How Mercatus CEO Haresh Patel grew Mercatus to $10M revenue and 24 customers in 2024.

hello everybody my guest today is haresh patel he has a 30-year career which spans entrepreneur startups to be leading three public companies in 2009 he founded his current company mercatus an investment bank focused on renewable energy assets today the software platform serves 450 billion in assets and investments under management for the world's leading energy companies and global alternative investment funds are actually ready to take us to the top uh absolutely nathan okay that's a lot of assets you get one percent of all of them right absolutely tell us about the company what's mercatus doing how do you make money yeah so mercatus is a software platform we help private equity funds that are investing in renewable energy energy and power real estate infrastructure and it's a physical asset we help them actually digitalize and help them digitally accelerate their world because it's pretty inefficient today in terms of the only way they've really scaled is by throwing bodies of the problem and with the type of growth that's coming over the next 30 years which is about 90 trillion dollars uh the growth is you know they just need the the right tool sets to to compete and fight and disagree sorry 90 trillion of where's that where's that money coming from well that's going to come from endowment funds and pension funds and you know various sovereign funds uh and just the money that's lined up on the sidelines that invest in other asset classes all lining up to really invest because the whole globe is kind of going through a major restructure of its energy and power grid uh moving to more you know carbon neutral in the world and even as if you think of transportation when you build buildings are they lead friendly are they eco-friendly so there's kind of a global build out of uh you know of of that um you know that uh the infrastructure so why are so why are these pe firms using them are they are they organizing their investments or they're using this to find brand new investments it's like the bloomberg terminal for renewable energy uh yeah i would describe it as a the modern microsoft office right today they do things in email and excel excel is the engine that the entire world uses it's the best financial product and it's something that is is isn't scaling because it's not connected so imagine you know trying to pass around 1.6 million financial models and these are very very sophisticated financial models and you're trying to figure out you know what's how do you make heads or tails out of it so this is at the end of the day a data collection problem and a data analytics problem combined with how do you get 50 or 70 or 100 or 1500 people collaborating you know around this process because it's a fairly lengthy uh diligence and underwriting process and every step is is is related to you know collaboration so just be clear this is not for like helping these private equity firms find new deals it's for them like putting performance together or collaborating around data inputs on deals they've already done or that are already part of their portfolio absolutely so think about i think we've all bought a home or a motorcycle or you know leased a car and so if you remember you you put a lot of you know paperwork together and you submit it to some broker or financial institution or your bank and then you get you know 90 days later you get like an approval and that whole process of analyzing that data that comes in documents goes into some sort of financial model say is xyz fanciable and do we want to make that investment that process is very labor-intensive manual and error-prone and it's not scaling for the type of you know dollars that are coming into this marketplace yeah okay so how do you make money so we make money uh as a software as a service business model so we charge our customers a a fee uh based on the dollars of aum so you were tongue-in-cheek about you know one percent uh you know one percent would be rich for a software company but we we do make a percent of what we call basis points in the world of financing uh we'll make a percentage of basis points on the aum or the assets under management that the customer will put on our platform so it's a recurring uh recurring fee that every year they'll pay a different amount depending on how many assets they have on our platform okay what would you say the average customer pays per year for this our average customer uh typically pays uh somewhere between on the on the low end it can be as low as a hundred thousand dollars a year on the high end it can be as high as eight to ten million dollars it just depends if they're a 40 billion dollar fund they're going to probably pay us in that very high you know you know eight to ten million dollar range period give me an average that's a huge range give me an average would you say that the kind of the perfect cohort or the mean across your customers is like like a million bucks a year oh she ha hits half of that it's about about five hundred thousand dollars a year yeah what our average is i imagine you you definitely see power laws where the top 10 percent of your folks make up more than 90 of your you know aum or something like that it's yes it's 80 20 world right so there's always a large customer base but there's about 20 or 30 that make up a vast majority and that's the way the the private equity world shakes out today there's about 600 customers today in our universe uh that you know 10 or 15 of those are greater than 50 billion dollars a year how many of the 600 have you been able to capture so what's your market share so we're still we're still a venture back company uh so we're under about two or three dozen uh total uh global funds we've taken a strategy much like i would say ibm did in the 80s and 90s you go after pepsi and coke you nail the two big guys and then everybody else wants to copy them so we've been we've been deliberate in terms of being very focused going after some of the biggest global names in the world and uh making them highly referenceable so now we're beginning to see that network effect so just to be clear you've got about maybe 24 customers right now with the the possibility of spending maybe 600 over time 600 is kind of the first landing spot yeah okay but 24 today 24 today yeah and 600 is our total ecosystem when we apply our pricing uh to that and we're actually applying pricing we're getting not pricing we'd like to get against that profile of those 600 customers it's about a 1.8 billion dollar market size for us so right can i can i multiply the 500 000 acv you just gave me times 24. i mean that put you at what like a 12 million run rate right now is that about right yeah that's in that rate range yes okay right and and talking about growth where were you a year ago so we're in the phase where we're doubling okay so you're doing about 500 500 grand a month a year ago we've had a good yeah that's great growth where does most of the growth come from expansion revenue or new customers all together we get it from both so uh we actually get kind of three approaches obviously new customers kind of give you that big step up uh our customers are growing because as we said it's a growing market so our customers if we just leave them alone uh grow somewhere between 18 and 25 a year so we get nice organic growth because they're growing and so their assets under management our platform are growing and then clearly we try a land and expand strategy so a large company uh you know that has a global footprint may have actually 30 different teams different investing in different asset classes so we may land at a particular spot and we'll close that opportunity a lot of times because our heritage started with renewable energy we start with that group but then they have a sister real estate group they have a sister infrastructure you know sister oil and gas and so we'll begin to expand our footprint so that's what i call land and expand strategy interesting um and then if you have 18 expansion that's great what's your gross revenue churn annually uh gross churn in terms of uh how many customers we lose no no not not a number of customers the actual revenue churn so if someone downgrades you'd have revenue churn but they didn't you didn't lose them as a customer oh okay uh we don't have as much we have i would say our churn is more related to you know customers coming to the market uh and their business goes aground that's usually what causes our churn uh we're not seeing and many customers this is a marathon race right now and everybody's running downhill so even the best are actually doing really really well what's your number though right now is it five percent 10 20 annual revenue churn uh it's not well under 10 percent uh uh revenue churn process okay so 10 revenue churn 18 expansion you're at what uh over 108 percent net revenue retention yes that's great that's really great um how are you talking about your sales model how are you landing new customers you have an inside sales team or what we actually uh kind of use a multi-channel strategy again when you're trying to do what i call a vertical play uh it's an arrow uh looking for needles in a haystack i call it dust of spec and haystack um you know we use a combination of a direct sales organization which attends a lot of conferences where like-minded people come together that's probably our most rich uh source of information okay but we do a lot of inbound and outbound marketing what we call account based marketing which is what i would say highly customized it's not a generic email blast to...