Honestly Revenue, Valuation & Funding (2024)

[00:00] Hey folks, my guest today is Mateo Freudenthal. He's the CEO of honestly, a Cologne based HR technology company who helps organizations to understand employees' needs and motivations. Using honestly increases retention and decreases sickness rates. 100 companies with 60,000 licenses use honestly by the day. Mateo, you ready to take us to the top? [00:19] >> Yeah, of course. [00:20] So these are a 100 companies that are using you. Can you name one or two of them? [00:24] >> Yeah, of course. One of them is for example, Sunrise Technologies, which is like a mobile technology company or Spick insurances users. Helvetia would be like one example. [00:37] And so there's a 100 of these companies using you to manage, it sounds like about 60,000 employees. What are they using you? [00:43] >> 70,000 now. [00:45] 70,000. So tell me how they're using you. What are they using you for to help with their employee relationships? [00:52] >> Yeah, so basically we help them to understand what needs to be done in HR. So we have like an employee survey module. We have prepared surveys and they sent out these surveys and they have their internal communication through Honestly. So we give basically the leadership of these companies [01:10] >> a closer way to reach their employees and have a closer relationship with them. So they understand what makes people leave the company, what makes people stay at the company, and they also use it to drive internal projects. So if they have a change project, they make sure it is successful and they measure the progress. [01:32] And what do you charge these customers on average per month? [01:36] >> A license would be like $1 to $2. [01:40] Per user? [01:41] >> Per user per month, yeah. [01:42] Okay. And if you have 70,000 sort of seats today across 100 customers, the team size average is about 700 per team? [01:50] >> Yes. That's correct. Yes. [01:52] Alright. And and at $2 a seat for 700 seats, that means the average customer pays something like 1,500 a month or about, you know, 20,000 a year? [02:00] >> I think it's I think it's 1,200, 1,300. Yeah. [02:04] 1,300 a month? [02:06] >> Yeah. [02:06] Okay. That's great. So that sort of con And that would be about 15 to 20,000 a year as the average sort of ACV, right? With that Go con [02:18] ahead. [02:19] >> No, sorry, sorry. Yeah, it's more or less right. Yeah. [02:22] With that context, give us more of the backstory here. What year did you launch the business? [02:26] >> We launched it way back, but we had to do two pivots until we finally landed on our business model. And this model we're executing for the fourth year now. So we are three years completed and now it's the fourth year of this business model. [02:41] But we don't want to just skip to the success, we want to understand the early failures too. So when did you actually launch the original company? [02:47] >> So the original company in 2012 will be ten years old next month. [02:50] 2012. Congratulations. So what was the So first [02:54] >> first we wanted to like just make surveys online and we would say to everyone, hey, we have the easiest way to do customer feedback. We gained many, many customers with that, but none of the customers were actually working. So it did like people wouldn't give feedback back then over mobile phone and restaurant or at like a travel agency. But we had one product which actually worked very well and it was a tablet that would be placed [03:19] >> in supermarkets and we scaled that up. It was actually like a hardware software thing and we had thousands of supermarkets across Germany, all the kit before tablet solutions, obviously terminals. So we were like the number one provider for supermarkets, grocery stores, and that business model simply turned up to not be profitable. So we weren't able to make it profitable, but we're making a lot of revenue, but we had to spend all the revenue. [03:51] What was a lot of revenue? How much? [03:53] >> Like, let's say $2,000,000 per year. [03:59] Oh, 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 [04:22] your Stripe account, you see your valuation real time, you can see what 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 get [04:47] 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 not [05:09] 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 going [05:35] out right now and you're raising your seed round. Well, 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. Alright. We're gonna go back to the YouTube video here in a second, but if you [05:56] 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 the interview. [06:24] Okay. What year did you kill that business? [06:27] >> The same year we launched a new one. So when we pivoted, we said, okay, we will no longer focus any businesses. We will get the cash, but we cannot we were not able to grow it. That's why we built the the revenues. [06:38] So you killed that business in 2018? [06:40] >> Yes. [06:41] Okay. And then how did you get the idea for honestly? [06:44] >> Oh, actually customers came to us or potential customers came to us and said, hey, we really like what you do for customer feedback, but we need this for employees. And they explained to us the problem. And since they were different customers with the same problem, we were like, Okay, let's ask them if a solution like that would work. So we built up a mock up and we sent it to them. Would you buy this if we [07:07] >> would have this? And they all said yes. So we started building it and we actually signed contracts with all three of them. So we had like three companies with, I don't know, 15,000 licenses or something, three bigger companies using the product right from the start. And yeah, that helped us like actually like customers had the idea and we just said, oh, it's so much better than our business model that we have now, that we had back [07:30] >> then that we decided to pivot. [07:32] And Matteo, fast forward now today, 100 customers paying $1,300 per month, you're doing about what, 130,000 a month in revenue? [07:41] >> Around that, yes. [07:42] Around that? And if that's today's revenue, where were you exactly a year ago so we can calculate growth? [07:47] >> It was like 50% less, 55% less. [07:50] Okay. So something like 65,000 a month in revenue. And where did most of that growth over the past year come from? Adding seats to current customers or adding new customers altogether? [07:59] >> Like 20% to 30% came from up sales and the rest came from new customers. [08:06] Okay, So 20 with 20% to 30%? [08:10] >> Percent of the growth, yeah. [08:12] When you look at your net dollar retention, right? The amount you grew customers subtracted by the amount of the same customer shrunk, what is your net dollar retention today? [08:20] >> It's I think it's 6% plus, something like that. [08:25] So churn is 6% annually? [08:27] >> No, no, minus 6%. [08:29] So, yeah, that's so you have net what you just gave me is net negative churn of 6%. What I was asking was so net dollar retention, is is it a 106? [08:39] >> Yes. Like, based on the on the on the dollars, not on the number of customers. It's like 6%. Yeah. [08:46] Yeah. You're giving me a churn number and I'm asking for a retention number. They're usually just inverse. So I just wanna be clear. Your net dollar retention, not churn, net dollar retention is a 106%. Correct? So you're expanding Yes. Yes. Okay. And then do you have meaningful churn? But, like, what is your gross churn before expansion? [09:05] >> Oh, I I don't know that number. I don't have it like in front of me. It's yeah. It's mostly, let's say, like the smaller companies at the moment. It's not like the bigger accounts. Maybe we focus too much on bigger accounts, but Mhmm. I don't have that number in head. [09:18] And have you built all this bootstrapped or did you decide to raise? [09:22] >> We mainly bootstrapped. It's it's What do mainly bootstrapped? [09:27] You've either raised a dollar or you haven't raised a dollar? [09:29] >> We raised for the other model. We raised for the other model. So we do have like shareholders, but we didn't raise for this model. [09:36] What year did you raise in and how much? [09:39] >> 3,000,000 seed capital five years ago. [09:42] So what was that? '20 2017? [09:45] >> Yeah, when the other business was like going good. [09:49] Well, I mean, you shut that business down in 2018, so if you raised a 3,000,000 seed one year before you shut it down, something changed very fast. [09:57] >> 3,000,000 seed and [10:00] >> we raised basically on the other model. Let's say we raised 3,000,000. That's basically the easiest part. Let's say we raised seed capital of 3,000,000, but we had to invest a lot in like we invested to grow a business that we were not able to grow, so we decided to pivot. [10:16] Yeah, but I mean, you basically shut the business down less than a year after you raised $3,000,000. What changed so quickly? [10:25] >> It was more like one and a half, two year situation and investing a lot in investing what we raised, in growing what we wanted to grow, and that didn't turn out. So we had to pivot because we were not growing. So we raised on growth, but we didn't do So we basically like it was not our business model. And then we did the pivot that was like more or less. [10:47] Understood. When you raised the 3,000,000 seed, what valuation did you raise at? Do you remember? 11. 11 post? [10:56] >> Pre. [10:57] Pre? 11. Okay. So you sold what? You sold about 15% of the 20 of the business, something like that? [11:03] >> A little bit more, I think. But yeah, like a little more than 20. [11:07] Yeah. Okay. Okay. More than 20. And then no capital raise since then. [11:11] >> Right? No. [11:13] Are you looking at raising right now? [11:15] >> No. Not at all. No. [11:16] Are you guys profitable today? [11:18] >> Yes. Yes. [11:19] Oh, that's great. Okay. How profitable? [11:21] >> Like 10% more or less. [11:24] That's pretty good. How many folks are on the team? [11:27] >> I think we're 12. [11:29] What [11:30] do mean you think you're 12? You've forgotten about No, no, no. [11:33] >> Let's say 12 is the correct number of 13. We just hired three folks and I just know when they start, if they start July or August, but let's say 12. [11:44] Okay, so you're 12 people today. That's pretty impressive. I mean, you're doing, again, you're doing about 1,560,000 in revenue with a team of 12. That's high revenue per employee. What's enabled you to scale without having to hire dozens and dozens of people? [12:02] >> We originally, like with the other business model, we had like this 25 people, and we were not doing more money than now, especially not pay employees. And we realized that we have to say no to a lot of projects and just do the projects that really will have the impact and by not doing like, I don't know, for example, we don't do partnerships at the moment. Everyone will say, oh, why don't you don't do it? Yeah, [12:23] >> because it would like just block resources for really important stuff. So I think that saying no to projects that don't have any impact on your company, think that's the main part of if you want to have, like, a higher rev per employee. [12:34] And how many engineers are on the team at twelve today? Five. [12:37] >> Five. [12:38] >> Five. [12:39] Okay. Are you an engineer? [12:40] >> No. [12:41] Do you have a co founder? [12:42] >> I have two. [12:44] Ah, did you guys split 30% each at the beginning? [12:47] Evenly? [12:49] >> Yeah. Two of them are engineers. [12:51] Was that a mistake to split equity evenly at the beginning? [12:54] >> I don't think so. I think it's the only way to go. Like, you should look for people who are, like, better than you at least, and then everyone should pick that and then splitting it evenly makes a good deal for everyone. [13:04] But if you think they're better than you, wouldn't you want to give them more equity? [13:07] >> No. No, because they think that too, because I'm like better at what I do and they're better than what they do, So I don't think so. I think it's actually good to not have like a co founder who thinks that he or she is like much better than you and resource much more equity. So I don't think so. I actually believe in this equal share model, at least for co founders, because you need to make decisions [13:32] >> together and then one has more equity, so she should take more decisions than you. So how happy will you be and for how much time? Okay, when things are good, I believe you will be happy, but if things are bad and then you start blaming this person. [13:46] Sure, flip side is there's no clear accountable leader. It's a three pronged leader. So you move everything slower. [13:54] >> That's correct, Nathan. That's that's that's very much correct. Yes. Mhmm. If I [13:57] were to What was the last thing you guys what was the last thing you guys disagreed on? [14:02] >> I I think do do you know the lean startup where you Mhmm. Have, like, this approach that you test a lot of things. I mean, it's good for many projects, but there's like some projects where you just have to have like a lightning strike through the organisation where you cannot test it, you just do it. And we disagree mostly [14:22] >> in projects where we're not sure which of the two approaches we need to replicate. And because I'm more like the lightning strike kind of guy, let's just do it. [14:31] Yeah, I have conviction on this project. Let's freaking do it. We don't need to run a million tests. Let's go. [14:37] >> Something you can't test, so you're not it will take you too much time, then the opportunity is over again. [14:42] Yeah. How much of the company or how do employees own, if any? Do you have an ESOP pool? [14:46] >> We 10% ESOP. [14:48] 10% ESOP. So right now the cap table is 10% ESOP pool, 20% investors, and then each of you guys own like 23%, the founders. [14:56] >> That's more or less correct, yes. [14:58] Yeah, yeah, yeah. Interesting. Okay, very cool. Team of five, what's coming up? What's coming down the product pipeline? What are you guys building? [15:05] >> Oh, like a lot of integrations, so we have some product works best when it's integrated into a human capital solution like Workday or SAP SuccessFactors, so integration to that. The second is predictive analytics so that you could predict how employee churn or sickness rates will develop based on all employee surveys. The third one is we have a partnership with an academic institute of the Free University of Berlin where we will implement all scientifically validated surveys with [15:34] >> benchmarks into our solutions to make it even easier for our customers to implement those. [15:39] Very cool. Mateo, on that note, let's wrap up here with the famous five. Number one, what's your favorite business book? [15:46] >> How to Be a Capitalist Without Any Capital by Nathan Latka, of course. [15:49] Have you? You've read it? [15:51] >> I've read it. I've read it, actually. I would [15:55] What's your honest feedback after reading it? [15:59] >> It helped me a lot because it unlocked my brain to think outside of my organization, because before that, you have this thing where you describe how you had an exit opportunity, you missed it, and that took you much longer to be free in capital terms. It unlocked my brain in many ways, so it made me feel like I'm a teenager again. When you're a teenager and you do business, you feel very free and everything. When you're [16:24] >> a founder and you're an organisation, you want to dedicate 150% of your time and your thoughts into this organisation. And it freed up my brain and that helped me to make very wise investments and very wise decisions. So I actually made over 100 ks, like, let's say since then of this personal investment. [16:43] That's amazing. Congrats. Number two, is there a CEO you're following or studying right now? [16:50] >> Marc Benioff is of course the one that I always follow and I admire. I think Marc Benioff is [16:58] >> yeah. Study him. [16:59] And number three, is there a CEO that you're sorry, not a CEO. I just asked you. Is there what's your favorite online tool for building the business? [17:06] >> Notion, I think, yeah, Notion because of the knowledge management, you know, like all processes in Notion. [17:14] Number four, how many hours of sleep do you get every day? [17:18] >> Seven. Seven. [17:19] Okay. And what's your situation? Married? Single? Kids? [17:23] >> I have a fiance. [17:25] >> Fiance. [17:26] Okay. Very good. And any And how old are you? [17:29] >> I'm 34. [17:31] 34. Any kid No kids, right? No. No kids. Alright. Last question. Something you wish you knew when you were 20, Mateo. [17:40] >> Time is more valuable than money. [17:44] Honestly launched in 2012. They built a business through 2018. Did 3,000,000 in revenue, but ultimately just never took off and was unprofitable. Pivoted into honestly.com, which now helps over a 100 enterprises manage their 70,000 employees with surveys, employee feedback. Each customer pays on average $1,300 per month. Doing $130,000 a month in revenue, 100% year over year growth up from $65,000 a month just a year ago. Now at, again, about a $1,500,000 run [18:08] rate. Three co founders split evenly at the beginning, Employees own 10%, investors own 20%, they raised $3,000,000, but now they're profitable, which we love, which means Mateo can do anything he wants. He has full flexibility and freedom. We'll see what he does next. Mateo, thanks for taking us to the top. [18:23] >> Thank you, Nathan. [18:26] One 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 1PM [18:51] Central. Additionally, remember these recorded Founder interviews go live. We release them here on YouTube every day at 2PM 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 an acquisition, a big [19:13] fundraise, a big sale, a big profitability statement or something else. I don't want you to miss it. Additionally, if you wanna take this conversation deeper and further, we have by far the largest private Slack community for B2B SaaS 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 [19:35] 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 have to counter those people. We [19:55] gotta push them away. Click the thumbs up below to counter them and know that I appreciate your guys'support. Alright. I'll be in the comments. See you.