Nth Round Revenue, Valuation & Funding (2024)

hello everyone my guest today is graeme mcconnell as co-founder and ceo of nthround graham runs all aspects of the company's operations from product development sales and marketing to customer support before starting the company graham started in product design and development at relay network after which he joined the quantitative investment firm ajo partners all right graham you're ready to take us to the top yeah absolutely so you describe you describe nthround as an equity management platform what does that mean well it's uh it actually can mean a lot of different things for different companies whether they're just starting off and doing fundraising whether they're issuing equity to employees or communicating with shareholders you know distributing documents um it really is a very flexible powerful platform depending on where the company is how should people think about you in terms of carter well uh carter i think really is centered on foreign evaluations and capital management and we try to take that to the next level um really creating a more engaging experience and facilitating communication between founders and their shareholders which i think uh in the vc backspace where carter really lives is just not as strong so is this more sort of like visible vc where it's more like you can have manager cap table give log and access to it everything like that yeah absolutely really interesting so you're sort of i mean don't don't let me put words in your mouth you're sort of a blend between carta and invisible is that accurate i think that's right yeah i mean like i said we really try to focus on shareholder engagement and um i mean if you're a cfo at a big company i think we can look a lot like a toolbox for you um but for smaller companies and and founders um you know having that strong relationship and being able to go back to your investors and ask for support is is really important and on their end uh they they don't they don't want to just hear from you when you're raising money they want to hear from you you know or when hits the fan right exactly yeah yeah they want to know ahead of time when did you launch the company in mid-2018 and i actually i started it with my dad who's been um kind of a serial entrepreneur so he's got a lot of experience in the space who has more equity you are your dad uh i do oh wow like 60 40 sort of a deal uh yeah i mean actually uh to be honest he was he gave his side of the equity to all of my siblings um they're all involved in some way um but yeah i mean he's he's been at the at the helm before and and thought that this was a good opportunity to let me kind of take the reins super interesting have you bootstrapped the company or did you raise we did raise money uh so our our vc is nea new enterprise associates and then we also brought in about a dozen individual investors from the philly area and about how much did you raise we raised 4.3 million for our uh seed round when when was that that was 2018. do you regret that or no no i i mean we've uh i think it's a very different dynamic i was actually reading your last uh newsletter from yesterday about you were talking about bootstrap companies and it is a different culture um you know when you're when you take money from a vc you're definitely reporting to them and it's a different model they're very much focused on fast growth um whereas i think with boost truck companies you're more accountable to yourself and to um you know i i actually tend to bucket bootstrapped and family and friends uh raises kind of in the same category and i think you're just a little bit more accountable to yourself in that way i don't disagree with you that's for sure um okay so 4.3 raise 2018 uh you continue to scale talk me you know talk me through those early days right so i assume you had some connections at ago you were able to use how did you get your first 10 customers so uh actually i mean it was all our our personal network honestly we we really when you're talking about capital management you need to kind of uh get trust in some way and being able to go to our local network and work with people that we've worked with in the past in the past and kind of established that trust early on was was really helpful um and then we expanded from there to uh you know one degree away from from those close friends um and we've kind of continued to try and grow mostly through word of mouth so that's first 10 sort of back in 2018 how many customers you have today we have uh 25 now uh and honestly the first six months was a lot of regulatory work we started out on the trading platform uh which i didn't really mention but um that was our core for i'd say the first 12 months and um we didn't go to market until last year and then this year has actually been a great year for us um you know i think part of that is the the fact that uh founders can't really get together with their investors in person and having a tool for for them to do that remotely is is really helpful and so i want to go back to why your initial thesis was the trading platform and when you knew that it was appropriate and that you needed to kind of pivot so we'll get back to that in a second but help me understand sort of the nature of the 25 customers today are we talking sort of smaller rp accounts are these like big enterprise deals you're trying to close we do actually nowadays we're mostly targeting bigger enterprises because they have they really feel the need and um they have much better ability to pay um i mean in terms of of how the thesis started i actually at relay network i got stock options and um you know i was really excited to be a part owner in that company but didn't realize until i left the company that those options weren't really worth anything and ended up giving them up um and well there was something you just got to pay for them and curl the taxes then hope the company keeps growing exactly yeah and then and then uh if there's no liquidity event you know what what do you do with them um so that definitely was kind of the genesis of the trading platform um but yeah the our current customers are more enterprise i would say um they have more shareholders they have k-1s that that they need to distribute um and they have kind of an office of the cfo that we can provide a lot of value to so graham what are these folks paying on average per month so on average i'd say 12 000 we do have a um sorry per month uh a thousand yep um we do have a lower tier now that's eight thousand dollars a year um it kind of just depends which which levers you want to pull okay so that would put you at somewhere around 25 000 a month today in revenue yeah that's right where were you you bet about a year ago we were uh almost nowhere i mean we had less than 10 customers a year ago uh maybe even less than five honestly so that i i wouldn't really call it a pivot i although it's a pivot in terms of our focus um the trading platform was our our main selling point before and it turns out that there's a lot of uh reporting requirements around having a trading platform so um we built all these tools for making sure that all of your shareholders are on the same level playing field in terms of information and that's actually what turned out to be what people really wanted today and so that's how we ended up being in that business martial yeah graham just because when you're talking trading platform people shouldn't be thinking about the images they see from like the nasdaq stock market for when you talk about trading platform what you're talking about is essentially like a nasdaq private market there's only the angels that will watch linkedin when an employee leaves a company and they will go buy up just like you really they'll go get a small stake in the companies by buying up unexercised options you essentially brought liquidity to that market with your trading platform yeah absolutely it's it's actually technically a listing service we can't exchange that's that's an sec defined term and uh it's a very private environment it's not it's nowhere near like what you would see in public markets where there's trading happening every second of every day yeah so so this is a world that i'm just not behind the scenes on a lot because your point you have to have trust with tons of people right and for them to actually show you and share with you like their 409 a's and you know the strike prices and all this sort of stuff what are you for someone listening right now who is an employee that's going to be leaving a fast growth sas company where can they get liquidity for those for those options right now and there's not many places i mean there are certain platforms out there ours is one of them that allow you to almost that kind of will broker a deal for you that will be very careful about releasing that information which you referred to and finding a buyer um but it really comes down to the company whether they want to allow this new shareholder this new investor to come in and buy you out so it's it's a very controlled environment um and those other platforms not ours but those other ones will typically charge uh between five and ten percent of the value of that equity so it's a pretty big chunk well that was my real question right is that that employee that's listening right now at a fast growth tax company that wants to leave and maybe do their own thing but doesn't want to exercise the options for whatever reason or maybe not all of them but some of them if they want to list with you do they have to go convince the founders who they're about to quit the company of that to list on nthrom that seems like that wouldn't make sense they do or we have to try and convince them um i mean almost every stock certificate that you'll see at a private company has restrictions in the back that say non-transferability and uh it's it's up to the cfo to say whether they're going to allow a transaction to go through could you at least let put that at the back of the funnel so the employee signs up you get a real offer then that employee has already told the ceo they're leaving that they don't want to access all the options and actually bring the offer to the cfo and see if they approve it via nthround yeah we so we actually have two different flavors of our trading platform now and one is a listing service which allows you to talk about quantity and price and find a buyer and then you can come to the cfo and say here i have a transaction ready to go will you approve this interesting interesting so how do you measure your success then i mean you're kind of a marketplace right do you measure like gmv through the platform or what do you care about we we care about number of shareholders and and who's engaging with the platform honestly um you know it's it's not the kind of platform it's not like salesforce where you're gonna have people logging in every day but especially for the investors we'd love to see them engaging maybe on a monthly or quarterly basis with the company and a lot of that starts with the company itself the founders wanting to be transparent and forthcoming with the information or what's going on at the company so we we definitely preach uh transparency and um being very communicative but you know it really depends on the company so graham how across your 25 companies how many active shareholders have signed up with nthround and are actively using it uh probably approaching a thousand now i would say oh well okay so these are some messy ass cap tables oh yeah we there are certain companies that we work with that have three four or five hundred share no not not quite 500 but we have a couple of companies that are up in that range um that really you know that that's you're right that's kind of a messy cap table my gosh what's the lesson there for founders who are listening going wait i don't want a messy cap table what on earth did that company do to get 300 people on their cap table and how do i make sure i don't do that yeah well i mean actually i think those companies went into it intentionally their their rollups uh so they're purchasing other companies with equity and all of the equity holders of that company then get equity in the new company and um you know they they kind of come into that situation knowing what the what the outcome is going to be and they accept that yeah how many folks are on your team today building this so we have eight full-time plus okay how many engineers uh three engineers three okay so i mean the obvious question i have for you is it it sounds like you're well connected you can talk the language you know what you're building but you did take 4.3 million back in 2018 and two years later you know it's a 300 000 of your company i imagine you're getting some pressure your board meetings from your investors going come on graham when we're going to see some explosive growth here yeah yeah and it's it's really only happened in the last uh five or six months as um you know we brought on all these customers and yeah i think depending on their mindset they are looking towards and the next round they want to see the really high growth numbers and um as i kind of mentioned earlier that's the difference of mindset that you have between a bootstrap company and a vc backed company yeah i mean graham it's gonna be so hard for you to tell a story that allows you to go raise another round right that isn't going to be an up round on the 4-3 so then you have to go well do you take a bunch of dilution and do a down around which you also don't want to do i mean could you sell a story sort of like sahil did a gumroad and say hey guys listen let's just your portfolios are performing well let me give you 4.3 million write down for you to you know cover some of your other gains and let me let me like buy back the shares i mean would you ever do that i've definitely strongly considered it and and um you know i'm sure if na was listening today they wouldn't be wouldn't be thrilled but um it's that's definitely an option that works well i bet they would be thrilled i think you know i've heard great things about nea i bet you they support whatever thing you want to go after because they know that 10 years from now when you launch your next company they want they want first swing probably yeah that's a good point they they are definitely very forward thinking and and very supportive so you're right about that yeah do you know i mean how much you you'd have to sort of privately raise to maybe like buy out earlier earlier folks i mean this is your business after all yeah i i don't know actually off the top of my head we've we've pushed off we have a board meeting next week but we've we've kind of pushed off that conversation until late this year or early next year there just focused on going right now yeah it's all right it's the right focus man it i can tell you this is a need i mean this is the thing is is people don't know it's a need so like you have to sort of like convince everyone as a need first and then sell but i can tell you based on all the phones i work with this is a massive need for sure yeah actually it's funny you say that a lot of our early clients have been non-first-time founders because they felt it before and now they know the need whereas first-time founder you know it's just not something you think about very much yeah it's also a retaining strategy i mean there are people that you will hire early on that take a salary cut for equity and three years in you don't want to go raise a big growth round to give them liquidity to do part of the secondary but you want them to stick around and have some ability to sell some of these things and a private market like sort of what you've built allows them to get liquidity for personal like expenses without leaving the company you know what i mean yeah yeah you want your early employees to be able to realize some of the investment that they've made in terms of their time uh maybe they have a house that they want to buy and or maybe they're having a kid and and that liquidity can mean a lot to them yeah i mean i remember clay mass coming on the show at infusionsoft saying he had to basically wait till he did the hundred million dollar growth round with goldman to set an exercise price so that early employees could decide whether they wanted to con you know take it or not and take some liquidity off the table that's a long time it was like nine years it's a long time to wait for any liquidity yeah definitely so all right man let's wrap up here with the famous five number one favorite business book uh the messy middle i would say number two is there a ceo you're following or studying i really like josh pigford uh at bare metrics for whatever reason yep number three what's your favorite online tool for building your company i like soapbox or there's also loom um you know these these video tools just allow you to directly communicate with people it's great number four graham how many hours of sleep breaking every night i've gotten better i'm at seven now i would say that's pretty good and what's your situation married single kids single yeah no kids running around not yet all right and how old are you i'm 29 29 last question take us back nine years man what are you she when you were 20 i i you know i think the fact that experience is is more valuable than than salary um i was very focused on salary early on and looking back i don't really you know what was your first what was your first salary you negotiated out of college uh 45 okay and what year was that uh that was in 2014. okay interesting did you feel like you were beating your peers at that point when you compared your salaries of all your buddies or no absolutely not i had friends on wall street that you know it quadrupled that and that's why you end up at ajo you you sort of climb that ladder and then say you know what i'm gonna do my own thing so guys there you have an nth round called a combination between visible vc and carter really it's it's helping you give your early employees or anyone that has options the ability to actually get paid on those options create some liquidity for that for whatever reason they might want to do that cap table management also sort of built in he's pivoting around doing about 300 000 in terms of ar right now serving 25 enterprise accounts team of eight people 4.3 million raised we'll see what graham does next graham thanks for taking us to the top thanks nathan 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 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