Awareness Technologies Revenue, Valuation & Funding (2023)

hello everyone my guest today is brad miller he's a serial entrepreneur who successfully bought built and sold several companies with extreme capital efficiency most recently grew awareness technology's revenue 400 organically and through acquisition with a 30 37 ebitda margin with investors making a 9x roi previous that he built silver sky from startup to 60 million revenue with 10 million ebitda after recapping the goldman sachs at 150 million bucks it was later sold to bae for 250 million dollars this guy knows what he's doing brad you ready to take this off sure shoot tease people first we already interviewed you several times as you are building awareness technologies but quickly talk about the capital infrastructure behind awareness tech so did it start off as a search fund how did you get the deal done um so uh after i did the deal with goldman at my previous company silver sky i was we had been buying companies and at some point they didn't want to keep buying companies because they felt like we were going to become viewed as a consolidator rather than an organic grower and so there were companies that i wanted to continue buying and they didn't want to so i asked for permission to buy the ones that i was looking at uh that they passed on and so i left i left silver sky and then bought awareness technologies with another financial partner and that's kind of how it happened that's great so when you structure that initial deal with that first financial partner were they they have oh equity in the company or was it pure debt no they were we were 50 50 equity partners we each put up 2.75 million we you know we put up five and a half million uh together uh all that money went to founders uh there was no it wasn't money in the company the uh the founders i may i may have told you this went on to take that money and start a billion dollar company called quest nutrition i don't know if you're a fan of quest bars yeah and uh um but the business when i bought it was doing you know sort of 5 million losing a million and even though it was structured as a sas cloud delivery model they were only charging a one-time fee though providing service and cloud forever and so the first thing we did was change that to a subscription uh uh and so the business went from five million losing a million to seven million making a million because the extra two million dollars of immediate revenue was pure profit um and uh and then we just built we just kept going from there what year was that that was 2010. and so take us through the journey you get a little bit incremental revenue the first 12 months uh what happened in 2020 2019 2020 uh well uh we bought a few businesses along the way uh we kind of were leveraging profits uh both to pay dividends as well as to um as well as to use ebitda for bank debt purposes to acquire a few companies and so we bought um we were both in the in the consumer business and the b2b business we bought a consumer business and a b2b business each for one for three million one for three and a half million uh anyway uh the business grew from seven million well i guess five to seven and then uh and then uh and then to 20 last year we did 20 million making six uh and so that was big it was a big year um there was a lot of growth in our b2b business uh due to the covid um effect you know we uh we focus on providing employers with uh pc activity monitoring activity of their employees so our what time do they log in what are they doing when they log in you know how do i get comfortable that all the things that i used to see with my eyes when people came to the office and i no longer see how do i how do i recreate that line of sight information i used to have and um and so we had a you know the b2b business had a very big year last year and um and so it was a good time to sell and so we did i want to talk more about timing but just to sum that up 5.5 million to start of your own cash another 3 million and another 3 and a half million so about 11 million in the business total but enterprise value in terms actual revenue was called 20 25 million i mean this is extreme capital efficiency what enables you to spot like these sorts of things where there's not a bunch of other competition i imagine that people look at this and go we could do we should do the same thing and then you can't buy it because there's so much competition how did you find these gems well you know uh one of the the competitor that we bought sometimes just being at the right place right time but the the last competitor that we bought that pushed us over the edge to 20 million i looked at buying a year before i bought awareness and that when i looked at buying it i couldn't afford it it was doing 15 million of revenue making six the two vcs bought it for 45 million and they and the business went from doing 15 million making six to doing seven million losing three uh when we bought it so it's why we bought it for such a good deal and but when i saw them i was like this is back in 2008 2009 i was like wow i don't know many internet security businesses that are growing 20 doing 15 million making 40 percent ebitda margins um and when i saw awareness it was you know they were the avis to the you know to that company's hurts if you will and i was like geez i'll you know and so uh it was a two race it was a two horse market at that time between the two of them uh where uh where the number one company was three times the size but you could see how you could you know take up some of that market share and um and you know i felt if we could just even grow it to 10 million we'd go from um you know making a million uh once we you know once we added the you know the you know the recurring revenue to um you know to making four or five million and if you could buy a business for five and a half million and make five million you know those are good those are good numbers um little did we know along the way that company would have such problems uh and um and so but if you have an in with the vcs that bought it for 45 million where you they were happy to take the loss and let you take it even though you win well we um my co-investor co-invested with one of those vcs in another deal so we had a we had an initial entree into that conversation um they were for sale for two years they didn't contact us uh you know they viewed us as the small guy nipping at their heels and not able to afford them um and their business was doing better before they you know what at the beginning of their sales process but it started to really struggle in the last year um and uh they kept thinking it was going to turn around turn around turn around and it didn't and and so we did a deal literally in three weeks because they weren't going to meet payroll they were burning cash fast and not willing to do anything about it and they kept hoping for some big deal to close and it didn't then they needed to get something done and the vcs had had guaranteed a two million dollar emergency line of credit that was due and you know at the same time and they didn't want to make good on it so we were able to basically buy it by taking over that two million dollar line of credit and then pay the investment banker fees and lawyer fees that they couldn't afford to pay because there was no cash changing hands yeah and so so fast forward to you know pre-pre-deal um did you guys still each on 50 and then how much debt was on the books um so yeah so uh no i i had a 10 option thing that i had exercised um we had also taken out 12 and a half million of dividends along the way oh wow um and so we were both already in the money if you will on our original investment uh the two acquisitions weren't financed with equity they were financed with debt so we didn't put more money into the business we were only taking money out and so yeah at the end of the day you know we had um maybe uh six or seven million well we also had four or five million of cash on the balance sheet when we did the deal so net debt we probably had a couple million yep yeah we were very very we were very cash flow generative as i said we made six million that last year and so yeah we probably had uh uh we probably started the year with nine million of debt we probably paid off you know a million and or so and but we had five million of cash on the on the books from that year yeah pure profit zone so what was the sale sale price uh well you can sort of backwards and i'm not sure i'm allowed exactly to say but like i said the combination of the dividends and the price was just shy of 50 of just shy 15 million so is this what you'll do next you'll go sort of to run the same playbook i mean you basically your cash exposure was about 2.7 million it sounds like total when you guys bought the initial thing and then the rest was creativity good deal-making and a lot of patience is that what you'll do next i hope so that's it every deal has its own you know has it's it's not always the same playbook for each deal right it depends on the market dynamics the growth trajectory the competitive you know you don't always control those things um and so uh but i generally like acquiring you know there's always things you can fix in a business um sometimes it's as basic as actually actually making a subscription business you know which wasn't too hard to do but wasn't being done for some reason you know not not not every fix is that obvious and that easy um but but you know we look for things that are doing well in spite of some you know some mistakes you know founders are sometimes really smart at some things but not so good at other things and so we try to find things that they've done really well but still see issues that they've you know you know where they left me you know meet on the bone unwittingly because they're just not experts and everything yeah which one could you use in the first three million dollar acquisition i want to get a sense of what banks are friendly in terms of letting entrepreneurs like you use debt to do acquisitions uh so that was webster bank this was before the days of sas capital and lighter capital and people like you now um you know that didn't really exist at the time uh but yeah webster uh bank which is a local connecticut bank um i they were my bank in my previous company too and and so they you know they were funding is that a less deal is that a less i mean most entrepreneurs are forced by their vcs to go bank with like goldman or svb but you really can't have a personal relationship there like you have with this local bank right isn't that an advantage svb wouldn't touch us because we didn't have like a traditional vc in the deal they would rather fund a company that's losing money with a brand name vc then you know they don't do cash flow lending you know it's like well but we actually have profits you know they're like well we don't care about those we you know you don't have uh profits profit what are profits so you know we we were getting basic kind of you know three times three and a half times leverage kind of uh standard you know that deepita stuff and we had the ebitda to do it and you know listen if that business was doing a million in in profits you could go raise 3x that in debt to fund the deal 3 yeah what million the capital to like under 10 interest oh uh yeah it was typically you know um libor plus you know nothing i mean it was like typical around five percent you know now um but you have to pay back the principal right you know and you have to make pretty hefty principal repayments um brad how do i get how do i get on your next deal how can i put up some cash and then let you do your thing with it well i i'd love to work with you i i was looking at that very same thing i would love to work with you yeah i'm not as rich as you but i'd put up i put up 200 300 400 grand and let you do your thing and learn yeah i mean i i i'd give you a huge carry because you're a really smart knowledgeable guy about this business so i i wouldn't need your capital i'd be happy to you know i'd be happy to work with you just for your for your knowledge know-how etc well i love profits i love founders with profits you love operating companies with profits there seems like a win-win here brad miller we'll see what happens thanks for taking us to the top and i'm serious if you want to talk hit me up on slack i am happy to i am happy to figure something out with you one more thing before you go we have a brand new show every thursday at 1 pm central it's called shark tank for sas 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 1 pm central additionally remember these recorded founder interviews go live we release them here on youtube 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hello everybody my guest today is brad miller he runs awareness technologies and which provides endpoint security solutions for both home and businesses with over 50 employees in offices in westport connecticut and bristol uk ati both develops and acquires market leading solutions trusted by millions of parents and thousands of businesses brad you ready to take us to the top sure all right so just to be clear it sounds like you're selling it to very different groups here it seems like parents are buying this and businesses how does it work correct you got it so we have uh underlying the same technology are multiple uses and so the the technology that we have allows us to record and control what an end user is doing on an endpoint and then it sends that data to a secure website that can be viewed so whether it's an employee an employer wanting to monitor employee user activity for security reasons because they have confidential data and uh we have uh plenty of people working remotely and it's really hard to know who's taking what data with them where um this is a tool that employers can use to protect their confidential where are the data it's like in the office or it's on their computer or their phones or what correct it's on it would be on their computers typically and so i as an employee have access to all sorts of um confidential data like client lists as an example and if i take that information that's on my laptop and i'm and i'm home and the employer has no visibility into what i'm doing with that information then in theory when i go to find my next job chances are i will pull off a client list and all the information about what they have how much they pay when they're up for renewal uh and that would be devastating to a company uh if their employees when they left to go to a competitor were you know we're able to have easy access to now is your business model a pure play sas model people pay monthly for this uh on the consumer side they can that they can pay monthly quarterly or annually and then on the corporate side uh they typically pay annually but there is a monthly option as well but they're both they're both it's it's a sas play they're both recurring revenue losses yes you got it interesting okay and then and then so how many give me i mean give me a general sense here let's just focus on b2b for now what's an average business going to pay you per month to use this technology sure so it's it's user-based uh so on a on a on an employer side depending and it's volume pricing related but let's just say on average it's between 70 and 100 a year um per per employee and and that's what i'm trying to get so is how big are these teams that are signing up with you are they typically two three person startups or 10 000 person banks yes all right okay what what's just because we have a limited amount of time what's this what would you say sweet spot is are we talking maybe you know a grand a month for 10 employees or sure so that's probably a very good uh a very good uh average okay i did that actually i did that math on because you said one employee is a hundred bucks for the year not a month correct 100 yes 100 a year okay so someone's paying you a thousand bucks a month that would that would be a team a year i'm sorry okay okay okay okay so a thousand a year or uh again obviously we can divide by 12 to get that monthly that's good okay good so um walk me through kind of the the timeline here where did you launch the company what year uh well the company was started in 2006 seven uh i bought it in 2010 and i've been running it since then okay walk me through that you know there's a lot of people that would argue it's actually smarter to buy companies than it is to start them from scratch you're doing it what'd you see in the tool that made you want to buy it in 2010 uh well the technology i thought was really good so on the i was more at the time interested in the corporate space than the consumer space my prior background was i had run and built a company that was focused on providing security to community banks and the exclusive focus of uh of that was focused on external security stopping the unknown bad guy from breaking into a bank's network and there was very little done at the time on internal security and while most of the problems that exist are created by external people most of the problems that cause a lot of damage are done by internal people if that makes any sense and so yeah i felt it was the next uh frontier and how do you know they were for sale i mean explain me how you reached out uh well i was running my previous business and they were for sale they had hired an investment bank and they had reached out to me in my in my capacity as ceo of another business that was known to buy other security companies and uh it was just around the time i was making a transition i had previously sold my previous business and had a two-year transition agreement so i was just it was at the perfect time when i was leaving anyway and uh and so i decided to buy it for my you know for myself and how did they i mean was it a sas company at that point um interestingly enough it was a sas technology but not a sas business model and so so they offered so the at the the technology was provided in a hosted way where the clients logged into a secure website to see data um but they sold it as a one-time license interesting that's really interesting so you obviously saw opportunity there um what'd you so what did you value the company at back in 2010 that would have been eight years ago um uh well at the time we we probably uh you know valued at about 10 million it was it was doing a about four or five million in revenue okay and and did you just do a very simple kind of ar math or did you look at churn as well i guess there wasn't really churn because they only paid one time exactly yeah exactly there was no concept of churn uh and um and so you know the business the technology was quite good but the business model was uh under optimized uh as i think you've recognized and so we saw an opportunity to change that model which we did and uh very you know very quickly and now renewals makes up you know you know 50 of the revenue um and uh and so the business has grown you know a bit and has become um you know and has become quite uh profitable as well that's great okay so so you take over kind of in 2010 you buy it for say 10 million bucks using cash from your prior exit they reached out to you when you were still at the older company and happened to just have really good timing is that all accurate yep okay okay so 2010 today how many customers have you now scaled to um well we've also bought another business i mean i'm sensing a pattern here there is a pattern um but in the in the core business uh we've um you know we're where we probably have at any one time because you know we have new customers coming on you know an old customer is dropping off um but at any one time you know we probably have a couple hundred thousand consumers you know paying us either you know monthly quarterly or annually okay who have active active licenses are those so that's obviously different than the business model i assume that's different are those 100 000 paying still 100 bucks a seat per year um so that was i was talking about the consumer that's that was the consumer side of the business which obviously has more customers uh than the corporate side the corporate side of the business probably has more like uh 5000 customers okay got it what's the i only want i want to spend the rest of time hyper focusing on one of these angles because they're very different playbooks which one is more important in terms of revenue for the business like does b2b make up more than 50 or does consumer make up more consumer makes up more though the focus is on their own focus is on corporate so we've kind of um you know we've spent the first few years maximizing the consumer side of the business there was a uh there was a a radical change since 2000 i bought it in march 2010 april i uh apple came out with the ipad consumer desales started to decline rapidly and we had to quickly backwards create technologies to work with uh mac uh blackberry at the time and blackberry died and then android and and ios so we spent those first few years trying to um uh you know trying to adjust to the changing operating landscape so what's the split today between is it what is the business the b2b revenue is that 30 40 50 of the business what percentage uh probably 75 25 consumer oh wow okay okay okay so it's obviously but the b2b is growing faster than the 75 percent that's consumer correct and it has more opportunity yeah of course of course yeah so what what's happened in the recent year or two is that the uh the technology that you know has typically been focused on you know what you said were 10 20 30 users is you know we're starting to see more and more larger companies looking to address the insider threat it was typically the it was typically only of interest to the small companies where maybe you had an owner like me you know who was hyper paranoid about you know oh my god what if my what if my employee leaves and takes the client list you know i would be in a very bad place bigger companies were less worried about that for some reason but i think they're starting to realize and so we're seeing a shift so david can i can i multiply the 5 000 b2b customers you have times a thousand bucks a year i mean that is basically a 5 million run rate business today correct and what's that growing at you over here so a year ago what was the run rate it's probably growing at 20 a year okay good so you know 5 million ar today would be what is that a 416 000 a month thing if you're growing 20 30 so a year ago you were doing what 3 30 340 a month something like that uh sure i don't have those numbers offhand but just uh but you're you're probably in the ballpark okay but just to be clear twenty to thirty percent year over year growth on the b2b side correct that's great where's most that growth coming from upselling new seats to the same customers or onboarding brand new customers all together um mostly new customers and and importantly bigger customers so it's not necessarily that the number of customers is growing um rapidly it's more that we are now focused on adding bigger customers and bigger cut you know when you're when you're used to selling 10 to 50 seats and all of a sudden you sell 2 000 seats um you know and so you may not have added a lot of new customers but you've added a lot of seats yep how many people are on the team today uh about 50. 50. and is are folks all spread out or remote or what's the deal they are fairly spread out um you know the uh you know the the core people are based here in connecticut but we do have people all over the us and all over the world for that matter that's great okay so uh you said earlier you're profitable have you raised additional capital after you purchase it to fund growth or no it's all your own capital so far it's all our own capital uh we have raised additional because we're because we are profitable we're able to raise bank debt which is maybe slightly unusual for a tech business who do you work with hercules or timia or what no we use well our local bank here in connecticut uh webster savings bank at webster bank and um uh and um how did you convince them to do that i mean these whole sas capital lighter capital hercules to me and svb they all exist because traditional banks typically want loan to people like you because there's no hard assets to loan against how did you convince your local bank to do this well so there's two reasons um that's half the reason why they don't lend to people like us the other half the reason they don't lend to people like us is because we're not profitable as a rule as an industry and so we were profitable we're very profitable we're you know we're dropping 30 plus percent to the bottom line and so to them you know they see a lot of consistent recurring profits with a high percentage of revenue and so you know those those you know lighter capital ex you know sas capital they're not focused on profitability they're just focused on taking a pc or revenue and you know and um you know and so how big was that line if you want me asking from the local bank uh it was uh four million at its peak okay interesting and how did they get to that number was it was it was it a multiple of your mrr or something no we we could have gotten more actually we were just when we bought the company in the uk uh we bought it for a little over 3 million and we already had a million of debt at the time so it was just what we needed in order to acquire uh so your initial question was that i raised additional capital and we did for the purposes of buying a company but not traditional capital you know that no i like it bank debt is a great way to go it's non-dilutive as long as there's you don't have to personally guarantee it no covenants or warrants right uh i didn't have to personally guarantee it uh there was a small very small warrant and of course there are covenants because i don't know there are a lot of banks though now that i mean lighter sas capital to me and hercules uh scale works where you can do these kinds of deals you know the four million kind of range where there's no warrants no covenants uh no personal guarantee um so that's interesting your local bank today that's great to hear um tell me more about economics on these customers so what's churn look like today on the b2b side um well we have two types of customers on the b2b side we have uh customers that are looking at uh solving a long-term problem and doing preventative maintenance if you will you know uh stopping the problem from happening in the first place and there you know the the churn is you know our retention is you know like eighty percent annually and then we have yeah and then we have customers who are looking to do a one-time investigation and so there the turn is quite high you know our retention is probably more like more like 40 or 50 percent uh on those on those customers because they've done what they had to do and you know they're they're looking yeah that's not sas that's like that's i think that's a whole different model but 20 logo turn annually on your kind of your sas play with people that have intent to do it every single month um how aggressive are you being with cac so what do you what are you spending fully waited to get a new thousand dollar your customer that's a good question um and so you know our typical rule of thumb is you know we we spend a dollar to get a dollar okay so 12 month payback yeah that would have been clear that's a dollar of ar or mrr uh a dollar well most of our corporate business is arr so it turns out to be the same thing there is a little bit of mrr sprinkled in but you know but yes a dollar on on mr on on arr sorry yeah yeah spend a dollar and then it takes you a year to get that dollar back but it's a dollar and a dollar out you got it that's it that's great very cool okay good um any plans to make any acquisitions in the next call 12 months uh hopefully what kind of companies are you looking at uh well we'd be looking more at companies on the corporate side um you know we're we're happy with our consumer business and it's become quite a cash cow and so where we're looking to grow now as i said is on the is on the corporate side and so yeah and when you say cash cow by the way you said the corporate stuff is 25 percent of your revenue and that's doing 5 million ar today so we multiply by four i mean all together you're doing 20 million taking 30 ebitda to the bottom line um yeah on a run rate basis yes yeah yeah i mean it says like basically six million bucks in free cash flow annually something like that yeah that's great you're very quick with numbers hey when i do interviews like this i'm talking to short people like you i better be real i have to be real quick otherwise i miss it all right very good let's wrap up here david with the famous five number one what's your favorite business book uh first i think you mean brad by the way no oh dude wait have i been calling you the wrong thing the whole time not the wrong not the whole time just occasionally oh god okay you should correct me every single time sorry i had uh yeah that's weird you're right it is brad i had david pulled up for some reason brad i apologize yeah what's your favorite business what's your favorite business book uh i have two one uh is uh moneyball actually i know it's not traditionally viewed as a business book but it really is if you uh if you think about the principles behind it yep and the other one is is a blue ocean explosion strategy number two is there a ceo you're following or studying uh the two i like uh one just from a just a thought leadership i love listening to uh simon sinek i don't know if he's you know i'll call a ceo but the other one for uh interest is um is uh uh um elon musk recent tesla buyer and um and uh just i find uh you know i i enjoy his view on the world good number three what's your favorite online tool for building the company oh for building the company wow i didn't i didn't get that uh little qualifier um my favorite online tool for bustle since we are so um uh so pay-per-click heavily focused i would say google analytics is i spend an awful lot of time how much money do you spend every month on ppc millions okay interesting years that's oh sorry uh hundreds of thousands a month yeah millions a year yeah yeah number four how many hours of sleep to get every night i am a very um i'm a choppy sleeper so it might add up to four to six hours in in two to three hour increments and brad what's your situation married single kiddos uh married kids yeah how many kiddos two two kids and how old are you i am 55. guys it's pretty good i can get a privacy guy to review all this information brad what's your social security number last question what do you wish your 20 year old self knew my 20 year old self knew um uh a little bit of uh um [Music] you know that um you know what's what's the judgment is better or uh discretion is a better part of valor you know you don't always have to win every argument when you don't you don't have to win every battle guys you don't have to win every battle game coming from uh brad again launched his first company sorry not actually launched the company actually saw an opportunity to buy a company back in 2010 for about 10 million bucks in the security space he knew that the model of tech would work great in a sas space they weren't using a sas pricing model yet so he bought it he's now grown it to about 5 000 companies on the b2b side using it paying 80 90 bucks a month so doing about 420 grand a month in revenue that's up from call at 350 grand a month just a year ago so that business is doing 5 million bucks in terms of run rate that's 25 of the total business the other 75 is consumer security so called a 20 million dollar business overall they're also making obviously acquisitions as they scale using some bank debt to do that hugely profitable 30 percent ebitda team of 50 spread all across the country 20 logo churn annually as they look to scale spending about a dollar to get a new dollar of ar so healthy economics brad thanks for taking us to the top all right thank you sir