UserZoomrevenue, acquisition & funding

Introduction hello everybody my guest is alfonso de la noez he's the co-founder and co-ceo of user zoom the experience insights management company that helps businesses design measure and deliver the best digital experiences fortune 500 brands like google amazon att walmart and intel power and automate the ux and cx research of all their digital properties through user zoom's agile and scalable platform he's got 20 years experience in the fields of marketing web design and user research alfonso you ready to take us to the top i am very happy to be here thank you for inviting me all right you bet so super crowded space it sounds like you're sort of monopolizing the fortune 500 brand space here did you come from a fortune 500 brand uh not really to be honest with you well i guess my first job was dell computer so maybe you know i don't know if you would include them there but yeah i was it was a two-year out-of-school uh experience and then right after we went to smaller companies okay fair enough so give us the origin story here again you're playing a crowded space we'll get into the products here in a bit but take us back to year one when did you guys launch 2007 okay um yeah the background the story is we actually came from the old school way of doing user experience research and and experience insights management which was in a physical lab and i don't know if you've ever participated or seen you know one of these kind of focus groups likes focus groups like uh research projects and studies where you sit and you do kind of one-on-ones uh in a in a physical uh lab with the one-way mirror you know you have some people observing what's going on um that's what we did in the first startup that i started in back in 2001 and so user zoom was born out of uh you know kind of like software is eating the world uh for user research right we wanted to automate and scale um you know uh the research the tedious process of doing this type of uh user research and that's why we built the product so user zoom is kind of like right after that experience first hundred customers first million in revenue is always the hardest did both those happen for you in 2007 or did it take a little bit longer no it took a little bit longer of course you know um you know the the crisis hit in 2008 so that was a that was a tough year um and initially to be honest with you we bootstrapped this business and the way we were uh kind of getting the mvp uh in place and kind of growing is through the um profits that we were making with the previous consulting company so we had like a couple of years of both businesses uh together and no i don't think we hit 1 million probably until 2011 or something like that the agency to sas model is in the dna of a lot of most successful sas founders today so i always like to dig a little bit here how what year did the agency do the most revenue and how much revenue was that i think if i'm not mistaken we had a three to three point five million dollar agency model before user zoom and then within user zoom you know it must have been a half a million or not even not even that you know we went quickly into as as soon as possible we moved over to sas yeah what so what year was it 3.5 million do you remember oh but this is again prior to user zoom right this is the previous startup this must have been 2006 2007. so how did you have the conviction to shut down a two three million dollar revenue stream to go all into sas that's where most folks who are going to be great cecios eventually they get stuck in the agency because they don't want to give up the sunk cost but we i thought it's a great point that you're bringing up nathan and to be honest one of the reasons i always say we were successful is because instead of just jumping in to a sas model and building an mvp and trying to finance that we actually it was a very very tough time for about two to three years to keep both businesses kind of running parallelly and um you know it helped us finance the mvp and also helped us do actually actual uh market research because we were working with customers that needed this type of insights and we were working in a lab but at the same time we were working and offering them a product to do it remotely do it online like it is today and so it was very tough i gotta say because on top of this we also had it in different markets uh one was in spain where users almost born and the previous startup as well and the other one obviously is the u.s where i moved over in 2009 to roll out the u.s market so very very complicated very tough thing to do interesting now how many customers are you serving now today on the sas model Currently serving 1000 customers about a thousand okay and here's my big question some of the larger sas companies that scale against their vc's wishes because of the margin hit you take professional services they will touch agency account big accounts with sort of agency-like services and you see typically net dollar retention on those touched accounts go through the roof because there was a big setup so your agency guy to sas you raise vc now do you put touch and big agency contracts as set up fees on these accounts we look at so we look at the professional services and the consulting you know we call them actually manage services at userzoom as as a real value to our customers you know um and it is true that those customers that use us for both product or they license our product and use us for professional services actually have the highest retention and the highest net retention yes however it's also related to the maturity of the market some customers just need that and they they need hand-holding or they need you know we actually provide more of a advisory uh type of services um you know we help them we always say we help them uh fish versus fish for them right we help we enable them and teach them how to fish so we found that in the beginning we dropped the agency model so to speak or the consulting completely because we didn't want to go back to it over time we learned how to manage it with a good gross margin by the way uh so it's not uh you know first of all about only it's only about 20 of our of our revenue is coming from you know other than license other than product subscription um and second of all we're doing a good job at uh selling the value and getting some good margins for them as well sorry what's good margin on managed service well i mean back in the day for us it was like a 20 to 25 but right now in user zoom we're sitting at close to 30 percent wow okay interesting thirty percent margin yeah interesting and growing and growing that's it that's impressive yeah it's impressive okay so so help me understand if if i'm gonna sign up if someone's listening right either an enterprise brand they want to sign up for user zoom on average what's a customer gonna pay you to use your toolset actually there's we've gone uh down market because initially we were really focused on the enterprise and so most of the customers in the enterprise are somewhere in the 100 to 150 000 a year uh and growing by the way but then we have this other cohort we acquired a company called validately a couple years ago and they were actually focused more on the smb and kind of a different persona so we go all the way down to you know below twelve thousand dollars as well right now i think if you look at overall business it's sitting somewhere in the 80 000 or so per year yep interesting okay and and um i want to sort of capture one story so usually what people do they start smb and they move enterprise you sort of the opposite you've had entertainment you're moving down now and so you know if you're moving enterprise and moving down obviously the enterprise you should see some obviously really helping that dollar retention i mean are you guys above if you look at the whole business on a dollar basis are you above like 130 140 that dollar retention last twelve months uh more closer to 120 yeah we're about we're around 120. depends on the cohort once again uh nathan if you look at some cohorts the enterprise some of them are around 130 135 the very large ones uh and then the others are lower right so overall total is about 120 right now it's really good so you want to you want to basically you know invent new mousetraps at the top of your funnel to bring in smaller sized customers right and then obviously except expand them and excel them across your other product lines what mouse traps for you right now are working the best to drive more top of funnel product wise well what we want to do is we want to we know that there is a an smb market that doesn't require the belts and whistles and the advanced uh features that we have for the enterprise and they just want to do some basic interviews you know kind of like what we're doing right now we have a product that uh you know it's kind of like a purpose-built uh zoom for research you know for testing for interviews and then we have um others that are you know uh unmoderated so without somebody just you know asking questions and uh maybe they just want to run some quick you know studies with 10 users or 10 participants and they don't need a lot of um again the advanced or belts and whistles that you add when you have behavioral data or surveys and logic and condition and a lot of things that you need for more quantitative analysis so those those products are ideal for smbs or for immature customers that don't want to pay they don't have the budget uh the enterprise wants something like more like an xim right experience insights management solution and platform that gives you all sorts of different types of research methodologies and and insights related to user experience and customer experience and so on and so forth yeah surveys interviews live intercepts usability testing you're touching all these things your current product line that's right that's right you you you are taking an aggressive acquisition approach in terms of buying other companies we'll talk about that in a second uh talk to me about how you finance the business so from the agency revenue how long are you able to stay bootstrapped well actually you know um we we started doing sas uh pretty early so even though we did have the agency you know if you look at user zoom only uh it was a couple of years and then in 2009 we started selling a whole lot of licenses uh and that was very much you know pure pure sass um so i would say your question was how many how many years i think you know two to three years until we started really seeing growth in sas and we felt like we had a sas business for real you know versus a hybrid so when was the first fundraise that you did oh well so we raised friends family and fools so to speak back in 2007 and eight and then we didn't and that was about a million and a half altogether and then uh we got the company all the way to about 12 million in revenue 16 million in bookings well it's 2015. okay uh the first few years uh nathan i mean after the crisis and trying to figure out the product market i mean the first three years really we're just testing waters right it got it started getting Raised interesting around 2011 2012 um and then we grew and the most important thing we grew profitably by the way you know uh yeah we were actually 14 even the profitable uh in 2015 and that's when we raised you know sort of a first round that was fairly large which was 34 million dollars with sunstone uh partners and that's a big moment so 34 million raised in 2015 why was sandstone the right partner well they've been following us uh in our our our trajectory you know uh we have good culture fit uh gus alvarez and i have been talking for years and you know i think honestly they believed in the market because today everybody would say oh experience insights and ux is important for products of course and customer experience but we're talking in 2013-14 you know these were still very very early early years right so sandstone was a boutique uh firm a boutique private equity that came in and said hey guys you know we believe in this market we believe in the team and the opportunity uh let's do it and we yeah we had we had a wonderful um few months of conversation until we finally closed the deal what valuation was the 34 million raised up well so this is the story about about this this is approximately about 50 million uh the idea there was that uh yes no no uh post so they actually got a majority you saw a big chunk then we did a majority yeah and i you know we explain this openly to to people you know think about this we are three founders coming out of spain you know um hustling like crazy and being and able to build a company all the way to 15 million you know and again cross-border so um i'm the only one that came over to the us my two co-founding partners and the whole engineering team stayed in barcelona so it was it was very tough i think we did something amazing you know and i'm very very proud of that by the time we got to that uh 2015 year we knew that we had to race we knew that we wanted to grow a big business and sunstone came in and said look we can give you a smaller check and continue going or we can give you a bigger check uh you know use some for secondary uh the investors and the founders you know you guys deserve uh you know some to take some money off the table and we'll help you continue growing my co-founding partners who were in spain you know they felt like they were gonna you know the the company was gonna change completely including myself right so we felt you know what this is a good thing to do uh it was a good story and you know i always say that you know it was not a on us a complete sale it was a majority investment which is very different than selling um and sunstone has never really operated or or or or worked in a way that is it is our company we're going to do whatever no we actually partnered with them the same way that if we had partnered for a 40 for 25 or 30 percent of the business i'm a big fan of secondaries i think it's a great way for founders to take some equity off the table early employees as well but a lot of people don't understand how to structure it how to think about it how much of your 34 million was secondary oh boy i want to say about 70 percent of it i don't remember right now it was a good chunk yeah i mean like uh the investors the family office that came in from spain and the and the uh business angels were very happy yeah now did the angels i assume you basically said here's an exercise price angel if you want to take it take it if not you'll stay on the capitol or you force them to take the secondary to be honest with you we i mean force is a big word but you know everyone was so happy and there was there was a good deal for everybody i think only one uh state which i think was my my brother who had invested early on uh but everybody else the idea was really to recap and kind of start fresh nathan you know we wanted to start fresh with a company that had a headquarter in headquarters in in in california versus barcelona a new board here but yet spain and the barcelona team have become have remained absolutely critical for the success of the business so really it was just a necessary step to professionalize the business and uh we were all very happy with it 2015 you break 12 million Monthly recurring revenue in terms of run rate where are you at today uh we're uh we're actually in a run rate of 80 million okay so uh yeah we did about 50 almost 52 last year um and with the run rate is 80 right now obviously the valuation you know i don't really want to talk about it to be honest with you but it's you know is i would say uh well clearly more than ten times uh what what was it back in people that's a big moment offense right i mean more more than ten uh well more than well i guess maybe it's not right so i mean you tell me if you can share this are you part of sort of unicorn club have you passed a billion dollar evaluation yet or no no i don't i think we'll get there pretty soon i'm very confident and it's very exciting of course but no we're not there yet let's be realistic no that's fine that's fine now have you uh i think you've raised additional capital on top of 34 what was last fundraise yeah we just did this one that was on the news um we actually closed around december uh 2020 it was about 100 million um and uh yeah the idea there was that um you know um we have we have a big market opportunity ahead of us and so owl rock came in and said hey we want to be part of this journey we love the team we love the vision we love the market so they came in and um i i can't give you much details around exactly what the 100 million was about but i can tell you that you know some of it was also used to you know get back return the um uh you know return on investment for sunstone and some of it is obviously for us to grow but i can't i can't give you the details on that no problem um look i mean you were in a space where if someone could be a hub there's a lot of spokes to go acquire right i mean if i just look at your live forms form feedback you have bootstrap companies out there question pro with some scale you've got sort of type form which is you know grown pretty effectively inside of barcelona and bar out of barcelona very effective i mean are we gonna am i gonna be interviewing you in a year and all of you guys are coming together and you're gonna have 300 million of private arr and you're going to be looking at stacking this thing or something or what yeah i'm not so sure about that i do believe and yes you've seen the uh our our uh m a record is actually pretty good you know we've done four actually four with the angel hq recent deal uh you know we believe that there is an organic and an inorganic way to grow and this is yeah this is a very fragmented market uh so we think that there's a lot of point solutions out there that could be part of our platform you know we have both uh we have we have both the the collection the data collection as well as the analytics within our platform and then let's not forget the whole panel and sourcing business that we also offer so it's a it's a very broad solution um within within those three buckets of collecting sourcing participants and analyzing the data there are tons of little companies out there that could help but to be honest with you right now we're very focused on what we did with enjoy hq because we think it's a phenomenal um fit for our vision of you know providing a broad experience insights management solution and uh you know i'm gonna be focusing we're gonna be focusing uh a lot of that uh for the next year for sure i'm gonna wrap up here with some quick questions team size total team size today about 300 and how many engineers uh about 80 to 90. how many quota carrying sales reps somewhere around 50 true or false that's a key way for you to drive growth they have expansion revenue targets and they're they're hitting it sure it's a good it's it's a key we are we are the vast majority of our growth comes from expansion yeah yeah that makes a lot of sense so if you said 120 percent in your top cohort in terms of net revenue retention peel that onion for us what's gross revenue churn look like uh gross revenue is somewhere in the gross retention is somewhere in the 86 okay got it so then you're expanding 34 to get to 120 together yep expanding quite a bit really impressive very impressive okay let's wrap up with the famous five number one favorite business book good to great by jim collins number two is there a ceo you're following or studying alfonso you know i follow a lot of them to be honest with you it's impossible it's like picking one of my kids but you know i really like richard branson uh his style and his inspiration is positivity besides your own what's your favorite online tool for building user zoom user zoom no besides no well we use user zoom to build user zoom and it's our it's our main source of insights of course but no i mean we clearly love all the cloud you know collaboration tools uh we love um uh google and slack and uh you know a company called like chorus also he's doing a phenomenal job for us okay great uh how many hours of sleep are you getting every night i'm good with six okay and situation married single kids you mentioned kids i'm married and i have two kids one thirteen year old who was born in spain in madrid and is a boy and i have a very american five-year-old girl busy guy how old are you alfonso 48 last question what's something you issued when you were 20. i think culture eats strategy for breakfast guys there you have it user zoom launch of an agency that did 3.5 million back in 2007 they scaled finally broke that million dollar run rate in 2011 when they raised from some family and friends prior to that then the big year in 2015 break a 12 million dollar run right do a 34 million raise at a 50 million dollar evaluation it was a majority sale majority investment but now they're scaling rapidly uh past 52 million bucks in ar last year now at 80 million run rate brought in another 100 million from a new partner at more than a 500 million dollar evaluation has looked to scale in the space with their team of 300 alphonso thanks for taking us to the top thank you nathan for having me 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 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