iContact Revenue, Valuation & Funding (2012)

[00:00] Marc Benioff pulled the term sheet at the last minute. We ended up selling in February 2012 for a $169,000,000. I ended up making about $15,000,000 after taxes. [00:13] >> Hey, folks. If we haven't met yet, my name is Nathan Latka. I launched and sold my first software company back in 2015 and went on to write a book about it, which you guys made a Wall Street Journal bestseller purchasing over 30,000 copies. Thank you so much for that. After the book, I launched this show and one went on to create founderpath.com. I raised a large fund to do non dilutive deals with b to b software [00:39] >> founders. So far, we've invested in over 400 software founders totaling a $150,000,000. Here in 2024, we're doing three to four new deals per week. So if you're looking for capital and don't wanna give up equity, go sign up at founderpath.com for free to get your offer. Alright. Let's jump into the interview. [00:58] I I got to meet Nathan about fourteen years ago and two fifteen years ago in 2009 in Virginia, like he said. And I think you were 20 at the time, something like that, 21. So it's great to be back here today. My background is building a company called icontact in the email marketing space. I started that company twenty two years ago as a freshman at University of North Carolina Chapel Hill. And I was very sad last [01:24] night to see the Tar Heels lose by two points to Alabama, but it's okay. Today what I do is I'm building a community specifically for SaaS CEOs and founders called SaaS Rise. We started that about six months ago and it's a community for SaaS founders with at least 1,000,000 in ARR up to a 100,000,000 in ARR. Check us out at saasrise.com. What I'm gonna talk about today is how we scaled up customer acquisition and how we [01:48] grew icontact from 0 to 50,000,000 in annual recurring revenue. And I'm gonna talk about how we figured out our unit economics, our math, our business math behind the business. I'm going to talk about how we bootstrapped. We didn't take any outside capital. We lived in the office for the first year. We took no salaries for the first three years and just accrued them. And then once we got to a million, then we raised capital. I'm going [02:13] to talk about how we figured out that an average customer cost us $500 and then would generate $1,800 in revenue over their life. And then I'll talk about how we raised venture capital, made 10 different marketing channels profitable, grew to two fifty employees, 50,000,000 ARR, 70,000 customers, built up a mid market sales team to add another 20,000,000 in ARR into the mid market segment of our business since we mainly serve small businesses initially. How we eventually [02:41] sold to $169,000,000 to a public company called Vocus, now acquired by Cision. After Marc Benioff pulled the term sheet at the last minute to acquire us. And then how, what the heck have I been doing the last ten years post exit? We sold in February 2012. The last ten years, got an MBA at Harvard. And then spent the last eight years traveling the world having an adventure. And I'll talk more about that. Post exit is coming. [03:07] And for many of you and it's an exciting time. So I'll talk about that. You can see this revenue graph starting in 2003 and in 2005 something magical happened. I had lunch with a friend of mine, Jed Bowman in Raleigh where I lived and he said, Ryan, how much does it cost you to acquire a customer? This was 2005, the science of unit economics wasn't nearly as developed. And in fact the word SaaS, the acronym SaaS [03:29] was just coming out, was called ASP at the time, Application Service Providers. And so he asked me, Ryan, how much does it cost you to get an average new customer? I said, don't know. I'll go find out. The next week we had another lunch. I came back with the numbers. It was $500 to get an incremental new customer in sales and marketing expenditures. And then he said, well, how much is a customer worth to you? I [03:49] said they paid $50 a month, but I have no idea how much they're worth to me. I've only been around a couple of years. How could I possibly know that? And then he gave me this magical formula called one over churn, one divided by churn, which you can approximate your lifetime value pretty easily. And he said, well what's your monthly churn rate, your account churn rate? And it turned out it was 3.3%. One divided by 0.0033 [04:09] is about thirty two, thirty three months of life. And I figured out very quickly that we were an annuity cash flow stream engine that trading $500 up front for $1,800 over three and a half years. And that math allowed us to go to investors, raise about $40,000,000 over the course of the next five years and scale up to achieve the revenue chart you see here. So in this part, I'm going to talk about how we bootstrapped [04:33] to that first million in ARR, how we figured out our unit economics, and how we raised VC the right way. By the right way, I mean don't raise more than one extra ARR. Unless you're building a rocket ship company or a hardware company or a defense manufacturing company, you don't need more than one extra ARR and equity capital in order to scale. And certainly not before you figure out what your unit economics are. Icontact used to [04:55] be called IntelliContact. Raise your hand if you've heard of icontact before or were past customer user. That's about half the room. That's awesome. So we started out as IntelliContact. And then in 2007, right before Steve Jobs came out with the iPhone, we switched it over to icontact. We lived in the office. We did everything we had to do to keep costs low. And this was in between my freshman and sophomore year of college. And then we [05:21] found the channels that we could get customers without paying a lot of money to get them. And we bootstrapped our way to the first million in ARR. We did a lot of SEO. We did a lot of content marketing. Obviously Beehive and Substack weren't around at the time. We were using our own tool for that. We're doing a lot of blogging, a lot of SEO, a lot of affiliate programs, a lot of outbound email. So these [05:43] were some of the channels that we used. We were competing against two big players in the field. This was before Mailchimp was big. We were competing against Constant Contact and Microsoft List Builder. So what did we do? We subscribed. We wrote a script, a Perl script at the time, to subscribe to every single Constant Contact newsletter in the world. Back then, they weren't very smart and you could just add one to the URL landing page and [06:07] get the next customer and the next customer. So we subscribed to about 100,000 of their customers'newsletters. And then as soon as we got them, we'd send a reply back offering them half off. That got us our first 500 customers. We did the same thing with Microsoft List Builder back in 2003 when they were around. And what we got was a cease and desist letter from Bill Gates'dad's law firm. [06:30] Kept going anyway, we had nothing to lose, didn't have any assets and we just kept going. Today you can use a tool like BuiltWith to get a list of nearly all of your competitors'customers and then email them, get their emails on Apollo or Seamless And then upload that email list to Facebook, to LinkedIn, to Google and actually do a custom audience and show ads to your competitors'customers. Couldn't do that back then, but now it's [06:53] even easier, I would say, to bootstrap your way to your first million. Now once we figured out our unit economics, everything got easy. We figured out that our average revenue per account, I call it ARPA instead of ARPU because multiple accounts have some accounts have multiple users, was 56 per account. 3.3% churn, which is normal for SMB. You want it to be lower if it's an enterprise or mid market, say under two. But in SMB, 3% [07:18] is normal. And that created a lifespan of one divided by 0.033, thirty three months. Multiply 33 times 56, eighteen fifty was the amount of revenue we got. I consider lifetime value to be total revenue over the life. But you could also do lifetime margin if you take out your COGS. Our target CAC was up to one third of LTV. That's aggressive because we wanted to grow. And we knew we could raise capital to grow. If you're [07:42] bootstrapped, you might want it to be more like one sixth of LTV in order to be able to grow, but do it in a way where you can maintain your balance sheet. Or you could go get a loan on Founderpath and then go a little more aggressive and increase your loan. Hope you like that shout out. Thanks, Ryan. There you go. So what were the tools that we used to calculate our unit economics? We had to [08:02] do good old Excel. But today we have some other tools like BearMetrix, SaaS Grid, ProfitWell. And of course you can log into the application at Founderpath and get some pretty good metrics as well. So what do I mean when I say raise venture capital the right way? Well, instead of spending the first twelve months of your business going to pitch a bunch of firms for angel capital, spend the first twelve months of your business building your [08:26] product and going to get your first few $100,000 in ARR. Once you've done that, then go out and actually calculate your unit economics. And then only once you know the math of how your economic customer engine works, then go raise capital. We bootstrapped to $1,000,000 between 2003 and 2005, then raised $500,000 less than 1x our ARR. And then we invested that to scale up customer acquisition between 'five and 'seven, grew up to about $6,000,000 in ARR by [08:55] 'seven and then raised a Series A from Updata Partners at a 27,000,000 pre money valuation, sold about 20% of the company at that point. So once we figured out our unit economics, the company grew. You can see we went from about 12 people in 'five to a crap ton more by 2009. And eventually we ended up at two fifty customer, two fifty employees by the time we got acquired. So that's what I talked about in section [09:25] one. Now let's go to part two. How did we make 10 different channels profitable and optimize them? How did we scale up our operations? And how did we grow our revenue? This was an example back in the day of what we would use simple Google spreadsheet or Excel spreadsheet to evaluate our spending on marketing and customer acquisition on a monthly basis. We were spending $2,000,000 a month in sales and marketing by the time we got acquired [09:50] in early twenty twelve. That $2,000,000 a month in sales and marketing was going to acquire 4,000 new customers each month, about a $500 customer acquisition cost as we've talked about. We were willing to spend up to $600 or $700 but that was the average. And then we looked at every single channel. And this is sort of the high level. We would go into by campaign, by ad set on the separate tabs. Is it before where you [10:14] had Commonly or Hiros or tools that would allow you to do this without doing it manually. And we would assess each channel and we'd scale up the channels where the CAC was lower than the max CAC. And we would scale down the channels where the CAC was higher than the CAC. As simple as that. And we calculated churn and ARPA for every channel so we could estimate LTV by channel. That allowed us to become a very [10:37] scalable company. The channels that are working today, in my experience running SASRise, this community for SAS CEOs, are paid search ads, retargeting ads, look alike ads, custom audience ads. Like I mentioned before, we can go export an email list from Apollo Seamless, from ZoomInfo, from many other tools. And then upload that to Meta, to LinkedIn, to Google Display, and show ads to your exact people in your account based marketing in your ICP. Outbound email, review sites, [11:03] affiliate programs and events. So these are the ones that as I coach SaaS CEOs today, help them go from 10 to 50,000,000 in ARR. This is what I'll help coach them on. And then finishing up this section, how do we build the systems inside the company? Well, very first thing we did was we made everything visible. We created Gecko board dashboards and we put them on physical TV display monitors all over our office and we made [11:29] one for the company and one for every single department. We installed the entrepreneurial operating system at the time, it was called the Rockefeller Habits, now called EOS, from Vern Harnish, I was a member of EO at the time. And we put that in place And then that famous photo from, this was from 2012. But in 2009, Marc Benioff reached out to us and he said, I want to buy your company. We're going to pay you $95,000,000 [11:52] I said, that sounds good. Let's do it. He strung us along for a few months. Finally ended up buying ExactTarget a few years later. Walked away two days before he was supposed to close. Worst day of my life from a business perspective, but it turned out better because three years later we ended up selling for almost twice that price. And so stay strong even when you have a failed acquisition. Once Benioff walked away, we said, we've [12:15] been doing this eight years. We want to take some money off the table, but we don't want to sell the whole company yet. We went to a mid market growth equity firm out of Baltimore called JMI Equity. Worked with Jitsen over there and Brad Wallace. And we raised a $40,000,000 round of capital with the help of an investment bank, Allen and Company. Dollars 15,000,000 of that went to the early shareholders. The first four people in the [12:35] company was nice. I got about $3,000,000 from that secondary sale. It was helpful because it allowed me to say, all right, let's keep going. Let's put another two, three years into this and let's see if we can really make this a bigger outcome, which is what we did. This is our executive team in front of our office in 2011. And this was our full company in 2011. The last full year we were running the company up [12:58] to two fifty employees. Company is still around today, still going. I'm not involved anymore, but it's great to see that it's still about 150 employees twelve years later. And still, as far as I know, 30,000,000, 40,000,000 in revenue twelve years later. And now it's owned by I don't even remember, it's been traded a few times. I don't even know. Think Ziff Davis owns it today. But we were sold to Vocus, a public company, which was then [13:21] acquired by Cision. So the section key points, figure out your ARPA, your LTV and your churn by channel. Optimize channels every month or more often, put your KPIs visually on dashboard by department and overall. And build an executive team that can do their function better than you could. You want to work on your business, not in your business. So finally, let's go to part three here. How did we add that last $20,000,000 in ARR? We had [13:49] gotten $30,000,000 in ARR from SMBs at $50 a sale per month. But now we wanted to increase our ARPU. We wanted to get ready to sell at a bigger price. So we built a 60 person mid market sales team. I'm going to talk about that first here. This is the guy we hired, Kevin Fitzgerald. He's now the CEO of a company called Tatango in the SMS marketing space. And at the time he was our VP of [14:12] sales. And he built us from about five sales people to about 60 over the course of 2008 to 2012. Had a very simple insight, if we just add a shared account manager, we can take the same product and sell it for 20 times the price. So instead of selling it for $50 a month, we sold it for $1,000 a month. And you got a shared account manager and a couple extra features. And that was called icontact [14:35] enterprise. So we built up our team. You can see here we had 30 SDRs, half of which were doing outbound reach outs and half of which were following up with the 16,000 trials that we were getting every month from paid ads. And then he had 25 account executives, we called them sales executives at the time, who would then follow-up with the leads that the SDRs had vetted, who were ready to pay and ready to get on [14:59] a call. And then once we closed the deal, it would be up to the account managers who would actually upsell and of course land and expand and keep the business over time. This is the unit economics between these two different segments. If you want a copy of this, check out saserize.beehive.com and I've got all these articles up there with this data. So we had 68,000 SMB customers, 1,400 enterprise customers. Now if you do the math, it's [15:27] about 30,000,000 in SMB revenue, 20,000,000 in mid market or enterprise revenue. It was really mid market, but we called it enterprise. And that's where we would sell $12,000 ACVs, 14,000 ACVs compared to a $400 average annual contract value on the SMB side. And had a totally different go to market motion, of course. Instead of getting a fifteen day free trial through product led growth, we would actually take sales rep, the SDRs would follow-up with anyone with [15:55] 50,000 people on their list or more and then convert them over into a sales exec to close them. So break down your unit economics by segment. Now in 2011, I was 27 and people said the company is 50,000,000, you're too young, you don't have enough experience, let's hire someone else to run the company. That's what happens when you raise money from a private equity firm and you get out voted on the board. And so we hired [16:19] a company called Heidrick and Struggles, an executive recruiting firm to try to hire my replacement. And I was fine with it, I'd been doing it for nine years. And fortunately, Heidrick and Struggles called a guy named Rick Rudman, was the CEO of Vocus at the time, tried to recruit him to run icontact. He said, no, don't want to run icontact, I want to buy icontact. And that turned out pretty well and I think you got involved [16:40] in that as well at the time. And we ended up selling in February 2012 for $169,000,000 to Vocus, which is now owned by Cision. And that was the exit. This is how I felt after the exit. I was 27, just sold the company for $169,000,000 We had sold a lot of equity to venture capitalists. I had a business partner who had about as much as I did. I ended up making about $15,000,000 after taxes. But that's [17:09] good. You know, that's good at 27 especially. And so it felt good. We [17:16] we sold for three and a half times our ARR. Not crazy, not 10x, but that's still pretty good. And I began a journey. I just worked from eighteen to twenty eight, sixty, seventy, eighty hours a week. I began a journey to try to do something different. I dropped out of Carolina in order to build icontact. First thing I wanted to do was go back to school because my mom really wanted me to. This is me getting [17:39] an MBA from Harvard Business School. They let me in without a college degree, which is pretty awesome. And ended up finishing up there. And then got married, went to Burning Man, the festival in the desert, met my wife Morgan. Changed my life forever and got married. And then we've been spending the last five years of our life living around the world. Lived in San Francisco, Los Angeles, San Diego, Bali, Costa Rica, Boulder, Austin and now we [18:04] live in Asheville, North Carolina. And about two years ago we had a little baby boy named Apollo and life is good. [18:16] So now I'm a dad. I'm 39. I've been in SaaS for twenty two years. And I'm like the oldest, youngest SaaS person out there. And what else is there to do? Well, there's two things I wanted to do. Number one, wanted to write a book. I wrote a book called Magic Year, which is how to create a life you love up here. And then the thing that I'm really passionate about right now is building community. I [18:37] was in EO. I was in YPO. And for many years, I went to the forums every single month. And I wanted to create, I wish there were at the time I was building icontact a forum that was just for SaaS CEOs and founders. And there wasn't at the time. And I wish I had that because it would have enabled me to get the specific niche expertise that I needed to scale up my b to b SaaS [19:00] company. So what I'm building today is a company called SaaSRise. We're at saasrise.com. It's a community, it's a mastermind community for CEOs and founders of SaaS companies with at least 1,000,000 in ARR. Our average member has 9,000,000 in ARR right now. We have a 140 members. It's $200 a month to be part of it, for example. And every Wednesday, we have three mastermind calls that are optional. You join you join it and you can become part [19:27] of this mastermind. And then we send out growth content and videos to help you scale your customer acquisition. So that's what I'm doing today. We have a community of about 165 SaaS CEOs. And I'm excited to continue growing that in the years ahead. Our goal is to get this to over 1,000 over the next year. So when I come back next year, we'll be over 1,000. Would love to have some of you in there as well. [19:48] I think that's what I'm wrapping up here with. This is what I've shared over the last twenty minutes. I'll give you my email. It's [email protected]. If I can provide any clarity on the math behind unit economics, let me know. I was part of the group in 2005, 2006, 2007 that was sort of inventing some of that terminology, inventing some of that methodology. And I am passionate about the analytics behind unit economics because once you unlock that, [20:16] you can really scale up your customer acquisition and business. So please email me [email protected]. My phone number and WhatsApp number are also on the last slide here. So if you wanna grab that, let's see here. It's in the bottom left there. Feel free to WhatsApp me, SMS me, email me. And if you're a SaaS CEO or founder with at least 1,000,000 in ARR, please apply to join us at sasrise.com. We'd love to have you. Thanks so [20:41] much for having me today. Thanks Nathan. Thanks to the community.