How FreeD Group Hit $35M Revenue and 80 Customers in 2022 (Interview with Co-Founder Abel Zhao)

Introduction and Company Overview

Nathan Latka

00:00Guys, joinharmonycvm.com. They help smart cities connect with local farmers to fill grocery stores with produce, for example. They make money on both sides of the equation. Last year, they did $35,000,000 in revenue of which 15,000,000 was recurring and 20,000,000 was their take rate off their GMV, which they did 20,000,000 in GMV in the last quarter. They hope to break a $100,000,000 in revenue this year on the back of a major acquisition they just completed. That 100,000,000

00:23will be split fifty fifty between true recurring ARR and then sort of recurring GMV take rate on top of the business. Hoping to IPO in 2024. We'll see what happens. Totally bootstrapped, which we love. Hey, folks. My guest today is Abel Zhao. He's a dynamic and driven business leader with over a year and years of experience in the technology, travel, and hospitality industry. Today, he's the CEO and cofounder of FreeD Group, a cutting edge travel and lifestyle

00:45SaaS company. He's played a pivotal role in empowering global enterprises and government units to drive incremental revenue and achieve success for customer experience. Abel, you ready to take us to the top?

Abel Zhao

00:55>> Yes. So go ahead. Thanks, Nathan.

Nathan Latka

00:57Alright. So the company website is freedgrouptech.com, but the actual product is joinharmonycvm.com. That's the product. Tell us what you're selling and who's buying it.

What FreeD Group Sells and Who Buys It

Abel Zhao

01:08>> Sure. So basically, are a typical SaaS company, but actually we're using a little bit different approach in comparison to a typical SaaS company actually available on the market. So first of all, one thing we created quite different from others is the multi merchant, multi channel, multi platform capability to help the sellers to create this kind of

01:31>> it's combining actually with the CRM, with the Harmonycvm.

Nathan Latka

01:35Abel, which sellers though? My audience doesn't know what sellers you're talking about.

Abel Zhao

01:39>> Which sellers, you mean?

Nathan Latka

01:42Just said to help sellers and people we don't know what sellers you're talking about.

Abel Zhao

01:44>> Not too much. The sellers basically are actually quite wide range. It can be actually from product owners, distributors, content owners, then actually those actually the one that providing the actual product covers from travel to lifestyle to consumer goods. So basically anything that consumers can purchase, those are basically those related sellers. And then on the other hand, we also work with large corporations like telcos, governments, and airlines and airports, anything that actually the cons they can actually

02:15>> reach to their large customer base.

Nathan Latka

02:19So you're a marketplace with sellers who are the product owners, distributors, you know, and travel life cycle and kind of customer goods consumer goods. And then you have the buyers like telcos and governments that are buying things like travel or other things.

Abel Zhao

02:32>> Exactly. Exactly. We're the one actually in the middle providing the solutions, providing the AI the AI solutions and data capabilities and so on to to link two groups together.

Nathan Latka

02:41And how do you make money? Are you taking a cut of a GMV or is there a SaaS fee on one of the sides?

How the Company Makes Money: SaaS Fees and Commissions

Abel Zhao

02:46>> Oh, I have both, actually. So from the those big player side, we basically charge a SaaS fee. And then from distributor side, the product owner side, basically, we we earn the commission.

Nathan Latka

02:56Okay. What's the commission typically? Like, 1%, 5%, 10%?

Abel Zhao

03:00>> Well, that actually really depends on the market and also depends on the products. I mean, typically, for example, if we because actually we work with a wide range of suppliers from all the other merchants from different markets. For example, if it's in China, the take rate is actually quite sad. We're talking about below 2%. But if you're going somewhere like Middle East or Europe, then actually can range from between 10 to 15 10 to 20%.

Nathan Latka

03:24Interesting. But when you look at total GMV for your platform over the past thirty days, then you look at the total revenue you got to keep, what is the effective weighted average rate you're keeping, the take rate?

Abel Zhao

03:33>> I would say around 10 to 10%.

Nathan Latka

03:35Okay. Around 10%. Got it. Very cool. And then going back real quick to the to the SaaS fee, which these buyers pay you, the telcos, the governments, help me understand how do you charge them?

Abel Zhao

03:47>> So first of all, in this kind of situation, so we would again, we separate those into two groups. I mean, the smaller merchants, the people who actually try to to sell their product to different channels. Normally, charge them actually a very small fee. So to help them to grow, to help them to actually reach out to more audience and more customer

Nathan Latka

04:04What's small though? $10 a month? $100 a month?

Pricing: Small Merchants vs. Large Enterprises

Abel Zhao

04:07>> We're talking about it could be between $100 to $1,000 that kind of range. And then there's a big guys out there. So the governments or telcos or airports and stuff like that, that could actually go from $100,000 to all the way to $7,000,000 per project. That's basically the largest one we have, which is a smart city project now in Korea.

Nathan Latka

04:28Oh, what's going on there, YouTube? Good to see you guys. Now imagine this. You love watching these interviews with SaaS founders, but imagine if we took all of the valuation data out from over 2,807 interviews I've done manually. Saves you a lot of time. Well, we've done this. We've built it into the beautiful interface inside of Founderpath. Check this out. I'll show you how you can access this in a second, but you log in, you connect

04:51your Stripe account, you see your valuation real time. You can see what it changed over the past eighty eight days and even set goals for valuation this year. Now the secret evaluation is there's many different ways to value a SaaS business. So the reason you're gonna see three or four different valuations inside of your Founderpath dashboard, this is all free by the way, is because depending on who's doing the buying of your SaaS company, you're gonna

05:16get a different valuation. A VC is gonna pay a different valuation. Private equity firm is different. If you're gonna do a minority sale, that's different. And if you sell the whole business, that's a different valuation. You can see all those when I hover over here. Right? So the teal is what a VC would pay. Yellow is what private equity And red is if you sold the whole thing outright. Now what's cool about this is this is

05:38not built off random data. Again, you guys hear these interviews on YouTube. All these datas are built from real time valuation data points founder share with us on the show. So traction 1,200,000 seed round 3.7 raise. They sold 22% of their business. Go in here and filter by the event. Maybe you only wanna see companies that have sold the whole business. Well, here are a bunch that have been acquired the valuation and the multiple. Maybe you're

06:03going out right now and you're raising your seed round. We'll go in here and look at all this recent seed deals that went down, what they raised, what valuation they raised at and what percent that they sold. There's never been a larger dataset of SaaS valuations than what you can get now inside of Founderpath. And we're thrilled to bring it to you. All right, we're gonna go back to the YouTube video here in a second, but

06:25if you wanna check this tool out, if you wanna jump in and sign up, you can check it out for free to get your valuation at this link, this link, founderpath.com/products/valuations. Or if you go to founderpath.com and hover over products, click on get your valuation here, and go ahead and sign up to give it a whirl. Again, all that valuation data live right inside the platform. I hope to see you there. Alright. Let's jump back into

06:51the interview. Okay. So the the biggest customer you have today is paying you $7,000,000 per year.

Smart City Project in Korea

Abel Zhao

06:57>> That's correct. That is correct.

Nathan Latka

06:58Okay. And it's it's a smart city project. So what kinds of things are they using your marketplace to access for the smart city from the distributors and merchants?

Abel Zhao

07:07>> Sure. So give you an example. So before COVID, so let's say it's a small farmer outside Seoul, they can actually just drive their vegetables and drive their products to the city and sell it to different supermarkets or restaurants. Because of COVID, so that's actually been restricted. So the government actually tried to do all kinds of things to help the small merchants, SMEs to actually to survive, to create more different distribution channels for them, to reach out

07:33>> to their clients directly. So therefore we are the one actually building the entire system from end to end to help those SMEs to distribute their products to different channels and help them to manage those as well.

Nathan Latka

07:43And so on the SaaS fee, I heard you say that merchants, the farmer might pay a 100 to $1,000 a month, but then then the big guys, the airports or the people doing the smart city could pay up to 7,000,000. Is it very obvious the majority of your revenue is coming from the smart cities versus the small farmers or what's the revenue split on the SaaS fee side?

Abel Zhao

08:00>> From the SaaS fee side, the one time solution to you right now, if you look at 2022 number, those actually so to large corporations, it takes about 65%. And then the the smaller merchants takes about 30%.

Nathan Latka

08:13Okay. Got it. So if your 2022 total SaaS revenues, 65% were the big guys and 35% were the small guys.

Abel Zhao

08:20>> That is correct.

Nathan Latka

08:21Okay. Interesting. And you mentioned one time fee. Obviously, a one time fee is not a SaaS fee. So are these people paying recurring monthly revenues?

Abel Zhao

08:28>> They do. Yes. Actually, because actually the bot the the guys who are paying the one time fee normally, so for our SaaS models, for example, 80% of those actually are SaaS components. That means ready to use, ready to launch to the market, but because actually they're bigger guys, they more or less have, they have around between 10 to 20% customization involved. So therefore allow us to charge them a little bit higher, like a one time implementation

08:49>> fee or R and D fee. So therefore, we that's what the the the whole variance come from.

Nathan Latka

08:55Yeah. But if someone pays you a one time R and D fee of a million bucks, that's a one time fee. It's not recurring revenue. So I mean, how do you what what is your true recurring revenue look like in terms of

Abel Zhao

09:04>> Even they pay one even they pay $1,000,000 fee, they still pay us the recurring. So because actually we are the one bringing them the merchant, maintaining the the the the maintenance of the website, and doing all kinds of things behind on the regular basis. So therefore, we still we still charge them on a maintenance fee.

Nathan Latka

09:18So the 7,000,000 of the smart city, was that a one time 7,000,000 r and

Abel Zhao

09:21>> One time only. One time only.

Nathan Latka

09:22Okay. So what I'm asking about is the SaaS fee. Right? So on a on a recurring basis, what are these folks paying you on average per year or per month?

Abel Zhao

09:30>> Okay. So if it's on again, SMEs, they actually range from, like, a $100 to $1,000, and the big guys actually could be from 5,000 to $10,000.

Nathan Latka

09:39Okay. Got it. Got it. Got it. And it's still 65-35 split?

Abel Zhao

09:42>> That is right. That is correct.

Nathan Latka

09:43Okay. So generally speaking, all of your customers on the SaaS fee side are paying somewhere between a $100 a month or $10,000 per month depending on where they are.

Abel Zhao

09:51>> Correct. Correct.

09:52>> What kind of project they involve?

Nathan Latka

09:53Yeah.

Customer Count and GMV Volume

Nathan Latka

09:54Yep. Yep. Very good. Okay. That's very helpful. Let's now get your backstory here. When did you launch the company? What year?

Abel Zhao

09:59>> We launched the company in 2016.

Nathan Latka

10:022016. Okay. And do you remember how you got your first customer?

Abel Zhao

10:06>> Oh, yeah. Okay. I I will never forget that one. So actually for the first three years, we're doing b two c. So it's travel related Hong Kong, Taiwan kind of only operating our own platforms, but actually pretty much tech driven. So AI driven, that's actually what we try to achieve. And then 2019, we realized that actually what we're trying to do on the B2C side, it's quite of, especially in this part of the market, Greater China

10:26>> area, it's suicidal. So basically, we cannot compete with the big guys. So therefore, we switched the business focus from b to c to b to b, so or b to b to c. So that's 2019. Our very first customer was China Mobile and then Samsung. So we're very lucky that we got those guys on board, but actually it took a lot of efforts. I always always remember the story.

Nathan Latka

10:44This is a very similar trend for most marketplaces that are b two b today. A lot of them start as b two c to build out the marketplace, and then they layer on a b two b model, which is what you did three years after your launch.

Abel Zhao

10:54>> Exactly.

Nathan Latka

10:55Okay. Now fast forward to today, how many customers do you have paying the SaaS fee?

Abel Zhao

11:00>> Right now, globally, we have about 80 seventy, eighty.

Nathan Latka

11:06Okay. 70 or 80. And then the other part of your business obviously is the GMV. Right? The dollars flowing to the marketplace. So the last thirty days, how much GMV went through your platform?

Abel Zhao

11:16>> So last thirty days okay. I I do it for last quarter, it's around between it's around $20,000,000.

Nathan Latka

11:2220,000,000. Wow. So last year, what you put about 80, a 100,000,000 through the platform

Abel Zhao

11:27>> Around in '20 that. Yes.

Nathan Latka

11:29Okay. Interesting. And you kept on average 10%. So that's 8,000,000 of revenue for you last year just on that model. Wow. Okay. That's pretty impressive. I mean, I guess you're doing a lot of revenue there. Why worry about a SaaS fee at all?

Why Charge a SaaS Fee at All

Abel Zhao

11:41>> Well, because actually when you're creating a SaaS fee that actually creates from the customer perspective, you don't charge them anything. Actually that lowered the stickiness and then also lowered the loyalty we find. And then so when you charge them anything, it becomes actually, treat the platform more, know, available or actually take it more seriously because they put more efforts into it. Because actually when we actually generate that revenue, the GMV, the take rates, the revenue, the

12:06>> profit that we get from that, we actually do a profit sharing with our partners. So therefore they actually ended up actually probably making more money by using our platforms. But if you don't charge that, actually the engagement from the customer side, it could be could be lowered.

Nathan Latka

12:19So of the 8,000,000 that take rate last year, which is your pro you know, what you keep, how much of that did you have to pay out in profit share?

Abel Zhao

12:25>> That's already paid out.

Nathan Latka

12:26That's not Got it. So 8,000,000 is your take net net?

Abel Zhao

12:29>> Correct. Correct.

Nathan Latka

12:30I see. Okay. Very cool. And then I guess we can look at the 70 to 80 customers paying a thousand to 10,000 a month. I mean, that is doing what? I mean, that's doing a 100, $150,000 a month right there. Right?

Abel Zhao

12:40>> Correct.

Nathan Latka

12:41Okay. And again, the GMV, if you're doing 8,000,000 take rate for you, that's I think, what, $600, $650,000 bucks a month there. So, I mean, you're you're you're getting very close to doing a million bucks a month in revenue.

Abel Zhao

12:52>> Yes, sir. Exactly. That's exactly our how we're doing our YouTube SaaS.

Nathan Latka

12:55That's exciting. And so if you're doing sort of $650,000 a month from your GMV business and a $150,000 a month today from your SaaS business, That's $800,000 a month today. What were you doing exactly a year ago so we can calculate growth rate?

Abel Zhao

13:08>> Oh, wow. That's actually a very good question. So if you look at so exactly a year ago, actually, that's a general maybe I know I gave you the number from 2021 then. So first of all, actually or or actually a year before that, so 2021, we first started to switch the business model from B2C to B2B2C. So we only did around less than $2,000,000 in revenue in 2020 because actually that's when COVID first happened. We switched

Revenue History: 2020 to 2022

Abel Zhao

13:31>> from travel focused to non travel focused. So that's actually quite a bit of a struggle there. It took us about two to three months to start trying things again. And then so that's another 2,000,000. So 2021, we did about 14,000,000 revenue. And then this year so so we closed 2022 with 35,000,000.

Nathan Latka

13:46Oh, wow. Congratulations. And what do you think you'll do this year?

Abel Zhao

13:49>> We are targeting 100,000,000.

Nathan Latka

13:51Okay. And I guess how did you do 35,000,000 last year? Is that take is that that's just your take rate. Right? Or is that GMV through the platform?

Abel Zhao

13:58>> So that's actually the one time fee plus rate of the subscription recurring plus the yeah. Everything together.

Nathan Latka

14:04I see. So of the 35,000,000 last year, how much of like, take subtract out the one time fees?

Recurring vs. One-Time Revenue Breakdown

Abel Zhao

14:09>> So subtract the one time fee, we are looking at so that's eight plus seven around 15.

Nathan Latka

14:1715. Okay. So so so 15,000,000 of ARR last year plus 20,000,000 of one time fees.

Abel Zhao

14:24>> Correct. Correct.

Nathan Latka

14:25I love this model because your one time fees basically help you arbitrage CAC. Right? You get your you get your money back immediately, basically.

Abel Zhao

14:32>> Well, actually, to to to be honest, sometimes that we're thinking, well, why is the recurring fee so important? Because actually, if the customers for we will basically look at the contract value. If the contract value is about million dollars, if the customer waiting to pay us in advance, we have no problem collecting it. But in the market, of course, from the investor perspective, they want to look at the long term. So if we collect 1,000,000 in

14:51>> the beginning or throughout three years for us, there's not much a difference because we have the recurring, the agenda going on. So we have the recurring revenue coming in anyway. So but because of the the the investors prefer that way, so that's why we sometimes actually change change the business model or commercial agree agreement a little bit.

Nathan Latka

15:08Yeah. So you're you did 15,000,000 of recurring revenue last year. You think you'll double that to, like, 30,000,000 of this in this year and then 70,000,000 will be one time fees?

Abel Zhao

15:17>> Oh, no. Actually, definitely have more. Actually, we start focusing more on recurring because actually there's several strategic movement that we company did end of last year and this year. So one of those actually, we acquired two companies, one that's based in Hong Kong, which is the largest TMC company for the greater in the market. So they already have the recurring revenue we're looking at. I think their 2019 number, this is a travel company. So Yep. GMC.

15:43>> So back in 2019, their peak, they were looking at 2,000,000,000 Hong Kong dollar. That's around 300,000,000 revenue alone.

Nathan Latka

15:50That's That's g m v GMV they process, ticket sales.

Abel Zhao

15:53>> That is right. That's right. That's right. And then they take around 10 to 15% of that. So So that's actually their recurring revenue. They only care about those kinds of transaction, recurring revenue signs. So I think for us, that's actually contributes big part to that part already. Plus they work with like over a thousand big guys in the market. So we're trying to convert them into from a transaction based TMC company into a travel tech company.

16:12>> So that's actually one of the strategic movement that we did. And then there's another company in Korea actually the same thing. So we're hoping that actually with all those strategic alignments put into place will help us to achieve the 100,000,000 revenue this year. And the amount that at least we're looking hoping that at least 50% of that ARR.

Nathan Latka

16:29Yeah. That makes sense. How much did you pay for the $300,000,000 a year GMC travel business?

Abel Zhao

16:34>> Can I keep that confidential for now?

Nathan Latka

16:36If you would like if you would like, you can. Maybe if you can't give a hard number, could you maybe just talk about how you thought about the valuation, maybe from a multiple perspective?

Bootstrapped Growth and Team Size

Abel Zhao

16:43>> Sure. If you I'll just say put it this way. So for that particular entity, we're aiming to IPO in 2024. So hopefully that actually gave us a minimal IPO. We're looking at $250,000,000 at least the evaluation. Yeah.

Nathan Latka

16:56Did you guys have you bootstrapped this or have you raised capital?

Abel Zhao

17:00>> No. We're bootstrapped.

Nathan Latka

17:01Oh, you are bootstrapped. Congratulations. That's very exciting. Nice work.

Famous Five: Books, Tools, and Personal Life

Abel Zhao

17:04>> Thank you. Well, it's painful experience, but still.

Nathan Latka

17:08How many folks are full time on the team today?

Abel Zhao

17:10>> Right now for that particular oh, for our for our company?

Nathan Latka

17:12For your whole company?

Abel Zhao

17:14>> Oh, 250.

Nathan Latka

17:15Two fifty. How many are engineers?

Abel Zhao

17:18>> 62%.

Nathan Latka

17:2060. Okay. Wow. Okay. Got it. So call that a 100, a 175, something like that.

Abel Zhao

17:23>> 10 to 70. Yeah.

Nathan Latka

17:24Yeah. Very cool. Great story. We're out of time though. Let's wrap up here with the famous five of you. Number one, what's your favorite business book?

Abel Zhao

17:31>> I like the number of those actually from zero to one. That's actually one of those. And then actually, I like I read the CEO book. That's a book that they read there a lot. So I try to learn something from that every day.

Nathan Latka

17:43Number two, is there a CEO you're following or studying?

Abel Zhao

17:46>> Yeah. Actually, this one here. I I read that, the CEO Excellence.

Nathan Latka

17:50Oh, yeah. Okay.

Abel Zhao

17:51>> I like this one a lot.

Nathan Latka

17:53Yeah. Very cool. Okay. That's a good one. Number three, what's your favorite online tool for building joinharmonycvm?

Abel Zhao

18:00>> Oh, definitely the the the CVM. Harmony is one of those, RCS. It's one of those. Harmony. Okay. That's actually the one that we use quite on a regular basis.

Nathan Latka

18:10Number four. How many hours of sleep do you get every night?

Abel Zhao

18:14>> Around average around five.

Nathan Latka

18:16Okay. That's not bad. And what's your situation? Married? Single? Kids?

Abel Zhao

18:21>> I wish. Single as as free as a bird.

Nathan Latka

18:23That's awesome. Not married. No kids. And how old are you?

Abel Zhao

18:27>> I'm age 40.

Nathan Latka

18:2840.

18:29Last question. Something you wish you knew when you were 20.

Abel Zhao

18:32>> I wish I could start something early back then instead of just, know, goofing around.

Closing Summary and Wrap-Up

Nathan Latka

18:37Guys, joinharmonycvm.com. They help smart cities connect with local farmers to fill grocery stores with produce, for example. They make money on both sides of the equation. Last year, they did $35,000,000 in revenue of which 15,000,000 was recurring and 20,000,000 was their take rate off their GMV, which they did 20,000,000 in GMV in the last quarter. They hope to break a $100,000,000 in revenue this year on the back of a major acquisition they just completed. That 100,000,000

19:00will be split fifty fifty between true recurring ARR and then sort of recurring GMV take rate on top of the business. Hoping to IPO in 2024, we'll see what happens. Totally bootstrapped, which we love. Abel, thanks for taking us to the top.

Abel Zhao

19:12>> Thank you, Nathan.

Nathan Latka

19:14One more thing before you go. We have a brand new show every Thursday at 1PM central. It's called Shark Tank for SaaS. 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 one

19:38p. M. Central. Additionally, remember these recorded founder interviews go live. We release them here on YouTube every day at two p. M. Central. To make sure you don't miss any of that, make sure you click the subscribe button below here on YouTube, the big red button and then click the little bell notification to make sure you get notifications when we do go live. I wouldn't want you to miss breaking news in the SaaS world, whether it's

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20:21people are saying. Sign up for that at nathanlatka.com slack. In the meantime, I'm hanging out with you here on YouTube. I'll be in the comments for the next thirty minutes. Feel free to let me know what you thought about this episode and if you enjoyed it, click the thumbs up. We get a lot of haters that are mad at how aggressive I am on these shows, but I do it so that we can all learn. We

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