Moth+Flame Revenue, Valuation & Funding (2024)

hey folks my guest today is kevin cornish with moth and flame it's an award-winning he's an award-winning developer of virtual reality immersive communication technology they are they're led 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 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 it to the top let's do it so that was a long way of basically saying you guys building great vr experiences training experiences for b2b clients right folks like accenture 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 very interesting and how do you price this thing yeah so it's pricing is based on tam so we got kind of two categories uh one is um on a per experience based basis so these are for things where the tam's smaller smaller user base so that's it uh 4 500 6500 or 8500 a month depending on um kind of the different different features that the customer needs and then um for the off-the-shelf content so this is stuff that's that's that's much bigger on the tam so this is tens of thousands you know potentially millions of users in the potential market and then that's just a per c um so 180 per year per user based on how many how many people an organization wants to put through it so if i'm an organization with 5 000 people and i'm doing one christmas vr experience one time i'm still paying 100 bucks for all thousand employees even though we use it one time during christmas 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 a 20 effectiveness rate so what 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 as a one-off event so it's really helpful for my audience yeah can we can we try and use real examples here right so what's accenture going to use you for yeah so accenture uses the they're building a library um around child welfare uh for child welfare workers so that's a that's a reseller uh relationship and um so there are different states i use 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 um so that now a worker um can can go and have a number of experiences and see a number of different things uh understood so they're not gonna this isn't 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 yeah so the use case there uh just one one of them was um on one of the states they were having a real problem with churn so 50 of um child welfare workers quit within the first 12 months so they actually started using this experience in the hiring process um 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 make a decision before all of the expenses of training that person yeah it's something that you really want to do make sense in the first year of doing that they cut the churn by 30 yep makes complete sense um 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 per year to use this technology yeah so on the um we've got a couple of different price points on the what's the average account just to try and simplify it because we have 11 minutes left like what would you say like the sweet spot is uh the 78 000. okay that's 6 500 a month times 12. 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 yeah okay interesting and and how do you price this so do you actually have an in-house uh design shop where you're actually custom building like almost a mini little metaverse yeah so there's a couple different ways uh we haven't we have a studio and so there it's charging basically non-recurring engineering uh that then has the cloud license for kind of 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 and what's your total team size today 39 how many are focused on like the recurring product versus the one-off design yeah so we're 19 are on the product and engineering side and what we you know as we as we think about this um last year we did uh two and a half in revenue and um like 200 of that was recurring uh this year we did five in revenue two million was recurring and next year we see that number getting up probably towards seventy percent of it being recurring mm-hmm that's impressive so how do you respond well first of all how do you guys raise capital did you bootstrap yes we bootstrapped until this year we did a seed round this year big big reason for that was uh to build out our no code builder tool um and then right now we are we have a bridge that's open mostly for insiders uh that's gonna roll into a series a that we'll do in the spring i see tell what was the size of the seed uh 2.7 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 just the acceleration of how fast we saw the technology coming and for the first time um we actually saw a scalable business model so in a program around suicide prevention in the air force so this was one where um we created the content and then sold user licenses so basically like like you're selling tickets to a movie um so 10 000 for the first year and then they expanded that for the second year up to 25 and we saw the ability to create something that was like a master class for vr um and that there would there's from from the enterprise leaders perspective they love virtual reality because uh 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 understood tell me more you know dilution is what you're trying to manage when you bring in this kind of capital right so what what valuation did you raise that and how did you have that negotiation um we haven't we haven't released that that publicly but basic basic like standard kind of thinking of standard is usually 10 to 20 percent on a seed round were you sort of in that range yeah that was kind of that's kind of the goal and same kind of goal of what we're what we want to do on this these next rounds yeah so you're talking like a 20 to 20. it's like a 20 to 30 million dollar evaluation effectively on the seed round yeah it's a it's some it's some it's something in the range yeah explain to me how you're using the rolling thing a lot of you know i've seen a lot of owners do this but very few talk about the strategic reasons why why are you why have you already opened it you're going to roll it into the a yeah so the big reason is um we just launched the off-the-shelf marketplace uh in september so our kind of growth on that was like we got our first customer in september another customer uh 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 um february march how many are at today um so on that one we're at five and we've got total customers today uh we're in the 15 to 20 range okay 15 got it cool and then um but we want to be on the mark for the marketplace want to 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 that other one and be able to tell that that cross-selling story so as we've been talking to this series a investor it's 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 as customers i love that you do the design services about two you said i think three million of the five million this year was the one-off stuff but you know you just told me 20 to 30 million 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 get them to price that into the valuation um the they just it if it looks like services revenue that just kind of is like taking off the off the table is is basically the the sense of it i mean you just roll over and get up on that on um yeah definitely definitely trying to trying to try to push back on more biggest biggest thing that like when we talk about narrative and talk about that that particular part of it um talking about where that's going to be in a year and really how we're how we're trending towards it being so much more uh recurring in the future the other thing is our gross margin on it uh on our subscription revenue um we're up in the like 75 towards 80 standard what about on the services side uh closer to 50. yeah yeah i mean not horrendous interesting okay cool so looking at raising what do you think you'll target in the series a how much uh we're talking about 10 to 12. okay and what would you invest that money on in so we got some interesting stuff on um on the engineering side around synthetic media and in the natural language processing so like when we think about like long-term what the tool can do if you think about uh if jj abrams wanted to make westworld what tool would he need to you know 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 uh dialogue 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 we're i would say that we are at like um solid working prototype on those things and then these next rounds of funding will really be to productize that because we really want to be in a place where um thinking about if we are squarespace for vr in 2007 like what is that next decade look like and at what point can that stuff really go to so when did you launch did you launch in 2007 uh no no thinking about where space squarespace was when did you launch the business so it launched in 2015 okay and then um started in entertainment doing a lot of just like innovation projects in virtual reality 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 uh and focusing on it being a product company and not just a one-off innovation shop and now the sas is doing two million bucks a year yeah we were at 280 last month that's a great 280 grand just in sas last month that's incredible all right kevin let's wrap up with the famous five number one favorite book uh great gatsby number two is there a ceo you're following or studying yeah andy grove uh his uh that idea that the value of manager is based on the productivity of the reports something i'm really working on how do i how do i do a better job of building leaders and not just solving problems number three what's your favorite online tool for building a moth and flame uh slack the uh that just like constant free flow of information is something we try to get good at number four how many hours of sleep date every night um pretty good like seven to eight okay in situation married single kids uh getting married this summer congrats it's exciting all right so not married yet and how are you 42 42 last question something you wish you knew when you were 20. wow um i think when i was 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 i felt a lot more liberated in life so feeling comfortable with that telling myself that that time would come and everything would be okay guys mothman flamevr.com launched in 2015 as an agency accenture said hey build us a tool we can use over and over again for training purposes they did now their sas business this year i'll do the total business 5 million sas billion uh business did 280 000 a month just last month you can calculate the run rate they're scaling nicely 2.7 million raised sold 10 to 20 percent of the business in the seed round now looking at doing a 10 to 12 million dollar series a to continue developing these synthetic materials and more of the virtual worlds aiming to be the sort of a 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 awesome man thanks so much for the time one more thing before you go we have a brand new show every thursday at 1 pm 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 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 1 pm central additionally remember these recorded founder interviews go live we release them here on youtube every day at 2 p.m central to make sure you don't miss any of that make sure you click the subscribe button below here on youtube the 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 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 support all right i'll be in the comments see ya