Channelgrabber Revenue, Valuation & Funding (2018)

hello everybody my guest today is mike morgan he's an ex-raf pilot who entered the i.t sector 25 years ago he worked through the ranks to serve in senior executive roles at compact hp and sony across emea before founding his own sas company expanding the us and exiting in 2016. he served on the boards of many startups since 2005 and currently runs two ecommerce sas companies that consult the practice for startups and a harley davidson dealership while holding the chairmanship of a mobile ticketing software startup mike your busy guy are ready to take us to the top i am i was born ready let's go all right board seats or or a weekend you know on a cruising on your harley davidson what should you prefer uh uh oh come on i love riding my harley davidson there's nothing that beats that do you ever ride and you have your airpods in and you're on a board meeting at the same time it's been known yeah but i'm usually trying to get on a train which in this country believe me uh does not give a satisfactory outcome but um love riding my bike and i i fit the rest in everywhere okay mike which country you're in are you in manchester um i based in manchester in the uk yeah yeah very good all right tell us about the company so first off you do a bunch of stuff is channel grabber you're kind of your largest business yeah that's the company that takes most of my time okay great so tell us about let's focus on that company what's the company do and what's the revenue model so it's a sas business so it's monthly recurring revenue based um it's a multi-channel e-commerce solution um which we supply to online retailers uh enables a retailer to connect all of their online solutions so ebay amazon etsy walmart you name it um and access all of the back office functions through a single user interface through our web application okay and give me a general sense of what people might pay per year for this kind of tool yeah so our our average monthly recurring revenue for a customer is about 145 bucks 140 550 bucks and what are they getting for that typically is that like a number of skus like what are your limits so um our fees are based on order volumes so we have the conventional banding structure so that the more orders you uh you process through the application and the more you'll pay so it's a win-win situation yeah that makes a lot of sense okay so 145 bucks a month on average and put this on a timeline for us when did you launch this company so uh channel governor was founded back in 2012 um the original founders um business through to 20 what 2016 there was a split of the original founders and the shareholders invited me to come in and take over the business which i did last year so i've been here running the operations since uh april 2017. okay and what does that mean by the way take over i mean you had an exit in 2016 did you use a bunch of that capital to buy this company out or what's that actually look like i i i haven't bought the company out i'm a of channel grabber um so i i initially came in and did a actually a consultancy uh project for the shareholders to take a look at the business and assess the potential for growth uh identified areas that we should focus on and invest in and we started to do that in the spring of last year so i i run the business now as ceo um it is part time right now as you already mentioned quite a lot of other things going on um but channel grabber is my main focus okay so just to be clear they essentially gave you like a like an equity grant that's i assume investing to some degree you didn't you didn't actually come in and buy a majority stake or something like that in the company i no no i didn't buy a maturity stake but i have bought shares in the company and of course i do have options i see i see okay very good that helps you understand kind of what the function actually looks like and what's the team size today how many people so we have 20 employees right now okay everyone in uk so far yeah we um we started selling into the us uh this summer and that's going really well but we've decided to uh to to do that a low-cost low-touch model so we product sale in the us but we're doing sales and marketing from the uk into the us market yeah that makes sense and what if you you know you took over a year ago what have you been able to scale to in terms of total customers using the platform so we we've just uh exceeded 800 customers okay and how is that where's that growth come from i mean how are you getting these customers uh well we've we've invested time and effort in demand generation which is something that was not a great focus of the team previously obviously um but we've also invested a hell of a lot in the product in the last 12 months so the product was feature deficient and in record time we've plunged a lot of investment into development resources and we've now at a point where we have a product which we believe is market leading in terms of functionality and mike when you say plow a ton of money and i mean did you raise capital to do this or you just use your cash flow or what we we used uh limited cash uh and i mean limited but we've also um brought in a little uh debt so um uh being very transparent uh we're we've probably about four hundred thousand dollars of debt in the last 12 months which servicing which firm do you decide to work with on that debt you know venture debt is becoming more and more popular well well we actually worked with two providers one was creative england so you maybe not be familiar with them but they're a great um very supportive lender here to small businesses in the uk and we also work with funding circle yep okay now do they follow the same venture debt uh terms that like like most venture debt from so there's no personal guarantees no covenants no warrants uh no on the contrary so uh funding circle do require personal guarantees from the shareholders um funding circle works uh on a dementia model so so the debt is is registered against the business you're so you're paying that back based off a percentage of gross receipts each month off your revenue stream or is it actual fixed interest rate it's it's a fixed monthly fee fixed interest rate through the duration of the loan yeah interesting interesting okay very good and why decide to set a curiosity and why decide to do that versus go raise traditional equity capital well it all comes down to growth so uh the company for a number of reasons um reached a high eaters in 2014 so um pretty rapid very typical story rapid growth and then uh plateau and um this is the reason why i was asked to come in and take a look at the business to understand why that plateau had taken place and to assess whether it was potential to to start growing again and i concluded there was but um you know if you're trying to secure venture uh capital then you want to have a good strong growth story for a period of time we couldn't demonstrate that and that obviously has an adverse impact on valuations and um overall i felt that it was the best solution to uh to use debt in the short term and then to go out uh for a a venture raise or a private equity raise at this point so so in actual fact coincidentally we're just kicking off our next funding round uh this week oh that's great and so how much are you looking to raise uh up to three million dollars at the stage okay and and you know obviously this is up for negotiation but what are you targeting in terms of valuation pre-money so i i mean i think uh you know based on our revenue we're currently tracking about 1.3 million dollars in in uh annual recurring revenue so you know the the market rate is is four to six x uh that figure so you know i i guess uh i usually work in pounds so excuse me but um you know we're we're probably looking anywhere between six and uh nine million us yeah 69 million pre-money yeah and do you think i don't know what the market's like over there in the uk do you think you'll be able to get a lead over in the uk or you'll have to come over to the states and and leverage u.s capital well we're working with a corporate finance uh partner on this race and that that is simply because uh the management team here are lacking in bandwidth to you know to lead a fundraising exercise we can obviously going to be participating and i'll be leading it from the management team but we're going to be working with a partner here uh phone call kbs and uh so so they will be uh leading the outreach to potential uh to potential investors and also potentially buyers um and i i i'm expecting that to focus on the uk but uh i certainly wouldn't rule out acquisition investment from the us if somebody gave you an acquisition offer that was you know around the valuation that you just articulated to call it six million bucks i mean is that something you'd seriously consider yeah absolutely and i think um you know looking go ahead no no you go ahead sorry i mean to cut you off no i was just going to say that um i think that a sale of the company is interesting for our current set of principal shareholders uh they're in the business for well since the outset in the case of the founders and we also have a uh an angel investor who came in in our first and only seed round and so i think there would be an appetite that none of them are are executive or operational business right now they're quite distant from it so i think there would be an appetite to step out at this stage the rest of the management team and i are you know committed to stay with the business and and in fact it it i would certainly move into a full-time role potentially look at relocation overseas as well yeah whatever business requires is it uh as they say right is the uh is the business casual positive today uh we are marginally loss making uh at this point as i said we made a lot of investments ahead of revenue um taken a few chances over the last 12 or 18 months but we're looking at being uh cash flow positive in february and march of next year got it and when you say kind of marginally negative today are we talking like negative 10 or more oh negative less than ten percent okay good in terms of margin we're in pretty good shape yeah yeah yeah that's great okay good and then help me understand current growth so if you're doing kind of 1.4 million run rate today where were you about a year ago in november 2017 [Music] we were well we've we've grown uh based on our our rel assessments for the end of this year will have grown 33 percent uh year on year um prior prior two or three years we had grown zero um and and what i think is important isn't something we're quite pleased about proud of is that we have two products one old one new um the new product really took over properly last year from the old but we still have a lot of customers on the old platform and all of that growth and i mean all of it in the last 12 months has been on the new product which has a lower average recurring revenue for the year so to grow by that much um you know only out of one product line uh i'm pretty pleased with that yeah one if you're doing call it 1.4 million in ar today that's about 110 grand per month and if that's 30 percent higher than when it was a year but that means a year ago you're doing a call at 85 grand a month something like that yeah that's great talk to me about some of the other critical economics in any sas company what's your turn today and how do you manage it our churn uh has been higher than we would like it to be um it is currently running at about uh two and a half percent uh by customer numbers um just under three percent by revenue that's monthly month yeah that's monthly we'd like it to be substantially less than that but we are churning uh at a higher rate on our old product a little much lower rate on the new um so you know naturally our older product we have ceased developing that and i guess higher average churn will be expected how aggressive are you being in driving growth on the current company and maybe a good way to quantify this is if you've got a customer signing up for 130 545 bucks a month how much are you willing to spend to get that customer uh well our customer acquisition costs are actually pretty low and that is um mainly because we are spending woeful woefully low amounts at the moment on sales and money does that include overhead like head count yeah so if i if i include uh headcount and marketing investments uh across the board where we're under 300 bucks okay um per customer that's good so we've got it in two two months payback yeah two months two or three months payback period that's healthy but that's not something i'm proud of i mean it's it would be a great number but i would love to be spending much more on sales and marketing than we are right now it just comes down to affordability yeah yeah and finding channels that work that you can plow money into yeah and you know with that we um you know we've tried everything we've experimented um with a lot of different marketing channels and you know it comes down to good old-fashioned digital inbound content marketing that's the real thing that we found has resonated with customers and is driving the traffic to our site yeah that makes sense all right very good here mike let's wrap up with the famous five number one what's your favorite business book uh not really a business book but i guess art of war sun tzu you can't beat it yeah number two is there a ceo you're following us there's a lot to be learned from business people there of course number two is there a ceo you're following or studying right now uh no not really number three i'm too busy what's your favorite online tool for building the company right now hubspot and intercom intercom and hubspot good number four how many hours of sleep to get every night about six and a half okay and what's your situation married single kiddos married uh divorced i mean married and married currently but previously divorced and across my two families that have four adorable girls oh four kiddos and how old are you mike i'm 50. 50. last question what do you wish your 20 year old self knew uh i i suffer from terrible anxiety and um the one thing i wish i knew that then that i've learned is stop worrying things you can't solve and focus your energy on fixing things that can be fixed guys don't worry about things you can't deliver business personal and business uh again channel uh company sorry company founded back in 2012 channel grabber again helping e-commerce brands currently serving 800 paying 140 535 bucks a month doing about 110 grand per month in revenue right now that's up from 85 grand per month just a year ago they're bootstrapped they have about 400 000 bucks in debt that they've raised looking to be casual positive in early 2019 2.5 logo turn per month about 3 revenue turn per month spending 300 bucks fully waited to acquire a 145 a month customer so two or three month payback team of 20 based in the uk founded in 2012 mike thanks for taking us to the top thank you great pleasure