How M-Files Reached $90M ARR with 5,000 Customers and 25% Annual Growth (Interview with CEO Antti Nivala)

Introduction and Company Overview

Nathan Latka

00:00Guys, mfiles.com, they help you 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 $1,000,000 per year. They've grown 25 to 30% year over year for the past several years, just breaking $90,000,000 in ARR today, up from 75,000,000 a year ago when they closed their series c. 80,000,000 around 80,000,000 USD. He

00:25was nice enough to show that 30,000,000 of 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 $100,000,000 run rate early next year. Hey, folks. My guest today is Antti Nivala. He's the founder and CEO of a company called M-Files, a global leader in information management. He started the M-Files business in Tampere, Finland and currently lives

00:45in 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. Antti, you ready

00:57to take us to the top?

Antti Nivala

00:58>> Absolutely.

Nathan Latka

00:59So Finland was the start now what year did you launch this company in Finland?

Founding Story and Origins in Finland

Antti Nivala

01:03>> Well, it's actually a long history starting with my father's company in the architectural engineering business

01:13>> way back. But let's say for me, the start was something around 2002 when we started developing the M-Files product.

Nathan Latka

01:20I asked because I had my research team had two different dates, 1987 and 2005. So it sounds like you came in in 2002, 2005 time frame.

Antti Nivala

01:28>> Exactly. Yeah.

Nathan Latka

01:30Interesting. And this was something that your father had built to use internally at his architecture firm before then?

Antti Nivala

01:35>> Well, that's how I got into business. I was watching my father run his AEC consulting company, and 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 how to make document management, especially in complex construction projects, more efficient. So that got me into developing M-Files.

Nathan Latka

02:06And when you guys look at your customer cohorts today, do you still have a massive concentration around folks in the construction and architecture engineering fields?

Antti Nivala

02:15>> Not really. I thought we would be targeting that vertical initially, but pretty quickly we went to kind of a more generic business document management. We have a good number of engineering companies as our customers, but it's not our primary vertical.

Nathan Latka

02:34I 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.

Ideal Customer Profile and Use Cases

Antti Nivala

02:40>> Well, our ideal customer is a knowledge work company. So companies in the professional services vertical, especially companies like management consulting firms, accounting firms, tax advisors, audit firms. Companies that deal with a lot of information, they typically provide expert services for their clients. And for such companies, M-Files is really the operating system for them to their business. They take information in, they apply their expertise to produce work outputs for their clients, and then they use our platform

03:18>> to manage all of that in an organised fashion and a secure fashion, but they also use our platform to share those work products with their clients and to collaborate.

Pricing Model and Seat-Based Subscriptions

Nathan Latka

03:30Interesting. So are they paying like if one architecture firm has 10 clients, will they pay for a seat for each client, and that's a key to you driving expansion revenue?

Antti Nivala

03:39>> We're actually charged by the seat of the employees

03:44>> in the firm. So let's say tax advisory firms, so the tax experts would be the M-Files users, and we basically let them serve any number of external clients. We don't charge by that.

Nathan Latka

03:59Oh, what's going on there, YouTube? Good to see you guys. Now imagine this. You love watching these interviews with SaaS founders, but imagine if we took all of the valuation data out from over 2,807 interviews I've done manually. Saves you a lot of time. Well, we've done this. We've built it into the beautiful interface inside of Founderpath. Check this out. I'll show you how you can access this in a second, but you log in, you connect

04:23your Stripe account, you see your valuation real time. You can see what it changed over the past eighty eight days and even set goals for valuation this year. Now the secret evaluation is there's many different ways to value a SaaS business. So the reason you're gonna see three or four different valuations inside of your Founderpath dashboard, this is all free by the way, is because depending on who's doing the buying of your SaaS company, you're gonna

04:47get a different valuation. A VC is gonna pay a different valuation, Private equity firm is different. If you're gonna 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. 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

05:09not built off random data. Again, you guys hear these interviews on YouTube. All these datas are built from real time valuation data points founder share with us on the show. So traction 1,200,000 seed round three point seven raise. They sold 22% of their business. Go in here and filter by the event. Maybe you only wanna see companies that have sold the whole business. Well, here are a bunch that have been acquired the valuation and the multiple.

05:34Maybe you're going out right now and you're raising your seed round. We'll 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 dataset of SaaS valuations than what you can get now inside of Founderpath. And we're thrilled to bring it to you. All right, we're gonna go back to the YouTube video here in a

05:56second, but if you wanna check this tool out, if you wanna jump in and sign up, you can check it out for free to get your valuation at this link, this link, founderpath.com/products/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. Alright. Let's jump

06:22back 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?

Average Contract Value and Customer Range

Antti Nivala

06:34>> I'd say in the ideal customer segment, it's probably on average about 50,000 in ARR, so on annual basis. We have a pretty broad range of smaller and larger customers, but that would be the average.

Nathan Latka

06:49I'm curious what you know, averages are dangerous. What's min max? What's cheapest? I can start with you. And what's biggest customer?

Antti Nivala

06:55>> Yeah. Have quite a lot of business through our reseller partners. And in that kind of partner business segment, the

07:05>> typical annual prices would be a few thousand dollars, let's say 5 ks. And then we go up to our enterprise customers who pay well over 1,000,000 per year.

Nathan Latka

07:19Oh, this is great. So you already have customers, individual customers paying more than 1,000,000 per year?

Antti Nivala

07:24>> Yeah. Several.

Nathan Latka

07:25This is right. This is one of the big things I see founders that are like $10 or $20 million bucks in ARR struggle with. But in order to get to $70, $80, $90, $100 million, you've got to figure out how to get a couple customers paying that much. How did you do that?

Antti Nivala

07:37>> It's been a fairly natural evolution for us, but I think part of it has definitely been getting to know

07:45>> our customers'true business problems better and understand where we offer the most value. So, we continue to be on a journey of becoming more and more specialized and really serving those knowledge based companies well because that's where we provide the best value. And those are the companies who can also then afford to pay most because of that value.

Reseller Channel Structure and Partner Economics

Nathan Latka

08:07When a reseller sells M- for say 5 ks a year, do you own the relationship with the end customer, or do you have to go to the reseller?

Antti Nivala

08:15>> Yeah, that's an interesting question. Not sure there's a kind of a one straight answer. Let the reseller partner kind of own the commercial relationship with the customer as much as they can and want. We obviously have a direct subscription agreement with the customer too, but for us, the partners are the front facing

08:43>> communicator to the customer. They provide the first level support. And we want it to be that way because that's how we can be efficient for that higher volume of smaller customers.

Nathan Latka

08:53So you own sort of a credit card payment within the credit card payment doesn't go through the reseller?

Antti Nivala

09:01>> No. It does go so we do we the reseller. The reseller handles payments with the with the customers.

Nathan Latka

09:07I see. I see. Interesting. Okay. So if a reseller sells M-Files to their users for $5,000, how much of that 5 k will the reseller keep versus it flows through to M-Files?

Antti Nivala

09:19>> I'm not gonna disclose the specific percentages, but something like 30% would be kept by the partner.

Nathan Latka

09:28Interesting. 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 or ads to that landing page.

Antti Nivala

09:43>> Our product is, let's say, unfortunately, a little bit more complex than something that you just, you know, buy pay by credit cards. So I don't think that's a true kind of a real practical problem for us. We don't enforce pricing to the customers. So, our reseller partners would be free to price lower if they want to. I don't think they want to do it because they need to be in business too. But if some of them

10:12>> might value, you know, those implementation services revenue more and might compromise margin on on the SaaS piece, that would be fine. And I don't think it really changes things for us. If our customer wants to go through the partners, we are more than happy to let them do that.

Nathan Latka

10:36I imagine a scenario where one of your sales reps is trying to close a $10,000 per year deal, and then they come back to the sales rep and say, Sales rep, I just found this other reseller of M-Files. 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

10:53lot, and how do you prevent that from happening?

Antti Nivala

10:54>> Not a lot. And we try to take a partner first approach. So, if we are actually working on the same prospects, we would, let's say, give way to the partner and rather support them in winning the deal. I mean, the market is huge and there are so many companies who need M-Files, who can benefit from M-Files. So our direct sales teams will have other prospects to work on.

Nathan Latka

11:21And so, Antti, with all that context around your go to market resellers, the structure, how you price, etc, how many customers are you serving now today all in?

Antti Nivala

11:29>> Over 5,000 customers in total.

Nathan Latka

11:32Interesting. And what percent of those came through a reseller?

Antti Nivala

11:36>> It's about Well, let's say, okay, revenue wise, it's about one third. But in terms of number of customers, it's much higher, at least 80% probably through partners.

Nathan Latka

11:51Interesting. So what that means is the higher ARPU deals are going direct to M-Files, the lower ARPU deals but higher volume go through the resellers?

Antti Nivala

11:59>> Yeah, yeah, generally so. And 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.

Nathan Latka

12:08Interesting. Interesting. So if we take 5,000 total customers times 0.8, right, that means what? That you've got a thousand direct customers that are more enterprise y, and you've got 4,000 you've gotten through resell or something like that?

Antti Nivala

12:20>> Yeah. That's probably the probably the right ballpark.

Team Size, Engineers, and Sales Reps

Nathan Latka

12:23Interesting. Super interesting. Okay. Let's go into team a little bit. What's the team size today, and and and how many engineers?

Antti Nivala

12:30>> We're about, let's say, over 600 employees, and I believe the engineering team is maybe 150.

Nathan Latka

12:40Are you an engineer by trade or no?

Antti Nivala

12:42>> Yeah, absolutely.

Nathan Latka

12:45Am. That's awesome. Do you still get to code or no?

Antti Nivala

12:49>> Too little these But I did my best to keep doing that as long as I ever could.

Nathan Latka

12:55Alright. So 600 on the team, 100 for the engineers. How many quota carrying sales reps do you guys have?

Antti Nivala

13:02>> It's in the order of 50 plus.

Nathan Latka

13:06And is that the team you're building in Austin?

Antti Nivala

13:10>> There's a good team in Europe, and there's a good team here in North America, so it's spread across all regions. We consider North America, Western Europe, and Nordics our primary sales regions, and then rest of the world through partners.

Sales Productivity and 2023 Planning

Nathan Latka

13:28Interesting. Okay. Very cool. 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 quota to set for my mid market enterprise reps in 2023. How do you think about quota targets?

Antti Nivala

13:42>> Yeah. Right now, I feel we have, let's say, enough capacity in our sales teams that we don't want to just go and hire new sales reps. I think for our company, the challenge is to keep improving the efficiency of productivity of the sales team. I think over time, our sales reps can close more ARR per sales rep. So, let's say we are very focused in figuring out how to best do that. Should we invest more in

14:12>> marketing? How to be smarter in how we sell? And should we just increase our brand awareness in The US market to help sales. But 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 well spent.

Nathan Latka

14:33Makes 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 5 a $50,000 ACV, that's 50,000,000 in revenue right there. And then you said the customers you don't own directly because they're resellers make up about one third of your total revenue. So that's another 25,000,000 on top of that. Is it fair to say

14:53you're around a 75,000,000 run rate today?

Antti Nivala

14:55>> Yeah. Well, a little bit bigger than that. We're about just above 90,000,000 in ARR. So kind of like our next focus obviously crossing that nice 100,000,000 mark. Not quite there yet, but getting close.

Nathan Latka

15:11You're doing obviously sort of q four planning and maybe closing out here shortly, maybe looking at 2023 already. When you go back and look at the goals you set at the beginning of this year, 2022, did you beat is 90,000,000 beating those goals, or did you come under those goals?

Antti Nivala

15:25>> We're just at plan, which I think

Nathan Latka

15:27You're right up.

Antti Nivala

15:28>> Think is good given everything that's happened this year. We could always want to exceed the plan. Being at plan this year, I

Nathan Latka

15:35think it's a good So, if you're at about a 90,000,000 run rate today, where were you exactly a year ago?

Antti Nivala

15:42>> 75.

Nathan Latka

15:44Okay. Interesting. Okay. Good. So so healthy growth, I mean, I'm not it's obviously hard to double 75,000,000 year over year.

Antti Nivala

15:50>> Yeah. Yeah. It's kind of we've never been a kind of a super growth company that I have to admit. So it's been more of this, you know, 25%, 30% growth in the past years. But, you know, sustaining that and doing it in an efficient manner, not really burning cash. I think that's kind of the profile of of who we are.

Nathan Latka

16:11And does that mean you finish 2020 somewhere around 50,000,000 in ARR? $5.00? Yep. 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 '2 I think you said 2002, what was revenue? Do you remember?

Antti Nivala

16:32>> Well, we were close to zero at that point. There's quite a lot of history there that maybe we don't have time to discuss today. But yeah, it's kind of like it was the starting point for us. A couple of persons starting the development of M-Files with the funding of something I had created a little bit earlier. So that allowed us to be bootstrapped for the early years.

Bootstrapping to $9M Before Series A

Antti Nivala

17:00>> So we did all of the development of the product in the early years just with the revenue of my previous product, and then we got all the way to 9,000,000 in revenue before we raised our A round in 2013.

Nathan Latka

17:16And what was that, the size of that A round?

Antti Nivala

17:20>> €6,000,000.

Nathan Latka

17:21Okay. So call it like 7 well, back then it would have been higher, right? Would have been 8,000,000

Antti Nivala

17:25>> Yeah. Probably $7,000,000 to $8,000,000

Nathan Latka

17:29And Yeah. Then keep filling up the funding history for us. I think you did another round in 2016?

Funding History: Series A Through Series C

Antti Nivala

17:34>> Yeah, that was our B round. Again, in euros, that was a €33,000,000, so maybe $36,000,000 B round. We did a debt financing round in 2018, €27,000,000.

17:56>> Then a little bit opportunistically, we did a C round, which we announced in January 2021. That was a bigger round, 67,000,000 euros.

Nathan Latka

18:09And most folks at Series C stage, especially raising last year when things were so hot, I mean, there were people selling just five to 10% of their companies in the Series C. Were you sort of in that same average?

Antti Nivala

18:20>> Yeah. Yeah.

Nathan Latka

18:24Yeah. I guess the reason I'm asking is there's also a lot of folks, you know, Chili Piper comes to mind. Copado comes to mind. CoreLogic comes to mind. Where are these series c's? There's a, you know, big chunk of them. 50% of them were secondaries. Was your was that 80,000,000 that you raised US dollars, did that go on the balance sheet or was a bunch of that secondary as well?

Secondary Sale and Liquidity in Series C

Antti Nivala

18:41>> Yeah. There was some secondary there. We, 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 was also an opportunity to offer liquidity for some earlier investors and earlier co founders or employees who had already left the business. So, yeah, to be even more precise, we used about $30,000,000 of that 80,000,000 for secondary.

Nathan Latka

19:14And thanks for sharing that. Founders are always asking me how to structure these, and how do you get investors to say, Yes, Antti, you can take $30,000,000 off the table.

Antti Nivala

19:22>> 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

19:45>> put more is money

19:48>> to ask, like, so how could that be used? And none of us who 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 people had left. So I think it was a really good arrangement for everybody. Investors could put a little bit more in, and those who had left the business earlier were able to get liquidated.

Valuation Philosophy and Conservative Approach

Nathan Latka

20:15And Antti, 67,000,000 euros back then was about $78 to $79 million US dollars selling five to 10%. 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?

Antti Nivala

20:30>> Yeah. I'm not willing to share the actual valuation, so you can speculate as much as you can. But but, yeah, we're leaving that to the market.

Nathan Latka

20:41Well, I did ask you earlier if you sold the average in a series c, is five to 10%, and you seem to agree. So if you sold maximum amount of 10%, that would put you even you raised 80,000,000 USD, that'd put you at 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

21:00have you dealt in that storyline to your user, your customer, your founder, your employees that are saying, hey, are we doing another round, you know, in the next six months? Is valuation gonna go up?

Antti Nivala

21:08>> How do

Nathan Latka

21:09you manage that?

Antti Nivala

21:10>> Yeah. Well, first of all, just to be clear, I'm not confirming that your range is actually correct. But let's say, generally speaking, I don't think we did anything at a high valuation.

21:28>> We have done all of our funding rounds with the mentality that we want a clean structure, like clean terms for the company, and fair market valuation for the investors and us because that keeps us on that track of increasing in valuation as our business grows. And I think that's what has happened to us. So maybe we've avoided some of the hype peaks. But the benefit of that is that everybody can focus on just growing the business

21:58>> and understanding that valuation keeps increasing. So, yeah, I feel very good about the terms and rounds that we've completed. And I actually I mean, 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 if and when sometimes the multiples also come back.

Nathan Latka

22:30The reason I ask you, you're a conservative founder, which I love, right? You had $75,000,000 in revenue. It sounds like you didn't go try and raise at you know, a 50 x 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 at forty and fifty and sixty x multiples are down, and you're growing. Right? Your valuation, you can

Famous Five Rapid-Fire Questions

Nathan Latka

22:49tell 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. Let's wrap up here with the famous five. Number one, favorite book?

Antti Nivala

22:58>> Yeah. For me, it's one of the first ones I read as a business book, Jim Collins, Good to Great. That appealed to me.

Nathan Latka

23:06Number two, is there a CEO you're following or studying?

Antti Nivala

23:09>> Not really.

Nathan Latka

23:11Number

23:13three, what's your favorite online tool for building M-Files?

Antti Nivala

23:17>> Well, yeah, I thought you might ask that, and I have to say that as a software engineer, there's really nothing that beats, you know, the dev environments like Visual Studio and Git and that. Maybe not like the traditional online tools you would get as an answer, but those were those are my favorite environments.

Nathan Latka

23:32And then we like variety. Number four, how many hours of sleep do get every night?

Antti Nivala

23:36>> Seven and a half hours.

Nathan Latka

23:38And situation, married, single, kids?

Antti Nivala

23:40>> Married and two kids. Two kiddos.

Nathan Latka

23:42And, Antti, how old are you?

Antti Nivala

23:45>> 11 and nine.

Nathan Latka

23:46No. No.

Antti Nivala

23:46>> You. You.

23:47>> Oh, sorry. 44.

Nathan Latka

23:49I'm like, you look great for, I mean, eleven years.

Antti Nivala

23:52>> Forty four.

Nathan Latka

23:53Alright. Antti, last question. Something you wish you knew when you were 20.

Antti Nivala

23:58>> Yeah. 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.

Closing Remarks and Wrap-Up

Nathan Latka

24:08Guys, mfiles.com, they help you 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 $1,000,000 per year. They've grown 25 to 30% year over year for the past several years, just breaking $90,000,000 in ARR today, up from 75,000,000 a year ago when they closed their series c. 80,000,000 around 80,000,000 USD. He

24:33was nice enough to show that 30,000,000 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 $100,000,000 run rate early next year. Antti, thank you for taking us to the top.

Antti Nivala

24:45>> Thanks, Nathan. It was a pleasure.

Nathan Latka

24:48One more thing before you go. We have a brand new show every Thursday at 1PM Central. It's called Shark Tank for SaaS. 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, ARPU, CAC, LTV, you name it, they share it and the buyers try and make a deal live. It is fun to watch every Thursday, 1PM

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25:57that at nathanlatka.com/slack. In the meantime, I'm hanging out with you here on YouTube. I'll be in the comments for the next thirty minutes. Feel free to let me know what you thought about this episode. 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

26:17push them away. Click the thumbs up below to counter them and know that I appreciate your guys'support. Alright, I'll be in the comments.

Antti Nivala

26:23>> See you.