How mParticle Reached 150 Customers and 150% Net Revenue Retention in 2018 (Interview with Co-Founder and CEO Michael Katz)

Introduction and What mParticle Does

Nathan Latka

00:01Hello, everyone. My guest today is Michael Katz. He's a cofounder and CEO of a company called mParticle. He's responsible for creating and overseeing the execution of the company's vision of becoming the premier multi screen data solution. He previously served as vice president of optimization and analytics at Yahoo, where he came via the acquisition of interclick, the company he also founded. Michael, are you ready to take us to the top?

Michael Katz

00:23>> Let's do this, man.

Nathan Latka

00:24Alright. Data. Ever... Everyone either loves data right now or hates data right now, and you're in the thick of it. So what's mParticle do, and and what's your revenue model? How do make money?

Revenue Model and Pricing Structure

Michael Katz

00:33>> Yeah. So we're a customer data platform, which quite simply means we help some of the largest and most innovative brands in the world capture their data, unify it, and then make it easily integratable into the different systems that they use to ultimately run and grow their businesses. We charge on a on a on a licensed model. It's based on the number of user records. And we work with some of the largest brands in the world from

01:00>> Starbucks, Walmart, McDonald's to Airbnb, Spotify, Venmo. You name it, if if you've used the product, they're probably a customer of mParticle.

Nathan Latka

01:11That's great. And and can you

01:15let me let me just ask, which customer are you most able to talk about? Is there is there one where you can kinda give... Even get more detail to me and help me understand if I go into Starbucks and I check out and I order a grande mocha today, how does that data eventually hit mParticle?

Starbucks Use Case Walkthrough

Michael Katz

01:29>> Yeah. So for example, someone like Starbucks, you go and you order ahead and you go to the store and you pick up your your order. So as you're as you're doing that, there is data that's created really along every step of the journey, right, from the time you pick up your phone and open the app to then how you navigate through the app to the selection process, ultimately, all the way through the through the payment and

02:00>> and order confirmation. So that creates a really rich artifact of of data that Starbucks needs to understand how to optimize those user flows, those click streams. They want to apply that data to drive better personalization, better marketing strategies, whatever it may be. And ultimately, that data ends up going to anywhere between like ten and twenty different systems. So their data warehouse, their analytics vendor, maybe their attribution solution, their marketing automation platform, potentially some of the big

02:38>> paid advertising partners that they work with, maybe Facebook or Google, so on and so forth. So rather than integrating all of these point solutions one by one, destabilizing the user experience, incurring high maintenance costs, you know, we we really streamline the process. So we allow them to capture data once and then multiplex or federate that data out to as many different vendors as as possible.

Nathan Latka

03:05And you said you're charging... You said per data record or per user record? So I would be... That way you... The use case you just described, would that be one user me or would that be 10 data points that you're charging based off?

Per-User-Record Pricing Explained

Michael Katz

03:16>> It would be one user you. So if we see if if we see you across web and app and in some cases, like, if there's an in store kiosk and we can track that back to your user profile, that's just one user. So the idea is, you know, ultimately, we're helping our customers drive cross channel, multichannel personalization and optimization. And so we need to really... We needed to kinda carefully align how we were thinking about our

03:47>> pricing model to be able to make sure that that was aligned with our our biz... Our customers and how they think about their business.

Nathan Latka

03:56Yeah. So obviously, don't tell me a specific customer here, but give me an average here. So like on average, what's the customer paying you per month? I assume these are fairly large deals.

Average Contract Size and Customer Tiers

Michael Katz

04:04>> Yeah. They're they're enterprise contracts. So we have customers that pay 6 figures. We have customers who pay 7 figures annually. But look, we also have customers who who we consider growth customers who will take on in the, call it, 5 figure range with a kinda clear shot at growing over over a number of years.

Nathan Latka

04:28And you're talking kinda minimum of 5, you know, 5 figures per month or on an ACV basis?

Michael Katz

04:33>> On an ACV basis. So... Yeah. That's so that's annually.

Nathan Latka

04:36Okay. Alright. So I... Again, I'm just trying to get in the head here of how you're thinking. So some of these customers are onboarding. They might start off as thousand dollar a month kind of accounts, but as long as you see a path to $10,000 a month, that becomes interesting.

Michael Katz

04:48>> Correct. Yeah. Or even potentially more. I mean, we've worked with some of the highest growth startups over the past five years. And, they started at a thousand or a couple thousand dollars a month, and they've and they've grown kind of well beyond $10,000 a month. So it's been exciting to see us power the personalization and the marketing outcomes and being that... Serving as that backbone as these as these companies and brands establish themselves, not only as

05:20>> like category leaders, but also market leaders.

Nathan Latka

05:22Yep. And if you... Again, I know this averages are dangerous question. But if I did force you into an an average across your base, I mean, would you say, you know, you optimizing around kind of a $10,000 a month kind of contract is pretty is pretty average customer for you, or is it higher or lower, would you say?

Michael Katz

05:37>> Yeah. I... I'd give you I'd give you a range. I'd I'd say it's it's closer to, like,

05:44>> 20,000 to 25,000 a month.

Nathan Latka

05:46Okay. And and paint that picture more for me. They're typically managing on that spend how... About how many contacts?

Michael Katz

05:53>> It it really varies. You know, it can be

05:58>> a few million monthly user records. It could be... I mean, we we have customers that have hundreds of millions of user records per month. Right? I mean, we work with some of the largest brands in the world, guys like Spotify and and and Activision King and, again, Airbnb. Right? Like, these guys have really, really large user bases. So it goes well beyond, you know, seven figure monthly traffic.

Nathan Latka

06:25You def... You definitely have kind of power laws happening, I'm sure, in your base in terms of top 20 cost... You know, top 20 customers making more than 8% of revenue potentially.

Michael Katz

06:34>> Potentially.

Nathan Latka

06:34Yeah. And I get it. Very good. Put this on a timeline for us. When did you launch?

Michael Katz

06:39>> So as you mentioned at the at the top, I started a advertising technology company called interclick. We took that public in 2009, subsequently selling it to Yahoo in 2011. I stayed at Yahoo for roughly about a year and then left to start mParticle. So it was early twenty thirteen when we got the team back together. So it was myself, my brother, who's my co founder and CTO, and was also my co founder and CTO at our

07:11>> last company.

Nathan Latka

07:12How cool.

Michael Katz

07:13>> Yeah. It's great. It's great getting to work with him. And then a guy named Dave Myers, who is our chief operating officer who keeps us keeps us out of trouble and keeps the buses running on time. And then we hired our 10 best engineers. So You mean out of Yahoo? Yeah. Yeah. Originally from from interclick, and then they were doing a doing a bid at Yahoo for for a little bit.

Nathan Latka

07:37Yahoo must love you.

Michael Katz

07:40>> Yahoo doesn't exist anymore. So

Nathan Latka

07:43Hey. That's that's probably a good answer.

Michael Katz

07:45>> Yeah. Exactly.

Nathan Latka

07:46And, Michael, how many folks are yet today? Full time employees?

Team Size and Office Locations

Michael Katz

07:50>> We have about a 110. We should be at about a 125 by the end of by the end of twenty eighteen.

Nathan Latka

07:56And everyone's remote or is there a HQ?

Michael Katz

07:59>> HQ is here in beautiful New York City, but we have offices around the world. We have an office in San Francisco. We have an office in Seattle. We have an engineering office in South Florida. We also have an office in London. And 2019 will be the year that we expand into both APAC as well as Latin.

Nathan Latka

08:22That's great. And over... So 110 folks founded 2013, New York City in remote locations. Over the past four or five years, how many customers have you scaled to today?

Michael Katz

08:30>> Yeah. We're at about a 150 customers. So, yeah, we're not we're not going after everybody. We're we're kinda squarely focused on enterprise class consumer brands. Right? So the the the the very biggest and the best.

Nathan Latka

08:45Yep. And Michael, when I... I mean, look, when I take the one fifty times that kind of $20,000 per month ish that you gave me earlier, that puts you somewhere around, call it, 3,000,000 a month today. Is that kinda generally accurate in terms of size?

Michael Katz

08:56>> Yeah. For for the most part.

Nathan Latka

08:58Okay. And can you give me a sense of growth? So a year ago today, what were you doing per month?

Growth Rate and Year-over-Year Performance

Michael Katz

09:03>> I think we'll close this year right around a 100% growth year over year, which is which is up from 95 ish percent growth from last year to the to the prior year.

Nathan Latka

09:16Okay. Well, look, it's... What's today? I lose track of time. It's November 8 today. So you've got about a month left in the year. And if you're around, call it three today, let's say you get up to three five. And you said you said you you doubled or you grew a 150% year over year or a 100% year over year?

Michael Katz

09:30>> Yeah. It's closer to a 100%.

Nathan Latka

09:32100. Okay. So maybe something like 1,500,000 a month about a year ago?

Michael Katz

09:37>> Yeah. Yeah.

Nathan Latka

09:38In that range. Yeah. That's good. And where's most... If you know what I'm asking, where's most of that growth coming from? Is it coming from expansion? You know, just more users on the same logos or is it really new logo adds?

Net Revenue Retention and Revenue Mix

Michael Katz

09:48>> Yeah. So our net retention is right around a 150%. So it's... We have world class net retention.

Nathan Latka

09:55That is definitely world class.

Michael Katz

09:57>> Yeah. Our our our revenue composition is made up of both new new logo sales as well as upsells from existing customers. And so the the the the mix for this year is right around, like, sixty forty new logos to upsells and renewals. And then, you know, next year, I think that we're we're gonna expect to be more like seventy thirty, maybe seventy five twenty five.

Nathan Latka

10:25Yep. Just to be clear, 60% of the new revenue is coming from upsells and 40% new logos or the other way?

Michael Katz

10:31>> Yeah. The other way around.

Nathan Latka

10:32The other way. Okay. Got it. Yeah. That's healthy. Look, mean, I I... You know, I've interviewed about 3,000 b to b SaaS CEOs and you know, I can count on one hand as many... How many times someone has said their net revenue retention is a 150% or greater. And, you know, the pattern I found is typically they've done in a a ton of price testing, and they've hit a sweet spot where they clearly understand what to

10:53upsell against, and it's working really, really well. And it sounds like yours is just... It's user records.

Upsell Drivers and Platform Expansion

Michael Katz

11:01>> Yeah. So upsells for for us

11:05>> map back to really three

11:08>> different activities. So there's organic organic growth, I would characterize almost like same store sales for for any customer. So if they are building a successful brand and they're attracting more users and they're just kinda naturally growing, then we'll grow with them. The other way that it has manifested is as we maybe start with one property, certain brands may add other properties. So maybe we start in the mobile app, and then they add the desktop web and

11:43>> and mobile web. Or maybe we start with web and app, and they start to bring in offline data. So they're bringing in more data sources. Then the and then the last thing is as we think about what we do, effectively, we are serving as a as a real time customer centric data pipeline. And so then that data gets easily syndicated out to lots of different vendors, and we've built various applications on top of that customer data

12:14>> pipeline. So segmentation, enrichment, transformation, there's some ML and AI stuff that's that's coming down the pike. And it and it it gets deployed as platform features, but the way that we think about it and talk about it internally are really these applications that we put on top of the on top of the data pipeline. And so those new features and functionality have served as great upsell opportunities.

Nathan Latka

12:39That's really smart. Peel back that onion for me. So on the 150% net, what's... Give me the the bad number here. What's gross revenue churn per month before you add... Or sorry, per year before you add back upsells?

Gross Churn and Enterprise Retention

Michael Katz

12:50>> Yeah. So, like, logo churn would be in any given quarter somewhere between, like, 95 to 97% retention.

Nathan Latka

13:00K. And what about the... On a revenue on a revenue basis annually? What's gross churn?

Michael Katz

13:06>> I actually don't have that number, but it's it's gonna be even higher than that. The the the customers who we have seen churn are our smaller customers. We separate our revenue into two different categories. You have enterprise revenue and then call it growth accounts or mid market accounts. Sure. And we see, as you can imagine, much higher churn in those accounts relative to to what we see in the enterprise. We don't... We actually don't see any

13:36>> churn in the enterprise. So it's it's it's higher churn, but much, much, much smaller dollars. Yeah.

Nathan Latka

13:41Yeah. I mean, so definitely accurate to say less than 5% revenue churn in the enterprise cohort annually?

Michael Katz

13:47>> I think just doing the back of the envelope math, that sounds about right.

Nathan Latka

13:53Yeah. All I'm trying to do is figure out, do you have a big gap you have to make up with expansion before you get above a 100% retention? It sounds like you've done two great things, great upsells, and you also really don't have a huge gap to make up each year either.

Michael Katz

14:06>> Yeah. I mean, I I think also when you look at the nature of of of what we do and and the product that we provide, we become mission critical infrastructure. Right? We are the we are the the the data platform of of record, and we go through an extensive identity and data planning and strategy session to allow our customers to formulate that data strategy and get their house in order, if you will. And then ultimately, when

14:39>> we start sending data and orchestrating these data flows across five, ten, 15 different partners, we start to serve as like the main artery. Right? And so to rip us out is really, really difficult and something that really nobody even wants to do. And what that means though is that there's a lot more scrutiny placed on the buying decision on the front end. We tend to see longer sales cycles, but then we have pretty good insulation once

15:08>> once we've been adopted.

Nathan Latka

15:09Michael, we're out of time here, but quick answers if you can. Sales cycles, how long right now?

Sales Cycles by Customer Cohort

Michael Katz

15:15>> So two distinct cohorts in our in in our sales cycle. You have customers who have reached that fever pitch, hair on fire moment where they know they know that they need to get their their house in order, and they've they've kind of reached the realization that they don't, like they can't outrun these things. And so those sales cycles can be one to three months. And then, you know, more of the classical enterprise sales motion where you

15:44>> have to get cross functional support and you go through a procurement and legal process, and there's usually multiple revs of that, and they're never really fun. That could usually take anywhere from like six to nine.

Nathan Latka

15:55Okay. So when you factor a fully weighted CAC to get a new $20,000 a month account, are you spending up to twelve months of ACV on that or sorry of monthly ARPU or what?

CAC Payback Period and Unit Economics

Michael Katz

16:05>> So couple things here. Payback periods are, you know, we're aiming for about a year and a half. You know, we're probably closer to about two ish years right now. So we know that we need to get things down from twenty four to eighteen months.

Nathan Latka

16:24So just be clear, 24, if you're getting... If you're spending, you know, if the if the customer is gonna be worth $20,000 a month, you're willing to spend about $400,000 to $500,000 to get that customer right now.

Michael Katz

16:33>> Yeah.

Nathan Latka

16:34Yeah. That's great. You know, drive that down over time.

Michael Katz

16:37>> Yeah. Exactly.

Nathan Latka

16:38Funding, Michael, you guys bootstrapped or raised?

Funding History and Investors

Michael Katz

16:41>> We've we've raised a decent amount of money. So we're 75,000,000 in. Our seed was led by Bowery Capital with participation from Google Ventures and Greylock and a whole host of other folks. Social Capital led our A, Bain Capital led our B, Harmony Partners led our C, and we're thinking about our next fundraise at some point in the not too distant future.

Nathan Latka

17:06All all equity or any debt in there?

Michael Katz

17:10>> All... Yeah. All those guys I mentioned are are are equity investors.

Nathan Latka

17:15Sorry. Sorry. Of the 75, that's all equity.

Famous Five Rapid-Fire Questions

Michael Katz

17:19>> Correct.

Nathan Latka

17:19Yeah. Good stuff. Alright, Michael. Let's wrap up with the famous five here. Number one, what's your favorite business book?

Michael Katz

17:26>> That's a... Competing Against Luck.

Nathan Latka

17:30Number two, is there a CEO you're following or studying?

Michael Katz

17:33>> No.

Nathan Latka

17:34Number three, what's your favorite... Besides your own, what's your favorite online tool for building the business?

Michael Katz

17:40>> LinkedIn.

Nathan Latka

17:41Number four, how many hours of sleep are you getting every night?

Michael Katz

17:45>> About six.

Nathan Latka

17:46Okay. And what's your situation? Married, single, kiddos?

Michael Katz

17:50>> Married, kids, dogs, living the dream.

Nathan Latka

17:53Alright. And how old are you?

Michael Katz

17:55>> 40.

Nathan Latka

17:56Take us home here. What do wish your 20 year old self knew?

Michael Katz

18:01>> That it's it's all gonna work out. You know, you you you put in the work. Don't get too high or too low when things are going well or or not so well, and you just put one foot in front of the next and and and you don't stress.

Nathan Latka

18:16Guys, it'll all work out. mParticle founded in 2013, really helping big brands like Starbucks manage their user, user flows, user records across many different platforms, whether it's mobile, desktop, or or, you know, tablet. They're serving a 150 customers right now doing about $3,000,000 a month today. That's up a 100% year over year. They were doing about 1,500,000 per month or in that range in October 2017. They're scaling nicely economics wise, a 150% net revenue retention annually.

18:41That comes from really nice upsells and very low churn, less than 5% revenue churn annually on a gross basis. They've raised $75,000,000 to scale this team of a 110 people in New York City, other remote locations, twenty four month payback period. So spending call it $400,000 to $500,000 to get a new $20,000 a month customer. Michael, thank you for taking us to the top.

Michael Katz

19:00>> Great time, man. Really enjoyed it.