Percolate Revenue, Valuation & Funding (2018)

hello everyone my guest today is Randy wood ton he's the CEO of percolate he also has been a leader and strategic innovator in the marketing technology industry for over 20 years prior to percolate he served as CEO of leading predictive marketing platform rocket fuel where he repositioned the company and led it to its sail during his career Rania's held senior positions at Microsoft in Salesforce he's a graduate of Harvard Business School st. John's College and the u.s. Naval Academy Randy are you ready to take us to the top sure let's go all right tell us about percolate what do you guys do and what is your business model is it a pure play SAS company take the second one first yes pure play SAS company focused on Fortune 2000 companies that are struggling with the challenge at all marketers are facing is about how do you deliver on the promise of personalization how do you get content the right person at the right time and actually make marketing work better yep very good and you join the company I believe you said in 2016 correct no actually I've only been here six months so I came in six months ago to help them continue the evolution of the company from a social media management monitoring only solution into an enterprise software solution sold to the whole marketing organization so percolate really well-known for social media management capabilities we're out there defining a new category called content marketing platforms yep Randy put put the company on timeline for me when did the company launch yeah sorry it's company started in 2011 so it's been around for about seven years and I joined six months ago okay so question for you how a lot of success what you know right why not go out and start your own thing from scratch why do I join percolate it's a great question I so I'm a grower not a founder what I do is they come in and help companies scale so I'm gonna go to market guys sales service at marketing I like companies that are in this stage of often described as that series see you have product product market fit and now what you need to do is go activate in the marketplace and so I'm probably just not smart enough to have an original idea I come in and help get stuff done how did you learn that about yourself that's a great question I background in military was a naval aviator and just I like things moving fast and making quick decisions and I think that coming out of the school the types of problems I was interested in were the ones where the innovation was coming from collaboration around interesting ideas and scaling things through organizations versus being the guy sitting by myself and coming up with a big idea did you come into the company with around the funding where you basically Annie I are at a VC firm er no I wasn't I we did secure some additional funding as you can imagine whenever you bring in a new CEO it takes a little bit to define a new strategy and then you want to have the funding to execute I had left rocket fuel took some time off and went surfing in Costa Rica I did some yoga you know try to come in touch with myself and then my wife got sick of me trying to get in touch with myself at home so go get a job but I was very deliberate in looking for a company at this stage on focused on this problem lots of exciting opportunities out here but I thought percolate had made enough of the transition that I can be successful so I wanted about capital real quick and then we'll talk more about the story here how much capital no companies date so raised to date 75 million okay all equity or is there debt on the top of that well there's we have a line of debt that we run with Comerica just like many companies do we access it as a working capital line versus a funding line the equity last round was done in 2015 so like most startup you end up you get a little money to prove a thesis and you execute 12 to 18 months you go get a little bit more money and you keep going brandy out of curiosity because debt I know just getting hotter especially in a good economy did you decide to do like revenue based financing where you're paying back as a percentage of monthly revenue or did you like an M R term loan where there's an interest rate interest rate for the first 12 months an interest in principal over say four to six years wow that's a really technical question what I was curious yeah we so i inherited the debt line that we had it's an MMR debt line the additional debt is a convert okay so you're not you're not paying at as a percentage of gross receipts per month it's it's a fixed interest rate fixed interest rate yeah and I was interested in your question your something around the debt what I found is in having done in this rocket fuel as well with debt financing is there a bunch of banks that are just lined up with the VCS top pcs in the world and they got these different deals that they do and they invest in the portfolio and you get good terms because you're a Sequoia back where like Sequoia ggv Lightspeed the first round those types of companies want to the bank's want to do business with those companies and so it's a matter of I I think capital structure is one of the most interesting things you have to think about is the CEO and for early-stage entrepreneurs getting smart on that is really important because I see capital to cost a capital of debt versus equity and how much you take and when you take it really different instruments and different expectations and and and clearly something that people CEOs CFOs need to be think about all the time yeah last question on the debt do they require that you keep let's say that the debt vehicle was I'm making this up a ten million dollar vehicle they require you that you always keep ten million liquid in the bank as long as you're accessing that vehicle or no or you don't know no no it's more of a we can access up to our capacity the capacity is determined by our m RR yeah okay very good all right let's move on so that's capital race let's refocus back on the products you said fortune 200 or you're focused at give me a general scent are you say fortunate two thousand or fortune 214 mm so entrepot its enterprise software companies we talk about brands such as MasterCard Unilever ei we are working with some of the largest brands in the world because what we like is complexity the problem we're solving is when there's a lot of products a lot of channels a lot of markets and a lot of marketers trying to figure out what is the campaign they should be executing how did have people build content and orchestrate that from a global centralized operation all the way down into local so the problem we saw is primarily b2b big enterprise type problems and Randy what I don't have it on every cohort but on average one of the woodies enterprises pay you per year what's your average ACB would you say yeah so we're north of 200 thousand per year when I would say a lot of our contracts are tcv so they're multiple year deals because what you find with these large enterprises is a brawny robust partnership process and they're looking for partners and so if you make it all the way through and you get to the end they often say great let's do a three-year deal they're also looking for preferred pricing if they make the commitment and that web such but it's very very different than like a midmark high transaction sale are you a are they just committing to that via SEMA are you actually pulling 3 years of cash forward on day one it's a great question I won't give you the exact number I would say all of them or I'll tell you that 95% of our deals are paid upfront a large percentage of them are paid annually on the on the contract date some are paid upfront fully so neat about this business versus when I was at rocket fuel where we were having to buy inventory chase agencies to get paid they had to go chase advertisers to pay them we were playing basically playing a bank to the agencies in the pure SAS model where you get paid up front the more you grow the more cash you have yeah it's so wonderful working capital dynamics especially if your figure even take a fraction of your new sales getting paid two years upfront I mean the answer that looks great and churn you also reduce overall cost of customer acquisition cost so you know bigger deals longer terms I will always go for those yep um would it be scaled to now in terms of total customers you're working with we publicly talk about 600 brands okay got it now now are those all different companies or those brands roll up to a hundred like parent holding companies not a great question so you can imagine with the company like Unilever they have multiple brands we counted at the brand level it really depends on how the company is structured but I would say it's in the range of every company has a couple of brands yeah so maybe like I'm gonna make this up 200 companies and on average I've got caught three brands under I'm something like that yeah I won't comment publicly but it's you're in the order of magnitude what I would say the opportunity for enterprise sales is as you know is when we go into a large company you get in with one organization and the opportunities expand and so enterprise sales as MOOC is about landing the big logo but it's the expansion especially for a work Automation tool its value is realized when you have the entire division the entire marketing division working on it yep we can quantify this in terms of net revenue retention annually so I assume based off your incredible ability to drive expansion and your ability to pull cash or your net revenue retention I'm imagining is over 100 percent per year is that accurate yeah again can't comment publicly what I would say is that what we are focused on is large enterprise customers who are buying the new capability the content marketing platform and we have great net retention in that in that segment there are some smaller mid-sized customers that we have as we've evolved the company are working with and we perhaps have more churn in that segment then you would you might expect would we expect in a market don't talk about you but on average and its market what would expect for churn well I think your your your general sense of enterprise software different than mid market right so enterprise software I think expectation is 8090 percent retention is totally reasonable its long-term contracts your as we said you're making these big commitments with the mid market space what you struggle with is just to be clear sorry are you putting yourself in market or enterprise no we're Enterprise everybody yeah yeah we're enterprise so the mid market space what you struggle with is if you're selling a complicated enterprise solution with requires a lot of implementation is people they like the idea they get into it but then they can't fully commit to changing the way they're doing marketing or they can't support the ongoing change management required to enable it so I think when you're Google and you're live in five with a search solution like they probably have small medium-sized business and mid markets that use them all the time when you're doing an enterprise software sale trying to sell in the bid market it's just mismatched yep with what the mid-market buyer wants yeah you mentioned CAC earlier I don't want to know what your specific CAC is but I'm actually more interested in how aggressive you're being on your payback periods based off what you race or are you happy bit considering your cash cushion to have and be patient for a 24 month payback or do you try and stay below six months or a year or what yeah we look below six months on CAC I would I would describe it as one of the areas where we're investing coming in and pivoting and focusing on b2b marketing more specifically it's a little put this way there's a different way of running an enterprise software sales motion from what a mid-market play is it's it's inbound leads it's qualification its sales funnel what I tell my team is enterprise sales is about focus its sales cylinders so you identify the set of verticals we're gonna go after you build the set of playbooks and you execute those very specifically against a target account list you use tactics such as like account based marketing so you use events so we do a lot of events and people are welcome to come to our website and check it out to learn more because we're creating a category and educating people helping to educate people about the challenge and what's possible mmm that's a different deployment of capital under CAC than if you're doing mid market trying to drive leads and do the demand gen so I think it's more around again all of your systems investments need to be aligned with your go-to-market strategy we're going after enterprise customers yep am i understanding the Randi correctly no matter where this spend is going generally speaking on an average contract at least first year of 200 grand you're happy to spend six months of that so say a hundred grand on acquisition whether that's a conference you're putting on or flying a salesperson out or whatever yeah I mean the ratio that you find the magic number in the valley is three to one LGBT CAC right so your lifetime value three times 3x the CAC that you spend and people will talk about you can spend up to thirty percent to acquire that customer so with someone who's with us for five five years spending $200,000 a year that's a million dollar lifetime value you could spend a lot on cat to get them the challenge is they're few and far between and you do spend a lot in terms of sophisticated sales motion with highly experienced AES BDR solution consultants a marketing plan so again your sales structure has to reinforce the sales strategy which is about getting big accounts yeah then the trap I've seen a few CEOs that are your size though the fall into is they have really healthy CAC delta-t ratios but that their churn is so low they've argued that the time based LTV is seven or eight years in some cases so if you say your eight-year LTV I'm gonna make this up as a million bucks and you say I'm willing to spend 30% of to acquire someone to spend 300 grand but it takes you three years to get that three integrand back even though the lifetime value pans out and it works some people can't afford to wait that long which is wise about payback period ya know I love that but I'd like the payback period I think it's a great optic to use we use it with our own SAS metrics and we have that exact conversation yeah because part of it is you got a cat you gotta have the cash to fund enterprise sales motion that's right what's your team look like today how many people I don't think we're public about that you can look on CrunchBase you order a magnet to a couple hundred okay okay get a couple hundred but what I'm really curious about is I wanted to dive deeper on the inside sales folks by the way LinkedIn says 227 people how many are dedicated to some kind of insight sales function so we have a so we do inside sales interesting I think of it as business development or sales the and it's a percent of the sales team we I would tell you industry-wide what you find is about a three to one ratio in turn three sales people to one edr is what's appropriate again it depends on if you're doing a key account strategies to the difference is if you have BTR's that are incented to just set up initial meetings that's a different model then if you're trying to do an account based strategy and you have your baby are setting up meeting all around the account because it's a you're trying to do that key influencer and get the density that's a that's a different type of engagement that you're doing and that um but I think the ratio of one to three is probably right so right now just to be clear you're saying well you could have one BTR feed enough leads to fill up three sales reps calendars but but it's leads specific against a target account got it targeting yes gran sir very good last few questions before we wrap up growth rate what do you growing at year over year generally but yeah I mean we're in line what you would expect from a vc-backed company high double digits or are you over 100% no less than hundred percent high double you know up in that range though with the new business good so between will caught between 50 and a percent year-over-year growth in terms of revenue and then we can assume some minimums here Randy basis well you told me so call it 200 like logos using you across maybe 600 brands and you said earlier you know a CV around 200 grand I mean so if I took 200 logos times at $200,000 a CV it puts it about 3 million per month or about 40 million in terms of a our our run rate I want us to confirm the exact numbers but generally speaking my on the range you can do the math I fair enough wait what how much time do you think you need to you know get to the point where you're breaking and flirtin with kind of a hundred million mark G this is it happen by 2020 you think I don't know I mean we are dependent upon these getting the big deals and pendants tray expanding him I would tell you that I'm excited about the customers that we're working with the attraction we've gotten on the expansion and so I think you can do the math on them on the calculated growth rate our goal is to grow as fast as possible but responsibly right yeah even revenue with the investment behind it to drive a path towards profitability yep all right let's wrap up here quick with the famous five number one what's your favorite business book right now play bigger it's all about category definition and I think it's a category of strategy and when you're evolving and defining a category it's been very powerful number two is there a CEO you're currently following or studying that's a great question Elon Musk number three is there a favorite online tool you have for building your business other than Salesforce besides Salesforce yeah no I mean we're doing we're doing more with LinkedIn and I'm excited about it in terms of again if we're trying to engage with b2b marketers in developing a community of people in education I do think LinkedIn is probably on social hour most valuable engagement tool LinkedIn number for how many hours of sleep read getting every night Randy thanks that's good and what's your situation well actually I think you mentioned married but what situation married single kids married two kids eleven and thirteen cute little boys never see enough of them but very excited to be at the stage of my life good and how are you Randy fifty-fifty last question what he was your twenty year old self new well my 20 year old self was in the military so twenty year old self oh I'll give you a quick story so in the military you there's a saying like lead follow or get out of the way it's very clear about who's gonna make the decision and I don't care it's your decision great we're gonna go take that hill but you're gonna go lead it and the corporate sector the big thing I had to learn it took me a while was its lead follow or let's talk about it and you spent all this time in meetings with people just talking about things and it just drove me nuts when I first got into the corporate sector was like what what it's clear there's a decision to be made here who's gonna make the decision and so I think to the 20 year old self it would be recognized that you're gonna have to do some evolution of operating pace when you go into the corporate sector guys there you have it there's a little bit more kind of what do you think let me make sure your feelings are good support your decision give me an updated report a little bit different than the military Randy's obviously adopting well you know maybe his wife didn't get sick of him surfing and doing yoga at home in the middle of living room he'd still be home doing yoga middle of living room but he's not he joined percolate after a search and he said you know what this is a company I want to be with join them just six months ago founded in 2011 the ultimate marketing machine are serving about 200 logos across 600 brands 75 million books raised growing between 50 and 100 percent year over year somewhere we'll say it somewhere in the kind of 40 million-dollar AR run rate range again retention metrics generally nine with industry payback period they try to stay below six months with a team of around call it 200 300 people Randi thank you so much for taking us to the top yeah right on have a great day