Mfiles Revenue & Funding (2024)

[00:00] Quick context. This was recorded March twenty eighth and twenty ninth. So a couple weeks ago at my live event, saasopen.com. We had a thousand software CEOs there. If you missed it, we hope to see at the next one, September fifth and sixth in New York City, saasopen.com. But for now, let's jump into the recording. [00:22] >> Yeah. So my my role is the CFO and COO of the business. Started when we were really starting to scale the business, so I think I was asked to share my lessons learned, and the challenge was boiling it down to nine. [00:39] >> All right. So, yeah, what I'll cover is basically kind of three categories. One is in terms of the team and people. Obviously, the work is really, for a position like mine, it's really about building the team and then enabling them to obviously do what they do. So I've got some thoughts on that. In terms of tooling, sharpening the axe, lots of lessons learned there. And in terms of just the intangibles for a company that's growing as [01:13] >> fast as we did, which I'm sure, you know, that's of interest to everybody, clearly lots of kind of leadership mistakes and lessons learned there. [01:25] >> And I promise none of this is going to be that earth shattering, so it's really just based on kind of practical experience. And hopefully, some of it will be useful. So maybe I'll tell you a little bit about mFiles. We're a knowledge work automation company. Our core platform is a document management platform that automates management of information, workflows, and compliance. So [01:50] >> the story starts way back and started in kind of the [01:57] >> early twenty ten's, if you will, in terms of actually becoming a recurring subscription SaaS business. Welcome. And [02:09] >> so today we're doing somewhere in the neighborhood of $130,000,000 something like that. And so it's been a great, great ride. And definitely lots of change throughout, but especially in the last kind of three to four years. And happy to tell you about some very real stories. I'm sure every story, every company is a little bit different. So happy to tell you about mine, and to the extent that's interesting to you, hopefully. [02:36] All [02:37] >> right. But yeah, we're basically kind of at the stage of scaling the operations, really getting better or, you know, the blocking and tackling is kind of behind us, I hope. So it's really about optimizing things like margin and the metrics. That's our stage. So in terms of the first category, kind of the people and the teams related lessons learned. So number one for me, it's really just making sure you fit kind of your team to the [03:11] >> stage, right? And so I've definitely made a mistake. [03:15] >> Happy to admit that early on when I first got to MFOS, I said, well, the first thing I need is just a killer controller that just done public company stuff. I want someone who's just up here. And at that stage, it didn't work out, because that's not what we needed. We needed someone who's going to be able to roll up their sleeves, work with the teams to build some basic things. We didn't need to go from [03:41] >> zero to 100 miles an hour, right? We needed someone to get us from zero to 20. And so that's my lessons learned in terms of fitting to the stage. Cultural fit, we're Chemfiles is also a Finnish company, so we have a unique culture. So obviously you know all about that, but that was very critical for us, and I can admit we've had some misses there. And then just in terms of speed, the scale and how fast [04:08] >> we were growing, we just needed to move fast. And if I made a mistake with Teams, which again I have plenty, the worst thing you could do is try to make something work that's not going to work. Just fail fast, move on, get better. [04:24] >> I won't spend too much time on this. I'm sure you've seen probably hundreds of pyramids in your career. This is sort of my thought process when I think about stage from a finance and operations standpoint, what's the basic stuff? Early on, you worry about maybe just making sure you can collect cash, making sure you can close the books and report the financial statement. And then eventually you can work on things like how do I get my [04:52] >> reporting, get my budgeting straight. And then you can even get into things like, okay, forecasting, and so on and so forth. But figure out where you are. When I started AmpFalls, we were probably lower on the pyramid than I'd like to admit. [05:08] >> Terms of the key sort of things I worked on, I thought this might be interesting to just, again, every company is different. But for us early on, was really about fundraising. Can we close a month? That was actually not easy at first, right? Are we compliant? Do we have basic things like SOC compliance, ISO compliance? Most of our customers were asking for that. That was not a given. We invested in IT. I invested in a controller [05:38] >> to really get accounting to the next level. Then we went to FP and A, really getting about budgeting and analysis. [05:47] >> Then we built out the legal function. We were using outside counsel, we invested in an internal team, then forecasting. So kind of gives you maybe a progression. [06:00] >> Relatively recently hired a CISO, Chief Information Security Officer, built out a cyber security team. Every company at scale is going to need that today, obviously. And then we're kind of working on things like optimizing the business now. Pricing, deal desk, how do we get more out of the deals? How do we make sure we do good business? Right? So maybe that gives you kind of a sense for the sorts of initiatives that you might have. [06:31] >> Hardly scientific, but my I'm happy to admit my personal failures. So these are, I would say, I'll just say this is turnover on my team throughout the years. And if I just did a quick, again not scientific, my sense for what didn't work, was it a performance skill set issue, or was it a lack of culture fit? Almost always for me, it was culture fit. Things like, can't keep up with the pace of business and change, [07:03] >> can't collaborate with the teams, can't sort of keep up with the business initiatives changing, and so on and so forth. So just really critical. The other thing that I'll highlight is that, again, not scientific, but sort of recently, I'm learning myself, if things aren't working out, make a decision, move on, fail fast. Right? So that's my kind of wrap up of the first kind of teams, people section is really fit everything, culture as well as what [07:34] >> stage you are as a business. And then again, just moving very fast. [07:41] >> Speaking of fast, I'll try to keep us moving, get us back on pace. So second section is really about tooling and systems related, probably no surprise again. Like I said, nothing earth shattering here. Really designing everything for many years ahead, especially when you're a growth company like we are. Investing really early on in forecasting, that's something that takes practice. And it's so important. When you get to 100,000,000, let's say, and if you haven't already been building [08:14] >> your forecasting muscles, when you get there, you're in trouble, right? Because at that point you need to be really good. When you can forecast this quarter, next quarter, you need to be on, right? And so you need to really start that early. And then, less is more is sort of my way of trying to rationalize. It's way too easy to get into analysis paralysis. So just really need to try to avoid that. If I go back [08:39] >> to our revenue growth, obviously just conceptual, but for us in 2018 is when we did a big system rebuild. Went to NetSuite and brought on some other solutions. We clearly designed the business, though, for looking three, four, five years ahead, were probably in the $2,030,000,000 range when we were doing it. And we intentionally, all the requirements were based on, hey, when we are a $100,000,000 business, this is what we need. And obviously that's what we've built [09:07] >> for. And that's certainly working out for us, and couldn't say that more strongly how important that is. [09:19] >> In terms of forecasting, so again, fairly straightforward stuff, but to me just critical. Number one is, again, start early, but have a very clear cadence. So what we do with our forecasting, and we've been doing this for a long time, is on a certain given day of the month, you start your collection effort, and that's when the business areas know they have to give us their input. Right? Engineering knows that's when they need to give us [09:48] >> their hours. Sales knows that's when they need to give us their sales forecast. So we know we have very clear dates and cadence that we collect it, we roll it up, we have very clear review cycles, and those are all calendared. Just super important to get that going, and then the business gets used to it. And then that leads to the second point, which is you don't want the forecast to be your forecast. It's not my [10:11] >> finance forecast. Right? That's got to be owned by the business. So if you happen to miss, the whole business is accountable. Right? And that's not where we started always, I would say. But that's where we are now, which is great. And then kind of the nerdy aspect is, once you do this, and you do it early, and you do it on a repeatable basis, then you got to track how good you are. And when you miss, [10:37] >> and you will, right? You got to track, well why did I miss, how much did I miss by, and then track that. And then it's actually fairly straightforward at that point. You've got a statistical basis for hey, you know, I'm usually within x percent of my forecast, I don't miss by more than that. So you know what haircut you need to take next time, right? And you're never going to miss, right? So pretty straightforward. Some quick [10:59] >> don'ts, don't buy into the hype. I love our sales people, but they're internal optimists, so you have to kind of take a grain of salt with what they say. So be objective. Don't try to forecast too far ahead. We have we're pretty rigorous. We always look at this quarter and next quarter, that's it. If we're asked for something two, three quarters ahead, you know, we can get some ballpark estimates, but we don't know. I mean, that's [11:25] >> just to be honest, that's just too far ahead, right? So we can admit that. And then again, very important point, you don't want the forecast to be your number. That's got to be the business's number. Okay? Moving on to tooling and reports and financial analysis, analysis paralysis, you know, does your desktop look like that? Because mine did at one point where I had so many Power BI dashboards and so many different versions of them and I [11:51] >> couldn't make sense of anything. And I'm easily overwhelmed, so that was definitely the case for me. But also for the business, it's tough to get true insights if you're trying to do too much. And then obviously just administratively trying to manage all of that is really, really difficult. So as much as possible, I'm sure, you know, you all obviously look at this, but just try to boil down to as few metrics as you can, what are [12:17] >> really important, fairly basic things that you can track very easily. We learned that pretty early on. So that's sort of the wrap up for the tooling. Again, just looking ahead, when you look at systems, forecasting, make sure it's a well baked practice process, and then in terms of metrics and analysis and reporting, less is definitely more. [12:46] >> And then the final section, talking just generally about leadership. I think especially when you're a high growth company, and let's say you're doing less than 20,000,030 million, 40,000,000, something in that range, The company does need a lot of leadership, and I think, you know, the CFO, the COO position is really key in providing clarity to the organization. You can't have mixed messages. It's tough to say things that are too nuanced, because folks will read into that [13:16] >> what they want to read into. So just very clear communication, very clear goals, strategy, and just being very, very, again, very clear and simple and straightforward. Collaboration is key, obviously. I would actually boil that down and say be nice, because I think that actually does come back to bite you if you're not. And stuff happens, so you need to have a plan B. [13:45] >> So, a good adage I like, if you want to go fast, go alone. If you want to go a long way, go together, right? So, certainly for us, our company, I think we collaborate really well, And it's very, very important. Finance and operations for us, and I suspect it's the same most organizations, it's a kind of a function that works with everybody. Right? And we have to play nice, and like when I talk about cultural fits [14:11] >> and misfits for our group, that's where you might fall short. You have folks that are maybe very good at what they do, but if they can't sort of collaborate with other teams, especially when you have a high growth company that's moving fast, that could really, really hurt you. And then, I'm sure everyone will be with me when I talk about just cleaning it up for this audience, stuff happens. For us, 2018 to 2019, we had a [14:41] >> transition to a subscription recurring revenue model, like a lot of companies have done. So that was big for us. That was very challenging. And then of course, 2019 happened. And the pandemic, we had protests, we had elections, we now even have wars. And we had last year, we're just talking about the anniversary of the SVB banking crisis, which I don't, I mean, I don't know if anybody predicted that. So what does 2024, 2025 hold? I don't [15:12] >> know. But we're prepared with the plan b, and we've had to we've had to use it. So, pretty basic stuff. But but those are my my lessons learned. Hopefully, was, you you got at least one or two things in there that were useful, and, thanks for your attention. [15:27] Thanks, Justin. Any questions for Justin? [15:33] >> Move on. Yeah. [15:35] Talk about culture early on. You talked about culture early on. Sure. How do you approach trying to change the culture with like a fully remote team? [15:48] >> Yeah, that's good. Yeah, that's a good point. Culture is is difficult with the with the remote team. [15:55] >> I would say I wouldn't try to change the culture. For my experiences, company culture is kind of what it is, and it's really just making the most of it, and trying to get the teams that can kind of work within that culture. In terms of shaping it, you can obviously shape it in terms of, like for us, we you know, our focus has to be has been around making it more performance oriented, right? And you could [16:20] >> do those things obviously through kind of making sure goals are clear, folks are held accountable, things of that nature. But sort of the intangible aspects of culture for a business. I think, like for us, it's a strength. Our culture is a strength, so I wouldn't want to change it. I want to just make the most of it and leverage it. From a remote standpoint, tech companies, I don't know. I'd love to hear if others think it's [16:46] >> a challenge. For us, the remote aspect hasn't been a challenge, because everyone's sort of professional, they do what they do. So really it's about just holding people accountable that, hey, if that's your commitment to do something, and if you haven't done it, and if that happens to be because you're remote and you're not in person, that's sort of beside the point. You didn't meet your commitment, so that's the way we manage it. [17:10] Thank you. Yeah. [17:18] Thank you. What would you tell yourself ten years ago that you wish you knew that you know now and you wish you knew then? [17:26] >> That's I like that question. Yeah. What I've I would I would say I would have given myself advice ten years ago would have been probably to [17:38] >> to maybe [17:41] >> be a bit more laid back. I mean, I'm pretty laid back already, but I think you have a tendency to maybe drive a little bit too hard, and you're losing [17:51] >> sleep at night, [17:53] >> and things have a tendency of working out at the end if you're kind of focused on the right things. So really just [18:02] >> providing, also from a leadership standpoint, you know, leadership through calmness and poise, I think that's really important. And if you're sort of maybe frazzled and trying to do too much, I think that definitely shows. So that's what I would say. Yeah. Alright. Thanks, Justin. Alright. Well, I'll give Justin a hand. Appreciate it. Alright. You, everybody. [18:31] Hey, folks. If we haven't met yet, my name is Nathan Latka. I launched and sold my first software company back in 2015 and went on to write a book about it, which you guys made a Wall Street Journal bestseller purchasing over 30,000 copies. Thank you so much for that. After the book, I launched this show and one went on to create founderpath.com. I raised a large fund to do non dilutive deals with b to b software [18:57] founders. So far, we've invested in over 400 software founders totaling a $150,000,000. Here in 2024, we're doing three to four new deals per week. So if you're looking for capital and don't wanna give up equity, go sign up at founderpath.com for free to get your offer.

Introduction guys m-files.com they help you uh with document management they help you share files not only internally but also with your customers so you can collaborate together they've got over 5 000 paying customers many of which or some of which pay over a million dollars per year they've grown 25 to 30 year over year for the past several years just breaking 90 million bucks in AR today up from 75 million a year ago when they closed their series C 80 million around 80 million USD he was nice enough to show that 30 million that was secondary which is great for liquidity for early employees and investors now 600 folks on the team as they look to build conservatively moving forward and break that 100 million dollar run rate early next year hey folks my guest today is Auntie navala he's the founder and CEO of a company called m-files a global leader in Information Management he started the m-files business and temporary Finland and currently lives in Austin Texas the m-files metadata driven document management platform enables knowledge workers to instantly find the right information in any context automate business processes and enforce information control onto you ready to take it to the top absolutely so Finland was a start now what year did you launch this company in Finland well it's a um it's actually a long history with um starting with my father's company in architectural engineering business in um um a way back but let's say for me the start was something around 2002 when we started developing the m-files product I asked because I had my research team at two different dates 1987 and 2005. so it sounds like you came in in 2002 2005 time exactly yeah interesting and this was something that your father had built to use internally at his Architecture Firm before then well that's how I got into business um I was watching my father run his uh aec consulting company and um I I did software as a hobby and I was very interested in just finding ways to apply my software development skills to real world problems and that's how I landed on this idea of of um how to make document management especially in in complex construction projects um more more efficient so that that got me into developing them first anyway you when you guys look at your customer cohorts today do you still have a massive concentration around folks in the construction Architects and Engineering Fields not really I I thought we would be targeting that vertical um initially but pretty quickly we brought we went to kind of a more generic business document management and we have a good number of uh engineering companies as our customers uh but it's it's not our primary vertical I see okay so give me a little bit of the story today right tell me the story of a customer who's using you and exactly how they use you well um our ideal customers and knowledge work company so companies in the Professional Services vertical especially companies like management consulting firms accounting firms tax advisors audit firms um companies that um deal with a lot of information they typically provide expert services for their clients and for for such companies and files is really the operating system for them to run run their business they take information in they apply their expertise to produce work outputs for their clients and then they well they use our platform to manage all of that and in an organized fashion and in a secure fashion but they also use our platform to share those work products with their clients and to collaborate interesting so are they paying like if one Architecture Firm has 10 clients will they pay for a seat for each client and that's the key to you driving expansion Revenue uh we actually uh charged by the seats of the um seat of the employees um in The Firm so let's say um tax advisory firm so the tax experts would be the m-files users and we we basically let them uh serve any number of external clients we don't charge by that oh what's going on there YouTube good to see you guys now imagine this you love watching these interviews with SAS Founders but imagine if we took all of the valuation data out from over 2807 interviews I've done manually saves you a lot of time well we've done this we've built the into the beautiful interface inside of founder path check this out I'll show you how you can access this in a second but you log in you connect your stripe account you see your valuation real time you can see what it changed over the past 88 days and even set goals for evaluation this year now the secret evaluation is there's many different ways to value a SAS business so the reason you're going to see three or four different evaluations inside of your founder path dashboard this is all free by the way is because depending on who's doing the buying of your SAS company you're going to get a different valuation a VC is going to pay a different valuation private Equity Firm is different if you're going to do a minority sale that's different and if you sell the whole business that's a different valuation you can see all those when I hover over here here right so the teal is what a VC would pay yellow is what private equity and red is if you sold the whole thing outright now what's cool about this is this is not built off random data again you guys hear these interviews on YouTube all these datas are built from real-time valuation data points Founders share with us on the show so traction 1.2 million seed round 3.7 raise they sold 22 percent of their business go in here and filter by the event maybe you only want to see companies that have sold the whole business well here are a bunch that have been acquired the valuation and the multiple maybe you're going out right now and you're raising your seed round well go in here and look at all this recent seed deals that went down what they raised what valuation they raised at and what percent that they sold there's never been a larger data set of SAS valuation than what you can get now inside of founder path and we're thrilled to bring it to you all right we're gonna go back to the YouTube video here in a second but if you want to check this tool out if you want to jump in and sign up you can check it out for free to get your valuation at this link this link founderpath.com forward slash products forward slash valuations or if you go to founderpath.com and hover over products click on get your valuation here and go ahead and sign up to give it a whirl again all that valuation data live right inside the platform I hope to see you there all right let's jump back into the interview I see I see okay so when you look at your ideal sort of your sweet spot customer today what would you say they're paying on average per month or per year for m files um I'd say in the ideal customer segments it's probably on average about 50 000 um in in AR so on annual basis uh we have a pretty broad range of smaller and larger larger customers but that's uh that would be the average what I'm curious what Min you know averages are dangerous what's what's min max what's cheapest someone can start with you and what's the biggest customer yeah we have a quite a lot of business through our Brazil partners and in that kind of partner business segment then um the typical annual um prices would be a few few thousand dollars let's say 5K um and then we go up to our Enterprise customers who pay um well over a million um per year oh this is great so you already have customers individual customers paying more than a million per year uh yeah this is right this is one of the big things I see Founders that are like 10 20 million bucks an AR struggle with but in order to get to 70 80 90 100 million you've got to figure out how to get customers paying that much how did you do that it's been a fairly Natural Evolution for us but I think part of it has definitely been getting to to know um our customers like true business problems better and understand where we offer the most value so we continue to be on the on a journey of becoming more and more specialized and really Sterling those knowledgeable companies well because that's where we provide the best value and and those other companies who can also then afford to pay most because because of that value when a reseller sells and files for say 5K a year do you own a relationship with the End customer or do you have to go to the reseller um yeah that's an interesting interesting question um not sure there's a kind of a one straight answer we let the result upon um kind of on the commercial relationship with a customer as as much as they can and want um we obviously have a direct subscription agreement with the customer too but for us the partners are the um front facing um communicated to the customer they provide the first level support then we want it to be that way and because that's that's how we can be efficient for for that higher volume of smaller customers so you you you own sort of the credit card payment within the credit card payment doesn't go through the reseller uh no it does go so we do invoice we invoice the pre-seller there is a little uh those payments with uh I see I see interesting okay so if a reseller sells and files to their users for five thousand bucks how much of that 5K will the reseller keep versus it flows through to m-files you um I'm not going to disclose the specific percentages but something like um the 30 percent um would be kept by the partner interesting how do you regulate and make sure that a partner doesn't price cheaper than what you guys have on your own website then nobody would sign up on your own website they'd all sign up via the cheaper reseller who's running Facebook ads and ads that landing page um our product is let's say unfortunately a little bit more complex than something that you just you know um buy and payback credit card so I don't think that's a true kind of a real practical problem for us we don't um we don't enforce pricing to the customers so our bracelet Partners would be free to price lower if they want to I don't think they want to do it because they they need to be in business too but if some some of them might value you know those implementation services and revenue more and might um compromise on their on their margin on them on the on the sales page that would be fine and I I don't think it really um changing things for us if our customer wants to go through the partners we are more than happy to let them do that I imagine a scenario where one of your sales reps is trying to close a ten thousand dollar per year deal and then they come back to the sales rep and say sell sales rep I just found this other reseller of M5 it looks like it does the same thing and they're giving it away for free and then they go sign up for free because the reseller is effectively taking the margin hit on that do you see that happen a lot and how do you prevent that from happening um not a lot and um we try to take upon the first approach so if we are actually working on the same um prospects we would let's say give way uh to the partner and rather support to them um in winning the deal because I mean the market is huge and there's um there are so many companies who who need m files who can benefit from mphos or direct sales teams will have other prospects to work on and so Auntie with all that context you're on your go to market resellers the structure how you price Etc how many customers are you Currently serving 5000 customers serving now today all in uh over 5000 customers in total interesting and and what percent of those came through a reseller um it's about uh well let's say Okay Revenue Wise It's about um one-third uh but in terms of number of customers it's much higher um at least 80 percent um probably through through Partners interesting so what that means is the higher rpu deals are going direct to m-files the lower RP deals but higher volume go through the resellers yeah yeah generally so that's probably also why we don't have that much Channel conflict because we don't necessarily compete for the for the same kind of deals interesting interesting so if we take 5 000 total customers times point eight right that means what you've got a thousand direct customers that are more enterprising and you've got four thousand you've gotten through resellers something like that yeah that's probably the right Ballpark and interesting super interesting okay um let's go into team a little bit what's the team size today and and how many engineers um we're about let's say over over 600 employees and I believe the engineering team is maybe um 150 are you an engineer by trade or no yeah absolutely yeah that's awesome do you still get the code or no uh two two little these days but I I did my best to keep doing that as as long as I ever could all right so 600 on the team 100 for the engineers how many quota carrying sales reps do you guys have um it's in the order of um 50 plus and are you is that the team you're building in Austin um there's a good team in Europe and there's a good team here here in North America so it's spread across across all regions we consider North America um Western Europe and nordics our primary sales regions and then rest of the world uh through Partners on interesting interesting okay very cool um talk to me a little bit about how you're scaling the sales team right everyone listening is going man I have 10 reps I'm trying to figure out what quote it is set for my midmark Enterprise reps in 2023 how do you think about quota targets yeah um right now I feel we have let's say enough capacity in our sales teams that we don't um want to just go and hire new sales reps I think for our company the challenge is to keep improving the efficiency or productivity of the sales team I think over time um our sales reps can um close more uh ARR per sales rep so let's say we are very focused in figuring out how to best do that should be invest more in marketing how to be smarter in how we sell and should we just increase our brand awareness in the U.S market to to help sales but it's it's not so much about scaling the team size currently it's about getting to larger deals and making sure that the time the team spends with the prospects is is like well well spent makes sense and so when you add the engineers plus the systems you've built plus the products that you've built I mean if we take a thousand customers that you own directly at about a five a fifty thousand dollar ACV that's 50 million in Revenue right there and then you said the customers you don't own directly because they're resellers make up about Monthly recurring revenue one-third of your total revenue so that's another 25 million on top of that is it fair to say you're around a 75 million run rate today uh yeah well a little bit bigger than that um we're about um we're about just above 90 million in in arrs so kind of like our next Focus over obviously Crossing that uh nice 100 million Mark not quite there yet but getting close you're doing obviously sort of Q4 planning and maybe closing out here shortly maybe looking at 2023 already when you go back and look at the goals you said at the beginning of this year 2022. did you be is 90 million beating those goals or did you come under those goals uh we're just as planned which wow which I think is is good given everything that's happened this year we could always want to exceed the plan but being at plan this year um I think it's an impressive so if you're at about a 90 million run right today where were you exactly a year ago um 75 okay interesting okay good so so Healthy Growth I mean I'm not it's obviously hard to double 75 million year over year yeah yeah it's good we've never been a kind of a super Growth Company that I have to admit um so it's been more of this you know 25 30 growth in the in the past years um but um you know sustaining that and doing it in an efficient uh manner not not not really burning cash I think that's kind of the profile of the um who we are and does that mean you finish 2020 somewhere around 50 million in AR 5-0 yeah okay interesting very interesting this is very cool now I guess I should take this back obviously we don't want to track you all the way back to 1987 when your father first started I don't even know when you were born but when you joined the company back in 2000 I think you said 2002 what was Revenue do you remember well um we were close to zero at that point um that's quite a lot of uh history there that maybe we don't have time to to discuss today but yeah it's kind of like it was the starting point for us a couple of um couple of persons um starting at the development of m files with the funding of something I had created a little bit earlier so that allowed us to be bootstrapped um for the early years so um so we did all of the development of the product in um in the early years just with um revenue of my previous product and then um we got all the way to 9 million in Revenue before we raised our uh a round Raised in 2013 and what was that the size that I round uh 6 million euros okay so call it like seven well back then it would have been higher right yeah yeah something else but yeah and then keep filling up the funding history for us I think you did another round in 2016. yeah that's also be around um again in Euros that was a 33 million euro um so maybe 36 million dollars um be around um we've done we did a debt financing around in 2018 and 27 million euros and um and then a little bit opportunistically we didn't see around um which we announced in January 2021 uh that was a bigger one um 67 million euros 8 million uh USB and most Folks at series C stage especially raising last year when things were so hot I mean there were people selling just five to ten percent of their companies in a series C were you sort of in that same average uh yeah yeah um yeah I guess the reason I'm asking is there's also a lot of folks you know a chili Piper comes to mind capado comes to mind um CoreLogic comes to mind where these series C's there's a you know big chunk on 50 of them were secondaries um was your was that 80 million that you raised US dollars or that on the balance sheet or was a bunch of that secondary as well uh yeah there was some secondary there um where as a company we didn't necessarily need additional funding at that point so our way of thinking was that yes it's good to get additional buffer into the business but it also was also an opportunity to offer liquidity for some earlier investors and uh earlier co-founders or employees who had already left them left the business so um yeah and to be to be even more precise we used about 30 million of that a team for for secondary and thanks for sharing that Founder's always asking me how to structure these and how do you I mean how do you get investors to say yes Auntie you can take 30 million off the table uh it wasn't difficult at all at those times probably the same experience with others that investors were very eager to invest in our business and since we were cash flow positive or cash flow neutral so like the business didn't really need a lot of additional Capital so they're really the only sensible way for investors to be able to to put more money in is to um is to ask like so how how could that be used and none of us um who stay Stayed with the business were that interested in selling any but yeah it's a different thing if you've already left the business early on like with our longer history that some some people had left so I I think it was a really a good good arrangement for for everybody investors could put a little bit more in and those who had left them left the business earlier were able to get lit with it and on the 67 million euros back then caught 78 79 million US Dollars selling five to ten percent I mean you were flirting with that billion dollar sort of valuation on a post-money basis but it sounds like you didn't get above that is that accurate uh yeah I'm I'm not willing to share the actual evaluation so you can speculate as much as you can but um but yeah uh we are leaving that to the market um well I did ask you earlier if you sold the average in a series C which is five to ten percent and you seem to agree so if you sold the maximum amount of ten percent that would put you if you raised 80 million USD they'd put you just under a billion valuation the reason I'm asking is markets have compressed since then right so so how have you dealt with the storyline to your I mean this is across all companies how have you dealt in that storyline to your user your customer your found your employees that are saying hey are we doing another round you know in the next six months is evaluation going to go up how do you manage that uh yeah um well first of all just to be clear I'm not confirming that um your your range is is actually actually correct um but um let's say generally speaking I don't think we did anything at a high valuation we we did uh we have done all of our funding rounds with the mentality that we want a clean structure like clean terms for the company and the fair market valuation um for the investors and ask us that keeps us on on that track of um increasing evaluation as as our business grows and I think that's what has happened to us so maybe we've avoided some of them hype Peaks but the benefit of that is is that everybody can focus on just growing the business and and understanding that valuation keeps increasing so um yeah I I feel very good about the the terms and rounds that we've completed and I actually um I mean I mean that you're you're after something really important because it's not necessarily an easy situation for a company to let's say succeed to raise money at the peak of the valuations and then have to deal with the potential downsides of that um if the if and when sometimes the multiples also yeah you're you're a conservative the reason I ask you you're conservative founder which I love right you didn't you had 75 million bucks in Revenue it sounds like you didn't go try and raise at a you know a 50x multiple right maybe you raised at a more conservative realistic 20 or 30 x multiple which today now you look like a genius because all the people that raised it 40 and 50 and 60x multiples are down and you're growing right your evaluation you can tell a growth story there so you know I love how you're building the company I appreciate making time for me we're out of time now let's wrap up here with the famous five number one favorite book um yeah for me it's one of the first ones I read as a business book Jim Collins uh good good great that appealed to me number two is their CEO you're following or studying really not really um number three how uh what's your favorite online tool for building m-files well yeah I thought you might ask that and I have to say that there's a software engineer there's really nothing that beats you know the environments like visual studio and git and that maybe not like the traditional online tools you would get as announcer but those were those are my favorite thing ones I know we like variety number four how many hours of sleep do you get every night uh seven and a half hours okay and situation married single kids um married and two kids two kiddos and Auntie how old are you uh eleven and nine no no you you oh sorry um uh 44. I'm like you look great for I mean 11 year 44. all right Auntie last question something you wishing you when you were 20. um yeah I I was very product and Engineering focused so I guess I should have known that there's so much more than just building the product that you need to do guys m-files.com they help you uh with document management they help you share or files not only internally but also with your customers so you can collaborate together they've got over 5 000 paying customers many of which or some of which pay over a million dollars per year they've grown 25 to 30 year over year for the past several years just breaking 90 million bucks in AR today up from 75 million a year ago when they closed their series C 80 million around 80 million USD he was nice enough to show that 30 million that was secondary which is great for liquidity for early employees and investors now 600 folks on the team as they look to build conservatively moving forward and break that 100 million dollar run rate early next year auntie thank you for taking us to the top thanks Nathan it was a pleasure one more thing before you go we have a brand new show every Thursday at 1pm Central it's called Shark Tank for SAS we call it deal or bust one founder comes on three hungry buyers they try and do a deal live and the founder shares back-end dashboards their expenses their revenue our poo CAC LTV you name it they share it and the buyers try and make a deal live it is fun to watch every Thursday 1 p.m Central additionally remember these recorded founder interviews go live we release them here on YouTube every day at 2PM Central to make sure you don't miss any of that make sure you click the Subscribe button below here on YouTube their big red button and then click the little bell notification to make sure you get notifications when we do go live I wouldn't want you to miss breaking news in the SAS World whether it's an acquisition a big fundraise a big sale a big profitability statement or something else I don't want you to miss it additionally if you want to take this conversation deeper and further we have by far the largest private slack Community for B2B SAS Founders you want to get in there we've probably talked about your tool if you're running a company or your firm if you're investing you can go in there and quickly search and see what people are saying sign up for that at nathanlacka.com forward slash slack in the meantime I'm hanging out with you here on YouTube I'll be in the comments for the next 30 minutes feel free to let me know what you thought about this episode and if you enjoyed it click the thumbs up we get a lot of haters that are mad at how aggressive I am on these shows but I do it so that we can all learn we have to counter those people we got to push them away click the thumbs up below to counter them and know that I appreciate your guys's support all right I'll be in the comments see ya

hello everyone my guest today is mika makitalo he is the ceo of m-files leading the fast-growing business on its mission to change the way the world manages information before m-files he had senior management positions within the finnish government managing large national i.t systems and projects he's got a phd in industrial engineering and management amica are you ready to take us to the top i'm ready all right thanks for being here man talk to me about m-files what's the company do when are you a pure play sas company we are a software company for intelligent infamous management we are on our way becoming a through sas company but the enterprise content management space is a bit conservative so over the years many customers have preferred uh wanting to have their system as perpetual license okay so right now when you look at your revenue over the past 12 months how much is sas versus kind of new license revenue so it's it has been roughly one third has been sas but the number is growing quickly as we are going through transition that's great because it's moving quickly towards subscription so of course we want to do the same and the perpetual license model that's not sassed was that also kind of an on-prem installation for security reasons yes of course the future for us means either in the cloud or on promises but of course it will be invoiced as subscription i see okay so for this interview let's just focus on the sas component of your business so for just that cohort on average what are companies paying per year would you say uh we have tiny customers to massive massive enterprises so roughly the numbers are 30 bucks per seat per month okay and and then i don't know what the average team size is that you're signing up is the average team 100 people or 10 000 or one uh it's a hundred hundreds okay so like i said we have time customers five users and then 000 here says you know again i understand you have many different cohorts but i don't want to go down every cohort on on this short call so just for for the sake again of averages you said about 30 bucks a month per seat an average team has 300 seats yes okay so it'd be about nine grand a month per logo or brand great okay and paint the kind of customer profile for me are these governments you're selling to or large corporations who are you selling to it's a mid-market and smes so any companies of course all companies are dealing with information and documents so infos gives a much better way to manage that data more efficiently so employees can be more productive in their work they can focus on things that really matter focus on innovations rather than trying to find the information or thinking where i'll find the latest version and put this on a timeline for me when did you launch the company so the company was was founded early 2000 infants as a product was launched just in 2005. so we've been around the market quite a bit okay and are you the founder or did you come in later i joined a company in 2010 okay so what happened there the founders got tired or what uh he wanted he had to choose then we had 40 employees and he had to choose whether he wanted wants to coach focus on architecture and building the world's best product or to lead the company and he decided to do the first and uh i was hired to uh skyrocket the business that's great okay now did you come in with a round of funding like an eir and a vc firm or what well back then we were still both bootstrapped so for for the first uh was it like six seven years we were bootstrapped and now we drop our a round 2013 led by draper s3 we raised 6 million and then we need i'll be around three years later 26 uh 2016 led by uh france us-based bardec partners okay and so total raise to date is what so those equal to roughly 40 40 million euros for the plus million u.s usd and also where we took a a loan from european investment bank last summer close to 30 million u.s okay so just be clear you've got about 30 million in equity in that 30 million kind of line of credit or is that a term loan that's in loan okay it is a term loan do you have to pay um did you pay it down kind of as you use it or do you have to pay an efix interest rate no matter what no we will pay you know we have transfers there we had the balance payment then he had what a balance payment in the end so we can of course do uh so we are raising that in francis and we are paying the loan back after five years i see okay good all right so so i want to get back to that in terms of um how you're using money to grow the company here in a second uh but first so 2000 launched 2005 the product launch 2010 you joined the company how did you how did you learn about the founder i mean what was the chemistry between you two i i knew some of the founders and some of the others early founders i knew the company company well so that was the reason reason uh to join the company in a way that i knew that those are super talented guys that can can create the software that is better than others have created the market so that that was you know enough confidence for me to join the company of course any company growing fifty percent a year being bootstrapped shows that the product is awesome yeah now what have you scaled to today in terms of total customers using you just on the sas side of things so says site is a couple of thousands so all together the customer account is 9 000 and and uh sales customers is uh maybe 2 thousand okay two thousand and uh you said earlier you know each of them kind of paying 30 bucks uh per month per seat team size 300 so i mean i can kind of multiply 2 000 brands paying nine grand a month that will put you just on your sash stream 18 million bucks in mrr is that accurate um [Music] well alexa there are there are so many large customers so we haven't disclosed our numbers numbers uh exactly exactly but the total revenue is approaching 100 million u.s or maybe in the next two years we are we are there and our arr growth has been uh last year 30 or exceeding thirty percent okay that's great where are you today though in terms of run rate you're like 80 million or 70 million we haven't disclosed the exact numbers so okay well just to be clear you did give me exact numbers in terms of acv and customer count you just said 2 000 and you said earlier 9 000 bucks a month if i multiply those exact numbers it gives 18 million yeah that is correct but like i said that 2000 was was an estimate on how many customers we have in the cloud the the exact number on total customer account is indeed 9 000. but since we started perpetual say maturity of small accounts are still still in the in the on-premises environments yeah this is why i'm ignoring the other revenue streams i just want to focus on sas so just to be clear you you have a business that you believe over the next year or two years will hit a hundred million dollars in arr the majority of your 9 000 customers are still not sas you do have about 2 000 that are sas paying about nine grand a month so the sas component of your revenue stream today is about i mean that would put it at 18 million dollars a month which obviously is inaccurate 18 million uh we said 80 million a month yes 2 000 customers and you said earlier they pay on average 9 grand a month because it's 30 seats and they have about 300 uh seats i i have to calculate it so that sounds a bit uh a bit off of uh uh well it's not a bit off mika it's not a bit off it's way off because that stream alone would be 18 million a month would be 216 million a year so it's something is something is way off so it must be obvious to you what is way off the the acv or the customer count custom accounts oh i see okay so you think the acv is accurate at nine thousand dollars a month but the customer counts lower okay do you i mean so do you know what just your sas portion of the company is are we talking like 10 million bucks an arr or something like that it's slightly below that okay good okay so you're going through something that's magical right now which is transitioning people from an old model to a new model what's the biggest friction point in convincing people to move from on-prem and perpetual license to the sas based cloud model so it's a we feel that we are going through the through the front system for benefiting customers for for for those customers they are getting all the benefits in the cloud scalability all this they can easily add users all these and security aspects uh all the latest cool features we can easily implement in the in the cloud environment so those are benefiting customers of course pay as you go all the benefits in the cloud i think the the old mental model is that hey since this is our data uh our documents our contracts we have to have those in you know beside our own firewall and that is the mental model i think now is uh changing thanks to say microsoft uh microsoft systems office 365 sales force of course is driving that so i think in the last two years the mental model of where we where we have our data has changed and of course we are we are uh also wanting to change the market from this my point is though what's the biggest friction when your sales person calls an on-prem customer and says start paying our sas model what's the biggest pushbacks just security a security team yes yeah interesting okay and round out the team for me how many folks are on the team [Music] 500 and where's everyone based so we are headquartered in finland uh and uh material devouring rnd is here then we have a large u.s operation one of 30 employees in the us 10 in canada 30 in the uk 20 in france and then small offices in germany and australia and talk to me about how you're driving this growth of kind of new customers what what kind of channels are you getting the most growth from right now in terms of where your sales team is spending most their time so it's uh like i said we are we are a platform play so we can serve almost any kind of uh information management use case vertical or horizontal cases so um we are serving across the board we are focusing on final services manufacturing professional services of course that are document heavy information everywhere they can benefit of having a more intelligent system and where are you looking to find those kinds of customers um so in those key regions where where we are operating so us is number one for us where we are seeking growth then of course all the uh sorry i meant how are you finding manufacturing companies and professional services companies your target in the us are you using linkedin targeting google ads facebook ads what's the actual tactic it's it's everything it's everything so of course we are we've calculated how much marketing qualifies leads we need so it's linkedin seo ppc uh many online online uh you know uh vehicles to create leads to create interest it's a trade shows participating right right kind of of when you speak engagements everything you get the amount of leads we need to uh hit the quota sales quarter targets we have and how aggressive are you being there so for a comp to get a customer that's going to start paying you 9 000 a month what are you willing to say to to pay to acquire that customer fully weighted um well of course it depends on the opportunity and and i mean like a small customer of course that's why i use the 9000 mark though mika is so for a nine thousand dollar a month customer what are you willing to pay for them uh so so 2x compared to what they are paying 2xml uh uh see uh no it's like ideally we want to be below one point uh 1.5 arr in in marketing and sales cost versus what they are paying so just to be clear let me make sure i understand you you're willing to spend 1.50 to get a new dollar of ar yes i see okay so your payback period there on average just call it maybe 16 to 18 months okay got it and the reason i'm asking this question is i don't think i've talked to somebody i've talked to a lot of people that are raised you know 100 million 200 million i don't think i've talked to someone that's raised 40 million and is also leveraging um a bank to the tune of you know 30 million on top of it how are you able to convince the bank that your kind of cohort data will indeed be predictive so they felt comfortable lending against it yeah so so also the key reason why we decided to take a loan was going through the transition financing the transition from perpetual world to accelerate our efforts on subscription and and sas so it was showing the numbers what we are doing what's our plan was enough to convince the bank that hey this definitely makes sense and they were happy to finance us did they use do they just use your revenue stream or is there is there on-prem kind of hardware collateral that's backing the loan [Music] looking at the overall business and of course so the benefits in the sauce model that was convincing okay but so you don't own like buildings that are your headquarters and they're using those as collateral yeah correct okay interesting very cool okay well so another component obviously this price point that you i'm sure i've dialed in are things like retention and churn so when you look at churn over the past 12 months what has it been it's uh for fast it's roughly 15 percent it's a bit higher than i'd like to have it and of course it's it will be lower in the stars world so um in in with sars customers it's roughly maybe twelve percent that's a long return or revenue churn per year but yeah okay uh and aiming at having it below 10 percent would be some something i'd be say pleased yep yep now let me ask you a different question if you have 12 revenue return per year i'm assuming that's gross if you add back expansion revenue from that same cohort do you get above 100 net revenue retention yes okay so what's your expansion typically like on that cohort year over year uh it's it's like 100 104 was was the last 12 months okay so just to be clear just to be clear what you're saying is you'll churn 12 percent of your revenue over the past 12 months but you'll expand that same cohort ignoring new customer ads but you'll expand that same cohort via upsells 16 so net revenue retention is 104. yes that's great what um what price taxes are your sales people using to drive people to upsell is it just number of new seats uh yeah new seats new use cases uh everything across the board and one one key aspect there is that end users allow the system so that is driving so it's not like our sales guys are pushing something there it is often customers pulling more yeah that's great now besides number of seats though are there additional feature upsells or any other utility or value based metrics you upsell against yes certain key key features like the new innovation we launched intelligent metadata which can help you access information regardless of the system so emphasis like a system or layer on top of other systems and this is a cool cool feature you know companies want to use are there any other number based upsells besides number of seats for example number of terabytes stored or number of documents stored there are a couple of these kind of points when of course if they want more capacity more power from from the servers then then they taste the upsells okay so a couple of additional features they can have on top of implants are any of those again metric based upsells proving to be the most valuable for example a lot of upsells are happening because they want more server capacity uh no it's pretty much across the board uh you know what what is working so there is not like single key driver for the upsell got it okay last question here before we wrap up with the famous five um the last round of funding you raised was you said december of 2018 uh uh it was february 16 when without rb round oh february of 2016. yes okay mika you know what that means right tell me right right now you're either either raising more capital or you're selling to your number one competitor which one is it no it's neither neither so come on no no no it's the business has been proceeding very well so it's almost like we are putting pets in making investments and those are all yielding in growth so the the only reason why why now we are burning money is the sas transition we are making so the business is doing outstanding uh and and we are growing way faster than the market is growing so i think uh we are doing so well today and definitely we are keeping our eyes open on can we accelerate our growth even further and then we might be raising more capacity loan in place is well enough for our uh next 18 month investments and the strategies how how aggressive are you being though in terms of net burn i mean are you north of a million bucks a month in terms of net burn uh yes okay interesting um that's helpful to understand what you're saying is you basically you still have money from your series b back two years ago in the bank plus the loan you don't need to go raise additional capital right now you have plenty of runway correct very good all right let's wrap up with the famous five number one what's your favorite business book um number two is there a ceo you're following or studying right now there are so many so many um outstanding ceos who i i named say from finland okay and what's the he's the ceo of which company uh it's a software company called brings it okay number three uh what billing tool do you guys use [Music] what billing tool do you use we use azura and netsuite yep netsuite number four how many hours of sleep to get every night depending from the right stage from two to seven okay because two would not be healthy all right and what's your situation married single kids um married and kids how many kids two dinosaurs two boys two boys and how old are you mika 41 41 last question what do you wish your 20 year old self knew so yeah what's something you wish your 20 year old self knew i i'd say be brave do it change the world guys be brave change the world as company m-files was founded in 2000 product kind of released in 2005. original founder built it till 2010 when then mika joined and has taken over now the company has call it you know 10 million bucks in sas revenue that's just one third of their total revenue because they're transitioning from an old on-prem model they're moving those people over he's doing it with a lot of capital behind him 43 million bucks raised in equity another 30 million in terms of loan burning over a million dollars a month in net burn but again the growth is there if they're growing about 30 percent year over year 500 folks on our team between finland and remote locations 12 revenue churn annually 16 expansion so 104 net revenue retention again spending a dollar fifty on cac to get a new dollar of ar so call it an 18 month payback period as they look to scale again file storage file management privacy mika thank you for taking us to the top thank you nathan thank you