How Cognota CEO Ryan Austin grew to $900K revenue and 60 customers in 2020.

hello everyone my guest today is ryan austin he's an entrepreneur who spent over 10 years driving improvements in learning and development in his current role as ceo of synapse ryan is focused on developing innovative products to help learning teams increase productivity and create impacting impactful training at scale before this company served as senior vice president for world trade group an organization that levers offer that offers live events online products and training courses ryan you ready to take us to the top sure all right so just be clear the url is git synapse.com is it a sas company are you selling services too no this is a pure sas company 100 software notes okay and your baby you that you're the founder yep one of the uh the co-founders when did you launch um we launched it i guess officially in 2017 although we worked on the r d for about a year year and a half before that so launch 2017 i mean how much you spend sort of on the rnd and the mvp before your first paying customer do you remember um well there's a lot of different versions we don't have a direct competitor still in the market right now there's indirect incumbents so there was a lot of lessons learned in learning curves to do what we do and we spent probably about 50 grand to get the first kind of iteration out the door and uh and started to monetize it but then kept going from there raised a little bit of money after that how much have you raised about four million dollars do you regret that um don't regret it because we have some good uh some great institutional uh investors and uh early on we had some um angel investors who without them we wouldn't have gotten to where we are today um one of my first sas companies that uh really have taken to a point where we're you know really about to scale now which is exciting um would i take money on early again yes but you know you would have different limits on how you do things you learn as you execute so of course of course so sign your first customers up in 2017 i imagine how many customers are you serving today uh we have about 60 um on the platform uh 60 enterprises directly today and but we've just started to experiment with some channel partnerships one which we just did a press release on where um over the next two years they're going to onboard us to 11 000 clients of theirs which is exciting what did they get for that um it's just uh [Music] similar to how you would do kind of a wholesale retail relationship in a you know a traditional product it's similar to that so revenue split so what percent of the revenue are they do they get to keep like 30 50 percent more i can't talk about that specifically just because we have certain agreements in place but it you know it's a win-win scenario where we're we're both happy it's very balanced relationship can you share a range is it more or less than 50 percent uh it's around that yeah okay around that fair enough let's go back to your first 10 customers how did you get them oh being scrappy our fir our first client ever was uh a fortune 10 customer who uh um exxon mobil okay and um they basically read about us in the newspaper after coming out of an accelerator and um and uh asked to see the software where we we're like well we don't have software yet here's our plan and um it was a a problem for them that that they said well we'll give you a little money to help you develop this and that was really when we flipped the switch to um just really focusing on uh software as a service how much do they invest um it was in the six figures range and was it was it just like a customer payment or they actually get equity uh customer payment oh great that's that's the best way to do it very cool uh so that was your first customer you got them on board are they still paying today they are that's great so what is the average customer paying you per month to use sign apps it's it's interesting we just went through an iteration of of our pricing model as a seed stage company you know it's all about learning um uh our average price was about twelve thousand dollars in the past um and annually and increased from there based off a per seat model but we uh we actually just flipped the switch with kovid um to not having any minimums and pricing at fifteen hundred dollars a seat um to lower all barriers and we're we're seeing contracts come through at greater deal value than than before and so can i take 60 customers times a thousand dollar a month on average i mean you're doing about sixty thousand dollars a month right now in revenue uh no it's higher than that actually um some some clients are are paying us in the six figure range okay can you give me like a range of where you got are you north of 100 000 a month um so where i i guess i'll say it like this just because it changes daily right now nathan especially with the partnerships we just onboarded um we have not yet gone to series a and when we do uh our plan is to start um um working with seri series a partners at around two and a half million arr so we're not quite there yet but um you know we'll be there in about a year's time or or less i mean do you think you can break a million dollar run rate by the end of this year three months left oh yeah for sure okay got it got it so your plan is to break a million this year then double the next 12 months and then go to series a yeah i mean we will have over 100 growth this year um okay got it so if you're doing like call it 70 80 000 a month right now in revenue what were you doing a year ago um well a hundred percent less than that yeah so what was the number um so we we were um we were at uh a little over 400k in ar um less than a year ago yep yep yeah that's great growth where does most of that growth come from expanding customers who are already with you are getting new customers all together uh both so we have a transactional side to the business just like any other fast company and uh we call that internally kind of the the growth model and um with the partnership side of things we call that the scale model where we we partner with learning management systems that focus on specific industry verticals and um that that way we can service their clients with our technology and um they don't have to build what we offer what do you mean by transactional side of the business so transactional meaning you know we have a um a bdr and a account executive team who focuses on net new clients um you know we we find them through inbound and through demand generation and uh and outbound methods and then the uh the scale side of the business is just through the partner network i see i see how many quote carrying reps are currently on the team uh we just hired our second ae as of last week got it and your aes are the only ones with quota bdrs don't yeah cdrs are yep bdrs are incentivized on sales accepted leads or sales qualified leads and how many engineers are on the team about nine right now okay and what's a total team size um a little over 20. okay nice good stuff ryan it's very cool so so driving growth it sounds like channel partnerships is going to be a key strategy for you guys moving forward to drive growth you've raised four million currently are you still investing that capital to the point where you're your cash flow negative each month or you break even now or positive um there's a little bit of a loss still but we have a lot of runaway with with the money we've taken on as well uh when you say a little bit of lossy don't you mean you're doing like 10 grand a month in net burn or 100 grand or more no we're we're nowhere close to 100 grand in that burn but yeah got about more than 10. yeah okay fair enough fair enough when you took um you mentioned a lot of cash that you just that you raised is still in the bank when was that last race how long ago was it well we raised the majority of the money back in 2019 and we started experimenting with partners and very recently brought on three so the experiment ended up not being an experiment and we didn't want to take the money that we secured from the initial seed round and fuel into partnerships because it wasn't part of the plan um so we we just took on another million dollars in august okay got it okay so literally just recently you took on one five um you also chose to do i mean back when you did the round in in april i think it was of 2019 from generation i think you did 2.5 um in between that in the 1.5 you just took an equity it looks like you also did a little bit of debt is that accurate and if so help me understand how to use debt and sas company yeah so um the debt was really interesting actually so we uh we brought on some venture debt through comerica bank and it was mainly to really build the relationship early so that when we do our series a we can take about 30 percent of venture debt on top of that next round so this was just to get our feet wet build credibility uh build credit with the bank and uh so that we can use it as uh as a a non as a future um investment part or a future financial partner without taking on uh without giving away equity in the next round so for for this round we're not really leveraging the debt right now although we have access to it um we do plan to leverage it closer to um the time that we pull the trigger on our series a so we can start scaling the company and hiring hold on hold on ryan those two things this the strategic reason you told me you took the debt is opposite of what you told me what you're actually doing with it you told me strategically you want to build history but you just told me functionally you haven't actually drawn any down and you don't plan until until the series a you do having a line but not using it doesn't build credit history with co-america six months before our series a will brought down um there's a lot of firms looking at sas companies looking at debt like this you know silicon valley bank sort of will do things like this in the five to six percent interest range it's sort of a warehouse line or a term loan can you help me understand sort of the structure you put on your 500 000 yeah well it was uh um it was unsecured line of credit um and uh we we were given favorable uh terms uh because of some of the investors uh that that came into last round and who america had a relationship with when you say favorable terms i mean are we talking like when was the interest rate on the line you're trying like five or six percent or something higher it's less than that okay less than five to six percent got it and um usually banks like this do require warrants so there's still a little equity kicker and no warrant okay no warrants and so um and no no nasty covenants origination fees you know anything like that no so the way they protected themselves is um is it's not an open line we have to use it by a certain date otherwise it can claw back and and so um it it it's really based off of the uh off of cash out dates and things like that so they de-risk it that way but we we're executing so closely to our model right now that we'll be able to leverage the cash versus not being able to leverage it we we actually did an extension on it because we were off a little bit of our plan the first time around so we uh we had to go back to them and ask them to extend it um so that what do you mean i thought you haven't drawn it down yet no but the term of the line of credit would have expired if we didn't use it i see so you put you ask them to give you more time more time yep yeah i see and so why not just use that line i mean you took a bunch of extra dilution raising 1.5 million in addition to 500k from equity investors why do any equity at all um i think i think the equity partners who have taken on our is smart smart capital um so outside of uh of participating this round these weren't spraying prey funds they were uh bdc venture capital generation ventures ripple vendors and differential ventures yeah so they um most of them have large funds um and the other ones are very entre um ceo friendly and entrepreneur friendly they want to back you it's not a sprain praise seed fund um you know with with with the the vcs who we put together um you know we they're they're already looking to commit about five a little over five million going into the next round combined how much do you think you'll raise in your series a or what are you targeting uh about 10 to 12. and what valuation would you do would you love to get obviously you have to negotiate this but what would you like to get yeah i mean it's it's up in the air right now um i've seen series a companies in our space as low as 25 free money and all the way up to 40 million pre-money so somewhere in between there you know i don't want to shoot myself in the foot without actually realizing the value creation that we we know we can create so yeah somewhere i mean right now you're at a million bucks in terms of run rate obviously getting a 25 million you know pre right now and then raising 10 or 12. i mean that would be pretty incredible at a million dollar run rate and growing even even though you are growing 100 percent year over year 2.2 million and grow 100 percent year over year two years in a row makes more sense yeah it's really interesting so there's some things we're doing this year with ip um around some of the analytic features that we're rolling out shortly as well as investing a lot into product-led growth being a productivity software the trends are really interesting when you look up crunchbase with companies like asana or monday.com or jira on how long it took them to to kind of get to their series a it's a similar trend to what we've experienced but then they start seeing like crazy growth after that right so we're seeing a lot of the similar trends and you know our productivity software just focuses on learning and development departments it's built specifically for them not for every single department so our integrations are with learning management systems um authoring tools similar to how jira's purpose built for engineering teams so it's a it's a very esoteric problem but big market um and uh exciting opportunity ryan we're running out of time here quick answers if you can gross revenue turn monthly is about what uh can you repeat that gross revenue in churn is critical in sas company what's your gross revenue look like um we're we're retaining about 89 of clients right now on an annual basis yeah okay so 11 gross revenue churn and then i assume you have probably some good expansion revenue right uh just getting into expansion now really okay got it so net retention is something like 90 95 percent annually currently yeah yeah okay and you have like a model for customization like nailed down you're testing the channel partners but i mean what will it cost you on average in terms of cac to get a new customer paying 12 000 bucks a year yeah we we think that um payback will be five to six months um once we roll out the product led growth strategy okay but what is it currently uh it's it's higher which is why we raised some money uh it's about 10 grand okay got it 10 grand to get sort of 11 000 or 12 000 your customer so payback's more like 12 months yeah okay interesting very good i mean look super interesting space you saw click up just raise a pretty large round going from nothing to 35 million dollars raised mondays obviously in this space um curious to see how many big winners we can have in this space but i'm we'll be rooting for you yeah thank you all right let's wrap up with the famous five number one favorite business book oh um tell to win number two i love that's one that very few people know about i'm i love that you know that telltalent is a really good one number two is there a ceo you're following or studying um [Music] not any that anybody would really know i've had a lot of great mentors um um uh one jay steinfeld who was the owner of blinds.com who uh sold to the home depot he was very instrumental in helping us number three what's your favorite online tool for building your company besides your own outreach number four how many hours of sleep to eat every night uh five and situation married single kids uh single uh sorry married with a dog okay fair enough and how old are you i'm 37 37 last question ryan what's something you wish you knew when you were 20 um to listen to people guys get signups.com they've scaled from call at 400 000 a month or sorry a year in revenue in 2019 to over 900 thousand dollars in terms of annual run rate today 60 customers paying average 12 000 per year they're burning a little bit of capital way less than 100 grand per month but more than call it 10 grand a month they raised 4 million bucks to build the product 20 people on the team nine engineers small sales team they're growing right now two people on it currently about 95 net revenue retention as they look to scale in a very competitive productivity tool space but they are hyper focusing on learning and development teams ryan thanks 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 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 1 pm central additionally remember these recorded founder interviews go live we release them here on youtube every day at 2 p.m 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 sas world whether it's an acquisition a big 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 sas 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 up for that at nathan lacka dot com forward slash slack in the meantime i'm hanging out with you here on youtube i'll be in the comments for the next 30 minutes feel free to let me know what you thought about this episode 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 but i do it so that we can all learn we have to counter those people we got to push them away click the thumbs up below to counter them and know that i appreciate your guys support all right i'll be in the comments see ya