Moth+Flame Revenue, Valuation & Funding (2024)

[00:00] Hey, folks. My guest today is Kevin Cornish with Moth+Flame. It's an award winning he's an award winning developer of virtual reality immersive communication technology. They're by experts from immersive tech entertainment. The company combines artistic prowess with engineering excellence and specialize in natural language processing software products that they're dedicated to pioneering for the next decade of virtual reality learning and communication technology for both the private and the public sector. All right, Kevin, you ready to take us [00:23] to the top? [00:24] >> Let's do it. [00:25] So that was a long way of basically saying you guys are building great VR experiences, training experiences for B2B clients, right? Folks like Accenture? [00:34] >> Yeah. So our product, it's an immersive learning platform. So what that means is we got an off the shelf content library, we got authoring tools, and then an analytics dashboard. So our customers are everyone from CHROs, chief compliance officers, chief diversity officers, basically think anybody who's an enterprise leader who their mission is to drive behavior change across any level of workforce. [00:59] Very interesting. And how do you price this thing? [01:02] >> Yeah. So pricing is based on TAM. So we got kind of two categories. One is on a per experience basis. So these are for things where the TAM is smaller, smaller user base. So that's at 4,500, 6,500 or 8,500 a month, depending on kind of the different features that the customer needs. And then for the off the shelf content, so this is stuff that's much bigger on the TAM. So this is tens of thousands, potentially millions [01:31] >> of users in the potential market. And then that's just a per seat. So $180 per year per user based on how many people an organization wants to put through it. [01:44] So if I'm an organization with 5,000 people and I'm doing one Christmas VR experience one time, I'm still paying a $100 for all thousand employees even though we use it one time during Christmas? [01:55] >> Yeah. Because what we want we think about behavior change and behavior change happens over time. And this really goes to kind of what's happening in the world of enterprise learning today, which is there's been an LMS business for the last decade, which is incredibly effective at delivering the right content to the right people at the right times. But the content that's being delivered is e learning, which is miserably ineffective. So we're talking about something that has [02:26] >> a 20% effectiveness rate. So what our customers are doing when they're buying the product, they want to buy the behavior change. And in this time of transformation from everything, great resignation, figuring out what's the hybrid workplace going to look like, navigating big workforces through that change is really important. And it's not something that happens as a one off event. [02:55] It's So really helpful for my audience if we can use yeah. Can we can we try and use real examples here? Right? So what's Accenture gonna use you for? [03:03] >> Yeah. So Accenture uses the they're building a library [03:09] >> around child welfare for child welfare workers. So that's reseller relationship. And so their different states use experiences where child welfare workers go into a house, practice all kinds of different conversations, and then that library has been building and building so that now a worker [03:37] >> can go and have a number of experiences and see a number of different things. [03:41] Understood. So they're not this isn't like they're paying you to create a little virtual Christmas world for a holiday party. This is like they're building it into like their DNA. It's a part of the training they're gonna put every new person through. [03:53] >> Yeah, so the use case there, just one of them was on one of the states they were having a real problem with churn. So fifty percent of child welfare workers quit within the first twelve months. So they actually started using this experience in the hiring process so that somebody who wanted to be a child welfare worker, they would go into this and they would see what it's really like inside of a house, and then they could [04:19] >> make a decision before all of the expenses of training that person if it's something that you really want to do. [04:24] Makes sense. [04:24] >> In the first year of doing that, they cut the churn by 30%. [04:27] Yeah, makes complete sense. Very cool. So tell me a little bit about, like, what's the I know you have two models, but what's the average customer paying you per month or per year to use this technology? [04:37] >> Yeah. So on the we got a couple of different price points. On the What's the average of Kevin? [04:42] Just to try and simplify, because we have eleven minutes left. Like, would you say like the sweet spot is? [04:47] >> The 78,000 is Okay. That's 6,500 a month times 12. [04:52] Okay. Interesting. And and someone paying you that, they're they're doing something for like workforce development training, the US Air Force is using you for training, like something like that? [05:00] >> Yeah. [05:01] Okay. Interesting. And how do you price this? So do you actually have an in house design shop where you're actually custom building like almost a mini meta little metaverse? [05:10] >> Yeah. So there's a couple of different ways. We have a studio, and so there it's charging basically nonrecurring engineering that then has the cloud license for access to all the tools and everything moving forward. Or some customers have local vendors that they want to use. And so those vendors can use our tools. [05:32] And what's your total team size today? [05:35] >> 39. [05:35] How many are focused on like the recurring product versus the one off design? [05:40] >> Yeah. So we're 19 are on the the product and engineering side. And what we as we think about this, [05:51] >> last year we did $2,500,000 in revenue and like $200,000 of that was recurring. This year we did $5,000,000 in revenue, $2,000,000 was recurring. And next year we see that number getting up probably towards 70% of it being recurring. [06:13] That's impressive. So how do you respond? Well, first of have you guys raised capital or do you bootstrap? [06:19] >> Yes, we bootstrapped until this year. We did a seed round this year. Big reason for that was to build out our no code builder tool. And then right now we have a bridge that's open mostly for insiders that's going to roll into a series A that we'll do in the spring. [06:37] I see. What was the size of the seed? [06:40] >> 2.7. [06:40] 2.7. Okay. And I guess why couldn't you fund off I mean, you already had significant revenue. Why couldn't you fund off like upfront customer contracts? [06:49] >> Just the acceleration of how fast we saw the technology coming. And for the first time, we actually saw a scalable business model. So we had a program around suicide prevention in the Air Force. So this was one where [07:08] >> we created the content and then sold user licenses. So basically you're selling tickets to a movie, sold 10,000 for the first year, and then they expanded that for the second year up to 25,000. And we saw the ability to create something that was like a masterclass for VR. And that [07:31] >> from the enterprise leader's perspective, they love virtual reality because it just works better and their people love it. The challenge with virtual reality is there's not a lot of content out there. So off the shelf content means they only need to pay for their usage, which means they don't need to have huge upfront startup costs. [07:56] Understood. [07:57] Tell me more, dilution is what you're trying to manage when you bring in this kind of capital, right? So what valuation did you raise at and how did you have that negotiation? [08:06] >> We haven't released that publicly, but basic like standard kind of thinking of [08:15] Standard is usually 10 to 20% on a seed round. Were you sort of in that range? [08:19] >> Yeah. That was kinda that's kinda the goal and the same kinda goal of what we're what we wanna do on this these next rounds. [08:24] Yeah. So you're talking like a twenty to twenty it's like a 20 to $30,000,000 valuation effectively on the seed round? [08:31] >> Yeah, it's something in the range. [08:35] Yeah, explain to me how you're using the rolling thing. I've seen a lot of owners do this, but very few talk about the strategic reasons why. Why have you already opened it and you're going to roll it into VA? [08:45] >> Yeah, so the big reason is [08:49] >> we just launched the off the shelf marketplace in September. So our kind of growth on that was like we got our first customer in September, another customer October, a couple more in November, a few more in December, and we're kind of adding kind of a few more. We think we're gonna be at about five customers a month by February, March. [09:10] How many are at today? [09:12] >> So on that one, we're at five. [09:14] We're Total customers today? [09:17] >> We're in the 15 to 20 range. [09:18] Okay. 15. Got it. Cool. [09:20] >> And then but we wanna be on the mark for the marketplace, wanna be at a place where we have 15 to 20 customers that are buying off the shelf content. And then we're bringing on new content partners. And so we really want to be able to show those network effects that happen from somebody comes in and buys something because of one content partner, and then they see what else we have in the library, buy something from [09:42] >> that other one and be able to tell that cross selling story. So as we've been talking to series A investors, just kind of getting a sense of what it is that they're looking for in terms of kind of marketplace maturity, that handful of customers, handful of kind of content partners on the supply side, and some evidence of some cross selling that happens as customers [10:04] come Kevin, I love that you did the design services about two, you said, I think 3,000,000 of the 5,000,000 this year was the one off stuff. But you just told me 20 to 30,000,000 valuation on five revenue. It's only like a five or six X, which tells me like that these VCs are not respecting the power of your one time revenue, which I think is powerful because it drives net dollar retention over time. Why couldn't you [10:23] get them to price that into the valuation? [10:33] >> If it looks like services revenue that just kind of is like taken off the table is basically the sense of it. [10:42] I mean, would you just roll over and give up on that on that piece or you try to just debate that a bit? [10:48] >> Yeah. Definitely. Definitely trying to trying to trying to push back on more. The biggest biggest thing that like when we talk about narrative and talk about that particular part of it, talking about where that's going to be in a year and really how we're trending towards it being so much more recurring in the future. [11:11] Mhmm. [11:11] >> The other thing is our our gross margin on it. On our subscription revenue, we're up in the, like, 75 towards 80%. [11:21] Standard. What about on the services side? [11:27] >> Close to 50. [11:28] Yeah. Yeah. No. I mean, not not horrendous. Interesting. Okay. Cool. So looking at raising, what do you think you'll target in the series a? How much? [11:35] >> We're talking about 10 to 12. [11:37] Okay. And what would you invest that money on in? [11:40] >> So we got some interesting stuff on [11:45] >> the engineering side around synthetic media and in the natural language processing. So when we think about long term what the tool can do, if you think about [11:54] >> if JJ Abrams wanted to make Westworld, what tool would he need to take the robotics aside, but just kind of for all of those conversations and how do you create all that content at scale? So there's the dialogue path, That's the natural language processing part of it. And then there's what do you see on the faces, which is the synthetic media part. So I would say that we are at solid working prototype on those things. And [12:23] >> then these next rounds of funding will really be to productize that. We really want to be in a place where thinking about if we are Squarespace for VR in 2007, like, what does that next decade look like? And at what point can that stuff really go to sell? [12:42] When did you launch? Did you launch in 2007? [12:45] >> No. No. Thinking about where Squarespace was in 2000 [12:48] When did you launch the business? [12:50] >> So launched it in 2015. [12:51] Okay. And then started in entertainment, doing a lot of just like innovation projects in virtual reality. [12:57] >> And then in 2019, Accenture approached us about doing something in workplace training. And then that was really when we started building out the platform and focusing on it being a product company and not just a one off innovation shop. [13:11] And now the SaaS is doing $2,000,000 a year? [13:14] >> Yeah. We were at $280,000 last month. [13:16] That's a great $280,000 just in SaaS last month. That's incredible. Alright, Kevin, let's wrap up with the famous five. Number one, favorite book? [13:23] >> The Great Gatsby. [13:24] Number two, is there a CEO you're following or studying? [13:27] >> Yeah. Andy Grove, his that idea that the value of manager is based on the productivity of the reports, something I'm really we're working on. How do I how do I do a better job in building leaders and not just solving problems. [13:43] Number three, what's your favorite online tool for building Moth+Flame? [13:47] >> Slack. The that just like constant free flow of information is something we try to get good at. [13:53] Number four, how many hours of sleep do you get every night? [13:56] >> Pretty good, like seven to eight. [13:58] Okay. And situation, married, single kids? [14:01] >> Getting married this summer. [14:02] Congrats. That's exciting. [14:03] >> Thanks. [14:04] Alright. So not married yet. And how old are you? [14:07] >> 42. [14:08] >> 42. [14:09] Last question. Something you wish you knew when you were 20. [14:13] >> Wow. [14:26] >> I think when I was younger, I was much more concerned with people pleasing and worried about what people thought of me. And as I got more confident in myself, felt a lot more liberated in life. So feeling comfortable that that, telling myself that that time would come and everything would be okay. [14:46] Guys, mothandflamevr.com launched in 2015 as an agency. Accenture said, hey, build us a tool we can use over and over again training purposes. They did, now their SaaS business this year will do, the total business is 5,000,000, SaaS business did 280,000 in a month just last month. Can calculate the run rate, they're scaling nicely, 2,700,000 raised, sold 10 to 20% of the business in the seed round. Now looking at doing a 10 to $12,000,000 series [15:07] a to continue developing these synthetic materials and more of the virtual worlds, aiming to be the sort of the much more updated version of what Squarespace was for websites back in 2007. But they're doing that for the VR world, hopefully in 2022 and beyond. Kevin, thanks for taking us to the top. [15:20] >> Awesome, man. Thanks so much for the time. [15:23] One 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 [15:48] Central. Additionally, remember these recorded founder interviews go live. We release them here on YouTube every day at 2PM Central. 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