How Moth+Flame CEO Kevin Cornish grew Moth+Flame to $10.6M revenue and 15 customers in 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...