KeyedIn Revenue, Valuation & Funding (2024)

hello everyone my guest today is lori klaus with extensive leadership experience she's the ceo and co-founder of kedan a minneapolis-based company that helps organizations simplify business processes processes improve performance and drive results through its innovative sas based business solution before she founded keaton she held various senior management positions at epicore most recently as executive vice president worldwide sales and services laura you ready to take us to the top absolutely let's go for it all right the project management space is hot we can't talk about it without talking about monday's most recent 150 million around a 2.9 or 1.9 billion dollar valuation there seems to be so many 100 million dollar winners though in this space you're playing in it how are you differentiating well first of all we differentiate by a lot of new innovations as well as being native cloud and um you know founded seven years ago so we founded started with just ppm and have noticed project portfolio management so we focus on ppm for project management offices as well as professional services automation primarily for embedded services organizations so if you look at any software company they would have a services organization and that's where we fit very well okay interesting these are like for a sas company a lot of them have service organizations that do the onboarding for example or you would serve that team correct yeah okay and can you maybe i know it's hard without actually visually showing the ui but what about your product makes you the best fit for those kind of onboarding teams well we're very flexible we're we we've got the right balance between best practices as well as being flexible so that people can build their own dashboards and really find the information they need to make decisions on a timely basis before it's too late you know these these companies have millions and millions of dollars of projects that they're working on and resource management organizational management um being able to do that makes companies much more efficient and ultimately saving millions of dollars a year and at the end of the day you know everyone wants successful projects they want them done on time and within budget and it's really tough to do um i ran a software company we had three thousand employees which one apple core uh i had 1500 employees we had 300 projects going on on a monthly basis and uh it was very easy to sweep things under the carpet and ignore you know bad disciplines so it's it's really important and it's growing i would agree with you so give me a general sense here i'm sure you have hundreds of different customer cohorts but for the sake of time what would you say your sweet spot is what's the average business going to pay you per year to use your technology yeah so we've really got two two unique groups one is large organizations enterprise like walgreens boots spec savers large companies where they've got it organizations and they have project management offices and are running hundreds and hundreds of projects so that's going to be somewhere around you know three to four hundred thousand dollars a year in uh annual contract value on the other side the embedded services organization it's closer to a hundred thousand a year uh but all in all it's about 350 customers that we have growing from you know when we founded the company we had about uh about 40 that were acquired so sorry what do you mean since you founded 40 were required we acquired a company seven years ago and they had about 40 sas customers and since then we've grown to about 350. oh great okay so i want to capture more of your founding story you know there's a lot of people that say it's actually smarter to get started by actually acquiring something you avoid the zero to one and focus on the one to ten uh so let me go back to that in a second but first i'm gonna repeat back to make sure i got this right so you have two cohorts one about a hundred thousand dollar acvs then a more enterprise version at 300 or 400 thousand dollar acvs but everyone's north of 100 grand a year pretty much yes that's great okay very good and then uh so okay so take me back to the founding story so you're at epicore do you when did you decide it's it's time to pull the trigger and leave that safety net and go all in on your own thing well i was at epoch for 22 years so i grew up there we acquired 16 companies brought them together so have a lot of experience bringing companies and cultures together it was all in the on-premise world and we knew that the next evolution was cloud computing and uh we sold epicore for just under a billion dollars and used some of those funds to found keyed in to focus a hundred percent on business to business cloud computing um definitely know a lot of the pain points um and lots of great experiences but we were able to start from scratch to build environments to avoid you know a lot of those pain points like infrastructure i mean that's that's one of the biggest pain points that uh any on-premise will happen so so lori which company did you buy back seven years ago oh my gosh we bought 16 so clientele uh uh uh sorry the one that you started keaton as the one that you bought yeah whoa you're taking me way back yeah um no we we acquired a company called atlantic global and they're publicly traded we're a publicly traded company uh we also acquired a platform as a service so we have our own uh platform uh independent of any you know like a a sales force one or anything like that and then we also acquired we have we have a smaller group for custom manufacturers um and that's a third that's a third market that we go after but but we're independent in terms of platform we're aligned with microsoft uh and uh microsoft azure as well what was the beachhead though of the code base it was the atlantic global acquisition yes okay so that was a publicly traded sas company at the time of their last reporting on the public markets what was their revenue it was about eight hundred thousand why were they public would be so small they were they went up and down so 99 and yeah that was their their little low point which is why they wanted to sell um they had just re-architected their product a couple years prior so it was a real it was a technology buy you know technology because it was native cloud computing for products so what'd you pay for it all in to get going uh i'd rather not disclose that but what i will say is we've we've uh funded the company with uh funds from the sale of epicore as well as friends and family and then we did just have our first uh first round of institutional investors about a year ago and that was uh that was a 15 million dollar rate how much total raised and keyed in today uh rather not disclosed but it's significant okay yeah by the way most of that is public right so public records show you raise about 42 million dollars total is that accurate it's it's close okay so 42 million and then again you took a public company private so i and that is also uh you know i have to obviously reveal that right so i'm gonna let you do it or i can pull it from the research i'm just curious to general range what you spent to take that private uh about five million okay yeah so that that's what was reported as well so um help yeah which can be big um so five million kind of all in would you cons so if i asked you like total cash you guys had to sync all in before you were able to add your own customers on top of the 30 or 40 that they already had you think it's about five six million with legal fees and then it was all yours right okay so since then you've obviously scaled now did you keep up the 350 customers today do you still have all 40 or 50 of those ones you acquired back in 2012 i would say we've got about 80 percent there was some cleanup to do um and that was you know there were there were some customers who wanted to be on the in the on-premise situation and we were focused on cloud so we worked with them to transition out so i would say about 80 yep this kind of term by the way is natural right as you're scaling a company especially as you're pivoting what you're like cohorts going to be so when you look at your past 12 months obviously churn is critical in a sas company you have a lot of experience what is your turn today and what are you doing to make sure you continue to load that over time lower that over time we uh we're in an excellent situation right now our net retention is 108 um so our customers continue to invest more we'll peel that onion back though for me so 108 is made up from churn plus expansion which gives you the 108. what are those two metrics it's about 50 50. 50 new 50 add-ons well sorry net revenue retention has nothing to do with new customers you add it's a measure of the core that signed up a year ago how much of it churned versus how much you expanded that same cohorts revenue that was my question so of the 108 percent net retention what was churning what was expansion on the court from a year ago the turn is about um ten percent okay so expansion's about 18 then exactly okay pretty good and and so help me understand the expansion model when this goes into your product a little bit more what kind of things are you up selling against is it number of seats or is there a value-based upsell you're upselling against a lot of it is we we start in one division and then work gets out and we go into another division so they're not it's not it's typically large expansions um some smaller you know you have like number of project limits that automatically upgrade people or other like value like number based limits or anything resources number of resources measured by what gigabytes measured by how many people are using the system number of seats okay so upselling based off seats but again no number bait like number of projects number of storage number there's nothing like that you upsell against storage we will once it reach a certain amount we will need to upgrade storage based on you know how much they're using how many projects they have but primarily it's based on resources i see interesting okay and break down the team for me today um how many people total on the team 100 100 okay and what's the breakdown look like between engineers versus quota carrying folks about 50 uh engineering okay um and then 25 uh services and then the other 25 sales marketing okay great and of those 25 sales and marketing that are left are they all quota carrying they are we've got about 12 quota carrying okay interesting so yeah you have the reason i'm asking is you clearly have an enterprise sales motion here these are accounts that are big that you can afford to put touch on up front how aggressive uh lori are you being with with cac are you happy with the 12 month payback period or 18 or 24 months what do you optimize for i'm happier good and good answer definitely happier um it you know it's been a major investment to you know first of all acquire the the companies yeah but then to you know in the sas model it's a you know it's a two-year investment before you start to get that return and now we we've taken that turn we entered into our uh seventh fiscal year and it's it's really nice entering into that year with you know x amount of revenue already booked um that just wasn't the way of the world in my last uh my last career well it's shifting the world is shifting it's a good shift so just to codify what you just said kind of two months or two years when you start to actually make money on a customer so if you're gonna acquire a hundred thousand dollar your customer what i'm hearing you say is you'd spend up to two hundred thousand bucks to get that customer in all all in yeah and there's you know outliers and all that but um yeah pretty much generally speaking uh 200 and where is most that spend going there's obviously the salesperson commission where else sales marketing a large amount in engineering you know we we spend a lot of a lot of money investing in innovation into our products to stay competitive and to stay in front so um it's across you know across that platform but the sales and marketing expenses uh you know solution engineering uh and and in the early implementations we did a lot of discounted implementations and that of course costs us money as well so uh hopefully that answers your question take me back to 2013. so you're raising capital you're raising capital you did 2 million raised in 2012 5.3 2012 again at 2013 raised a good chunk of 16 million and then another 1.5 venture round in 2013 and then you did something a little bit different in july of 2015 you did a debt round that's becoming more and more popular across sas companies so i always like to dig here when i can to learn why did you choose to do 2.7 million debt financing in 2015 because we were nearing you know it's been a real balancing act i think one of the one of the questions i've heard was what was has been one of your major challenges and that is how you balance how fast you want to grow with um you know how much you want to dilute your investors and uh and the window of opportunity and so to balance all of that so we looked at the debt uh instrument as a way of not diluting the shareholders uh but adding cash into the company with the option to convert that debt into um into equity if if you're back so it wasn't it wasn't a like a like a true venture debt there's an interest rate repayment cap this is a really convertible note convertible note exactly yeah interesting now now did the cap on the convertible note reflect the valuation from two years prior in 2013 when you did the 1.5 million venture round it was um no i it was it was higher the valuation was higher okay if that was yeah i mean most most times i see people use debt financing strategically is when they go out to market to raise another vc round and they're not getting the valuation they want for whatever reason you could have a great company by the way and not get the valuation you want you have a great company right and so they do this because they want to avoid a down round and so usually the caps are typically not as favorable as they would like was that the situation you guys were in or no yeah it was um and we we converted all of the debt uh so we we had zero debt at that time converted it all into equity um actually at a lower evaluation you're correct and uh and then raised another 15 million in uh in capital about a year ago yeah a year ago yeah now that valuation though was a creative over the 2013 round correct correct yeah so you affect you could argue then you effectively use that 2.7 million dollars in debt to do what you wanted which is grow the company more to get a higher valuation yep absolutely yeah that's great and then the 2.7 converted with the 15 million from arrowroot yep and it really strengthened the balance sheet as well to get the debt off who would you take um who did you take the debt from was it like a friend or was it one of these traditional kind of venture debt lenders it was friends and family oh okay okay interesting would you ever go use venture debt like how we see it today from a lighter capital or sas capital or you know tamiya or any of those guys definitely we're in the process of we've got about 19 people that we're talking to right now to do that yeah what do you think since you're in the research i've done my own but i'm curious if our numbers are going to match uh when i'm looking at cost of capital on the debt side what is like what do you feel like the cheapest you've gotten where there's no covenants no warrants and no personal guarantee you know cheapest is hard to say but the the one that's most interesting to me is tied to revenue royalties revenue-based financing rbs exactly yeah so typically those notes those facilities right i mean if we grow our revenue they get they get part of that and yeah it's it's uh i think safer on both sides what's the cheapest rate you've seen so typically you're paying back anywhere between three and nine percent of gross monthly receipts on that over some period of time what percent have you seen in terms of the cheapest well i like three i know but what have you seen what have you actually gotten give me their number yeah i'm actually it's closer to eight okay now the percentage is one thing but the second thing in order to truly capture the irr on this kind of facility is to look at what the repayment cap is so in other words if you took a million you know three million dollar loan with a 1.5 repayment cap on a two or three year term you're looking at paying back caught 4.5 million over three years as a function of eight percent of your gross receipts monthly what is the cheapest repayment cap you've seen is 1.5 x about what you're seeing that is about what we're saying yes yeah yeah and is it about a three year term yep three year term three to five but three-year so if there was someone listening right now i'm going to try and help you out here and create a little bidding warrior something i already have one but i'm gonna try and amp it up here if someone's listening right now could get you a better deal than eight percent of gross receipts on a 1.5 repayment cap on a three-year note for something like three million bucks they should call you immediately immediately i laurie i'll call them i get one percent no i'm just kidding there's something in there no i'm i'm kidding i generally want to see you get better deals that's that's what i why i do this show in the first place okay good uh so that's good and is three million the right amount is that what you think what you think you take in right now we're looking between three and eight three and eight okay interesting very good all right that's all good stuff and then can we quantify so i'm gonna go back to some earlier numbers you gave me and try and quantify this a bit um you had mentioned that uh the company today is serving about you've grown about 350 customers up from the 40 you started with and all of them are essentially north of 100 000 acvs that would mean that monthly right now you're doing about 2.9 million a month that no that's so let me correct that sure yeah on the project side there you know the 100 to the 300 uh to 400 a year but half of our customers are in the manufacturing sector okay a whole different story that's you know the the uh annual contract value is closer to 25 000. okay got it so if i just drop that that rpu down essentially the average down to something like two thousand dollars a month that would times 350 customers that puts you more like seven hundred thousand dollars a month in revenue that's that more accurate you're good okay just checking i wanna make sure i feature i wanna feature you the right way lori okay i'm trying to get you leverage all right and then so if that's the case today where were you about a year ago a year ago we were about uh uh under under 500. oh wow okay i mean so so i mean this is actually you know fairly good growth um interesting why so why not go do an equity round right now instead of a debt round we're we're trying to balance between we could do an equity round you know certainly could um it's just we've got you know the board is a little concerned with diluting current investors and so we're trying we're trying to increase the value our valuation by getting closer to cash flow breakeven and profitability while at the same time continuing to grow so our plan right now is 25 percent growth year over year yeah you know with additional funding we could we could double um it's the target markets are are huge um but we want to get a little closer to that cash flow break even and to the profitability we think then the valuations will be higher and we'll have a better opportunity to get you know a better deal lori how aggressive are you being right now with burn you talking like a hundred grand a month or a million a month or what's a general range it's uh three to four hundred okay and and do you feel good there like can you sustain that for a while or yeah yeah okay well we've come down we've come come down significantly and that was based on a little bit of a shift and you know let's get this valuation up um let's not dilute right now um let's build additional proof and uh that's what we're in the middle of doing and it's it's working you know but but uh we definitely are looking at options in the next six to eight months what's it down from what was it at earlier it was like a million a month okay yeah by the way not crazy when you raise 15 right that gives you 15 months to run away ish but yeah the hard part is like it's a it's a balancing act it is definitely yeah there were just a couple things that we tried to do that weren't paying off and we just made the decision to pull away from those and really focus on the areas that are paying off and it's it's working our employees are super happy and our customers are super happy as well that's good very good okay so what's the next big revenue target sounds like you're doing right now about eight or nine million in terms of arr when do you think you break you know 11 12 million we're in the middle of that right now so we're double digits good good all right let's wrap up with the famous five number one what's your favorite business book [Music] hope is not a strategy number two is there a ceo you're following or studying right now uh [Music] probably but you know there's more people in politics right now that i'm following than in than in uh than in business so i i they were ceos but i like carly a lot yup which one fiorina yeah yeah number three what's your favorite online tool for building your company online tool for building our company yep your own you know we use our own products so that's kind of hard for me to and besides that people have hundreds of tools which i i would say heat in projects that's our own product but uh we we're we're big users of salesforce okay good number four how many hours of sleep are getting every night uh not enough probably uh you know five six okay and can i ask how old you are i am 53. all right and what's your situation married single kids married with a blended family of eight children adult wow you are busy okay good all right last question what do you wish your 20 year old self knew uh just to believe you know to believe and you know there's a lot of things um it's just uh you know to believe in that next step and to always just know that if you accomplish that next step you you will grow and you will have opportunities um and it's okay to to fail sometimes because you do you know you do learn from that guys keaton 700 000 a month right now in revenue up from 500 000 a month a year ago so caught 40 year-over-year growth 350 customers using them to help manage their project sas based project management tool founded in 2012 via an acquisition they bought another company for 5 million bucks and have scaled it since then raised 42 million dollars to date burning about 400 000 a month team of about 100 people full-time net revenue retention 108 with any anywhere between a 12 and 24 month payback period on new customers as laurie looks to scale the company lori thank you for taking us to the top absolutely thank you for the time