How Xolo Reached €400K MRR with 6,000 Paying Customers and 100% Growth in 2021 (Interview with CEO Allan Martinson)

Introduction and Background

Nathan Latka

00:00Hey folks, my guest today is Alan Martinson. He is CEO of xolo since 2018 with a mission to build it into the largest SaaS platform for running a freelance business. He's a serial entrepreneur, investor and executive in the past, served as the CEO of Starship Technologies, the leader in self driving robotics, was the founder of MTBP, the first VC firm in the Baltic States, and the CEO of MicroLink, the largest Baltic IT services and online media

00:21company. Lastly, the founder and CEO of Baltic News Service, the region's largest news agency. Alan, you ready to take us to the top?

Allan Martinson

00:30>> Hi. How are you?

Nathan Latka

00:31You do you also run the Baltic government?

Allan Martinson

00:35>> Almost. Almost. Yes. There is no Baltic government. It's just three countries, but yes. They're everywhere. Close.

Nathan Latka

00:41Alright. Folks, if you wanna follow along, it's xolo.io. Alan, what are you building? Who are you selling to?

What Xolo Does and Who It Serves

Allan Martinson

00:47>> Yeah. Sure. We are one of the largest platforms for freelancers and solopreneurs in Europe with about a 100,000 people signed up. And what we do for some is to cover the full life cycle of from registration to running the business and invoicing, expense management, connecting the bank accounts to the platform. And we also have embedded accounting and tax filing service in in our SaaS. So it's not just a SaaS platform to run the business, but it

01:15>> also includes accounting and tax filing service, which is very rare because it's separately by humans. We pretty much cover everything except finding new gigs or jobs for freelancers.

Nathan Latka

01:27Interesting. So who are the 100,000 sign ups you have today, who are most? Are they writers? Are they designers? Who are they?

Allan Martinson

01:34>> Yeah. We are focusing what's what we call higher end of the freelance spectrum, essentially knowledge workers. It can be anybody from, like, in in in IT or technology or consulting. But we are always amazed how many microniches our customers can invent for themselves. So there is an art crime investigator or there is a guy who plays Batman at the events. So it's it's I'm sorry for that. It's very fascinating how many real microniches of people can

02:08>> find for themselves.

Nathan Latka

02:09And so you've got a 100,000 of these sign ups. We'll get back into how you launched this many years ago, but but how are you making money?

Revenue Model: Subscriptions and Transactional Fees

Allan Martinson

02:16>> Yeah. We do have the majority of our revenues coming from subscription payments. So it it is anything between 29 to a 199 depending on the package, depending on the country and the level of the service. So in average, it's about €70, €80, and, like, we close it to a $100, and then if you prefer that per month. And so there's also a service which is transactional, where people pay us, pay on the revenues. So that Interesting.

02:43>> That's that's used for the network and the contracting. So essentially, it's a little bit like employer of record business, but then accept that we hire contractors and then rather than full time employees. And the customers pay us a certain percentage from the revenues.

Nathan Latka

03:01And so, Al, when you say when you say transactional GMV, what you mean is if a freelancer bills a thousand dollars to your platform, you'll get a small cut of that transaction.

Allan Martinson

03:08>> We get 5%. Yes.

Nathan Latka

03:105%. Okay. And is that 5% whether it's a million dollars or $2?

Allan Martinson

03:15>> It's been amazingly constant. Let's say, average customer bills pretty much the same amount, and it those numbers never get to millions. It's usually in a few thousand ballpark per month.

GMV Processing and Revenue Streams

Nathan Latka

03:30Interesting. So how much GMV did you guys process in November last month?

Allan Martinson

03:35>> Yeah. So, basically, if you take some particular product and where we only charge our transactional fee, it's close to €2,000,000 processed. So but, of course, the majority of our customers are paying us monthly fees and they operate their own business. Let's say the total amount of the revenue of of our customers or paying customers, it's about 20 to 25 million per month.

Nathan Latka

04:01And that's including the people just paying the subscription fee?

Allan Martinson

04:04>> Exactly. Exactly. Interesting. From the majority of them, we don't charge the transactional fee. We only only pay Yep. Sort of fixed fee.

Nathan Latka

04:13So just to clear, that transactional fee, you did about 2,300,000 United States dollars in November. You taking 5% of that would be something like $100,000 per month from that particular revenue stream.

Allan Martinson

04:24>> Yes. That's right. That's right.

Nathan Latka

04:25Very interesting. Which one's growing faster, the subscription business or the percent of GMV?

Allan Martinson

04:30>> It shouldn't have it's mixed because in a few months for one of them pulls ahead and then some quarters and another and the one pulls ahead. So it has been, like, pretty much 50/50, I would say. Okay. Because we are launching new subscription based products. So what is xolo doing right now is is launching localized products for the freelancers in different European countries. So which means that there will be a lot of new market footprint that

04:59>> we are opening up for ourselves And that, pulls the growth in that direction.

Company Origins and Launch Story

Nathan Latka

05:05Mhmm. Give me more of the backstory here, then we'll jump into where you see your space going. When did you launch the marketplace, the business?

Allan Martinson

05:11>> Yeah. We don't call it in the marketplace because, really, we we're not providing any jobs or gigs for for the freelancers. But we launched about six years ago. And initially, we launched for customers of whom we call location independence. Essentially people who are either nomadic or maybe expats or maybe running like an international cross border freelancer business or consulting business or maybe have developed some mobile apps as they are selling globally. And those people are usually

05:43>> English speaking, they are early adopters, they need just a home for their business, the global business. And we started from letting them to open a company in Estonia. Estonia is a small country in Europe with about 1,000,000 people and with very very advanced digital government and favorable tax system. It's not that low tax country but it just has very favorable taxation system, so the third corporate income tax and so on. So we started from providing Estonian

06:16>> legal entities and and the service around that. Now we are spending

Nathan Latka

06:20When you say we, who is we? Were you the sole founder or do you have a co founder?

Allan Martinson

06:23>> I was I was I was I joined when the company was already three years old, and there were four co founders, three of them are still with the company.

Nathan Latka

06:31Okay. Interesting. So why did you join? You could do anything. You're a successful businessman. You know, what do they have to do to incentivize you to join a CEO?

Why Allan Joined as CEO

Allan Martinson

06:39>> You know, I've been in the VC business for almost ten years, and I approached that as a venture capitalist with you. So I had a thesis, and thesis was about the future of work and independent work. And I was looking for a company in Europe, and that would be revolving around that thesis. So that company caught my eye. I knew the guys and before, so and they were looking for a CEO, and so we went there

07:05>> together.

Nathan Latka

07:06Okay. But Alan, come on. Be specific. I wanna push a little bit here. Do they have to give you 10% of the company in a healthy salary? Or how much equity do you want? A successful guy going into operations, you can drive growth. How much they have to give you?

Allan Martinson

07:17>> Yes. I I can say that my equity interest is on par with the founders.

Nathan Latka

07:21So Okay.

Allan Martinson

07:22>> Yeah. There is no discrepancy on that front.

Fundraising History: Seed and Series A

Nathan Latka

07:25Now, obviously, this sort of let's assume all four founders split at 25% at the beginning. Right? Did you guys raise extra capital either before you came in or after you came in? Are you bootstrapped?

Allan Martinson

07:35>> It was it it has raised in a serious sorry. It raised seed and pre seed before I joined about 2,000,000 in total. So when I joined, we went straight to, so we say, fundraising, so which was 6 plus 3,000,000. So we did a little extension. So it was 9,000,000 in total in series a that we did in in 2019 and '20.

Nathan Latka

07:59Okay. Interesting. So you split that between '19 and '20. What was that sort of like a rolling series a or something? Was that the same valuation for both the 6,000,000 and a three?

Allan Martinson

08:08>> Yeah. It was pretty much on the same same conditions and extended later on. I added 3,000,000 on top of initial six.

Nathan Latka

08:17Okay. And the 2,000,000 before you joined, do remember what year that was in?

Allan Martinson

08:21>> It was in, let's say, two and a half rounds in '17 and '18 or '16, '17, and '18. So at different valuations from different blue chip angel investors from Europe and Asia.

Nathan Latka

08:37So altogether across three years, are sort of 2,500,000 USD raised before you joined. Now there's another 9,000,000 to capitalize the business and drive growth.

Allan Martinson

08:45>> That's right. Yes.

Nathan Latka

08:46What did you need the capital for? I mean, why couldn't you keep sort of bootstrapping after you joined?

Allan Martinson

08:53>> Obviously, very, very classical evolution of a SaaS company. So most of the funds and funding went to customer acquisition and building the product. And so that's what we have been doing. So obviously you can always think about bootstrapping strategy, but we have been we would have been growing much slower. Mhmm. So

Nathan Latka

09:16where are you investing that money? What's your team like today? How many people?

Allan Martinson

09:19>> So we have about 90 plus people, but that also includes about 30 people involved in what we call service delivery, people with accounting and customer support background.

Nathan Latka

09:31How many engineers?

Allan Martinson

09:32>> About same number. Thirty, thirty five.

Nathan Latka

09:3535. Interesting. Yeah. What what is it like? Are you hiring them directly in The Baltics? I mean, what does a senior engineer in The Baltics cost?

Allan Martinson

09:42>> Yeah. It's it's a very good question because majority of our engineers, say, are in Estonia. And, again, it's a very small country and has been very, very successful in building its own tech industry. Today, it's not too different from salaries in, I don't know, in Scandinavia or in London when it comes to tech industry. Estonia

Nathan Latka

10:00Would that be you're talking like a $108,000 to $180,000 USD for a senior engineer in Estonia?

Allan Martinson

10:04>> It's not directly comparable because tax rates and the cost of living is different, but I would say it's 4 to €5,000 per month, which translates into like 70 to $80,000. But of course taxation is different. We only have 20% income tax. And like on the numbers you mentioned in The US, you will pay close to half in taxes.

Customer Count and Freemium Funnel

Nathan Latka

10:27Yep. Interesting. Okay. So you talked about your earlier customers. You really built this for Baltics, Estonia, etcetera, to get people signed up. Those are your first customers. How many customers are you serving now today?

Allan Martinson

10:36>> Today, we have about five, six thousand paying customers. And since we have a freemium product, people can sign up and that we have 100,000 people signed up so they can start using whenever they are ready because it's a transactional model as well.

Nathan Latka

10:51Mhmm. What what is the metric that those 100,000 free users hit that makes them convert into one of the 6,000 paid?

Allan Martinson

10:59>> They need to have a business. Like, if they can look around and it yeah. Essentially, they can look around, but once they issue the first invoice on the platform, which is a real invoice getting paid by the customer, they become our paying customers.

Nathan Latka

11:12Interesting. So can I take, Alan, those 6,000 customers times the $100 ARPU you talked about earlier? You guys are giving out $600,000 a month right now in just SaaS revenue, subscription revenue?

MRR and Revenue Breakdown

Allan Martinson

11:22>> So we we have about €400,000 Okay. In in MRR right now.

Nathan Latka

11:28Okay. Call that $470,000 USD. Now that includes your transactional business and your SaaS business?

Allan Martinson

11:32>> Yes. That's everything. Okay.

Nathan Latka

11:34And transactional is about a 110,000 USD right now. So pure SaaS is about $360,000, something like that.

Allan Martinson

11:40>> Yeah. So about 25% of that comes from transactional and three quarters.

Growth Rate and Customer Acquisition Strategy

Nathan Latka

11:44Love it. Super smart. Talk talk to me about growth. If you're doing so at $470,000 a USD today a month in revenue, where were you exactly a year ago?

Allan Martinson

11:53>> About 50% less.

Nathan Latka

11:55Okay. That's pretty healthy growth. Where's most of the growth come from? Expanding current customers or adding new ones?

Allan Martinson

12:00>> Adding new ones. So most of our growth comes from adding new ones. So our ARPU has been pretty stable, and so there's not too much upsell for our customers. They are really small businesses or maybe even, like, part time freelancers. You can't increase ARPU like endlessly with those guys, which means that almost all of our marketing effort is to find new customers across Europe.

Nathan Latka

12:25Mhmm. Yeah. That makes sense. Now talk to me about about, you know, when most people are doing a series a, I mean, you know this coming from VC world, you're selling usually between 10 to 20% of the business. Were you guys sort of in that average range or did you do something unique?

Allan Martinson

12:37>> It's it was pretty much standard in corridor.

Nathan Latka

12:40Okay. Got it. So so let's call it maybe somewhere between, like, a 50 and $100,000,000 valuation on the series a?

Allan Martinson

12:46>> It it was smaller than that.

Nathan Latka

12:48Oh, it's more than a 100,000,000. Okay. So you sold

Allan Martinson

12:50>> No. No. It was less than that. Less than that.

12:52Oh, okay. Got it.

12:52>> In our in our series a because it was about, what, two and a half years ago when we fixed the price.

Nathan Latka

12:57Yep. Yep. Yep. Okay. So that was at lower than a 50,000,000 valuation?

Allan Martinson

13:01>> Yes. And that

Nathan Latka

13:02I see. Okay. So 9,000,000 on a 50 pre. I mean, so so what you guys sold, like, 20 percent of the business then, something like that in the series a?

Allan Martinson

13:10>> We have about half of our cap table in the hands of seeds, pre seed and series a investors.

ESOP Pool and Cap Table

Nathan Latka

13:18Yep. Yep. Okay. Cool. Interesting. And then did you you recommend setting up an ESOP pool for other founders? And if so, how much did you set up for employees out in your series a round?

Allan Martinson

13:27>> Yeah. We do have ESOP covering all of our employees. And we are in a bit like in a nonstandard situation because we have several high level executives who joined later. So that's why our ESOP is probably a bit bigger than usual. So it's about 16% of the cap table right now.

Nathan Latka

13:44Okay. Okay. That means then, like, I'm I'm sort of guessing here, but your original four cofounders maybe each own 10%, you own 10%, employee option option pool is 15%, and investors own 50%, something sort of like that.

Allan Martinson

13:56>> Yeah. You are close. Yeah.

Nathan Latka

13:57Okay. Interesting. Talk to me a little bit more about M and A. Right? I mean, a lot of people are trying to service these sorts of freelancers. A lot of people believe everyone's gonna be a founder or freelancer in ten years because Amazon's paying less wages, people are quitting their jobs, launching side projects. Imagine you've had some M and A offers. Why haven't you sold?

Series B Preparations and Raise Target

Allan Martinson

14:15>> I believe it's way too early. And again, it's the same sentiment that's shared by our VCs per se and invested just recently, and we are right now in the middle of our series b preparations. So which means that our key goal is to become significantly bigger before we consider any exit or m and a. But this being said, yes, we have had some interest and companies are approaching us, but

14:41>> it has been too early yet.

Nathan Latka

14:43Yep. Yep. Now when you you're preparing for your series b, what are gonna target? What what amount do you think you're gonna try and raise?

Allan Martinson

14:50>> It's about 15 to 18 million euros that we are targeting right now.

Nathan Latka

14:54Okay. So it's maybe $17,000,000, something like that. Do you think you can get up 20.

Allan Martinson

14:58>> Yes.

Nathan Latka

14:59Okay. 20,000,000. Okay. And do you think you can get up above sort of a $100,000,000 evaluation, which should be like a 20 x multiple on your current revenue?

Allan Martinson

15:06>> Again, I would leave that job to the VCs and do give us a valuation. So

Nathan Latka

15:11That's in your blood though. Come on. You're ten years at a VC. You you gotta have some idea.

Allan Martinson

15:14>> Exactly. That's that's why I I love those guys to do them work as well. But but, yes, and I believe you are you are speaking about the right ballpark. But again, I've seen sometimes it's it's dangerous to come up with some numbers and sometimes get too low and sometimes they hit too high.

Churn and Net Dollar Retention

Nathan Latka

15:33Fair enough. Talk to me real quick before we wrap up about your churn. Obviously, SMBs usually see higher churn, but what's your churn today?

Allan Martinson

15:40>> Yeah. Again, is the majority of our churn is actually coming because as the customers say maybe go back to traditional employment or they rep their businesses, almost nobody leaves us because they don't like the service. A handful of our customers and they grow out from service. So it's between 20 to 25% a year, which is pretty much like normal churn in in, like, one man businesses overall on the market.

Nathan Latka

16:06Sorry. How how much per month you said gross gross churn?

Allan Martinson

16:09>> It's a 20 to 25% per year.

Nathan Latka

16:12Per year.

Allan Martinson

16:13>> So it's it's about like maybe yeah. 1.7, 2% per month.

Nathan Latka

16:17It's not it's not terrible. Now do you have expansion revenue occurring that fills up that 25% hole or no?

Allan Martinson

16:23>> Yeah. Obviously. Yes. So we are we are growing on top of that. So it's an

Nathan Latka

16:29So so your net dollar your net dollar retention is above a 100% then?

Allan Martinson

16:32>> A bit less.

Nathan Latka

16:33Bit okay, but close.

16:35>> Yeah. Yeah.

16:35Okay. Okay. Very cool. Alright. On that note, Allan, let's wrap up here with the famous five. Number one favorite book.

Famous Five: Books, Tools, and Personal Life

Allan Martinson

16:41>> Oh, it's a good question. The probability innovator's dilemma, which was like really cool management book like, twenty years ago. Yep. Still find it. Yeah. Find it very, very useful.

Nathan Latka

16:53Alright. Number two, is there a CEO you're following or studying?

Allan Martinson

16:56>> Elon Musk.

Nathan Latka

16:57Number three, what's your favorite online tool for building xolo?

Allan Martinson

17:02>> Oh, it's most likely communication tools like Slack. I would say that 70% of my time is spent on Slack, most likely.

Nathan Latka

17:10Okay. Number four, how many hours of sleep do get every night?

Allan Martinson

17:13>> Much less than I would like to. Six to seven.

Nathan Latka

17:16Okay. And situation, married, single, kids?

Allan Martinson

17:20>> I'm single with four kids. Like, the youngest actually left the room right now. She's eight.

Nathan Latka

17:28Wow. Busy guy. How old are you?

Allan Martinson

17:30>> I am 55.

17:31>> 55.

Nathan Latka

17:32Last question. Something you wish you knew when you were 20.

Allan Martinson

17:36>> Can you repeat that question, please?

Nathan Latka

17:38Yes. Something that you wish you knew back when you were 20 years old.

Allan Martinson

17:42>> Oh, my 20 years old. I was still in Soviet Union and I wish I knew everything. So it it was totally different environment. I didn't know almost anything which when it comes to, like, how capitalism works and how how companies are operating and so on. But I wish I I could learn all of that back then.

Nathan Latka

18:01Yep. There you have it from Alan. Was a VC now an operator starting in 2018 building Xolo. A application, a SaaS tool that helps freelancers grow their business. They did $235,000 a month about a year ago, now up to $470,000 a month. Growing fast over a $5,500,000 run rate. 25% of the revenue comes from a percent of GMV model. We love this SaaS plus model. They raised a 9,000,000 series A previously, 50% of the business about

18:24is owned by investors. The rest of the team are looking at raising, you know, a 15 to $20,000,000 series B right now. We'll see what happens. Alan, thanks for taking us to the top.

Allan Martinson

18:33>> Thanks, Nathan.

Nathan Latka

18:36One 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 alive. It is fun to watch every Thursday one

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