Gatsby Revenue, Valuation & Funding (2019)

hello everyone my guest today is brett bernstein uh he's a two-time founder sold his first company at age 24 and then worked a box through their ipo and started his latest company gatsby in 2017. he's been through a ton of entrepreneurial ups and downs from founder fears to selling a business that helps 50 000 students eat healthier every year again now focusing on gatsby which helps identify and engage your most influential customers brett you ready to take us to the top sure nathan thank you you bet so that first company you sold at age 24 was that the the student kind of eat healthier business that's right that was natural cravings uh it was a great passion project that we grew out of uh the obamas coming into the white house and we were there to fill that that void that michelle obama came up and said hey students have this obesity epidemic here especially in california and we were able to help aid her mission by providing healthier food options for school districts throughout the state bro what do you mean michelle obama just came up she doesn't just come up to people how'd that actually happen oh sure so uh if you remember one of michelle obama's most um probably recognizable initiatives when she was in office as well as first lady was around you know creating awareness around the obesity problem in america and her focus was on children and so we happened to have started a business my my father my friend and i a little before she came into the white house and we were focused on healthy school vending and then when she came in and put you know shown light on the issue we were able to really capitalize on that on that and what was the model there i mean obviously that wasn't software were you just selling and making margin off kind of food you were putting in cafeterias yeah we actually supplied the complete top to bottom solution we provided the healthy vending machines themselves we did the restocking and we also did the best part was picking the products themselves right so again to decide what was uh the best for the schools and students we had technology in there as well that would tell us what was selling the best what was out of sell and was to be restocked and it was very efficient and processed why did you sell the company so we grew too fast which is a great reason but uh unlike software it's not as scalable to grow physical businesses so we had to deal with increased employees insurance vandalism things like that that were like basically we got three major school districts in the course of one week and we had to have hundreds of schools um with machines by end of summer which was about three months away and so we looked at our options we tried to partner with a food service business that was already distributing hot foods to those school districts and ultimately we decided that the best thing for our students in the schools was to sell to a larger company to actually be able to deliver in time and was this like a life-changing moment for you to the point where you don't have to worry about money the rest of your life or was it more like hey this is a great learning experience i launched company i sold it now i'm going to go into box uh yeah it was definitely life-changing the standpoint of the experience right um it was incredible to grow a company from nothing up to an acquisition uh be part of a mission that was extremely close to my heart and uh it propelled me into my next career okay so how did you land in a box after that so when i sold right so actually i had some friends from college who were working at boston in the very early days uh so i was familiar with them and when i sold national cravings i was actually in the bay area where boxes based so as i'm negotiating the sale of my first business i'm actually uh interviewing with box and that experience got me into a great position there and helped me grow pretty fast with the company because your friends kind of obviously brought you in there and then app box helped me understand so it sounds like you started there in maybe 2012 where did you kind of accelerate to to the year you left so i loved my time at box it was so exciting to work there with aaron levy and the rest of the great team there um i got fortunate enough to come on to the customer success team actually what i was choosing uh to work on at a time when it was a very small part of the company right there was maybe 10 or so people managing tens of thousands of clients right and so i got lucky enough to get in there early enough to work with some of our most recognizable brands at the time i will mention their names but i almost did and that allowed me to have a lot of exposure and and understanding of how enterprise software works so over the next two and a half three years i actually worked my way up through through box ended up moving to the marketing side um helping directly with our strategy around partnerships integrations with the ecosystem so we're talking about microsoft dropbox google how we compare and contrast and work with those folks and then eventually decided after the ipo that i took you know i'm now in my late 20s at that time and i decided let's take my experience with my first business which i grew from zero to acquisition and then my experience with enterprise software box which i was at from a couple hundred employees through over a thousand and take these two things together and find my next business for myself and that's where gather was born okay so what year was that uh the idea for gatsby started in 2015 the tail end of it so almost 2016. first line of code was 2016 as well that's right okay so uh first line of code then and then help us understand again what what the company uh does okay so here's actually a very interesting story um i didn't sit down and decide i want to build a marketing or social media company i never believe that that's really how the best ideas are created uh rather it's through iterations and customer feedback so when a very first iteration of gatsby was very very different than it is today we had i looked around at the market and said what do i know what am i skilled at and where are their problems and my number one philosophy when starting a new business is look for a business model that currently exists but only services an elite minority of the population if you can modify that business model and make it available to a larger audience that's an investable and scalable business that was my approach so i was looking around i came across a concept at the time called social media vending um large brands i remember very specifically old navy would do this strategy they would launch a new a new location a new storefront outside of the location they would have a vending machine it'd be branded as old navy it'd be stocked with slippers the side of the machine would say tweet for your feet and as you walked by the vending machine patrons would be encouraged to tweet about old navy in exchange for a free vend of slippers yup makes sense very cool concept of converting foot traffic into marketers leads but also marketers right that was the idea so i started so my very first few weeks of gatsby was wow really cool idea but very expensive talking 100 000 a month to run a campaign like this not accessible to most brands so my thought was if i can walk around to malls and movie theaters and have them place a turnkey machine that's branded my own branding but it has the same idea where they can just rent access for a week or a month at a time and have the same ability to convert foot traffic into their patrons that's a good business within two weeks i actually had a major mall in la give me an agreement to sign in time for black friday and right as i said in the agreement i'm like having flashbacks to my time running natural cravings where i thought oh my gosh too fast yeah hey just bro there's a lot of story you want to capture so speed up to essentially how you pivoted from the physical stuff to where you are today with the instagram handles and virtual influence so at that very moment before i signed the agreement i decided i spent three and a half years at box how can i pivot this into e-commerce right where on where in the e-commerce landscape is a vending machine quote-unquote and i discovered the pop-up window so the pop-up window exists on almost every single website and it's the same idea give us your email in exchange for a reward that's a vending machine in many ways so i thought if i could make that experience social what would that be like would brands like it would consumers do it so our very first version of gatsby uh very easily was like follow us on instagram in exchange for a discount code yeah and in the process of that happening we captured email address and more data points as well including follower stats there were some issues with that first version you know let's just say we had to go through the api and there was drop off and obstacles right but the overall premise worked we put our heads together came up with a better version which exists today and luckily timing just like the time with the obamas and my first business we had luxury of fire festival help us out tremendously here as well so about two years ago right we're about to launch our product the new version the fire festival takes place are you playing with the fire festival yeah yeah i think i think our audiences as well so and just fa bret fast forward okay we're taking a lot of time here on the story i want to get fast forward to exactly where you are today so you use the fire festival i assume the instagram folks obviously you have maybe helped them with the orange plates on instagram but how are people using it today right well what i'm getting into here nathan is that what happened at fire festival was brands recognized that the this world of macro and celebrity influencers wasn't as effective or as or as efficient or mostly as authentic as they wanted to be so it was a big exodus towards these micro influencers and one of the value adds of gatsby was we found follower accounts of customers audience sizes of customers so brands started using gatsby to discover which of their existing customers happened to also be micro influencers yep so that's what we're exactly we built out more and more ways to integrate gas b so that we have more data capture points more automation based upon that metric and what's the revenue model today is this pure play sas or is it gmv based or what based on volume so basically to sas play um brands will install us pay us a monthly annual fee based upon predicted amount of volume they'll be using as far as the amount of enrichments and data captures they plan to have okay and are we talking kind of on average customers paying 100 bucks a month or like 10 000 a month yeah our smallest and base plan 100 bucks a month but we have clients that are doing you know they have agencies that have 500 1 000 clients that we have much larger enterprise deals with them yeah yeah that's why again i'm sure you have tons of cohorts we don't have time to talk about all of them i mean what would you say that was a fair sweet spot a fair average for you uh a few a few thousand a month is pretty average okay and so for someone that maybe signs up for five grand a month give me a sense of how many micro influencers they're potentially targeting with that how many enrichments per year you're processing at that price point etc yeah so i mean you can see our pricing online our list price starts at 25 cents per capture right and we have enterprise pricing but the idea is that no matter how much traffic you have there's a good chance that you could probably be capturing uh based on where you add gatsby between one to ten percent of your site visitors uh instagram handles and of that amount right about one in uh about 20 of those are micro influencers right people that have between one to ten thousand followers so if you capture a hundred handles whether it be in your point of sale in your brick and mortar your pop-up widget your checkout page anywhere you want about 20 of people that you capture that are buying your goods probably have between 1 000 to 10 000 followers so you can extrapolate that up based on your traffic volume to see how many people you have but it's a lot of people that are buying yourself that could be great marketers for you so how many of these brands have signed up to use the platform kind of actively today yeah i don't get exact numbers right now but we have hundreds and hundreds of people are signing up all the time on shopify's platform we have hubspot we have integrations with sendlane so people can find us in different places and they're signing up and there's a no free it's a free version to sign up so it's um pretty easy to get started you know i'm trying to get a sense of i mean free is easy anyone can sign up a free user but activation is what's actually really difficult and understanding where to put up the paywall relatively activation is another barrier you obviously have to get over which you've done many times at box and a natural craving so my question is actually so to convert folks from free to paid right what do you need to get them to do during the free trial to drastically increase the likelihood when they hit that pay while they convert yeah the number one metric we look at is mostly the site volume right if they are going to go live with us and they have at least you know 20 000 people a month on their website they're going to see enough volume to make it clear that there's people that they should be working with that we're identifying for them okay interesting they have less than that it's typically not worth um our sales after school yeah either the five grand a month first your acv whatever they're not going to pay it so it's not worth going after are you have you decided to do all this bootstrap or have you raised capital bootstrapped we have uh very very little money uh from friends and family and very little like 50 grand 100 grand in that range yeah okay did you spend i always like to ask what folks like you especially second third time founders spend before they forget in terms of mvp before their first dollar of revenue what what's the answer a year with a year without without raising any money and working entirely off of nothing so we built our entire first version taking in zero dollars and living off of our own means um so you just had basically by the way you did have expenses right you just you had savings built up where you could cover the expenses for a year taking no no no any kind of salary from the company that's right and who's we uh i have a small team of people that at the time when i very first started it we had a different employee in place that i was working with but at this point today full time is me right and i actually have uh uh what's it called a um remote work team right now and i'm looking to hire at the moment but yeah right now we have a remote workforce okay so one one person and then help me understand you know how aggressive you're being to get a new customer right so are you doing i mean obviously the only person's time in the company is your own by the way are you developer as well i'm not okay so how did you manage them yeah so who did you convince someone to essentially build the engineering for free no no for equity okay but okay so you gave up equity but no cash payments to whoever these developers were that built the tech not well they eventually did but not in the very beginning though we started off with just hey i have idea can you help me build this here's your equity compensation for that yeah yeah okay so 2016 is when they again first sign i code when was first dollar of revenue it was a great story um it was 2017. we put the paywall up within one day we had a customer sign up with a credit card on their own and pay us for it and it's i mean it sounds like though based off how you're answering the questions and positioning wise you're very much kind of trying to target more the the enterprise model you prefer to have 10 customers paying you a ton than a thousand customers paying you 90 bucks a month it wasn't always that way though nathan but we we learned that recently mostly because our value to a customer is exponentially better when they have more traffic and more volume yeah this space though is really tough like i've had a lot of people on influencer marketing space micro influencer space there's marketplace models there's gmb models and there's pure sas models and they all have extremely high churn it's very difficult they're campaign driven so they're seasonal so it's very difficult unless there's some data play right to actually keep customers when they're not running a campaign i'm just curious about how you're traversing some of these gaps well the great thing is that we're not like anybody else because we're not living in the campaign world we're not living in a database or marketplace world we're saying here are your customers right you're already getting data on them for your crm or your email marketing tool let's give you more data on them and how you choose to use that is up to you our primary use case is helping you find micro influencers engage them at scale which our platform can do um but at the very end of the day do that around launches if i'm old maybe launching a campaign for black friday i'm going to give you my customer data in november right so that you can tell me which customers have instagram accounts and which ones are the most influential so my team can reach out and incentivize them to market on black friday walk me through the use case where someone's doing that early every single day they're not launching a new campaign every single day right oh no so at this point so gatsby itself our platform will send an email out every day so we look at the people who you captured in the last 24 hours and for those that meet your parameters we'll send an automatic email on your behalf saying you know hey nathan's i'm alex from our marketing team thanks for buying our stuff yesterday so your instagram feed looks great open new collaboration with us or whatever you want to say it's all pre-written by you but that's this is a long-term you know low touch but high volume building an army of ongoing advocates for your brand it's less about manually building these campaigns yeah so so how many how many brands have given some incentive to a micro influencer that they found because of your campaign whether it's a free product or actual cash payments for promotions hundreds hundreds okay we have hundreds of brands or micro influencers hundreds of brands brands okay and and can they how much of that can they do on the free plan like when did you decide to put up the pay wall so the free plan does not include our email outreach so they can just get the data free plan yeah okay so then it's fair to say i mean you have more than 100 paying customers yeah yeah okay very good what's the next big target well we're working at uh much larger brands and enterprises and agencies um i mean this platform is built to scale so what's what we're doing um that and also integrations and point of sale so i should also mention this we were just announced that shopify's unite conference um our integration with our pre with our pos tool so go into brick and mortar and restaurants right this idea of e-commerce only is is not our vision every brand every merchant will want to know who their customers on social media it's the identity of the future of these younger consumers and so helping them get that information is our goal yeah let me before we wrap up let me just break down one nuance because there's two numbers that you've given me right so 100 costs you said more than a hundred customers you said earlier average was about five grand a year um i'd be really really impressed by the way and i i'm sure you could do it but a hundred customers right at five grand a year is 400 bucks a month or i mean would mean you're doing about 41 grand a month right now with just one person is that accurate have you managed to do that no that's not the accurate numbers right now i'm gonna give you some estimates okay so that when i asked for average per customer earlier it was not five grand it's something much less than five grand yeah so let me let me talk about i mean really briefly we talked about how when i first started gatsby we were looking at much smaller customers right so our average contract value is increasing right now um and so i was giving you more accurate numbers for current days okay got it so current sign ups you're targeting more of that price but historically it's obviously been lower that's a pattern you see in sas all the time so not surprising that's great now you think you want to stay bootstrapped or you have plans to raise we have plans to raise actually we just started to discuss that with our current investor outreach community why is now the right time to raise and what would you spend the money on the team right so i've taken this company very far on on my own more or less right which is the contract help and now we've proven that this model exists and we're ready to scale our platform and our team but how do you i mean you saw a box i mean right one of the hits on box was my gosh you guys worked your tails off but aaron earned like 0.000 not actually but like less than five percent of that company when you ipo right so you know the importance of managing how much you raise versus valuation versus dilution so what's like the right amount for you to raise where it's exactly what you need but not too much are we talking you think like a million five less i mean this will be our it'll be a seat around right so we're looking at raising somewhere in the one to two million dollar range let us hire um you know in-house engineering person to run our sprints and our roadmap and our engineering outsource team let us hire somebody to help with customer success as well and build out that team that's what's important to me and so having that that work very good all right let's wrap up here with the famous five number one what's your favorite business book ooh um let me get back to you in a second okay number one that's okay number two uh name a ceo you're following or studying um aaron levy i follow him very closely i think very highly of him number three what's your favorite online tool for building your company um right now cap table i o is extremely helpful number four how many hours of sleep are getting every night it used to be closer to like four to five and right now i'm actually focusing on making sure i get seven that's good and uh how old are you 31 31 and with situation married single kids single single no kiddos and last question what do you wish your 20 year old self knew it's not about staying busy it's about being more effective guys be more effective not always about staying busy gatsby.ai again helping brands understand which of their customers have the most influence so they can go naturally incentivize them they've got caught north of 100 customers at this point again pricing on the page today somewhere anywhere between 99 bucks a month minimum up to 5 000 kind of average starting points per year for these folks as he looks to scale uh pretty impressive they've done basically this with just raising a friends and family run call it 50 grand a team size just him today looking at raising caught one to two million dollars to help scale the company now moving forward brett thank you for taking us to the top thank you