Qarrot Revenue, Valuation & Funding (2024)

[00:00] Hey folks, my guest today is Aaron Carr. He spent fifteen years in the customer loyalty industry before jumping out and launching Qarrot, a cloud based employee recognition platform. Aaron, are you ready to take us to the top? [00:10] >> Certainly am. Let's do it. [00:12] All right. So you're in a hot space. This is like HR tech space, employee performance in a remote world gets very, very important. What are you seeing in terms of COVID? How's COVID impacted you guys? [00:22] >> So it's funny because for the first month when sort of the March lockdowns happened last year, I think we were all concerned. It sort of hit businesses like pretty hard, but a few months later, everybody was talking about, well, now we've got this challenge of keeping people motivated and engaged while they're working remotely. And suddenly the industry hit this massive uptick and we started getting more calls than we did pre COVID. So it's been interesting to [00:51] >> say the least. Certainly some industries are on tighter budgets, but I'd say our HR tech and specifically employee engagement and recognition is really on a lot of people's radar right now. So it's actually had a net positive impact, I'd say. [01:07] That's interesting. Okay, now what are customers paying on average per month to use your technology? [01:12] >> Yeah, so we're primarily subscription based. It's a per user per month fee. We start at $3 per head per month. On average, based on the account size, it's about, let's say around $200 $230 per account. [01:28] Oh, wow. Okay, so teams are signing up like fifty, sixty, 70 employees right off the bat. [01:33] >> Yeah. Yeah. So predominantly we're hitting the small to mid market. So I'd say our customers are between fifty and two hundred employees per shot. [01:43] Interesting. And how many logos are signed up? How many individual companies? [01:47] >> Yeah, so we're still, we're in year 3.5 as Qarrot. We've got close to 100 logos. And I do want to call attention to the fact that before what inspired Qarrot was we launched this sort of custom program for this really big company in The US that's got like 3,000 locations. We've also got that one big logo off to the side, but then the rest of our logos are again in the small to mid space. [02:16] So you launched in what, 2018? [02:18] >> Yeah. [02:19] And do you remember? [02:20] >> Yeah. [02:21] First year in 2019, do you remember total revenue? [02:25] >> Oh gosh. Well, we were doing about in 2019, our MRR was predominantly from our one side cut, the one big guy and then we had a handful of Qarrot customers who was about 15 ks MRR [02:40] >> at that point. And we would have been doing in 2019 probably about 1,500,000 total. So again, our revenue is comprised of subscription revenue on the one side, but because we're a rewards and recognition platform, they're also buying in effect rewards, which for us are digital gift cards. So that gets sucked into our sort of our revenue line as well and accounts for that difference. [03:07] So how much like per month right now are you making just from the GMV percent on reward purchases? [03:15] >> So total GMV per month, we're going to do [03:20] >> rewards revenue total this year is 3.5. [03:24] Projected or recognized so far? [03:27] >> No, that's projected total, but that includes what we've done up till date, up until the end of July. [03:33] What is that number? [03:35] >> We've done about, we're very back half heavy. So we've done about 1.5 today and we've got another 2,000,000 that will come in by the end of the year. [03:45] Interesting. Okay. And so how much will you make on 1,500,000 of reward purchases through your platform? [03:52] >> So the gift cards, it's very thin margin, it's 3%. So wish it were more. We're working on negotiating better margins, but gift cards are notoriously thin margin in that respect. [04:04] Got it. So just to be clear, the 1,500,000 is you're saying is revenue, that is total volume or that's your 3% take? [04:12] >> No, that's our total volume. Wish it were 3% take. We're working on it. We're working on getting there. [04:18] Fair. Yeah. So your 3% take on that then would be about $45k. So you're doing between like 5 and $10k a month right now on percent of GMV revenue. [04:26] >> Exactly. [04:26] Interesting. And is that included in the 23 ks number you just told me for MRR? [04:32] >> MRR is completely distinct. So MRR is pure, like the customer has two charges effectively. They've got their recurring charge obviously for their subscription and then they separately buy rewards. So those are more on an invoiced basis. [04:47] Yeah. So on average across these 100 customers, you've got again, $230 a month coming in per customer for 23 ks in MRR, but then each customer is also spending some amount then on these rewards. So really when you add in the reward revenue, your 3% cut, you're more like $30,000 a month in total revenue, right? [05:04] >> Correct. In fact, total, I refer to it as net platform revenue. So net platform revenue for last month was closer to 40 ks. [05:16] That's great. Yeah. So you call it like, you're almost at like a $500,000 run right now. Have you done all this all bootstrapped or did you guys raise capital? [05:23] >> I'd like to say we're mostly bootstrapped. In 2018, I got it in my head that we needed to raise some capital. We did a very small pre seed round, less than 300 k Canadian. So very little in terms in terms of dilutionary impact. [05:38] What was the valuation on that? [05:40] >> So we did it. We had it. It was a safe. We did valuation cap of 2,000,000. [05:45] Okay. And would you change anything about like you redid it today or did that does that feel like the right move? [05:50] >> Do you know, honestly, [05:53] >> was I think we needed the capital at the time, but we've also had a friendly relationship with the Business Development Bank of Canada, BDC. And we probably could have just borrowed the capital as well, what we needed to keep running. I mean, we plowed it all into marketing and sales, so it paid some dividends. But 300 ks really isn't a lot in the grand scheme of things. So if I were to go back, I might have [06:18] >> deferred that and maybe just look to an alternative non dilutionary source. [06:22] And what is the team size today? You said you plugged that all in marketing. [06:26] >> Yeah, so we're a team of six. I have four software developers, one marketing personclient support, customer success person and myself. So I'm functionally the primary salesperson. My marketing slash customer support does all of our demand gen and handles all the incoming stuff that frankly, don't want to touch. And then we've got four full time software developers. [06:51] And so Aaron, are you sole Founder then? [06:53] >> So I have a, let's just call it a silent partner who's got a minority holding and he's more there as an advisor. I call him my corporate Swiss Army knife because he does like all of our finances and sort of provides a lot of strategic guidance, but I'm functionally the sole, let's say, operating founder. [07:12] So when you look at that plus $300,000 raise and the dilution associated there, how much equity do you still own today personally? [07:18] >> So on a fully diluted basis, I'm about 65%. So I still have like a good chunk. [07:24] Yeah, that feels really good. I imagine that feels really good. How do you grow? Like how you double revenue? [07:32] >> So fantastic question. Honestly, I think for us it comes down to plowing more money into, well, intelligently plowing more money into demand generation and possibly starting to build out a bit more of a sales team. Because we're mostly dealing in the small to mid market, the economics are more oriented towards inbound versus outbound. But we are starting to add a lot more sophistication to the platform and starting to get calls from the much larger multinational organizations. [08:05] >> So those calls are very welcome, but it's like we're in that intermediary phase where we still get nervous picking up the phone when somebody huge calls us. We're more just super comfortable in like the sub 1,000 level. We can knock those guys out all day, but how do we grow? I think investing more in demand generation. [08:26] Have you already run a test there and you know what sort of works? How much did you spend last month on demand gen? [08:31] >> So all in direct advertising costs are between 5 to 7 ks Canadian a month. [08:36] Okay. And how many new leads do you get from that? [08:39] >> We get per month 50 to 60 reasonably qualified leads in the form of demo requests and free trials. [08:47] Okay. And how many convert to paid? [08:49] >> We're converting about five customers a month, five paying customers a month. [08:55] >> Yep. Interesting. Okay. Interesting. Very cool. [08:57] So 100 customers today, maybe 105, 110 as you go on month to month. Now, do these customers stick? What's churn look like? [09:04] >> So last year we calculated churn at about 16% on an annual basis. This year it's coming in below that. Like it's sort of in the 10 to 15 range. Like we're losing less than an account per month. So we've only been around for, as I mentioned, three and a half years. So we don't really have full visibility on long term churn trends. But based on those numbers, we're seeing accounts last like up to five years. And [09:35] >> certainly we do have accounts. Our oldest account is like since the inception. Like we've got number of accounts that are 3.5 and they're [09:43] Are you upselling them, Aaron? Do you have upsell revenue that makes up more than 16% of the churn? [09:48] >> We're trying to get there. We're actually just about to embark on a sort of a pricing and upsell sort of strategic review to figure out what services can we append or what upsell packages can we add into the mix. Right now, upsell is more just as our customers grow and add more employees, they subscribe to more seats. And we do see that consistently that natural, there's a natural occurring revenue growth as the economy improves and as [10:16] >> things rebound in particular, they hire more. [10:19] But what is it today though? Like in the last twelve months, did you expand more to get to a 100% net dollar retention or no, you're still below that? [10:28] >> So, sorry, can you repeat that? [10:30] Yeah, like of the customers you had exactly one year ago, it sounds like 16% of the revenue churned. How much upgrade revenue were you able to drive? Was it more than 16% upgrade revenue? [10:39] >> Yeah, it's about 20 to 25%. [10:41] Got it. So your net dollar retention is like 109%. [10:44] >> Yeah. [10:44] I see. That's great. That's a good place to be in. And you're trying to expand that it sounds like which is nice. Yeah. Any acquisition, the folks reaching out trying to buy the business? You're in a hot space, there's a lot of money floating around. Yeah. What's the biggest offer you turned down? [11:00] >> So I'm not sure that we've So let's just say there's been a lot of heavy flirting. We haven't actively turned anything down yet because like the flirting hasn't necessarily gotten to a marriage proposal. We [11:13] >> get contacted by PE firms. They usually want us to be a bit bigger, to be fair. We've had a few strategic acquirers come along. There are some stuff that's kind of floating out there at the moment. [11:26] 2,000,000 cash all upfront. Do you take the deal? [11:29] >> 2,000,000 cash all upfront. Honestly, we're in a really good place right now. I'm not sure. I'm not sure. [11:35] That's one, but you own 5%. [11:37] >> Valuation cap back in 2018. [11:39] So Yeah. That's fine. But you own 65%. What is that? 1.3 pre taxes, post tax in Canada. What is that gonna put in your pocket? 900,000 post tax. Are you married? [11:48] >> Single. Single. [11:49] Okay. [11:50] >> Does your did you are you [11:51] are your parents alive? [11:53] >> Yes. [11:54] Does will your mom kill you if you tell her you turned down a $900,000, like, deal that would put that in your pocket post post tax? [12:00] >> She she may not talk to me for a few years, but for my daughter, her grandchild. So [12:05] That's so funny. Alright, man. Good stuff. Let's wrap up with Famous Five, Aaron. Number one, favorite book. [12:11] >> I'm gonna give you two if I can, because I have to give credit to Liar's Poker by Michael Lewis. That's what inspired me to get into business when I was like 15 or 16. More recently though, of a more applicable nature to what I do is The Innovator's Dilemma, Clayton Christensen. I'm sure you've heard that a million times. Sort of really helped the thinking vis a vis like how to innovate in a mature market. [12:33] Number two, is there a CEO you're following or studying? [12:37] >> Probably Tobias Lutke. Like, obviously Canadian, more like an inspiration. Smart guy, made some very, very good decisions and I love the story of Shopify. [12:49] So number three, what's your favorite online tool for building a business? [12:53] >> Honestly, we're very heavy Slack users, but if I look at the one tool that helps us drive internally, it's actually Azure DevOps. Not particularly sexy, but we live and die by what goes into DevOps. [13:07] Aaron, how much sleep do get each night? [13:09] >> Seven, seven and a half. [13:11] That's good. [13:12] >> And situation, I think you said you're single. Any kiddos running around? [13:15] >> I got a beautiful ten year old daughter and a nine month old puppy. [13:18] Oh, wow. Okay. Got it. One kiddo and how old are you? [13:21] >> I am 47. [13:23] >> 47. [13:24] Last question. Something you wish you knew when you were 20. [13:26] >> Oh gosh. Honestly, I just wish that I'd known to get in earlier. I remember a classmate in 1996 saying, I'm going to go off and build apps for Blackberry. I thought, what is that? Like, why don't you become a banker or a consultant? That's what all the cool kids are doing. So I just wish I'd had that entrepreneurial spirit a lot earlier. [13:45] Guys, you have it, qarrot.com HR Tech Play, they help you reward your employees and put together great incentive plans doing $15,000 a month in revenue back in 2019, now doing $40,000 a month in revenue. Combination of SaaS plus percent of GMV, that GMV are companies buying rewards for their employees and they take a little cut, 3% of those rewards. They've got a 100 customers today, paying an average $230 per month. They raised $300k back in 2018 [14:09] at a $2,000,000 valuation. Team site is six today, four engineers that it looks to scale. Aaron, thanks for taking us to the top. [14:15] >> My pleasure, Nathan. [14:18] 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 [14:44] Central. Additionally, remember these recorded founder interviews go live. We release them here on YouTube every day at 2PM Central. 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