How Numerated CEO Daniel O'Malley grew Numerated to $26M revenue and 105 customers in 2020.

hello everyone my guest today is dan o'malley he's the founder and ceo of a company called numerator a data scientist turned entrepreneur dan has built a reputation as a problem solver inside the banking industry working as an executive at both capital one and eastern bank and having founded perk street financial and original challenger bank dan you ready to take us to the top you bet all right banking is an interesting field to be in right now what's numerated doing and what's your revenue model how do you guys make money yeah so we are a data driven sales platform for banks uh banks are facing a sales crisis uh banks have traditionally been inbound sales organizations they build branches and they wait for people to walk into them that just doesn't happen anymore and so the industry is transforming to selling digitally to selling outbound and there simply is no software besides our platform that enables them to do it so why can't they use a traditional outbound tool like like outreach or discoverorg or some of these tools yeah it's a great question it's because banks need to price risk in real time to be able to do up on sales or even in advance so if amazon could sell a book and then two years later lose a quarter of a million dollars on that book it would need a different software platform to do sales that's the situation that banks are in they need to be able to assess credit risk and advance in real time and it's hard to do that with software unless you have the right data okay and what is that is this these are banks so banks use you to lend to consumers like they've historically done or to businesses what's is it b2b or bdc yeah so uh our banks today all lend in small business we will move into consumer next but the small business space as everyone's probably seen in the headlines is being massively disrupted by non-banks and so banks need a better set of tools to go in and compete against them that's where we started first and foremost okay you're talking like i've had many of these folks on you're talking like cabbage or even stripe not giving credit advances on stripe payments to smbs these kinds of alternatives that's right yeah and think about it banks have a cost of capital that is a fraction of the companies that you just mentioned they just don't have the customer experience and the sales tools to be able to bring new businesses into the bank right now and are you so are most banks that are using you are they looking to more accurately price credit risk on companies that historically didn't check their kind of bureaucratic boxes so they're looking to expand they can lend to i mean this is why cabbage took off right cabbage would lend to people that banks couldn't touch because banks didn't know how to price the risk yeah i mean certainly we help banks uh get smarter about what their credit box is expand it where they can and shrink it where they should uh but i think the real the real thing that companies like cabbage and on deck have proven is that people don't walk into a bank branch anymore to want to buy a loan and so if you can't let them do it digitally you just lose business and so i think what those guys do with risk is interesting it's not the real transformation they brought to the market though okay so let's dive in again to your business right so so how do you help these banks achieve this and then how do you price is it pure play sas yeah and we make we generate ar in a couple ways so we go into a bank and we install our platform we consume all of the data at a bank we consume all of the data about all of the prospects in their market when bankers that use our platform wake up they know every business who is lendable within uh within their states and so setting that up setting the platform up turning all of the sales tools on that we have which i can tell you about is uh generates platform fee on an annual basis for the bank banks pay us that and then the second way we generate arr is we charge origination arr if you go and build a portfolio with our platform and you do more loans then we're going to charge you more based on the size of the portfolio and how many points is that typically it depends on the size of the bank and their volumes but think about it as one percent on the value of the portfolio on an annual basis and we're going to charge it monthly but interesting okay so when you look across your current coordinate customers i mean on average what are banks paying you per year again for both sides of your ar kind of stream yeah on average for the platform it's 120k of arr and then how we expand that with the origination error depends on the size of the bank big bank's going to pick a lot of loans a small bank is going to book a smaller model so our drr on a per customer basis is between 110 and 175 so what's drr uh the dollar revenue expansion of customers so one of our larger banks is going to grow our arr at 75 percent a year that's one of the really attractive things about our business financially is we install and then the more bank doesn't loan the more money we're going to make is that the main expansion lever the the loan portfolio growing are you also upselling on a feature-based receipt-based fee yeah it's the first way we started expanding and now that we actually have more products in the platform we've been in business for two years and so as we've launched products we're now expanding our arr by going in and up selling a cross-sell that's interesting if you take oh if we look at a weighted average across your entire base so ignore the size of customers and instead of looking at customer churn or things like that or customer expansion we'll talk about revenue churn and revenue expansion so across your entire base when you look at total revenue churn or downgrades meaning people either cancel the platform fee or they do less loan volume for whatever reason what has gross churn been over the past 12 months i mean we signed three to seven year deals so churn is just not a major driver of our business today when when you're a bank you take a long time to buy a platform but when you install it you keep it for forever and so we'll eventually have to figure out churn it's just not a major driver of the business okay so no customers that were paying a year ago have stopped paying as of today uh no no customers that were paying a year ago are paying today okay well none have left yeah that'd be very bad if none of them that were paying a year ago all right and then the next side of this because i'm building essentially to net revenue retention is what has your expansion been across the cohort so ignore new customers over the past 12 months if you just look at your business growth from the historical cohort signed up a year ago how much did the business grow uh if i looked at the court a year ago it's probably up 25 okay that's pretty good so again you're driving expansion revenue to the tune of 25 percent which means again the loan irrigation volume across your base is increasing by that same amount very good okay so net revenue retention call at 125. i mean um so with the sales cycle you just mentioned right and in the stickiness right three to six year kind of contracts and also this net revenue retention uh calculation i mean how aggressive are you being to land these customers it sounds like you can spend a lot because they're very sticky and they expand yeah you can and i think our our sales and marketing team is really small today we only have two sales executives that's one of the areas we are staffing up right now um two out of how many out of the total team oh gosh two two out of our 50 people are our sales exactly okay yeah so our cac is pretty it's pretty modest right now but honestly it probably could be a lot higher and we would still be pretty excited about it um you know sign in three to seven year deals where on average we're charging 120 000 out of the gate before any expansion uh we can afford to we can afford to pay to acquire customers is that your minimum year when a c is about 120. it's not minimum that's the average today to all of our customers uh this year so far it's actually 150 so it's going up yeah that makes sense obviously you're signing bigger and bigger customers as you go so uh just to pinpoint down kak one more time here so to get a new 120 000 your customer i mean are you comfortable spending up to that 420 grand the first race to get them or are you way below that right now yeah yeah we are and uh we also charge an implementation fee to kind of cover our cost getting going with the cost how much is that yeah it ranges between two and two hundred twenty 200 i'm just again depending on 20 grand and 200 grand that's right yeah okay do you use that strategically to essentially get instant payback on whatever the cac was to get to that point no we use it to cover our costs for the implementation um and then we typically are going to get the platform fee either up front or right as we launch so we pull cash forward yeah yeah okay okay good so just to be clear again you're happy going up to one year ac but where are you now are you talking like three month payback period six month payback yeah we're we're less than a year but how much depends on like who you're going to load into the cac i mean do you include me i'm involved...