How Semrush Passed $300M ARR With 107% Net Dollar Retention (Interview with President Eugene Levin)

Introduction and Event Context

Nathan Latka

00:00Quick context. This was recorded March twenty eighth and twenty ninth. So a couple weeks ago at my live event, saasopen.com. We had a thousand software CEOs there. If you missed it, we hope to see at the next one, September fifth and sixth in New York City, saasopen.com. But for now, let's jump into the recording. What was it like ringing that that that bell in the middle of COVID?

Eugene Levin

00:21>> Our CEO, he was extremely upset. This whole chart is kind of my pride and joy.

Nathan Latka

00:29Hey, folks. If we haven't met yet, my name is Nathan Latka. I launched and sold my first software company back in 2015 and went on to write a book about it, which you guys made a Wall Street Journal bestseller purchasing over 30,000 copies. Thank you so much for that. After the book, I launched this show and one went on to create founderpath.com. I raised a large fund to do non dilutive deals with b to b software

00:55founders. So far, we've invested in over 400 software founders totaling a $150,000,000. Here in 2024, we're doing three to four new deals per week. So if you're looking for capital and don't wanna give up equity, go sign up at founderpath.com for free to get your offer. Alright. Let's jump into the interview. Eugene, thanks for being here, man. Alright. I'm not lying. Right? You'll share more data since we've got a more curated audience. Yeah.

Eugene Levin's Background and Joining Semrush

Eugene Levin

01:22>> We're we're public. So so if if I share something I'm not supposed to share, you cannot trade our stock.

Nathan Latka

01:28Fair enough. Fair enough. So I wanna first start and just jump right into the revenue graph. Right? So you guys see the company really got going. What was actually first year? Was it 2013?

Eugene Levin

01:39>> When I've met founders? '14.

Nathan Latka

01:412014 is when you met the founders. Yeah. And what was the size of the angel check you put into the company?

Eugene Levin

01:45>> So, actually, they didn't take my money. They just offered me a job. Okay. I I pursued them for two years, but they were so profitable. The the margin was, like, 40%. They didn't know what to do with money. So I said, why why don't we do it this way? I figure out how to speed up business and use more capital and you give me shares.

Nathan Latka

02:07You okay. Got it. So can you tell me what you they ended up comping you? What what percent of the company did you own back then?

Eugene Levin

02:12>> I mean, it's all public, so I in total, I own at at the peak, owned about 2%.

Nathan Latka

02:202% of the company. Yeah. Okay. Great. So you get going. The company is scaling. You see here, and I got that right. Right? Over $300,000,000 of revenue today?

Eugene Levin

02:28>> Yeah. Absolutely.

Nathan Latka

02:29Okay. Great. So Not revenue. ARR. ARR. ARR. Over the next twenty minutes, you know, I studied the the public calls. We talked obviously before. We wanna go deep on a couple sections. Pricing, growth, and then the IPO. So starting on pricing, this was the original pricing page. It was before your time slightly, I think. Right? Well, let me go back. I I want you guys to zoom in if you can read it. Can you guys read

Origins of Semrush and Early Product

Nathan Latka

02:48the price in the little yellow box? Is that big enough? It's $49.95 a month. That's what that's what these guys launch with. And maybe can you describe the makeup of the two cofounders? Are they tech or business?

Eugene Levin

02:58>> They're all tech engineers by trade. When they first launched semrush, actually, they used it for other businesses in traffic arbitrage space. So they need a research tool to figure out where to buy traffic and whom to sell it to. And data was just so good that a lot of people started approaching them and asking an access to this and that's how they've launched semrush. But they didn't really know how to properly monetize so I think they

03:24>> were giving away just too much of a value.

Nathan Latka

03:26You guys can't read this. I'm going to read it to you. You'll see semrush was designed by the developers of SEO Digger and SEO Quake for Google Organic. So they had sort of these micro tools. And to make them win, they built the side project. The side project ends up winning. It's why we talk so much today about go build a side project in the Zoom marketplace, in the Stripe marketplace, in the HubSpot marketplace, because you

03:46just don't know where it's going to lead. These guys ended up sitting on obviously what we now know now as a gold mine back then. 20,000,000 domains, and you can see 85,000 users. One of the early go to market motions was this affiliate playbook. So I'll let you guys squint in and and read what the affiliate the original affiliate motion was. Do you guys have an affiliate program today? Did this work?

Affiliate Marketing and Early Growth

Eugene Levin

04:06>> Still still have. It's not as big as it used to be, but I think early on that was extremely important. The way affiliate marketing in in b to b SaaS works is not that people will sell your product for you, but if they want to write some kind of article, having affiliate program gives them extra incentive to write about you. Mhmm. So for us, it really helped to spread the message. It would never work if product

04:33>> was not good, but because product was so good, affiliate network was a huge boost early on. Now it's, of course, a smaller part of the

Nathan Latka

04:40So at its peak, how much revenue did affiliates bring the business?

Eugene Levin

04:44>> Oh, at its peak, probably a third.

Nathan Latka

04:47A third of and what year was the peak? Do you remember?

Eugene Levin

04:49>> That was around 2012, 2013.

Nathan Latka

04:53Alright. So twenty twelve, thirteen. And what was revenue back then? That green bar's too small. Think so Couple million? It

Eugene Levin

05:00>> was a couple million. $33.03, 4,000,000.

Nathan Latka

05:03Okay. So affiliates take off now. Do you still pay today at scale 40% of monthly recurring revenue back out to affiliates?

Eugene Levin

05:09>> We had to so that's that's actually something that I don't recommend to do, so do perpetual 40%. We did it because maybe early on we're a little bit desperate. It was a phenomenal deal for affiliates. It attracted a lot of really great people. But perpetual fees, they sort of incentivize people to kinda grab something and do nothing with it because they just get paid forever. Mhmm. So we had to change this perpetual fee and now we

05:41>> reward people for bringing new customers, but we don't pay perpetual revenue share.

Nathan Latka

05:45So what

05:46do they get now?

Eugene Levin

05:47>> Right now this is just CPA. So you get paid for registration, for trial and for new paid customer and they're on different tiers and also depends on country. So new paying customer in The United States more expensive than in, let's say, Southeast Asia. But if I'm not mistaken, it's a couple like, for the whole thing, you'll get a couple $100.

Nathan Latka

06:12Greg had hosted a great dinner last night, a practical founder dinner, and we're always looking for unique ways to bootstrap early on. This was, would you say, a key way you got early revenue without outside funding?

Eugene Levin

06:23>> Absolutely. 100% recommend, just don't do perpetual fee. Do maybe two years, three years not perpetual.

Funding Rounds and Greycroft Deal

Nathan Latka

06:29There you go. Have an end date there. You then did raise outside funding. Right? Boston Yep. Business Journal covered this here. Talk to me about what it was like the day you signed this $40,000,000 term sheet.

Eugene Levin

06:42>> So that was the second round. We did a bit of a smaller deal before that, but the second deal with Greycroft was $40,000,000, was also partially secondary. How much was secondary? I I don't recall, but It's all in public bio.

Nathan Latka

06:58Did you take money out on that?

Eugene Levin

06:59>> No. Not me. No.

Nathan Latka

07:00Did you fire

07:01anyone that took money out? You said, oh, you don't believe in the vision. No. That wouldn't be We didn't have to do that. Yeah. That's that's good. Okay. So so you get this done. How much of the company did you sell in this round? Do you remember?

Eugene Levin

07:13>> Yeah. The valuation was around 200,000,000.

Customer Cohorts and Net Dollar Retention

Nathan Latka

07:16200. Okay. Great. Got it. So 20%, 25% of the company is what you're selling there. Now moving forward, I want to talk about this because everyone knows this graph. And it's all about, for each cohort of customers you sign up, how does revenue expand or contract? What does net dollar retention look like over time? The dark red bar you see here is basically the cohort of customers you guys signed up before 2016. And what we see,

07:36especially with the blue bar, you're signing up more customers faster, but you're also getting them to pay more faster. How was that happening?

Eugene Levin

07:44>> So the yeah. This this whole chart is kinda my pride and joy because when when I joined, it it didn't necessarily look this way. So we had to work a lot on monetization. Early on, we would sort of get a customer through the door very quickly, recover customer acquisition cost very fast, generally a lot of cash. But we didn't focus that much on expansion. Mhmm. So when I joined, we changed monetization entirely to drive more expansion

08:15>> down the line. And, you know, at at the peak, we got over over a 120% net revenue retention, which is, like, for SMB. Martech business is is just phenomenal.

Nathan Latka

08:28What's the guidance you've given this year in terms of where you guys think you'll come out in terms of NRR?

NRR Guidance and Current Metrics

Eugene Levin

08:31>> We don't guide NRR. The last quarter was 107. Okay, 107.

Nathan Latka

08:36Got it. Interesting. So we'll come back to this chart in a second with some more recent cohorts. But I want to go back to what you guys were selling in 2020. This was the headline. Do you remember this headline? You've moved away from this since then.

Eugene Levin

08:47>> A little bit because I I think when you say you do all in one, people don't understand what you're really doing. So you want to be a little bit more specific about about the the portfolio of products. And also sometimes, you know, in a in a at the top of the landing page, you want to be more of a call to action. Mhmm. But if you look at what we're selling, it's actually in the middle. So

09:12>> different tool kits, SEO, social media, content marketing, competitive intelligence. So still very successfully sell all those products and add in more and more and more. Now adding tons of AI features and so on.

Pricing Experiments and the New Pricing Page

Nathan Latka

09:26And we'll jump more into AI, but having a product suite obviously of five product features is great. Getting customers to actually use all five product features is a different story. A key way to get people to use all five features is to make sure you structure your pricing. So this new and updated pricing page looks a lot different from $49.95 back in 2010. How did you go from $49.95 to this?

Eugene Levin

09:47>> Really, first first time we did big pricing changes, we just did it through experimentation. So we tried new price, we checked if there is a difference in conversion rate, how this difference in conversion rate compares to the gain in average revenue per customer, how we retain customers down the line. Experiment was extremely successful, we just rolled it out. Mhmm. The second time, board challenged us a little bit more to do it in a more scientific way.

10:15>> So we worked with guys at a company called ProfitWell.

10:21>> We did a lot of customer surveys. And not just surveying semrush customers, existing customers, but people who are in the market for products like this and got a lot of price sensitivity and packaging studies, and then we made a decision around this price.

Nathan Latka

10:36Can you guys, if you look really closely at the descriptions under each price point, do you see anything interesting or very nonstandard if you look at the descriptions under each pricing plan?

10:47Most pages like this, you'll see numbers. It'll say number of contacts, one, and then 15. So there's real utility based upselling. I imagine it was an intentional choice that you avoided that in this screenshot. Why?

Eugene Levin

11:00>> Right. Our value metrics, they're let's put it this way. For someone who is just buying this first time, they're not obvious. They make sense once you use the product. Early on, if I tell you you can have x keywords or x projects, it doesn't really tell you much. And then also, you know, we had value metrics like number of reports per page, which is again, if you haven't seen the product, you don't know what is the

11:27>> value of report per page. So we focused on functionality, know, actual problems that you can solve with the product rather than, you know, value metrics because product is, I think, more complex than your average product.

Nathan Latka

11:39Mhmm. You talk about start ups and freelancers in that first plan. It talks way more from an emotional perspective to the folks that should be buying each sort of price point. But it still worked because we see your average revenue per user, especially on obviously the ACV basis, growing year after year. Talk to me about what the team looks like that's in charge of driving this kind of expansion in first year ACV.

Three-Axis Expansion Model

Eugene Levin

12:01>> So on the strategic level, it's really me and our COO. And we do a lot of kind of high level planning. So we design really kind of three axis expansion models. So axis number one is we want people to move between core plans. And this is primarily usage based. And then second axis is number of users that we buy. So we think about viral hooks, how to sort of convince people to invite their colleagues to work

12:33>> together because we have so much functionality that different teams in the marketing division can use products all together. And then the third axis is we're we have certain products like our local listings product that are not for everyone. So it doesn't make sense to put them on kind of main plan, core plan, but it makes sense to sell them as an add on. So we design portfolio of add ons. And then we give this information to

13:00>> our R and D teams and we have a lot of R and D teams and they independently kind of drive strategy in all of those kind of three directions.

Nathan Latka

13:08What percent of that $2,000 average year price point is our add on upsells versus the core base pricing? Do you know?

Eugene Levin

13:14>> Actually, all those three x is roughly a third.

Nathan Latka

13:17So A third?

2021 IPO, Moz, and the Day-One Stock Drop

Eugene Levin

13:18>> A third.

Nathan Latka

13:18Oh, wow. Okay. So it's working. It's going well. 2021 comes around. It's in the middle of COVID. You guys say we hit 67,000 paying customers. Let's IPO. You are if you look at the guy in the purple in the middle, you are two to the left. What was it like ringing that that bell in the middle of COVID?

Eugene Levin

13:33>> Listen. It was fantastic. Once once in a lifetime experience, highly recommend to everyone who can do that. For me for me, it was like Thank

Nathan Latka

13:41you for the big takeaway, Eugene. We bring

13:45Breaking news on the main stage at SaaS Open. That's great. You go public. Market's loving you. Competitors say amazing things. Rand is running Moz and going, how the hell do these semrush folks grow so quickly? This must have felt nice.

Eugene Levin

14:01>> That felt we we always wanna have really good relationships with people, especially with Rand. He's actually a customer.

Nathan Latka

14:09So Why didn't semrush bid on the Moz acquisition?

Eugene Levin

14:13>> Growth was not there. So for us, it would be have been very dilutive. Mhmm. And, you know, we went public. Right? But we're not a a large cap company. Mhmm. And, you know, depending on the day, we're we're, let's say, around small cap and maybe sometimes we touch mid cap. But the problem with small cap is that if you're a small cap, you have to be growth.

14:41>> I haven't met investors who do small cap value, so you need to grow. And if you buy a company like, in this case, Moz, that doesn't grow

Nathan Latka

14:50And give them the numbers really quick. Moz was doing about how much revenue, how much growth?

Eugene Levin

14:53>> So Moz was around 100 mil, but when they were selling, now they're smaller. So now 100,000,000 of revenue. Yeah. Now they're probably around 70. Mhmm. But if we bought them, we would combine a fast growing business with with business that is sizable but not growing. So your total growth goes down. And like I said, if you're a small cap, you're you're really priced based on growth rather than anything else. So it it just was was a

15:22>> deal where you combine two companies and and some of of the two is less than both of them separately.

Reacting to the 20% Drop on IPO Day

Nathan Latka

15:30So you're growing revenue, 67,000 paying customers. You go public. It's middle of COVID. No one else is going public. Your competitor is saying nice things, but the press then just like shits all over you. Stocks crashes 20% on day one. What is that like? Do you have the emotional sort of Yeah. Do you ignore it? Or how do you get around that?

Eugene Levin

15:47>> Listen. So our CEO, he was extremely upset. I I I I don't recall be seeing him so upset because for him it's

Nathan Latka

15:55From this article or from the stock?

Eugene Levin

15:56>> No. No. From the stock. Yeah. Like, we we we didn't have time to read anything. So Yeah.

Nathan Latka

16:00So we can

Eugene Levin

16:00>> just we just saw the the stock price. You know, investors call you and they what's going on? What's going on? And so he was a bit upset.

16:09>> And and I understand why. It's kinda like you have a baby and you bay you know, bring your your baby like your daughter to the ball and nobody wants to dance with your daughter. So it's not it's not nice. And for me, I was the happiest man in the world. Because like I I did it for me, you know, 20%, whatever, markets go up and down, but we did it. How many people were, you know, on

16:32>> your stock exchange rang the bell? It's it's a very very small club of executives and I was just so privileged to be part of that and I felt phenomenal. But I think, like I said, if you're a Founder and that happens, probably not nice. But also, a couple of months later, we were trading way above IPO price. Everyone forgot about this.

Nathan Latka

16:53You get through it nicely and your cohorts continue to expand. 116% net dollar retention. You're seeing these bands thicken, which is a sign that, again, that expansion is happening faster. One of the way or maybe can you talk maybe about that 2022 cohort, that green one there? This is sort of how you placed yourself and how you talk about yourself in the market. How were you growing the dollars that each company was paying you so fast

17:13in 2020?

Eugene Levin

17:15>> So in 2020, you kind of

17:17>> Sorry. 2022.

Nathan Latka

17:18Oh, yeah. 2022.

Eugene Levin

17:20>> Yeah. You you kinda have to sort of what people sometimes people say is hide inside your existing user base. So we kept acquiring a lot of new customers, but our focus in 2022 was on kind of especially towards the end of the year to really start focusing on existing relationships, happy customers that we already have and offering them additional products in our portfolio that they haven't used before. Because we felt our portfolio matured enough and we

Enterprise Segment and M and A Strategy

Eugene Levin

17:51>> started pushing those kind of attach rates across customers, especially those customers who are both loyal and sizable companies, let's say, over 50 employees. Many publicly traded SaaS companies will quote sort

Nathan Latka

18:04of buy down their market horizontal vertical integration. Are the logos on this page also your M and A targets?

Eugene Levin

18:09>> Oh, no. That's just ecosystem. I think that's that's kinda like complementary companies. Unfortunately, most of them are much bigger than semrush. I would love to buy HubSpot, but I don't think they would they would consider.

Nathan Latka

18:21You you didn't did you bid on the Optimizely deal?

Eugene Levin

18:24>> No. No. I haven't seen I mean, I I knew that was happening, but I was not active.

Nathan Latka

18:28Did you guys seriously analyze the deal or no?

Eugene Levin

18:30>> No. Not really.

Nathan Latka

18:31Okay. So you don't actively think about, hey. What's the what's further down the funnel look that can drive our M and A strategy?

Eugene Levin

18:37>> We do, but we look horizontally. So kind of the top line on this chart. We don't think kind of not vertically, but Down the on this chart, down the funnel. Yeah. I said, it's just the problem with those markets that are above and below oh, sorry. In this case, below. So web analytics, CRM systems, they're older markets. So leaders in those markets are much bigger and buying not a leader is is challenging. Mhmm.

Nathan Latka

19:05So Mhmm. You nailed it. I mean, look. But the numbers speak for themselves. This is from a twenty twenty three June slide deck. It was the last time that you guys published this kind of data. Why did you stop publishing this kind of data?

Fortune 500 Customers and Segmentation Plans

Eugene Levin

19:17>> I I think we'll do it again. It's I think we've changed our Investor Relations person. They kind of choose what goes on those slides. I see. Fair enough. But we'll be sharing way more information soon. We want to do a little bit more on the segmentation side. So think a lot of people think about our business as SMB business. But we actually sell across the board. We have more than 30% of Fortune 500 companies and we

19:46>> have at least 5,000 existing accounts who are companies with more than 500 employees. So those segments, this sort of 500 plus employee segment behaves totally different compared to the rest of the user base. So we want to start kind of showing metrics a little bit differently so people can see how SMB business behaves and how enterprise business behaves. And in terms

Nathan Latka

20:09of ARPU expansion, when you have 100,000 paying customers, if you can launch a new product line or acquire another company and upsell an ad, call it $100 per customer per month, that's $10,000,000 of new MRR, which is obviously a great playbook for any publicly traded SaaS company. You also come in, in terms of pretty healthy economics in terms of ARR per employee, right at the average of most publicly traded SaaS companies, at least on this chart,

20:30about $170,000 Now you're feeling the go forward strategy with this kind of communication. Right? So so talk a little bit about your product strategy moving forward, maybe touch on AI a bit.

AI Product Strategy

Eugene Levin

20:40>> So in in terms of messaging, like I said, people don't wanna buy tools. In general, people want to buy solutions to their problems, so that's why we've changed messaging a little bit. We started talking less about what we sell and showing more, so there are more visual components on this page if you scroll down that actually provide more of a screen shots of functionality so people get the idea. And then of course everyone is adding a

21:05>> lot of AI features. We've been adding a lot of AI features probably before other people have been using GPT since version two in production environment in our writing assistant products. But for me, it's kind of like a new iteration of technology that is available for people to build things, kind of like cloud computing was back in the day. And for some applications, makes perfect sense. For some applications, it doesn't make sense. So what we're telling our

21:32>> R and D teams right now when it comes to AI, look at actual customer problems that can be solved better with AI and there are tons of them. So for example, we've launched reply to review feature in our local listings product so small businesses can put their communications on autopilot and if they have a bad review, someone instantly replies on their behalf and tries to make things right for a customer and it's all done by AI.

21:57>> We have improved Writing Assistant product where people can create content that ranks really well in search engines in a matter of minutes. And we also automate a lot of reporting where previously you had to go through 20 pages of different PDF reports and dashboards. And now we just give you, you know, let's say couple paragraph of summary so you know the most important things that have happened during the period.

Employee Compensation and RSUs

Nathan Latka

22:21As we wrap up, this is your stock price over the past, call it x many of years. Despite 100,000,000 of more revenue, the stock price is still the exact same basically as it was when you guys went public. An employee, you have inside

22:34information. You're in leadership. For the employee that has options and they're seeing this, how do you communicate to them, listen, stay patient, focus on long term, don't get stuck in the day to day?

Eugene Levin

22:43>> Yeah. I I think what we had to do and, you know, maybe a lot of companies had to do, we switched a little bit. Not necessarily switched, but we changed the the proportion between stock options and RSUs. Mhmm. So we we told people if you if you wanna get a little bit more now but, you know, less less upside, which which you could kinda get with options, we we can do it.

Nathan Latka

23:05So you do RSUs?

Eugene Levin

23:06>> So we did more RSUs during this period. So yeah. Otherwise, you have to just reissue options every time price goes down, goes up. Mhmm.

Nathan Latka

23:14So people

Eugene Levin

23:15>> to make sure people not get obsessed with with stock chart. And you don't want them to monitor your stock price every day.

Nathan Latka

23:21So we've talked about new user expansion, new product already. The last thing I wanna touch on before we wrap is you many in the public and analysts would say you guys spend a fortune relative to other publicly traded founders on marketing and sales. The audience can see the data here on the screen. How would you respond to that?

Marketing Efficiency and Shift to Organic Growth

Eugene Levin

23:36>> Well, you've got to eat your own dog food, right? If we're a marketing technology company, we have to show people how to spend money on marketing efficiently. You know, that said, when you have macro environment where money is effectively cheap, you can spend a little bit more and you can have certain efficiency targets. And then when capital is scarce, then you switch and you change your efficiency targets. And as you switch those efficiency targets, you start

24:07>> making a lot of profit. So if you think about our last couple of quarters and our guidance for this year, we're going to be very, very profitable.

Nathan Latka

24:18Or at

Eugene Levin

24:18>> least we're guiding to be. So

24:22>> I'm joking.

Nathan Latka

24:26I'll just say The Robinhood apps are opening up right now.

24:30Congratulations on 2023 for

Eugene Levin

24:32>> Yeah. Profitable year, which is great. Yeah. Last couple of quarters, I think if you look at year over year, we just showed phenomenal year over year improvement in profitability. And that's, again, because we know how to spend money efficiently. So earlier in 2023 and and late twenty two, we reallocated a lot of capital from paid marketing to organic marketing. Mhmm. And organic marketing works different. With paid, you kind of spend money and you get results right

25:03>> away. And with organic, you spend money up front and then you see results a little bit later. It's kind of like renting versus building a house. Paid media is like renting, you pay, you get results, you stop paying, they kick you out, you have nothing. And then with building a house, it takes time to get a foundation right, but once you get it, it's just yours and you keep getting the benefit of having the asset. So

25:27>> that's another reason why we were able to improve profitability and marketing efficiency so fast.

Nathan Latka

25:31As he wanted to invest back in 2014, the Founder said no. They hired him instead. Owned about 2% of the company at its peak before going up IPO ing in the middle of COVID. I mean, bravery, 2021 IPO. Stockton takes a 20% on day one. They stable the ship. Net dollar retention growing nicely as they keep building out their product road map. Real AI play now. Real expansion happening from $2,000 ACVs to 2,500 and above. Now

25:57getting more into AI and profitability. Guys, give it up for Eugene from semrush. Eugene, thank you. Appreciate it, man. Great job. After you.