important closing function for the the team uh because that's so important i mean you know that works for sales of course uh they have uh like of the comp that is the commission and so of course uh they have the motivation the right motivation to close as much as they can before the end of the quarter that's right um talk me through uh funding history i think you have raised how much total have you raised 74 million and why'd you decide i mean obviously once you're on that path you have to kind of stay on that path but why why couldn't you bootstrap this oh we could uh just wouldn't be the same company today for us it's more about like achieving the highest potential i mean the company has a high potential it would be such a shame not to give it our best and in our case in our market enforcement uh raising money to be able to go faster yeah and um you know one of the things that can limit growth sometimes is churn um how do you think about churn today and how do you keep it low uh it's a lot around uh making sure our we are delivering the right product to our customers and making them successful and so it's as we as we scaled we started to add customer success for the market deals for example but if i look back at the early days our users are developers really were implemented by developers and so we decided very early not to have any support team for example because we wanted to make sure everyone in the company was user facing and really felt the need and the paint of the customers so support was done by engineers so our customers when they had an issue they would directly reach out to our engineers and that was an expectation we said from today from day one with engineers which means that the product got way better i think that it would have if we had a super team video well nicholas let me role play with you right now nicholas i you just hired me as a senior engineer you're paying me like 180 grand in san franciso and you want me to answer support tickets i don't want to answer support tickets uh actually yes you should no i hate the role placing but no i think that's very important to have engineers who really care about the product they built and about the customers they serve you know actually it's such a satisfying feeling when uh your customers has an issue and you're able to solve and help them and see and receive that thanks that uh like really heartfelt uh thanks from the customers i think that's really a good thing it's all a matter of proportion you don't want to spend your days at doing that but spending half a day two two half days a month uh and throwing support is actually a great is that how you structure it each engineer has to spend basically one whole day per month on support yes and uh and as we speak we're actually creating a support team now dedicated support team uh mostly to be able to do 24 7 support and have a higher quality of support and response time that's right but we still ask our engineers to participate to that yeah so maybe that will is going to reduce a little but still going to be there and how effective has this been so what what actually is your churn per year today so we don't communicate about the churn but let's say that the most important here is really to have a net negative churn which we have you know for sas businesses you always try to look at both the dollar churn and the dollar upgrades from existing customers so what you want is to retain uh to have a increase in the retention of yeah expansion expansion more than makes up for your loss customers at the end of the year oh it's very good yes exactly which means that part of the when you start a year that the magical the beauty of the sas business you start the year you already know that you are going to have more revenue that new year than the year before without even acquiring any new customers nicholas what do you when you put those performance together what do you assume if so i'm going to make this up if someone starts paying you 10 grand per year today what do what can you predict in year two they're going to increase that contract value too typically so it's going to depend on the segment industry and zone but basically you can expect them to pay about 30 more the next year okay so about 30 expansion annually and more importantly than the number is how you're doing that so you know folks that grow very quickly set up very specific pricing axes to give their sales team leverage to drive upsells what pricing axes are most effective for you uh so there's like two aspects here there is the the usage itself uh users using more uh like growing by themselves so they have more things to search for they have more users that are querying the service and the second axis is more than features value based features and you want to add personalization in your search then that's a new product a new module a new add-on that you'd like that you'll have to pay for okay so so it it's literally um more more website impressions doing more searches on under armour so usage uh or whatever your customers are uh and also uh i mean is there a seat model or an additional kind of product add-on modules as well or no no there is a there is no seat model so it's mostly usage and then we are going to have plans and some features are including only in specific plans and so you need to go to the next plans to have access to them i see um and since you didn't want to talk about churn numbers specifically totally okay with that in terms of net retention with that 30 expansion does that more than make up for your gross revenue churn so you're above 100 yeah they were above 100 percent like a largely above 100 percent attention uh it's uh it's between like i mean the region is going to end up between 120 125 depending up like uh depending of the year depending on the segment but that's basically it so no it's a it's a very uh it's a healthy business yeah it's great hey look if you have 100 120 net retention annually and again thirty percent that is expansion that means you you're only losing five five ten percent per year right yeah well it's uh all of that is like ballpark yeah of course of course all right so uh 300 folks san fran remote last questions here about growth so in order to get let's let's use a ten thousand dollar acv as an example my purpose of this question is to get in your head in terms of how aggressive you're being so to get a new ten thousand dollar acv account what are you willing to spend on cac that's a good question uh at the end of the day you want to spend well less it's so difficult to answer the question because it depends on the segment uh we go from self-serve where the cap is basically nothing like close to zero uh to enterprise where the car could be in the in the like at least five years number like if you factor all the cost of the people the sales the marketing and everything so it can go pretty high so it's all over the place at the end of the day what you want is a great ratio where your car is way lower than your tv your first-year acv uh first-year cv and ltv of course well of course ltv definitely ltv but i mean how aggressive though how aggressive are you being in year one i mean are you getting paid back in three months typically or 10 months or 12 years no work close at one year but yes like the the uh the payback uh like how long does it take to pay it back if you stay under one year it's very easy yep that's great makes a lot of sense nicholas last question here before we wrap up any plans to raise additional capital here as the year closes out uh of course but not this year and you want to wait till next year yeah it's going to be like probably next year sometime next year will here is a new run and why is that timing right for you uh it's uh it's a combination between uh when will we need the cash uh the potential of course and the potential goal so of course you never want to rise when you have your back on the wall and uh don't have any more money in the bank because you cannot fully control you don't have any leverage here you have to raise and then it's question of potential if we believe we can we are building the plan for next year and uh of course we want to continue to go very fast and the faster you grow the more cash you need uh to make that possible yeah so it's really uh looking at the these two factors and making and find your right timing and if you do raise next year about how much do you think you'd probably end up raising i prefer not to communicate that because that's actually still under discussion to see exactly how much we would need but let's say that at any point of time my goal is to have an option uh to become profitable uh i would never want to yeah have my back on the wall so how much does that mean it's basically a basically a mass problem excellent question it's a helpful answer let's wrap up the famous five number one what's your favorite business book um radical calendar number two is there a ceo you're following or studying right now um i'm looking a little more at rid of man today what's it called read of man yeah uh lincoln uh a lot of his uh actually postcast uh masters of scale yeah it's kind of like we're in that stage with the company uh number three what billing tool do you guys use bidding tool uh we built our internal bidding system on top of stride okay got it uh number four how many hours of sleep to get every night uh about seven okay and what's your situation married single kids married three kids oh wow ken how are you uh i'm 42 42 last question what do you wish your 20 year old self knew 20 years old um optimize for learnings instead of anything else guys optimize for learning founded algolia back in 2012 they did call it 20 million bucks an ar last year more than doubled this year with 40 million bucks in sight serving over 6 000 customers ranging from a long tail and then embedded in that about 300 enterprise customers those five percent of our customers make up more than 80 of their revenue so definitely a model there they're doubling down on with a sales team you know inside sales team prospecting things like that 300 people based between san fran and four other offices in terms of payback you know willing to spend up to 12 months of acv to acquire the customer obviously that actual number different you know is different by cohort uh in terms of retention over 120 net revenue retention annually coming a lot of that's coming from a 30 expansion year over year on that same cohort so really healthy growth thank you so much nicholas for taking us to the top thank you