Cloudbedsrevenue, valuation & funding

hello everyone my guest today is Adam Harris he's the co-founder and CEO of cloudbeds together with his co-founder Richard Castle they've led cloudbeds from a small group to a small store up to an award-winning company that powers tens of thousands of hospitality properties in over 135 countries Adam started his career as an investment banker until as though of entrepreneurship and trouble pulled him in from Wall Street the most remote corners of the planet his many years of experience in consulting don't and sold multiple companies and has traveled to more than 51 countries all over the course of his career Adam are you ready to take us to the top let's do it all right man so I was joking with you before the call I said you know I came across cloud beds cuz I invest in a bunch of hostels and they all said we use cloud beds so tell us what you do and how do you make money is it if your place ask company your place ask company yeah so we build b2b software for the hotel industry so everything from hotels motels the boat Elle's adventure travel hostels as well as property management companies use our software around the world and ultimately what we do is everything that you experience as a consumer so when you walk into a property you check in that software behind the front desk is are so back office front office as well as some of the e-commerce components our goal is to help cast the widest net possible so that our properties who are powered off our system can ultimately find guests like you around the world and so we work with partners like Airbnb and booking.com Expedia all those really popular consumer point of sales and that all feeds directly into our system and give me a general sense you know no I don't wanna go down every cohort you know the motel versus the Botelho versus the hostel but on average what's the customer pay you per month would you say oh man it's a little it's a little unique because we do it on a geographic basis so the way we ultimately price is property type Geographics and then the number of units so we've we have properties paying us you know thousands of dollars a month and we have properties paying is 25 so it's a really big range to be honest with you interesting can you maybe just squat and not the price when we describe the average of the average might be you know a 12-bed unit you know that kind of thing yeah in north america it's probably around 200 and some change per month on and on an average basis and then europe might be right around that as in parts of Asia might be much less this is interesting okay I wanna put this on a timeline and understand how a guy who's on Wall Street gets into this business so when did you when did you launch the company what year so we we officially launched the company in October of 2012 we actually didn't become commercial till 2014 we actually had a little bit of a pivot in 2013 that we can talk about but for the most part we actually launched cloudbeds the software that is today in 2014 okay so yeah tell me about that what did you launch as and how much money to do waste before realizing you got a pivot yeah so we wasted a little over a million bucks in our first sort of seed capital and and to be honest with that a wasted is probably a really strong word we learned from our mistakes how about that Adam that's a spin if I ever heard one no you know when we first started we wanted to build opentable for travel right we saw all these small independent properties all over around the world who were using forms to submit for a reservation request like hey I want to come travel on these days and let me see whether or not availability that exchange wasn't real time there wasn't a place where I could just take a widget select my date see if availability was there and confirm and purchase just like opentable did for us for restaurant reservations and that was the original catalyst when we went to Brazil which is actually where we launched there was the FIFA World Cup coming into the country which meant all this inbound consumer traffic that Brazil had never experienced six million people were going to visit in Brazil for the first time when their average annual is less than two million so lots and lots of demand not enough supply that was readily available and so we thought why not make all that supply all those small properties all over that country be booked able immediately and in real time and so what we realized is it was almost impossible to take those those rooms that were available and put them online without intermediary software or a lot of phone calls and so the model had to be more be to see originally and then we realize that without the b2b platform that we could leverage we pivoted into a soft SAS company and so we originally were going to be B to C and then we realized that wasn't possible in Brazil became a b2b you know company in the rest is history that's interesting were you living in Brazil or you visited there and just set out we want to launch here um we had a third founder early in the day who's no longer with us um rich my co-founder he he married a Brazilian and so he was actually living in Sao Paulo and spent some time in in in country so actually he lived there for three years so he was sort of running our Brazilian or Latin American office and I obviously visited quite often but Brazil there was justice connections that we had to the country we had some you know really good tourist connections and ultimately that catalyst with the World Cup made a lot of sense early on a lot of the you know the Central American or South American companies I interview in the SAS space this is the biggest challenge honestly is just like dealing with the late DOS right like there's not there's just not an easy way to do it so like how did you if I mean that's crazy to me that you you know the stripe is not just like you know connect a stripe API call in an interface you have to deal with someone's physical tickets how did you deal with that in your early days so we actually opened a company in Brazil so we have a legitimate Brazilian entity that we formed founded and continued to operate as a cost center and that took what normally would you go to you know Delaware Inc and you can create a Delaware company in 24 hours it took like six weeks just do paperwork and then once six weeks occurred it was another six weeks and then another six weeks so when I when I said we rigidly launched in 2012 we probably didn't do anything productive in country for at least six months and that's sort of the average and remind me again sorry initial capital company was how much so the initial capital was 800,000 and then it grew slightly to about 1.2 million okay and total raised to date is what 21 million 21 okay so when did you raise a second round did you wait till you add some new traction on the new product or what yeah so we we pivoted we actually almost you know went bankrupt twice so we had less than three months of runway and we raised it at the end of 2014 when we actually could show our new product and we started get some traction had a couple hundred customers at that time we actually surfaced an acquisition or first act that made a lot of sense to the business which was it is called my allocator it's a channel manager and it was a two-person team had a you know a couple hundred customers at the time but we unlock a tremendous amount of value with that purchase and so between our new product in this acquisition we brought it together raised two and a half million dollars from a really polished team of professional angels who also had hospitality experience and what was fun about that was one of the leads actually spent about twenty five million dollars doing what we did for over a course of five years we did the exact same thing in six months and showed him that we could do it in six months so build the same text back that twenty five million dollars that a big you know billion dollar organization can do and he was like this is impressive what here's some here's some cash to go do this on the real it's great so a couple hundred customer in twenty fourteen gave you enough leverage to kind of do the next round of funding show some impressive growth to be folks that try to do in the past what yet today in terms of total customers north of twenty two thousand properties use cloud beds and 135 countries so we we are moving about you know five billion dollars and growth you know merchandising value so room sells on behalf of our properties annually or monthly annually yeah that's a significant number and is there are all this 22,000 paying or you have a free plan no so we a lot of times we have a customers who are are have multiple properties and so you know we have over nine thousand paying entities and then they can have one or more properties underneath them interesting and you just will increase obviously the fees if they're you're paying based off number of properties they have over you absolutely okay now can I take those nine thousand logos times now this was the North American number you said was two hundred bucks on average average revenue per customer by multiplied two hundred times nine grand it puts yet about called one point eight million bucks a month in revenues I generally accurate nope it's so that's that's where the the wide variety is will be north of you know we're gonna finish this year extremely strong with you know north of eighty percent growth year over year will be an eighth bigger range so slightly less that's good that's good so so eight figure range so you you this year is the year you break the 10 million mark or you've already broken the 10 million mark on a run rate basis we will we were just about to break that mark you that that that's one you all go to Brazil to your original location the first sign up on the platform you buy the whole place out and you celebrate right we celebrated yesterday we were ranked number 75 on the Inc 500 list so we were very very fast growth and that was a huge milestone for the company but yeah that's great well congratulations an 80 percent year-over-year growth if you're doing call it 800 grand per month right now that means you know a year ago you were doing maybe about 500 grand in August of 2017 per month a little bit less than that be a toast those are those are close it's great now how much you mentioned earlier there's a transaction part of your business five billion in transactions while I'm going through your platform how much of your revenue on top of the sass revenue is from that transaction volume zero okay you don't take a cut no yeah I know where Commission for you were one of the unique products out there that is commissioned free at this time and what we believe that we are that we are the solution set to serve in power we don't need to be you know benefiting from the hard work that these property owners have to do that's interesting I have to I have to tell you I could have sworn when I looked at the last round of investor updates from my hostel there was like a five or six percent cut somebody was taking and they said we're trying to put less bookings through them because they take so much but what you're saying it wasn't me wasn't you guys it was enough all right somebody else all right very good talk to you about churn I imagine you probably have some nice a nice little of stickiness once you're actually out there on our property but what does term look like today and how do you manage it yeah so turn we cut it three different ways right you sort of have this trial customer that's sort of flirting with the product isn't quite committed for a long-term solution this doesn't happen very often we keep our customers at least from a long-term value perspective over five years that's what we project and that gives us a tremendous amount of economics to sort of work with over time what what we like about turn is you sort of the trial customer use a long term cohorts on a net and a gross basis we're best-in-class for SMB software solution so depending on the month it ranges but on a net basis we're sub fifteen and that's growing in the right direction we've lent even an S right sub 15% that's that's local attorney yeah annualized yeah into what we're what we're focused on right now is over the next 20 months is to try to get that either into a positive basis with upsells which we don't currently do or on a gross basis to you know be sub 10% and the problem with SMBs is SMB shut down so on average 35 percent of all SMBs will shut down in a given year and so there's a portion of marking of our turn that we just can't control tak what's the question on board a new property about eight hundred and seven dollars and and where's that most I'm gonna go sales and marketing oh just your team yeah okay interesting what's your team today how many people so last time it's a lot a little bit before this point last year we were about sixty people and we're at a hundred ninety seven people today one day said oh wow when was last round of funding fourteen months ago okay so you used a lot of edge drive that growth mmm yes 800 $7.00 kak at least in North America if you've got people paying 200 bucks a month you're getting paid back in about four months is that a bit sound accurate yeah so if you took an average across our entire Gio's it's more like ten months but it's it's a good figure that's still enough we pay back either way we're best-in-class in our unit economically the extremely scalable model we have cost centers that help us compete localized and rich and I are all about a factory over here it's good 197 are they all based in San Diego or where's everyone no so 35 different countries we speak 17 different languages as a team everyone wants us remote that you have no office will fully remote I mean I'm actually in a physical office but yeah we have four four offices Kiev Dublin Sao Paulo and San Diego and then we have people in 35 other countries where we love remote we are huge advocates of it and that's how we're how we're in building not only our staff of building a pretty incredible culture over here if I am an investor big private equity firm let's let's say Sam Zell right one of the most famous property investors ever and I'm going the economy right now is frothy I'm gonna hoard cash wait till a downturn and then buy like crazy I'm looking at a company like cloudbeds going wow if I acquire cloudbeds I can essentially see which pieces of property are doing the best because you have all the revenue data and next downturn I can really buy quick why hasn't a guy like Sam Zell or kind of a big p/e from coming and bought this for a ridiculous multiple oh I am we I can't say we haven't had those looks and we definitely been offered some ridiculous multiples today you know there's other products like err DNA which does a sort of Airbnb revenue models be a awesome person to bring on your company because all bootstrap crushing it and they've basically mapped the entire ecosystem of Airbnb in the demand from into a financial product and so I think from from our perspective the what's interesting is the traditional investment on a hotel basis it's shifting most of the investments are going into sort of experience driven travel so you talked about your investment in hostels hostels are seeing more money poured into them than ever before yeah you have these sort of surf sand and snow type accommodations where it's bringing bands in like Salinas which is a huge hospital chain in Latin America they're trying to reinvigorate the experience and change the name the footprint of what a hostel is hostels tend to be grungy and college students well there's some ones in Europe that are absolutely spectacular star properties the metrics aren't crediting all my hostel investments when you look at the hours revenue per square foot it's three or four times what a Marriott and these other ones are getting and these are not like grungy I mean these are like these are like really really I stay at some of them when I travel it's like 30 bucks a bed it's a it's a different type of it's a different type of experience today versus at what it was in the past yeah that's gonna keep evolving so there is the private equity side but then I you know I'm looking at your Twitter feed August day if you have a big announcement about integration with air B&B if I'm air B&B I'm going this is like makes 100 million percent sense to acquire you guys why haven't you still do an Expedia or an air B&B and how do you think about acquisition in general we're having a lot of fun right so it's it's a there's a given to take right so when you give up and you are now part of a bigger story it changes your life hopefully for forever in a good way but it also can be in a bad way and so it's not just the financial game from an acquisition that's also fit my team has to go somewhere and they have to be comfortable with where they go and so we we've obvious had conversations with a lot of the strategic buyers and I think what's fun about that is there's never the perfect time to do it but then there's also always the opportunity to do it in the future what we're focused on right now is just keep building our financial profile as an organization and then also create environments where our team is successful in that balance has produced amazing results and if someone offers us a ridiculous multiple sure I might be the first person to sign that document but at this time we're just focused on keep building we're having a lot of fun over here are you raising any capital right now yeah we're always raising you know we're always looking at what's out there we're always talking to big groups you know for us we're a really healthy cash position we don't need to raise it would be to raise for a benefit of some you know acquisition that we wanted to do or a strategic purchase of software whatever that might be we haven't really determined what that looks like right now so we're playing playing the game where we don't need to raise and so we're gonna keep you know in a really good pole position and based off how much you've raised now recently did I assume you're not cashflow positive today correct we're not no we're focused on you know investing in areas that we see growth in and we've deliberately not be not become cashflow positive but we have a roadmap to get there right if you if you take net burn today and divide that into cash in the bank today I mean do you generally have more than a 12-month runway ahead of you oh absolutely yeah okay that's nice good last question RV parks - RV parks use you guys we have a few actually and we're starting to expand into that a lot of campgrounds are coming to us a lot of these glamping you know environments that are now the new you know new rage so we have two of them you know - the biggest ones that are powered off us collective retreats is an incredible brand that's doing some really fun things there that is powered off cloud beds and absolutely loves the outdoor adventure type travel that's one of my favorite spaces I'm a huge fisherman for me so anything I can do that's related to like fishing camps or hunting lodges or things like that I'm all for and and I'd like that we would actually joke as a management team that we want to hire just one salesperson just focused on places that we can go play on our off time yeah that makes a lot of sense last question you guys out for retargeting products so that if I know that Adam eris went fishing in wyoming at a glam site that I should you know upsell him on the same thing and the middle of Europe you know in the next summer you know it's interesting we don't we do not bring data together across properties we're really focused on individualizing it that's that's not only a privacy issue there's a lot of data changes in laws that have been brought to our attention I'm sure you've got bombarded with all those gdpr announcements that took place that's a really interesting product and it's something that we've definitely thought about knowing your customer is huge in in any industry and especially on a travel and inexperienced basis properties that do have multiple properties across multiple gos you can obviously share their data you know Adam we're out of time let's wrap up quickly with the famous five number one what's your favorite business book favorite business book neuromarketing number two is there a CEO you're following or studying right now love the educational series that Jeff Winer from LinkedIn has in Linda number three what's your favorite online tool for building your business a new sales product called groov app it's incredible number four how many hours of sleep to get every night ranges but I try to do at least six that's good in which the situation married single kids married to dog two dogs all right and how old are you 36 36 last question what do you wish your 20 year old self knew I wish I had taken a job worked abroad and lived abroad guys there you have it you know take a job lived abroad done more stuff abroad it sounds like he's kind of by curiously doing that now fully remote team which I love building cloud beds launched it back in caught 2012 kind of had an early failure then pivoted a hence scaled nicely over 9,000 property owners use him to manage check-ins and even processing payments that's across 22,000 properties they're about to pass or just passed about 10 million bucks in terms of annual run right economics healthy less than 15% annual logo turn on a net basis spending 800 bucks to acquire our customer across their entire base geographically about a 10 month payback period again super healthy 21 million bucks raised team of 197 people totally remote Adam thank you so much for taking us to the top loves having a conversation thanks Nathan have a great day bud