How Kong Inc CEO Augusto Marietti grew Kong Inc to $146.1M revenue and 130 customers in 2024.

hello everyone my guest today is aggie marietti he's an inventor technology entrepreneur and angel investor as the ceo and co-founder of kong the api company on a mission to intelligent broker information across all services he drives the company's vision strategy and long-term growth before this he was ceo and co-founder at mishape the largest api marketplace which was required by rapid api in 2017. again you ready to take it to the top yep all right so what is kong hq and and what's the business model how do you sustain yourself yeah yeah so kong it's uh api platforms it helps you manage secure and govern uh all the apis across your companies and it's an open source open core business model so we have our open source component which is kong api gateway which people can download and run in production on top of all your apis and then we have the enterprise product which is the service control platform that manage all those open source proxy and helps you analyze and govern and secure all your traffic so it's kind of open source sas then in that regard yep yep yep yeah think about it uh uh like building the nervous system right of the cloud uh in your body you have the nervous system which is very vertical and then you have the centro which is a brain and spine and then in similar case our peripheral components are the open source proxy and then the the central part is which is the brain the spine is the control plane that is the one that we have an enterprise commercial offering around yeah very good okay so help me understand on average what are companies paying on the enterprise side to use your technology yeah it's a six figures and up uh annual base contract value right so it's annual subscriptions uh where it's it goes from six figures an app okay so i mean is it fair to say if your average is you know 10 grand a month 120 grand a year or something like that yeah a little bit more okay fair enough good and then uh put this on the timeline for me when you launch uh so the kong inc was uh in 2017 august okay twice 2017 and that was did you jump into this right after you sold the rapid api yeah it was a spin-off of my shape inc and obviously 2016 was kind of internally uh people paying and then 2017 was also public facing a branding and reshaped organization and sell their old asset as well that's great okay and so you know walk me through your first couple customers on the platform not not the free ones but the enterprise ones how did you land those first customers yeah that's an interesting story uh so when we open source kong right from from the core engine of of the machete api marketplace uh it tooks a lot of adoptions on github but but really no commercial at that point right but five months after at uh at the end of 2016 um the phone ranked and it was uh uh the center of medicare uh healthcare.gov back then was obamacare uh they're all based in baltimore and they were using kong productions right to power all their apis with the turbo tax to do the programmatic partnership transaction with turbotax for tax credit for for health credits and then it was about end of the year and april was coming up which is obviously the end of the season for tax and they know there is a big spike there and so they decided to to call and say hey we love this we're using production but we need the uh we need supports and that's really how we started the first commercial customer we didn't have any commercial product back then just just the kong open source and uh i think in 30 days from that phone call we got got quite a good a good value um from them and um and that's how they start really the first customer by only selling support from an inbound call from baltimore uh on the center of medicare that's hysterical okay so you sign them up and then how many customers have you scaled to today uh we have about uh more than 130 large enterprise customers and then go uh more up the funnel a bit for me so how many total installs of the open source platform oh installs so it downloads is a little bit of a vanity metric right yeah because that's why i asked customers first by the way yeah that's just perfect because you get bots you get you know docker images they get pulled in from containers docker have so it's now it's quite a we have like hundred millions there right at the top of the finance and then you have we have like um i think now it's 800 000 active distances running for the one that we can track because the phone home is on and there is no firewall blocks so there is a lot that we don't track anything after they put into their own cloud so 100 million 800 000 active instances and then about 130 enterprise customers yeah yeah 800 monthly active instances uh which uh we don't know like if you decap the people we don't know really how many users is several several several dozen thousands of thousands yeah and then it is about 130 large enterprise customers right global 5000 which is the one that that we track now can i take 130 customers times you know minimum 10 grand a month you're doing north of 1.3 million a month right now yeah it's more than that yeah well yeah definitely more than that because that was a minimum value yeah yeah when do you think you break two million a month do you feel like that's doable this year or is that an uncomfortable stretch goal uh so so we we are uh well past the 10 million right but we're obviously under 100 million in arr uh so so we're tripping the business this year uh so we're getting um we're definitely passing those those points this year sorry sorry my question was when do you think you passed two million in monthly recurring revenue oh yeah we don't we don't disclose the exact states on you know when we track those those kind of numbers okay well i guess again all i'm asking is your goal by the end of this year is to like what's an uncomfortable stretch goal for you to is about tripling the business from where where we were last year but uh and you know again we're between 10 and 100 million runway but we don't we don't destroy specific numbers so we can understand growth rate over the past 12 months um again you're north of 10 million today in revenue where were you a year ago were you down at like three or uh yeah yeah we we grew five times from 2017 to 2018. and then again 18 2018 this exact month last year you feel like you were down about you said about three times smaller than you are today so somewhere north of three million an ar uh in that in their ballparks but uh yeah where's most that growth coming from is it coming from expanding the enterprise accounts or getting new customers all together um so last quarter it was half and half but it wasn't anomaly uh usually it comes from new logos because it's still uh very early days right so we grab new logos and and and a lot of custom most of the cast have been had in the last 12 months so right they're not even a renewable time and um and last quarter for example was the zero charge and was a lot of massive expansions because of too large customer really expands substantially but on average it's really is really 90 90 percent still 95 percent a new logo i think at the end of the year and we end january 1st things will change and we start to also turn in expansions but last quarter was um last 12 months average of last quarter like for example net retention really was 132 and in quarter was 195 percent so it was it was a little bit strong footing quarter but we want to stay above 130 net retention rate yeah if you look at the past 12 months have you been above 130 net retention yeah 133 and peel that onion back for me so what was gross a gross revenue churn uh well last quarter was zero so in average we we turn less than that less than five seven percent or attempts on terms of dollars value because the overall period of time monthly or quarterly last 12 last 12 months okay so seven percent revenue churn over the last 12 months if you have 130 net that means your expansion on average is about 37 percent in that cohort is that right yep that's great what upsell axes are you upselling against uh so there are two way right there is the upsell and the cross sales last quarter we got lackey got both in a way but it's usually um is usually an app sell right where you you usually to buy more of the technology and and we price by uh three different dimensions which is numbers of users that use the platform number of requests that goes through the platform like the throughput of the traffics and then numbers of microservices or services that you add through the platform and then one of those levers usually tend to go up over the over the 12 months and so that's that's they buy more of those uh kind of which one is most effective for driving expansion requests and throughput microservices or number of seats uh well the microsoft we just had it it's like so too early to say but but i think that's would be the most powerful one interesting okay round out your team for me today how many folks on the team overall globally it's about uh 140. okay 140. that's great and then have you bootstrapped the company or did you decide to raise uh we raised over 71 million augie i liked you so much and then you tell me you take all this delusion but if you think about it our company before kong it was misshape right so if you go back to that day that's the whole amount because we were running a different company before and then we have to spin up but there is there is like 10 years of blood before we got here it's not like start go and race okay but on the current cap table today there are investors listed and those investors all together have put in about 70 million bucks yeah well we clean up a little bit uh but uh we can have a little bit uh lately but uh but yes but you sold my shape right i mean you sold it to rapid api so yeah so no but that was that was an asset sales though it was faster to do to analysis so we sold the product and the business but we didn't sell that like the cap table kind of thing over there oh okay okay so you sold an asset to rapid api this is basically there's no a renamed version of my shape is now called i reboot yes yeah i reboot from from the region uh regional cap table and we did some cleanup over time when did misshaped launch what year uh misshape has uh the one that was sold we launched in um public launch was 2012. okay got it so you said 2017 for kong it really was 2012. i mean that was the start it was the start of the corporation right even if we were doing something totally different right from 2010 to 2016 it was all api marketplace and my shape and then through the 16 when the first country came in then we we went all through yeah yeah how much how much capital has come in post 2016 in terms of raised so that was 18 million one and then we raised 43. okay so so 60 62 63 something like that million total yes a majority has come over the past two years yeah yeah basically for the first five seven years of my shape the business wasn't really growing very fast and we're kind of like you know keeping the lights on and and we're between 15 and 20 employees head counts and we were trying to make the money last as much as we could which was a 6.5 million series a and will last for years for a decade almost a day uh and then when kong took off then then we started starting the business and raised the found the additional growth talk to me about how aggressive we're being on new customer acquisition right so connor first your acv is north of called 150 000 are you willing to spend that full acv to get the customer for a 12-month payback or are you more or less aggressive so this is how the model works today right we have this open source flywheel similar to open core business like elastic azure conference they're all the business being booked today it all went through inbound so somebody goes on the website and either contact us or do requests of them or contact sales right so it was dryer and bound of course as you grow and the numbers gets big you need to also start to have a little bit of outbound and put more money in uh but but the margin are are pretty healthy right we're talking about 85 gross margin and most of that was booked about inbound so there is really not much at least in the last 12 months there wasn't really much a lot of marketing spent but things will change in the future we still have to figure out what what kind of numbers we want to to put on an outbound firehose and figure out what i imagine you've made some some sales higher at this point of the 140 how many are sales or aes or cs reps so quota carry and um a lot are obvious in the last three months so they're not ramp but all in globally it's about now 15. okay so you have some like hypothetical pro forma you hope these folks hit you've modeled a quota attainment of like 4x their base plus comp or something like that they're four to five four to five x yeah that's pretty typical at your stage they're ramping up but what do you put it for their ramp ups give them six months six months yep okay so when you model the fully weighted cac on people they're bringing in what what do you think that is on 150 first year acv so you mean in the how much the sales force will cost you in the marketing on getting those new logos because if you're thinking i don't know not cogs actually fully weighted cats that includes a salesperson commission it includes marketing dollars to get the leads it includes anything that is sales and marketing or cs yeah and so then that will take about 12 months to pay back right okay that's fair enough so yeah you'll you'll to get a basically to get a new dollar of ar you're totally comfortable spending a dollar to get it yep yeah we're about that point going to that point yeah that's great and then um look one of the things i'm always fascinated by coming to your scale i mean you have to be burning to drive growth i mean you are on the vc track whether you like it or not that's what you chose how aggressive are you being in terms of burn per month is like a million per month or two million per month or more no no less we're trying to invest and grow but not but not crazy-wise a lot though happens because um 30 of the deals happens to be cash up fronts annual deals and they're they're multi-years sometimes like three years right so you might get a lot of cash coming in because we don't have a credit card business so we might get a lot of cash coming in at the end of the quarter i mean the month after the end of the quarter and that then months for example it might be free cash flow yeah so on a gaap basis you'll have months on a gaap basis you'll have months where you're profitable it's very exactly but it is very it's very it's not the 2 million bar and it's not the 3 million bar and it's it's less okay got it so let's just be clear you're working again on a sas kind of metrics model not a gap basis you're burning less than a million bucks per month to drive growth yeah any any plans to raise additional capital uh not not any time uh not at any time so yeah all right let's wrap up with the famous five augie number one what's your favorite business book uh well there is a lot right there is like the art of war principles but the one i like a lot which is more spiritual business book is the seven law of spiritual success which is not really business but i applied a lot into my business and in my day-to-day so it's a little bit of uncommon answer but but it helps a lot on business side too by having seven those seven spiritual advantages i would say or uh coaches number two name a ceo you're following or studying um well other than the usual suspect i think giannini uh which was the founder of bank of america which was bank of italy i studied him a lot because i grew up in italy so these nays was obviously very important and of course you have you know the modern one like jeff bezos but but i like also carnegie mellon um i think chambers was the best enterprise ceo right john chambers yeah yeah we built it built cisco and uh it's uh it's quite he built uh you know 75 000 people family kind of thing which is emotional draining but he was able to pull it out and and and build the cisco that it is today so that that's also quite fascinating how he did it at number three what's your favorite online tool for building your company uh definitely uh zoom yeah number four how many hours you sleep every night i'm trying to not go under six okay what's your situation married single kids uh single okay no kidding sorry i i i have a girlfriend but i'm not married and you have kids you're like wait i need to correct that if she listens to this then i'm gonna be single all right so so not married no kids and how old are you 31 last question what do you wish your 20 year old self knew um or not new you know how long this would have taken like uh uh you know when you're 20 you start like yeah yeah we're gonna be we're gonna be as big as facebook in three four years uh right and then you're five years in and and and you're still figuring out how to process payroll and all of that so it just you know knowing before how long that would have taken i think i think having a more reality expectation but also being naive is probably why we start things right so it's kind of a double double sword kong hq api management started back in 2012 with misshapen then went all in on this model basically an open source model then sell enterprise customers on top of 130 enterprise customers paying north of 13 000 a month so call it north a 20 million dollar run rate today scaling nicely 70 million dollars raised 140 people on the team seven percent annual revenue churn 37 expansion for 130 net revenue retention burning less than a million bucks a month which is great uh again uh scaling nicely grown 3x year over year as they continue to use the open source engine to scale spending a dollar to get a new dollar of ar augie thanks for taking us to the top thank you