Localytics Revenue, Valuation & Funding (2018)

hello everybody my guest today is Raj Agarwal he co-founded Localytics in 2009 and as CEO until 2017 creating the leading mobile engagement platform that is used by many of the world's top brands before Localytics Raj spent 12 years building a variety of different technology companies he was a management consultant focused on mobile with Bain & Company and adventists and then Raj worked alongside Steve Jobs at Apple to develop the business framework for the iPhone while he was at adventists and led the formation of the multi-billion dollar Disney mobile venture in Japan Raj are you ready to take it to the top do it all right very good so tell us first what does Localytics do when what's the business model how do you make money fara so Localytics is a mobile engagement platform there's two sort of major parts to it there is the analytics part where we're helping mobile apps collect data on their users what are the behaviors what's working what's not then we take that data and we use it to deliver personalized and targeted messaging across a variety of mobile channels including push notifications in that messages as well as email and content personalization so the way that we make money it's a it's a SAS subscription business that's based on the volume of the the app so depending on how many out downloads well specifically we base it on the number of monthly active users that you have so basically as an app grows forget about downloads because we think that's a you know that's a vanity metric is not a very helpful metric but how often are you bringing users back to your app how big is your audience and based on how big your audiences are subscription fee for you know different modules of the product for example the analytics the push notification service etc and in general what's the customer paying you per month on average would you say the average of it tends to be in that 50 thousand to a hundred thousand dollar range a severe monthly that's annual ACV got it so we've uh you know our biggest customers are well over a million dollars and that that's increased a lot over the the past five or six years as we started probably more SMB Midmark really moved up market over the past particularly over the past three or four years I want to talk more about that here in a second but give us more of the history here what did you launch the company so yeah you know beginning of 2009 I left my job at Bain on August 31st 2008 that's a cushy salary to give up it was and it felt like still the right thing to do based on the investor interest we had but 15 days later Lehman Brothers collapsed yeah and so you know what what went from a hey we can raise money easily went to almost two years of bootstrapping the company but is the best thing that could have happened to us because the companies that did raise money before then you know all had to shoot off into the wrong direction trying to grow fast and most of them try to become ad networks for us we were forced to work closely with our customers figure out what they really wanted and at that time it was you know deep insight about what was working within their mobile apps how to grow that that audience and it was in 2012 that we expanded from being primarily analytics to adding this engagement layer so we could use that data to create these more engaging experiences with end-users through all these new mobile communication channels got it and just to be clear if I launched Nathan's app it has a hundred thousand kind of monthly active users user X logs on you are basically to tell me that user X click this button in the app they watched a video in the app for two minutes and then they exit on this part of the app experience versus collecting demo data on that user to then sell across some ad network that's exactly right now in some cases there will be demo data that helps us give you a better experience so if we know something more about you might cater push notification too as an example you know customers include like ESPN and Weather Channel and will use data like you know your favorite sports team or your location to give you targeted messaging that you're gonna actually want to receive and that's gonna help you but just to be clear you're not doing anything else about demo data in terms of putting into some big network correct we're not it okay good fascinating so 2009 ones launch date obviously Lehman collapse shortly thereafter you've grown the company now have you bootstrap turvy race capital we've raised capital so we raised a couple of angel rounds 2010-2011 our first venture round was in 2012 total we've raised uh nearly sixty million dollars in equity garage about a minute ago I liked you so much more than I like you now 60 million what the hell do you do is 60 million bucks you know I'll tell you there's pros and cons obviously of raising money and for a lot of our early going we wanted to maintain serve optionality and stay lean but this space did start to really take off and particularly 2015 a lot of money was going into this space and you know to some extent we jumped onto that bandwagon and probably raised a little more than we should have Naima so you though like what works some other companies that raised a bunch in 2015 you know around that time Mixpanel raised 65 million you know in a single round Kahuna raised forty five million you know other companies like urban airship and aptitude raised a you know raised a lot of money around that time so these are all companies in a similar space to us yeah a little bit like the race was on yeah and because of the amount of money the that went into the space and the amount of money therefore that went into sales and marketing we oversaturated the space and pretty much all of us had to do some level of sort of correction I think we we were early on that and we've been able to take the business to cash flow breakeven which we did in last year in 2017 and you're still breakeven today yes okay yeah I mean look when someone's that breakeven unless you were had a crazy burn rate when you were a sixty million used to have a lot of that cash sitting in the bank that's right so you know look we we spent more than we wanted for a period of time but we corrected you know what we were doing quickly enough and focused back in on customers you know we were also to the extent the peace I talked about where we were we sort of moved towards the enterprise there was a time where we were hitting maybe too wide a part of the market you know from sort of the mid market into enterprise and we get really focused in on what our core was where where we were able to see a huge growth with an existing customer strong retention as well as you know good unit economics and for us that was really always in the enterprise in terms of economics today what does your churn look like in terms of maybe do you give me monthly logo and revenue if you have that yeah I know the specific numbers but I would say that you know we're seeing like best-in-class retention with our enterprise right you know frankly with the the SMB a mid-market we didn't see that but that's now a very very small part of our revenue got it when you say besting let's just talk about your enterprise cohort when you say best-in-class I mean are we talking sub 1% monthly logo churn and net negative revenue churn yeah I mean we're talking high eighties and nineties got it okay fair enough walk me through the transition so let's do it this way what was your cheapest price point when you were kind of going very wide how cheap could people get an act it was $99 okay so you know that was per month so you could get in at $1,200 per year we had a free product that went up to 10,000 monthly active users now the first pav��d here was was $99 a month once you got to about $10,000 a year you were off of the self-service version of the product and you had to move into the enterprise version of the product and so that was it dependent on the timeframe but usually between a hundred thousand monthly active users and 250 thousand monthly active users since then we've actually you know sort of basically disbanded those lower tiers so that the starting point today is about ten thousand dollars a year okay so if you go back to when you had the most customers even though your revenue is probably lower like how large would your customer base at it at the peak before you started cutting down probably about eleven or twelve hundred paid customers and six to seven thousand total companies using the service including free customers okay got it and and then what have you cut down due today and my follow-up question is how did you get people who were paying how did you politely tell them you're not a good fit anymore you know first of all a lot of it's about giving the a lot of time to make the transition if they're not able to or willing to to sort of pay for the Enterprise version of the service so a lot of these things I mean we took up to 12 months to give them a really long window to make their decision obviously you're gonna give people that have been with you for some time some incentives to make it easier for them to upgrade and stay on an enterprise service at least for a certain period of time and so I think at the end of the day it was just about treating them with respect right giving them ability to download their data and and and have a smooth transition if we were no longer the right fit for them which which in some cases were some cases where I would say though what we did find is that we did not wait we were revenue neutral in terms of the the revenue we lost from those customers versus the expansion of rated yes and and I want to hone in on that for a second if if X percent of your customers you deemed to not be a fit because they were smaller than what you wanted to serve when you made this shift what you're saying is 50% of those not fit users you were able to convince two or expand their revenue into being a fit where you could serve them and 50% you essentially lost so it was net neutral yeah now the real numbers are probably closer to 75% we lost but the 25% that we upgraded we were able to not just double their price but you know more like triple or quadruple denarii and support costs go down you can provide higher touch etc as 40% of our support volume was coming from the 10% of revenue the bottom temperature revenue so I want to talk about your team and the support section of that here in a second but so finish that story you were at 1,100 customers what are you down to today range fair enough and then I mean you quoted earlier in a CBO between 50 and 100 that generally puts you somewhere around two and a half fish in EM RR is that generally accurate it's in the right zone right zone okay have you broken 30 million an hour yet okay good you think you'll break 50 this year TBD come on Raj give me some confidence man you still got you still got 11 months you think you'll do it all right it'll be damn good Grif you're at 30 now and you go to 50 damn good growth obviously take me back to the team what's the total team size and how what percent of those folks are focused on support so you know it's about a hundred fifty people and you know support can be broken up in a couple of different ways but if you talk about you know customer support itself we're probably talking about eight to ten people but then our support organization includes you know what we call mobile engagement consultants consider them like you know Co sales Solutions consultants but but our model is a little bit different right it's a these are practitioners these are folks that have been in the shoes of the practitioner or sometimes it come from our product management organization and they're taking a proactive approach with the people are actually using the product to go in there look at what kind of campaigns are running and what kind of advice that we can give them how are they analyzing the data and and how can they do their job better basically doing a good level of hand-holding to make sure that in this confusing mobile space where everybody's you know feels like they're there they're over their head you know over their head that that they can make sense of these tools well we well we think our tool is relatively simple because you know there's a self-service version etc available sometimes it does take that that extra level of hand-holding to maximize the the full capability and you can afford it at this price point for what they're paying you so hey we're running out of time your last few quick questions lifetime value what do you assume it is on the cohort that is a good fit for your enterprise cohort you know so with if you take in an average customer at 50,000 it should be at least a five to six year lifespan and and I think we expect to see that but what we're seeing is is definitely our upsells or awesome right so a typical customer a large enterprise customer we may start with them at 50,000 the next year were we're at 200,000 next year or 500,000 so you know we're well over 100 percent on the unmet returns yeah so in terms of about $10 when you can fairly confident say minimum is you know hundred 200 grand pretty easily yeah last question here on economics probably wrap up with the famous five payback period how quickly do you like to eat your money back oh we want to be in the twelve twelve ish month range got it so it's fair to say you're spending maybe 50 up to 100 in some cases Kay to acquire the customer yeah all right let's wrap up here Raj with the famous five number one what's your favorite business book leadership and self-deception really number two is their CEO you're falling or studying right now you know uh Ellen musk but part of that partly because I've worked with Jobs he was the guy that I took a lot of inspiration from number three besides your own what's your favorite online tool for growing the business you know I really obsess just because of the number of different things you can use to bring together your world how many hours of sleep to get every night nowadays since I hired a CEO to take over the harder work I get like seven it used to be closer to five I'll have to have you back on and understand that story as well I'm sure there's some warnings in there but wrap us up here with your current situation or you married single you have kids I'm married I've got a three-year-old daughter and you know it's a lot of fun with her gets spent a little more time with through these days and you know that's that's life right now and how would our osh I am 22 alright last question take us back to your 20 year old self what he was she knew oh man I you know I wish I I wish I knew that I can and should be more aggressive about everything in life there that means he wishes he had 20 kids instead of just one right now just kidding be more grass about everything in life you guys heard here from Raj founded Localytics back in 2009 helping you understand what your user are doing inside of the mobile apps you've built for them he helps you customize those experience increased stickiness of those applications timing up things like that they've raised 16 million dollars they serve about 6 and our customers paying a minimum of $50,000 ACV is doing somewhere around 30 million bucks in ARR today super healthy economics more than 80 or 90 percent logo retention and net negative retention in many cohorts he's serving payback period healthy at 12 months spending about 5,200 grand to acquire those customers with our team of 150 folks Raj thank you so much for taking us to the top thanks for update the [Music]