How TRACTIAN Grew 10x to $100K MRR with 100 Customers and a $3.7M Seed Round (Interview with Co-Founder and Co-CEO Igor Marinelli)

Introduction and Igor's Background

Nathan Latka

00:00Hey, 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

00:22failed miserably, but it always happens. Igor, welcome to the top.

Igor Marinelli

00:26>> Thank you so much, Nathan.

The Failed Health App Blue AI

Nathan Latka

00:27How bad did it fail? Did you raise a bunch of capital and everyone lost money or what?

Igor Marinelli

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.

Nathan Latka

00:54Very interesting. Okay. So but you say you failed because you didn't raise capital?

Igor Marinelli

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.

Who TRACTIAN Serves and the Customer Persona

Nathan Latka

01:37Interesting. Okay. Let's talk about Tractian. Who's paying you for this tool? What's your customer like?

Igor Marinelli

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.

Nathan Latka

02:10Okay. 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.

Igor Marinelli

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.

Embraer as a Customer and What Gets Monitored

Nathan Latka

02:49So 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?

Igor Marinelli

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.

Nathan Latka

03:27Everything

Igor Marinelli

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.

Nathan Latka

03:50Yeah. 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?

Pricing Model and Average MRR per Customer

Igor Marinelli

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.

SmartTrack Hardware Cost and Payback Period

Nathan Latka

04:33Your 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?

Igor Marinelli

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.

Nathan Latka

05:13Now, do you is that $35 a month per sensor on top of the $3,000 a month software fee or is it included?

Igor Marinelli

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.

Nathan Latka

05:30Yeah. So I guess if

05:35each 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?

Igor Marinelli

05:47>> No. No. Not not exactly.

Nathan Latka

05:49Okay. Tell me what I'm missing.

Igor Marinelli

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

Nathan Latka

06:02Oh, 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.

Igor Marinelli

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?

Nathan Latka

06:25Yeah. 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?

SaaS Plus IoT Business Model Explained

Igor Marinelli

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.

Customer Count and Sensors in the Field

Nathan Latka

07:25Yep. So how many customers do you have today?

Igor Marinelli

07:28>> We have a 100 companies.

Nathan Latka

07:30Wow. Of these. How many sensors are out there in the wild today that you've installed?

Igor Marinelli

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.

Nathan Latka

08:11Both you have 4,000 sensors. You have 4,000 sensors out right now then.

Igor Marinelli

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.

Nathan Latka

08:28So 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?

Igor Marinelli

08:36>> Yeah. It's basically like that's how much we're achieving.

Nathan Latka

08:42What's actual though? I think you're probably doing a little bit less than that, right?

Igor Marinelli

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.

Nathan Latka

08:57Yeah. Yeah. Exactly.

MRR Today and Year-Over-Year Growth

Nathan Latka

08:59So, what's MRR today?

Igor Marinelli

09:02>> Our MRR today so we just we just hit, like, a $100,000. Yeah.

Nathan Latka

09:07That's awesome, man. Can congratulations. You remember where you were do you remember where you were exactly a year ago?

Igor Marinelli

09:13>> Wow. A year ago, we were at, like, a $10,000 per month.

Nathan Latka

09:17Oh, amazing. Okay.

Igor Marinelli

09:19>> Very cool. Yeah. That was basically, like, a 10x growth.

Nathan Latka

09:21What's driven most of the growth? Is it new customers or more sensors for your same customers?

Growth Drivers: New Customers vs Upsell

Igor Marinelli

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.

Nathan Latka

09:47Interesting.

Igor Marinelli

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

Nathan Latka

09:59>> I was saying.

09:59Yep. Growing nicely. Okay. Talk to me about how you've capitalized the business. Are you bootstrapped or have you raised?

Seed Round, Investors, and Runway

Igor Marinelli

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.

Nathan Latka

10:30So the 3,700,000 seed round that was closed this year?

Igor Marinelli

10:34>> Yes. That was closed on March this year.

Nathan Latka

10:36Okay. Cool. And most people are selling like 10% to 20% in their seed round. Is that about what you guys sold?

Igor Marinelli

10:42>> Yeah. Probably about it.

Nathan Latka

10:44Okay. Cool. So you're talking like a 25 to 35,000,000 valuation, something like that?

Igor Marinelli

10:50>> Our valuation was a bit lower. It was from basically the range, like, in between 15 and $20,000,000 post money.

Nathan Latka

10:59Okay. 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.

Igor Marinelli

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?

Cap Table and Equity Structure

Nathan Latka

11:38And and so did you and your co founder split it fifty fifty at the start?

Igor Marinelli

11:42>> Yeah.

Nathan Latka

11:43Okay. Got it. And did you guys set up an ESOP pool for your employees?

Igor Marinelli

11:47>> Yeah. We have a 12% stock options.

Nathan Latka

11:51Interesting. 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.

Igor Marinelli

12:00>> Yeah. Yeah. Yeah.

Nathan Latka

12:01Yeah. 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.

Churn and Net Dollar Retention

Igor Marinelli

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.

Nathan Latka

12:42Got it. So, call it like 18% annually, but what's your expansion revenue over the past year? Do you know?

Igor Marinelli

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%.

Nathan Latka

12:58One eight zero?

Igor Marinelli

13:00>> No. No. 118%.

Nathan Latka

13:02One 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%.

Igor Marinelli

13:12>> Exactly.

Nathan Latka

13:13Yep. Those are pretty healthy numbers. That's very cool. Alright. How do you sign up more customers?

Igor Marinelli

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.

Go-to-Market: Outbound, Webinars, and Conversion Rates

Igor Marinelli

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

Nathan Latka

14:43Understood. Site looks good. We're running out of time here. Quick question on team. How many folks full time today?

Team Size and Engineer Headcount

Igor Marinelli

14:48>> We nowadays, we have, like, 60 people.

Nathan Latka

14:51Six zero? And how many Full time. Many engineers?

Igor Marinelli

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.

Nathan Latka

15:03Alright. Let's wrap up. Were with the famous five. Number one, favorite book?

Igor Marinelli

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.

Nathan Latka

15:14Number two, is there a CEO you're following or studying?

Igor Marinelli

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.

Nathan Latka

15:36Number three, what's your favorite online tool for building Tractian?

Igor Marinelli

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.

Nathan Latka

15:47Number.

Igor Marinelli

15:48>> But I also love some other some other tooling, like retool also helped our business to do, like, internal tooling.

Nathan Latka

15:55Very cool. Alright. Number four, how many hours of sleep do get every night?

Igor Marinelli

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.

Nathan Latka

16:12And Igor, what's your situation? Married? Single kids?

Igor Marinelli

16:15>> I'm married. A married wife, actually. Yeah.

Nathan Latka

16:18How many how many kiddos, if any?

Igor Marinelli

16:20>> No. No kids yet and no dogs. So we're just figuring out the dog part first.

Nathan Latka

16:26Alright. Alright. And, Igor, how old are you?

16:3020 what?

Igor Marinelli

16:31>> 24.

16:32>> 24. Okay.

Nathan Latka

16:33Last question. Something you wish knew when you were 20.

Igor Marinelli

16:38>> I had dropped out of college faster.

Nathan Latka

16:41Guys, 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

17:04on 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.

Igor Marinelli

17:14>> Thank you so much, Nathan.

Nathan Latka

17:17One 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

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