How Tara AI Reached 65 Customers and 140% Annual Growth, Then Began Pitching $120K Contracts (Interview with Co-Founder and CEO Iba Masood)

Introduction and Company Overview

Nathan Latka

00:00Hello everybody. My guest today is Iba Masood. She is the co founder and CEO of a company called Tara Intelligence. She's a YC alum and has been part of Y Combinator's winter twenty fifteen class. Was recently awarded Forbes 30 Under 30 for the 2018 list under the field of enterprise technology. In August 2017, Iba became a permanent resident of The United States through the EB-1A award, which presents individuals of outstanding ability with the

00:26green card. Iba, are you ready to take us to the top?

Iba Masood

00:29Yes, I am. Oh my gosh. Thank you for having me.

Nathan Latka

00:31I'm so curious about so many things ranging from the green card to the company, to everything, but let's focus on the company. Tell us what you do and how do you make money?

What Tara AI Does and How It Trained Its AI

Iba Masood

00:39So my co founder, Syed, and I, we started Tara Intelligence to essentially help founders, product managers improve the product development process. So Tara uses artificial intelligence to essentially map out product milestones. And it also assigns contractors that are freelance developers to actually execute on these milestones. And and, you know, one of the reasons why we started the company was because we personally had... You know, we saw a lot of issues with the product management process as

01:10it was. And, and we personally felt that, you could essentially apply AI to this field specifically by scraping projects off the open web. So my co founder is a roboticist. I'm a financial analyst and and we kind of came together because we met freshman year of college. Yeah.

Nathan Latka

01:28Iba, there is no bigger pain point than the product manager with the scope documents from design, trying to communicate the scope clearly, efficiently, and effectively to the development team, understanding what goes in the next two-week sprint, and then seeing if it actually gets delivered and then applying, you know, you know, multipliers per developer because, you know, this one, it's actually one and a half times what they say, and this one, it's actually their way faster

01:50than what they say. How I do mean, I could never figure that out manually with a human. How do you figure it out with artificial intelligence?

Iba Masood

01:57So it actually took us about two and a half years, to just figure out our data structure. So, so Syed, because he's a roboticist, he built a team of, there were the, you know, mechanical engineers, machine learning engineers. And as a team, what we did was we figured out that we could actually scrape the open web, essentially open source platforms that already have existing code and existing software projects. So we used roughly about... Our early dataset

02:22included about 5,000 software projects. And we use that to train our system to understand that, okay, with an iOS app, if the iOS app requires a two sided marketplace, Here are the typical milestones tasks, and this is the typical timeline. So it took us a while to actually, like, get data that was clean and then, you know, to figure out how to scrub that data and build out the platform. But what we did during that time

02:42was as we were building out the the overall neural network, we were doing a lot of things manually, at the beginning. So we actually brought, product managers on board on our team. We had about 10 to 15 contractors early on that were actually, you know, running the scoping process. And we were comparing results between, what what the AI could do versus what, what human product managers, were mapping out. And what we found was that there was

03:09about 70% of an actual product manager's time was really going into the scoping process and

Nathan Latka

03:09Yep.

Iba Masood

03:09Understanding and figuring out like how how the work should be divided week by week. And we realized that a lot of a lot of this work could be automated by learning from what had been done in the past. And and specifically by looking at open source projects because we... As a company, we have this hypothesis that open source projects are

03:34one of the most efficiently run projects as a whole because typically when people are pursuing side projects, they have a timeline and they need to get things done quickly. But they like to also pursue shortcuts. Shortcuts that are actually efficient in nature that can use some level of open source code to get, to to get to where you need to be.

Nathan Latka

03:34Mhmm.

Iba Masood

03:34So, you know, these these kind of, hypotheses really formed our, the our early product.

04:01And, and so what we were surprised by was that initially we thought

Pricing Model: SaaS License Plus Marketplace

Nathan Latka

04:05But real quick before you tell me surprises, so what's your pricing model today? Is it a pure SaaS platform or is it a marketplace charge?

Iba Masood

04:12It's both. What we do is we have the licensing model. So large enterprises, they typically come in and they have annual contracts and that's licensing for the scoping software.

Nathan Latka

04:22And can you give me general, I mean, we talking like a $100, a million, $10 annual? Like average would you say is what per year?

Iba Masood

04:28So we're looking at about a 120 ks annual. And then on top of that, there's also marketplace charges. So one of the things we're introducing over time are API connections, API integrations to actually help make the project or the software development process more efficient.

Nathan Latka

04:43Yep. Yeah. So like when I think of, like, the closest thing to you that I have personally used, I think of Toptal, which is just hiring developers. I still have to manage scope and everything. I don't think they have AI on the back end. So how do you do you manage to convince top tier development talent to work through your platform versus Toptal or versus going in house at a company?

Iba Masood

05:07Yeah. So, you know, what we found, so I actually personally was a freelancer on these platforms. Me and Syed, both of us. So what we did was we we were we were freelancers on those platforms for about two years or so. Well, one point five to two years. We found that the average developer was being paid about $200 on the leading freelance marketplaces like Upwork.

Nathan Latka

05:07Wow.

Iba Masood

05:07And they had to, $200 for a a small widget

05:32project.

Nathan Latka

05:32Okay.

Iba Masood

05:32And so they would need to take at least 10 to 18 of those projects in a month so that they could make like a sizable income. And we're like, okay. What if you could make that sizable income with just one project that was typically with like a larger enterprise and had higher payouts? So that was like our pitch to developers when we were building out the marketplace very early on. And then the other part of it

05:53was also equal pay. So one of the things we really believe in as a company is we wanted to build a meritocracy where folks that didn't have, you know, computer science degree from an Ivy League university could join Tara, but on the basis... Purely on the basis of their code. So we would actually look at their existing GitHub and other platforms to give them a score. Actually, they were...

Nathan Latka

06:12That's great. There's nobody else doing that. Give me give me more of the backstory. What year did you launch in?

Company Launch and Early History

Iba Masood

06:16So we launched in 2015.

Nathan Latka

06:19Okay.

Iba Masood

06:20And this was like in The US. We were initially called Gradberry, and we were primarily like focusing on full time, software positions. And we found that there was like a much bigger market in terms of on the contracting side. Plus, we found that companies were more willing to allow AI to make the recruiting decision when it was, primarily for freelance positions.

Nathan Latka

06:20Mhmm.

Iba Masood

06:20So even with full time, they were still not willing to, like, allow an algorithm

06:44to recruit developers, specifically that were, you know, that was meritocratic in nature.

Nathan Latka

06:50And what have you scaled to today in terms of total companies using the platform? Really not companies, they're really enterprises. How many enterprises using the platform?

Customer Count: Enterprise vs. Mid-Market

Iba Masood

06:57So enterprises, we have about 10. A total companies, we have about 65.

Nathan Latka

07:01Okay. 65. Got it. Yep. Why do you... The the ones that are not enterprise, why do you not call them enterprise? Is it just a price point thing or it's the nature of how they use you?

Iba Masood

07:10The nature of how they use us. So, you know, they don't need like, you know, enterprise level security. And they're typically... We classify them as mid market. And and, you know, with mid market, we've seen that the need is is primarily... And, you know, some of these are like sporting goods companies. Some of these are... They're not your typical technology companies or IT companies, but they need to innovate and iterate on on their existing products. So

07:31for example, like a sporting goods company wants to make, jersey designers, like online, online jersey designers, you know? So, so we're seeing that the need is, is, is pretty prevalent, not only in tech companies, but also in companies that are kind of like, you know, wanting to innovate.

Nathan Latka

07:45So those guys come in under, they can get started with you for under the 120 ks or are you still, that's really your floor is 120?

Iba Masood

07:52The floor is typically 120.

Nathan Latka

07:53Okay.

Iba Masood

07:54But what we've seen is we do bring in like mid market companies for six month projects as well.

Nathan Latka

07:54Okay.

Iba Masood

07:54So we've had, like, projects come in for about three to six months where they're typically, like, starting off with a pilot in some cases. And then once the pilot works out, then they kind of scale up to an annual contract.

Nathan Latka

08:07So I wanna talk more about that in terms of churn because typically projects, like, they're not... Sometimes they're not always going. I'll talk about that in a second. First, I'm curious about the breakdown. So if you look at your past twelve months, what percent of your revenue would you say is from placing the talent versus the annual fees that are pure SaaS?

Revenue Breakdown: Placement vs. Software

Iba Masood

08:24That's such a great question. So about 60% of our revenue comes from placing the talent and about 40% is coming from the software. We do think that, you know, those metrics may change over time, but I think what's more exciting is now when we first started with enterprise, we were kind of going on a one off project basis. And what was happening was... So for example, with, like, the likes of Cisco, we were doing multiple projects,

08:48within, like, one enterprise, but it was with different teams.

Nathan Latka

08:48Mhmm.

Iba Masood

08:48So what we're excited to do now is get into multiple teams from the get go. And the way we're doing that is we're we're essentially, like, doing these pilots where we're able to prove out the the value, with, like, an initial 5 figure deal. And then from that, move into a 6 figure deal when, you know, they have the confidence to really, like, scale it up.

09:11And so that's what we're pursuing, like, specifically this quarter and next quarter.

Nathan Latka

09:14That's exciting. I wanna talk more about that, especially your team makeup. But first, just to round out the customer account. So, I mean, Iba, can I take the 65 folks at a $120K ish per year and assume you guys are doing north of $650K per month just on the SaaS side of things? Is that... Is... Are those numbers accurate?

Iba Masood

09:14No.

09:32Because a lot of the customers that are, so we do have the 65 customers. A lot of them are on small, like, basically on a smaller contracts. So what happened was when we first started as a company, we were like, okay, can we actually, you know, market ourselves as as a product that's, you know, about 120 k and above?

Nathan Latka

09:32Yep.

Iba Masood

09:32As a... You know, and so we really only started doing this this year. So we started

09:55pitching our 120 annual contract model last month.

Nathan Latka

09:59Yep.

Iba Masood

10:00Before that, a lot of our customers were on 40 k to 50 k annual contracts.

Nathan Latka

10:04I see.

Iba Masood

10:04And so now we're really starting to... Because the thing is we didn't have the enterprise features, back then. And so as we're scaling up and understanding... Because enterprise, issues that they're facing and challenges that they face are very different.

Nathan Latka

10:04Yep.

Iba Masood

10:04From, you know, the mid market companies that we were typically targeting.

Nathan Latka

10:20So Iba, just to edit that math then for a second. So people you're onboarding now are 120 makes perfect sense why you're going up market, but historically at a $40,000 ACV that comes out to about $3K per month times your 65, that would put you more around the $200K per month range on just the SaaS platform and about $270K or $280K on the placement fees on top of that. Is that generally accurate or is it different?

Iba Masood

10:44So it's a little different just because of the fact that, about, 60% of that is coming from talent placement.

10:50We're

Nathan Latka

10:50That's looking 60% of the 200?

Iba Masood

10:52Yes, exactly.

Nathan Latka

10:52Okay.

Iba Masood

10:52So about, 60% of the 200 is coming from the talent placement model and software component, again, is also something we released recently. So the software component... Yeah. Exactly. So software component as well as annual contract in terms of going higher ACV, that really only happened because, I mean, you look at our product in general, we released the first version of our platform last year.

Nathan Latka

11:15Okay.

Iba Masood

11:15So it was like about about six months ago that we released a version that was, you know, fully functioning that could actually scope out at least about 40% of your build and could, you know, really take you from scoping all the way to performance analytics.

Nathan Latka

11:28So it's... But it's fair to say you just recently... You're getting ready to pass that $200K per month mark when you combine both revenue streams. Is that accurate?

Iba Masood

11:34Yes. Exactly. So, like, we're... Over the next six to seven months is really, I think, going to be critical for us Because one of the things we're realizing is that we're able to get to a higher account value with a lot of the enterprise customers we're talking to. Specifically, even if they're just coming in on a... About a 120 k for three to six month pilots. So we're actually seeing we're actually seeing an opportunity to grow

11:54beyond the 120 k ACV as well. But we essentially need to get our enterprise security features up and running, which are another one.

Nathan Latka

12:02It's it's an exciting time to be in. Before we talk more about, again, that plan over the next six, seven months, growth wise, what are you going at year over year? Is it 50%, 100%?

Year-Over-Year Growth Rate

Iba Masood

12:11Right now it's about 140%.

Nathan Latka

12:11Wow.

12:15So if I go back twelve months from today, you were doing about $80K a month?

Iba Masood

12:19No, we were doing way less actually.

Nathan Latka

12:19How little?

Iba Masood

12:19We were doing about 20 k.

Nathan Latka

12:24Holy mackerel. Back in at the end of December twenty sixteen, you're doing $20K a month then. So I mean, you've more than 10x since then.

Iba Masood

12:31That's that's the plan, basically, because a lot of the a lot of the revenue is coming in on a per project basis. And so what the goal is is to essentially add the software component on top of the contractors.

Nathan Latka

12:42I understand that. But, I mean, like, last month, if you look at just last month's revenue, you're you're 're at around $200K, right, in revenue?

Iba Masood

12:42Not yet. Not yet.

Nathan Latka

12:42Yet. Okay. Can you share where you're at today? Just so get a general sense

Iba Masood

12:42Yeah.

Nathan Latka

12:42Of

Current MRR and Near-Term Targets

Iba Masood

12:54So as of this month, we're looking at about 80 k MRR.

Nathan Latka

12:57Okay.

Iba Masood

12:58And so from... But we're actually going to go from 80 k to about a 140 k in the next two months

Nathan Latka

12:58Great.

Iba Masood

12:58Because of the enterprise deals that we're almost about to close. And... But the key component here is we're essentially trying to understand, how much of the security components and security features we need to have upfront before we start engaging in those enterprise discussions. And I think that's something that like every founder has to kind

13:20of

Nathan Latka

13:20100%. Yeah. So just to just to go back and correct the ARPU for a second. At $80K a month today at 65 customers, each one's paying about $1,200 a month. Is that... That's more right? But moving forward, you're going up, which I completely get. Now let me ask you a question. You said you just added the software component. Was that because you were having churn issues on just the placement model? It was too lumpy?

Iba Masood

13:42It was actually because that was the plan from day one.

Nathan Latka

13:42Mhmm.

Iba Masood

13:42So for us, what we wanted to do was we wanted to build scoping software that was essentially able to take on the the the specific customers that we were onboarding. And what we found was we needed to close a lot of these per project. Like, we need to close a lot of these accounts on a per project basis to actually get the software to learn.

14:03That was that was essentially our goal. So a lot of the scoping, a lot of the, a lot of what the software does today was being done manually, and we didn't want to charge for it. We were like, you know what? This is something I think we can offer for free to our customers. But then as as customers are now coming in, they're onboarding more projects. So we're seeing an average of about eight to nine projects

14:21being onboarded onto the system rather than the one to two. Now the goal is to essentially, like, utilize more of the, more of the machine learning capabilities of the software. Because it it takes time. That's the thing. Like, building, building ML software that actually works takes a lot of time because you really need to figure out your data structures from day one.

Nathan Latka

14:40What do you see yourself being though? Like, I mean, because look, Toptal is hitting you on just the marketplace side. That's all they do. And there's other companies that just do some of the AI machine learning, that kind of stuff. You're fighting two wars. I mean, is there one you're generally trying to go more towards?

Iba Masood

14:54I think our goal is to essentially become an end to end platform. Because at the end of the day, what what... How we look at our company is that we look at the product being at the center and the core of just about everything that the company... That our customers have to do. So if you place the product at the core, then hiring analytics, API integrations, and as well as the talent that's assigned. A lot of

15:14that is a part of the whole product equation.

Nathan Latka

15:17Yep.

Iba Masood

15:17So because we at it from that perspective, we believe that more and more enterprise companies are now going to start organizing their teams based on products. And as they become more agile, their need for software development becomes more extensive.

Nathan Latka

15:31How much... Have you given... Go ahead.

Iba Masood

15:33And so I think what we've seen is that what really differentiates us in terms of within the competitive landscape is the ability to do, not only go... Not only do the scoping, but then also do scoping, talent placement, as well as the performance analytics in terms of how the developers are performing over time. So we do think that we're going to be partnering with other existing marketplaces that, you know, where we can pull talent from. But

15:55the goal is to provide that end to end platform because that's really where we've seen the need so that the PM doesn't need to go

16:00into the

Nathan Latka

16:00Why would Toptal give you access to their talent though? I don't see what's that for them.

Iba Masood

16:05We're not looking at Toptal. We're more like looking at Upwork. We're looking at platforms that have, you know, a larger base of contractors specifically, as well as, you know, with, I don't think Toptal is going to give us access to their talent. What we're doing today is that we're offering talent, you know, more opportunities to, to make money because we have Toptal developers on our platform too. It's not like every developer just joins one platform. They

16:31usually join multiple. And It just depends on their

Nathan Latka

16:34then they go deep on the ones that make them the most money. I know Toptal's numbers, they're significantly larger than what you guys are. That's what I'm trying to understand is what you have that they don't have is the software component, is the scheduling component, the machine learning, the AI. But what you're telling me is no, you wanna keep doing both.

Iba Masood

16:48I think the time will really tell because the main thing is that with the with the machine learning component, what we've seen is the reason why developers like using Tara is because they don't have to do the scoping part. On Toptal and all these other platforms, you as a developer have to sit down, scope out your milestones and tasks, and answer every question that the client has, specifically on the spec side. With Tara, the entire process

17:10is being managed through our platform.

Nathan Latka

17:10Mhmm.

Iba Masood

17:10So I think that's what really excites us where developers have... Can spend more time coding and less time managing scope.

Nathan Latka

17:17Iba, have you given up equity or are you bootstrapped?

Seed Funding and Total Capital Raised

Iba Masood

17:20Yes. So we just raised a 3,000,000 round for our seed.

Nathan Latka

17:23Okay. So... And is that is that total you've raised or what have you raised in total?

Iba Masood

17:26Yes. Total.

Nathan Latka

17:273,000,000. Okay. Got it. And walk me back through... So you launched in 2015. What are you at now today in terms of total team size?

Team Size and Product Development Timeline

Iba Masood

17:34So we are at about 12 people today.

Nathan Latka

17:38Okay.

Iba Masood

17:38And we didn't launch in 2015. We started developing the product in 2015 because it takes two to three years just to build out an ML platform. I mean, if you

Nathan Latka

17:38When did

Iba Masood

17:38look

Nathan Latka

17:38you

17:47have your first paying customer?

Iba Masood

17:48Our first paying customer came in last year.

Nathan Latka

17:51So what were you, I mean, how were you feeding yourself the first two years?

Surviving Pre-Revenue: Post-YC Funding

Iba Masood

17:54So the first two years, what we were, I mean, so we had just graduated out of YC. We had raised about 400 ks post YC. So that was essentially what was keeping us going.

Nathan Latka

18:02How many of your clients are YC, they went to the YC program or the YC, they're part of the YC network?

Iba Masood

18:07I believe two.

Nathan Latka

18:08Oh, two. Okay. Not a not a ton. Why aren't more using it?

Iba Masood

18:12I think that we we've just been so focused on mid market and enterprise. I think we we just haven't really, I think, given given much thought to, like, specifically focusing on startups just because enterprise and mid market are a completely different beast.

Nathan Latka

18:25Well, I mean, would put Weebly is not a startup. They're doing well north of 24,000,000 in ARR, but they were... I'm talk... I'm not talking about current people in the YC program. I mean, YC network, YC alums. I'm I'm I'm... I think that'd be an easier sale for you because you guys share that common bond. I'm curious why more of them aren't using you.

Iba Masood

18:39I think it's just because we haven't specifically like sat down and looked at how many of the YC customers we can onboard and what's our startup strategy. Because the thing is that with with our platform, we're really trying to, like, specifically focus on enterprise.

18:54Always been our

Nathan Latka

18:54Sorry, Iba. Just to be clear, I'm referencing enterprise companies that went through YC many years ago, like Weebly, which are... Is very much an enterprise sized company.

Iba Masood

19:03So when I say enterprise, I'm talking about typically like publicly traded companies.

Nathan Latka

19:08I see.

Iba Masood

19:09So we're looking at companies that have thousands of engineers under their belt, and they're essentially looking to figure out how to optimize the scoping process.

Nathan Latka

19:18I see.

Iba Masood

19:18Because what we've seen that when we talk to startups and smaller... And I mean, know, if you're if you're south of a thousand if you're south of a thousand employees, then you're typically not dealing with the issues that large enterprises facing. And we think that we can optimize our platform by specifically focusing on larger publicly traded companies because the system will learn faster. We can get hundreds of thousands of projects from one large enterprise. And once

19:42we've actually, like, conquered that area, we think that we'd be able to specifically focus on startups later down the line.

Nathan Latka

19:47What's your churn today?

Churn Rate and Customer Acquisition Cost

Iba Masood

19:50We're at about 8% churn.

Nathan Latka

19:52Okay, and that's monthly logo churn?

Iba Masood

19:54Yeah.

Nathan Latka

19:55Okay, and then what are you spending to acquire these customers?

Iba Masood

19:58We're we're spending a lot. Like, acquisition costs are pretty high. And I think over time, what we'll be able to do is

Nathan Latka

19:58By

20:04way, you can afford to do that. Right? I mean, can you can afford that. So, like, are you talking $50, a $100? What do you spend?

Iba Masood

20:10So... Well, our our burn as of today is at about a 110 k.

Nathan Latka

20:10Okay.

Iba Masood

20:10We're still pretty low on the burn side.

Nathan Latka

20:10Yep.

20:18Okay. But but just to be clear, sorry. I'm just talking about to... You have 65 customers.

Iba Masood

20:23Yeah. Customer acquisition specifically. So for example, if if one customer closes at about, 120 a 120 k, then we've probably spent roughly about $20,000 to acquire them.

Nathan Latka

20:33Okay. Well, I mean, that's not bad. That's a payback period of, two months, three months.

Iba Masood

20:36Exactly. But again, you know, I think because it's so new in terms of, like, us launching the software so recently, really time will tell. And I think like our our costs will go up from a customer acquisition standpoint.

Nathan Latka

20:47You just raised this capital real quick because we're running out of time. Where is most of the money gonna go? What are you gonna spend it on?

Where the Seed Capital Will Be Spent

Iba Masood

20:52So primarily on the engineering side, specifically because as we're expanding with an enterprise, we really feel that we need to bring on the right team to build out those software component.

Famous Five Rapid-Fire Questions

Nathan Latka

21:03All right, Iba, let's wrap up here with the famous five. Number one, what's your favorite business book?

Iba Masood

21:09I think anything by Nir Eyal.

Nathan Latka

21:12He is a good one.

21:13Number two, is there a CEO you're following or studying right now?

Iba Masood

21:16Yes, Therese Tucker. I think she's an incredible female CEO who's IPO ed her company just by bootstrapping at

Nathan Latka

21:22What's her company?

Iba Masood

21:24Therese Tucker BlackLine.

Nathan Latka

21:25BlackLine. Oh yeah.

21:26She's speaking at the recurring revenue conference coming up here soon in LA. She should be good.

Iba Masood

21:30Oh, that's Yeah.

Nathan Latka

21:31Number two, there's a whole story. You know, it's funny there. I don't know if you know the story there. She has an incredible story. I'm glad you mentioned her and gave her some spotlight

21:45there. Number three, what's your favorite online tool for building your business?

Iba Masood

21:49Today, it changes every day. Today, it's Slack.

Nathan Latka

21:52Slack. Okay. Number four, how many hours I'll sleep together

Iba Masood

21:52Seven

21:56and a half.

Nathan Latka

21:57Okay. And what's your situation? Married, single, you have kiddos?

Iba Masood

22:00Married, actually. Married to my co founder.

Nathan Latka

22:01Oh my gosh. Amazing. How many kids?

Iba Masood

22:05No.

Nathan Latka

22:06She says with a dissatisfied look on her face. Do you mind me asking you about how old you are?

Iba Masood

22:11I am 28.

Nathan Latka

22:1328. Okay, last question. What do you wish your 20 year old self knew?

Iba Masood

22:19That graduating with a perfect GPA doesn't matter.

Nathan Latka

22:22Perfect GPAs don't matter in startup land. There you guys got it from Iba. She launched Tara Intelligence back in 2015, hustled for two years just to teach the system, right? How to get accurate scoping out using open source repositories, really. After training, it got the first paying customer in 2017 or around that time frame. Now 65 customers paying an average $1,200 a month. They're up to about $80K per month in revenue. That's up from $20K a

22:46month in revenue just sixteen months ago, so healthy growth. That's part of what enabled them to just close $3,000,000 in funding. They have 8% monthly logo churn, so kind of high, but they're working on driving that down, spending about $20K to acquire a $120,000 ACV customer, healthy economics with their team of 12. Iba, thank you for taking us to the top.

Iba Masood

23:04Thank you. Appreciate it.