Knapsack Revenue, Valuation & Funding (2024)

[00:00] Hey, folks. My guest today is Chris Strahl. He's an entrepreneur and serial founder, startup CEO, and podcast host. He's excited to see how knapsack, his current company, is going to change the way we think about building applications using a pattern based approach. He lives in and loves Pacific Northwest, formerly a river guide professional dungeon master and believer in always looking for your next adventure. Chris, you ready to take us to the top? [00:19] >> Yeah. Sounds great. [00:20] Alright. So, like, what dragons are you battling right now at Knapsack then? [00:24] >> Yeah. I mean, everything comes back to to D and D in the end. Let's see. Dragons. Well, I mean, there's a lot of pressures on startups right now. And, a large part of it is is related, of course, to things like like runway and funding and, finding the right people on your team. And so, you know, the place that that we find ourselves is having some some great early stage traction as a company and now looking [00:47] >> at, like, how we accelerate into that next step. How do we hire the right team? How do we find the right venture partner? How do we keep making awesome software and growing the company in a way that's responsible in an environment of of venture capital funding that has been completely bonkers for the last two years. Mhmm. [01:06] So my understanding of the product, right, you know, we just spent a small fortune with our design team. They have these beautiful layouts on Figma. They design these, like, one pagers with all of our fonts and colors. And then we basically modulized all of the different chunks of the landing page design. It looks like if we import all that to knapsack, I can have someone that has no idea how to design or code create their own [01:23] new landing pages using old elements we've already done. Is that basically how it works? [01:27] >> Yeah. Exactly. So you take a and you rally around patterns. So patterns can be any solution to a commonly recurring problem. So that that can be a a color system. It can be a spacing system. It can be all those styling elements that that exist inside of Figma, or it can actually be, like, bits of UI, things like like buttons or cards or navigation. And then what you can do in knapsack is you can define what [01:51] >> variables you can send to these things and create different variations. So the whole point of this is you should eliminate a bunch of wasteful rework. Instead of maintaining hundreds of different possible buttons, maintain one bit of button code and one bit bit of button design and then, define a set of allowable variations from there. [02:09] Yep. That makes a ton of sense. Okay. Tell me, what are companies paying on average to use this tech? [02:13] >> Yeah. I mean, this it's about so for we have two different pricing tiers. We have our team plans, which anybody can sign up for. They're they're $25 per user per month. And then there's our enterprise plans, are $50 per user per month. And those tend to be to to larger organizations. [02:29] Mhmm. But but ignore the per seat pricing. When teams get going, I mean, are they onboarding five seats, 5,000 seats? What's the average logo paying you per month? [02:36] >> Yeah. So we kinda go all over the place. We have, some smaller customers that that, you know, are just getting started because people aren't used to buying software for design systems. There's not like a a whole host of different SaaS solutions for this. There's there's a handful of them. And so most of the times when this gets used initially, it's with a team that really believes in the design system concepts, five to 10 people. And so [02:59] >> that represents, you know, like, to $5,000. [03:02] A year. Right? [03:04] >> Yeah. A year. And then Yep. And then what we do is we have customers that that get really big. I think we want one customer that's a little over 700 seats and they pay [03:13] Is that your biggest customer? [03:14] >> Yeah. Our biggest customer is is a little over 700 seats. They pay about $200,000 a year. [03:18] A year. Yeah. That's great. Yeah. So that's nice. So this what that tells me is I think you're pretty early stage in terms of like age. Right? You've found it, I think, in 2020, but you have a clear path to driving serious expansion revenue. [03:29] >> Yep. Exactly. And so last year or last month was our one year anniversary, which is pretty exciting. [03:34] That's awesome. [03:35] >> And and, yeah, you know, we we really focus on that expansion sort of go to market motion. Right? We wanna land with that initial team, get them to really love our product, show the value of it because there's not, like, a million case studies about why design systems are valuable right now, and then get them to to work with other teams inside of their their organizations to grow that and and to make that something that that [03:59] >> makes them successful and makes us successful. [04:01] I don't usually ask this with a company that's under, like, two years old, but it sounds like you've got a good pulse on this. What's your guys'net dollar retention over the past twelve months? [04:08] >> Yeah. It's a it's about a 190%. [04:11] Yeah. So super I figured it was gonna be high. [04:13] >> Yeah. It's like, we're pretty happy with that. That's that's the number that we need to really focus on for the next year to really, you know, continue to make this an awesome company. [04:22] Well, why, though? I mean, that's already world class. The real question is can you keep that at scale? [04:26] >> Exactly. And so that's why, I mean, that we need to focus on it is, like Got it. You know, it's going well right now. It needs to keep going well. And so let's let's keep that up. [04:33] Yep. No. That makes a ton of sense. Okay. Got it. Take me back to day one. So you founded it, I guess, in last year 2020. Did you bootstrap or raise? [04:40] >> Yeah. So we we came out of an agency. We had a a company called Basalt that was an agency that built these design systems in this sort of this bespoke DIY manner. So we built large custom technology platforms for big enterprises. People What was [04:54] the URL for Basalt? [04:55] >> Basalt.io. [04:57] Basalt.io. [04:58] >> Yep. So that agency doesn't exist anymore. Yep. We we basically were working with a bunch of large enterprises, building these things for millions of dollars. And we went to go look in the marketplace to see who who was doing some sort of platform solution here because the way you grow an agency is you find a product that you can repeatedly deliver over and over and over again. And we found nothing. And so or or nothing that [05:23] >> really worked for us because there was everybody was focused on either the design use case or the engineering use case. Nobody was really focused on the the collaboration between those people. And what happened is is, you know, positively or negatively, COVID hit, and all of our work as an agency just evaporated. Like, big [05:42] was agency pre COVID? Total revenue biggest year. [05:44] >> Like, $1,100,000 to $1,200,000. [05:47] Okay. So meaningful. I mean, it that that hurts. Yeah. [05:49] >> Right. Yeah. And so so we went from we went from, like, 800 k in bookings to, like, less than 200 k in bookings, like, overnight. And so we took a PPP loan, like, pretty much every company did. [06:02] How big was that for? [06:03] >> It was, like, almost $400,000. Yep. And and with that, we kinda had, like, took our bench time that we had an abundance of, and we started taking the tooling that we built up building these things custom and turning that into a SaaS product. We didn't know it was gonna be a SaaS product at the time. We just needed something to do. And then summer rolled around, and and we got really excited about what we had built [06:26] >> on the tooling front. We And have this this crossroads. Like, do we become an agency that has a product that helps us sell services, or do we actually take this and make it a SaaS product and and become a product company? And folks were a lot more interested in the latter than the former. And so we [06:43] And who are the folks? How many worth how many were on the team making the decision? [06:47] >> So there's I mean, we talked to the whole company of about 12 people, but the leadership team was was really the ones that were, like, super aligned on let's be a product company and which is five people. [06:56] Yep. So the way there's five is that the way five co founders the way to think about it? [06:59] >> It's me and my co founder and then we have a a head of customer success, head of sales and marketing, and head of product. [07:05] Okay. So did you guys actually shut the agency down, launch a new cap table where you and your co founder own fifty fifty each and you scale from there? [07:11] >> That's exactly right. So we we shut that down in shut the agency down in September, reincorporated as a c corp in October, and then started looking for funding. [07:21] That's amazing. Okay. So you raised last year or this year? [07:24] >> Yeah. So we raised this year. We we started looking for funding in October, and it's it's tough to pull together funding in less than three months. And so we we had term sheets and stuff in in November, December and did a a, you know, small seed pre seed round in January with, like, one or two customers and, like, 11 k in annual revenue and, you know, have grown it a lot since then. [07:47] Yep. So how much money did you end up taking? [07:50] >> A little over 2,000,000. 2 point [07:52] Little over 2. 2.3. Yeah. My notes say 2.3, so that matches. Very cool. That was your so I guess a precede around there. And and so what I guess I guess the question I have there is why do you need funding to do this? I mean, you already know how to generate revenue with your agency work. Why not just close a couple customers and let them prepay for you to then go build the SaaS so you [08:08] keep equity? [08:09] >> Yeah. I mean, that's an option. I think that the hard part is is that there's, sort of this this rising tide, right, of of design systems. We view this as a step change in the way that people think about building product. And that market opportunity window is pretty small. And so we could grow it organically, but it would take us four or five years to even get to the point that we're at today where, you know, [08:30] >> we have a a substantial base of of large enterprise customers and a whole host of of smaller [08:35] How many total customers today? [08:37] >> So, it varies a little bit because we have a self serve offering in the enterprise offering. We have, you know, about 15 enterprise customers and then, you know, a a couple dozen smaller customers. [08:47] Got it. So, call it like under a 100, maybe like eighty eighty customers all in, something like that. [08:51] >> Yeah. Something like that. Yeah. [08:52] Yeah. Yeah. Interesting. Okay. Cool. Yeah. And you already sort of painted the picture of what the enterprise $200,000 a year contract looks like. People can get started as cheap as $25 a month. Right? [09:00] >> Exactly. And so You [09:01] know, full spectrum then. [09:03] >> Yeah. And and the folks that like, you know, the the the rules of SaaS are are essentially like, you know, remove as many barriers as possible from people touching and paying for your product. And so that's that's what we do with the the $25 a month thing is like, hey, you wanna try knapsack? You wanna have an account so that you actually get things like support and help to get yourself onboarded. And so that's where that [09:22] >> offering comes in. And that's largely about getting people interested in the product. There are tons of people though that just use it every month and they pay their $25 and are happy with it. And then, you that know, that ultimately is intended to lead to folks converting to enterprise where they say, like, my team has tried this for a couple months. We love it. We wanna take the next step, get a bigger group of people on [09:44] >> board, get another team on board, and that's when people move into that that enterprise space. [09:48] Makes sense. And I know averages are hard here because you have such a wide range. But you said earlier, call it $6,000 average ACV across 80 customers. That would mean you guys are doing, what, about $40,000 a month right now in revenue? [09:58] >> Yeah. Right around there. [09:59] Up from like $900 a month a year ago? Yeah. Exactly. Incredible growth. I mean, this is this is this is great growth. So you rate with that kind of growth, when you raise the 2.3, I mean, what valuation did you target? [10:11] >> Yeah. So 2.3, we we raised at seven and a half post money. [10:15] Gosh. That feels so lucky ass investors. That feels so cheap to me based off your growth rate. [10:20] >> Yeah. I mean, like, you know, frankly, we we were in a situation where where, you know, we didn't really we had a product that was in market technically, but like I said, we had about two customers. And so it wasn't it wasn't really [10:36] They invested before the growth then. [10:37] >> Yeah. Exactly. It wasn't really a thing then. Right? Like, last January, like, we had no idea if we were gonna get this to work. And and what was interesting is is our initial plan was to target larger accounts. We were looking at more like a, you know, 30 to 60 k ACV. And finding out that people just weren't used to buying this as a SaaS tool, was a big realization for us, and it took us a [10:58] >> couple of months to figure that out. It was really May or June that we we sort of changed go to market tactics where we said, hey. You know, our customer acquisition strategy for these larger accounts, it's slow. It's cumbersome. You know, people are are concerned about buying from a start up in in this space because there's not a lot of of, like I said, case studies and stuff here. And so we made that shift to go [11:21] >> from let's sell to big enterprise of plan let's sell these big enterprise plans to let's sell these smaller individual team deals and really focus on getting that first five users in the door. [11:32] Yep. Top of funnel. Open up the top of funnel. [11:34] >> Exactly. And that was revolutionary for us. Like, that that totally opened the floodgates. [11:38] Now are you spending money? Do you know what your CAC is due to a $25 a month seat? [11:42] >> Yeah. I mean, it's kinda all over the place. Right? Like, it's it's it's still a little too early for that to be a meaningful metric for us. You know, I would say that that, you know, it's it's in that five to 10 k range as well. But the expansion is what makes it worth it, is why that net dollar retention is so essential for us. [11:57] Yep. Yep. Yep. So you'll spend 5,000 CAC, get a 6,000 customer payback is still fine. But again, that's that's a cohort there. The sample size is very small. You're still sort of editing. [12:05] >> Exactly. [12:06] How many people on the team today? [12:08] >> There's there's 12 of us and and two contractors. [12:12] Okay. Got it. So you said there were 12 last year as well. Have you not made any hires over the past twelve months? [12:15] >> Well, we sort of changed out the team. [12:17] Oh, okay. [12:18] >> You know, we we had an agency team that was very focused on how to consult. And so we needed to build a company that was focused on a SaaS product. And so, you know, it's it's something that I wish we could have kept more folks from the agency side, but only really four rolled over. So it's it's eight new folks and four existing folks. [12:38] Yeah. Four existing since the existing days. And you've only taken I mean, I guess you said to the 7.5 was post money. Right? Yeah. Yeah. So you sold call it 30% of the business. So you and your co founder still own call it whatever 40% between the 40% each effectively. You you keep growing here. Do you have any plans to raise again in the in the near future? [12:56] >> Yeah. We're actually we're we're sort of probing right now, you know, with our our traction. We've got a lot of kind of interest in in doing nontraditional raise before the end of the year before we move into a more traditional, like, you know, c plus series a kind of thing in in q one of next year. [13:14] What would a nontraditional raise look like, you know, in the next sixty days? [13:17] >> So somebody that's looking to to preempt to get in now that that wants to be a part of this, and and we're basically saying, like, what would be the best investment partners that we could work with? And we're picking that, like, top 20 list and and targeting those folks as, hey. These are the folks that we really want on our cap table. We really want to be a part of our team. Let's talk to them now. [13:37] >> If we get a term sheet out of that, awesome. If not, we have plenty of runway to to do this in q one in a more, like, standardized, like, let me go have 40 meetings in a month kind of thing. [13:46] Yeah. Yep. Yep. Yep. 12 on the team. How many engineers? [13:49] >> There's three dedicated engineers, one designer, one head of product, and one contractor engineer. [13:57] Very cool. System is working. Let's wrap up here, Chris, with the famous five. Number one, favorite book. [14:04] >> Let's see. My favorite book has got to be Hitchhiker's Guide to the Galaxy. [14:08] Number two is there is I had a feeling that was gonna be your favorite book based off your bio. Number two, how is there a CEO you're following or studying? [14:16] >> Yeah. [14:19] >> So Melanie from Canva has has done some really incredible stuff and it's [14:25] >> you know, I I got I had the opportunity to listen to her speak at this really sorry. I'm sort of stumbling. Let me try that again. So, Melanie Perkins is who I'm I'm watching right now. Her work with democratization at scale is something that we really aspire to inside of knapsack. And so, kind of, as somebody that that proved that democratization story, it's been awesome to see the success that Canvas seen. [14:48] >> Yep. [14:49] Number three, what's your favorite online tool for building knapsack besides your own? [14:52] >> My favorite online say that one more time. [14:54] Favorite online tool? [14:55] >> Oh, my favorite online tool. My favorite online tool right now, [15:00] >> gosh, I've been playing a lot with Figma. I mean, you know, this is an obvious choice for us being a a design organization. But being able to experiment and and prototyping design has been pretty exciting for me. And basically seeing what they're continuing to do with things like version control has been awesome. [15:19] >> Yep. [15:20] Number four, how many hours of sleep do get every night? [15:22] >> Oh, man. I have two young kids. That is a very low number. Probably between five and six hours. [15:27] Okay. Fair. And are you married with two kids? [15:31] >> Yeah. Yeah. I have a wife and and a three year old and a one year old. [15:34] Oh, man. Okay. And how old are you? [15:36] >> I'm 40. [15:37] >> 40. [15:38] Last question. Something you wish you knew when you were 20. [15:39] >> Something I wish I knew when I was 20. [15:43] >> That I wouldn't be a father until I was 37. [15:47] You would you'd wanna be earlier or later? [15:50] >> I mean, I think that, like, you know, you you frame so much of your your life around the relationships you make and the connections you make with other people. And, know, I spent a lot of time basically trying to find the right partner in my life. And I I have that now, and that's awesome. And and, you know, my wife is an amazing partner for me in this journey. I struggled for that for a very long [16:12] >> time and it was a huge source of anxiety and stress for me for a while. I think there's a lot of pressure on young people to get married, especially they come from, you know, more traditional families. And so knowing that it was gonna happen for me would have maybe made me more patient. [16:28] Guys, there you have it. Knapsack, again, helping you take design elements, coded elements, and reuse them faster, more effectively without me to spend so much time redoing the same stuff. They went from nothing to $40,000 a month in revenue in under twelve months, raised to 2,300,000 pre seed earlier this year at a 7.5 post money valuation, now scaling up with their team of 12, supporting 80 customers. Chris, thanks for taking us to the top. [16:50] >> Hey, thanks so much, Nathan. It's great to meet you. [16:54] 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 [17:19] 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 [17:41] 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 [18:03] 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. 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 got [18:22] to 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.