Ignition Revenue, Valuation & Funding (2024)

[00:00] Hey folks, my guest today is Guy Pearson. He's got more than a decade of experience in professional services. He's a chartered accountant, chairman of Interactive Accounting, a progressive accounting firm he founded in 2009, and an angel investor in multiple portfolio companies. Today, he's the CEO and founder of Practice Ignition, the world's first client engagement and commerce platform for professional services businesses. Guy, you ready to take us to the top? [00:19] >> Hey, Let's go. [00:21] Thanks for staying up late. I think you're based down there in Sydney. Right? [00:23] >> I'm up early. It's 7AM here. Oh my god. So we can put the coffee in. You've got your coffee in. I'm at the other end, mate. [00:29] Yeah. Okay. Fair. Well, okay. So practiceignition.com is a site. Now just to be clear, you are not a consulting company. You build software for consulting companies. Correct. I see. [00:38] >> 100% right. I it's one on like Shopify for services. Right? So you think about it like that, where the engineer used to run the revenue on payments and connect through the third party workflows so they can have their tasks, billing, and collections all tied together to a digital handshake. That's And kind of what we [00:53] so to help me understand, can you name a customer that's paying you and what they pay you for specifically? [00:58] >> Baker Tilly in The US would be one of the larger ones. Let me think about what else. [01:04] Said Baker Tilly? Sorry, Baker Tilly? [01:06] >> Baker Tilly. So they're a large CPA firm in The US and Canada. And they pay us for software to help run their contracts. And accountants usually reengage or reissue contracts every year. So it's a sort of a firm plan if we can dumb it down to that. [01:23] Are you selling mainly to accounting firms? [01:25] >> 101% at the moment. 95% of our customer base are CPAs and bookkeepers around the world. [01:31] Interesting. Okay, so there is a sector focus here. It's not just any consulting firm in the world. [01:36] >> No, that's true. We do have some weird and wonderful customers in many different industries, like small ISPs, education providers, lawyers, digital agencies, marketers, etcetera. But the large primary bulk of our focus has been on bookkeeping and accounting as every professional services business has a CPA or has a bookkeeper. So it's very much sort of let's solve their problem and then they can recommend it to their clients in the long run. [01:59] I see. Okay, that makes tons of sense. So what is the average Baker Tilly, not actually Baker Tilly, but what's the average customer paying you per month or per year to use the technology? [02:07] >> Payment is about US$400 a month for a mix of software and payments. So it's sort of a blended pace. The average software clip is about US$150 and the payment is about US$250 [02:18] Interesting. So what is the two fifty dollars Is that a percentage of the volume they process through your platform? [02:23] >> Correct. So we process both ACH and credit card in about five countries around the world: US, Canada, UK, Australia, New Zealand. And we've got a couple of billion dollars of revenue under management, and we process north of a billion annually at the moment, but obviously, that rate's sort of pouring up. [02:41] Got it. So so you process over 1,000,000,000 per year, and these are individual accounting firms like Baker Tilly sending invoices or quotes to their customers. When you add all those up, it's over 1,000,000,000. You take a small cut of that. [02:52] >> Correct. That's exactly how it works. [02:54] Come on, Guy. What's the cut? What's the smallest? [02:59] >> The smallest? We take about well, mean, it's on the website, so it's very easy to see, but the blended take rate for ourselves is about 50 bps at the moment. We're looking to push that up through getting the volume up there and negotiating on our cost side, but also just thinking about how we charge smartly for people. So people are feeling like they're paying the right amount for the right service. Ultimately, what we're trying to do [03:20] >> is make sure there's no administration, make sure they don't have to use another system, make sure the clients can see their payments and understand where they're coming from and that everyone's kind of happy on the two sided agreement. [03:30] Yeah. Mean, but Guy, I mean, look, just quickly, mean, billion bucks in GMV at a 5% take rate is your lowest. That means that a minimum [03:37] >> Oh, fifty fifty bits point five. [03:39] Right. Sorry. Sorry. Sorry. Point 5% take rate. I mean, your your your minimum revenue there is $5,000,000 there, right? If that's your lowest take rate, probably higher. [03:46] >> Yep. [03:47] Yeah. That's great. Okay. [03:49] >> Yeah. Thankfully. Thankfully. [03:51] That's good. What is the how do people get down to 50 bps? Like, do they what do most people start at? Is it like 250 bps, 2.5%? [04:00] >> No. Yes. So the gross rate before we have to pay any of our providers is sort of two seventy bps in The US on credit card. And this is a headline rate. But we have a flat fee charge for ACH presently. And so if you're processing B2B payments, similar to say like a bill.com, but you're running it through us between the two parties, they're paying a fixed fee of maximum $1 And so obviously you get a [04:24] >> blended rate, that take rate comes right down. [04:28] >> And so it's a fairly nice mix. We're just interested in bringing in the flow of commerce between two B2B parties and getting rid of checks. That's kind of our main secret sauce. And it's a great platform for removing that admin layer so everyone gets stuck in and has a good experience. [04:44] Yep. Now I wanna get to the round of just doing JMI Equity recently, like literally a couple of days ago. But let's go back to like day one for a second. When did you guys launch? What year? [04:52] >> 2013. We had an MVP out in 2012. But, yeah, about eight years ago. [04:58] Okay. Wow. About eight years ago. And do you remember the year you broke a million in revenue? [05:03] >> Yeah. That was 2017. [05:05] 2017. Okay. So 0 to million, five five years. That's the struggle was real back then, [05:10] >> Oh, man, this is the devil. Trying to sell to account as a bookkeeper, they're lovely people, but also trying to have the right level of product in terms of not too structured and flexible and trying to find that balance is a real pain point. It's a slog. I think we'd only raised about $2,000,000 in that whole five year journey. So we had a very lean maintain trying to figure out how to make things work and scale [05:35] >> it up. And from then on, it's sort of more expansion capital and where we went. [05:39] Do you remember? Yeah. You did I think you did like three seed rounds, a million in 2015 and one point five ish in two tranches in 2014 and then 110 angel round, I think, before that. Right? Something like that? [05:51] >> Yeah. So we had like family friends and fools. So my brother, my best mate, and one of my old business partners in my old CPA firm. Then we had a bunch of angels, which was anchored by a guy called Craig Winkler, who's effectively like our Intuit founder, but just in Australia. And on the back of that, we then raised from Real Ventures, which is up in Canada. I'm based in Sydney, Australia to sort of put how [06:15] >> far we had to go. And so John Stokes up there, I read our first seed check and kind of split the round into and we had enterprise [06:23] >> software listed company founder here, lead the second part of the seed round a year later. So sort of split. And then it was on to Series A with Australian funding, particularly now it's great and it keeps getting better. But we had four VC funds and two billionaires write us a 5,000,000 Australian dollar check, to give you an idea. So it's 3.5 US. So at that point we were like, you know what, maybe this rising thing isn't [06:46] >> for us. We actually got through the break even in 2019 and sat down with friends and advisors and whatnot and was sort of like, well, where to from here? We had this much of the share of the market. We had product market fit. And we ended up going to look for the biggest and the baddest and had Tiger Global come along to lead our Series B in 2019, which is phenomenal. And yeah, like you said, JMI [07:09] >> recently. So if you look at the crunch base for us, it's like little bits of capital and kind of like big chunk and then bigger chunk. [07:16] Next and next, it'll be $5,000,000,000 valuation. You guys [07:20] >> are going to be long term. Oh, mate. My my mother would be so proud. But look, I would say that you know, take me back. [07:28] I mean, managing dilution is obviously critical. You want to build a big business and also try and preserve as much ownership for you and your co founders and your brother, your best mate as you can over time, right? So when you guys went on to that 3.6 US USD around back in the series A back in 2017, do you remember what valuation you raised that at? [07:44] >> I do. [07:45] Was it was it was it very dilutive? [07:48] >> It was. It was really so Australians, how would you put this? They like to see efficiency in capital deployment as a mindset we're used to profitable companies. And so when you've something that's not profitable but growing quickly, people sort of struggle. We really needed the capital. We found great partners once the price was on the low end, but we also were sick of raising. So this is going to be our last round that obviously played into [08:15] >> the price as well. But we brought on some great partners. So those people who joined us actually helped us get to the B round and onwards. So there's a mix of what if. You know, would have loved to on, Jayco. [08:29] What's the number there? Are we talking like you sold, like, 20% of business or, like, 30 of business? 30. 30. Okay. That's not horrendous. Right? I mean No. [08:36] >> No. No. [08:37] You know, it's on the high end. It's terrible. [08:40] >> I think it's because we we don't ever really got twelve months capital, as you can see from our race history. Right? So it was sort of like the ongoing dilution and the small step ups in between each round up until the b and then the C. So, yeah. Yeah. It was painful at the time. [08:57] Yeah. Yeah. Painful, but now worth it. You guys are scaling nicely. How many customers are you working with now today? Like Baker Tilly's? [09:03] >> 5,000. [09:04] Oh my gosh. 5,000. [09:05] >> How old would be on Baker Tilly would be on the high end, and we probably should stop using their name because they're sort of one of the largest in the world. [09:10] But Okay. I'll stop using them. [09:13] >> So let's use good good friends of mine. Zen Accounting in Canada would be would be a good example of, like, a great customer that fits right on our ICP. So it's about 5,000 firms around the world that we're working with today. [09:23] Okay. Okay. And can I sort of get a range here if I take those 5,000 customers times the $400 average ARPU? I mean, that puts you at, like, 2,000,000 a month in revenue. Is that about right? [09:33] >> Yep. Yeah. Pretty cool. [09:35] And if that's where you are today, what is growth over the past twelve months? [09:40] >> It's funny. COVID has been an accelerator and a headwind for us because you've got accountants looking after their clients, doing forecasts and all these things they never would have done probably for years. And then you've got the wanting to get paid and having moved online. So we've grown about 70 plus percent last two years running, which is not terrible. But we would have liked to grow more. Hopefully that's what's coming as the campus particularly look forward [10:04] >> to getting paid and have taken care of their clients and now needs to take care of their own business. And so what we're seeing is an acceleration. And we've made some really great partnerships recently to help us sort of conquer The US. Gusto, Thomson Reuters, Intuit PCG Group. So we're kind of off off into the races, we're looking forward to, you know, coming coming to bring all the goodness that we've got down here into The US [10:26] >> market and and ramp up that market there. [10:28] Tell me tell me more about the team today. How many folks are full time? [10:31] >> 100 and it's changing a lot every week. We're north of a 150. I think we'll finish the year at 170. Give you an idea of sort of the rate we're hiring at the moment. And much does this You're at about 100. [10:45] >> That's a good question. About 20. But we've got about 20 positions coming down the pipe in the next couple of days. So we're trying to ratchet it up. We went to market and scaled by making sure we took care of in manual ways. So taking care of the customers on the post sale side and learning what they needed. And then on the inbound side, we just had basically content for marketers driving people in for sales. And [11:10] >> then switching that gear into product led growth to take them through the journey and still keep the team that we've built. And then adding on, I think our marketing team has gone from four to 20 people in the last four months. [11:21] Oh, wow. Okay. [11:22] >> So ratcheting on. [11:23] Do you guys employ sort of app on strategy? Do have internal quota carrying sales reps with like million dollar quotas or no? [11:29] >> We do. And that's probably roughly about right. But the ASP on an average deal is probably $175 And so they have to actually sell quite a lot of software to make that happen. So we'd have those folks and they tend to stick to our two larger plans, which are still quite small. And then the base plan tends to be a straight flow through from marketing into self sign up. [11:54] What comes first? Accounting firm putting a dollar revenue through you and you making that in the percent of GMV or them buying a software first and then adding on invoicing later? [12:04] >> First ones. They buy the software, they'll run through usually like accountants, as you can imagine, have a system currently for billing and collecting payment. And so typically what they do is they send a contract out to one of their teams or their friend who's a client. They start there. They build up trust in the platform as we start to manage the revenue, then they turn payments on. And the faster we build that trust, the faster they [12:28] >> roll it out across the client base. The freemium model is something we tried way back in the day and that did not work. As soon as we turned pricing off and payments, sorry, charging everyone for the software, we had a whole bunch of emails going, oh, great. Now I'll start using it. So big lesson learned back in, like, 2014 or '15. I was just like [12:48] Yeah. Well, the reason I asked is you're really well put I mean, some of the highest multiples, revenue multiples I'm seeing right now in terms of fundraisers, especially like a 50,000,000 series B, C, whatever, is net dollar retention being through the roof. And anytime you have a combined business model where it's SaaS plus utility based metric, percent of GMV, usually the NDRs are through the roof. I mean, do you guys have pretty high net dollar retention? [13:07] >> Do. Yeah. We're sort of yeah. I think payments expands at about 130 year over year. And then software is sort of industry standard. Yep. [13:17] Yep. So like adding it all together with like like a 140, 150% net dollar retention across the base in both product lines? [13:23] >> Yeah. [13:23] Yeah. That's mean, can you hold that at scale, you think? Can you can you keep keep that up to a $100,000,000 in ARR? [13:28] >> Well, that's definitely the plan. But, you know, there's challenges along the way. Right? We we just I don't know. We've a very loyal customer base that loves us, which is great. But obviously the challenge is on us to keep building great software and help keep that retention level high and sort of bring more incentive for them to expand and bring the rest of the team into the mix as well. So we sort of make sure that [13:48] >> it's sticky product. [13:49] Yep. I mean, it sounds like you had great growth. Obviously, you did the series A, it was a little dilutive. You probably learned from that. You probably never sold 30% of your business again. You waited for it more. And you're both series B and series C waited for something more competitive. But why raise I mean, million is still dilutive. Right? Why raise it? [14:05] >> We had one shareholder that that was wrapping up their fund. So we used to part the process to sort of clear them out. [14:12] Oh, we want secondary? [14:14] >> Yeah. We had about 10,000,000 secondary Oh, I see. In in the mix. [14:18] Only rest the investor or did you give early employees the option? [14:22] >> No. Yeah, we did. So we made early employees, existing team members who've been with us for a while and had options that were vested. They were allowed to cash out some. Myself and my co founder took a few chips off the table. [14:34] Wait. Hold on. How do you decide that? Like, if you sell a million bucks of your personal shares, it's like a bad signal. But like, then you wanna take enough where they're where you're like financially safe and not to worry about shit. Right? So like, how do you balance that? [14:45] >> Oh, I mean, I guess I'm a CPA by background. And so having the conversation with folks is like, look, if I don't have to worry about making a mortgage or payment at home and banks hate entrepreneurs, particularly in this country. And so it's like, well, I can grab the house or buy the apartment finally. And then I don't have to worry about that side, Maybe have a small mortgage and I'm focused on the company, but I [15:04] >> don't have that sort of pressures of home like I did in the early days where you've got personal credit card debt because you're paying yourself $20 flying around the world, sleeping on couches, trying to figure out how to make ends meet. So the focus is just sort of laser in and most people actually, Jamie, my folks were great about it. Tiger was great about it. People are really supportive. They're like, you've been on a ten year [15:25] >> journey. We don't want you to burn out. [15:27] I'm hearing great things. So I've talked to maybe seven founders that raised significant rounds from Tiger over the past like ninety days, and everything I'm hearing is Tiger has been extremely supportive about allowing big chunks, even 50% of rounds to be secondary. So it's great to hear that from you as well. And they've been great to work with. Now, in terms of valuation, most folks are, you know, Series C, they're selling maybe 10 ish percent of [15:47] the business. Were you sort of standard there? Or were you way lower or way higher for some odd reason? [15:52] >> We were a little bit higher. [15:54] >> Not I'm trying to think not dramatically, I think the dilution was supposed to be 15%. [15:59] 13%? [16:00] >> Yeah. So like I said, a little little bit higher, not not massively. [16:04] And I mean, did that mean when you look at your revenue, and then you look at sort of multiple, did that sort of feel fair to you? I guess maybe a better way to ask that, did you did you turn down higher valued term sheets because you like Tiger and the secondary they allowed? [16:16] >> Well, JMI led this round. We turned down and then we did the Tiger round, we turned down Tiger had the highest. When we did this round, we turned down higher term sheets to work with JMI. They backed Clio, ServiceNow, PointClickCare, so a couple of things. [16:32] Verticalized Tiger software was your B? [16:35] >> Yeah. Yeah. JMI let out a c. [16:37] Oh, the 2019. 10,000,000 of a 20,000,000 was secondary. [16:41] >> Oh, sorry. I'm I'm back then, it was 2,000,000 of the 15. [16:47] Oh, So JMI let you take 10 out of the 50, and Tiger let you take two out of the the 16 or 17 USD. [16:53] >> Yep. [16:54] Oh, I see. I see. [16:56] >> So we've done it in both rounds, mostly just easing easing burdens to people, like, you know, buying a house, putting kids through school. We had a whole bunch of angel investors who backed us, like, my best mate, my brother. It's like they're not really in this game. They were there to support me. So letting them sort of de risk a little bit along the way, which is great. Yeah, JMI us JMI let It was about 4,000,000 [17:18] >> went to the team, 6,000,000 was the buyout Tuesday investor. [17:24] Any advice you'd give to founders that are going to us right now? Doesn't get talked about a lot, so I appreciate you being transparent. Would you manage the secondary any differently? [17:32] >> No. I think it's really important. So for us, I think from Australia, having stock options and buying them at more than paper is not really a thing. So I think the biggest education for us, what we were trying to do and wearing my accounting hat was very much let's put a price on these, let's let some of the teams sell some so that they place a value on options. It's sort of been a new journey here [17:52] >> in us as to how to think about that as an employee, as a team member. And so we really wanted to make sure that people thought it was valued, but it wasn't just a piece of paper that might be worth something someday. And really, once again, just relinquishing pressure on the home front for the most part. So paying down debts, clearing out formal option holes and then sell altogether if they wanted to, if they weren't at [18:11] >> the company anymore and just clearing out bit of the option table. So the advice would be, sure you take care of your people. [18:19] >> I might be a smart individual on certain days, but realistically, I can't run or do the jobs that other 150 people do. So I think particularly with what is it, the great resignation or whatnot coming up, make sure you take care of your folks. They believe in the journey and they think you're looking after and they'll stay and they'll back you up. [18:37] I can see why you have 150 people following you these days. People obviously love that approach. That's great to hear. Round out the valuation story for me real quick. We've got series A, we've got series C, what did you guys raise the series B at? [18:52] >> Raise that 50 just north of US 50. [18:56] Post money? [18:57] >> Pre. [18:58] Pre. Okay, got it. So 50 pre, call like 56 to eight, like 70 post, something like that. Yeah. Okay, very cool. Great story there. Or did you feel like you're at a disadvantage being based in Sydney? Or do you feel like you got a multiple, like same multiple you get if you're based in New York? [19:12] >> It's a good question. I think most of my American teammates who've been with us for a while think I'm disadvantaged. I didn't go to Stanford, to be frank. But but [19:23] >> no, not so much. [19:27] >> I'm sure there's definitely people like you being on the continent. So it'd probably be easier to raise certain rounds or have more investors interested if they feel that they can fly and pay us a visit much easier. But I'm quite happy building an Australian company. I mean, I'm not sure if you've got Canva, Campaign Monitor, Atlassian, Xero's from this end of the world. And all this kind of goes on. We're just trying to throw our hat [19:50] >> in the ring and create another great company from this end of the world and bring that culture that allows 150 people to stay with us to the world and do it our way. Not super patriotic in terms of like beating my chest, but would really like to sort of help us. Australia has a history of digging things out of the ground, farming things and building things on top of it. We really like us to sell our [20:12] >> smarts. That's the reason to stay down here. Also great R and D incentives. So any developers that want a job coming out. [20:20] Big is the kickback? Shred in Canada is like a 60% kickback. What's your kickback? [20:25] >> About the same. [20:26] Wow. So if you pay a developer, I'm making it up $200,000, you're gonna get $120,000 at the end of that year back from the government. [20:34] >> Yep. [20:34] Yeah. Wow. But doesn't that's that's a very [20:36] >> So, like, I think shredding and our program are very much the same in that it's something on things that you build that are at risk. So not for maintenance and not for DevOps, but for, like, new feature development. [20:46] Yep. Very cool. On that note, guys, let's wrap up with the famous five. Number one favorite book? [20:51] >> The Hard Thing About Hard Things by Ben Horowitz. [20:53] Number two, is there a CEO you're following or studying? [20:58] >> I'm sorry, he's the CEO. Des Traynor, Intercom. [21:01] >> Yep. [21:02] Number three, favorite online tool? [21:06] >> Oh, I don't know. That's a hard one. I would just say, geez, so I I can't imagine my life without it. [21:11] No. That's a good one. Number four, how many hours of sleep do get every night except, you know, days when you're doing the 7AM podcast? [21:17] >> About six to seven. Alright. I'm I get up super early. [21:21] And what's your situation? Married? Single? Kids? [21:23] >> Recently married. Two weeks ago. [21:25] Oh, wow. That's exciting. [21:26] >> I got married the day after the round closed. So how's that for time? [21:29] Holy mackerel. So I assume the honeymoon was nice. A little secondary money to play with. You rock and roll. Right? [21:35] >> No. Honeymoon's coming up. We we had about two days off, we're going to planning session. So end of December. So I'm not sure if you have any Australian mates out there, but we don't really work between December 15 and January 15. It's kind of like July 4, Thanksgiving, Christmas, and August all tied into one. I enjoy that. [21:53] Just married, about to do a honeymoon, and no kids or have any kids? [21:56] >> No kids. [21:57] No kids. And how old are you, guy? [21:59] >> 37. [22:00] >> 37. [22:01] Last question, something you wish you knew when you were 20. [22:04] >> More patience. [22:07] Guys, he says he needs more patience. I think he has incredible patience. Launched in 2013. They've had patience enough for five years to go up to a million bucks in revenue did four different sort of angel and seed rounds, but now they're scaling nicely. They're serving over 5,000. Think about like accounting practices, helping those firms scale with their consulting, they'd have dual business model SaaS, plus percent of GMV, they're processing billions now over a billion per [22:28] year doing about $24,000,000 run rate across all their brands last raise just a couple days ago, million Series C at a $330,000,000 valuation sold about 13% with 10,000,000 taking care of his early team members, early employees. Guy, thanks for taking us to the top. [22:42] >> Alright. Thanks so much. Appreciate it. [22:45] 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 one [23:10] p. M. Central. Additionally, remember these recorded founder interviews go live. We release them here on YouTube every day at two p. M. 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 [23:31] 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 wanna take this conversation deeper and further, we have by far the largest private Slack community for B2B SaaS founders. You wanna 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 [23:54] saying. Sign up 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, I do it so that we can all learn. We have to counter those [24:14] people. We 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. See you.