How Marketfactory CEO Eugene Markman grew Marketfactory to $12M revenue and 30 customers in 2018.

hello everyone my guest today is darren jarrer he co-founded market factory in 2008 with a vision of providing clean fast code to the fx market and is currently ceo before founding market factory he led sales and operations in the financial services markets for over a decade darren was head of new business sales america's for ebs icap and before that he was sales executive for ibm wall street accountants darren are you ready to take us to the top let's do it all right very good so give us a quick overview what does market factory do and what's your revenue model how do you make money so every time you go on ebay or amazon and you buy something uh from a seller in europe or in asia right there's a foreign exchange transaction right there's a currency being traded and that currency is being that risk is being held by a bank right so someone made you a rate you know it's you know 10 euros 20 euros whatever it goes to a bank and those positions build up to hundreds of millions of dollars per day per hour billions in fact um and at a certain point these banks in the world they need to trade it again with each other they need to get rid of risk right so if you know u.s banks are always long long dollars um they basically have if they have too much of one thing or the other they have to trade it with european banks asian banks if you trade stocks there's probably three major exchanges new york stock exchange nasdaq and some others in the us but if you trade currencies it's a very global market right it's almost like napster for trading which is every single bank every single exchange um even hedge funds in across the world they trade euros with dollars with yen with swiss every second of the day and there are no breaks right basically even when it's christmas here asians are trading because it's a work day for them um it's a 20 it's a truly 24 7 market so what we do is we provide an api technology that helps sorry you're saying like the stock market's 24 7 or the currency market is 24 7. currency markets 24 7. so then why did you said earlier that these banks will actually build up these positions and that's risky over days or hours or weeks but why would they be building up a position if it's instant um so they are they are basically trading with customers constantly right via via electronic basically you can trade you you know like if you do a foreign exchange transaction with your bank you know they'll do it on a weekend they'll do it on a weekday they'll do it whenever with you and they carry the risk for that so imagine if you do like a european transaction and something big happens in europe and the price of euro drops well they're holding that risk right why though that's what i'm trying to figure out i thought they wouldn't they wouldn't convert that instantly um for you and i and for certain corporates um they don't convert it instantly no they basically hold on to it because in general they're making us a rate at which they can earn money and and basically afford their pricing in the risk right of all these countries into their prices so okay they're making money on that you know you don't don't worry about the banks they know what they're doing i understand that i'm trying to understand where you fit into this so so where do you fit in so imagine a extremely fragmented peer-to-peer market and that's what global foreign exchange is right until there's a world government there it's very difficult it's a very lightly regulated market there's no way to basically have a world police that says hey look we're just going to have three major exchanges euros are traded on this dollars on this swiss on this right essentially it's all peer-to-peer and if it's peer-to-peer that means in our age of michael lewis's flash boys where trading is mostly done 60 by computers right the computers need to talk to each other and they talk to each other using apis so what market factory does is provide a single platform a single api that connects all these different b2b institutions to one another to trade all these foreign currencies and it's very much an institutional market minimum trade size is 1 million us dollars right so we have a very mission critical place in the supply chain and so just to be clear these are apis specific to managing this currency risk it's not an api for any other kind of financial stuff just you're just focused on the currency risk it's vote yeah it's strictly focused on b2b currency trading okay very good okay i understand and how do you so how do you make money on that so we are very counter cultural for our industry most of the technology providers um or exchanges in our industry charge brokerage or commission right so a percentage of every trade or a fixed amount in every trade we actually brought the sas model uh we're probably the first ones to bring the sas model to foreign exchange so we are strictly you know mrr arn based and so what does that look like a bank can buy a million api calls per month for x amount of money per month and it's kind of usage based sas pricing uh close we we actually just charge it by functionality module so let's say a bank typically needs you know uh 20 exchanges to start to trade with to begin but they'll scale up to 35 40 exchanges so we'll charge an arr per exchange per module right and it's unlimited api calls unlimited usage which is what they like interesting okay so your cost structure does not fluctuate in based off usage in other words if someone used it like 300 times what your pro forma said they'd use it as that's not going to drastically increase your margins or decrease your margins no i mean it's it's i mean let's be honest right uh it's the price of an intel transaction right you have good code on top of intel processors it's what's the price of an io on across the cpu got it but you're right in your in your in the old school a broker like a human broker would charge per transaction right remember the days of you know this is like when you're in third grade but like a stock trade was still 150 bucks right yeah no i'm more making the analog the analogous comparison to like an email marketing company which you know the mailchimp will charge you a hundred bucks a month to send a million emails uh but but they do have a fixed cost structure built in per email but it's so low they're assuming you're never going to hit that usage level i'm just making sure with unlimited usage you don't have there's no one there's no one bank that could essentially break you and become unprofitable for you because it's it is actually free for you to you know do these api calls yes yes got it okay very good okay so banks are your customers and i don't want to go down every single customer cohort but give me a general sense on average what does a bank pay you per year for this kind of service yeah i would say just for clarification we're probably like 45 percent banks 45 funds you know the buy side yeah and then about 10 brokers right okay um and then what people pay us our average revenue per account is 400 000 arr yep dollars um are our range of we have about 30 enterprise customers who pay us between 100k and over a million dollars a year um and and um yeah i mean essentially uh it's all you know recurring revenue just to be clear so you have you have 30 total paid accounts that are split 45 banks 45 funds 10 brokers uh yes we have more than 30 accounts but 30 are enterprise meaning like at least 100k and spend got it but across your entire customer rates your average asp first year is about 400 000 bucks is that accurate uh the average revenue per account amongst the just the enterprise customers we're not counting like guys like smaller customers who are just taking small you know one or two things sure okay so then i can i mean i can back into minimum there in terms of monthly recurring revenue if you've got 30 enterprise accounts with an average asp of 400 grand you know that's 33 grand per month i mean that puts you at about a million bucks a month you're recurring revenue is that accurate yeah yeah okay very good and is it do you you know with a lot of these things that are usage based or things like this you'll see seasonal functionality do you have kind of bumps based off seasons or no it's pretty flat it's truly predictable revenue [Music] um seasonal bumps in usage or in terms of the sales cycle no i'm talking specifically usage usage um okay our our seasonal usage would be economic events such as uh monthly non-farm payrolls right or uh the fed or bank of england you know changing interest rates so those are our super bowls right on a monthly or ad hoc basis okay so when our system has to be ready to basically handle a huge surge in trading volume yep so super bowls are great for you those three or four you just described they're during the down when there's not a super bowl event though does it impact your revenue retention or anything like that or no right no so because we're purely subscription and it's a good question that you asked because the super bowl events are when our customers make a ton of money right or or just are doing a ton of trading but it doesn't affect our revenues at all our our job is to provide you know we're paid in in subscription anyways right we don't have any upside for more trading or or or low trading or a downside for low trade sure sure but i mean there's a lot of people that are priced against something that's not the actual value utility metric so i'm saying...