How Wasabi Reached 15,000 Customers and 400% Annual Growth with $80M Raised (Interview with Co-Founder and CEO David Friend)

Nathan Latka

00:00Just got done editing this interview. You guys are gonna love it. Before I do that though, I want you to know that I'm going to be in the comments for the next thirty minutes or so answering your questions. If there's additional questions you want me to ask the CEO next time I interview them, leave them below. Or if you're just loving the data points I get CEOs to share, click the thumbs up button below. That's your

00:18way of telling me you're loving this stuff, and I'll get you more of it. Additionally, again, I'll be in the comments answering any questions you have. Alright. For thirty minutes. Enjoy the interview.

Introduction and Wasabi Overview

Nathan Latka

00:27Hello, everyone. My guest today is David Friend. He's the co founder and CEO of Wasabi, the hot cloud storage company that delivers fast, low cost, and reliable cloud storage. Prior to Wasabi, David co founded Carbonite, one of the world's leading cloud backup companies. He's been a successful tech entrepreneur for more than thirty years. David, you ready to take us to the top?

David Friend

00:44>> You bet.

Nathan Latka

00:45Alright. You win

00:46the award for the most bankable last name I've ever had on the show. So you're already a step ahead,

David Friend

00:52>> Yeah. Don't make any jokes.

How Wasabi Differs from Carbonite and Amazon S3

Nathan Latka

00:55The second step is you co founded Carbonite. So you are not new to this space. What is Wasabi doing differently than Carbonite and other cloud providers?

David Friend

01:03>> Well, Wasabi is just plain storage. So our product is exactly the same for all practical purposes as Amazon S3, which is Amazon's leading cloud storage product, but Wasabi is one fifth the price.

Nathan Latka

01:18Okay. Help me enter... Can I put this on a timeline for me? When did you launch the company?

Company Timeline, Customers, and Partners

David Friend

01:23>> So the company was launched about three years ago. We brought our product to market about two years ago and since then, we've grown rapidly. We have about 100 employees now, we have about 15,000 customers and about 1,700 channel partners and technology partners, people who sell Wasabi bundled with various products.

Nathan Latka

01:47How do you structure the agreements with the 1,700 partners?

Channel and Technology Partner Structure

David Friend

01:52>> The partners are, for the most part, resellers, MSPs and so forth. So they might be selling backup products like Veeam, or they might be selling video surveillance products like Milestone, for example. And the technology partners are asked to provide a complete solution to the customer. So they might say, Okay, to do your backups, we're going to sell you Veeam software and we're going to sell you Wasabi as the storage place to store your backups.

Nathan Latka

02:18Okay, and can you give me a general sense? I know with hosting, can have people spending a dollar a month or a million dollars a month. Where's your sweet spot? On average, what are customers going to pay you per month?

Pricing and Customer Sweet Spot

David Friend

02:28>> Well, typical, a customer doing backup, for example, might be storing 50 or 100 terabytes of data and Wasabi is $6 a terabyte per month compared to $23 per terabyte per month for Amazon S3, for example. And so, a customer with 50 terabytes or 100 terabytes might be spending $300 to $600 a month. But we have some very large customers as well, people like some big universities and so forth who are storing many petabytes. And so a

03:03>> petabyte is a thousand terabytes. So it'd be $6,000 a month for a petabyte of storage. That's a million gigabytes, so it's a lot of storage.

Nathan Latka

03:12Any customers where you look at the annual contract value and it's north of a million?

03:17Don't name Yeah, them,

David Friend

03:21>> and of course there'll be more and more of those because the amount of data being stored in the world is just exploding and a petabyte of data used to seem like an unimaginable large amount of storage, but we sell that much storage every couple of days now.

Nathan Latka

03:36And is it really just price point or are there other kind of feature based reasons people are coming to you?

Durability and Competitive Moat Against Amazon

David Friend

03:44>> It's primarily price and performance. So we're cheap and we're fast and we're extremely durable. We have what's called 11 nines of durability, which is the same as Amazon S3. And if you put that in human terms, if you gave me a million files to store, the probability of my losing one would be once every six hundred and fifty nine thousand years. So unlikely, let's put it.

Nathan Latka

04:09So David, if that's the case, I mean, what prevents... Amazon can afford to lose more money than you. So why doesn't Amazon give up all their margin, undercut you and take all your customers?

David Friend

04:21>> Well, I wouldn't wanna be the person that walks into the CFO's office at Amazon and says, Gee, I think we ought to wipe 4 or $5,000,000,000 off the top line because some little company in Boston is running annoying advertisements. You know, that typically doesn't happen. And, you know, the history of American industrial history is full of cases where companies come in and sell something that is similar to what somebody else has, but at a disruptive price.

04:51>> And it's very hard for the incumbents to just drop their price and see their whole business model have to change.

Nathan Latka

04:57Well, it's easier to do that in software, though. Amazon's done it in diapers, which have a higher cost of goods sold than software. So it might not be 4 or 5,000,000,000 a market cap. But if you go to significant scale, Amazon would pull this trigger in... I mean, they wouldn't hesitate, I don't think.

David Friend

05:10>> Or they might buy us. There are lots of solutions.

Nathan Latka

05:12But why would they buy you when they can just decrease their price?

David Friend

05:14>> It's probably cheaper to decrease their price and just undercut you on We

05:18>> have a technology advantage. Amazon's products Okay.

Nathan Latka

05:20You didn't tell... So you didn't tell me that. What's the technology advantage?

Technology Advantage and Proprietary File System

David Friend

05:24>> And the technology advantages, we've written our own file system, which takes advantage of some new kinds of storage technologies. And at Carbonite, where we were backing up a half a billion files every day, we learned how to do storage really, really well and really efficiently. So we use a very high percentage of the available disk space. We make the disks, we have some tricks that we do that make a disk last significantly longer than it's supposed

05:49>> to last. So the amortization spreads out over a longer period of time. So there's a lot of things we learned at Carbonite as to how to really cut the cost of cloud storage. And we've implemented that. And for Amazon to simply drop price, they could do it. But unlike diapers, storage is a multi billion dollar product Amazon. And it just seems unlikely to me that they're gonna do that.

Nathan Latka

06:13So David, thought you gonna say unlike diapers, cloud storage is not a shitty business. That would have been a home run.

David Friend

06:21>> That would have been a home run.

Nathan Latka

06:22When I would have ended the interview right there, done.

David Friend

06:25>> Credit for that joke.

Nathan Latka

06:28All right. So now look, can I do the math? 15,000 customers, 300 ish sweet spot per month. You have some that are probably way bigger and you have some maybe that are smaller, but that puts you at like 4,500,000 a month in terms of recurring revenue. Is that about right?

David Friend

06:41>> Well, I can't talk about our revenues because we're still privately held and, you know, I just don't wanna go there.

Nathan Latka

06:47Okay. Well, I'm only kind of multiplying numbers you already gave me though. Right? So we asked ARPU and you said it was around between $300 and $600 bucks and you said 15,000 customers. So I don't want to make up any data here. I'm just multiplying those numbers you gave me. Is there any reason those wouldn't be accurate?

David Friend

07:01>> No, but

07:06>> you're trying to force me to tell you what our revenue is and I can't do that.

Nathan Latka

07:10I'm not necessarily looking to do that, but you already gave me two hard data points. You said 15,000 customers and a $300 ARPU. The way you'd calculate revenue is multiplying two numbers you already gave me. So since I'm only multiplying because you already gave me them. All I'm asking is is there any reason that I I

David Friend

07:25>> What our sweet spot is, and and I'm just saying that we have lots of small customers. We have a small number of big customers, but the customers that we like, the customers that we go after are in that sort of 10 to 100 terabyte range. That's where most tend to end up. We don't actually go after smaller customers, but anybody can go to our website, put their credit card in and sign up and start using Wasabi.

Nathan Latka

07:52So where did you get your first... You said you kind of started writing code for this in 2017, went to market in 2018, is that right?

David Friend

08:00>> Yeah.

Nathan Latka

08:01Then Well,

David Friend

08:02>> co founder, Jeff Flowers, who's our CTO, had been thinking about this new storage architecture for a number of years. So this was something that had been bubbling up in his mind and I don't know when he started thinking about it, but clearly quite a long time ago. Mhmm.

Nathan Latka

08:19What I'm trying to get at is when I when I interview entrepreneurs, especially an entrepreneur that's already been through the ringer once is trying to understand how they think about risk pre revenue. In other words, how much money they're willing to spend to build up the MVP before their first dollar of revenue. I'm curious how intensive that was for you. Do you have an idea? Do you spend 2, 3, $5,000,000 building the MVP?

MVP Build Cost and Early Funding

David Friend

08:37>> More than that. Okay. And we've raised $80,000,000 to date.

Nathan Latka

08:42And,

David Friend

08:44>> you know, we funded the development pretty much out of our own pockets for a while. We made a lot of money off Carbonite. In fact, Jeff and I have had five companies together prior to Wasabi. So we don't really need to go raise money to start a new venture. And in addition to that, we have a lot of investors who've made money with us in the past and they typically are standing there with their open wallets

09:08>> saying, whatever you guys are doing next, let us know because we'd love to invest.

09:14>> To build a product at this scale takes a lot of money.

Nathan Latka

09:18Can you quantify that a range is fine? Mean, we talking like 10 to 20,000,000 or something on MVP?

David Friend

09:22>> Yeah, yeah, that's right. In that range to build a product and then, you know,

09:28>> market it and to get it stable is a lot more. Our business model is a lot like building apartment buildings. You build the building, you fill it up with tenants, when the building is 70% occupied, it starts making money and then you build another building And we build a data center, we fill it up with customers' bits and when it gets to a certain occupancy level, so to speak, we build another one.

Nathan Latka

09:52So that data center stays on your balance sheet then?

David Friend

09:55>> Oh yeah, so I mean, we'll have hundreds of millions of dollars worth of CapEx on our balance sheet within a short number of years.

Nathan Latka

10:04Yep, was there no way to do this leasing space? Why was it important for you to actually own the data centers?

David Friend

10:09>> Oh, we don't actually own the buildings. I mean, we go into Equinix and Flexential and Iron Mountain. So we're in a number of different companies' data centers around the world. So we have data centers here in The US, we have data center in Europe, we have data center in Japan.

Nathan Latka

10:25Sorry, David. When you say you have a data center, that means you own the data center. Right?

David Friend

10:29>> No. No. We're in a colo facility where we own a cage. It's a Wasabi data center, but we're in somebody else's building. We don't wanna be in the... Physically in the real estate business.

Nathan Latka

10:40Okay. So the 100 of millions of dollars of CapEx on your balance sheet, if it's not the real estate of the data center, is that just like add up all the cage infrastructure inside each data center?

David Friend

10:49>> Thousands and thousands of disk drives, computers, all kinds of other stuff. See. Networking.

Nathan Latka

10:55Yeah. I see. Okay. So let me just repeat this. Fair to say you spent... You guys spent between 10 and $20,000,000 before you had a first dollar revenue just to build the infrastructure. You then start bringing on customers. How'd you get the first 100? Do you remember?

How Wasabi Acquired Its First Customers

David Friend

11:08>> The first 100 customers? Yep. We started to advertise. People came to our website, put their credit cards in, and that was that.

Nathan Latka

11:16What terms did you target?

11:19Where'd you advertise in what terms? If it was like a Google ad, what terms did you target?

David Friend

11:24>> Yeah, we did a lot of Google advertising. So if you went to search for Amazon S3, Wasabi would show up. If you went to search for object storage, Wasabi would show up. And we did radio advertising. We were on NPR. We advertised in lots of computer publications, both online and in print. So we spent a couple million dollars and blasted our name out there and continue to advertise fairly heavily. Although nowadays, more and more of our

11:54>> business is going through the channel, and so we're deemphasizing that and spending more money now supporting our channel partners.

Nathan Latka

12:02So so would you say last year in terms of... Oops. Sorry. Go ahead.

David Friend

12:06>> Yeah. I was just gonna say you have to get some customers before the channel partners are gonna get interested in you, but we're a completely channel focused company.

Nathan Latka

12:14Got it. When when you were ramping up ad spend on the early days, let's just look at last year, 2019, it sounds like you spent a couple million on ads, but obviously that's declining this year, more reseller focused?

David Friend

12:25>> Yeah. Instead of advertising on NPR, we might be advertising in channel reseller news or something like that.

Nathan Latka

12:31I see.

David Friend

12:31>> Or co op advertising with our channel partners or working in trade shows, things of that sort. So we're redirecting more and more of our marketing dollars towards the support of our channels.

Nathan Latka

12:42So if I'm a reseller for you, what does the reseller agreement look like? Is it a 30% kickback or is it pay per lead or how do you incentivize them?

David Friend

12:50>> Yeah, they get a

12:53>> discount or a margin on any cloud storage that they sell. And so typically, our resellers are people who might have sold an EMC box or a NetApp box or something like that as a way to provide storage to their customers. Customers are coming back nowadays and saying, gee, do I really want to own all that hardware or is it time to start thinking about moving our storage to the cloud? And we want to make it possible

13:20>> for the channel partner to sell cloud storage and make the same kind of margins that they would make if they were selling hardware.

Nathan Latka

13:26Okay.

David Friend

13:27>> And at the same time, the customer saves a lot of money. Typically, can store a petabyte of data in Wasabi for less than just the annual maintenance on the equivalent amount of hardware.

Nathan Latka

13:38Can we quantify this? So if a customer goes direct to your website and buys the equivalent of a $100 a month worth of storage, if they go through a reseller partner instead, how does that 100 flow through the system? Do you sell it for 100 to the reseller? The reseller can market up whatever they want?

David Friend

13:52>> The reseller typically will sell it for the same price that we would sell it for. They get a discount. So they get a reasonable margin on that.

Nathan Latka

14:01Is reasonable that you're talking like thirty, forty, 50%, something like that?

David Friend

14:05>> Similar to what they would get on hardware. Okay.

Nathan Latka

14:08I'm not familiar with what that is.

David Friend

14:10>> Can vary from 15% if you're a very small reseller up to a higher number, and I can't disclose the highest number.

Nathan Latka

14:18But nothing above like 50%, right? So got between 15%, 15 and 50%, depending on how big a reseller you are, that's the discount you're giving.

David Friend

14:31>> And if you're a technology partner, for example, we have some companies that bundle Wasabi into their products and sell a complete solution, Wasabi is kind of hidden behind the scenes, so to speak. So they can charge whatever they want for the storage. So there are products out there that you would probably buy or use, and you would never know that it was Wasabi that was storing the data, you know, like photography programs and things like that,

15:00>> and the cost of the Wasabi is bundled into

15:05>> the vendor's product, and they can make whatever they think the market will bear.

Nathan Latka

15:10Yep. No, this is obviously a hot space. You know, one of the companies a lot of people are watching very closely is Snowflake, in this space for potential, you know, S1 filing this year. They really only price against, again, one utility metric. It sounds like you're doing the same. You're pricing against kind of one utility metric. Is that accurate?

David Friend

15:29>> Yeah. I mean, I think Wasabi is probably

15:35>> a forerunner in the sense that we are... We see storage as being a commodity. It's like electricity or bandwidth. Know, it's just something that should be available to everybody. There's no reason why people should have to go out and buy their own storage hardware any more than they would wanna build their own electric generating plant, you know, out back. I mean, that used... One hundred and fifty years ago, people did have their own generators out back.

15:58>> Every one of these old brick factories in New England had a power plant out back. But nowadays, you wouldn't think about that. And I think if you look forward five or ten years in this market, when people need to store data, they're just going to assume that there's someplace out there that's cheap and fast and accessible with a standard interface that everybody can use. And that's kind of our vision of where the market's going to go.

Nathan Latka

16:25David, as we move towards wrapping up here, a couple of last questions for you. A 100 folks on the team right now, how many are engineers?

David Friend

16:31>> I would guess probably forty, fifty, something in that nature.

Nathan Latka

16:35And it sounds like most of your sales are coming from resellers, but do you have any people full time that are account executives, you know, quota carrying sales reps?

Sales Team and Direct vs Channel Mix

David Friend

16:42>> Yeah. In Europe, we're 100% channel because we started that way, but we already had primary demand built up in Europe. In The US, we still have an in house sales team that sells direct, and I think there may be a dozen people on that team and so forth.

Nathan Latka

16:59So maybe ten, twelve people that actually carry quota.

David Friend

17:02>> Right.

Nathan Latka

17:02Okay. And then fast forward other economics here. Any storage business, you always like to look at what expansion revenue looks like, right? They get addicted to you. They start using you more and they expand hopefully naturally without you having to touch them. When you look at those numbers for you, what does they look like? I mean, do you have a net revenue retention in the 120, 130 range?

Net Revenue Retention and Cohort Expansion

David Friend

17:20>> Yeah, the 2018 cohort of customers grew 70% from 2018 to 2019 and it looks like they're going grow about the same amount from 2019 to 2020 as well. So every customer we have, almost without exception, is adding more and more data.

Nathan Latka

17:39David, is that 70% on a gross or net basis?

David Friend

17:44>> Well, that's gross. I mean, most people are paying the same price. They're all paying $6 per terabyte per month, whether they buy through a reseller or whether they buy direct.

Nathan Latka

17:54I guess my question is, of the cohort from 2018 that was paying you, some of them potentially paid for less storage, but others expanded to the tune where when you add those two together, it's 70% growth or 70% before you take away any lost revenue downgrades?

David Friend

18:10>> Oh, no. The average 2018 customer grew the amount of storage 70% year over year net. That if they've deleted stuff, that would come off that. So that's...

18:25>> That is a net number.

Nathan Latka

18:26Great. So basically what I'm hearing you say is about 170% net revenue retention, which is obviously... Would consider that world class. Very rarely do I hear anything above 140 in the SaaS space. It's a testament to the business model and the product market fit. Alright. Well, you know, every

David Friend

18:41>> time you turn around, you need to store more stuff. So it's it's surprising how... If we never sold another customer, you know, we think that kind of growth with the existing customers would continue for some time.

Nathan Latka

18:52Yeah. That's good. Now it sounds like obviously you're burning capital to drive this kind of growth. A guy like you that's been through the ringer many times, many, many financial and cyclical cycles. What are you comfortable with right now burning per month to drive this kind of growth?

Cash Burn and CapEx Financing Strategy

David Friend

19:05>> Well, I wouldn't disclose that, but it's it's probably less than you would think.

Nathan Latka

19:09What do you think I'm thinking?

David Friend

19:12>> Well, you know, you you know what the revenue numbers are. You know, we have a 100 a 100 employees. So the burn rate is going down. The the real burn rate for Wasabi is just CapEx. Okay. And and, you know, so in the future, you know, the charge for my CFO will be, can we get debt financing?

Nathan Latka

19:31Yeah. That was my next question. Why take dilution on 80,000,000 when you have so much on CapEx? Why not keep your equity and do debt financing from the start?

David Friend

19:39>> Exactly. You you need a certain amount. Nobody's gonna lend you money if you don't have some equity capital underneath.

19:46>> Yeah.

Nathan Latka

19:47You're David's friend, though. You're you're gonna... Whatever you touch is gonna turn to I'd give you debt on day one.

David Friend

19:52>> We're actually doing pretty well on the debt side.

Nathan Latka

19:56Oh, you have debt already?

David Friend

19:58>> Maybe not for that very reason, but perhaps that has some contribution there, which is we have good relationships with lenders who made a good amount of money on Carbonite and they're back to the next thing.

Nathan Latka

20:13That's very good. In terms of growth rate year over year, is it basically that 70%, you're growing 70% year over year?

Annual and Monthly Revenue Growth Rates

David Friend

20:19>> Our revenue growth rate's about five X year over year. So we're growing very rapidly. We're growing typically 15 to 18% month over month right now.

Nathan Latka

20:31Okay, now that's obviously easy with smaller numbers. If you're at a 50,000,000 run rate right now, you're not gonna five X year over year, don't think, correct?

David Friend

20:38>> Well, we'll see what happens. I mean, have some

20:43>> customer prospects right now that if we win them are bigger than the entire company.

Nathan Latka

20:49Do you feel like it's possible then?

David Friend

20:52>> But I do see I I do see that a business like this can scale pretty quickly because it's really just a matter of deploying more storage.

Nathan Latka

21:00That's right.

David Friend

21:00>> And so if a customer shows up today that is bigger than the whole company, we'll scramble around and figure out how to add more equipment. It takes about ninety days to build a new storage facility. And so that's not a whole lot of time. Yep. So it is possible for this thing to keep growing at a multi 100% annual growth rate.

Nathan Latka

21:23Yeah. Just obviously gets harder, right? I'm taking your $300 kind of sweet spot times 15,000. You won't confirm this, but I'm pegging your revenue at somewhere around 50,000,000 right now. And if it was 10 or five x year over year growth, that means you're doing call it a 10,000,000 run rate twelve months ago. If you 5x 50,000,000, you're $250,000,000 run rate and you'd be IPO ing, right? So I would just, I would be very impressed if you're

21:42at 50 right now in ARR and you 5x year over year. That would just be incredible.

David Friend

21:46>> Well, we'll see what happens.

Famous Five Rapid-Fire Questions

Nathan Latka

21:48Very good, David. Alright. Let's wrap up with the famous five. Number one, favorite business book.

David Friend

21:54>> I don't have a favorite business book, but I I would say Getting to Yes by Roger Fisher, the Harvard Law School guy was probably the most influential business book for me because it taught me a lot about how to negotiate and how to get agreement.

Nathan Latka

22:09Number two, is there a CEO you're following or studying?

David Friend

22:13>> No.

Nathan Latka

22:14Number three, what's your favorite online tool for building Wasabi?

David Friend

22:18>> Online tool for building Wasabi?

Nathan Latka

22:20Uh-huh. Something you use.

David Friend

22:21>> I don't know. You'd have... It's been thirty years since I've done any engineering.

Nathan Latka

22:26Any So kind of... There's all kinds of tools besides engineering tools, though. Just name something you use to keep the company build... Growing.

David Friend

22:33>> Well, you know, I mean, our financial systems, our NetSuite, which we're putting in, is really the key to, you know, allowing the company to bill and operate like a real business. And it's a big investment in time and money, but, you know, we're gonna be a big company someday, and, you know, we need tools that are world class tools.

Nathan Latka

22:54Number four, David, how many hours of sleep are you getting every night?

David Friend

22:58>> Sleep? Yep. I never use an alarm clock, so it's as long as I... As long as it takes for me to wake up.

Nathan Latka

23:05Which is about how long?

David Friend

23:06>> Seven.

23:07>> Typically seven hours, would say something like that.

Nathan Latka

23:10And David, what's your situation? Married, single kiddos?

David Friend

23:13>> I'm married, four kids. I bike, I run, I hike, I windsurf. I love that.

Nathan Latka

23:18How... David, how old are you?

David Friend

23:20>> My wife describes me as a gerbil and I'm 72.

Nathan Latka

23:24Wow, I love this. Okay. Take us back to your 20 year old self. Last question. What do you wish you knew?

David Friend

23:29>> What do I wish I knew?

Nathan Latka

23:31When you were 20.

David Friend

23:32>> Oh, what do I wish I knew when I was 20? To relax, not take things too seriously. I was a little frenetic.

Nathan Latka

23:42Guys, there you have it. Wasabi founded Carbonite, now getting back into the game. 15,000 paying customers today. Launched in 2017. Spent between 10 and $20,000,000 to build his MVP with his good buddy. They've launched five companies together, had their first paying customer in 2018. Now scaling sweet spot for them is call it 300 to $600 ARPUs. They see 70% expansion on cohorts. The company grew over the past twelve months over 5x year over year. They've raised $80,000,000

24:07in funding, have hundreds of millions of CapEx sitting on their balance sheet because they actually own cages... Sorry, computers, hardware, etc. Inside of these data centers. David, we're rooting for you. Thanks for taking us to the top.

David Friend

24:18>> Thanks. Good talking to you.

Nathan Latka

24:22These CEOs rarely give these kinds of interviews. I hit them hard. I get the data, and I wanna do it more. So if you wanna get more of this stuff, make sure you subscribe up here. And then additionally, go check out one of my other CEO interviews right now.