Penny Software Revenue, Valuation & Funding (2024)

hey folks my guest today is muhammad ibrahim he's a distinguished engineer with a demonstrated history of driving technology transformation high scale and high growth organizations he's now building penny.co a procurement software and b2b marketplace platform muhammad are you ready to take us to the top yep definitely welcome uh uh everyone hey thanks thanks for joining so should we think about you sort of like like vendor you're helping people save money on their sas purchases that's definitely right so our our main goal is basically help uh companies or firms uh uh streamline their procurement processes through different offerings uh of ours the goal the main goal is basically for the companies to have or oversee their spendings and their procurement processes in general okay and and what are you doing differently than some of the folks we've already talked about well what we're doing uniquely and what differentiate us from competitors is how we basically positioned our software offerings as well as services we combined uh different arms first is basically the software offering that we're doing second is the logistics and ability to reach out to multiple or different suppliers on the ground uh we combine that in a streamlined fashion so that companies can reach out to different suppliers as well as manage their internal and external communication in a very streamlined uh fashion so that's what we're doing differently at penny okay and give me give me an understanding of what customers are paying you to use your technology is it a percent of what you save them that's definitely right i mean this is one of the proposals we offer to our customers which basically is how much you save i mean how much you actually spend on overall bell in the company and we offer them a direct return in terms of uh cutting of their cost spending cost and which translate that as a value to the company and based on this we take cuts as a revenue sharing model what's the range of the cuts that you would take like two percent or 10 or 30 percent or what well it depends actually from industry to another uh we work with our clients to basically quantify this but it ranges from uh sometimes some cases actually 0.5 to all the way to 15 percent by just employing uh uh our software uh technology stack as well as best uh uh industry practices in terms of uh procurement processes and mohammed what would you say your average take rate is is the average mp seven or eight percent yeah some yeah something between uh uh seven to ten percent okay fair enough very cool share with me a little bit more uh i guess so so when you look at all your customers and all your all your product offerings what's the average customer going to pay you per month well uh to be honest uh we i mean the way we position our product is to be valuable depending with different different modules on the shelf uh we somehow package our offering to our customers depending on how customers uh uh have been delivering on the customer requirement and this differs from industry to another so sometimes i mean for example customers come and say well i want i mean to use your software uh stack from procure all the way uh to pay some of them now i want to basically focus partially on that so depending on the customer need and the number of users we basically offer our software as a package to customers i mean i work with them throughout the process i mean for standard offering um uh we use i mean for just general users we offer something around 1 000 uh per uh barrier as a license uh licensed software so customers are paying you is about a thousand dollars per year as an average correct that's across your that's it that's across your entire base about a thousand bucks per year as an average better user oh what's going on there youtube good to see you guys now imagine this you love watching these interviews with sas founders but imagine if we took all of the valuation data out from over 2807 interviews i've done manually saves you a lot of time well we've done this we've built it into the beautiful interface inside of founder path check this out i'll show you how you can access this in a second but you log in you connect your stripe account you see your valuation real time you can see what it changed over the past 88 days and even set goals for valuation this year now the secret evaluation is there's many different ways to value a sas business so the reason you're going to see three or four different valuations inside of your frowner path dashboard this is all free by the way is because depending on who's doing the buying of your sas company you're going to get a different valuation a vc is going to pay a different valuation private equity firm is different if you're going to do a minority sale that's different and if you sell the whole business that's a different valuation you can see all those when i hover over here right so the teal is what a vc would pay yellow is what private equity and red is if you sold the whole thing outright now what's cool about this is this is not built off random data again you guys hear these interviews on youtube all these datas are built from real-time valuation data points founders share with us on the show so traction 1.2 million seed round 3.7 raised they sold 22 percent of their business go in here and filter by the event maybe you only want to see companies that have sold the whole business well here are a bunch that have been acquired the valuation and the multiple maybe you're going out right now and you're raising your seed round well go in here and look at all this recent seed deals that went down what they raised what valuation they raised at and what percent that they sold there's never been a larger data set of sas valuations than what you can get now inside of founder path and we're thrilled to bring it to you all right we're gonna go back to the youtube video here in a second but if you wanna check this tool out if you wanna jump in and sign up you can check it out for free to get your valuation at this link this link founderpath.com forward slash products forward slash evaluations or if you go to founderpath.com and hover over products click on get your valuation here and go ahead and sign up to give it a whirl again all that valuation data live right inside the platform i hope to see you there all right let's jump back into the interview per you okay and how many users are companies usually signing up we're talking teams of two or teams of 300 average yeah on average it is like i mean we target like small i mean we focus mostly on medium to large companies uh so this can actually range from 20 all the way to 100 users targeting people who work in procurement department for big corporates and companies okay so muhammad these corporates you're landing with 20 on their team paying a thousand bucks a c your sweet spot is more like 20 or 40 000 bucks a year something like that i see tell me more of the backstory here what year do you launch your first customer blend your first customer well um we we basically worked up initially with a few firms we called them design partners that helped actually shape our product the way it is right now right so what we did we shut out their procurement department and we covered what is basically called the general practices in their procurement processes so based on this we basically formulated uh something called the mdb which is the minimum viable product this is how we initially designed it we worked with a few like around 10 10 early adopter customers to basically help us shape and design our early product offering and then we started first with something called the happy scenario which is basically the most straightforward business workflow that can satisfy their need and from there we basically started offering a few customization by adding more and more customers over our user base we realized that some customers require this customization some customers require different uh workflow depending on how they do their internal procurement processes and based on this we came up with something called customization um uh business mapping uh muhammad sorry before we go too far down this rabbit hole my question was just when did you land your first customer what year uh well this was uh sometime back in 2000 late 2020 which is around four months from uh when we started okay so 2020 you get going and now fast forward to today how many customers or companies are using you paying you well um i mean um i mean i'm not sure if i can disclose this number but i would say intense tense is basically reasonable we have to like a year and a half from the start date we have tens of customers currently active and paying customers are we talking like 40 though or like 90 well um i mean on the upper side i would say okay so like next month can you pass 100 customers when you think you pass 100 customers well uh to be honest i can't uh uh i mean estimate that what we have been targeted this year is by the end of this year is uh way beyond 100 customers per share now can i take like you know 60 or 70 customers today times that sort of acv you gave me earlier to guess you're doing something like 110 000 bucks a month right now on revenue in terms of run rate well i mean uh that uh i mean uh i don't think i can disclose that to be honest i'm not asking you to disclose anything new i just know you have more than 40 customers which you already told me and you said the higher end so i'm guessing 70. and you said the average acv was like 20 000 bucks so i'm just multiplying uh that's correct i mean not all of the basically goes by the average especially on the early customers we offer them some special offers some discounts to basically uh join us and help us work i mean work with us to basically design and uh shape our product i see okay all right so the 20 000 basically applied to the latest customers that we acquired not early ones okay well that's not when i say what's the average customer pay you you can't just only count the newest ones paying you the most money that's not what average means so i get it though you're somewhere wait i guess let me ask you this question if you're south of 100 000 bucks in mr today can you break that this year guess so yeah that's our target i see okay very cool and if you're doing like a little south of that today where were you exactly a year ago so we can calculate growth rate you know this time in 2021 um so in 2021 uh i mean we were still like in the early early phases of shipping our products so um i mean we didn't have except one paying customers uh uh but uh i mean the rest were just uh designer design partners that worked with us so it was only one paying customer so the growth rate is massive uh year on year from when we started until now got it so about a year ago you're doing like three or four thousand bucks a month in revenue something like that i see okay and obviously yeah because you're multiplying small numbers the growth rates through the roof the question is can you keep that growth rate really high now you you i believe you raised some capital to help fund the growth is that right that's correct the latest round we raised was announced back in january we raised 5 million usd um a fund and why do you need that much money to build a company like this it doesn't seem to me like it would be like tech intensive what costs money well it's basically purely i mean all what we sell is the software um that we offer our customer we don't sell products i mean other than the software that um services that we offer our customers as a service right i mean uh it looks like it is straightforward when you look at procurement deep inside it is really complicated what we're covering is we covering basically approval workflow we're covering i mean different different stakeholders within the organization and then also externally so that requires a lot of streamlining a lot of design processes so it is actually tech driven strike based company not tick enabled so it requires a lot of technology backed on addition to that i mean the fund that we raised we're using it to build a b2b marketplace which is something complementing our software offering uh by having a marketplace uh which is basically nothing but the product listing that companies can use to bless their product and buy from other companies understood understood and most people in their seed round are selling between sort of 10 and 20 percent of their business were you sort of in that same range okay and so i mean it's dilutive right so as a founder how are you thinking about managing dilution if you sold twenty percent of the business that means what you're looking at like a twenty twenty five million dollar valuation that's right so i mean it was something around this uh value i mean you basically could estimate it right using the general metric um the way we're targeting is a multiplier in terms of revenue by the end of this round is a multiplier by four to five uh times what do you mean by that sorry the multiplier basically is you go by how much money you raised and then you calculate the valuation of the company by them and how much you want to basically grow in the future by the end of this round right so you target at least whatever evaluation the company basically achieves before uh it goes into before the ground kicks in you want to achieve for example five times that valuation by the end of that run uh runway right so what you're saying is you want to take your revenue from 100 000 bucks a month today up to 400 or 500 000 bucks a month by the time you go through this 5 million bucks you just raised i see and hopefully raise a valuation of 100 or 150 million something like that interesting now mohammed did you found the business yourself or did you have co-founders sorry did you found the business did you launch the company yourself or do you have co-founders oh definitely we have four i have four co-founders working with me and the ceo um is our ceo um uh who's our cpo chief product officer and myself is the cto chief technology officer and muhammad did you guys just split it right down the middle at the start everyone gets 25 percent right when you launched how did you split equity did you just do it equally uh no uh we didn't do that uh basically some people took uh more risk at the beginning so those people basically deserve um more uh shares to start with than those who took lower risks to start with right and what is wrong well based on this money or what kind of risk it's not money it's basically devotion of their times right and uh uh how much they were dedicated to basically uh uh work on the company so are you all in today are you full time yeah definitely now now we're all full time now that we basically raised the round and we basically set ourselves in a very good success trajectory uh so that i mean all of us know as having converted full-time uh working in there and when we talk about valuation growth if you just raised out of 20 to 25 million back in september of 2020 when you guys did your 1.3 seed round was that sort of like a five or six million cap pretty standard did you go through an accelerator uh yeah we used an accelerator just to uh i mean at the beginning uh to basically get us some sort of a grant so that we can build a proof of concept to help us basically raise i mean raise the first pre-sea draft now that makes sense and what's your team size today how many people full-time we are around 25 percent uh 25 percent uh between tech business and different organizations in the company and how many engineers engine specifically uh i mean the thick organization between developers uh data engineers qa devops uh total around uh half of um of that number like around 13 people basically mostly working in tech the rest are supporting organizations with us sales and business leads and how are your sales folks how are they getting new customers what's the go to market strategy um uh so i mean right now it's mostly uh sales led growth that we're doing uh it's mostly offline business except on the sas that we think it is actually much more so we have mainly two offerings as i mentioned earlier one is the sas the other is the marketplace uh for the sas as we already i mean the distribution channel has already been established um digitally so we're basically relying on uh google campaigns to basically kick off the campaigns and go from there for the marketplace we're still going offline we're still working with design partners we're approaching companies in an offline manner and take them throughout the process just to make sure that the app works flawlessly the suppliers are basically gathered and things are working as expected very cool muhammad we're excited for you though on that note let's wrap up here with the famous five number one what's your favorite business book uh uh zero to one number two is there a ceo you're following or studying definitely i mean elon musk is one of the main of uh businesses i mean business uh famous people that i basically admire and follow number three what's your favorite online tool for building penny uh jira at conference number four how many hours of sleep ticket every night sorry how many hours of sleep do you get well uh that is i mean on average i sleep five hours a day okay and what's your situation married single kids i'm married no kids no kids i'm delaying that actually until um uh i get my startup uh uh to a really uh right position where it can actually grow itself from there so and how old are you for the beginning and how old are you i'm 32 years old 32 last question something you wish you knew when you were 20 well i wish i entered into the entrepreneurship earlier when i was in my 20s uh that i mean i would definitely would have failed then uh or succeeded and learned a lot uh and took that experience with me i only started my entrepreneurship journey sometime around late 20s to be honest uh and that was a mistake i i i can't say guys there you have it penny dot co helps you buy your software and anything you need at the cheapest rates possible with their procurement solution and software they make money by taking a little cut and also their sas tools they did 5 000 bucks a month about a year ago now flirting with a hundred thousand dollars a month in revenue they should pass that this year they also just have five million bucks in fresh capital and a seed round they just raised it around a 20 to 25 million valuation hoping to 5x the company with that money building their engineering team up from 13 to something larger and their team of 25 into something much greater as well as they break 70 80 90 100 customers muhammad thanks for taking us to the top thanks sir 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 1pm central additionally remember these recorded founder interviews go live we release them here on youtube every day at 2pm central to make sure you don't miss any of that make sure you click the subscribe button below here on youtube the big red button and then click the little bell notification to make sure you get notifications when we do go live i wouldn't want you to miss breaking news in the sas world whether it's an acquisition a big fundraise a big sale a big profitability statement or something else i don't want you to miss it additionally if you want to take this conversation deeper and further we have by far the largest private slack community for b2b sas founders you want to get in there we've probably talked about your tool if you're running a company or your firm if you're investing you can go in there and quickly search and see what people are saying sign up for that at nathan lacka dot com forward slash slack in the meantime i'm hanging out with you here on youtube i'll be in the comments for the next 30 minutes feel free to let me know what you thought about this episode and if you enjoyed it click the thumbs up we get a lot of haters that are mad at how aggressive i am on these shows but i do it so that we can all learn we have to counter those people we got to push them away click the thumbs up below to counter them and know that i appreciate your guys's support all right i'll be in the comments see ya