Sevenrooms Revenue, Valuation & Funding (2024)

hello everyone my guest today is knish patel he's the cto and co-founder of seven rooms where he leads the engineering team in development of the software before founding the company he was team leads uh scientific computing at exxon mobil he also received his bs and electrical computer engineering from the university of texas at austin and an mba in finance and strategy from the new york university uh stern school of business connection ready to take us to the top yeah for sure all right what is seven rooms and how do you guys make money sure uh so seven rooms is a reservation seating and guest management platform with a real focus on guest experience and guest data so one thing that we found when we started the company back in 2011 my co-founders and i was that we saw a lot of reservation systems out there that didn't put a focus on gas data we thought that was super odd because these these customers are in the business of providing hospitality and it starts with people and so we thought guest data was the missing component and we wanted to make sure that whatever we built we made that a focus point so what we build is what they call in the industry is a front of house system uh we help the technology the technology managers help the entire guest experience so discovery and booking in dining room experience and then the post signing follow-up okay and is it a sas model these folks pay per month it's a sas business yes okay what do people pay on average for this thing on average we charge about 500 a month per location that's great and and what are they getting for that is it a number of seats number of weight staff number of volume how do you price like what utility-based pricing do you use well i mean essentially price based on location so um so we have a lot of hospitality groups that work with us that have multiple locations that pricing is really on a per location basis it's unlimited users it's unlimited usage um one thing that sort of makes this unique is that a lot of the reservation platforms out there have both the consumer offering and the operator-focused tools we very much intentionally do not have a consumer offering so we've been entirely focused on the operator so just be clear if someone's using you and it's a restaurant that maybe has 20 people come through every night with two waiters and a different restaurant you at a different location with 200 waiters and 2 000 people every night it's the same price point yeah that's correct yep okay interesting um all right got it and then put this on the timeline for me when did you guys launch we started the company in 2011. uh we had done sort of nights and weekends prior for a few years but uh failing at different things but then finally succeeding on this on this concept how do you go from exxon to this i mean how'd this start boiling in the back your head it's a really good question um i started out my career very much on the science side of things so spent a lot of time in exxon's research labs focused on physics simulation high performance computing um but a lot of what i did did not do anything with the internet and so i've always had sort of this burning idea in the back of my mind that i wanted to start something i wanted to build something but i was missing on this thing called the internet and so when the opportunity came along uh with my two co-founders and joel in particular who's our ceo um i've been friends with him since i was in uh like 12 years old so we've been friends for a really long time um so i was sort of his first call when we were first discussing the idea and uh couldn't pass up the opportunity interesting how did you taught yourself to code via exxon yeah exactly so i was a professional software developer there and i led software teams over there and um one of the things that we focused on there a lot was uh was data and processing data understanding data people talk a lot about today machine learning and data science and those types of things the oil and gas industry has been doing that for years and years and years before it was popular with the modern cloud platforms and modern tech businesses but taking that concept and providing it to hospitality so this was the appeal for me hospitality historically has not been a data-driven business it's been restaurant owners who provide hospitality cooking food and providing hospitality and they haven't thought about their business in a very deep way from a data-centric viewpoint and so the opportunity here was can we build technology that doesn't really replace the human touch but just enhances it while all the while providing the operators the opportunity to have a data-driven business for the first time so launched in 2011 how many customers have you scaled to today we have thousands of customers today across the globe uh across 250 cities okay and how many locations uh we don't disclose the exact number but it's in the thousands okay got it um what i'm trying to get to is when someone signs up with you on average are they managing one location or they're it's actually enterprise sale yeah they're managing 100 locations there's there's sort of it's sort of across the board so uh we have independent operators that are sort of the neighborhood mom and pop shop uh we also have large multinational hotel chains yeah yeah i totally get that right you're gonna have customer co-works all over the place i'm just trying to get a sense so your sweet spot is what is it the long tail mom and pop or the enterprise marriott deal it's definitely multi-unit groups but i think the sweet spot is sort of a red herring because we're just as useful for a group that has 10 locations versus one that has mm-hmm so but but definitely multi-unit groups is our sweet spot yeah and just to be clear though i mean someone that has 300 locations versus someone who has 10 they have basically the same needs but there are things you can go deeper on if you really chose to only focus on one of those exclusively sure that's right um and i do think like the more locations the better so we definitely we trend in that direction um but one thing we always talk about is punching above your weight class we want to give restaurant operators the ability to have the capabilities of a much larger organization uh through the data and the tools that's something they haven't had before yeah have you guys decided to bootstrap the company or raise uh no we've raised capital so the first uh we're sort of untraditional in many ways uh the first five years of our company we had raised from private investors and angels and kind of built the product and built the company initially that way and then we took our first institutional raise in the end of 2017 from comcast ventures okay so total into the company today is what uh a little bit over 20 million dollars a little over 20 and how much was from comcast uh so comcast funded about a quarter of that and um and why comcast and was it strategic or what um it's a little bit of both so one thing that's interesting that people don't realize about comcast is that they actually do own a lot of hospitality outlets and they're connected to them through nbc universal theme parks and other things uh so we thought that was an interesting strategic thing uh but more importantly uh the partner that we're working with dinesh morgani um he's someone who understands local he built city search back in the day we thought he was a really great partner to work with and he looked at our business and shaped the team for me today what are you guys at team size-wise and where's everyone based uh so we're about 90 people today uh the vast majority of us are based in manhattan here in new york city and chelsea and that includes pretty much every department from engineering sales to customer success and on onwards uh we do have a few folks sort of scattered in different parts of the u.s from the sales perspective but most everyone's here in new york let's talk more about the sales right so so what is your and you're the engineering side it's probably wrong conversation now with you but your your sales machine right now is it kind of an abm approach inside sales what's it looking like it's primarily inside sales so we have all of our sales reps here in new york uh we do have a few folks doing outside sales but it's primarily inside sales okay so your first 100 customers walk me through how you guys hustled to sign those folks up um through a lot of manual effort yeah but tell me the pain i mean what was manual what'd you do yeah so the first set of customers that we got in the early days we really spent a lot of time building relationships in the industry so one thing about food and beverage and hospitality in general is it's sort of an incestuous industry everyone kind of knows everyone and there's a little bit of a herd mentality as well and so breaking into that sort of club of people that know each other that was really difficult at the beginning how did you do it though like specifically yeah so we did everything from shadow host stands uh to work at nightclubs in the wait what is that shadow host stands uh so when you walk up to a restaurant and they're checking you in for your reservation um the people that work there the reservation is the hosts we would actually go to those restaurants and spend entire shifts dinner and lunch shifts uh behind them asking them hey can we just see how you guys do this and let's see what happens in the restaurant and through that experience we built relationships and started connecting people and that's actually we got our first set of customers interesting okay they're available because they have to process guests coming in so you're like heck why not in between them checking people in we'll just go stand behind them build a relationship watch how they use the software and learn exactly that's exactly what we did it's a lot of sort of hustle sweat and tears really really interesting okay uh and then look once you get the flywheel going churn becomes really critical what's your turn look like today and how do you keep it low yep so we've actually got a really great turn rate we have a 99 gross retention uh on the mrr side so uh really really good from especially for business and hospitality annually or monthly that's monthly yeah okay uh got it so said differently about about 12 uh annual churn in terms of revenue right on a gross basis and i think um you know we're starting to open up new products this year so we do expect that to be greater than 100 percent that we look at that same cohort that you signed up about a year ago if 12 percent of that revenue churns i imagine there's also expansion on that cohort as well is the expansion more than what churned absolutely yeah absolutely and it's going to increase this year especially we're going to release some new products so we really expect that to drive up quite a bit but by about how i'm like is it about equal so you're about 100 net revenue retention i think it'll be more than 100 okay but but historically what was it that last 12 months historically so from my growth basis it was 99 yeah i know i'm asking for net net revenue retention about 100 so yeah it's about 100 but it depends how we consider it because we think about in terms of locations and not in terms of customer expansion so we have customers for example that have like 20 locations but it's usually an all or nothing thing you're not going to get to those restaurants and not get the other 20. okay why is that the case i would imagine if i was going to try something new like this i'd try it on one if it goes well i'd expand to the north american if it goes well then i explained to north and south america and then the world why would they why would someone sign up all thousand locations in the first shot uh so we do do trials we do do trials we do do pilots uh but we typically depending on if it's paid or not paid of course that will determine the number but what we do find is that the benefit of the system is having data that's shared across all your properties right so if i've got locations that are um whether the united states whether they're abroad or whether in new york but just limit other city the benefit really is understanding that for example nathan's profile when he visits one location he goes to another location that's all part of the same system so when you go out to really realize the benefit you really want to sell on all your locations so we see a lot of our deals are typically trialed out a couple locations the beginning but then when we actually sign the contracts it's usually for all locations uh okay interesting so you don't have the ability to really drive meaningful expansion by adding locations you're gonna have to release new products and use that to drive expansion exactly uh interesting when you look at fully weighted cats you have a sales team here i imagine you're not going around shadowing anymore but when you look at fully weighted cac to get a new 500 a month location what are you spending to get them we don't reveal a number exactly but what i can tell you is that we do have a less than 12 month payback period so it's pretty healthy okay so less than 500 bucks there and and where are you spending that money typically uh mostly in sales it's sales and marketing head count yeah exactly it's usually capital uh interesting okay good and then so so how do you we talk about new product lines you have infinite possibilities with data and kind of the distribution channels you build how do you decide what products to build it's a really good question we get a lot of different sources of data for that so one area is just the customers themselves they're always telling us new things that they want but from a new product revenue generating standpoint we're really looking at changing some of the existing tooling that they have today um one area that we're really interested in is restaurant marketing i think if in the last 10 years you asked a restaurant what do they do for marketing it's typically like i get a food critics review and then i outsource on some reservation platform somewhere but the world really has changed we now have social media we have ad spend we have all these different avenues online to market and get guests and right now the restaurants are not really using those capabilities because they don't know how to but they don't have a tool that makes it easy um interesting how do you though again you're always gonna get these ideas coming in how do you guys say yes say no to things this is the paradox a lot of entrepreneurs run into i'm just curious how you prioritize especially being an engineer yeah so i mean our product team and our engineering team we're very very practical uh we like to do a lot of hypothesis testing with customers so for example um if we're looking at building a new product the first thing you want to do is mock it up and show it to customers even before we build it right so we spend a lot of time wireframing and talking to customers that we already have um and if it's targeting a specific niche or a certain segment of the market then we want to do that specifically um but that's that's usually our process we do that and get feedback uh and then we start building things that people say hey i really want that or that's gonna really help my business but everything we do is try to be value driven right rather saving you money or making you money when you look at growth obviously you're a funded company so there are certain growth expectations you've got to hit what do you hope to grow out over the next 12 months in terms of percentage uh you know percentage points uh so over the last year we have grown close to 300 percent oh great and we want to try to maintain that growth rate this year as well well you know that gets much more difficult the larger you get obviously so uh so congrats on getting that it'll be interesting to see if you can keep it um what do you think most that growth will come from new customer additions or expansion of wallet share via the product editions i think it's going to be equal parts 50 50. yeah um okay great and then look we can kind of we can back into some minimums here right so a thousand location we said you said specifically thousand you have thousands of locations so if i assume a minimum there of a thousand at 500 bucks a pop right you're doing north of 500 grand a month right now at this point correct north of that yeah yeah that's a minimum yeah so so i guess the reason i'm asking you is the law of large numbers makes it difficult to grow 300 year-over-year eventually at some point i mean what's your next big target is it kind of a 10 million 50 million what do you what's the next big stretch goal um so i think well double digits for sure um and we're definitely a series b stage so if i put in that context it's probably helpful for you but um i i think we can maintain 300 particularly because we have new products coming up uh so from an mrr basis i think we can maintain that growth rate uh quite healthily from a location standpoint of course the market's wide open uh there's thousands and thousands of restaurants out there in particular reservation taking restaurants there's lots in the us but there's even more internationally um as i mentioned we're in 250 cities already and not because we have sales team in 250 cities we have organic expansion through existing accounts and so because of that we think the market's just wide open at this point you said double digits pretty confidently i mean is that 10 million mark really i mean you're pretty confident you guys are able to knock that out this year or is that still a stretch goal um not a stretch goal okay pretty confident there that's good and then um when you start when you say series b kind of company look there's a lot of series b companies that when you look at their ar to funding ratios they're way out of whack i mean they've raised like 20 times what their arr is so it's hard to it's hard for me to understand what that actually means from your perspective so the question i have for you is um how far ahead of revenue are you raising for um that's a good question um we are looking at a profitability scenario in the next 12 months um but we're also wanting to fund growth so um when i think about the amount that we want to raise versus where the revenue is at i could say it's healthy again we don't disclose the exact number but sure we think it's very healthy well i mean look we we know you're not at 10 million yet you've raised 20 million so it's at least a point kind of a 0.5 ratio right now do you have plans to raise additional capital over the next 12 months considering the last race was back in 2017 that with comcast at 8 million uh not currently we don't have any plans at the moment the the revenue is going on such a great clip that uh at the moment we just want to get to a point of profitability and then we'll we'll decide along the way i'm not going to say that it's out of the question but uh certainly at this point we have pretty good line of sight and and profitability obviously you're not going to get there by cutting expenses by driving revenue growth you you really feel like you'll be able to hit by the next 12 months hopefully we'll see yeah all right very good man let's wrap up here with the famous five number one what's your favorite business book uh favorite business book i've got two so the one is uh the hard thing about hard things by ben horowitz which i really love and then um the blog posts from joel spolsky where now discontinued but those i really love those back in the day the chaotic flow ones so you're talking about oh no the uh the fog creek founder joel spolsky yeah yeah it did it wasn't it wasn't the uh wasn't the site he blogged on chaotic forum i'm getting those mixed up uh no he had his own personal blog had a lot of content he was one of the first bloggers about tech online before it became popular interesting all right number two ceo you're following or studying uh that's a good question i'm really fascinated with sam altman he just seems like an alien from another planet but just thinking about things very differently number three what's your favorite online tool for building the business uh probably say google sheets and number four how many hours of sleep to get every night uh maybe about six and a half and situation married single kiddos i am single okay no kids running around in new york no kids running around new york not that i'm aware all right how old are you i'm 34. last question what do you wish your 20 year old self knew um uh to know less actually being naive is a great asset sometimes guys stay naive coming from kanesh again launched seven rooms back after leaving exxon mobil and spending a lot of time thinking about data and internet they now have about over a thousand locations using them paying 500 bucks a month so north of 500 grand per month in revenue right now or about a five six million dollar run rate with eyes on breaking 10 million hopefully this year and then continuing to drive 300 year over year growth as they scale hopefully reaching profitability in the next 12 months they've raised 20 million bucks to date so far a team of 90 in new york city remote locations again really helping restaurants with a lot of locations get better at data and sharing data across locations they've got a 99 gross retention in terms of mr monthly 12 expansion so about 100 net revenue retention right now hoping to drive expansion over the next year with new addition of new product lines payback periods on new customers less than 12 months canesh thanks for taking us to the top yup thank you