How Centro Reached 1,700 Customers and Nearly 700 Employees with $52.5M Raised (Interview with CEO Shawn Riegsecker)

Introduction and Company Overview

Nathan Latka

00:01Hello, everyone. My guest today is Shawn Riegsecker. He is the CEO and founder of a company called Centro. He founded the company in 2001 intent on developing the most comprehensive automated and intelligent software platform for the digital media industry. His leadership commitment to innovation and modernized approach to culture and employee happiness has led Centro to receive many accolades. He's also a member of the Young Presidents' Organization and a founding director and co chairman of Unite America.

00:23Shawn, you ready to take us to the top?

Shawn Riegsecker

00:24>> Let's do it.

Revenue Model: SaaS vs. Services Split

Nathan Latka

00:25Alright. So what's Centro doing and what's your revenue model? Are you pure play SaaS?

Shawn Riegsecker

00:31>> We actually have both. I get the question a lot of investors always ask me, what are we? Are we services? Are we software? And my message is always, look, we try to meet customers where they are. And as much as we'd love to sell a 100% software, there's a lot of customers out there who still need help, services, training, education support. So today, our business is around 50% where we do services for our customers and around

00:57>> 50% where they do it all through our through our software.

Professional Services Cohort and Churn

Nathan Latka

01:00Yeah. Let me ask you a quick question. This is gonna be hyper specific, then we'll go back to a macro level. If you split up the cohort of customers, you've put professional services on and you look at their churn data and expansion data. Gross annual churn, net revenue retention, things like that, do you see that they grossly overperform? They expand and stick at way higher rates than those that you use no professional services on?

Shawn Riegsecker

01:26>> Wait, so you're asked that real quickly. So you're saying that do the services churn faster than the self serve softwares?

Nathan Latka

01:31Well, here's what I'm actually saying. I also believe that services can be an important factor in a SaaS company, especially to drive retention of customers, essentially an onboarding fee. So my question to you is, have you split out your cohorts, those that have paid for services and onboarding versus those that have not? And do the ones that have paid for services and onboarding have a higher stick rate?

Shawn Riegsecker

01:49>> We actually... You know, at this point, we're not charging onboarding and training for services. That's actually something comes along with the contracts that we sell. So people aren't necessarily paying for it. What we do find though is that

Nathan Latka

02:01Well, wait. What... What's your service business? What's the 50% services?

Shawn Riegsecker

02:04>> It's when... So it's digital marketing services. So there's a lot of brands and a lot of clients who say, look. I don't wanna bring the platform in house. I want you guys to actually do the work for me. And so it's more like an outsourced digital marketing services business. I'm not You

Nathan Latka

02:18don't require that they that they pay the SaaS fee as well if if you do the custom professional services?

Shawn Riegsecker

02:22>> Yeah. No. There's actually a SaaS fee, then there's a service fee on top of the software fee. So in other words, we go out and we sell software. Okay? And then the software would be... Can use it all on your own. But if you need us to actually work and help inside your own instance, then we'll add a a service level on top of that. And that's helping them. It's kind of like a training wheels. Going

02:41>> from I need help to I got some team who can do it to I'm fully self serve. So we really take people through the continuum across the board.

Nathan Latka

02:49That's what I'm asking. The ones that you run it for them, pay for the software instance, but then you run it. Is the churn rate higher or lower on that cohort?

Shawn Riegsecker

02:59>> The services is lower or is a higher churn rate than the actual embedded software. And I would say the reason for that in our business is that if we're just doing services for someone, they can easily theoretically go and find another services provider. But if they have our software installed and you've to remember, our software is slightly different than ad tech software, where it's your system of record, it's your financials, it's your workflow automation, it's all

03:23>> of your client brands, supply chain management. So everything's inside of it. Once you install the software, it's very, very difficult to actually rip that out because your finances are running on top of it.

Pricing Structure: Per-Seat Plus Variable Fee

Nathan Latka

03:35What general... I mean, are we talking enterprise play here on average? What's the customer paying you? Just purely SaaS per month or per year to use your technology?

Shawn Riegsecker

03:42>> Yeah. So because we work in the marketing business and there's a trading aspect to the platform, so real time bidding, programmatic advertising, It's actually a blend. So we charge on a per seat license basis, but then we also actually have a variable pricing based upon margin, based upon what runs through the trading and real time bidding platform.

Nathan Latka

04:00Yeah. I imagine that that that revenue is... Both those terms you just said are very predictable. You can look at one customer and pretty predict them over time.

Shawn Riegsecker

04:06>> Yeah. Yeah. Absolutely. I mean, there's a lot of seasonality specifically in advertising and marketing depending upon the quarter, depending upon what's going on with brands, where it's not like a Salesforce where, theoretically, it's, you know, always on. Everybody's using it in equal parts. So for us, you know, q four is obviously the largest quarter for us every single year because it's just the way the ad market works. But but we have the ability through just a

04:28>> ton of analysis. We understand seasonality. We understand the ramp time. We understand how long it takes to get people to hit where their minimums are. So there's a lot of work that goes into it, but it's fairly predictable.

Nathan Latka

04:38So when you add Shawn that use the flat SaaS fee plus then the usage based variable fee on top of it on average, what's the customer gonna pay you per year for the tech?

Shawn Riegsecker

04:49>> Right now it's averaging somewhere in the $200,000 to $250,000

Nathan Latka

04:53Okay, so you're very much an enterprise playbook then?

Shawn Riegsecker

04:56>> Yeah, absolutely.

Team Size and Headcount Breakdown

Nathan Latka

04:57So with that in mind, let's go to your team for a second. What's your team size today? How many people?

Shawn Riegsecker

05:03>> Just shy of 700. We'll probably hit 700 next month.

Nathan Latka

05:07Okay. 700. And what portion of those folks are, you know, quota carrying commission, you know, comp kind of sales folks?

Shawn Riegsecker

05:14>> Yeah. If you look at a pie chart of the business, easiest way to think about it is we've got around 150 in r and d, you know, development. There's approximately 125 folks in sales. The services team, just for the marketing services around 200. Then we've got a customer software support team, which is around 50 folks. And then you probably throw a 100, a 150 in the various, you know, G and A, whether it's marketing or accounting,

05:40>> finance, you know, HR, things that.

Funding History and Capital Strategy

Nathan Latka

05:42Yeah, that's great. Now you mentioned investors and kind of telling them the services versus SaaS storyline. So how much have you raised to date?

Shawn Riegsecker

05:50>> 52,500,000.

Nathan Latka

05:51Okay, 52.5. Now, why did you need to raise that money to grow the company? In other words, could you have done this a little slower but kept all your equity with no raise?

Shawn Riegsecker

06:01>> You know, the funny thing is I didn't raise capital for nine years. Well, should say that I raised $2,000,000 after I bootstrapped it for five years. Raised 2,000,000 Then five years went by and that's when I raised our Series A, which was 22,500,000. And then three years went by and that's when we raised 30,000,000. So if you add in the Angel, it's actually like $55,000,000 that we raised in total. But if you look at it from

06:26>> this perspective, half of all of that money went out for acquisitions. So we haven't really needed a lot comparatively to our competition to actually build the company. I've always said there are two muscles that you can build in the company: figure out a way to be great at raising capital, or you can figure out a way to create revenue and service customers. And I've always taken the slower road and said, let's actually be great at servicing,

06:51>> let's be great at creating revenue, and let's build it intelligently. And because of that, if you add up all of the investors, it's still a very minority stake inside of the overall cap table.

Nathan Latka

07:02You would say less than 30% total?

Shawn Riegsecker

07:04>> It's actually about right on 30

Nathan Latka

07:06So I expected it was something around there. Do you have co founders or just you?

Shawn Riegsecker

07:10>> Just me.

Nathan Latka

07:11That's great. Now you just give a great timeline, but I forgot to ask you the start date. Was it 2001?

Shawn Riegsecker

07:17>> Yeah, late at the end of two thousand and one.

Acquisitions: SiteScout and Real Cities

Nathan Latka

07:19Okay, interesting. And then, so talking about funding, you said a lot of this was for actually M and A, right? So let me go into one of these for a second. So SiteScout, was that a pure play SaaS company or was it services as well?

Shawn Riegsecker

07:31>> Pure play, they didn't have a salesperson in the entire company.

Nathan Latka

07:34So was SaaS? A 100%. So that was a $40,000,000 acquisition price there. Did you, you know, there's a lot of companies today, especially private equity firms, but even bigger companies that are doing roll ups hub and spoke models where they'll go buy a company like SiteScout for... And the price will be $40,000,000. But actually, what they'll do is they'll go hook up with an SVB or CIBC or a debt provider, and their equity exposure will only

07:55be like five to 10%. Did you use any kind of debt in these deals, or did you just raise capital right off your balance sheet and then just pay that in?

Shawn Riegsecker

08:04>> So we actually set up the deal where it was cash upfront. There was a two year earn out based upon performance. They got paid a 100% of what that looked like. Then the remaining value of it came in Centro equity. Good.

Nathan Latka

08:18So you limited cash?

Shawn Riegsecker

08:19>> Debt. Yeah. We didn't bring on debt for that one.

Nathan Latka

08:22Yeah. Yeah. Okay. Good. Have you have you used it in any other acquisitions or no?

Shawn Riegsecker

08:27>> We have not used the... You know, it's an interesting... The first acquisition we did in 2008. You gotta remember, 2008 was a really weird time.

Nathan Latka

08:34This was Real Cities?

Shawn Riegsecker

08:35>> Yeah. This was Real Cities. And the way we structured that, it was not to get too deep into it. Knight Ridder had pretty much gone bankrupt. McClatchy had purchased the assets of Knight Ridder. Real Cities came along with that. It wasn't an asset that they wanted to take over or invest in. And so what we did is we worked out a deal because I didn't have any money at the time. I had raised my own capital.

08:54>> So that was actually a seller financed note in which we put a price tag on it. It's about $10,000,000, and we paid them as a percentage of our net revenue. We ended up paying it off over three years or something like that.

Nathan Latka

09:06And what was the percentage?

Shawn Riegsecker

09:10>> It was so long ago, I don't even remember.

Nathan Latka

09:11That's okay. But you basically paid it off before, what, 2012? Yeah. Yeah. That's interesting.

09:19Okay. Very good. Then There's so many creative ways

Shawn Riegsecker

09:23>> to structure things these days.

Nathan Latka

09:24That's why I ask.

Shawn Riegsecker

09:25>> You have to be creative inside of me. You got everything. You got equity, you got seller finance, you've got debt. I mean, there's so many different ways you can take it.

Nathan Latka

09:32Yeah. But you there... You have strategically chosen to do other things besides debt, which tells me you feel like you've got leverage doing other things instead of just taking a 7% kind of debt line and doing these things. I'm trying to get a better sense of why you feel that way.

Shawn Riegsecker

09:47>> I just think it's also depending upon your profile, we've never been trying to run the company to maximize profit. In order to actually bring on significant amounts of debt, you're going to have to have a higher profit profile than what we've chosen to. Mean, we've been continually trying to invest in growth every single year. And so there's also just a level of working capital you need in our business because we run approximately, call it, dollars 60,000,000

10:10>> a year through the company that we only get to keep a margin on. So...

Nathan Latka

10:15Just to be clear, Shawn, that's the ad spend through your platform, the GM.

Shawn Riegsecker

10:18>> Right, yeah. Yeah, that's right. And then if you take a look at Google and Facebook, theoretically, they wanna get paid in thirty days. Okay? Well, your client doesn't pay you for eighty days or ninety days. And so, you know, we have to... You know, we've got a huge float, you know, that we've gotta really manage.

Nathan Latka

10:34A negative... It's actually a negative float. Right? It's a reverse A negative float.

Shawn Riegsecker

10:38>> Yeah. And so that's why we need so a lot of and then we have to have debt in order to create the working capital line. And so we've got that. But that, on the other hand, limits our ability to theoretically take on even greater debt to actually do acquisitions or whatever we want to do with it.

Nathan Latka

10:53How cheap have you been able to get that working line at? Are we talking like 6 to 7 percent? Or is it more expensive?

Shawn Riegsecker

11:00>> No, I think it's actually below that. But it's probably right around 6% at Okay, this that's pretty good.

Customer Count and Revenue Math

Nathan Latka

11:04Okay, very good. And then 2001 was launched. Obviously, you've grown via M and A, you raised some capital doing it obviously in intelligent ways. How many customers are you serving now today?

Shawn Riegsecker

11:12>> It's about 1,700 on a yearly basis.

Nathan Latka

11:15Okay, 1,700. And true or false, all of those pay the software fee and a 50% of them also pay you to run the instance of the software they purchase from you?

Shawn Riegsecker

11:26>> Yeah. Directionally, that's true.

Nathan Latka

11:28Okay. Got it. Something here is wrong with my math, unless you're a billion dollar company that I didn't know about. If I take 1,700 customers times that average ACV you told me earlier of $250,000, that would put you at $34,000,000 a month right now in revenue. Obviously, that's too high. What's wrong?

Shawn Riegsecker

11:43>> I'm sorry. That was actually gross media spend running through the platform. And then we get a cut on something like... And so we get a cut on that. So if you look at... Here here. If you do the numbers, you know, our margin collectively, you know, is right around 15 to 20% based upon the total gross dollars that run through the actual total... That run through the whole company, including services and software. And if you do

12:09>> the math that, you know, call it $700,000,000 that'll run through the platform, you'll actually get to what our revenue is.

Nathan Latka

12:16About 90,000,000?

Shawn Riegsecker

12:20>> It'll be closer to $150,000,000.

Nathan Latka

12:21Okay. Good. So 15... Well, I was only taking up the spend.

Shawn Riegsecker

12:24>> I was... Well, 700 was last year, and I think we're probably on track to around 800 to 850, maybe $900,000,000 this year through the platform.

Nathan Latka

12:31Yeah. Yeah. I was gonna say 700 through the platform, obvious... And taking 15% of that, you'd be at about a 105 in terms of run rate. Now is that your entire business or are there... Is the SaaS model included at all on top of that?

Shawn Riegsecker

12:42>> No. That's the entire business.

Nathan Latka

12:43Yeah. That's what I thought. Okay. And this year, 140.

Shawn Riegsecker

12:45>> Correct. It's a blended margin. Yes. That's exactly right.

Sales Productivity and CAC

Nathan Latka

12:48Yeah. Very cool. Alright. Very good. And then what are you spending to get a new customer fully weighted CAC? How aggressive are you being?

Shawn Riegsecker

12:55>> I don't have that data Okay. In front of me. Sorry.

Nathan Latka

12:58Do you know... I mean, hypothetically, as a CEO running a, you know, a, you know, a fast growing company, would you spend first year to to get them upfront or no? Is that too much?

Shawn Riegsecker

13:07>> It's not something it... Just because of our model, the way we look at it, it's not something on a CAC basis we track specifically because it's not necessarily marketing driven. Here's what we spend. There's a... You know, if you gotta look at it, you know, whatever we pay our salesperson, we expect that salesperson to bring in four x whatever their compensation is.

Nathan Latka

13:25Full OTE?

Shawn Riegsecker

13:26>> Yeah. So about four... So about... It's around 22%. And we're a very sales driven culture. I mean, all of our clients come from sales team, not marketing. And so from that perspective, if you take a look at the numbers, about 22% of our revenue goes out in the form of sales expense.

Nathan Latka

13:45Okay. Yeah. That makes sense. But just to be clear, if a salesperson's on target earnings, meaning they get their full commission, comes out to essentially a $100, you were saying their quota would be at minimum four x that in terms of new business, so $400.

Shawn Riegsecker

13:57>> Correct.

Nathan Latka

13:58Yeah. That's that's actually not as aggressive.

Shawn Riegsecker

14:00>> What they... That's actually what they will do over the course of a year. They've got a lot of customers who they still get paid on that they signed up, say, two years ago. So it's not necessarily a 100... You know, it's not necessarily new business per se. But if you look at, you know, a seller, you know, making $15,200, you know, we expect them to bring in anywhere from 800,000 to about $1,000,000 in revenue on a

14:22>> yearly... On an annualized basis.

Nathan Latka

14:24Yeah. That's actually Shawn. That's less aggressive than most CEOs in the kind of 100 to $200,000,000 run rate range I'm at. They're they're usually optimizing for like seven to 10 x. I wonder if that's a function of your revenue split or something.

Shawn Riegsecker

14:36>> I think it has more to do a function of one, probably the revenue split. But frankly, it's also a matter of just the growth and the ramp of that. Because if you look at a seller who's been here for, let's call it five years, they're much closer to 10 to 15 times revenue book that they're carrying. But if we look at the new sellers, what's going happen in the first year, what's going happen in year two,

Nathan Latka

14:58>> year three.

14:58The year one pro forma on a new sales hire?

Shawn Riegsecker

15:01>> Yeah, the year one pro forma, they're going to bring in approximately two x what they make from a compensation perspective.

Nathan Latka

15:07And then you hope over what period of time they get up to 15 x?

Shawn Riegsecker

15:11>> Usually they hit that in about four years.

Cash Flow and Future Raise Plans

Nathan Latka

15:14Okay. I mean, that's pretty good actually. Very good. Let's wrap up here with the... Well, actually, Hold on real quick before we wrap up. Burn. Are you are you burning today? You cash flow positive?

Shawn Riegsecker

15:23>> Cash flow positive.

Nathan Latka

15:24Oh, you are. That's wonderful. So any any plans to raise in the future? Fund another acquisition or no?

Shawn Riegsecker

15:29>> Yeah. I think you're gonna see us do something fairly substantial.

Nathan Latka

15:33And is substantial more or less than a $100,000,000 acquisition?

Shawn Riegsecker

15:37>> Well, it won't be an acquisition. It'll be an actual capital raise.

Nathan Latka

15:42Okay. Interesting.

Shawn Riegsecker

15:43>> I I would expect that given our profile, given our ability to go international, given just where we're at from the new software, that you'll see us do a fairly large, call that, over a $100,000,000

Secondary Liquidity for Employees and Investors

Nathan Latka

15:56Why do that instead of IPO?

Shawn Riegsecker

16:00>> There's two reasons. Number one, I personally, as well as other team members, haven't taken much liquidity out of the company over the years.

Nathan Latka

16:10What This is a secondary?

Shawn Riegsecker

16:11>> You wouldn't wanna do... Yeah. You wouldn't wanna become a public company and then have the CEO obviously unloading shares. And so it makes a lot of sense to create some level of liquidity both for previous investors as well as for employees.

Nathan Latka

16:23Yeah. Yeah. So just to be clear, let's say you end up doing something like a KKR or something. It's a secondary with a private equity firm, most of that cash going towards what you just said liquidity for early employees, early founders, etcetera. Well, you think the majority of that round will be secondary or will any of go to operations?

Shawn Riegsecker

16:38>> No. I would actually say, look, mean, we haven't kicked off the entire process yet. But if at a high level, you would look at it where you'd say probably close to 50% would be in secondary. You would take a look and say probably 30% is gonna go towards M and A. And then you would say probably about, you know, 15, maybe 20%, it just sits in the coffers for working capital.

Famous Five: Books, Tools, and Habits

Nathan Latka

17:01It's nice place for capital to sit. Right? Yeah. Alright. Let's wrap up here with the famous five. Number one, what's your favorite business book?

Shawn Riegsecker

17:08>> Losing My Virginity, Richard Branson.

Nathan Latka

17:10Number two, is there a CEO you're following or studying?

Shawn Riegsecker

17:15>> Nobody at this very second. Although...

17:21>> Where do I normally go? I'm sorry. I'm I'm That's okay.

Nathan Latka

17:24By way, you interface with Bill Walsh at all? Mediaocean?

Shawn Riegsecker

17:28>> Bill Wise.

Nathan Latka

17:29Sorry. What... That's what I meant. Do you interface with him at all?

Shawn Riegsecker

17:31>> Oh, yeah. I love Bill.

Nathan Latka

17:32So so he just came on the show he just came on the show, and I've interviewed most of the Vista CEOs because they all as I'm assuming this is an assumption I have no insider information. But when Vista closes $14,000,000,000 fund, you know, all those CEOs are getting calls from Brian and Robert going, Hey, guys, go find acquisitions, we got to deploy this capital in an intelligent way. Are you in any acquisition talks with with Mediaocean

17:53or Vista?

Shawn Riegsecker

17:54>> No. If anything, we're good friends. And and I think if we do something, it'll kick off more as a partnership.

Nathan Latka

18:01I think you and Bill would be great together.

Shawn Riegsecker

18:03>> I love Bill. You know, it's really funny if, know, you've... For people who've been the industry followed us for years, we've got a lot of Twitter banner... Banter, a lot of Facebook banter. You know, we've... We love competing with each other, but also a lot of love and respect between the two of us.

Nathan Latka

18:17Okay. I'm telling you, if I see a headline, like, two days from now that says Mediaocean buy Centro for a billion dollars, I'm gonna be pissed because I could have gotten the break from you now, but you're saying not gonna happen. I'll start as a partnership first.

Shawn Riegsecker

18:29>> Well, listen. If if there's a headline that says Mediaocean is buying us for a billion dollars, I won't be pissed.

Nathan Latka

18:38Robert, Bill, Brian?

Shawn Riegsecker

18:40>> I wouldn't bet on it, though. I doubt that that one's coming.

Nathan Latka

18:43There you guys have it. Alright. Fun stuff. Number three, what's your favorite online tool for building your company?

Shawn Riegsecker

18:52>> I have no good answers for you on this.

Nathan Latka

18:53That's okay. We'll skip it.

Shawn Riegsecker

18:54>> Is it... Yeah. You know what? I I don't know. I'm looking over here at my... What do I... What are all the things that I use?

Nathan Latka

18:59That's okay.

Shawn Riegsecker

19:00>> I don't think there's anything specific. I mean, we've gone through so many different damn tools, like, for so many years. If anything, it's... You know, look, the thing that we run our business on is the BI platform. So Pentaho has been a great tool for us overall to help launch that. And then, you know, I think what Microsoft's done right now with Power BI, making it easy for kind of the masses to actually build dashboards profiles

19:25>> has been great.

19:26>> Yep.

Nathan Latka

19:27Number four, how many hours of sleep you get every night?

Shawn Riegsecker

19:29>> Seven and a half.

Nathan Latka

19:30And situation, married, single, kids?

Shawn Riegsecker

19:32>> Single.

Nathan Latka

19:33Okay. Any kids?

Shawn Riegsecker

19:34>> Nope.

Nathan Latka

19:35Alright. And how old are you?

Shawn Riegsecker

19:38>> Oh, I'm not answering that question.

Nathan Latka

19:39Oh, come on. I was just about to say young, handsome, single. You have the world at your fingertips.

Shawn Riegsecker

19:45>> I wish I was young.

19:48>> Yeah. No.

Nathan Latka

19:49I'll be 47 coming up.

Advice to Younger Self

Nathan Latka

19:51Oh, wow. That's that's much higher. Would've guessed. That's great. Alright. Take us home. What do wish your 20 year old self knew?

Shawn Riegsecker

19:58>> I think I wish my 20 year old self would know...

20:06>> You see, this is why I want the questions beforehand. Know. He pinged anything off.

Nathan Latka

20:09He pinged me. He goes, Nathan, send me the questions before. And I said, Shawn, this... Those things are a very boring interview. They're all gonna be on the spot on the fly. So if you can't think of anything, that's okay. But anything on the top of your head?

Shawn Riegsecker

20:23>> Man. I mean, it's like I've always had this belief just in life that if wanna you be successful, it's gonna take a lot of hard work and effort to put in. And I knew that I wasn't as smart as most people. So, you know, I've been working my ass off. If anything, I'd say probably try to figure out a way to create some some more of a balance because I just haven't had any balance, you know,

20:43>> and kind of life is passing me by. And I'd probably say, you know, work is great, and the success is awesome, and everything goes with it's awesome. But, you know, take time, Just don't give up on the personal life as you go through it all.

Nathan Latka

20:55Yeah, Shawn, would say the glass is always greener on the other side. I've interviewed many people that are in marriages or have kids that you think are happy and actually they're miserable. And they go, I wish I just had a company where I was financially free and independent. And here you are building this great thing. So, guys, there you have it. Centro. Thank you. Centro.net caught a $100,000,000... North of a $100,000,000 in revenue last year. Hoping

21:15to break, call it one fifty, one sixty. This year, they've smartly used capital and stock and equity and seller financing notes to do M and A. They raised $52,000,000 today. Cash flow positive. Expect them to announce, call it, you know, fairly large, we'll call it north of a $100,000,000 round of financing here in the next call a year or so as they look to provide some early liquidity to... Or some liquidity to early founders, shareholders, and

21:37most importantly, employees. They got a team of 700 people right now building out the company and 1,700 customers. Shawn, thanks for taking us to the top.

Shawn Riegsecker

21:44>> Yeah. I appreciate it. Thanks, David.