SpotMe Revenue & Valuation (2020)

hello everyone my guest today is pierre mctrayler he joined spot me in 2001 as a software engineer in 2004 after a research position on a distributed algorithms at ntt japan he returned to spot me and led the pivot from proprietary hardware to sas with spot me becoming the leading pure play event engagement platform pierre's a graduate from insead and the swiss federal institute of technology pierre you ready to take us to the top absolutely thanks for having me late you bet thanks for coming on so the obvious question is anyone that sells into the events world is going through a lot of change right now what is spot me selling right now and how you've been impacted by kovid yeah so we are a what most people would call us and they would think of a wordpress for events right so we are an end-to-end platform for launching managing running your events and of course it happens today that most of these events are actually online right so we provide all the tools to create a website a mobile app a social network live stream and a community and you can do this in few clicks and without having to code now what you're saying is yeah of course covet huge change and a lot of people in the industry were focused on in person they were doing a lot of stuff on reg on checking people in and payments and none of these things happen right and all the focus now is on engaging online as on streaming and that's actually something we had we had a product before because one of our clients actually asked asked us a few years ago and so we were quite ready to pivot extremely quickly so yeah business was pretty tough the first two months from march to uh to um i think may and and starting june we went up very very strong about how much monthly recurring revenue do you guys lose between march and may it's a great question i think we're still trying to figure this out we had about 900 uh cases with customers we're trying to you know uh pull back their contracts uh but we do think overall we're gonna lose between three to four months of uh of of recurring revenue and and here we're talking potentially a lot of churn like because some people immediately went to some other providers and and there's also a big potential now to win those clients back and so still a question mark but overall going very strong what does that mean losing three to four months of revenue can you quantify that in dollars yeah so um last year we had our top line revenue last year was about 22 million dollars right and and one of the things we did last year and in that you we're counting about six million uh arr right and so we were in the process of transforming that 22 million into ar because the year prior we had zero right 2018 2018 you had no revenue we had we had no recurring revenue okay and we transformed that into into ar okay uh so three two i mean three months that will be you know that will be something like two uh two million a month so probably about six to six to seven million okay got it so you think you'll lose between six and seven million in sort of contracts that you had a combination of recurring plus sort of setup fees from canceled events correct correct plus services and upsells that didn't that didn't happen yeah okay so this is a fascinating story i love stories where it's sort of a consulting setup business that is sort of slowly transforming to sas because just sas is better from a valuation perspective etc planning perspective so this year where do you think you'll finish like what's your just pure run rate today on the sas side yeah so on on the side and and this covet thing is actually for us just perfect i hate to say this because it's stable for a lot of people but for us it's just perfect because it pushes us and it pushes our costume more towards stats anyway uh so i think we're going to be hitting 12 to 30 million so more than 100 growth in in ar okay and what are you at right now like last month what was monthly recurring revenue yeah it was about 9.5 uh okay yeah that's great i mean that's that's not bad so you're still up from 6 million last year even with covet absolutely yeah absolutely yeah now will overall revenue in 2020 take a hit because you won't have so much of the setup fees and all that yeah yeah yeah well we we don't know yet right because the business is going like very strong we required i think about 100 new customers from from may till like september and and now we're going probably 100 just for the last quarter right so so probably you know anywhere between 16 to 20 16 to 20 million is probably where we land on top line this year yeah but but what's nice about that is you'll have you'll go from being you know about 30 true sas revenue to almost 65 70 true sas which while it stinks that your top line revenue declines you're now more prepared sas that's right the the only the flip side though is that we are we're not bootstrap business we did get investment in the early years like 20 years ago when we were a hardware business and it was a single-digit investment but since then we've been purely from cash flow and in-depth and bank debt right so we've got to manage cash flow very carefully if you lose you know 46 million revenue that's not a small that's not a small hall and uh if one thing you know history did teach me here is that if you manage the company a little bit like a household and it works right and and you know things like coffee can happen and you can still you know pivot the business and still have a bit of a safety net to grow now something someone listening right now might be going oh this is great you know pierre seems cool and hip but you guys are an old company when was the company launched so the company was actually founded in 2000 i'm not even the founder i'm a joiner i joined a few months after the company was founded and there's actually none of the original founders on on the company anymore they're still invested some of them uh but the companies completely changed in 2012 into into into software uh and then later on into sas yeah and when so so there's debt and equity involved has there been an equity raise that happened while you've been at the company yeah we did a really small round with uh actually equity and debt were actually tied together uh because the way it works with banks is that if you know if you do raise some equity you can then leverage some debt after that so we did that at the moment you changed from hardware to software because that was a pretty big investment right we had to rewrite the software from scratch what year was that here 2011 2012. we launched 2012. okay got it so 2012 is when you took the equity plus debt deal and about how much did you take oh very very little by you as standard okay got it like two three four million uh yeah okay you're you seem shy of it you seem shy about that well we have we have a culture of secrecy in my home country in switzerland so uh but but that's that's that's about that's about that that's about it right okay fair enough so so i mean i would say it's still pretty impressive that the company is only really raised call it two million or so to go from where you were to where you're at now very capital efficient so we went 2012 we had a four million business uh to went to 22 and and twenty actually nineteen and all of this was it with a 20 15 to twenty percent you know ebitda margin so being very cash flow effect efficient that that's great um it doesn't allow you to make some big bold moves and but the big thing is that if you have a history of being you know cash flow efficient when you go and talk to banks you know that's a really really easy discussion yeah it's almost like a credit score kind of right you have a lot of history to point to exactly yeah um that's great now are you still today uh about 15 to 20 percent ebitda margin you'll think you'll do that in 2020 now with with losing 46 million uh no and plus we're investing crazy so this year we'll take a dig a big a big dip in in cash flow we are just now i was just talking to my cfo we are anticipating to be break even um next month back to break even next month oh that's pretty close pierre so i mean you're only burning you're only burning like net burn then like call it 100 grand 200 a month right now yeah we we're going to be going i mean this month we'll be booking about north of 2 million yeah and most of this is collected up front so you know that's uh that's a solid cash flow yup yup yup yup so okay got it so you see clear path on a cash flow i mean you're gonna be casual positive this month on a cash basis absolutely yeah now if you divide the two million collected up front by 12 you might need another month or two to get to true break even on an mrr basis which you know we have with a high on full cash flow positive for you know 20 20 21 and even there uh because now the beauty of this new coveted situation is that it's very clear how you can acquire like a ton of new customers right and we've established a clear cac and and wait tell us about this yeah so it's it's very simple the we have two products there's one platform but it's packaged into two offerings one is one offs for people who are not quite sure yet if they really want to go online and virtual events and the other one is and the one-off actually includes some basic level of services which means if you don't want to play your shows run your shows like you do and you know we've got someone who is going to help you and so and the average a ticket price on this is about 17 000 right and then we've got the enterprise offering which is for recurring and data thing is about 50 000 in average uh i think it starts at 25 and it ends like high and and so the combination of that is i think 24 000 is is the average uh is the acv that that we're shooting for this year right cac is very clear now at 11 000 right so i think five five six months payback so yep so here that's you know we've just established that it's been stable now for two months and now we're going full-on with you know new customer acquisition that's great and what's the team size today how many people it's about a hundred people we had to go to a downsize we were about 140 uh pre-covered we had to go to a downsize and about 100 people now how many engineers i think 20 26 26 and how many of the hundred total employees carry a quota fifteen one five interesting how do you set quota we just did today so i'm not sure i'm not sure when he answered that question we used to have like a super scientific way of setting quota like uh you know we've got account executive just for a quick new customer acquisition and that's just a function of like how many outbound you're supposed to do and what's the inbound rate and conversion etc so we show them that's the number you get and but for like we and we also have account managers who are managing existing accounts and expansion doing expansion with those accounts and that is a little bit more of a question mark and we've actually simplified this because we see huge traction we've just divided by what we think is the booking goal and uh that's what we've said as a squadron your csms and account managers a quota of course everyone's got a quota so they have an expansion quota yes yeah that's super interesting and do you generally like whether it's an ae or an am what's the i won't dig deeper here because it's obviously getting a little personal but what do you generally set the full on target earnings to quota ratio is it sort of a five to one ratio or something different uh it's pretty uh just trying to think for aes it's it's a little for is it's a little smaller i think it's about annual right it'd be about five it'd be about six six plus six plus six x so just be clear if someone makes if an ae hits their quota and they make a hundred thousand per year let's say two hundred thousand per year the quota they hit is six times that about 1.2 million a new ar that they brought in well um i i do expect aes to do about 1.2 million a year now oh oh i got i guessed right perfect yeah you can also guess how much they make but yeah yeah yeah fair enough fair enough okay well this is great um i mean i just i love the fact that you sort of done this and you've gone through obviously covered which is really really tricky how many customers down today are paying for this ass product well so everyone is is is paying first we don't have a free we don't have a free version so we had about two we had a base of 250 customers uh from from 2019. it's totally unclear how many have actually churned and how many are still on the way on their way back but let's bang for 50 churn we've acquired 160 customers since now since the beginning of the covet since since april and we're on track for probably 100 plus more till the end of the year so you've got 250 from last year 50 churn so you're down to 125 but then you added another hundred since so you've got a flat it's gonna be about well probably plus probably not plus three hundred uh average customer i mean the the ace customer cv was super high you know 22 million uh uh with 20 250 customers that's that's about i think 80 80 000 plus right so it's not gonna be that high uh but but we're increasing the number of customers and that's great because one thing we know how to do well is expansion yep so what what actually can you break that down for me i mean what does your expansion revenue annually look like on the historical cohorts on a percentage basis yeah so we had um i need to rethink this so so historically we had i think 105 110 100 and 510 net retention right and i think we had about 10 10 percent churn the industry is usually on 20 i think everyone who's coming this show has said 20 turn right uh but but we we're more on 10 we're more on 10 and uh i think that gives you a a 15 uh or so uh expansion if yeah 15 50 to 20 yeah yeah very good stuff pierre this is great so so any i mean it's interesting to me that you just said you just had to chat with your cfo and you're looking at being profitable next month because if you use code with like an opportunity for you you want to be investing a ton right now because there's so much change happening in the best world you want to be on a customer acquisition spree you know maybe burning cash even to drive growth why the focus on profitability right now well um look maybe it's a european thing i don't know uh but but you know one thing that i've learned is if if you can't see i mean even if i invest like right now which we're investing a ton right we've just decided two weeks ago we're gonna you know 50 more on customer acquisition budget right and so if i see those returns and i should be able to able to see those returns in you know a month right because it's very short on the the sales cycles are like super short right now and i think the acceleration can be fast and i don't think we need to dig a big hole in in cash flow for doing so i don't think it's i don't think it's healthy anyway yeah what are you most concerned about right now hey great question so and we the the one number i'm looking at is how many customers i'm talking to who are using our platform just as a plug because of covet and how many are actually going to invest long term and two online events right of course every guru is going to say hey digital sales is the future and i believe so right our target customers like enterprise more than 1 000 you know employees and they are very traditional quite conservative and a lot of them are talking of like going back in person and we've burned our ships right we're not going back to that we we can do hybrid and but what i'm really interested in is making sure that if every customer who is joining now is going to be like fascinated by keeping their events online in the future and that ratio like how many just do this as a band aid versus how many like invest long term that's the big the big question pierre on that let's wrap up with the famous five number one what's your favorite business book uh great question crossing the chasm yeah that's a good one number two jeffrey moore number two is our ceo you're following or studying yeah we david cancer from uh from drift number three what's your favorite online tool for building the company a very boring sales force a number of early customer from 2002 so yeah yeah number four pr how many hours of sleep every night um five uh but working on getting a little bit more fair enough and what's your situation married single kids so married and expecting our first one in december oh congratulations one exciting time for you how and how old are you i'm 41 41 last question what's something you wish you knew when you were 20 uh yeah great i think um you know i thought it was very important to be super clever but i think it's i've learned that it's more important to be kind and then you know clever a little bit later guys spot me serving the event industry they were founded in 2000 they hit 4 million dollars in revenue in 2012 but that was pure sort of setup fees and things they started the pivot to true sas in 2018 2019 with a major pivot with pierre coming in they did six million in true arr in 2019 on 22 million in total revenue this year we'll do 9.5 million in true sas revenue on call it 16 to 20 million top line they've got 300-ish customers paying on average 2 000 per month uh they are burning right now but very close to cash flow profitable they've raised very little amount of capital build this team over time 100 people on the team right now 26 engineers 15 folks carrying quota and 110 net revenue retention which is impressive for a company that sells to event organizers in a period like we're in right now pierre thank you for taking us to the top thanks nathan one more thing before you go we have a brand new show every thursday at 1 pm central it's called shark tank for sas we call it deal or bust one founder 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