Kong Inc Revenue, Valuation & Funding (2024)

[00:01] Hello, everyone. My guest today is Aghi Mariotti. 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 Meshape, the largest API marketplace, which was acquired by Rapid API in 2017. Agi, you ready to take us to the top? [00:22] >> Yep. All [00:23] right. So what is Kong HQ and what's the business model? How do you sustain yourself? [00:28] >> Yeah. Yeah. So Kong, it's API platforms that helps you manage, secure and govern all APIs across your companies. And it's an open source, open core business model. So we have our open source components, 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 contract platform that manage all those open source proxy and helps you analyze and govern and [00:58] >> secure all your traffic. [01:00] So it's kind of open source SaaS then in that regard? [01:02] >> Yep, yep, yep, yep. Think about it like building the nervous system, right, of the cloud. In your body, you have the nervous system, which is peripheral, and then you have the central, which is brain and spine. And then in similar case, our peripheral components are the open source proxy. And then the central part, which is the brain and spine, is the control plane that is the one that we have an enterprise commercial offering around. [01:25] Yeah, very good. Okay, so help me understand on average what are companies paying on the enterprise side to use your technology? [01:29] >> Yeah, it's a 6 figures and up annual base contract value, right? So it's annual subscriptions where it goes from 6 figures and up. [01:39] Okay. So I mean, is it fair to say maybe a fair average is, you know, $10 a month, $120 a year or something like that? [01:44] >> Yeah, a little bit more. [01:45] Okay, fair enough. Good. And then put us on a timeline for me, when'd you launch? [01:49] >> So Kong Inc. Was branded in 2017, August. [01:56] Okay, '17. And that was, did you jump into this right after you sold to RapidAPI? [02:01] >> Yeah, it was a spin off of Meshape Inc. And obviously 2016 was kind of internally pivoting, and then 2017 was also public phasing branding and reshaped organization and sell their old asset as well. [02:15] That's great. Okay. And so, you know, walk me through your first couple customers on the platform, not the free ones, the enterprise ones. How'd you land those first customers? [02:22] >> Yeah, that's an interesting story. So when we open sourced Kong, right, from the core engine of the Mesha API marketplace, it took a lot of adoptions on GitHub, really no commercial at that point, right? But five months after, at the end of twenty sixteen, the phone rang and it was the center of Medicare, healthcare.gov, back then was Obamacare, they're all based in Baltimore, and they were using Kong in productions, right, to power all their APIs with [02:51] >> TurboTax to do the programmatic partnership transaction with TurboTax for tax credit 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 then there is a big spike there. And so they decided to call and say, Hey, we love this. We're using production, but we need support. And that's really how we started the first commercial customer. We didn't have any [03:11] >> commercial product back then, just the Kong open source. And I think in thirty days from that phone call, got quite a good value from them. That's And how they start really the first customer by only selling support from an inbound call from Baltimore on the center of Medicare. [03:28] That's hysterical. Okay, so you signed them up. And then how many customers have you scaled to today? [03:33] >> We have about more than 130 large enterprise customer. [03:38] And then go more up the funnel a bit for me. So how many total installs of the open source platform? [03:44] >> Oh, installs. So downloads is a little bit of a vanity metric, right? Yeah. Because [03:48] That's why I asked customers first, by the way. [03:50] >> Yeah, that's fair enough because you get bots, you get Docker images that get pulled in from containers, Docker Hub. So it's now it's quite a bit, we have like 100 millions there right at the top of the funnels. And then we have like, I think now it's 800,000 active instances 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 [04:11] >> track anything after they put into their own cloud. [04:13] 100,000,000 downloads, 800,000 active instances, and then about 130 enterprise customers. [04:19] >> Yeah. Yeah. 800 monthly active instances, which we don't know, like if you decap the peak, we don't know really how many users this is, several, several, several dozen of thousands. And then it's about 130 large enterprise customers, right? The global 5,000, which is the one that we track. [04:36] Now, I take 130 customers times, minimum $10 a month, you're doing north of 1,300,000 a month right now? [04:42] >> Yeah, it's more than that. [04:43] Yeah, definitely more than that because that was a minimum value. Yeah. When do you think you break 2,000,000 a month? Do you feel like that's doable this year or is that an uncomfortable stretch goal? [04:52] >> So we are well past the 10,000,000, right? But we are obviously a 100,000,000 in ARR. So we're tripping the business this year. So we're getting, we're definitely passing those points this year. [05:05] Sorry, sorry. My question was, when do you think you'll pass 2,000,000 in monthly recurring revenue? [05:09] >> Oh yeah, we don't disclose the exact dates on when we track those kinds of numbers. [05:15] 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? [05:23] >> It's about tripling the business from where we were last year. Again, we're between 10 and a 100,000,000 run rate, but we don't disclose specific numbers. [05:33] So we can understand growth rate over the past twelve months. Again, you're north of 10,000,000 today in revenue. Where were you a year ago? Were you down at like three or? [05:43] >> Yeah, we grew five times from 2017 to 2018. [05:50] And then again, 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 3,000,000 in ARR? [06:02] >> In that ballpark, but yeah. [06:05] Where's most of that growth coming from? Is it coming from expanding the enterprise accounts or getting new customers altogether? [06:12] >> So last quarter it was half and half, but it was an anomaly. Usually it comes from new logos because it's still very early days, right? So we grab new logos and a lot of customers, most of the customers have been had in the last twelve months. So, they're not even at renewal time. And last quarter, for example, was the zero churn and was a lot of massive expansions because of two large customer really expand substantially. But [06:37] >> on average, it's really percent, still 95% new logo. I think at the end of the year, and we end January 31, things will change, and we start to also turn in expansions. But last quarter was last twelve months average of last quarter, like for example, net retention rate was 132% and in quarter was 195. So it was a little bit strong for in quarter, but we want to stay above 130% net retention rate. [07:03] Yeah. If you look at the past twelve months, have you been above 130 net retention? [07:06] >> One thirty three. [07:07] And peel that onion back for me. So what was gross revenue churn? [07:12] >> Well, last quarter was zero. So on average, we churn less than that less than 7% on temps on temps of dollars value because the [07:21] product Over what breaks period of time monthly or [07:23] >> Last 12 last twelve months. [07:25] Okay. So 77% revenue churn over the last twelve months. If you have one thirty net, that means your expansion on average is about 37% in that cohort. Is that right? [07:33] >> Yep. Yep. [07:34] That's great. What upsell axes are you upselling against? [07:37] >> So there are two ways, right? There is the upsell and the cross sells. Last quarter we got lucky at both in a way, but it's usually an upsell, right? Where you usually buy more of the technology, and we price by 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 service that you add through the [08:03] >> platform. And then one of those lever usually tend to go up over the twelve months. And so that's, they buy more of those kind of [08:10] Which one is most effective for driving expansion requests and throughput microservices or number of seats? [08:16] >> Well, the microservices, we just had it. It's like, so too early to say, but I think that's would be the most powerful one. [08:23] Interesting. Okay, round out your team for me today. How many folks on the team? [08:27] >> Overall, globally, it's about 140. [08:30] 140, that's great. And then have you bootstrapped the company or did you decide to raise? [08:35] >> We raised over 71,000,000. [08:38] Auggie, I liked you so much. And then you tell me you take all this dilution. [08:44] >> Well, if you think about it, our company before Kong, it was misshapen, 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 Gong. But there is like ten years of blog before we got here. It's not like start, go and race. [09:02] Okay, but on the current cap table today, there are investors listed and those investors altogether have put in about $70,000,000. [09:09] >> Yeah, well, we clean up a little bit, but we clean up a little bit lately, but But [09:15] you sold Meshape, right? [09:16] >> Mean, you sold it to RapidAPI. [09:19] So, so No, but [09:20] >> that was an asset sales though. It was faster to do through an asset sale. So we sold the product and the business, but we didn't sell it like the cap table kind of thing of the corporation. [09:29] Oh, okay. Okay. So you sold an asset to Rapid API. This is basically the Snow a renamed version of Meshape is now calm. [09:37] >> I reboot. Yes. Yeah. I reboot from from the region regional cap table. We did some cleanup over time. [09:44] When did Meshape launch? What year? [09:46] >> Meshape has the one that was sold we launched in public launch was 2012. [09:53] Okay. Got it. So you said 2017 for Kong, it really was 2012. I mean, was the start. [09:58] >> That was the start of the corporation. Right? Even if we were doing something totally different. Yeah. From 2010 to 2016, it was all API marketplace and Meshape. And then through '16, when the first contract came in, then we we went all through call. Yeah. Yeah. [10:12] How much? [10:13] And then we much capital has come in post 2016 in terms of what raised? [10:18] >> So that was 18,000,001, and then we raise 43. [10:29] Okay. So so $60.62, 63, something like that million total? [10:32] >> Yeah. So majority has come over the past two years. [10:35] >> Yeah. Yeah. Basically, for the first five, seven years of Meshape, the business wasn't really growing very fast, we're kinda, like, you know, keeping the lights on, and and we're between fifteen and twenty employees'headcounts, and we were trying to make the money last as much as we could, which was a 6,500,000 series a. And we last for years, for a decade, almost a decade. And then and then when Kong took off, then then we started to [10:55] >> accelerate the business and and raise the additional growth. [10:59] Talk to me about how aggressive we're being on new customer acquisition, right? So kind of first year ACV is north of, call it $150,000 Are you willing to spend that full ACV to get the customer for a twelve month payback? Or are you more or less aggressive? [11:11] >> So this is how the model works today. Right? We have this open source flywheel, similar to open core business like Elastic, Asher, or Confluence. They're all all the business being booked today, it all went through inbound. So somebody goes on the website and either contact us do request of them or contact sales, right? So it was driving inbound. Of course, as you grow and the numbers gets big, you need to also start to have a little [11:33] >> bit of outbound and put more money in. But the margin 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 twelve months, there wasn't really much a lot of marketing spend, but things will change in the future. We still have to figure it out what kind of numbers we want to put on outbound, Firehose and figure out [11:55] >> the Well, imagine you've made some sales higher at this point. [11:58] Of the 140, how many are sales or AEs or CS reps? [12:02] >> So quota carry and a lot are obviously in the last three months, so they're not ramp, But all in globally, it's about now 15. [12:10] Okay. So you have some, like, hypothetical pro form a you hope these folks hit. You've modeled a quota attainment of, like, four x their base plus comp or something like that. [12:20] >> Four to five. [12:21] Four to five X, yeah, that's pretty typical at They're your ramping up, but what do you put it for their ramp ups? Give them six months? [12:26] >> Six months, yep. [12:27] Okay, so when then you model the fully weighted CAC on people they're bringing in, what do you think that is on one hundred and fifty first year ACV? [12:37] >> So you mean in the, how much the sales force will cost you in the marketing on getting those new logos? [12:43] Because No, if you're [12:45] >> not COGS actually, fully weighted CAC. [12:46] So that includes a salesperson commission, it includes marketing dollars to get the leads, it includes anything that a sales and marketing or CS. [12:54] >> Yeah. And so then that will take about twelve months to pay back. Right? [12:57] Okay. That's fair enough. So yeah, you'll you'll to get an basically to get a new dollar of ARR, you're totally comfortable spending a dollar to get it. [13:03] >> Yep. Yeah. We're about that points going to that point. [13:06] Yeah, that's great. And then, look, one of 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 it like 1,000,000 per month or 2,000,000 per month or more? [13:21] >> No, less. We're trying to invest and grow, but not crazy wise. A lot though happens because [13:31] >> 30% of the deals happens to be cash up fronts. Annual deals. And they're multi year sometime, 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 month, for example, might be free cash flow. [13:48] Yeah, on a GAAP basis, you'll have on a GAAP basis, you'll have months where you're Exactly. [13:54] >> But it's very, it's very, it's not the 2,000,000 bar and it's not a 3,000,000 bar and it's less. [13:59] Okay, got it. So just to be clear, you're burning again on a SaaS kind of metrics model, not a GAAP basis, you're burning less than a million bucks per month to drive growth. Any plans to raise additional capital? [14:10] >> Not anytime. Not anytime. [14:13] Yeah. All right. Let's wrap up with the famous five. Agi, number one, what's your favorite business book? [14:18] >> 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 business and in my day to day. So it's a little bit of uncommon answer, but it helps a lot on business side too by having those seven spiritual advantages, I would say, or coaches. [14:40] Number two, name a CEO you're following or studying. [14:47] >> Other than the usual suspects, I think Giannini, 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 Diznez was obviously very important. And of course, you have, you know, the modern one like Jeff Bezos, but I like also Carnegie Mellon. I think Chambers was the best enterprise CEO, right? John Chambers. [15:08] Yeah, yeah. [15:09] >> He built Cisco and it's quite, he built a 75,000 people family kind of thing, which is emotional draining, but he was able to pull it out and build the Cisco that it is today. So that's also quite fascinating how he did it at scale. [15:25] Number three, what's your favorite online tool for building your company? [15:29] >> Definitely, Zoom. [15:32] >> Yep. [15:33] Number four, how many hours of sleep you get every night? [15:34] >> I'm trying to not go under six. [15:36] Okay. What's your situation? Married? Single? Kids? [15:40] >> Single. [15:40] No kiddos? [15:41] >> I have a girlfriend, but not married. No kids. [15:44] You're like, wait, I need to correct that. If she listens to this, then I'm gonna be single. All right. So not married, no kids. And how old are you? [15:52] >> 31. [15:53] Last question, what do you wish your 20 year old self knew? [15:57] >> Or not knew, you know, how long this would have taken? Like, you know, when you're 20, start saying, yeah, yeah, we're to be as big as Facebook in three, four years. Right? And then you're five years in 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 we have more reality expectation, but also being naive is probably why we [16:20] >> start things, right? So it's kind of a double, double's worth. [16:23] KongHQ API management started back in 2012 with Meshape and then went all in on this model, basically an open source model, then sell enterprise customers on top of it. 130 enterprise customers paying north of $13,000 a month, So call it north of $20,000,000 run rate today. Scaling nicely, $70,000,000 raised. A 140 people on the team, 7% annual revenue churn, 37% expansion for a 130% net revenue retention, burning less than a million bucks a month, which is [16:48] great. Again, scaling nicely, growing 3x year over year as they continue to use the open source engine to scale, spending a dollar to get a new dollar of ARR. Agi, thanks for taking us to the top. [16:58] >> Thank you, Nathan.