Smith.ai Revenue & Funding (2024)

[00:00] Guys, smith dot ai is doing it did 1,500,000 revenue last month, over 20,000,000 run rate. That's more than doubled from a year ago. They've got 600 folks on the team. And what they're doing is they're helping folks do they, you know, work with customers much better in a more efficient way, whether it's voice, inbound chat, inbound messages, they're using AI to power this. But unlike most AI companies, have real revenue. Again, voice, web chat, outbound SDR [00:22] as a service launched back in 2015, 2016 after Aaron sold his first company Red Beacon to Home Depot, then stayed at Home Depot through 2015. Hey folks, my guest today is Aaron Lee. He's the co founder and CEO of smith.ai and former CTO of Depot. His former company Red Beacon won the TechCrunch fifty startup competition in 2009. He's one of the funding founding engineers, at Google Video and holds a PhD in computer science from Princeton University, [00:49] now building smith dot ai, which is human centered AI customer engagement. Aaron, you ready to take us to the top? [00:56] >> Yep, absolutely. Excited to be Happy to tell you more about smith.ai and some of the excitement in the AI development on customer engagement. We love that. [01:06] What years were you with Google Video? [01:08] >> It was in 2004, very early on. I joined Google. And back then Google had web search, image search, but video was a new thing. So, I built a team with my, another engineer and before we know it, it's a team of like a 100 people. [01:23] And that was 2004 to what year did you leave? [01:26] >> 2008. Wow. I left 2008. Yeah. When I joined, like Google had 2,000 employees. When I left, it was 20,000, like 10x. [01:35] Wow. Okay. So so that's did you go right into Red Beacon in 2008? [01:40] >> Yeah. So I left in 2008 exactly on the month of the financial crisis and started with like the other two ex Googlers And we thought, wow, I mean, that's a good time to build company. And that's how we started Red Beacon. [01:57] Interesting. So what happened with Red Beacon? You sell it, you shut it down, what you do with it? [02:01] >> Yeah. So we spent a year half time building the company and back then you have to remember, like there were no funding at all. We said, great, we're going to bootstrap the company. We're going to build the product half time. And by the time we launched in TechCrunch and took the top price in 2009, like, we start like, we actually got the funding within, like, less than a month from RemRock and Mayfield. [02:25] How much did you raise? 7.5. What valuation? [02:29] >> I actually don't remember. Think it was like, yeah, probably close to, 30. Yeah. Okay. [02:35] And then what happened after? [02:37] >> And we just took the money expanding to nationwide and, Rebican was a platform to connect the homeowners with home improvement professionals. And when we start expanding the platform to Nationwide, we got the notice of Home Depot. And turns out Home Depot has been thinking about it for quite a while because they actually have two sides marketplace, the pros, like the contractors and the homeowners. [03:03] Now, what size did you grow Red Beacon to before you decided to exit in terms of revenue? We're talking like a million, 10,000,000, something in between? [03:11] >> Yeah. I think it was some somewhere like 10 plus [03:13] Okay. [03:14] >> Around the time. But but I think the biggest opportunity is like Home Depot has all the ingredients. They have the distribution channels, 2,000 stores. They have the two sided marketplace, homeowners and the pros. And they're also very excited to get into the like, building that connection between the homeowners. So if you go to any of the Home Depot store today, you will see my work there. I think they rebranded as like pro referral. [03:39] That's very cool. What did you guys I mean, you're it sounds like you're building something at Red Beacon. It's doing well. You have more than 10,000,000 in revenue. What did you like about the Home Depot offer? Why'd you guys accept? [03:48] >> I think, like, when we accepted the offer, like, we were looking at how do we expand it to even faster to to even, like, adoption. Right? We could raise money, but on the other hand, when we raised the money, we only got the money. We don't get the network effect. We don't get the distribution channels. Home Depot actually provide all of the above. And we got, like, very significant support from the then CEO of Frank Blake, [04:12] >> and he was our biggest sponsor. He saw the opportunity to expand from, like, which is like selling the stuff on the shelf to services. And are [04:22] you able to share a range of like what multiple you guys sold for? [04:26] >> I actually don't remember. Yeah. Okay. [04:28] What was it an amount that you mentioned the valuation on the raise was 30,000,000 ish valuation? Did you sell for more than your valuation so that everyone made money? Or was it more like an [04:37] >> Like, the investors are very happy. All the employees are very happy. Yeah. Okay. Okay. Just raise one round and Okay. Yeah. That was it. [04:46] Oh, what's going on there, YouTube? Good to see you guys. Now imagine this. You love watching these interviews with SaaS founders. But imagine if we took all of the valuation data out from over 2,807 interviews I've done manually, Saves you a lot of time. Well, we've done this. We've built it into the beautiful interface inside of Founderpath. Check this out. I'll show you how you can access this in a second, but you log in, you connect [05:10] your Stripe account, you see your valuation real time, you can see what it changed over the past eighty eight days and even set goals for valuation this year. Now the secret evaluation is there's many different ways to value a SaaS business. So the reason you're gonna see three or four different valuations inside of your Founderpath dashboard, this is all free by the way, is because depending on who's doing the buying of your SaaS company, you're gonna [05:34] get a different valuation. A VC is gonna pay a different valuation. Private equity firm is different. If you're gonna do a minority sale, that's different. And if you sell the whole business, that's a different valuation. You can see all those when I hover over here. Right? So the teal is what a VC would pay. Yellow is what private equity and red is if you sold the whole thing outright. Now what's cool about this is this is [05:56] not built off random data. Again, you guys hear these interviews on YouTube. All these datas are built from real time valuation data points founders share with us on the show. So traction, 1,200,000 seed round, 3.7 raise. They sold 22% of their business. Go in here and filter by the event. Maybe you only wanna see companies that have sold the whole business. Well, here are a bunch that have been acquired, the valuation and the multiple. Maybe you're [06:21] going out right now and you're raising your seed round. We'll go in here and look at all this recent seed deals that went down, what they raised, what valuation they raised at and what percent that they sold. There's never been a larger dataset of SaaS valuations than what you can get now inside of Founderpath. And we're thrilled to bring it to you. All right, We're gonna go back to the YouTube video here in a second, but [06:43] if you wanna check this tool out, if you wanna jump in and sign up, you can check it out for free to get your valuation at this link. This link, founderpath.com/products/valuations. Or if you go to founderpath.com and hover over products, click on get your valuation here, and go ahead and sign up to give it a whirl. Again, all that valuation data live right inside the platform. I hope to see you there. Alright. Let's jump back into [07:10] the interview. A lot of times when a company like Home Depot buys a startup like yours, there'll be a portion of the deal that is cash upfront, a portion that is stock options, and a portion that's an earn out. How did you think about your deal? [07:21] >> Yeah. I think we we we definitely got the heavy size on the on the cash side, and then there's a bunch of, like, earn outs so that we they could retain the talents and the team. And also, one of the biggest reason why we got excited is they actually want us to make it really big. Like, if you look at Home Depot on the services settlement side, now they're multibillion dollar business. So they already have that [07:45] >> significant interest and incentive to make it really a big business. [07:50] I see. So Aaron, is it fair to say more than 90% of the total deal price was upfront cash? [07:55] >> Yeah, I would say so. Yeah. [07:56] Okay. Got it. And then okay. So they buy you. How long do you stay at Home Depot? [08:02] >> I actually stay we got acquired in early twenty twelve and I stayed till 2015, like almost three years. And that was really the time it took to, like, take our idea and our model and our platform and expand it expand it to nationwide. And that was when I just tell you a little bit about the Home Depot terminology. Like, they call this, like, improvement professional, the pros, and they think about it as more like these are [08:31] >> the pro community because that what they need is a little bit different than the homeowners. So you need to build a platform to connect these two sides of the marketplace. And that was when we when I was seeing a lot of challenges from the pros that they just don't have the time and the money and the know how on dealing with, like, customers. [08:50] If it's going so well, why'd you leave? [08:53] >> It was part of the thing that, like, you need to remember. So I I work in Google from 2,000 people to 20,000 people. When I was at Home Depot, the size of the company was 400,000 people. It was just very, very big. Like, it really comes with, like, the distribution channels, the customer base, but at the same time, it takes a little bit longer to get the new ideas. So one of the reason why I started [09:21] >> Smith AI was the fact that the pain point for the SMB, which US has about 30,000,000 of them, is they don't have the time and money to build up their own team. And as a matter of fact, they even approached me and say, hey, Home Depot had huge call centers. Can you guys handle my customer calls and texts and SMS and Facebook messengers? And, of course, Home Depot couldn't do it because the call center was built [09:47] >> for the corporate use and not built for their their kind of like the pros. And that was really the the genesis of the idea that came from. It's like, how can we build something that serve this very large underserved community? [10:01] So smith dot ai was launched in 2015 or 2016? [10:04] >> It was like we hedged the idea in 2015 with my co founder, Justin Maxwell, and he was at Google. And I said, like, I have this amazing idea. Like, come join me. Like, we both are very passionate about SMB. And I think we launched towards the end of twenty fifteen with like just a few beta customers. The full launch was in 2016. [10:26] Okay. And did you guys just split equity at the start fiftyfifty or did you get more because it was your idea? [10:31] >> I think we got more, not because I think we we have the similar idea. It was just like we bootstrapped the company. So in the first few years, we actually didn't take any salaries, like like all the entrepreneurs out there, we put in our [10:45] >> own money. From what years? [10:46] 2015 to what year did you not take a salary? [10:49] >> I we it lasts for three years, think to 2000, probably eighteen. [10:54] Interesting. And can I ask how much of your own money you put in the business at risk? [10:58] >> Oh, hundreds of thousands of dollars. Yeah. Yeah. It's not, not small amount. It's significant. Yeah. [11:03] Yeah. Okay. Okay. So, so let's, before we get the full story of Smith, I want to take a snapshot of where it is today. Can you give us a customer story of someone paying for Smith today? [11:12] >> Yeah. So if you're running a small meeting business and you have no time to hire people, you have no money to afford a full time, like front desk receptionist, and you also don't have the technological know how on blending between AI and agents, that is when we come to help. So they will sign up on the website. We say, okay, Nathan, how many calls or how many chats are you getting per day or per month? Let's [11:36] >> say, oh, maybe you're getting, like, 20 calls per day. That would be, like, 600 calls per month. And then we get you a package and say, every month, you pay a monthly subscription amount. If you go over that, then you pay for the overage. If not, then that is the amount that you need to commit to. It's very I I would call it vanilla SaaS model plus kind of the the usage consumption if you go over [12:02] >> the quarter. [12:03] I see. So so all in, what does the average customer pay you per month to use the technology? [12:08] >> Yeah. So it's around like, I would say close to a thousand dollars, like, on average. Like, of course, we have like a smaller business that pay a few $100. We have bigger businesses that pay like close to $10,000 per month. [12:21] So is your largest customer right now, like a $200,000 a year contract? [12:25] >> I don't remember the largest one, but we have different kind of services. So we actually have three things. We have the voice inbound. We have the web chat, SMS, and Facebook. We also have an outbound SDR as a service. So people tend to play a mix of these services, right, when they start using us because they want us to be the one stop shop to handle inbound, outbound, omnichannel, 20 fourseven. [12:50] Yeah. You mentioned services. Is your gross margin above 80% or 75% or no? [12:55] >> Actually, we're not at that level yet because one of the part that we are blending between AI and the human is the human cost is significant. So I would say our gross margin is 60% plus. [13:09] That's 60%. [13:10] >> Yeah. [13:11] That's not terrible. [13:12] >> It's it's actually if you look at all the tech enabled business, 60% is actually pretty good. [13:18] Yeah. That's not bad at all. Got it. Okay. And how many customers are you serving today total? [13:23] >> We have thousands, like Yeah. Close to [13:25] Close to what thousand? [13:27] >> Three. 3,000. [13:27] Wow. [13:28] Yeah. Okay. And how many do you think you can get to by the end of the year? [13:32] >> Oh, I think we can actually get to about, like, if we are lucky, we probably can get a five to six thousands. [13:38] Interesting. So 3,000 customers at a thousand a month, I mean, you guys are doing like $300 a month in revenue right now. [13:44] >> Actually more than that. If, let me see, we are doing, I think like a few months ago, we crossed $20,000,000 annual run rate. [13:53] Oh, you're doing way I'm missing something because you're doing way more. [13:57] >> Yeah. But like a thousand is actually close to, like, it's a blending between different services. So like we have, let's say the outbound one, people are paying, like, thousands of dollars because they're using us as more like a SDR as a service team. For the chat, it's a lower one because, like, the ASP is actually lower. [14:17] Yeah. If Sorry. Just to be clear, like, last month in June, you're saying you did more than 1,500,000 in revenue that puts you more than a 20,000,000 run rate? [14:24] >> That's right. [14:24] Oh, wow. Okay. So if you did 1,500,000 last month, what were you doing exactly a year ago? Do you remember? [14:29] >> I think it was about half of it. [14:30] Okay. So what drove all the growth expanding into current accounts, feature upsells, etcetera, or brand new accounts altogether? [14:37] >> I think most of them are actually, like, going from, like, one service to another service, like cross selling. Yep. Another one is, like, we're actually adding more kind of features so people actually pay more to upsell. And also, we're attracting businesses that are more mature, like, meaning they actually have higher call volume, higher chat volume. And on top of that, the outbound services we started about a year ago is where people say, hey, you know, not [15:08] >> only do I want you guys to answer the inbound call, I also want you guys to make the outbound calls. And that is like, I call it the sales and marketing side of things. [15:16] So how many are those full time employees at smith? How many full time SDRs do you have at smith? [15:22] >> So the team that we have, we have about total, I would say their headquarter plus agents about more than 600 people. [15:30] Okay. So the whole company is 600 full time employees today? [15:34] >> Yeah. [15:35] Okay. And guess how many of those are SDRs that you will sell at some 60% margin? [15:40] >> Yeah. So we actually have a mix. So we have a team like we call like kind of the, I call it universal agent where they can handle inbound or outbound depending on the time of the day and the day of the week. Right? Because sometimes you have more outbound than inbound. Sometimes you have more inbound than outbound. Interesting. [15:57] What's the geographic breakdown of the 600? [15:59] >> They're all in North America. [16:01] Oh, wow. Okay. Interesting. How many of them are engineers? [16:06] >> So we have about 25 engineers. [16:09] Wild. Okay. Very interesting story. What about how how have you capitalized the business? [16:14] >> So if you think about our model, right? So we it's a network effect. That means the more people who use the service, the lower the cost that we're gonna be. That's number that's how you capitalize. Number two is with the AI. Right? If you look at, like, AI in the past, I would say before the ChatGPT, We're using AI for, like, transcriptions. We're using AI to do, like, real time language, like Spanish to English. We're using [16:38] >> AI to do some of what I call the behind the scenes stuff, back end processing. Now with the ChatGPT, we can actually do kind of, like, more front end. We can have an AI voice bot to talk to you that can collect your name, your email, your phone number. We can actually have a conversation with you. And the outcome of the conversation is we have the entire call flow. We know where your customers are calling you [17:01] >> from, the time of the day, the day of the week, where did they call you from, and what they're calling about. So if you look at the call and the chats today, chat GPT, they're using all the public data, public information, but there's so much information that is not public. Like, all the clocks in the chest for the company and for the businesses, they're not. So we have all the advantage. [17:24] So you have a unique training set. You're arguing that your moat is that you have a unique training set that the other rest of the world doesn't have. [17:30] >> Exactly. And on top of that, if you look at all the generative AI, they can afford to make mistakes, but for us, we can't. Right? If the business is saying, hey, we charge, like, $50, like, upfront kind of, like, reservation fee, and other business, they charge nothing. We have to tell the exact right answer every time. We cannot make up an answer. I think that is where the AI becomes a little bit challenging because of the [17:57] >> accuracy, like AI hallucination, latency. Right? If you look at ChatGPT, sometimes it takes three to four seconds. Yeah. Once to come back. [18:06] So just to be clear on capitalization, have you raised equity to date? And if so, how much? [18:10] >> Yes, we did. We did. I think together, like, we raised, like, with us angel investors and the safe note, I think I was close to $13.01 3. Yeah. Okay. [18:22] And what was the safe note cap? Did was it capped or uncapped? [18:25] >> I think it was capped. Yeah. [18:26] Okay. What did you like a 30,000,000 cap, 20,000,000 cap? Do you remember? [18:30] >> Oh, it's much higher than that. I think it's it's higher than that. It was like close to more like a 100. Yeah. [18:36] Wow. Okay. That's really rare, but you were able to get that because you're a repetitive entrepreneur, you have a track record, but a 100,000,000 cap on a, on a say, that was a convertible note, right? [18:45] >> I think we have multiple convertible notes, the the one early in the years were like, I was talking about the most recent one, but the early ones was much lower, But I think there are two things that people really like. One is, like, this is my second time, so people like this is for, like, kind of, like, repeat sounders. Number two, we actually have very significant revenue traction. If you look at all the AI companies today, [19:09] >> they have a nice, I call it the UI wrapper on top of AI or ChatGPT, but the revenue is very lacking. Right? It's unproven. [19:18] Well, bet on Aaron, you bet on yourself though too, right? I mean, if you've raised 7,000,000 on on notes and you've raised 13 today, you guys put in 6,000,000 yourself before the notes. Is that accurate? [19:28] >> No. No. No. When I talk about the 7,000,000, that was in the first my first company, my first startup. I'm talking about smith dot ai. We raised a total of 13. [19:38] Yeah. 7,000,000 was a seed round in 2019. [19:40] >> Correct? Right. [19:41] At a 100 at a $100,000,000 cap? [19:44] >> No, that was a much smaller cap. I don't remember the exact cap, but that was that was like way early. [19:50] I see. I see. So most people on CRM, they're selling 20% of the company. Were you sort of in that same range in terms of the conversion? [19:57] >> I think so. [19:58] Yeah. Okay. So that would have like a 20,000,000 cap or something like that. And is what you're saying is you left that note open, you quote, let it roll and you raise an additional 6,000,000 on that over the past three, four years? [20:07] >> Yeah. We we kind of like open a new note because of the the revenue traction. So was expanding the previous note. Like, I think we have multiple safe notes and most was much closer to a 100. [20:19] And when did you do that last close? What year? [20:22] >> I think it was like two years ago. [20:24] Okay. So twenty twenty twenty one, you did the last close at 100,000,000. Okay. And that's when you were doing about, what you're doing, like 4 or 5,000,000 in revenue at that point of time? [20:32] >> Right. [20:33] What year did you pass a million revenue? Do you remember? [20:36] >> Oh, that that was so long ago. I don't remember that. Yeah. Yeah. But I think in '20 yeah. I think I I don't even remember, but [20:43] My research my research says you passed that in 2018. [20:47] >> 2018? Yeah. That that could be right. That could be right. Because the first year was always difficult, right? 2016, we stopped building the product, we're getting traction, kind of the MVP. And now the product is like fully built, like we're just like leveraging more and more AI. [21:04] Yep. So are you guys profitable today? Are you burning money each month? [21:07] >> We're burning money. [21:08] How much? [21:09] >> Oh, that I don't remember. [21:11] Oh, come on. You don't remember that, Aaron. That's the most important thing. [21:14] >> Well, actually the burn is like not that significant. That's why it wasn't at the top of my mind. [21:18] Like a 100, under a 100,000 a month? [21:21] >> Just a few $100,000. [21:22] Okay. You say just a few 100,000 for a lot of people, that's a lot, but for you, because you're a scale that might not be that much. I mean, so you guys have, it sounds like more than five, ten in the bank, more than twenty four months of runway? [21:32] >> Yep. [21:32] Okay. Got it. So burning something like $300 a month, more than 10,000,000 in the bank, have runway. What's the next move? Product, hiring, acquisition? [21:40] >> Yeah. I think right now we're very much focused on sales and marketing because like, people love the product. People say, wow, that works. Right? I mean, it it ask it allows them to expand the business. But then when we look at, like, kind of the the product side, we need more AI talents. We need to build up our that kind of muscle because it is where you can take your gross margin to the next level. Sales [22:02] >> marketing is another way that we can drive more growth. [22:06] >> Yep. [22:07] Very cool. We're rooting for you. This is a great story. Let's wrap up with a famous vibe. Number one, favorite book. [22:12] >> I would say, I'm just reading about the one, what was the name? [22:20] >> Well, Crossing the Chasm is one that like is my favorite classic. Like it's just so like, it just stayed true for decades. Mhmm. That's one of my favorite books. [22:30] >> That's a good one. [22:31] Number two, is there a CEO you're following or studying? [22:35] >> I am actually very impressed by Microsoft CEO, like Satya Nadella. [22:39] Number number three, what's [22:42] your favorite online tool for building smith? [22:45] >> Favorite online tool? [22:50] >> You mean on the development side [22:52] or Development side. [22:55] >> Well, we use GitHub. We use Notion. We use, like, ChatGPT. We use, like, [23:03] >> AssemblyAI. Yeah. So just there's really a lot of tools that we use. [23:08] Number four, Aaron, how many hours of sleep do get every night? [23:11] >> Oh, actually I would say I do six to eight hours. [23:15] That's great. [23:16] >> And situation, married, single kids, I saw a ring on your finger. [23:18] >> Yeah. Married, three kids, all girls. [23:21] Yeah. That's awesome. And how old are you? [23:24] >> Me, I am 40. [23:26] 40. What's something you wish you knew back when you were 20? [23:30] >> Oh, I wish I had a mentor that tells me about how to build companies. [23:36] Guys, smith dot ai is doing it did 1,500,000 revenue last month, over 20,000,000 run rate. That's more than doubled from a year ago. They've got 600 folks on the team. And what they're doing is they're helping folks do they, you know, work with customers much better in a more efficient way, whether it's voice, inbound chat, inbound messages, they're using AI to power this. But unlike most AI companies, have real revenue. Again, voice, web chat, outbound SDR [23:58] as a service launched back in call it twenty fifteen, twenty sixteen after Aaron sold his first company Red Beacon to Home Depot, then stayed at Home Depot through 2015. Aaron, thanks so much for taking us to the top. [24:09] >> Thank you so much, Nathan. [24:11] 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 [24:36] Central. Additionally, remember these recorded Founder interviews go live. We release them here on YouTube every day at 2PM 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 an acquisition, a big [24:58] fundraise, a big sale, a big profitability statement or something else. I don't want you to miss it. Additionally, if you want to take this conversation deeper and further, we have by far the largest private Slack community for B2B SaaS founders. You want to 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 saying. Sign [25:20] 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 people. We [25:40] 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.