Lobrevenue, valuation & funding

hello everyone my guest today is lior abhidar he is the ceo and co-founder of a company called lob prior lab he was a technical business developer at amazon web services and a quant derivative trader at citigroup he's a university of michigan graduate and is passionate about always getting a good deal and building a great company culturally are you ready to take us to the top i'm ready all right so you said you like good deals that means you like take tons of vc money right those are great deals uh depends depends on the deal have you bootstrapped or no no we're venture-backed okay well then you you have to say that you love it then i do love a good deal but i don't know if every vc gives you a good deal so it depends that's why i said fair enough so sorry i cut you off you said you raised two and a half 29.4 million oh okay a little bit more than two and a half all right twenty twenty nine and then uh let's jump back to the kind of the back story here so what's the company do and are you peer play sas uh so we are sas plus and we offer a suite of apis for businesses that connect the online world to the offline world so we have two core products uh the first product is an address verification api so if you've ever been to amazon's checkout page and you've fat fingered your billing address or shipping address the pop-up that you see behind this the pop-up that you get we power that behind the scenes for a lot of e-commerce companies and then the second product is a print and mail api so all the mail that you get um we offer a api similar to sendgrid but for physical mail that allows developers or companies to send physical mail this is so fascinating so our magazine is doing very well it's the sas magazine that goes out to sas ceos and i have spent personally so much time trying to use clearbit and all these things to upgrade my airtable address fields so that when we send them all to our printer and our shipper in michigan they all get shipped properly and then that didn't work because there was no tracking so i had to jack up the price of the magazine to put tracking on every magazine to then validate and now i personally email everyone to make sure they got it and then i manually type yes no to know if it was the right email i'm hoping you can solve all my problems i mean that is actually one of the problems that we solve so we have oh we can get into it offline but that is the core of the user that we're the user problem that we're trying to so how do you price is it based off like number of api calls or what so uh i've tried to coin this new business model called sas plus okay so we have a subscription for our platform so um take a custo an enterprise customer would pay us a million dollars a year for the feature set that they are purchasing so that's pure sas and then there's the usage based component so as you send out physical mail we're going to charge you 31 cents per postcard or for a letter um a little bit higher amount and then you pay that at the end of the month so it's a combination of both okay based off kind of getting at flat fee and then on top of that usage exactly yeah um let's just for a second talk about the flat fee so i'm sure you have a huge a variety of different course customers you serve on average though what is that flat fee customers are paying you per month so new customers are typical deals around 52 000 a year okay i'm just on this side okay guys so that's about called forty three hundred bucks a month something like that four four million dollars ah you cut out there sorry lure give me that one more time uh so we do uh anywhere from our average of 52 000 all the way up to large enterprise deals of over four million dollars okay got it so again 52 a year would be about 4 300 per month or something like that for kind of average year one acv yep yeah okay interesting and then um put this stuff on a timeline for me when you launch the company we launched in 2013 23 and i mean were you like working in like the mail room at a printing place and you're also a software engineer at citigroup and go i can merge the two no so i was actually i was at amazon web services and i've always been a big believer in apis so i was there uh in 2012 and i saw them pioneer amazon ses which was their email api and my co-founder at the time was at microsoft and so he was the one who was sending a lot of physical mail and he was sending it at scale and so a typical campaign would would take them between 60 to 90 days to do it and if i wanted to send the same type of scale but in an email format i could do that in 30 seconds and so that's kind of where the aha came up we saw the future of restful apis we were both developers and to be honest what we just wanted to solve was harry my co-founder we just wanted him to get off work earlier so that we can go and play video games so that was what we were optimizing for when we started the company when we were 24 years old i love that all right so you guys launched the company and then how many people are you at today we are at 82 people today and how many customers are you serving we have over 5 000 customers that's amazing and that's not like some number right that's paying customers paying customers yeah yeah got a push you know you got you know you venture back ceos you make stuff up all the time it's crazy i mean i think everyone defines customers in a different way so there's even even us who have five thousand plus paying customers we only talk about our true customers as anyone who's paying over fifteen dollars a month for three months straight so uh we even try to narrow our focus a little bit more and that number is closer to 600 right now well wait wait so help me understand that so i thought you said kind of average first year is 52 grand but then you just said 15 a month so we have our self-service so again the core set of our customers which is what i primarily focus on is fifty two thousand dollars oh i see when what do you call those users like mid-market enterprise yeah mid-market and enterprise so we also have the self-service so we have a long tail of developers as well um but primarily i would say like eighty percent of our revenue comes from our mid market and enterprise customers yeah yeah i mean by the way fairly typical pattern i guess the follow-up question i would have is cut out all the self-serve people so if you just look at your mid-market enterprise deals you're talking like 100 customers 200 customers 600 oh that's the 600 number yeah okay fair enough got it um let me talk about growth here for a second so 2013 you launched what growth channels did you use to sign up your first call at 100 users so we started off with kind of looking in our backyard which is in san francisco so we were trying to pioneer other companies that were trying to use direct mail as a channel so y combinator companies back when we went through y combinator were early customers of ours we had a couple of really big enterprise customers so microsoft was an early customer how did you land well harry was at microsoft so we knew a couple of people and so we were able to figure out who the right decision maker was to at least test it out um just hustled our way in we actually when we launched on hacker news in 2013 we got a lot of interest from enterprise customers um and yeah that was probably like the biggest what's an account you closed enterprise account you closed that came from first touch was the hacker news article do you know any of the top of your head i want to say oscar insurance interesting interesting okay quite some time okay and then now fast forward to today i mean how are you getting most your customers out today at scale uh so seo is still really good from us um we do a lot of trade shows webinars dinners so we'll bring together some thought leaders um a lot of the decision makers or buyers in our space um no leo what's the what's the title that dinner like how to send better mail i mean how do you how do you make a dinner like this sex sexy um well the topics are always unsexy but it's you know we just had one for a lot of vp of marketing for direct mail they're all all trying to innovate in their space and so they're looking for innovative technology so we'll bring people together and it's not so much as us selling our product we're going to just foster a dinner where we're talking about topics and through that lob will come up but mostly just let's talk about let's get a bunch of people who respect each other in a room and let's talk about how they're innovating with indirect mail so let's back into then you're doing all these things seo may have an seo team some content people these dinners you obviously pay for trade shows you pay for fully weighted cac for a new 52 000 your customer will you spend first your acv to get them are you that aggressive no so probably our cac is around 13 000 right now okay and this is just blended across all our channels i mean that's healthy right that's what is that that's looking at like a four or five month payback period yeah it's pretty healthy yeah i know very healthy um i assume you guys are burning cash right 29 million raised when was the last run of capital n uh 2000 may 2016. so we do i you know particularly what i'm known for is having a very controlled mindset so i always want to know what levers i can pull so we try to hover around profitability it doesn't mean that we're profitable every month but i know the levers that i need to control so we'll burn between you know on the downside 300 to four hundred thousand dollars a month and then you know on some months we'll be massively profitable and we'll make excess of five hundred thousand dollars yeah yeah so i mean what i'm trying to back into your e40 metric so what is that like negative 20 free cash flow margins on a 400 000 burn month something like that sorry say that again i'm just trying back into your e40 metric so if you burn 400 grand in a month would that come out to like essentially your ebitda multiple is negative 20 percent is it is it about 20 we don't we don't track that we don't i'm not looking at that multiple right now the way i'm looking at it as our runway uh and so on a typical month we'll have over five years of runway looking at our trailing three-month burn okay so that's the metric that i would say we're looking at interesting and that will average at somewhere between again 100 grand burn up to 400 grand burn monthly right something like that yeah or and then we do make money some months as well so we'll make up to like 500 thousand dollars so plus or minus kind of 400 500 grand each each month uh very interesting okay and then so look many people would look at your the funding history then go once you're on the venture track you're raising number eight every 18 months otherwise you start to people start to wonder like what the hell is going on they don't want to do a down round they didn't drive growth on the last round they couldn't get a bridge round done with svb like what the hell is going on how do you manage the storyline well i i think that's i'm the contrarian on that front so i want to be a founder that actually owns more than 10 when we go public so we'll probably raise one more round and so i will be on the lookout at the end of the year for a massive round uh massive are you talking like 20 30 40 or what i'm talking about over 100 million oh you think you raised more than harm and like q4 this year maybe watch out towards the end of the year early next by the way you can't like on vc and then like brag to me about a hundred million dollar round you're either in the vc bed or you're not you are like sleeping with the visa you have kids with the vc you have like extramarital affairs with the vc you're like all in with the vc so i am i like playing the game i think uh you have to do it if you want to build a really big business but at the same time the game is pretty messed up yeah yeah it is fun to play though for a guy like you by the way i like the game too that's why i do the podcast i get to get little tidbits of how the game is being played by different people um i guess let me ask you a different question do you feel like when you do go out and raise your next round do you feel like you are convincing enough to tell a story where you can convince people of a billion dollar pre-money valuation absolutely i don't think that there's any hesitation i don't think i don't think anyone out there who knows me has any doubt that we are going to be there we're probably all already there if not you know our goal is to to go ipo in 2024. for those people that know me know that our big story and what our big vision is and want to join as they would want to throw in as much money as possible why 2024 why not next year what revenue do you think you have to hit to actually have a good ipo i think you need a hundred million dollars in sas revenue at a minimum these days to sustain the public markets um and i think that bar is consistently moving upwards so that's probably i don't think that's conservative i think that's a little bit aggressive but that's where i would say the bar for me is in 2024. yeah that's interesting um i mean look we can back into some math here right so you said 600 customers earlier and again your mid and enterprise markets which you said average price point caught 52 000 acvs that would put you just that cohort at about a 31 million dollar ar run right that doesn't include your self-serve which is maybe another 20 of your revenue that doesn't include your kind of 31 cents per postal thing delivered so there's more revenue there generally accurate though you're north of 31 million bucks in ar yeah we're north of we last year in 2018 did over 40 million dollars okay and what do you think you'll finish this year at pure sas so we double or triple every single year and we're already on that pace so you okay you are on track then to break 80 million in pure sas revenue by the end of this year so double or triple so that that would why will it take so long then why will it take until 2024 to get 100 million you think it's gonna take you three years to add another 20 million on top of the 80 you finish this year with so there's other things that we want to do there's a big part of the vision that we want to go and tackle before we go public so there are you know to go public there are some pros there's a lot of cons as well and so i think to sustain a public company you want to reduce the volatility you want to have predictability in your business i think we're still in the phase like we are very much a growth and mature company in terms of revenue we only have 80 people we're still trying to figure things out to be able to produce our marketing engine and our sales engine repeatably so uh we might have the revenue for it doesn't mean that we're going to be ready as a company yeah yeah and and what is the i mean when you look at your current breakdown so let's assume you're somewhere in the 60 to 70ish range today in terms of total like revenue you're processing run rate wise what percent is actually the transaction base your your defined term is sas plus your plus piece versus just your sas piece so this one again going until we're talking about an ipo this one has been very volatile so if we sign a customer that does four million dollars in sas we we've had customers who have done 10x of their sas revenue in usage-based revenue why is that so [Music] uh it's not bad but the margin on the usage based side isn't sas so it just fluctuates you want to have predictability so it's bad because as an investor when you're looking at it you want predictability whereas when you're seeing it over time and you're seeing one customer have a lot of higher sas as part of their revenue and then another year you're going to see one customer that has a big part of their usage based revenue so it's it's it's good for us we're making money but again to tell a good public story you want to have consistency around that i mean look like traditional investors are going to hate they all listen to show they're going to hate me saying this i mean to me that is a marketing challenge like that is about how you position the storage investors like because the reason is i see the same trend i had reggione from cvent he had the same issue because events are so seasonal and he didn't know how to like best communicate that story but he figured it out and now they're about to break 600 million bucks in arr like the the ba i think the worst thing someone like you does is you try and cram all of your usage-based revenue into a sas model specifically so you have more sas like revenue when really that's not how potentially your customers want to consume your product so how do you balance that never change i would never change that i think you hit it spot on it's marketing it's all about marketing um this is where one we're writing the narrative on sas plus right this is a term the business model that we're trying to coin um but i think you have to have that when you go public because again when you go public it's all psychology-based it's i believe it's less fundamentals these days and so because it's psychology-based you need to have your story down on who your customer is how you're pricing and so while we're trending towards the right direction we're not perfect yet and so we have three years to figure that out in my book three to four years yeah yeah that's interesting um uh talk to me about the plus part of this model so in an average month how many kind of physical pieces of things will you deliver across your entire base um so as of this as of right now we're on pace we've done over 120 million mailings this year up through june okay um and just in general already one out of four u.s households has received a piece of mail from lob at some point in time interest in the u.s uh in the u.s yes we did start originating mail uh globally as of april of last year and that will be it will make that a public um offering early next year um when you look at uh all of 2018 what was total volume sent hopefully less than 120. uh yes and i on mailings we usually more than double or triple i don't have that number off the top of my okay so that might have been like 70 or 80 you're gonna fish to finish this year at like call it 200-ish or 220 cent total something yeah yeah yeah i guess that was a bad question asked where i asked last month because i assume you see massive spikes during the holiday season uh not during the holidays but just in general we just see a tremendous amount of spiky behavior um now the spiky behavior across our entire customer base does smooth smooth out but we don't have seasonality over the holidays which is for some reason everyone expects so one of the things about lab that just for some reason uh people assume is that most of our mail is marketing mail uh we actually do a lot of the boring type of mail as well which is transactional mail so the statements that you get at the end of the month from your insurance company like a toll road company that like i start off with a two dollar toll and now it's 30 because i just haven't paid it yeah so parking citations tolls anything that you have to send for a legal compliance or a regulatory reason that was our bread and butter the first four years um and so from a customer standpoint the majority of our customers are transactional now our our most recent go to market was around marketing mail so a lot of the newer customers are sending a tremendous amount of marketing now yeah so if i asked you these questions with your sas plus model what is your gross revenue turn annually your expansion and your net revenue retention how would you answer those uh so usually i break them up so in the operational mail side we almost we don't lose almost we don't lose any customers we have 98 plus retention okay now on the marketing side which is again the newer go to market uh it is a little bit different so one we struggle sometimes with people who are new to direct mail they'll come they'll use our platform use our api but then they'll leave and so around marketing it's hovering closer to around 80 retention as we're figuring out those people that have a really good and enjoyable i guess uh experience with our product but direct mail didn't necessarily work out for them and what's expansion in the same court is it more than 20 it's over 140 per cohort sorry that's net revenue retention or dollar retention dollar-based net expansion so a dollar based net expansion we use we take a cohort from call it to q3 2018. for every dollar that they spent then they're spending a dollar and 40 this year okay got it yeah so 40 40 essentially expansion on the cohort uh worst case in your marketing court you have 20 churn so net revenue retention at a minimum is about 120 uh the 140 correct correct yes the 140 was extern yeah that's worst case because again you have a bigger cohort where churns only two percent annually your transactional mail business uh very interesting so by the way why don't you you're in a position where your revenue is a multiple of what you have raised which i i would say you have an immense amount of strength being in that position why not pull like a bigger version of what wistia did save up cash flow and buy out early investors uh i mean it sounds like you potentially you know get debt to do that um that is a possibility it's not a possibility for lab it's a one path that people can go and build a company i want to build a really big company and to do that you do need a lot of capital and so the rate in which you're accumulating cash at that at that pace is too slow to be able to achieve the vision that i want to be able to get to by 2024. so it's an opportunity cost that's what it is at the end of the day i want more capital to build something bigger i can very much build a business that way but that would to me by 2024 if i look at one how big of a company have i built back then and how big of i guess my equity ownership i feel like the path that i'm going down is the one that i'm maximizing it um are you in acquisition talks right now with vista equity no none at all no i have no desire to get acquired by anybody i don't believe you why i just don't believe you because you're again you're a gamer i can just say you're you're very similar to me you're i'm a gamer but i want to i you would go into acquisition talks just to get leverage right get term sheets now i'm talking my style i love it i love leverage but i have the the finish line for me is ipo and so like one of the things that we didn't talk about is that i started the company with harry who went to school with me a lot of early employees that went to school with me i care a lot about the journey and the people that i'm with and i also have a challenge to myself to be able to take a company public and i think i can do it i think i have the people here to do it and so i have no desire to get acquired i enjoy what i do and so i've kind of set this challenge for myself and my team to go and do that so um that's the most important thing for me well you're well on your way i just hope you get really filthy rich in the process uh you know that that's that that's a more fun goal all right let's not everything is about the money okay well for me i love it it's a great measuring stick all right i think probably deep down you are too but that's a bad thing for your team to hear so we'll just guys over that let's wrap up leor with the famous five number one what's your favorite business book uh never split the difference of course number two is there a ceo you're following or studying always jeff bezos number three what's your favorite online tool for building your company i like carta yep trying something i think they're doing something different and i enjoy using that product they are actually coming on the show two episodes after you so that will be fun uh number four how many hours of sleep to get every night eight to nine hours that's great i love that all right and uh what's your situation married single kids single uh no kids running around none all right and uh how old are you 30 30. last question what do you wish your 20 year old self knew um am i allowed to swear of course because i no one has their together and i wish i realized that early on i think i did realize that early on in my career but the earlier i would have known that i think i would have dated everyone around me a lot more guys lob.com think of it almost like a clear bit or data enrichment specifically for physical mail in fact lob has touched one-fourth of all u.s households over the past 12 months they've they've sent out over 120 million pieces of mail over the past year alone their revenues last year they broke 40 million bucks hope to break 80 million this year eyeing for a big caught a 100 million dollar round of financing we'll call in the next couple quarters we'll see what we'll see what lior decides but in the meantime again scaling nicely on just 29 million dollars raised burning anywhere between 400 000 of cash per month up to positive uh 400 000 per month 20 churn 40 expansion 120 net revenue retention leora thanks for taking us to the top man appreciate it thank you