Appsheet Revenue, Valuation & Funding (2019)

hello everyone my guest today is praveen shashadri he has worked in academia cornell industry at microsoft and sql server and founded two startups mobile database startup acquired by microsoft and now his current company app sheet all right praveen you ready to take us to the top uh yeah hi yeah absolutely good all right tell us about app sheet what's the company do and how do you guys make money actually is a platform for a business user to build applications the business user doesn't write code so it's a no code app platform and the idea is that a user can automate pretty much uh any of their processes it's meant for business internal use it's not about consumer apps um and uh we make money in that it's a it's a premium platform you start out for free build your applications make sure they work um and then um you pay for the number of users in your company who actually um utilize the apps that get built okay so it's a sas model it's a sas model if you have a team of 10 people you buy 10 licenses and you build as many apps as you want for them that's great so um let's go one level up from a seat model so the average company that uses you on average what are they paying you per month to use the technology um overall we have about 5700 paying accounts each of them is some company either tiny or large and um the average our poo for a year is about 750 okay got it so you're you're in the volume game they're paying cut 62-ish dollars a month or about again you can always say multiply that by annually and you're just getting volume but uh averages are misleading because really you have different classes of users of course there's a large number of small business users and there are pros low and then you get these um fortune 10 company companies right and they start out small but they expand and uh they could be paying us um you know a largest customer basis close to 100 000 a year yeah yeah i mean but we can take an average like again 60 bucks a month or the acv just gave me a 750 multiplied by 5700 paying i mean it would put you what is that like it's like 350 grand a month in revenue yeah we're actually about just about 4.5 a.r.r as of today so about 375 mrr yeah no that's great congrats on the growth where were you exactly a year ago do you remember um so about doubled in the year i think at the start of 2019 we were at 3 million are now we're about four and a half okay so you think about a year ago now we're sort of june 10th now a year ago we were at about um [Music] uh just above two okay in the err okay got it so over the past 12 months you went from doing about 150 grand a month up to about 350 grand a month we about doubled so we were maybe about 160 170 and we doubled yeah that's great where did most the doubling come from expanding seats in the historical base or adding brand new customers all together um actually three things uh we add new customers every month but uh the smaller customers tend to have higher churn rates it's just the nature of small business stuff um expansion's always been really important but the expansion can happen through self-serve or they can expand into what we now call business and subscription so we're able to upsell them the bigger companies or people doing more important stuff they want greater stability or scale um we effectively have created higher priced um versions of the product of platform versions that we cannot sell them to so some of the growth is coming from upselling them and some of it's coming from just the growth in the customer base yeah peel back that onion for me so gross revenue churn past 12 months is what girls revenue churn is about about five percent monthly uh five percent monthly yeah so there's a you should think of small business customers having about a two year lifespan to your lifetime well just be clear that five percent is that revenue churn yes revenue trend includes uh a user it includes accounts that suit that leave and people who contract revenue that contracts exactly yeah i guess why i'm saying that is the reason we use the words revenue churn is because it actually doesn't matter uh the it has basically revenue trend covers up arpu deltas right a customer sure number would would would uh not be a good measurement because your arpu is so different right so 60 gross revenue churn across your entire base past 12 months and what's expansion been on that same cohort um our net expansion is greater than our uh than our church so we have net um negative churn with our customer base so every cohort in the last 24 months um is still above 100 of where it started yeah so that would mean over the custom the group that signed up exactly 12 months ago you've turned 60 of the revenue but that same core you've expanded by more than 60 percent so net revenue retention is north of 100 that's right another little sort of two um subtleties is that small business customers often will expand and contract so uh i'll give you an example we have these guys who build apps in minnesota they do um they tar the roads they expand during the summer and then they contract in the winter so we see churn and we see expansion of the same guys yep so it's a little misleading sometimes no no no it's it's i mean it's actually it makes a great measurement right it's kind of seasonality so it's fine they kind of bounce like that um have you done all this bootstrap proving or have you raised capital uh we raised capital we um just closed a series around two months ago which was 15 million but we've been kind of break even just before that so our platform's been live four and a half years and we had raised about three and a half million over that period of time uh but it reached a sort of a break even business making 3 billion are with having raised that money and we still have money in the bank so it was sort of a good state um to be in when we went and raised this series a round so now we're sort of expanding aggressively so 18.5 million total raised three and a half before then 15 just recently founded in 2014 and now you're obviously going to move away from breakeven you're going to move into burning to drive growth um let's be careful what really say obviously yes to some extent um but we want to be cautious about that in other words it's not growth at all costs but we're going to grow sustainably what's the team size today how many people teams about 35 people today okay let's start here we were 17 we'll be 35 right now but um as of june and uh by the end of the summer we should probably be about 55.60 so it's aggressive growth time and how are you i mean how aggressive are you being on cac so what are you willing to spend to get a new 750 a month customer fully weighted sorry 750 a year um we don't spend on the on the sense of customer the the guys who come in and use the product card be acquired organically only um and actually so far almost all acquisition's been organic only we spend nothing on marketing um we're prepared to spend on the business customer business customer deal size about 15 000 for the year that's sort of an entry point for a business customer um and we're happily willing to spend 15 000 to acquire one of them because their lifetime is at least three years yeah just to be clear people i'm asking fully weighted acquisition costs so even in your no touch self-serve cohorts those customers have to find you somehow you have an employee dedicated to the blog or a channel partnership or something like that right so i mean do you measure fully weighted on those folks or no you can it's a rough measure you know we had a couple of marketing folks creating content and doing some messaging stuff so you know you throw in a couple of marketing salaries and it's it's it's neither here or there it's not really a good way to measure cac to be honest well i mean it can uncover a model that scales right if you know that you can target certain long tail keywords and you got to hire four people to do it you know it's gonna bring x amount of customers you plow more money into that and scale if it's a 12 month payback yeah i i mean i share a couple of things our organic acquisition model really is based on just two things it's not based in search because search volume it's not based on hitting keywords because search volume for what we do is pretty low um one thing that's been successful is that we had add-ons to google sheets and forms the google ecosystem is a wonderful system where you can acquire if you're building sas productivity products it's been a wonderful system to have add-ons they're very open to having third parties uh work with their customers so that's been very very productive for us over the years the second thing is yes a lot of our volume comes to search but the search term is always actually it's about 50 of our volume so we've invested a lot in having very happy customers and that drives word of mouth which is really you you get the indicator of that when your search terms include your brand uh very good talk to me about um when you raise this capital how many months of burn are you planning for are you planning for kind of 12-month burn 24-month burn what do you look for people think you know this may sound crazy but i plan never to raise money again i think that's the only sensible way when you raise money you should plan never to raise it again and never run out of it um but come on that's a little bit of baloney i mean once you raise what you've raised you are on a vc funded track whether you like it or not from your investors i don't care how friendly they are you're on it you're on a ticking time bomb um i think that's your conventional wisdom however um it's actually a really bad idea for your investors if you're gonna run out of money all you really have to do is make sure you fuel and extract all the growth you can get praveen why is it not a good thing for investors to want you to run out of money of course they want you to run out of money because then you have to come back to them and take more delusion they want you to succeed no they don't actually they want you to either succeed or fail way faster once you at vc money and they actually don't want you to succeed they want you to swing for the fences and either go big or go home quick there's truth to what you say about swinging for the fences but it's really important and all companies at our stage now like dj stage here's what we're hearing from our investors uh we're hearing hey there's some economic uncertainty ahead what you really have to make sure of is you don't run out of money you have to make sure that you're conservative enough to make sure the company succeeds because we made a big batch on here so it's not this um i mean the popular folklore is yeah you got to burn the money like there's no tomorrow and vcs don't care if you run out of money they are really invested in your succeeding and becoming a great big company see i just think i just think i just think that's a total lie i think that's a story that techcrunch sells you i think it's a complete and total lie because of the way venture funds are structured relative to carrying power laws they don't care if you succeed or failure the worst thing you can do with that money is have it sit in your bank account that's actually the biggest loss for a vc oh that's true but it's also a big loss if you flame out and uh your company goes under no because they know that the nine times that happens the tenth one is gonna be the billion dollar exit they actually want you to either run out quickly or scale very quickly but it has to be one it can't be a slow growth thing yeah i i'm not arguing for slow growth that's kind of really what i'm trying to say is you have to make sure every dollar you spend is a sensible dollar that multiplies and sometimes companies go through money at random things a good example would be hey how much did your arr grow and we don't care what it costs to grow it that's not the mold in which at least our investors are it's not the mode where any of the serious investors are right now because they actually want to they care about how much it costs to get the growth again i'm agreeing with you i'm simply saying you are now on a timeline once you have raised especially your amount of capital you can't just sit on that capital for a decade and build a lifestyle business you either have to sell yeah yeah but yeah it that's not what i'm saying at all what i'm really saying is we're revenue generating we increased our revenue 10 in the last month so as long as we keep driving our revenue and driving our growth that's all that matters and so there's sort of an assumption that at some point you need uh there's if there's more opportunity that we're unable to tap because we don't have capital of course we'll raise capital well exactly that's my point though praveen is you just said you're building this to never raise capital again my point is i'm telling you if you spend the money and you keep growing 10 month over month you're gonna spend the money and then your vc's are gonna go let's keep funding growth and they're gonna they're gonna basically be pushing you at board meetings to put let them put more money in the company or raise more capital to drive growth and it's possible right now the set of things that we've got to do to drive growth we're funded for and we're doing fine on that and actually uh that's sort of the difference um that's the difference when you're already a company breaking even and growing month of the month because then you take the money you say what are all the things i already learned about how to drive revenue here and go feed those you're basically going to go fuel the engines that are working right you don't waste your money on engines that are purely speculative well and you've how do you think you're about how do you figure out new channels to see if they work you have to test them which means spending money that you don't know what the outcome is going to be yeah yeah but tests should be cheap tests are cheap um but you throw you the bulk of your money and channels that you know work and that's the sensible thing for any entrepreneur yeah but the problem is some of the media's channels have diminishing returns and you have to find new growth channels otherwise every entrepreneur would be a billion dollar company yeah so all i'm really saying is we're nowhere near that stage just yet because this market is really large and our channels are working fine so when you ask me what are plans right now plans are to pour this money into the channels that are working great and these channels are actually returning great on investment i i i agree with you i guess what all i'm saying is it's a red flag to me when a founder comes on who's raised 18 million in revenue on 4 million in arr so you are your revenue your total funding is more than 4x your total current revenue i imagine you're way over funded right now and hopefully you can get closer to one to one in terms of investing that in growth and getting your ar up to 18 million to equal but my point is you saying that you're never going to raise capital again after you've already raised 18. that is a in my opinion it's a complete it is a story i've never seen play out i've never i have not had any company on that has raised that amount of money that has not gone and raised more capital or failed okay well there's good examples that have succeeded right tableau is a good example uh how much happens how much bootstrapped they raised no capital right so for example tableau raise capital and they actually harness that capital excellently for their growth so there's all kinds of models i just think uh you maybe sort of jump into the conclusion that there's sort of there's one size fits all at all points in time right how much did how much how much did tableau raise um tableau raised i think um they raised about you probably can look it up um they raised from nea maybe seven eight million something and they went pretty far with that yeah i mean i don't know the right ball park there right you're right i mean that is a good story there is about 15 million bucks right and they did that i said i guess what i'm saying is like that is the rarity right most of these companies once you're on a vc track most founders are lying to themselves if they think that they're just going to build a lifestyle business and suck off dividends and never have to raise again i mean you you are really on a yeah nathan i don't mean to argue with you right but no this isn't an argument by the way i'm just saying this is the trend i'm saying yeah it's um there's a there's quite a difference between a company that's growing fast aggressive ambitious and so on uh you can do that and not be a lifestyle business lifestyle implies that you just you know you're taking it easy um you can be really ambitious taking over the world but that does not mean you have to actually be ultra risky on how you handle your you know on how to handle your finances that's that's not there is no one-to-one correlation there i'm arguing that it's black or white though in terms of if you choose the funded path you have chosen a very different path than staying bootstrapped and never having to raise capital again of course but if you choose a funded path the most important thing is how do you grow aggressively and succeed and the path to growing aggressively and succeeding doesn't necessarily mean burn your money one way the other in 18 months and go have to raise money again that's one path for certain markets it made sense for uber it doesn't necessarily make sense for us yeah i i know praveen that's my point it doesn't make sense for you but your vcs that raised lp from capital from lps and it's a 10-month 10-year time frame they are on a timeline so it might seem friendly now you might be dating sleeping together everything feels great but they're on a timeline even if it's not good for you that's my point so yeah i mean that's i know where you're coming from so just i just want to make sure that your what you're framing black and white is the way most people think about this problem um but i find most of the successful entrepreneurs um and most of the successful vcs have a little more nuanced view of it i mean i'd i'd encourage you to point to other examples the average c if you look at past 24 sas ipos the average founders owned less than four percent of their company because you have to raise that amount of capital to go that big right so like i mean you can point to tableau at lasting was totally bootstrapped i'm fine with i'm just saying once you're on venture path that's the trend and it's because the incentives between lps and vc funds are not aligned with you necessarily where you want to do smart growth not growth at all costs yeah um right now just where the economy is and general sort of unease about where the economy is at least in the short term there is that more of an alignment because many vcs are telling their companies to be a little more cautious about how they spend just at the moment so there's a little bit of at least these external factors are driving some more alignment there yeah no no i i agree with you because they want to see you go through a downturn with enough cash cushion but those lps that put money into nea three years ago and nea saying it's a 10-year term every year that goes by is more pressure to generate irr right which means more pressure on you whether you want it or not yep so we'll see what happens but again i think you're going by the way i think you're doing a great business i mean this is it's a wonderful story um so i'm not hitting you i'm just it's an incentive structure that's fair yeah all right let's wrap up with the famous five number one what's your favorite business book my favorite business book um there's a book about genghis khan and it's about how he structured his army and i'd call that a business book because it's an amazing thing back in 1300 whatever it was he broke his arm into groups of ten people you know people talk about now amazon and that pizza box size team and he had this concept back then he's got a number of concepts about how you organize large groups of people to be successful are you talking about the the mongol art of war it's not art of war it's basically this biography of genghis khan i don't remember the it came out a few years ago about four years ago you know there was a book that came out called the mongol art of war which was focused on genghis khan i'm wondering if you're referencing that or a different bio i think it was a different bio but i don't remember the title okay well i'll look it up and put in the show notes number two is there a ceo you're following or studying oh i follow satya nadella at microsoft i have worked in his teams um but i'm amazed at what he's doing and it's really it's it's really an amazing uh um thing to see number three is their favorite online tool you have for building your company i like google hangout good answer it's how we do have every conversation number four how many hours of sleep to get every night uh what six to seven and situation married single kids married two kids but they're both off to college oh that's good and how old are you i'm 49. last question uh praveen what do you wish your 20 year old self knew oh that i wish i knew that most things fix themselves with time just patience and not having to start trying to solve every problem in the moment that would have been useful that is right guys appsheet.com a no code app platform 5700 customers paying on average 60 caught 65 bucks per month doing 360 grand per month in revenue right now up from 170 grand about a year ago so 100 year-over-year growth again now doing over 4.2 4.3 million bucks in ar churning 60 that's net revenue return and gross revenue turn annually but sixty percent expansion so net revenue retention over a hundred percent praveen totally willing to spend up to the first 12 months of lifetime value on user acquisition just to raise another round of funding 18.5 million in the company so far as he now doubles down on growth ravine thank you for taking us to the top hey nathan great meeting you and thanks for talking