TRACTIAN Revenue, Valuation & Funding (2024)

[00:00] Hey, folks. My guest today is Igor Marinelli. He's the Founder and Co CEO of Tractian, which makes it easy for industrial teams worldwide to detect when their machines are going to break. The company just reached a million bucks in revenue and is preparing for a series a. They were the first IoT company in LatAm to be funded by Y Combinator. And prior to that, Igor was building an app to predict health chronic diseases, Blue AI, which [00:22] failed miserably, but it always happens. Igor, welcome to the top. [00:26] >> Thank you so much, Nathan. [00:27] How bad did it fail? Did you raise a bunch of capital and everyone lost money or what? [00:32] >> It failed exactly because I didn't raise shit. So let's start with that. Basically, like in our health chronic diseases app, we just basically couldn't find a product market fit. So it was really hard. Me and my co founder would spend a lot of time building the tech and just basically forgot to just navigate the problem. [00:54] Very interesting. Okay. So but you say you failed because you didn't raise capital? [00:59] >> No. Of course. Like, I think not raising capital was was just like we raised a check of an angel of 75 k. [01:08] >> Not so relevant because like, you know, money, there's three things money can't buy, friendship, love and product market fit. We spent so, so long trying to figure that out. And it just wasn't the right timing. It wasn't the right product even. We just like we were solution focused instead of problem focused. And I think that was the main reason that it did not succeed. [01:37] Interesting. Okay. Let's talk about Tractian. Who's paying you for this tool? What's your customer like? [01:42] >> So our customer is just really the frontline workers of every industry. Like, an industry is just really cool because everything that you consume, everything that you wear, that you use in your day to day, this mic, for example, is done by some industries. And the front line, they're the maintenance managers that are suffering from sudden breaks of their machine. So those are really the persona that we're tackling in solving their problems. [02:10] Okay. So line workers obviously aren't paying directly on their personal cards, though. The company is signing up for it to protect the line workers and machines breaking. [02:19] >> Exactly. We're basically the industrial OS, and we are better serving the long entrenched industry that for long, they just basically, they cannot have any prediction of any idea of when that machinery is going to break. And because of that, they cannot plan their routines in advance as well. So, and the only way really to do that is by combining software and hardware and just basically providing the best in class IoT that we can. [02:49] So explain to me, like, Embraer is one of your customers you list on the homepage, right? So, they're using it for online monitoring, asset management, sort of all in one place. But for them specifically, what's the piece of hardware or the frontline machinery that they're monitoring with you? [03:02] >> So, they monitor basically all the machinery that produces the airplane. So, if you think about, there's a bunch of motors, engines, compressors, pumps, turbines, generators, all basically rotational machines. So I've done computer engineering, not mechanical engineering, but we learned along the way. And just the only part that we're not monitoring is the airplane itself. [03:27] Everything [03:28] >> else we're monitoring and their assets are parts just basically to provide a decision, a better decision making process of when to do the maintenance in a specific asset. Because if an asset fails or goes through and break down or in a downtime, that can cost a lot of money and sometimes the security issues for industries as well. [03:50] Yeah. Oh, and people can die, to put it bluntly. Okay. So how are people paying you for this? What's the average customer paying per month? [03:58] >> Well, our average MRR is basically 3 ks per month. So, those customers, they have around 60 sensors as an average. [04:11] >> Just like 60 sensors, just like 30% of what they could achieve. But it's part of the rollout model. So they start with 30% of the critical assets in the industry. And then from three to three months, they review it. And like now we want 30 more and 30 more and 30 more, and just roll out more sensors to more areas to cover more of the critical part of their mission, basically. [04:33] Your packaging for this sensor that you send out, it looks beautiful. It's called SmartTrack. What's it cost you to produce that piece of hardware? [04:40] >> So the hardware nowadays, it costs $100 per unit. And actually, it's a very good payback because we can we're able to provide it as $45 per month per sensor. So in terms of hardware payback, it's like two, two point five months, sometimes four months if we consider the delay of an industry to actually start putting you in their payroll. So, but it's really fast, fast payback for the hardware. [05:13] Now, do you is that $35 a month per sensor on top of the $3,000 a month software fee or is it included? [05:21] >> No, that's all included. So, if you divide it like $45 per 3,000, you can see like the average of the sensors that we have, yeah. [05:30] Yeah. So I guess if [05:35] each customer has 60 sensors installed on average, and they and it's $35 per sensors per month, that's like $21,000 per month for one customer. Is that right? [05:47] >> No. No. Not not exactly. [05:49] Okay. Tell me what I'm missing. [05:51] >> Yeah. No. Basically, because like if they have 60 sensors, they're basically paying $35. It's it's it's 2,100. Right? So so from [06:02] Oh, sorry. Sorry. I had an extra I had extra zero. I had an extra zero. You're right. 60 sensors, $35 a sensor per month. That's $2,100 a month there. And then the other thousand bucks a month is the software fee basically. [06:13] >> Of course. Yeah. Exactly. So putting altogether in the package, that's almost basically $45 per sensor per month if we're we're considering all included. You know? [06:25] Yeah. Yeah. Yeah. But but really, I mean, is the sensor a loss leader and that you're like, you're they're really paying for the software ongoing? In other words, like, when you went out and, like, raise capital, do you say we're a hardware company or a SaaS company? [06:38] >> Well, we're basically a SaaS company, but like we have a difference that we decided along the way to also embed it into our own hardware. Mean like IoT isn't that commodity that we think it is, especially because of installation time, setup time, and so on. So if you really nail down the hardware part, you can go to go to market more easily and you can just have like more successful customers that are paying more, expanding more, [07:05] >> and that you also can upsell more. So of course we tried with some pieces of hardware already existing in the market, but like they don't have that good experience of installing it and forgetting that the sensor exists. So basically like a good hardware is when you go install it and you just forget about its existence and just focus on the software part. [07:25] Yep. So how many customers do you have today? [07:28] >> We have a 100 companies. [07:30] Wow. Of these. How many sensors are out there in the wild today that you've installed? [07:35] >> Yeah. We're like around 3,000 sensors that it's already going on in the market. And so this [07:48] >> basically like some of the other clients, they already have like some old versions of our hardware as well. So like it's just evolving a lot. So basically operationally saying it's 3,000 sensors and this month we had basically like a thousand sensors more added to the market. So 4,000 sensors. So we're growing at a pace of 30% each month. [08:11] Both you have 4,000 sensors. You have 4,000 sensors out right now then. [08:15] >> Yeah. They are arriving at this moment at the client. But basically, like, by the end of the month, we're gonna have 4,000. And for example, so this month we grew, like, we're almost getting there at the end of the month, but it would be for sure a 30% growth. [08:28] So Igor, can I take a 100 customers times $3,000 a month? Are you guys doing about $300,000 a month right now in revenue? [08:36] >> Yeah. It's basically like that's how much we're achieving. [08:42] What's actual though? I think you're probably doing a little bit less than that, right? [08:45] >> Exactly. So the thing is that if you take the cohorts of the last three months, you have this average. And if you take the cohorts of the last like twelve months, you have a just basically like a smaller Lower average. Lower average. [08:57] Yeah. Yeah. Exactly. [08:59] So, what's MRR today? [09:02] >> Our MRR today so we just we just hit, like, a $100,000. Yeah. [09:07] That's awesome, man. Can congratulations. You remember where you were do you remember where you were exactly a year ago? [09:13] >> Wow. A year ago, we were at, like, a $10,000 per month. [09:17] Oh, amazing. Okay. [09:19] >> Very cool. Yeah. That was basically, like, a 10x growth. [09:21] What's driven most of the growth? Is it new customers or more sensors for your same customers? [09:28] >> We are a bit divided into that. But, honestly, like from last three months from now, we had a lot of very much increase in terms of the upselling of the current base. So, would say like 70% is new acquisitions and 30% is actual customers that are like asking for more. [09:47] Interesting. [09:48] >> So, even though we're not focused on enterprise, we focus on SMBs, but mostly medium business, we are seeing an increase of the average and MRR, like [09:59] >> I was saying. [09:59] Yep. Growing nicely. Okay. Talk to me about how you've capitalized the business. Are you bootstrapped or have you raised? [10:04] >> We've raised $3,700,000 in in seed round. That was together with Soma Capital and other US funds. And also, now we're just, like, thinking about Series A. We still have runway to go, almost like twelve month runway still. But probably we'll be raising something in between ten or 20. We still need to close our projections. [10:30] So the 3,700,000 seed round that was closed this year? [10:34] >> Yes. That was closed on March this year. [10:36] Okay. Cool. And most people are selling like 10% to 20% in their seed round. Is that about what you guys sold? [10:42] >> Yeah. Probably about it. [10:44] Okay. Cool. So you're talking like a 25 to 35,000,000 valuation, something like that? [10:50] >> Our valuation was a bit lower. It was from basically the range, like, in between 15 and $20,000,000 post money. [10:59] Okay. How do you think about valuation? Obviously, you want to preserve your equity in the business, but you also want to bring on these strategic partners. [11:06] >> I think, like, honestly, we're just thinking about what's gonna get the company bigger and how do we achieve more market faster. So I don't really see, like, I have x left or y left. Like, we still have, me and my partner, we still have more than half of the company altogether. So we're just really aligning to that, that, like, whatever is best for the growth of the company. You know, it's better to have a piece of [11:34] >> a huge cake than just a whole cake for yourself of nothing. Right? [11:38] And and so did you and your co founder split it fifty fifty at the start? [11:42] >> Yeah. [11:43] Okay. Got it. And did you guys set up an ESOP pool for your employees? [11:47] >> Yeah. We have a 12% stock options. [11:51] Interesting. Okay. So this could be something like 12% for them, 30% for each of you. So that's like 72%. And then like investors on maybe the other like 28%, something like that. [12:00] >> Yeah. Yeah. Yeah. [12:01] Yeah. Yeah. Very cool. Healthy cap table. Love this business. Your dude, you guys is you probably already know this. Your net dollar retention in, like, a year, two years, three years, it's gonna be through the roof because no one's gonna uninstall all this all this hardware. [12:14] >> Exactly. I think that's the main that's the main strength of our business actually. Like, we we we we're able to consistently, if we stop selling right now, stop new acquisitions, the company will for sure double in in a year just with the current customer base if we consider no churn. Right? So, it's just like What is churn today? Of the current base. Our churn today is like 1.5% month maximum. [12:42] Got it. So, call it like 18% annually, but what's your expansion revenue over the past year? Do you know? [12:49] >> So, which is Yeah. Over the course of this year, we've done the dollar based network expansion rate was basically like a 118%. [12:58] One eight zero? [13:00] >> No. No. 118%. [13:02] One one eight. Okay. Got it. Yeah. Got it. So you've got 18% you've got 18 churn, 36% expansion for a net dollar retention of 118%. [13:12] >> Exactly. [13:13] Yep. Those are pretty healthy numbers. That's very cool. Alright. How do you sign up more customers? [13:18] >> So, we just figure out how to build like a very good go to market focus on the SMB, because they're basically the most unassisted. We also do some enterprise, but it's really not the focus right now. [13:32] >> But basically, we just like bet a lot in outbound and inbound marketing nowadays. So we're having about, like, the thing is how do we increase acquisitions. Right? Because our sales conversion rate. So, from a qualified leads, and we have about like 100 qualified leads a month to an actual sale, it's basically like 27% some months, like 25% the conversion rate. So, our conversion rate is really high. Because like those customers are very, let's say, we have [14:08] >> like 300,000 in Brazil summing up all Latin America. We have like 600,000 companies to achieve. And basically, it's like, how do we achieve them faster? And a lot of this answer is basically producing content and producing webinars and courses as well to just get very close to this persona that it's kind of exclusive in this market. So we had to be very careful to build, like, basically a very original sales funnel in terms of [14:43] Understood. Site looks good. We're running out of time here. Quick question on team. How many folks full time today? [14:48] >> We nowadays, we have, like, 60 people. [14:51] Six zero? And how many Full time. Many engineers? [14:54] >> Engineer is basically, summing up all the companies, basically, like, 40 people are engineers and and the 20 other we're talking about sales and marketing. [15:03] Alright. Let's wrap up. Were with the famous five. Number one, favorite book? [15:07] >> My favorite book for sure is Hard Things About Hard Things. I think it's very known in Silicon Valley, but it's really good. [15:14] Number two, is there a CEO you're following or studying? [15:18] >> Well, [15:21] >> I'm studying a lot of the new CEOs that are like taking out the companies in US. So, for sure, CEO after they replaced them. So, I think there's a lot of learning in terms of how they're looking for the market and the next steps. [15:36] Number three, what's your favorite online tool for building Tractian? [15:41] >> Favorite online tool? That's good. Well, I gotta say, I love HubSpot. I don't know what I would do without them. [15:47] Number. [15:48] >> But I also love some other some other tooling, like retool also helped our business to do, like, internal tooling. [15:55] Very cool. Alright. Number four, how many hours of sleep do get every night? [15:59] >> Wow. I'm generally like burning the midnight oil, but I'll say about six hours, a night. And it's not because I it's not because I wake up early. It's because I go to sleep very late. [16:12] And Igor, what's your situation? Married? Single kids? [16:15] >> I'm married. A married wife, actually. Yeah. [16:18] How many how many kiddos, if any? [16:20] >> No. No kids yet and no dogs. So we're just figuring out the dog part first. [16:26] Alright. Alright. And, Igor, how old are you? [16:30] 20 what? [16:31] >> 24. [16:32] >> 24. Okay. [16:33] Last question. Something you wish knew when you were 20. [16:38] >> I had dropped out of college faster. [16:41] Guys, drop out faster. Tractian is helping frontline workers manage quality of those frontline tools they use to understand when they need maintenance and things like that. They were doing 10,000 a month in revenue a year ago, now a $100,000 a month in revenue. Great model where it's IoT plus SaaS, really high net dollar retention. They have over six 3,000, 4,000 sensors installed. They have a 100 customers that pay about $45 per month per sensor plus software [17:04] on top of that. So scaling quickly, three point seven million raising their seed round at a valuation of 15 to 20,000,000 scaling quickly with 60 folks on the team, 40 engineers. Igor, thanks for taking us to the top. [17:14] >> Thank you so much, Nathan. [17:17] 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 one [17:42] p. M. Central. Additionally, remember these recorded founder interviews go live. We release them here on YouTube every day at two 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 SaaS world, whether it's [18:03] 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 SaaS founders. 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