Paddlerevenue, valuation & funding

hello everyone my guest today is christian owens he is the founder and ceo of paddle before paddle he created his first software business from his bedroom at the age of 14. having grown the business over a million bucks in revenue he decided to quit school at 16 to focus on building startups and founded paddle when he turned 18. christian are you ready to take us to the top i am all right tell us about paddle what's the company doing what's the revenue model um so essentially and kind of going to my background a little bit started my first software company sort of really early through that process noticed how um kind of difficult it was selling software b2c and b2b um all around the world and no one was really building the infrastructure around like payments taxes operations recurring billing customer management sort of optimization like all of these tools um specifically for software sas businesses um so i found that a reasonably interesting problem uh started focusing on that founder of the company in 2012 um and i've been kind of going from there revenue model is that we work with sas businesses so kind of recurring revenue um but we take a transaction fee on all of the sort of the kind of volume arl that flows through our platform okay so when you look over your past 12 months of revenue what percent was pure sas the flat rate sas fee versus your your transaction model so we didn't charge a flat weight rates offspring so we only charge a transaction model but all of our transactions are on underlying recurring subscription rates yeah so that's what i'm asking right is how much is the underlying is there a difference or is it all underlying recurring subscription so the underlying businesses of the volume that we're purchasing is all underlying like monthly annual subscriptions of which would take to the businesses yeah so what i'm asking you is so a lot of times people that follow this model we've had a lot of other companies in the space on they'll have a flat rate for a certain volume right so you're doing a million bucks or less than ar you're gonna pay 100 bucks a month plus if you go over a million bucks an ar you're gonna pay us two percent of all your volume over that amount d do you have that model or not no no so we charge a flat five percent across everything okay no matter what if you do a dollar a month or if you do 500 million a month you're charging five percent correct okay um that i assume that doesn't work at scale if someone's doing 100 million bucks in revenue they're not going to pay you 5 so they do so if you look at um if you look at the aggregate costs of doing all of the functions that we provide for example payment processing across like regardless of underlying payment method dealing with foreign exchange and currencies we take all of the liability for risk and fraud we pay their taxes for them um sort of like calculate and pay and remit sales taxes in 40 something different countries it's like if you actually look at a small scale if you're doing 100 grand a year sort of you don't really care how much it costs because it's probably cheaper than doing it yourself if you're doing 100 million bucks a year you can actually quantify the cost of like all of these different tools that you have to buy the amounts you're paying on kind of payment processor fees the teams that you're building internally the consultants that you have to pay to deal with sort of international sales tax whatever it might be is that more than five million yeah okay so you have customers at that level processing 100 million bucks or more through your platform paying five percent no so like right now and this is deliberate the law just probably does i think in the region of like 45 million area okay yeah that by the way that like strikes me as like i mean this would if i'm just starting a company you're like a saving grace i'm like i have zero interest in setting all this crap up myself i'd much rather pay you five percent but but what i'm saying is like at some scale like it may actually not by the way you might not have any interest in this customer segment right it seems like it's a harder decision to verify to say yes let's pay five percent so i think i think there's like two aspects to this like one we had the initial exact same assumption when we like started the business so we started the business we were building the product for people who look like us it was like a couple of people in a bedroom starting their business they don't really care how much it costs and we always had the assumption sort of like probably around when we had the series a we still had the assumption um that okay this is never gonna be applicable to anybody who does five million bucks 10 million bucks whatever the number is yep um and then eventually every single time that we set one of those upper ceilings for ourselves we found that willingness to pay was still there because the complexity and the amount of like resources these businesses are spending on solving the problem increases with their scale as well um there may there may be a ceiling we don't know what the ceiling is yet we have kind of inbound interest that we turn away from companies who are doing want just the dynamics the product is slightly different and we don't necessarily want to um kind of sort of go up market too quickly um and alienate existing customer base but sort of there is the demand there and it does exist so when you look over the past 12 months like total total kind of volume through your platform and are you in the billions yet or what's that number it's hundreds of millions hundreds of millions hundreds okay can we be a little more specific i mean is it like 400 million 500 million uh it's less than 500 million okay okay but but north of 100 yeah okay very good and and walk me through so 2012 was launch date did you pivot at all or was this always the concept from day one uh so very early concept was a version of this but it had a bit more of like a consumer aspect to it in terms of like a marketplace for also discovering sas products um we persisted with that for like a year or so before we kind of shut down the b2c discovery aspect of it and focused all on the like back end infrastructure and tooling and what's the teams i say what have you scaled to uh we're a hundred and forty people oh no oh great where's everyone based uh all in london at the minute oh great and bootstrapped or if you raise capital uh so we've raised 24 million oh christian i like i liked you so much until you tell me you went to the dark side you raised you raised capital huh yeah all right why raise capital why couldn't you stick it out in bootstrap so like we started the business we raised like angel money at least we raised like 150k to begin with uh and then in the first sort of four years of our existence like we'd raise we raised less than a million bucks um and then we and it's kind of with this realization that this actually does scale with company size uh like our ambitions got a bit bigger in terms of okay we got our first company that was doing a million bucks through the platform and paying us sort of like significant revenue does this scale then we got to the point where we realized it does and then we were like okay we actually think that there is an opportunity for somebody to build kind of this almost sort of like the second most important piece of infrastructure the software company buys which is sort of like the business infrastructure to aws's technical infrastructure um and that was sort of the motivation behind raising more money is sort of ambition kind of got a little bit bigger as we understood the market more and not not a horrible thing what have you scaled to in terms of total customers today uh so it's around about 900. 100. and walk me through like how you've gotten these folks obviously you have a great story because you essentially built the software for yourself um that story i'm sure sells but walk me through i mean how are you getting customers today what's the growth channel yeah so uh first four years of the business solely outbound sales and outbound sales in the loosest possible sense in terms of we basically just talk to people who we like their products from or what customers have already um and the problem really resonates and then they buy it um so we've like scaled that as a process for about 25 30 people in sales today um inbound marketing sort of like all of that stuff was pretty new for us maybe 16 18 months ago when we've hired our first vp marketing um started to scale that team it's about 10 people now it's probably 20 25 of new business inbound versus the rest outbound today so you said 20 inbound yeah yeah so how are you targeting when you you go outbound right i mean are you looking at like pitch book and owler and kind of ar ranges or how do you target accounts so it like happens on two dimensions so yeah there's the size dimension of kind of the real time that sas companies if they're sub a million sort of they experience this problem immediately if they actually go to market um then like we wait for a trigger so like the trigger might be that they raise money or they start to um hire the sales team for the first time or really begin to scale new market or kind of whatever it is so in terms of size we actually on the outbound side because the deals are bigger we look at companies doing one to 30 million arr and we talk to those businesses and usually there's sort of some pain point or anticipated pain point as they're scaling that they want to address that's not really working for them right now they're kind of throwing people at it um and sort of they're realizing that they're spending a bunch of engineering resource on this problem so there's the size bracket and then sort of like the second like thing that we look at is is kind of what's this like compelling event like are they in growing internationally for the first time have they sort of have they announced that we've got a bunch of big customers in like japan and then we visit the website from a japanese ip and it's not localized they don't support the payment method sort of uh they don't support the currency whatever it might be maybe there's a regulation change or of sort of like or a forced regulation change they open an office in a new country that changes how they think about like sales tax or something if they actually have a nexus or like they don't so like any of these compelling events and then we just we use a ton of data from um like crunchbase the stuff that you do um like all of these things to get kind of these signals um you're talking about you're talking about when you say what i do you're talking about the database that get lacka yeah um love that that's great yeah so like we use all of we like use all of these signals we build our own internal database um of these things we track a bunch of other stuff like what tools are they using because some of those things can be indicative of um like changes in the business or like maturity in the business so they just they just swapped out intercom for something else yeah you're using like siftery or built with or or you know one of these come yeah very good talk to me about so economics here is critical right so churn and i don't talk about logo churn here because i'm sure you have customers that like did one million last year now they're doing 500 grand it's not logo turn but that's revenue churn for you so what's your revenue turn look like annually and how do you keep that low so revenue china's actually so we see on average if we aggregate all of the customers we see about 25 to 35 growth um in underlying business each year um so the if we were to stop all sales marketing everything today with the 900 customers that we have um top line revenue um would grow roughly thirty percent sure split that out for me though so what you're telling me is net revenue retention is called 130 percent break that down though into gross and expansion so what's gross churn and then obviously you're expanding by more than 20 or 30 percent uh grocery is low like we look at it more on a low chain basis in terms of um sort of on the churn side because sort of like these businesses go in cycles so they might have um sort of an up here or down here but the general kind of trajectory is growth if we look at logo churn we have sort of 900 customers today um and like we've lost in terms of actual churn uh eight customers in seven years but by the way losing losing a losing eight customers that only do a million in ar is no big deal losing eight customers that do 15 million in ar is a much bigger deal that's why i'm trying to so why do you care about logo churn versus why not just only look at revenue churn since you're tied to revenue five percent so we look at both it's important for us to look at both and we look at the reasons behind the the logo chain the revenue chain piece um is less of a concern because sort of we actually consider revenue chan is going to happen in two instances or three one we screw up we do our job bad our product isn't great people don't like it they move away the second is that the businesses fail like they go out of business they decline sort of whatever but that's almost that is almost uh kind of sort of those customers are retained like not necessarily in customer success like those customers are sort of out of here it's out of your control yeah that revenue is retained in discovery of sales process so like we want to work with companies where sort of the biggest like facet of these companies um being successful we've seen is if their ambitions are aligned with ours so the company that is a million dollar arr company today who wants to be a 10 million dollar company like those are the customers that we want yeah but christian come on like who who's ever going to say anything except what you who's going to say i'm a million dollar company today and i have no interest in being a 10 million dollar company like the the well i think the distinction is like the lifestyle businesses the people who are happily running a lifestyle business and they're okay with making a million million bucks yeah like we don't we don't necessarily want those customers we want sort of um kind of people who have ambitions to grow a business and sort of they're doing that by by creating value in a product like they're building a product where people want they're not necessarily kind of doing some kind of arbitrage where they're buying they're spending 100 bucks on you see christian just be clear these are most your customers though are sas customers correct customers yeah okay yeah so i mean even a million dollar flat sas business if you're taking five percent that's 50 grand a year for you in terms of acv i mean even if they are flat and growing that's still good revenue for you no for sure for sure like in terms of the outbound sales if you think of like and you know this like if you think of all of the sas companies exist in the world yeah uh and we have 900 of them like so if we can afford especially in an outbound sales process we can afford to be reasonably picky about who we target of course otherwise we drown we drown in leads of course so yes there's going to be a pro there's going to be a point at some point hopefully like where where the solution that we've provided is so ubiquitous among these software companies that like yeah we're going to relax the sort of we're going to want the businesses who are going to do a million bucks a year and only going to do a million bucks yeah you'll have to you'll have to move downstream at some point yeah yeah i i don't mean to keep cutting you off but we're running out of time and i want to get in one or two other things here um i assume you're still burning cash today right because you've raised so much yeah okay okay so burning cat i mean do you have casual positivity in your crosshairs or no no you're not okay guys burning money investing in growth and then in terms of scale what can you give me a general sense in terms of ar what you guys are at today uh we're just north of uh like 10 million ten 10 okay good so that's healthy right so so 10 million uh that would mean you're processing about 200 million bucks over the past 12 months five percent of that is 10 million i'll leave you to do the math yeah sure well i just i just wanna make sure there's no other revenue models right it really is just that five percent plus 50 we don't charge professional services we don't do any of that stuff yeah yeah that's great um okay very good and then in terms of growth so if you're kind of pushing 10 million today where were you exactly a year ago uh we've roughly 3x revenue every year oh that's pretty good okay so we'll call it kind of 270 270 grand about a year ago now doing 830 840 grand a month uh that's healthy growth and most that growth is coming from expansion or new logos totally uh so the so we have so the 30 like expansion um has remained true pretty much at least for the last three years so the majority of the growth is coming from your revenue that's great congratulations very good um any plans to raise additional capital um sort of i think we're pretty well capitalized right now um in the last like 12 months we raised like 20 million bucks of the 24 that we've raced um so we're pretty well capitalized um we're reasonably opportunistic about fundraising it's sort of like when there's a business case we don't like doing it for the sake of doing it um maybe sometime next year and payback period real quick i forgot i skipped this so like when you're getting out and going like going after a million dollar ar com company what are you willing to spend to get that customer we target internally payback of about five months okay that's actually very healthy for a funded company i know most people are pushing 12 months so that's nice uh very good all right let's wrap up here with the famous five number one what's your favorite business book uh hard thing about hot things number two is there a ceo you're following or studying right now uh jeff bezos number three how many hours or what's your favorite online tool besides your own um zoom number four how many hours i sleep to get every night five christian unhealthy man how do you do that i know i know it's crazy i'll work on it what's your situation married single kids uh single okay no kids no okay and how old are you 24. yeah see there we go there there everyone listening who's older than 24 is going ah that's the reason all right and last question what do you wish you knew four years ago when you were 20 focus guys focus is key launched paddle back many years ago and he was doing trying many different things and marketplace everything now really just all in on doing all these things critical for a sas company serving 900 customers that have processed over 200 million bucks in terms of transactions through him over the past 12 months taking about five percent of that so he's pushing about a 10 million dollar run rate today uh they've about three xd over a year they're burning cash that's okay the economics look healthy net revenue retention 125 percent targeting a five-month payback period on new accounts 140 people in london again raised about 20 million bucks to fuel growth christian thanks for taking us to the top thank you very much