How Appknox Hit $1.7M ARR with 76 Enterprise Customers on a Single $750K Round (Interview with CEO Harshit Agarwal)

Introduction and What Appknox Does

Nathan Latka

00:00Hey folks, my guest today is Harshit Agarwal. He's a co founder and CEO of appknox and is also a tech enthusiast. He's a serial entrepreneur and is also part of several startup communities. His several years of startup and tech experience set the way for him to co found the company in 2013. The company focuses on being the world's most powerful plug and play mobile app security testing solution used by enterprises around the world. Harshit, you ready

00:22to take us to the top?

Harshit Agarwal

00:24>> Yep. Okay. Thanks a lot.

Nathan Latka

00:27So when you say mobile app security testing, is this literally a mobile app that does security testing or enterprises use this to test security of their mobile apps?

Harshit Agarwal

00:35>> Yep. So it's later. Enterprises, companies use our platform to secure their apps on regular basis.

Pricing Model and Average Contract Value

Nathan Latka

00:41I see. And so I guess help me understand, I guess pricing model, what are they paying on average month to use your technology?

Harshit Agarwal

00:48>> Yeah. So it depends on per app. Majorly we target enterprises that have got upwards of ten, twenty or even 100 of mobile apps. And for them the majority of challenges that every app is going out for releases and the release cycle is reducing nowadays to even a week and with that kind of release cycle it becomes difficult to test every app and with that big enterprise they cannot let it go without security testing. That's where we

01:14>> step in, we automate, we speed it up, we make sure that it can be part of their normal development life cycle and the app can go secure.

Nathan Latka

01:23Well, makes tons of sense. But so I guess give me an average or a sweet spot. So between 10 and a 100 mobile apps, what's the average customer pay you per month to manage whatever the average is? 50 apps, 30 apps, whatever?

Harshit Agarwal

01:35>> Average is 20 ish.

Nathan Latka

01:3720,000?

Harshit Agarwal

01:38>> Yeah.

01:39>> No. So yeah. Per per customer, it's roughly around $20,000 but when I said 10 to 100, I mean number of apps. So there are enterprises who have got upwards of 100 apps. I'm talking about Fortune 500 companies who have got multiple brands, internal, external apps. Then there are some of the companies who are very much focused on single vertical. For them it would range from five to 10 apps. So pricing for us varies for these companies

02:04>> starting from 7 to $8,000 can go up to $50,000

Nathan Latka

02:08Per year, per month?

Harshit Agarwal

02:10>> Per year.

Nathan Latka

02:11Per year. Got it. So starting point is sort of $7 to $8,000 a month, but your biggest customers will pay, you know, or sorry, dollars 7 to 8,000 per year and your biggest customers might pay what over a 100,000 a year if they have hundreds of apps? Yeah. Okay. Is that accurate? Do you have customers paying more than a $100,000 a year?

Biggest Customer: Unilever and 600 Apps

Harshit Agarwal

02:26>> Yeah. We have a customer who's paying us upwards of $250,000 a year.

Nathan Latka

02:30Wow. Can I don't obviously don't mention who they are, but can you share how many apps they manage on your platform?

Harshit Agarwal

02:36>> 600 mobile apps.

Nathan Latka

02:37Ah, okay. And is this like can you sort of describe who they are without naming them? Is it sort of like a restaurant brand with like a bunch of local apps?

Harshit Agarwal

02:45>> It's it's an FMCG, world's biggest FMCG brand.

Nathan Latka

02:49What is that?

Harshit Agarwal

02:51>> Unilever, I can name it. So they have offers of 600 mobile apps that that is spread across the globe, and they have applications focused on region specific and different places.

Company Timeline and Product Launch

Nathan Latka

03:03That's very interesting. Okay. Put this up on a timeline for me. When did you launch the business? What year?

Harshit Agarwal

03:09>> So we started in 2014. Our product was launched in 2016. It took us almost two years to build our product and bring it up to a speed where customers could use it and we have been in business since 2016.

Pre-Seed Raise and Funding History

Nathan Latka

03:26So two years to build the MVP pre revenue you've got to pay yourself somehow. You have a bunch in savings or did you raise a bunch of capital or how'd you fund your growth?

Harshit Agarwal

03:35>> We raised capital. We had raised our initial round end of 2014 itself. We had raised $750,000 a pre seed round from Singapore based venture capital and that's the only round we have raised. Post that I think we have been revenue positive. We have been growing on revenue.

Nathan Latka

03:54Oh, what's going on there, YouTube? Good to see you guys. Now imagine this, you love watching these interviews with SaaS founders. But imagine if we took all of the valuation data out from over 2,807 interviews I've done manually saves you a lot of time. Well, we've done this, we've built it into the beautiful interface inside of Founderpath. Check this out. I'll show you how you can access this in a second. But you log in, you connect

04:17your Stripe account, you see your valuation real time, you can see what it changed over the past eighty eight days and even set goals for valuation this year. Now the secret evaluation is there's many different ways to value a SaaS business. So the reason you're gonna see three or four different valuations inside of your Founderpath dashboard, this is all free by the way, is because depending on who's doing the buying of your SaaS company, you're gonna

04:41get a different valuation. A VC is gonna pay a different valuation, Private equity firm is different. If you're gonna do a minority sale, that's different. And if you sell the whole business, that's a different valuation. You can see all those when I hover over here. Right? So the teal is what a VC would pay. Yellow is what private equity and red is if you sold the whole thing outright. Now what's cool about this is this is

05:03not built off random data. Again, you guys hear these interviews on YouTube. All these datas are built from real time valuation data points founder share with us on the show. So traction 1,200,000 seed round 3.7 raise. They sold 22% of their business. Go in here and filter by the event. Maybe you only wanna see companies that have sold the whole business. Well, here are a bunch that have been acquired the valuation and the multiple. Maybe you're

05:29going out right now and you're raising your seed round. We'll go in here and look at all this recent seed deals that went down, what they raised, what valuation they raised at and what percent that they sold. There's never been a larger dataset of SaaS valuations than what you can get now inside of Founderpath. And we're thrilled to bring it to you. All right. We're gonna go back to the YouTube video here in a second. But

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06:17into the interview. So you haven't raised since then?

Harshit Agarwal

06:20>> No. Yeah.

Nathan Latka

06:21That's awesome. Most folks in their pre seed round are selling 20% of the business. So what valuation did you raise the 750,000 at?

Harshit Agarwal

06:29>> Roughly around 4.3 mil valuation. That was roughly around the similar age.

Nathan Latka

06:34Pre money or post money?

Harshit Agarwal

06:36>> Post money.

Nathan Latka

06:37Post money. Okay. So something like sort of a 3,500,000 pre something like that. Yeah. Interesting. And looking back, would you have done the same thing again? Was that a fair amount, a fair valuation?

Harshit Agarwal

06:48>> I personally feel that at that time it was not really really required for us to raise funds. We could have delayed it a little further and raised that better valuation overall because majorly I think we had to test our MVP and all of that we could have done it a lot cheaper and lot earlier basis. I think that is the learning we had over a longer period. After two years also once we released the product it

07:15>> was not really focused on right customer segment and that whole thing happened after 2018 when we hit the roadblock where we didn't have funds we were about to shut out and we had to go back to a drawing board and go and go and understand everything again. So from that whole learning experience if I would have done it again I would have not raised funding that early. I would probably have raised a little later when I

07:36>> had clarity on what metrics I could grow on with that fund how could I use it and get the maximum ROI?

Near-Shutdown in 2018 and Pivot

Nathan Latka

07:42Well, tell me what happened in 2018. How low did the bank account get?

Harshit Agarwal

07:47>> We only had a one month runway.

Nathan Latka

07:49How much money was that though?

Harshit Agarwal

07:51>> That was roughly around $30,000 in a bank account. And we had a team of roughly around 22 members and we were clueless on what we should do. We just went to our blackboard. We had account receivables of around one to two months again, that's not in the bank. So next month, don't know how we'll pay salary.

Nathan Latka

08:12What was revenue in 2018? Do you remember?

Harshit Agarwal

08:14>> We're roughly around $220,000.

Nathan Latka

08:18220,000? Yeah. Per year?

Harshit Agarwal

08:21>> Per year.

Nathan Latka

08:22Okay. Got it. So doing about $19.18 $19,000 a month in MRR. Yeah. Interesting.

Harshit Agarwal

08:28>> So overall so so so the good point was that we had paying customers who were paying us roughly around that $18,000. So the next good thing same thing we did was we just had to relook at the team and just have team members who are very very critical and we bought down our cost to $17 to $18,000. From there we have grown organically, have made sure that we don't we are overall not revenue negative sorry the cost negative.

08:54>> Overall it's on positive side whatever we are doing and slowly we have grown. Now we have a decent runway plus everything sorted. Things are real good. We are investing more than what we should. But all from the revenue. So things have turned.

Paying Customers and Current ARR

Nathan Latka

09:10So how many paying customers today?

Harshit Agarwal

09:13>> So we have roughly 76 paying customers today.

Nathan Latka

09:16Okay. Okay. And I mean, I multiply that times sort of like a $10,000 ACV average? You're doing about $780,000 a year right now on runway?

Harshit Agarwal

09:25>> No. So we are doing a lot more than that. So we currently at 1,700,000.

Nathan Latka

09:31Oh, great. In ARR?

Harshit Agarwal

09:33>> In ARR. And I think we are growing at two weeks year on year since last three years. So we are focusing on the similar growth pattern.

Nathan Latka

09:43Well, sorry, just to be clear, Harshit. So if you're doing 1,700,000 in ARR today, means you're doing about 140,000 in monthly recurring revenue. What was your monthly recurring revenue about one year ago?

Harshit Agarwal

09:54>> You were roughly at around 65 ish.

Nathan Latka

09:58Wow. Okay.

Harshit Agarwal

09:59>> Yeah. But yeah.

Nathan Latka

10:00This is great. And and you didn't raise capital double year over year. Right?

Harshit Agarwal

10:05>> Yeah. We have not raised That's great.

Retention, NRR, and Enterprise Focus

Nathan Latka

10:07So so how did you I mean, what did you do in 2018 that that set yourself up to now be growing so fast without requiring more capital?

Harshit Agarwal

10:15>> I think we started focusing on lot of right metrics back then. One of the key thing that we were doing earlier was that we're releasing product features and all without understanding what really customers want. One of the key differentiator in that was that we were not really defined our ICP and all also that well. So we focus on creating the ICP first if I go back on 2018. We started focusing on enterprises before that we were

10:40>> focusing on SMBs, smaller companies, any new company that used to come out we used to start focusing on them. But the issue was that these companies again are fighting their own struggle. They don't want to invest in security so early. So it's not something that was scalable for us. When we started focusing on enterprises, it was not a leaky bucket. Retention has never been a problem for us since then.

Nathan Latka

11:02What is retention? What's net dollar retention today?

Harshit Agarwal

11:05>> So we are at roughly around 98% retention.

Nathan Latka

11:09That's gross or net? Does that include expansion revenue?

Harshit Agarwal

11:12>> No, does not. So our NRR, not net dollar retention is upwards of 100. We are roughly at 103%.

11:19Oh, great.

11:19>> Net dollar retention. So overall I think enterprises was one of the key move that changed that we did from SMB or startup focus to enterprise followed by we started when it comes to product development and all it was more led from customers feedback and all focusing on the enterprises what value they would get from it. The other thing that we changed was definitely on investing on marketing and all. We are very very like you can say

11:51>> miser in initial days but now we have started investing in lot of places. But one of the good thing that we were doing since day zero was we used to write a lot of blogs. So we always had that SEO traffic. So we leveraged on that SEO traffic and made sure that we retargeted to enterprises, right content specific to enterprises and that led to a lot of these Fortune 500 companies also signing up on our website.

12:14>> Till today one of our major lead gen source is inbound followed by other paid marketing channels that we have.

Marketing Spend and Customer Acquisition Cost

Nathan Latka

12:22I love this. Okay. So how much did you spend on paid marketing last month?

Harshit Agarwal

12:26>> Roughly around $4,000

Nathan Latka

12:28And is this on like Facebook, LinkedIn, Google? Where do you spend it?

Harshit Agarwal

12:31>> Google and LinkedIn.

Nathan Latka

12:34Okay. And so you obviously know it sounds like, what is your customer acquisition cost? You know, to get a new $10,000 a year customer, what do you pay?

Harshit Agarwal

12:42>> Roughly $7,000 is our CAC.

CAC Payback and Contract Structure

Nathan Latka

12:44Okay. Interesting. So you still have what what do you guys consider your payback period to be right now? How many months?

Harshit Agarwal

12:50>> So it's roughly around eight to nine months, but most of our engagements itself are for one year. These are annual engagements paid upfront or paid on quarterly basis. So we that that that is ideally on on good side for us that, okay, customers pay us in advance and we have that covered.

Nathan Latka

13:07And do you include sales reps commission in that 7,000 CAC?

Harshit Agarwal

13:11>> Yeah. We do.

Sales Team Structure and Quota

Nathan Latka

13:12Okay. So how many sales reps today carry a quota on the team?

Harshit Agarwal

13:15>> So there are roughly six sales rep, but we have a split. We have channel plus direct. So direct is a small team of three members, channel is another four members.

Nathan Latka

13:24Did all of them have quota though?

Harshit Agarwal

13:27>> Yeah. All of them have quota.

Nathan Latka

13:29Okay. So ignoring the channel, right, the four that are direct, how did I mean, hiring your first four sales reps is not easy. Right? What did you set their quota at when they started?

Harshit Agarwal

13:39>> Initially, when we hire someone, we generally set a quota roughly around 50 to $60,000 a quarter. Again it's on quarterly basis we set their quotas and as they move forward it increases to 150 to $180,000 which also they are able to achieve over like it takes around one to two quarters for them to come up to speed. And

Nathan Latka

14:01so just to be clear, a starting sales rep is expected to close in their first year about two hundred and fifty thousand dollars of new ARR, 50,000 a quarter.

14:11Wait, Yeah. Hold on, I did that. That's too many. 50,000 a quarter will be 200,000 a year. And your goal is to scale them up in one to two months to the point where they can close 150 or 200,000 per quarter in new ARR.

Harshit Agarwal

14:23>> Yep.

Nathan Latka

14:24Interesting. What are what are the challenges with that? I mean, you're doing this right now with your four sales reps. Are they all hitting that quota or what's what are the challenges?

Harshit Agarwal

14:34>> Definitely not all are hitting the quotas because it's not very outbound driven as I mentioned majority of the leads are inbound driven. So

14:44>> sales rep also are not really doing that and we are trying to open other channels of lead gen. So lead the top of the funnel is always a problem. I think they're not getting enough leads that they can try. The second challenge that I found is our platform is very very technical. So at times they have those issues of understanding how like what exactly to interact or tell to the end customer so that he gets convinced.

15:09>> So I think I've seen that it takes around two to three quarters for anybody to get 100% clarity on what exactly the customer is looking forward to. So that is the second challenge that we have faced in this particular. So these are two challenges that we see. Answering your second question on how many of them are really hitting. So I think roughly around 50% of the reps are able to hit their quotas. Rest 50 are Two

15:38>> or three. Right? So but still they are able to achieve roughly around 60 to 70% of the quotas. Below 50 is unacceptable if we get that then we really look at it and try to understand or probably look for replacement. Yeah, we have seen at least 60 to 70% of quota is hit by them.

Total Team Breakdown

Nathan Latka

15:59Understood. And Harshit, how big is your total team? How many total full time employees?

Harshit Agarwal

16:02>> So we are roughly 42 member team.

Nathan Latka

16:0540?

Harshit Agarwal

16:06>> Two.

16:07>> Oh, 42. 42.

Nathan Latka

16:08Okay. And how many of those are engineers?

Harshit Agarwal

16:11>> Engineers are roughly around 11.

Nathan Latka

16:14So heavy engineering. So 11 engineers, six quota carrying reps, that's only 17 of the 42. What's everybody else do?

Harshit Agarwal

16:22>> We have a separate security team that is another nine member team. So our engineering ideally is a 20 member team if you include security in it and we are a security focused company and marketing is another five member team and rest is customer support and so product team has got three members in it and customer success and support has got around four members in it.

Nathan Latka

16:46Got it. You have notes, you were prepared, you're ready to go, right?

Harshit Agarwal

16:50>> Yeah, I have my notes.

Profitability and Future Fundraising Plans

Nathan Latka

16:51I love it. Love it. I'm like, how's he know all this so quickly? He took all these notes. It's great. Okay. I love this story. You raised a little early. You had to go through PIV in 2018. Now you're growing really fast. It sounds like you're pro how much do you profit every month?

Harshit Agarwal

17:06>> So overall, our gross margin is roughly around $70,000 while our operating profit is roughly around $10,000 We have invested in last three months heavily on the growth. I think we have gone from roughly around 28 members to 14 last four months itself. So we are going heavily and I think we'll be upwards of 50 members by end of this quarter. So we have we had missed it a little ahead of time with the new members joining

17:34>> in. I think we'll be overall operationally negative overall But I think that the difference is comparatively is not very high that we need to worry about.

Nathan Latka

17:46And Harshit, will you stay? Are you planning to raise more capital or you plan to stay sort of bootstrapped moving forward?

Harshit Agarwal

17:51>> That is something that we're still evaluating but ideally I think in

17:59>> our kind of vertical we need to add. So the challenge is in upselling and for that we need to add more different product layers and for that I think we might have to relook at raising funds because with current model it will take its own time and I think we cannot afford to lose time if we are looking at adding more verticals to a product. So fundraising is one of the things which can be either in-depth

18:27>> or equity is something that we are still not sure on.

Famous Five and Closing

Nathan Latka

18:31Very cool. It's a heck of a story and we're out of time for today. Let's wrap up the famous five Harshit. Number one, favorite business book.

Harshit Agarwal

18:39>> Favorite business book is

Nathan Latka

18:47We'll skip that one. Number two, is there a CEO you're following or studying? Sorry? Is there a founder that you're following or studying?

Harshit Agarwal

18:56>> Yep. Yep. Think there are a lot of Indian startups that sell like Freshworks. Girish is there. He has done a brilliant job on overall growing. Apart from that, there are other founders over here. Like for example, if you have heard about iMocha, they've recently raised $14,000,000 they're also doing brilliantly. I think I speak with Amit whenever I face any struggle I just reach out to them because they've gone through what we are going through.

Nathan Latka

19:21Three, what's your favorite online tool for building appknox?

Harshit Agarwal

19:25>> Favorite online tool for building appknox?

19:32>> I think we are heavily relied on overall Google Data Studio, Google Sheets and all, but HubSpot is another thing. I think I love HubSpot the way it integrates our sales marketing. We use it for customer success support and everything. So that is one of the tools which I really love and the way they have upsell other things. We started with marketing, we moved our sales team, our customer success, product guide, everything is in HubSpot. So I

19:55>> think I really love the way they have.

Nathan Latka

19:57Number four, how many hours of sleep do get every night?

Harshit Agarwal

20:00>> Seven hours.

Nathan Latka

20:03What's your situation? Married, single, kids?

Harshit Agarwal

20:05>> I'm married, I don't have kids as well.

Nathan Latka

20:07Okay. And how old are you Harshit?

Harshit Agarwal

20:09>> I'm 32.

Nathan Latka

20:1132, last question, something you wish you knew when you were 20?

Harshit Agarwal

20:16>> Something I wish I knew. I think one of it is like I always wanted to start startup but from whatever journey we had, I think experience was something that I never valued a lot until twenty eighteen. So if I would knew that okay learning about how to do things in right way, right format by getting into a good company learn and then start would have been really really great. We did it a harder way by hitting

20:42>> those bottlenecks ourselves but in that way it could have been a lot faster and a lot easier compared to what we went through last year.

Nathan Latka

20:49Guys, there you have it, Harshit with appknox launched in 2014, they raised $750,000 at a 4,300,000 post money valuation to get going and build the MVP. They only had 30,000 left in their bank in 2018, doing about $18,000 a month in MOR with a team of 22, almost had to shut down. Then they repivoted, they got profitable, they started growing. Did $65,000 a month one year ago, now they're doing $141,000 a month in revenue, that's a

21:12$1,700,000 run rate. They profit $10,000 per month, so super healthy. They haven't raised additional capital. They've got 76 paying enterprise customers that use them to make sure all their mobile apps stay super secure, super tight, no intruders. We'll see what happens next. Harshit, thanks for taking us to the top.

Harshit Agarwal

21:29>> Thanks, Nathan. Thank you.

Nathan Latka

21:32One more thing before you go. We have a brand new show every Thursday at 1PM Central. It's called Shark Tank for SaaS. We call it deal or bust. One founder comes on, three hungry buyers, they try and do a deal live and the founder shares back end dashboards, their expenses, their revenue, ARPU CAC, LTV, you name it, they share it and the buyers try and make a deal live. It is fun to watch every Thursday 1PM

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