Penny Software Revenue, Valuation & Funding (2024)

[00:00] Hey, folks. My guest today is Mohammed Ibrahim. He's a distinguished engineer with a demonstrated history of driving technology transformation in high scale and high growth organizations. He's now building penny.co, a procurement software and b to b marketplace platform. Mohammed, are you ready to take us to the top? [00:17] >> Yep, definitely. Welcome everyone. Hey, Nathan. [00:20] Thanks for joining. So should we think about you sort of like vendor, you're helping people save money on their SaaS purchases? [00:28] >> That's definitely right. So our main goal is basically help companies or firms streamline their procurement processes through different offerings of ours. The goal, the main goal is basically for the companies to have or oversee their spendings and their procurement processes in general. [00:50] Okay. And what are you doing differently than some of the folks we've already talked about? [00:55] >> Well, what we're doing uniquely and what differentiates us from competitors is how we basically positioned our software offerings as well as services. We combined different arms. First is basically the software offering that we're doing. Second is the logistics and ability to reach out to multiple our different suppliers on the ground. We combined 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 [01:31] >> very streamlined fashion. That's what we're doing differently at penny. [01:36] Okay. And give me an understanding of what customers are paying you to use your technology. Is it a percent of what you save them? [01:44] >> That's definitely right. I mean, this is one of the proposals we offer to our customers, which basically is how much do you save. I mean, I mean, how much you actually spend on overall bill in the company. And we offer them direct return in terms of cutting of their cost, spending cost, and we translate that as a value to the company. And based on this, we take cuts as a revenue sharing model. What's sort of [02:14] the range of what's the range of the cuts that you would take? Like, 2% or 10% or 30% or what? [02:20] >> Well, depends actually from industry to another. We work with our clients to basically quantify this, but it ranges from sometimes, some cases, actually 0.5 to all the way to 15% by just employing our software technology stack, as well as best industry practices in terms of procurement processes. [02:44] And Mohammed, what would you say your average take rate is? Is the average gonna be seven or 8%? [02:50] >> Yeah, something between seven to 10%. [02:55] Okay, fair enough. Very cool. Share with me a little bit more, I guess, so when you look at all your customers and all product offerings, what's the average customer gonna pay you per month? [03:09] >> Well, to be honest, mean, the way we positioned our product is to be variable depending with different different modules on the shelf. We somehow package our offering to our customers depending on how customers [03:28] >> mean, doing 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 stack from procure all the way to pay. Some of them know 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'd work with them throughout [03:57] >> the process. I mean, for standard offering, we use I mean, for just general users, we offer something around 1,000 per per year as a license, software. [04:11] So is that what those customers are paying you is about a thousand dollars per year as an average? [04:16] >> Correct. A better user. [04:18] Across your that's in that's across your entire base, about a thousand bucks per year as an average? [04:23] >> Better user. [04:25] Oh, what's going on there, YouTube? Good to see you guys. Now imagine this. You love watching these interviews with SaaS founders, but imagine if we took all of the valuation data out from over 2,807 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 Founderpath. Check this out. I'll show you how you can access this in a second. But you log in, you connect [04:48] your Stripe account, you see your valuation real time, you can see what changed over the past eighty eight days and even set goals for valuation this year. Now the secret evaluation is there's many different ways to value a SaaS business. So the reason you're gonna see three or four different valuations inside of your Founderpath dashboard, this is all free by the way, is because depending on who's doing the buying of your SaaS company, you're gonna get [05:13] a different valuation. A VC is gonna pay a different valuation, Private equity firm is different. If you're gonna 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 [05:35] built off random data. Again, you guys hear these interviews on YouTube. All these datas are built from real time valuation data points founder share with us on the show. So traction 1,200,000 seed round 3.7 raise. They sold 22% of their business. Go in here and filter by the event. Maybe you only wanna 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 [06:00] out right now and you're raising your seed round. We'll 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 dataset of SaaS valuations than what you can get now inside of Founderpath. 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 [06:22] 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/products/valuations. 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 [06:48] the interview. Per per you. Okay. And how many users are companies usually signing up? We're talking teams of two or average, teams of 300? [06:55] >> Yeah, on average, it is like I mean, we target, like, small I mean, we focus mostly on medium to large companies. So these can actually range from 20 all the way to 100 users, targeting people who work in procurement departments for big corporates and companies. [07:14] Okay. So, Mohammad, these corporates you're landing with 20 on their team paying $1,000 a seat. Your sweet spot is more like 20 or $40,000 a year, something like that. [07:23] >> Correct. [07:23] I see. Tell me more of the backstory here. What year did you launch your first land your first customer? [07:29] >> Well, we we basically worked 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 copied what is basically called the general practices in their procurement processes. So based on this, we basically formulated something called the MVP, which is the minimum viable product. This is how we initially designed it. We worked with a [08:07] >> few, like, ten ten 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 the most straightforward business workflow that can satisfy their need. And from there, we basically started offering few customization by adding more and more customers to our our user base. We realized that some customers require this customization, some customers require different workflow depending on how they [08:42] >> do their internal procurement processes. And based on this, we came up with something called customization [08:50] >> business mapping for processes. [08:52] Mohammed, sorry, before we go too far down this rabbit hole, my question was just, when did you land your first customer? What year? [09:00] >> Well, this was sometime back in 2000 I mean, late twenty twenty, which is around four months from when we started. [09:09] Okay. So 2020, you get going. And now fast forward to today, how many customers or companies are using you, paying you? [09:16] >> Well, I mean, I mean, I'm not sure if I can disclose this number, but I would say [09:24] >> in tens, tens is basically reasonable. After like a year and a half from the start date, we have tens of customers currently active and paying customers. [09:36] Are we talking like 40 though or like 90? [09:39] >> Well, I mean, on the upper side, I would say. [09:44] Okay. So like next month, can you pass a 100 customers? When do think you can pass a 100 customers? [09:50] >> Well, to be honest, I can't, [09:54] >> I mean, estimate that. What we have, I mean, targeted this year is, by the end of this year, is way beyond 100 customers per share. Mhmm. [10:05] 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 a $110,000 a month right now in revenue in terms of run rate? [10:17] >> Well, I mean, that I mean, I don't think I can disclose that, to be honest. [10:26] Well, I'm not asking you to disclose anything new. I just know you have more than 40 customers, which you already told me, you said the higher end, so I'm guessing 70. And you said the average ACV was like 20 So thousand I'm just multiplying. [10:40] >> That's correct. I mean, not all of them basically goes by the average. I mean, especially on the early customers, we offer them some special offers, some discounts to basically join us and help us work I mean, work with us to basically design and shape our product. [10:56] I see. I see. So maybe [10:57] >> you're a little less than maybe a little less than 100,000. [11:00] Got it. [11:01] Got it. So you're maybe a little under 100,000 [11:03] >> a month right now today. [11:04] Right. So the $20,000 basically apply to the latest customers that we acquired, not early ones. [11:12] 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, I guess let me ask you this question. If you're south of a $100,000 in MRR today, can you break that this year? [11:27] >> I guess so. Yep. That's our target. [11:30] 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, this time in 2021? [11:42] >> So in 2021, I mean, we were still like in the early, early phases of shipping our products. So, I mean, we didn't have except one paying customers, but the rest were just designer design partners that worked with us. So it's it was only one paying customer. So the growth rate is massive year on year from when we started until now. [12:14] Got it. So about a year ago, you were doing, like, 3 or $4,000 a month in revenue. Something like that. [12:18] >> That's correct. [12:19] 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 I believe you raised some capital to help fund the growth. Is that right? [12:31] >> That's right. The latest round we raised it was announced back in January. We raised 5,000,000 USD of fund. [12:39] And why do you need that much money to build a company like this? It doesn't seem to me like it'd be, like, tech intensive. What costs money? [12:46] >> Well, it's basically purely I mean, all what we sell is the software [12:53] >> that we offer our customer. We don't sell products, I mean, other than the software that services that we offer our customer as a I mean, as a service. Right? I mean, looks like it is straightforward. When you look at procurement deep inside, it is really complicated. What we are covering is we covering basically approval work flow. We're covering, I mean, different different stakeholders within the organization and then also externally. So that requires a lot of streamlining, [13:22] >> a lot of design processes. So it is actually tech driven, tech based company, not tech 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 b to b marketplace, which is something complementing our software offering by having a marketplace, which is basically nothing but the product listing that companies can use to list their product and buy from other companies. [13:53] Understood, understood. And most people in their seed round are selling between sort of 10 to 20% of their business. Were you sort of in that same range? [14:01] >> Correct. [14:02] Okay. And so, I mean, it's dilutive, right? So as a founder, how are you thinking about managing dilution? If you sold 20% of the business, that means what you're looking at, like a $20 to $25,000,000 valuation. [14:14] >> That's right. So, I mean, it was something around this value. I mean, you basically could estimate it, right, using the general metric. The way we're targeting is multiplier in terms of revenue by the end of this round is a multiplier by four to five times. [14:35] What do mean by that? Sorry. [14:36] >> 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 [14:50] >> in the future by the end of this round, right? So you target at least whatever valuation the company basically achieves before it goes into before the ground takes in, you want to achieve, for example, five times that valuation by the end of that run runway. Right? [15:08] So what you're saying is you wanna take your revenue from a $100,000 a month today up to 400 or $500,000 a month by the time you go through this $5,000,000 you just raised? [15:17] >> Correct. [15:17] I see. And hopefully raise at a valuation of a 100 or 150,000,000, something like that. [15:22] >> Correct. [15:23] Now, Mohammad, did you found the business yourself or did you have co founders? [15:29] >> Sorry? [15:30] Did you found the business? Did you launch the company yourself, or do you have co founders? [15:35] >> No, definitely. I have four co founders working with me. Iyad Aldalooj is the CEO. Majid Aldalooj is our COO, Himedri Salavisiti, who's our CPO, chief product officer, and myself is the CTO, chief technology officer. [15:53] And, Mohammed, did you guys just split it right down the middle at the start? Everyone gets 25? [15:59] >> Sorry? [16:01] When you launched, how did you split equity? Did you just do it equally? [16:06] >> No, we didn't do that. Basically, some people took more risk at the beginning. So those people basically deserve more shares to start with than those who took lower risks to start with. [16:22] >> Right? [16:22] And what is risk? [16:23] >> Based on the [16:23] risk money or what kind of risk? [16:26] >> It's not money. It's basically devotion of their times. Right? And how much they were dedicated to basically work on the company. To Are you all in today? [16:38] Are you full time? [16:39] >> Yeah. Definitely. No. No. We're all full time now that we basically raised the round and we basically set ourselves in a very good success trajectory so that, I mean, all of us now has converted full time working a day. [16:56] And when we talk about valuation growth, if you just raised out a 20 to 25,000,000 back in September 2020 when you guys did your 1.3 seed round, was that sort of like a 5 or 6,000,000 cap, pretty standard? No. Did you go through an accelerator? [17:12] >> Yeah, we used an accelerator just to, I mean, at the beginning 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 seed round. Mhmm. Mhmm. [17:30] Now that makes sense. And what's your team size today? How many people full time? [17:35] >> We are around 25 person 25 person between tech, business, and different organization in the company. [17:42] And how many engineers? [17:45] >> Engineers specifically, I mean, the tech organization between developers, data engineers, QA, dev ops, total around half of that number, like around 13 people, basically mostly working in tech. The rest are supporting organizations with our sales and business leads. [18:06] And how are your sales folks? How are they getting new customers? What's the go to market strategy? [18:13] >> So I mean, now it's mostly sales led growth that we're doing. It's mostly offline business except on the SaaS that we think it is actually much more. So we have mainly two offerings, as I mentioned earlier, one is the SaaS, the other is the marketplace. For the SaaS, it has been already, I mean, the distribution channel has already been established digitally. So we're basically relying on Google campaigns to basically kick off the campaigns and go from [18:46] >> 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. [19:04] Very cool. Mohamed, 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? [19:13] >> Zero to One. [19:14] Number two, is there a CEO you're following or studying? [19:18] >> Definitely. I mean, Elon Musk is one of the main [19:24] >> businesses I mean, business famous people that I basically admire and follow. [19:29] Number three, what's your favorite online tool for building penny? [19:34] >> Jira and Confluence. [19:36] Number four. How many hours of sleep do get every night? [19:40] >> Sorry? [19:41] How many hours of sleep do you get? [19:44] >> Well, that that is I mean, on average, I sleep five hours a day. [19:50] Okay. And what's your situation? Married, single, kids? [19:53] >> I'm married, no kids. No kids. I've been delaying that actually until I get my start up to a really right position where it can actually grow itself from there. [20:06] So And how old are you? [20:07] >> Kid for the beginning. [20:09] And how old are you? [20:10] >> I'm 32 years old. [20:12] 32. Last question. Something you wish you knew when you were 20. [20:18] >> Well, I wish I entered into the entrepreneurship earlier when I was in my twenties. I mean, I would definitely would have failed then or succeeded and learned a lot and took that experience with me. I only started my entrepreneurship journey sometime around late twenties, to be honest. And that was a mistake, [20:45] >> I can't say. [20:46] Guys, there you have it. Penny.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 SaaS tools. They did $5,000 a month about a year ago now, flirting with $100,000 a month in revenue. They should pass that this year. Also just have $5,000,000 in fresh capital and a seed round they just raised at around a 20 [21:06] to $25,000,000 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 seventy, eighty, 90, a 100 customers. Mohamed, thanks for taking us to the top. [21:20] >> Thanks, Nathan. Really appreciate it. [21:24] One more thing before you go. We have a brand new show every Thursday at 1PM Central. It's called Shark Tank for SaaS. 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 [21:49] 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 SaaS world, whether it's an acquisition, a big [22:12] fundraise, a big sale, a big profitability statement or 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 SaaS 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 [22:33] for that at nathanlatka.com/slack. In the meantime, I'm hanging out with you here on YouTube. I'll be in the comments for the next thirty 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 [22:53] got to push them away. Click the thumbs up below to counter them and know that I appreciate your guys'support. Alright, I'll be in the comments. [22:59] >> See you.