Sortable Revenue, Valuation & Funding (2018)

hello everyone my guest today is Chris Reid he's the founder and CEO of sortable a Waterloo Region startup on a mission to empower publishers with engineering background from the University of Waterloo he's a serial entrepreneur on his fifth venture and his and has led tech ventures and industries ranging from educational technology to the consumer web and b2b SAS he's a driving force behind sortable which was formally snapped sort media which uses machine learning to help online publishers automate add operations previously web publishing company it was acquired in 2011 and bought back in 2014 to relaunch sortable current day business we'll jump into it today Chris are you ready to take us to the top all right so this is gonna be fun so it sounds like I'm gonna get this right you built an agency you sold it you didn't like what happened to it so you bought it back and now it's more pure place as that accurate no give me the mini accurate version yeah so we built out of publishing business that was a consumer focused sold it and yeah it wasn't wasn't happy with the sort of the trajectory we were going on post acquisition and so bought it back and largely pivoted to B to be focused yeah SAS company trying to help publisher so first company was publishing base we learned a lot of lessons as a publisher and then bought the company back and repeated towards helping publishers okay so there are for the minute let me break this down for a second number one why'd you say what's company after the acquisition was there an earn out you had to yeah I mean there's I think with all acquisitions there's some there's some type tie-in you know I think that there's like monetary ty and Stockton and then also just me wanting to you know finish you know finish the job like there's like commitment so a lot of reasons and why did it take three years for you realize your new home wasn't gonna be a good fit and you should spin it back out why not do it immediately or after a year that's just that I would never do that right I would never sell something and then not not we make it work for the for the choir you know sorry Chris I'm not accusing you of doing something unjust what I'm saying is why did you need a three-year cohort sample size right to understand it was never gonna work right why not wait that way if we go off your current logic why not stay and why didn't you try for 10 years oh because it was it was clear it wasn't clear initially that it wasn't gonna work it took some time and then it took some time to execute a buyout like I see working with private equity firm to have to you know we're working with the the money side is not necessarily easy you know so it's like you can kind of break the time up into we need to grow the company was blowing well then a period where it looked like you know it wasn't going to be what we thought it would be and then a period of executing about that you know those three things took time and that's that's how you get to three years so how much capital do you need to raise and a round up from these private equity folks to take it back private I mean a million or 100 million or so I'm speaking primarily about negotiating with the PE firm who largely controlled us taking it back not us raising money from private Li using our rebellion directly I'm talking about the P firm that backed rebellion I see okay rebellion was the company that bought you guys in the first place you had to kind of get on good terms with them first negotiate the deal and then you were able to spin it back out yeah you have to negotiate books with the choir and with the P firm who you know has a lot of say over what what they do guys oh yes okay let's focus on the business so what's the company do and and today again how do you charge how to make money so we charge publishers in sort of two models right one model is sort of a SAS style tonnage fee which is on a CPM basis and then the other the other way we charge is on a road share okay Aska that's how we make great and is there one to one of those make up more like the majority of their revenue so does 80 % sass and 20% is rep share something like that yeah I mean ultimately ultimately it models that like sass because the way we make money is a function of the amount of advertising someone who's doing so that's that's pretty stable you know it's a pretty stable sort of input so we you know the input is how many impressions how many ads or we are we managing for you and then the output is we're either charging a fixed amount per ad or we're charging a rep sure about bread and the primarily primarily rev-share focused that but the to model really similarly because at some point you know a CPM and a rupture are actually the same thing they're they're a they're transacted on a per impression basis and they can actually back up the exact same way so it's really two sides of the same coin in turn you know when you say model similar to a SAS company you know people like SAS because they like predictability right and so they look at things like churn to see is the bucket leaky or is it truly recurring revenue so so if I just ask you just to try to understand this in one metric net revenue retention annually are you guys above a hundred percent I mean in aggregate we we try and look at it across a few cohorts right so that it's like it makes sense and I would say yes because there's you know normally in SAS you have a lot of upsell opportunity right and so that's that's fairly typical with us there is some variability because some publishers grow really quickly and as they grow that kind of looks like like over 100 percent retention but if a publisher shrinks they don't and so modeling retention in our industry is like a little more complex because you do have that variability you also have variability across quarters so q4 is a huge advertising season so revenue goes up so you don't really have retention going up so we can look at revenue pretension we can look at like just like a number of publisher retention we can look at what is that what's number of publisher retention oh it's it's like 90 yeah so this doesn't factor it up cell but it's like 95 percent something like that again I would I would have to bring on my my VP of customer success to give you we won't go too deep there I just want to understand you know a lot of times I'll have ad tech companies on and they'll call themselves SAS that it's tied to ad spend and Chris I've never seen more lumpy P nails in my life it's not SAS it's like super super up and down what I'm hearing you say is you have the basic ups and downs of spend related to like the holiday season in q4 but generally over a the spec course of a year these could be you know your net revenue or attention is over 100 percent meaning revenue that you lose from publishers who are shrinking on a yearly basis is more than made up by folks that are spending more on you and having more success on you so that's I get north of a hundred percent yeah and to be to be fair most ad texts like some ad tech companies are really SAS based where they're charging you know a monthly fee for for something you know like when Domo works as a publisher is that is that SAS based ed tech company I mean demos not an ad tech company but they work with a lot of publishers so selling a platform though it's not a percentage of it like typically it's not a percentage of ads under a Rev share right right but so and we're a little different in that we're charging you know we help publishers with their entire business right whereas most most I detect companies or I would say most exchanges most people who transact on revenue are transacting on a piece of publishers revenue so that that creates a lot more variability not only is there variability in terms of the publishers volumes but there's vulnerability in terms of how much of that volume you're able to capture and so we don't have a lot of that variability we don't we lose the variability piece in terms of what volume of publishers transaction that we participate in we are primarily helping them with all of their business right so they're there coming to us and say we want you to help us optimize our entire business and so it's a lot less fickle then I would say typical points I'm sure but yeah yeah let me let me try and summarize that just so we don't go down every potential little you know you know alleyway here the average fuster per year is paying you what we don't disclose that I'm sorry give me a range I mean are we talking you know a million dollars 100 million dollars you know five hundred grand you know there there's an there's a pretty there's a pretty broad range we work with very small publishers and we work with very large publishers and there's a huge range they just give me whatever range you're comfortable I'm trying to get a general sense of its kind of SMB or enterprise or mid market just give me a general range whatever you're comfortable with yeah I don't want to get into ranges because I think I don't think that that's gonna be Chris it is sorry it is meaningful we've been about three thousand three thousand these interviews it's one of the number one pieces of feedback we get from audience and folks that listen in is we don't know if this was a small medium or large right so I mean can you give me a general sense again whatever range you're comfortable I understand you want to share exactly but a general sense a publisher could be anywhere from sort of tens of thousands of a year up to hundreds of thousands okay and that's to you not their ad spend Kirk got it okay cool and then put this on the timeline for me so you spun it out I think you said in 2014 is that right yeah and then you have you voice dropped at ten cents then or no you raised because we I have a few angels who work with me from the onset but it's it's from I would say if you're gonna define it it's bootstrapped okay well some research team says and I don't know if they pull this from SEC filing or wherever they pulled it but that you raised about 1.4 million bucks is that accurate or was that pre your sale to rebellion no that's accurate that's that's I think that's public knowledge is that's what we've what we raised okay well yeah so I want to ask and confirm it so so 1.4 million posts the spin out yeah that was raised sort of on the onset and see capital but also has capital to do the buyback and to do part of the buyback yeah yep got it okay and then and then what do you guys in terms of team today how many people we're around sixty sixty and everyone based up there in Waterloo we have an office in Toronto okay Waterloo enter on any one HQ or no that's really split sorry is there is there a density around either one of those or no it's pretty evenly split most of the people in Waterloo Waterloo okay and then talking about scale so how many customers are you working with now annually a few hundred a couple hundred okay good so it's very much I mean it sounds to me I mean understandably you're being a bit vague in terms of the ranges but it sounds like you're very much kind of enterprise sale are any are any of these folks the sixty like an inside sales model or you have a no touch kind of onboarding process again depends on the size right so like no touch we don't we don't really have a touch model there's no like self-serve hundred percent you know a hundred percent inbound without anybody without any sales or account like see us touching them before they're all boarded but there's a range of interaction pre sale so someone might come on board you know sort of like lead to from a lead to an all morning in two weeks and it might take someone else you know six months six months a little long maybe three months to make sure that we are you know properly evaluating their business and popular assessing what kind of setup is going to help them the most and for big enterprise customers there's a lot of work to do yep and and no matter which cohort you're onboarding when you look at just from a financial perspective how quickly like to make your money back on acquisition are you optimizing for like a six-month payback period or 12-month payback or something even more aggressive in the 24 month range know where we work on less than six months less than six months okay is out on a cash basis because you make them makes what folks pay annually or no it's on an accounting basis we don't we don't factor in like our receivable timeframes into that calculation yeah okay that's great and then in terms of growth right so so what are you going out right now you're over here I mean these numbers like these are always I would say right now we're probably 30 40 % yep sorry for that what are we gonna say about the numbers I was gonna say that like I don't know I know a lot of founders and and the Highline numbers are often do not describe what's actually happening underneath so I'm just I'm skeptical of the like the usefulness of the the top-line number but yeah I'm 30 to 40 percent well the counter to that is a lot of people just come on on right and they're just it's fake numbers and when you really drill down their their business is about to go bankrupt next month right so so I'm I think what you've done is valuable which is and this what I tried now on the show which is you get the hard number and then you ask the questions understand well you've done a great job or you're not doing a great job like what are gonna do better or what have you done really well to hit that and I found that to be very effective so 30 to 40 percent year-over-year growth we can kind of back into a minimum here right I mean you said 300 customers you said minimum 10 grand per year it sounds like you have some that are way larger than that so if I just multiply that I mean up with about 250 grand per month in monthly recurring revenue and obviously the multiply by 12 to put that on an AR basis but is that generally I could about north of 3 million an hour no we're we're much higher than that and that's why it's like you have things are lumpy here right like I know really high-flying startups that they're they're quarter-over-quarter growth is negative and then the next quarter is you know like you know they'll do like forty percent growth in a quarter and then they'll do nothing and then one year they'll do 100% or 200% the next year they'll like it just so all over the map that me looking at my last 12 months of my next four months there's so much variability especially it's like a small company there's so there's so much there's so much potential variability that's hard to pin a number down that's but you know I understand why you need to oh yeah I'm Christians to be clear I mean the reason SAS gets valuations that are above say a media company is because of the predictability right I mean the thought is if you know some of these things you put them in a model and generally it crates predictability and then you can use that to raise capital or build your team things like that I understand you've got some variability in your business and everyone does but it's awful to understand how you're thinking about it so appreciate that yeah and just be clear - on the air our I don't want to over exaggerate I'm just I'm doing a minimum because that's what you chose - gave me so you know I assumed you're doing obviously significantly higher than that which is great any plans raise capital in near future no we don't need to slightly the reason why we would is because we want as a boost like when you're bootstrap you're very efficient with what you do and you're very tactical and so I think there's a lot of that's a very healthy approach but if you want to have a bigger war chest then you can typically expand what you want to do and so for us that expansion would probably be expanding the scope of product and of market penetration so it would be like would be product marketing and sales there might be some opportunity for acquisitions but typically typically you know typically there's too many things that get in the way of the acquisitions that it's just not it's not it's not easy it's not if there's not like an easy way to understand that it's easy to understand like add this market you know like open up a sales office here you know add these sort of marketing tactics and the people that are going to execute those and the capital to run those tactics and you have been on a product team to you X & Y & Z like that's very there's not like it's not like a can there's no like yeah like yeah it's not causal I understand you don't need that sorry I'm rushing it we're about out of time but I understand you don't need the money but if you did an ideal world raise capital how much would you raise to go pursue some of these things yeah it's you know it's we can do a lot as a bootstrap company we can do a lot with say 10 million bucks like that's for some companies that's nothing and for I think for us we are able to you know make that go 5x further yep and would you do what most people do in a Series A or series B look at selling somewhere between maybe 10 and 30 percent of a company for that amount no we would we're not looking to do typical things we we will be giving less with the company away less until I can personally like 30% is all right like it's like that's like oh it just Christ just to be fair not always I mean oh I know not always but if you're reading like what people are like expect to give 30 expect to give 25 like this is this is fairly common 10% I mean 10% would put us out a hundred million dollar like valuation right so I to me it's like so am i reading right you'd say you want to if you did raise and you don't need the capital but if you did you'd want to raise it up greater than a hundred million dollar valuation it depends where we are when we raise I don't think we're gonna raise still next year that's why I don't know is it five percent is it ten percent like I well you say fighting definitively it's not gonna be thirty and I'll be below ten it's definitely not gonna be thirty all right Chris very good let's wrap up here with the famous five quick answers number one what's your favorite business book favorite business book I don't have one what's the last book you read last book I read [Music] right now I'm trying to I'm trying to work through the well the last book I read was I don't know I think influencing friends I don't know the I don't win friends and influence people yeah yep that one number two is there a CEO you're following or studying I mean I like I like to watch what's happening with the Elan musk cuz it's just crazy interesting to see like there's just so much there there's so much meat on that bone you can like yep I just number three what is your favorite online tool for building your company favorite online tool on Google search okay number four how many hours of sleep are you getting every night seven and what's your situation married single kiddos alright no kiddos yet oh yeah both married oh good good how many out of curiosity three are they are they sort of employee at or no no alright well playing along in there and Howard are you Craig forty one forty one last question Chris what he was your 20 year old self now I wish my 20 year old self knew that somewhere in the world there's there's like mentors you can get at and guys there you have it go find mentors faster he had some successful sortable selling it early on to a larger company rebellion backed by a private equity firm then worked in 2014 to spin that back out and really scale it now they've got a model which is essentially a SAS tonnage fee on a CPM basis and then a rev share basis as well they've got three hundred customers right now growing thirty to forty percent year-over-year doing well north of three million bucks in revenue net revenue retention annually over a hundred percent with his team of about sixty people between Waterloo and Toronto less than six month back period to so healthy economics there Chris thank you so much for taking us to the top thanks