OAGAnalytics Revenue & Valuation (2019)

just got done editing this interview you guys are gonna love it before i do that though i want you to know that i'm going to be in the comments for the next 30 minutes or so answering your questions if there's additional questions you want me to ask the ceo next time i interview them leave them below or if you're just loving the data points i get ceos to share click the thumbs up button below that's your way of telling me you're loving this stuff and i'll get you more of it additionally again i'll be in the comments answering any questions you have all right for 30 minutes enjoy the interview hello everyone my guest today is luther birdsell he is building a company called oag analytics he's an entrepreneur data scientist an engineer passionate about energy efficiency and democratizing ai from boardrooms to oil fields to data centers luthor has been transforming data from a cost to an asset for over 20 years in 2013 he founded the company to build a cloud platform that makes ai easy and scalable for the oil and gas industry luther you ready to take us to the top yeah how are you i am okay so everyone says they're an ai company uh everyone says that's great everyone says they're an ai company but the question is are you actually kind of an ai company explain to us what the technology does so nathan i founded this business in 2013 uh to with an initial vision to democratize ai and machine learning for upstream oil and gas specifically helping with planning functions this year we pivoted from self-service tools to create ai and machine learn using machine learning to a much sharper focus on solutions built with machine learning and ai specifically we're helping u.s independent operators primarily in the permian but we are working virtually every major basin in north america and we're helping them improve the predictability of tightly spaced unconventional uh oil and gas wells we also have subsurface capabilities which we're working with a bunch of companies on and those are very complementary as it relates to planning functions our companies does still sell the software to also manage the data science workflow but that is no longer uh our primary offering okay so just because is it is so would you say you're a more of a consulting company today or do you still have a strong sas revenue stream recurring revenue this is even more this helped us get even stronger with our focus on the sas revenue stream okay so just to be clear over the past 12 months if you take you the total pi of your total revenue what percent would you say is pure kind of sas revenue versus consulting you're doing so we're about 60 40 sas to consulting today the goal now over the next 12 months is to refine that to over 80 percent sas less than 20 consulting okay and when are you engaging with these folks is this when people are still speculating on how much oil is under the ground there or is it after they've drilled the first drill the first hole they've already found in there they're trying to optimize basically what they extract so our technology nathan uh is additive in both contexts so both on the a and d side searching for the next asset as well as then planning whether it's the first well or the thousandth well how do we get the best economics not only out of that individual well but out of the drilling unit holistically in which those wells are drilled okay and give me some context here so i know nothing about oil and drilling i imagine a lot of my audience probably doesn't unless they're from houston or dallas or austin one of these places um what are people paying for this right so if they want to use your technology for a year and all the drilling they're doing what are they going to pay you on average so our uh we do we have a consulting rate that's you know fixed fee very straightforward two thousand dollar day rate okay uh we invest with customers in our pilots uh so a typical eight-week pilot we're only charging 50k for okay and very clear the team that's required to execute those we are very much investing with the customers to prove the technology in their uh among their teams uh our annual subscriptions then start at about 2 25. 225 000. 225 000 annually and range between 225 and uh and about 750 uh depending on the scope of the uh the engagement okay would you say that the the kind of sweet spot average for you per engagement is closer to the call 300 000 year mark or more like 700 grand a year it's closer to the 300 thousand for the current market yeah alright now are you generally i like to kind of see patterns over time are you generally moving up market or trying to open your top of funnel move down market more get more customers so we are it's actually both um come on luther you can't do both well we're trying nathan we are focused on increasing market share among the 20 largest u.s independent oil companies those are the companies that have done enough drilling to have sufficient data to take best advantage of this technology today they also have enough activity to be able to test and prove the technology uh operationally right the only thing we can prove in a pilot is that we can improve predictability in the historical program we've got to report we've got to deploy quite a bit of capital um you know median well cost today is about 8.4 million uh dollars per well okay um to uh you know you've actually got to drill wells and use the inputs to uh to actually prove it in the field the bigger companies are better positioned to do that today uh that's 8.4 million average like before any dollars of revenue are generated correct well yeah and that that's just drilling in completion cost nathan the cost to acquire the land to actually drill those wells in or to lease the land that those wells are drilled in uh can be hundreds of millions to billions of dollars before a single uh uh before the first call at eight and a half million dollar well so a 300 000 contract with you is a rounding error for these folks in the grand scheme of their p l well you know nathan i was brand new to the industry six years ago and uh that was my impression too um most of the oil companies especially of these bigger companies especially they'll have operating budgets of over a billion dollars a year um most of them they'll think about software even software that directly contributes to enhances the way that billion dollars is deployed they categorize as gna and everybody super sensitive to gna um most just about any well-run business but especially kind of where we are with oil prices where they're not really high they're not really low they're kind of right in the middle every penny counts yep okay this makes good sense now you founded the company in 2013. how many customers are you working with now today so we have worked with over 30 companies uh in through our history and uh we are actively engaged with um about five companies right now uh with uh a bunch of very exciting conversations uh going on with some others how do you plan right so if you take five active customers at your 300 000 year price point or about 20 000 a month that puts you right now about a hundred grand a month just on the on this the active sas stream of things you do consulting on top of that are those numbers basically accurate it's ballpark okay if you go back a year from today where were you on just the pure place sas side were you still at about 100 grand a month or were you would you have you grown nicely so the business so we were smaller we have had growth through this year um but nathan one of the things that we found coming into q1 of this year we had a few companies that were doing great with our software and a few new companies that we just signed up and those new ones that we signed up in the earlier this year that they were smaller um a couple aspects of them um they just they didn't move forward uh it just wasn't the right fit which not only prompted us to reconsider our sales strategy shift this focus from not only shift the focus to the sales strategy nathan in terms of the size companies we were working with and the specific geographies and basins we were working with but also to rethink this business model and really catalyze that pivot again from where we started as self-service software to use machine learning to build ai to a company that's really selling solutions so off the shelf software to improve the predictability of the tightly spaced wells so luther is is all this code for you've kind of pivoted a bunch over the past year you're basically flat your flat year every year um so we're still we did pivot it's okay by the way there's nothing wrong with being flat i'm just i'm just being honest giving you the best numbers i have nathan so we did with it um we did not um have the growth that we expected uh as a result of that regardless we are still up and uh we've got about six weeks of selling left to do before christmas now is this usually a good six weeks for you do you see seasonality towards the end of the year or no it is oil and gas upstream oil and gas tends to purchase software in q4 in q1 a little bit in q2 and very little in q3 okay got it so you kind of just are getting through kind of the typical week period in your industry and you know you should see some strength over the next six months yeah and we use q3 we did several marketing events several conferences um to help inform the kind of latter half of this pivot which helped us really bring it home and uh the customer residence the market residents uh around these more specific solutions off the shelf uh has been very well received so far so what do you think this year ends you can call in six you know ish well what three months or so right so what do you think you'll finish this year at total revenue all your revenue streams combined you know nathan we uh we're chasing five deals really hard and we we get we get zero of those it's a very different year than if we get all five if you if you get zero what's i mean we break a million this year without any of those five yeah we had a hundred percent renewals this year um so we were over a million just on renewals that uh that we carried in yeah um plus we've signed up some additional customers uh so we are growing this year um what does that mean though when you say 100 renewal so you said you have five active customers right so how many of those were already with you last year that you were nude two or three exactly okay god and then you and added two or three others that 300 to 500 000 ish you know annual contract deals yeah yeah i see that's ballpark okay now have you done this luther all bootstrapped have you raised capital we have raised some capital um the rice investment group uh who was our largest investor coming into 2019 led our series a with a three and a half million dollar financing that we closed at the end of march um that was the primary revenue that we are primary funds that we used uh to support our pivot so total total funding to date is what 3.5 million no uh total funding to date is a little over six okay a little over six and when you're going out kind of getting the valuation on this thing do they look you like an agency like in consulting business or were you able to get kind of the sas valuation multiples five six seven x on top line sas multiples and uh we are very much a fast business you know we've used consulting to learn from the market and to position and do and develop our products um but we are very this business was created as a sas business and uh that is the model we're executing what's your team size today how many folks uh total team is about 32. that's a lot of people luther it it very much is and it's a lot of different skill sets to bring this whole solution together how many of them are engineers so of our 20 full-time employees 18 of us are scientists and engineers okay actually writing actually writing code writing code doing data science i i do count myself in there i'm not writing as much code nathan would your developers call you developer do you get that street cred or do they joke with you and say luther come on you can talk our language but you're not a real developer no it is it's the latter we we talk we're very open about founder code versus engine you know real like engineering code um i'm a great prototyper uh to complement that i have hired tremendous product engineers uh some of whom i've worked with as much as 17 years uh you know since we were in our early 20s okay so so call it 18 of you guys are in the kind of that space do you have any quota carrying sales reps we do okay how many one or two we we have one he joined us in september and is off to a great start how do you think about you know you raise capital you're going to get asked questions in those vc meetings like you know how much do you pay to get a new customer and things like this but you you because your contract values are so big it's not like you have hundreds of customers of course data you can look at right so to get a new 300 000 per year account do you know what your you know your cost is on that will you spend 300 grand to get the 300 000 of your account no no our cost of sale isn't anywhere near that high nathan and one of the things that we further refine through our pivot was very efficiently uh getting either a yes or no in less than 90 days and an on in it and on an increasing basis excuse me um we're getting more yeses and no's in as little as 30 days which is huge progress for us toward the predictable revenue uh which then we know how to scale so when you add in the commission to that sales rep plus conference spend plus any facebook ads anything like that that you do what would you say your fully weighted cost is for a 300 000 year contract our total cost of sales and marketing combined is less than uh less than 20 percent of of that revenue got it so that'd be about 70 000 on a 300 000 a year kind of contract uh even a little less than that okay fair enough and most that is going again to that sales either the commission the travel the any ads conferences things like that yeah so by far our highest cost or payroll so the scientists engineers data scientists geologists geophysicists petroleum engineers petrophysicists mathematicians and software engineers that's the majority of the costs yep in addition to that you know commissions travel and whatnot um you know net net out somewhere in the it's actually it's less than 50k per customer um is uh is our current rate and forecast going forward that's great now you raised capital so i assume you're now burning capital drive growth otherwise you want to take in the dilution to raise capital in the first place right so what what kind of burn monthly are you comfortable with sleeping at night are you comfortable burning 200 grand a month or a million a month or what's the number um i have never had the opportunity i'd be very uncomfortable if you're burning a million a month um that uh that would be a very short runway yeah um i'm really more focused on runway relative to timing of getting this business on to kind of hockey stick revenue growth ramp so what is that for you i mean are you maximizing for six months to run away in the bank 12 18 months so with 12 i don't lose a night of sleep now i haven't had 18 yet nathan um we're we're well over six months right now for me i'm sleeping fine um but we are going to be raising more capital in uh in 2020. and how much do you think you'll raise when you go on 2020. so our 2.5 million which will complete a 6 million series a that we bifurcated we did the 3.5 with rice earlier this year we're going to complete the other half of that roughly other half of that um in the first half of 2020. why is rice okay with that they gave you money earlier and you're gonna let another 2.5 million come on the same term sheet but the risk is lower because you've been in business for 12 months longer how do you get rice comfortable with letting you roll the term sheet we good question uh we're actually discussing that in our board meeting on thursday um conceptually uh we are we're gonna be going back out to the market nathan uh this is series a2 yeah um not necessarily uh gonna be on the same terms that uh got it fair enough fair enough now if you're managing for what you quote well north of six months of runway in the bank if you just raised 3.5 million uh caught a couple months ago divided by 12 months to run away that puts you at like 250 000 and burn if you were actually at exactly 12 months of runway is it accurate are you burning about 200 a month right now as you drive growth you know it's varied a little bit um i this is my first startup um we've we've grown the team in some areas this year uh i've also working with the management team we've cut over a half a million dollars of gna okay so uh yeah this is just get getting back getting better but why is that i mean are you trying to get like under a certain amount of net burn per month i'm trying to we are maximizing for customer delight which is a direct proxy in my experience for shareholder value creation luther these are very these are you're very well trained in this when push comes to shove though you're an entrepreneur you've got payroll you have to balance this stuff you're raising capital like this is the game we all play it's not an easy game but we also get the upside if it works well so uh i guess we'll just kind of leave the burn question at that right which is you do you like to be between six and twelve months you're not losing sleep right now you feel good yep the business is properly capitalized and uh and it's funding accelerated innovation what do you feel like you will grow you know total revenue growth year over year what do you feel like you'll grow at as you close out this year from 2018 so 2018 was 3x growth over 2017 yeah we went to market 17 um 2019 again depending upon how this year finishes uh is going to be anywhere from from some growth to potentially quite a bit what some though we're trying like 2x 1x 150 in that ballpark it'll be less than 2x if things go great this year we may hit somewhere in the neighborhood of 2x but again the pivot was really optimizing for future revenue what would you definitely be above i mean if you closed no extra deals the rest of this year i mean would you be above 50 year over year growth so that'd be going that'd be going from like a million last year to 1.5 million this year yeah right right yeah so yeah so something right in that ballpark nathan fair enough all right luther let's wrap up here with the famous five number one what's your favorite business book um i'm sorry it's uh or if you don't have one you don't have to answer you can just say i don't you know you're not reading one right now getting to yes getting okay good number two is there a ceo you're following or studying um you know i have a few mentors uh who've been ceos of multiple businesses pick one including uh gordon brooks um gordon brooks is my ceo mentor very good number three what's your favorite online tool for building your company google google good answer number four how many hours are sleeping every night seven okay and what's your situation married single kiddos married dog is one kids uh you're a couple years out all right well so we'll call it a half a half kid there and how old are you luther 42 42 last question what do you wish your 20 year old self knew oh god so many things i don't even know where to begin um don't i i regret letting people talk me out of starting my first business uh so wish the 20 year old self knew to just go for it and ignore uh ignore the naysayers sooner guys oag analytics ai for oil and gas they've got about five customers paying anywhere between three hundred up to seven hundred thousand dollars per year also have forty percent of our company is consulting sixty percent sas but moving towards more pure play sas and just uh consulting as a support role founded the company in 2013 raised about 3.5 million dollars to date looking to close out actually an additional capital on top of that getting up to about 6 million raised team of 20 full time today 32 full-time plus contract labor 18 data scientists and engineers one full-time sales rep 100 renewals year over year so healthy economics in the base the question now is can they add more than five customers as they look to scale your where you're going 50 north of 50 year over year right now luther thanks for taking us to the top really in summary nathan thanks so much these ceos rarely give these kinds of interviews i hit them hard i get the data and i want to do it more so if you want to get more of this stuff make sure you subscribe up here and then additionally go check out one of my other ceo interviews right now