Ople Revenue, Valuation & Funding (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 pedro alves he's building a company called opal which makes ai easy and valuable he's been in the industry for 18 years some of that time was in academia and some in the industry as a data scientist he's been struggling or he's seen the struggle that companies face when trying to get a return on investment with ai and that is why he created opal all right pedro you ready to take us to the top yes absolutely all right so what what does pedro doing are you guys a pure place ass model yes so i've like you said you know i've been my whole career doing ai and trying to get companies to actually get a return on investment besides just pr which is how most companies cai today and yeah our company is software right so it's software that enables a user that's not very technical a business end user an analyst to build models that up to today would take you know a team of phds to actually build and are you so is it pure play sas or is it a lot of consulting as well no no consulting okay so also all stats recurring fees yeah okay and give me a general sense of what you're working with here right so on average what's the company or customer going to pay you per year to use the technology so it's we try to um bill in a way that incentivizes people to build more models to do more with ai so initially investors really wanted us to charge per model built per project done and that way i think it goes back to the whole thinking you know the whole mentality of companies going okay we have these five projects we only have money for two which ones we choose we didn't want that so the idea is if we charge per user and say you know how many people are going to be using the software a simple you know type of a user license then they can build as many models and build as many projects as they want so most companies are going to be in a six figure yearly engagement with us just because of the number of people they have you got a few they're going to be in the five figure and then we have a couple that are in the seven low seven figure range yearly but those are a lot of users you know bigger bigger companies yep okay so you're charging per users like per seat is there any usage-based upsell no we want to incentivize the behavior of the more you do with ai the better for your company the better it is for us okay so charge per seat have some less than six figures some more than six figures but it sounds like a sweet spot might be caught 100 200 grand a year to use technology yeah for a lot of companies that's going to be the the size okay so let's the reason i asked that question is let's then go into your sweet spot so if i am paying you 100 grand per year to use your technology how many people are probably on my team how many seats am i probably paying for so uh in that range that's going to be in the three to six person team so that's still you know company could be a medium-sized company but you have a small little team of analysts or business developers um and and that's going to be the roughly given that range yep is there anything else you upsell against besides number of seats any feature-based upselling so we are starting to talk to some customers about some beta products that we have that we haven't really advertised on the on the website uh things to do with unsupervised learning and a couple of other technologies that are really new out there and so those are things that would be charged separately they're you know separate products within the platform if you will no that that obviously uh makes sense especially as a company matures so what is that i'm curious you know history here what does it look like when did you launch the company uh close to three years ago it was the beginning of 2017 so getting close to three years okay and how uh how between when you wrote the first line of code your first dollar revenue how much cash did you think of the mvp so the mvp we got to very quickly i had been thinking about this for a good five years before starting the company so when we hit the ground running officially i had done a lot of the leg work right so we started officially in the beginning of february and we had a big demo day with an accelerator at the very i think it was the last day of march or the very beginning of april so it was like two and a half months and we had i mean granted what it looked like back then and what it looks like today there's a big difference you know three people working on it for two and a half months versus today but but yes technically we had that initial demo that we could do with a fully functional piece of software within three months and so cash i always like to get mvp cost right so you're talking like a hundred grand into the platform pre-revenue or 300 grand or a million so i'm not measuring to to revenue and measuring to the like you said the mvp of the the software right the first that's my question pedro how much cash did you sink into the platform building it before your first dollar of revenue before the first dollar revenue so that first dollar revenue was still in the first year um so i want to say less than a million dollars uh it was in the six figures because the first check we got was in the first year uh by summer probably so i want to say let's ballpark it around uh 500 000. and most of that was developed you know these three developer salaries folks like things like that yeah that was the biggest cost uh we had a little few extra costs you know cloud costs uh we had you know conferences that we went to you know but the majority of it ended up being uh with salaries and then a little bit of hiring towards the end of the five months we started uh actually growing the team a little bit yeah so where did you get this 500 grand pre-revenue are you super rich you just found it yourself or you raised capital no i raised capital so i started off with a 300 000 check from an accelerator uh accelerator group in atlanta and then after what would they take for the 300 like a yc model like 100 150 for seven percent or what yeah it was a percentage based um the the uh interesting thing was one of my advisors told me that that initial check was too small to basically you want to get a check that gets you long enough that you can get the next check right and i had a fun conversation with him where i called him and he said look i've been thinking about it for one month i finally gonna give you an opinion he hadn't yet and he said i think you shouldn't take it you need to wait to get a bigger check because you're going to run out of money before you get your next investor to put money into you and i as he finished this whole thing and i said i actually called you to tell you i just signed the contract and i wanted to celebrate with you on the phone and we had a fantastic conversation because it was still super valuable because of that advice right from day one i knew i was gonna run out of money i trusted his advice and i said okay i'm going to start raising today day one and he was what was what was your burn at that time so you raised 300 grand how much were your total expenses at the time it fluctuated a lot because we kept cutting salaries uh in order to make it last so it that first you know we didn't raise again until uh i want to say end of may or june so it lasted about six months um that 300 so you're burning about 50 000 a month uh yeah i mean it lasted us about six months that sounds about right yeah okay good and then so how much total today have you raised for the company about 15 million okay one five or five zero one five one five okay so you got a funding track you obviously keep raising when was the last round so we raised uh series a last year at the end of the year okay and that was for how much that was an eight million dollar uh a round eight series a end of 2018. okay and why was eight million the right amount to raise for you at the time it was just doing the math of you know how many people we need to build a product to the stage that we need to get the product to so that we are selling um at a faster pace we're differentiated enough and then obviously trying to measure the runway of when do we think we can raise series b right what's the right valuation for series b how much uh air are we need and what we need to have with the product so it was just getting all these measurements of when we think we can raise b how much money we need to get to that point and you know that's that's the math so what is the ques i mean what is the answer there so eight million was buying you about how many months of runway would you say so the idea is always to be in the 12 to 18 month range and then adjusting as you see um you know as you see the burn right as you see what's happening to your r and then having the the pliability to adjust later if you need to to get a little more or you know cut costs etc for us it was the interesting conversation around when is the company ready for series b and what are the measurements to get there right now because the space of machine learning and ai is so hot some of the math is not the con the normal math even for silicon valley with over inflated valuations i think ki is its own beast right now so there's always the conversation of do you assume that by the time you're going to raise b the hype is still going to be there and those valuations are going to be like that or what do you think you have to get past to get a competitive series beat on in terms of revenue how big do you think you have to grow on this 8 million that's exactly the the point of this conversation so if we were in the normal space i think to get to a good valuation we would need to be in the four to eight million there are maybe five to eight uh to get the evaluation that makes sense i think given the space that we're in and the exits that i've seen small i'm talking about you know single-digit are how much companies are being sold for their valuations i think it's more along the lines of one and a half to four as opposed to four to eight to get to those valuations but we're trying to be conservative right and we're trying to assume let's not count on the height being there when we raise b and let's try to hit the numbers that are closer to normal unhyped if you will valuation so we're going to try to hit you know those numbers that are more in line with other industries and if if the hype is there we get an even bigger valuation that's even better right so what do you what do you what a orr i guess would you consider a massive win if you crossed it by the end of this year you know we got three months two three months left in the year what's the target so our target for raising b is by the end of next year uh so you want to be north of like three or four million bucks in aor by the end of next year by the end of next year yes i want to be north of four okay and what will you finish this year at so this year i think it's going to be around one okay round one and what were would you guys what did you finish last year at uh last year so um prior to this year the numbers were i would say inconsequential i think we hit six figures barely um so 2018 you did about call 100 000 bucks in revenue this year you'll break a million yeah yeah yeah okay good so i mean obviously nice growth there now you said you raised eight million bucks obviously you're managing for 12 to 18 months of burn 8 million divided by 12 is about 600 000 a month in terms of total burn is what you could cover is that about what you're burning right now uh that's a little over our burn um and like i said you know it's 12 to 18 months so uh that that's our burn is not that high it's a little it's it's close but it's not that high so you turn like 400 grams something like that yeah it fluctuates around there can you can you live with 400 grand a month and burn like can you sleep well at night or does it make you nervous um it's it's a very high number it's it's uh high is relative though what high is relative oh absolutely for the space that we're in i think it's not exorbitant i think if you look at people that we're trying to compete with and the estimated burn that they've had from the information i have it's we're actually under i would say um the a round uh a round uh series from a lot of the competitors are higher they require a lot more money to get to the same ar that we're trying to get so in that sense as as insane as it sounds to say that 400 a month is is um tame i think we're we're do the amount of work that we're doing the product we're getting out there for the amount of money spent i think we're certainly ahead of the industry and how many customers are you serving today today customers that we're fully engaged with uh either in pilot or or above it's about a dozen post pilot full then we're talking about a handful yeah yeah if you are if you're past a million or you're about to break a million bucks in a run right that's 83 000 bucks a month customers are paying on average about 8 000 bucks a month or 100 000 a year that would be about 10 to 12 customers paying that right so that's how you get your million dollar run rate if we get to that point and that's the hope yeah yeah still quite a few contracts for us to sign that are in the pipeline but not signed yet for us what are you at right now like last month what was revenue if it's not 83 grand 80 oh um so as of last month let's see we have um i i can't i can't uh yeah i don't know off the top of my head what the monthly is for last month but a lot of it it's we're basically this whole year right is is end heavy right almost everything is happening in q4 yeah you can give me some sort of like a function right i mean you know a million bucks a year is what you said you'd finish this year at which means you're doing at least 83 000 a month 83 grand times 12 is a million dollar run rate right so if you're not there yet you know to some degree how far away you are you're only doing like 40 50 grand a month right now or are you really close yeah so we have we have about i would say 55 or 60 of the way to go but with the pipeline that we have and finishing the pilots we think we can hit it um so you're doing about 40 000 a month right now in revenue across 12 customers paying about 4 000 a month on average the the number the dozen the 12 that's people that are not full customers yet it includes people that are in pilots how many full customers a handful okay like like how many like five six three okay okay three that's good well that's helpful because what i was getting at is either you have less customers or your acv is much lower so what what is actually the case is you've got less customers paying a higher acv but you have a lot of potential pilots that are going to close here potentially in the next quarter that's the hope yeah yeah yeah yeah so you're doing call at 30 40 grand a month right now in revenue you have about 10 in pilots and you hope with closings on these pilots before the end of the year you get up to 80 80 grand a month 90 grand a month something like that yeah good i love that how are you getting these customers a lot of it is conferences right now we're starting to turn on the marketing machine just now so we're ramping up on that so inbound is not as high as we want it to be um so you know we have a few good relationships with um vcs here in the bay area that actually provide us a lot of uh introductions to companies so that's one uh plug-and-play is is one of those they they've been phenomenal at getting us meetings with customers were they the accelerator that put in 300 grand uh no they were not the initial accelerator they came in later um but they've been really really helpful with getting customers and then a lot of conferences and talks that i give and then people reach out saying oh this sounds interesting you know what do you guys do what are you selling uh so it's still you know small scale if you will right introductions meetings and conferences that is not obviously scalable and that's why we're starting to uh invest into the marketing how many people are on the team today so we have about 22 people in the bay area and about 14 people outside the country all time yeah 36 then full time how many engineers the majority right so let's see we have about 12 14 10 i would say about uh 24 out of the 36 okay and how many are quota carrying sales reps we have two do okay so you're just trying to figure out how to scale that yeah i mean i think we're still before you know scale right we're not there yet we're still trying to figure out the formula how to sell right all the things that you need to understand to figure out what a sales process is like how long it takes to sell how to navigate a company to get a close right i think we're not there yet so we're still not at the point that we want to scale because in order to scale we need to have the answers to all those questions right yep yep instead of going out and raising more equity capital because you're going to keep getting diluted right if you do that would you ever consider using debt i i looked into it i talked to a couple companies that do that i think that there's actually a few other interesting options uh that i might look at right so there's now the potential to do it's not a full ipo right but it's there's a new regulation that allows you to raise capital through um non-certified uh investors right yeah you're talking reggae regb exactly so i have a friend that actually did that and successfully raised 50 million um but he did caution me that it is a lot of work and a lot of time spent doing just that so yeah yeah absolutely um there's family offices which ends up being the same thing as a vc but the difference is that they're a little um they're going to be a little more generous i think with the percentages that's what i've seen in the past uh but still they're going to take equity my point is would you ever use debt which is non-dilutive to right to drive growth of the company i don't think that the speed that we need to grow at is that that just doesn't the math doesn't add up you need more cash than what any debt provider would give you yeah it just unless we were trying to just coast which is not what we're trying to do then we would go that route but then the potential for the exit would be significantly lower right you increase the bottom you you decrease the risk by doing that uh but you decrease the the potential for growth yeah i mean i get it you you are though i mean you know there's a lot of founders that get into a lot of trouble by raising a head of revenue i would put you in that category i mean your aorta funding ratio is like 16x right you're not at a actually it's more it's more like 32x right half a million in arr on 16 raised i mean the company you could argue should already be bigger than it currently is if you've deployed 16 million bucks to grow it oh we absolutely we haven't uh deployed all that money right we still have quite a bit of cash in bank like most of your series a is still in the most eight million still in the bank uh we still have a good amount of that yes okay um and um of of the full 50 million we've raised so far yeah um the the point that i was gonna say is like i said you know in the space that we're in like if you look at ai there's the last two exits that i saw were in the range of the companies had between three and five arr and sold for between three and four hundred million dollars tell me about tell me about two companies on the flip side that that raised as much and went out of business had no exit uh that's a good question so um let's see the companies that i know that would be close to being in that position that didn't happen yet so yeah nobody it has happened just nobody talks about it so you don't know no i mean i mean i think it's gonna happen they need a little more time for that to happen i can see them going the path that you're saying no no my point is though founders do what you just did which is you use the hyper successful comps and you never look at her many times they're not even aware of the hundred companies that died to get those two winners that you just quoted right okay fair enough the the examples that i know of the failures that you're asking for a lot of them are going to be they've raised a ton less money they fail much sooner so they actually never got the chance to deploy nearly that much money because they failed when they were still two three people they raised maybe you know less than a million dollars and then there's dozens and dozens of failures there the examples i thought you were asking of examples of companies that actually raised at least double-digit millions and then they failed and for those i think if we wait a year we're going to have a couple of those stories because i can see already the companies that are massively over inflated on the valuation and the amount raised in comparison to the revenue i'm talking about you know between 50 and 300 x if you're doing that math that you did um and then when you start getting to those numbers of like two 300 x um i don't think they can dig themselves out of that hole well i mean you raised eight million right if you gave up let's say aggressively 20 of the company right that's putting you at a 40 million dollar pre-money valuation right 40 million divided by half a million in arr is an 80 x multiple you could argue you are one of the over inflated ai companies that has raised a ton of money relative to your ar um i think the difference is that at the a round the expectation for revenue in some industries is not the same most a round companies have zero revenue so then it's infinity uh multiple that's not that's not true no it is it absolutely is i can tell you i can tell i can tell you that is not true i have met i i have interviewed a significant portion of ai companies that have raised series a and the majority and the majority you can keep adding qualifiers and say in the valley in my town in my building right to narrow it down but i'm telling you that is not an excuse there are plenty there are the majority of series i'm just saying the and i agree with you the qualifier of the valley is i think that the the the point of view that investors take because i spoke to investors from boston austin atlanta uh chicago new york and the reason i made the qualifier is that the approach to investing that most of these other cities have is actually very different they're they're looking at air are much sooner um and so the potential for growth for the company is different they're not looking to get you know a unicorn and they're they're looking to get more reasonable growth more reasonable numbers when it comes to businesses and so you're correct if you look at the whole country at a round for the whole geography yes a lot of them if not the majority do have uh revenue in in the a round but but that's a different beast and i think they're looking for something different and the types of companies that they grow into is they become different types of companies yeah we'll see what happens i mean just for context you're burning in a month more than what your total revenue annual run rate is right now i think we'll leave it at that and move on and rap i hope you drive growth by the way i'm not running against you but i just want to call a spade a spade you've raised a lot of money relative to the revenue you have now you stop a lot of that in the bank which is fine yeah absolutely it's it's it's scary and it's something that we're working on fixing you know every every single day i guess i would recommend fixing growing into yeah you guys are growing to it that's fine yeah all right let's wrap up here with the famous five quick answers if you can number one favorite business book um favorite business book dr seuss uh he all the places you'll go i think the analogies you can make between that book and what a startup life is are amazing number two is there a ceo you're following or studying um i like uh ben horowitz and now i mean he's now ceo i mean well more of an investor right that's mostly his role but he's done that before but i really like how he views the importance of cultures and companies number three what's your favorite online tool for building your company favorite online tool i like uh the google suite number four how many hours of sleep to get every night uh probably about five okay and what's your situation married single kids uh married kids how many kiddos four wow you're a busy guy how old are you i'm 37 37 last question what do you wish your 20 year old self knew exactly what i did know because you know you mess with the past you change the future and i like where i am today so i certainly don't want to change if i change my past self i might not be here today opal dot ai guys making ai easier to understand they've got about three customers paying 14 000 a month doing about 40 000 a month right now in revenue with eyes on a million bucks in terms of run rate with about 10 pilots right now we'll see if they close founded the company in 2017 today they've raised about 15 million dollars total burning caught 400 thousand ish per month that's net burn 36 people on the team 24 engineers two folks are in the sales space if they look to continue to scale potentially do another raise here uh in the upcoming quarters uh pedro we're rooting for man good luck thanks for checking to the top all right thank you 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