FreightWaves Revenue, Valuation & Funding (2024)

Introduction hey folks my guest today is craig fuller with freight waves uh he's the ceo and founder the leading provider of data analytics for the global logistics injury industry the company provides the fastest view of transportation logistics market activity across all modes the company is also the number one source for media and market analytics in the in the global freight industry craig you're ready to take us to the top yeah happy glad to be here thanks man so you have to sometimes i put out crazy predictions in my email newsletter which go out to about 60 000 people and i always get interesting feedback back i think that maybe that's the genesis you got some inbound from that what were people saying well i think the note was that uh freightways was likely to be acquired by some of the companies that are also in sas and uh because we have a set of journalists and we get a lot of market intelligence uh our it was interesting because our sas business is actually bigger than some of the companies that you mentioned that would acquire us so uh i just saw is it interesting it's always good to get uh news and and people talking about the company so i don't hate that or begrudge it uh but it's always interesting to sort of see how people put things together we were talking i interviewed the team at flock freight i had zvion from uh from uh i had freightos on like a bunch of these companies and i'm always looking like i think a very smart move to arbitrage cac in any sas business is to build a media brand and you already had that i had no idea there was a sas brand behind that and so you reached out and i said i reached i said please please come on this is great so let's dive into this um what so how would you describe today freight waves to the market because you don't lead with sas no i think bloomberg is the is really bloomberg of freight the bloomberg of the supply chain is really the best description for freightways if you think of our business versus bloomberg bloomberg is in many ways what they do in the financial markets we do in the physical economy and so what i mean by that is we are focused on the intersection of how product uh moves physical product moves to the global economy and bluebird tends to focus on how money moves through the global economy and so we have a media business uh that has journalists we have about 40 folks that are in our editorial media side bringing original content and context to what's happening around the global economy but using our data data to inform that and then we have a subscription sas business which we sell to our industry that provides real time uh fundamental data to help them manage their business more effectively so pricing data go ahead 40 journalists on media how many full-time at the sas so the whole company's got 200 employees uh and you could sort of break up the company at about 50 50 between full that's fully dedicated to media and then fully dedicated to sas and then the balance of it would be around 70 employees and sort of do both okay so 70 are sort of shared so people are going to ask what came first are you software diehard or your media guy heart well i set out to build a software business and realize that in order to build a software business of a new sort of category uh you have to have someone to market the product and i tried to go find the existing media businesses that i could go essentially have write about the topic that we were doing uh and out of frustration of not really getting any of these stories picked up that we were trying to pitch uh we we started talking to some pr agencies uh and we were getting ridiculous quotes uh one quoted us he we got turned down by a number of publicist and pr agencies which is like getting turned down by a lawyer like that never happens uh one agreed to take us on and he quoted us 40 000 a month and that was like all of our seed capital and so as i walked out and said you should do this yourself and because you should get hire an editor and write content yourself because what you're describing is difficult to talk about and we did and we realized really quickly uh because the the journalists had come from one of the other major trucking publications uh and we were getting a lot of traffic in fact we our site was in many ways built beating his site that he had come from and we realized really quickly that there was this gap of information in the market and um uh we just doubled down on it and it started to really work and what's and what it has enabled us to be is really the source of information of what's happening in our business uh and we ended up that enabled us to scale our sas business which is all about data so we provide real-time fundamental data for the market and our editorial team brings context to that data yeah now if we just talk about Currently serving 700 customers customers to the sas tool today what are you at uh we've got 700 enterprise customers so the average contract is about 25 000 uh we add consistently 20 to 30 new enterprise clients a month about 80 of that is inbound so we didn't start spending any i think most sas companies sort of do the first thing they do is they go and do adwords through google to sort of get sort of drive activity and then they hire a business development team we did the opposite we had the content team and then we hired a business development team and then we ended up just three months ago adding sort of paid per click google advertising so we're relatively new in doing the other things to sort of drive sales on top of the funnel uh almost all of our activities sort of comes in for our media business and even if it's not a direct response or they're not you know coming directly off of an article we've written what's nice about it is when our business development group reaches out to those companies the company already has familiarity with the cop they just may not have realized we had a sas business or had not ever reached out to inquire about the the data that we we sell so having that ubiquitous presence enables us to uh really trim down our cycle in terms of closing deals we're our average sales cycle is about 52 days from the first conversation to close but i often say that everyone at some point is in our funnel because if they're reading our if they're in our industry they're likely reading our content uh and so they're always sort of in that phone does the media business make money like sponsorships okay what's the model there how does it make money so it's advertising so it's a free advertising site we don't date it in terms of a paywall uh we monetize it through advertising and it's about a 60 some odd margin business today yeah so we have a term called negative cac so if you think of sas companies have cac which everyone sort of understands customer acquisition cost so to calculate that you figure out what does it cost to acquire these customers and we we have a metric that's we we track that independent of our our uh our media business but then we have something called negative tax which is if you took the margins that you generated if you traded us only as a sas business and you looked at our media business as a as basically a marketing engine then you can look at the advertising or the contribution margins in our ad business as offsetting your marketing costs so um we have something called negative cac which means the more content we produce and the more revenue that we generate through advertising uh it offsets much much of your sort of marketing and customer acquisition cost so effectively if you think of what most sas companies end up spending capital number one is sort of rnd and then at some point the cycle they flip to marketing and customer acquisition the nice thing is our customer acquisition is is effectively zero or negative so we have no capital tied up in in direct customer acquisition uh all of our capitals tied up in r d and product trailing 12 months revenue across the whole business what percent was media versus what percent was sas so it's about 50 50 and i know that sounds convenient uh and i don't intend it to be it's just that both businesses are growing in tandem and uh if you looked at our sas business we'll we'll complete the year about 15 million of are uh in terms of occurring it's about a three-year-old business uh and then if you look at our media business uh it will be on the same sort of trajectory at the end of the year so and back to that for me let's just talk sas for a second so if you're around 15 million are this year where were you exactly one year ago yeah we were about uh six and a half at the start of the year so wow so that started at the start of 2021 or 2020 uh 2021 yeah wow okay so you end you end 2020 with a 6.5 million dollar memory you think you more than double this year which is great take us back one more year 6.5 and then what was the year before that around 4 million the year before really interesting okay and was it always a 50 50 split between media and zaps no media has been bigger than sas and what we're finding is we scale that our media that our sas business is accelerating faster uh than our media business and so media slip there's a you know me our media growth is slowing just because it was such it was so explosive in the start it's it's easier to monetize media frankly than it is sas i don't know that a lot of people realize that um but the great thing about sas is it like once you get that engine going it's it has its own set of momentum which doesn't require you to put as much into it so uh that is you know if we sort of look at the business we're starting to see sort of a mix shift in our revenues um i mean half our revenues in 2019 was in physical events it was zero last year and oh wow so we we lost half our revenue last year but we still managed to triple the size of the company how much revenue in 2019 on events 5.5 million wow remarkable okay and assassins 4 million so less than 50 percent or the ar has a limited lag just because it isn't you know ar is typically what you end with right yeah and so whatever you're sort of closing contracts under or revenue recognition so it isn't it isn't appropriate to say that just to be clear though so when you say end of year 2020 you're at a 6.5 million run right on the stats that's taking december 2020 revenue times 12 equals 6.5 million taking contracts that are signed multiplied by the value of those contracts before got it the media business though look at the total revenue in 2020 did about what seven million so the media business uh in 2020 yeah 7 million approximately that's about right where did you make up i mean you lost 4 million in event revenue how did you make all that up in advertising well you just come end of the day marketing budgets are fundable right so if you think about companies that are advertising or either advertising through events and they they have an event budget and they go out to events but when that dried up they still have marketing budgets they still have a desire i mean one of the advantages is we're in probably the hottest market on the planet the supply chain very high information in supply chain so our industry has done exceptionally well so marketing budgets are not we're not cut during covid in fact an industry our industry has been historically reliant upon relationships uh to sort of drive new customer acquisition and that's how the freight and supply chain industry sort of builds its customer engagement a lot of that money was then redeployed uh to assets like ourselves because we have this broad distribution and engagement total you've raised capital how much Raised total have you raised to date so total if you take total capital raise uh we're at 92 million dollars of total capital raised uh that the equity rates is about 44. um so um the way to think of that is that some of that has been uh debt we've taken some debt that was non-dilutive or largely bond diluted i should say and then some of it we haven't drawn down so how much data have you raised 10 million of debt interesting and a lot of people don't understand debt can be diluted because there can be warrants attached to those standard i would say is like half a point to maybe up to two points did you do banks own more than or do your lenders own more than two percent of freight ways right now weren't wise well this would have been a growth capital it would have been a private equity fund it wasn't it wasn't bank debt i see and it wasn't svp and you're probably referring to like an svb line again that's not it's not the debt we're referring to it's high yield debt for that but it's it's relatively non-dilutive so if you think of debt is actually great as an instrument for growth if you're if you're very confident in the growth of your business yeah where debt is a problem is where you're taking it as a last resort because it's it has a lot of covenants and restrictions to it that can be very costly if you don't if you don't manage those the other thing i want to touch on that other founders rarely touch on is you know i always say like don't raise vc unless you absolutely need it but the other because it limits your optionality moving forward but you can also just create more flexibility if you just take secondary along the way create liquidity for everybody if i take 92 million in total funding minus 10 million in debt right and then subtract the 44 million in equity that means there's about 30 million there unaccounted for i assume most of that was secondary is it accurate no it's not secondary it's it's capital that we've raised that we haven't drawn down so some of the ways that you can create flexibility in your cap structure is to actually draw money so you raise it it's allocated for you the fund is set at the side but you don't need all that capital for some period of time so you can actually call on that capital at some future date and so it's it's relatively non-diluted and so it goes back to how do i short my balance sheet and how do i have capital available to me for acquisitions or capital available for growth or even as an insurance policy but i don't actually have to draw that money down immediately and so we've done a lot of those types of structures that has given us optionality so you're you're giving up some degree of of dilution but if you take equity dilution 100 that dilution is immediate to you uh versus taking it at some future date if you've indexed your growth at some future value and the uh the investor has agreed to it it enables you to take a far less dilutive amount of capital the thing that's often misunderstood about capital is people can put ridiculous uh a company zero a pre-revenue company got a billion dollar valuation in our space and what is not understood is that's great it sounds great but but there's not a lot explained as to what that billion actually means you can have massive preference you can have that capital set aside for future days a lot of things that isn't often understood it's sort of beyond the headlines yup so what valuation did you raise when you raised the 16 million from triangle earlier this year so our post when that was 286. okay post 26. and did you pull that full 16 immediately or no we we did pull that full 16. it's on the balance sheet company i see so go back like how do you decide to pull all that but maybe maybe at kane you didn't pull the full 30 million last year yeah i don't want to get into all the nuances of what we didn't pull and who we didn't pull from uh just because i don't think that information is well the reason i ask is let me pull this down further let's just i'm making an assumption here guys so caveat here craig's not confirming this i'm assuming let's say kane said here's a 30 million tranche available in july right at a set valuation and you don't pull a full 30 because you don't need the full 30 but you use that you know you show up your balance sheet you use that leverage you've de-risked the business to go raise from trying with a higher valuation you pull full at triangle because it's a higher valuation less solution for you kane is left stuck with a 15 or 20 million dollar commit whatever you haven't pulled do you pay unused fees on that money no not necessarily you still that money still available for future for future use should you want to pull it down but at a lower about likely at a lower valuation than what you're right now that's all up to how you've structured your deal it does it doesn't necessarily have to be a lower evaluation you you can certainly raise that capital at a future date at some calculation based on how well you're performing so just because you raised it doesn't mean you pulled it into your balance sheet and it it also doesn't require you to call on that capital until you're ready no different than if i raise a venture capital firm when i raise the capital i may raise a hundred million vc firm i'm not pulling that money down i'm calling it money as i need it yeah yeah yeah let's go back a couple years because maybe you can share more since these are much older when you do the 20 million series b in 2019 what valuation was that at uh that would have been 92 million i think oh wow okay so you almost tripled that that's incredible and what about series 8 13 million in 2018 uh 42 i think was the number post okay and so so tell me about acquisitions like you have what i think is the hardest thing to get in stats which is you have a moat which is attention with your media business you're in a great spot to go buy companies are you an acquisition talks right now to buy any companies we have we've done four acquisitions so far uh they've been small check-ins um almost and so the challenge with acquisitions if you're a high growth so we're a company that doesn't burn capital we're basically cash neutral uh and we're still growing you know 90 on a year-over-year basis it's very hard when you look at the rule 40 if you look at the valuation metrics we could go buy something for scale sake the problem is the stuff that you that you look at to acquire doesn't have as good of a rule of 40 profiles so they're either not there they're they're they're they rank lower on the roll 40 matrix which actually there's a is a direct correlation between how well your position on that roll 40 matrix to what your evaluation is either at exit or on a capital raise and so if your rule of 40 is very high with jars is anything that that is lower than that potentially if it's big enough knocks down the valuation of the company yeah and so let's say that we're trading at 15 times revenue if we take something that knocks our rule of 40 down to a 60 and we're trading at 10 times revenue or 12 times revenue then i've just given up a couple turns of value of that unless they bought that business at a very low valuation so to make up for the sort of arbitrage that you give up on value so buying something for the sake of scale for us doesn't make a lot of sense buying something that is accretive to our rule of 40 matrix would make sense if you can find it yep yeah this is really interesting okay a couple other things here before we wrap up because i could go on forever this is a great great story i think it's the future of how sas business will be built around attention and media first but craig for you specifically you know at your scale with how much you've raised and how you've been smart about you know allocation evaluation how much equity do you still own in the business yeah i i'm not responsible so can you get even comfortable with a range of big range um it is more than zero uh look when you're doing fi you think about what the rules are for every round you do a founder is getting diluted twenty percent sort of compound that over five rounds or whatever it's been you're in the mid teens and i think that's a fair number for me well okay cool so i was gonna say if he gives me a range of between zero and 100 i'm gonna kill him uh but if but i think mid-teens is is is probably appropriate you know i don't have co i don't have co-founders i founded the business myself um but you could cert mid-teens is the right answer for that out of curiosity founding this yourself back in 2016 you raised that first two million in capital did you get dinged on your valuation because people were like you're a sole founder craig if you hit by a bus we're screwed i had a powerpoint presentation and that's all i had so i didn't even have software i didn't even have a co-founder i didn't have any employees and so i raised two million as debt now that was the most i'm happy to talk about that how do you raise two million is debt free like on day one that's right i just i well the problem was it was also equity so it was participating before it was the worst deal i've ever done um it was 25 percent of the company for two million dollars and i had to pay it back the investor has been paid back so they he has received his full two million uh plus eight percent interest for the three years that we held it and yeah i'm right i'm sorry you don't get the equity back when you pay it back no well but nathan i think you have to remember that when you're a founder who who has an idea and not a lot of people are writing checks and you could get a two-man art check for not for a business that didn't exist at that moment in time there wasn't even a software package behind it then i think that's a pretty good deal i mean if you think about the amount of wealth and i think this is something that has to be said is like you could sit i never regret taking money at the time because the information i had at the time these were the best deals i could get right yeah and so i took them because they were the best set of circumstances for me but i i went for making a having a job that paid me a hundred and fifteen thousand dollars a year to raising two million and being basically independent at that point and then over the course of the past five years i've now built that to you know 40 50 60 million dollars in an equity value i think that's a pretty good idea a pretty good deal and i'm not done yet so i can sit there you know the 2021 version of me you can sit there and judge the 2016 version but there's no point in it like i'm a lot better off than 99 of every founder that's been out there and the fact is that the person about the check believed in me when nobody else did and they benefited from it i i took another round where the investor put 75 000 in the company and that's worth millions to them today so these things you do as a founder but i don't if you look at it on a percent basis i think a lot of people get caught up in the percentages the percentages are less important than what you're actually creating in real value and i think i think we would all be better served if that's what we focused on and not just i own 85 of the business because ultimately that doesn't matter today and what does matter is what you're actually creating in value over time yep uh softbank is famous for just lighting money on fire a smart entrepreneur an enterprising entrepreneur like yourself might take advantage of that flock freight now has more capital behind them and softbank on their ballot on their on their cap table uh are you in any talks with rn to sell the business to to uh to uh flock freight right now no i'm not in no it would be hard for a a company like flockplate to buy us and i'll tell you why is because we are a information provider and we sell data to competitors and fog freight and competitors of flat trade so our business is we are the for lack of a better description the bloomberg afraid so it would be like bloomberg selling the goldman sachs like a it would kill boom goldman sachs could never write the check that michael bloomberg would want and the moment that goldman sachs bought bloomberg they the bloomberg would lose 99.9 of its business and so for us it is unlikely that we would sell to a business that's in our industry we're more likely to sell to a smp or a bloomberg or a reuters or a finitive or somebody that's in market data businesses because or take the company public because that's that's really what we do we are not we're not in the business of selling to someone that's using our data to make decisions so are you in talks right now to raise any more capital we don't need it uh we have 26 million dollars currently on the balance sheet with another 20 that we haven't drawn down as i described uh and um we're cash neutral and so there's really you know you business is like i said is growing you know 90 and we don't need to because we have this media business that just throws off cash i don't have a lot of customer acquisition cost and so i don't i can continue to scale my business indefinitely without having to consume capital and i think i think as founders you know that first deal i took that was highly dilutive every deal since i've tried to mitigate the amount of delusion i take and so taking capital for the sake of taking capital is sort of senseless because it moves it makes it that much more difficult to achieve the goals you want so you're on it craig this is great uh this is so far how are you enjoying yourself i know there's a lot of numbers but this is knowing we love i love like i i live and breathe the fi finance i'm i i certainly am not a finance person but i live and breathe it because it's the that is the oxygen that every you have to understand finance if you're going to be a founder of a company at some point because it is the oxygen that drives our businesses yep let's wrap up with the famous five year quick number one favorite book um sun zoo's art of war number two is there a ceo you're following or studying um i am a huge fan of michael bloomberg number i sense we're gonna be reading in the press very soon bloomberg requires free waves for 500 million dollars in cash and stock i i could neither hear nor say whether that was true or not i'm totally taking this clip but if i see in three months i'm saying it you heard it here first all right michael blewer number three what's your favorite online tool for building the business i'm sorry what was the question favorite online tool for building the business [Music] linkedin i mean linkedin is not great twitter is wonderful so a little more creative all right a little more creative number four how many hours of sleep do you get craig uh eight hours and situation married single kids i'm married i have five kids wow five kids how are you i'm 42. last question something you wish you knew when you were 20. i i i don't know that's a tough one guys freight waves building the future of transportation logistics tracking physical objects think that like bloomberg for physical goods doing it the right way he is running a business where he has arbitrage a profitable distribution network with his media business makes up almost 15 million dollars of revenue his sas businesses another 15 million dollars in revenue the market's loving and raises serious c 16 million bucks with a 286 free money valuation just recently team of 200 people split sought 50 50 between the two businesses growing ninety percent year over year we're rooting for your craig thanks for taking us to the top thanks david 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 every day at 2 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 sas world whether it's an acquisition a big fundraise a big sale a big profitability statement or something else i don't want you to miss it additionally if you want to take this conversation deeper and further we have by far the largest private slack community for b2b sas founders you want to get in there we've probably talked about your tool if you're running a company or your firm if you're investing you can go in there and quickly search and see what people are saying sign up for that at nathanlacka.com forward slash slack in the meantime i'm hanging out with you here on youtube i'll be in the comments for the next 30 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 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