How Yellow.ai Reached $30M ARR and 1,000 Customers with 140% Growth (Interview with CEO Raghu Ravinutala)

Intro and Event Announcement

Nathan Latka

00:00Hey guys, recording this here on what is it? Friday the nineteenth. Maybe you're seeing this on Monday at the latest, but wanna let you know we are almost sold out for founder comp Sorry, founder five hundred in Austin, Texas here in about a week. It's gonna be an amazing event. Five hundred B2B SaaS founders. I'm looking at the attendee list. There's almost 60 founders with more than $67,000,000 in ARR. It's an incredible group of group. There's

00:24over one and fifty with more than 1,000,000, more than 1,000,000 revenue. It's an incredible group. You don't wanna miss it. Grab your hotel, grab your flight, grab a ticket right now. I'll put the link in the bio, in the description here on YouTube. And I think there's only about three tickets left. Okay, about three tickets left. I'd love to see you guys there. Don't be bashful. Grab your ticket now. Hey folks, my guest today is Raghu

Guest Introduction: Raghu Ravinutala and Yellow.ai

Nathan Latka

00:47Ravunutala. He is the founder and CEO of yellow.ai, an enterprise grade conversational AI platform that enables enterprises to deliver human like interactions that boost customer satisfaction and employee engagement at scale. Powered by Dynamic AI Agents. Raghu, you ready to take us to the top?

What Are Dynamic AI Agents

Nathan Latka

01:06Ready to start? Alright. When you say Dynamic AI Agents, I mean, are there these humans or these bodies or just like machine learning AI stuff?

Raghu Ravinutala

01:14>> It's 100% machine learning AI, Nathan. That too, it's absolutely cutting edge. We just launched the Dynamic NLP today out in the press as well. So this is something that gets trained over billions of conversations happening every single day and dynamically adapt to those metadata. So, we believe it's a breakthrough.

Nathan Latka

01:39What was the initial training set you fed your machine learning's or AI algorithm to get it up to speed quick?

Training the AI: From Manual Labeling to Live Conversations

Raghu Ravinutala

01:44>> Over a period of time when we started in 2016, it was humans that were training these models because there weren't any conversations we were just starting off. And as we started the platform and being used by customers, we used the metadata from those conversations to uplift and train the models to upgrade them. But it initially seeded with a lot of manual training and labeling when we started the company.

Customer Use Case and Pricing Model

Nathan Latka

02:15Wow. Okay. So give me a sense of what customers are paying you to do, but maybe a specific use case would be great.

Raghu Ravinutala

02:22>> Oh, let me give an example of a leading utility company in The United States. And they use our product to automate customer service on their website and on their telephony lines. So when somebody calls for pickup of their waste, etcetera, this company just automates the entire conversation. I'll give a broad range. So this company pays us somewhere between 500 to $7.50 ks in annual ARR.

Largest Customer and Contract Value

Nathan Latka

02:55Okay. Is that your largest customer?

Raghu Ravinutala

02:57>> That's one of our largest. We have larger customers. So our largest customer pays us more than a million dollars per annum.

Nathan Latka

03:06And help me understand what makes that contract value so large. Is it seat based upselling, feature based upselling, utility based upselling or something else?

Raghu Ravinutala

03:13>> It is utility based upselling. So this is essentially our pricing is directly linked to the number of conversations or interactions that are automated. So the more number of phone calls that our virtual assistant answers, the subscription price goes up pretty linearly.

Nathan Latka

03:34I see. So if I'm paying you 1,000,000 a year, how many phone calls are you probably handling for me?

Raghu Ravinutala

03:40>> Okay. So of course the pricing differs across countries. So, typically we average somewhere about 0.5 to a dollar per minute of call handling.

Nathan Latka

03:55Oh, wow. So do you have a great utility metric? It's not just like the phone call. It's per minute of call handling. So it could be one phone call be a lot of money.

Raghu Ravinutala

04:04>> That's correct.

Nathan Latka

04:06Interesting.

04:08Imagine Not

Raghu Ravinutala

04:09>> for anybody, but I think our platform runs on WhatsApp, Google Business Messaging. So all those are per conversation session. So different pricing for that.

Nathan Latka

04:21Let me ask you a weird question related to your product cannibalization here. If I'm paying you to handle telephoning for me and I'm paying you 5¢ per minute of call handling, but you're also trying to use AI machine learning to prevent the call in the first place, don't you sort of compete with yourself there?

Raghu Ravinutala

04:37>> Oh, absolutely, Nathan. I think the overall objective of the company is to automate the majority or the overall available interactions at the company. And we clearly believe that digital interactions are superior to voice interaction in many cases. And we recommend customers to do that, though it cannibalizes, let's say, a potentially higher revenue in voice handling. But we know that there are 400,000,000,000 calls made every single year in the world. And today, than 0.1% of them have

05:12>> any kind of automation. So it'll not disappear in a while. So there's a lot of markets. So I don't think we need we as a company don't need to worry about one product cannibalizing. That's thinking too narrow at this point of

Nathan Latka

05:26Got it. Oh, what's going on there, YouTube? Good to see you guys. Now imagine this. You love watching these interviews with SaaS founders, but imagine if we took all of the valuation data out from over 2,807 interviews I've done manually. Saves you a lot of time. Well, we've done this. We've built it into the beautiful interface inside of Founder Path. Check this out. I'll show you how you can access this in a second, but you log

05:49in, you connect your Stripe account, you see your valuation real time. You can see what it changed over the past eighty eight days and even set goals for valuation this year. Now the secret evaluation is there's many different ways to value a SaaS business. So the reason you're gonna see three or four different valuations inside of your Founder Path dashboard, this is all free by the way, is because depending on who's doing the buying of your

06:13SaaS company, you're gonna get a different valuation. A VC is gonna pay a different valuation. Private equity firm is different. If you're gonna do a minority sale, that's different. And if you sell the whole business, that's a different valuation. You can see all those when I hover over here, right? So the teal is what a VC would pay. Yellow is what private equity and red is if you sold the whole thing outright. Now what's cool about

06:36this is this is not built off random data. Again, you guys hear these interviews on YouTube. All these datas are built from real time valuation data points founder share with us on the show. So traction 1,200,000 seed round 3.7 raise. They sold 22% of their business. Go in here and filter by the event. Maybe you only wanna see companies that have sold the whole business. Well, here are a bunch that have been acquired the valuation and

07:01the multiple. Maybe you're going out right now and you're raising your seed round. We'll go in here and look at all this recent seed deals that went down, what they raised, what valuation they raised at and what percent that they sold. There's never been a larger dataset of SaaS valuations than what you can get now inside of Founder Path. And we're thrilled to bring it to you. All right, we're gonna go back to the YouTube video

07:24here in a second, but if you wanna check this tool out, if you wanna jump in and sign up, you can check it out for free to get your valuation at this link, this link, founderpath.com/products/valuations. Or if you go to founderpath.com and hover over products, click on get your valuation here, and go ahead and sign up to give it a whirl. Again, all that valuation data live right inside the platform. I hope to see you there.

07:49Alright. Let's jump back into the interview. Very cool. Okay. We talked about your biggest sort of customer, but tell me what your sweet spot is. What's the average customer pay you per month or year to use the tech?

Average Contract Value and Two Go-to-Market Motions

Raghu Ravinutala

08:00>> Yeah. So since we are a company that's kind of born in Asia Pacific and grown into North America, we have kind of two different go to market motions for these two geographies. And typically in the Asia Pacific market, we land our customers somewhere between 30 to 40 gain annual recurring revenue. And in The US, we land somewhere between 120 to two fifty. So average would be about one thirty kind of ARR values in North America.

Nathan Latka

08:30Interesting. I always get people that launch outside of US asking how they expanded US, so I wanna come back to that here in a second. But first, I want to get the origin story here. Put this on a timeline. When did you launch the business?

Company Origin and First Customer in 2016

Raghu Ravinutala

08:42>> Oh, we launched our business in 2016.

Nathan Latka

08:442016. Wow. And how did you get your first customer? Do you remember who it was?

Raghu Ravinutala

08:49>> Oh, yeah. So it's one of the leading paints company in India.

Nathan Latka

08:54Painting? Paint?

Raghu Ravinutala

08:55>> Yeah. They sell paints. Yeah. This is Asia's largest paints company.

Nathan Latka

09:01Wow. It's amazing.

09:05And so how did you go? I guess that was your first customer. How many customers are you serving now today?

Customer Count and Asia Pacific vs US Split

Raghu Ravinutala

09:10>> We are overall serving about 1,000 plus customers.

Nathan Latka

09:14Wow. And what's the split between Asia Pacific and US?

Raghu Ravinutala

09:18>> So still Asia Pacific dominates our percentage. So in terms of number of customers, it's probably 90 plus in Asia Pacific, but in terms of ARR, it's somewhere between 70 to 80.

Nathan Latka

09:31Seventy and eighty. So are you more excited about the expansion in The US then?

Raghu Ravinutala

09:35>> Absolutely. It's the largest market out there, Nathan. So, and we're very excited about how we've grown over the last two years since we launched in The US market. So some of our customers grew from, they landed at thirty forty ks in The US market and grew to 600, 700 ks. So we're just seeing much faster expansion rates and growth rates within companies in The United States market.

Expanding into the US Market

Nathan Latka

10:03Tell me about US customer number one because everyone's wondering about this, listening right now who's not in The US. How did you land that first customer? Do you hire a firm to do sales in The US? Do you hire a full time employee? Did you open an office? How did you do it?

Raghu Ravinutala

10:16>> You know, our first customer in The US was inbound. We got an inbound based on some of our press releases. It was actually closed by a rep sitting out of India. So we landed our first customer when we didn't have any personal US market. By the time we hired a person in The US market, we had a few customers and they had some references to build on, Nathan.

Nathan Latka

10:46So how much ARR were you doing in The US before you hired your first person in The US?

Raghu Ravinutala

10:54>> About 0.5 a mil.

Nathan Latka

10:56Okay. So pretty I mean, I would say that's pretty pretty quickly then.

Raghu Ravinutala

10:59>> Yeah. Yeah. That's that's pretty quickly. Absolutely.

Nathan Latka

11:03And what was that person's role? Was it an SDR, a VP of sales in North America? What was the title?

Raghu Ravinutala

11:08>> SVP of sales.

Nathan Latka

11:10Interesting. And so what did their days look like? What were they doing in early months?

Raghu Ravinutala

11:14>> Oh, early months was one, figuring out how to create a demand gen function. So I think that resulted in making a marketing hire, setting up a SDR function while hiring the initial sales reps. And of course, doing a player coach, handling the leads and meetings that are coming in while doing so. So these were the activities of the S3P. But I mean, within a year, we kind of scaled the team from, yeah, one member to about

11:47>> 28, 30 people in the North America market from the first hire.

Nathan Latka

11:53That's awesome. Now, we take the ACB you gave me earlier of sort of like 50,000 or 60,000 sweet spot and then divide by 12, right? So your ARPU monthly is out maybe 4 or 5,000 a month. And then we multiply that by a thousand customers. I mean, that would put you at like 400 or $500,000 a month in revenue right now. Is that about right?

Raghu Ravinutala

12:16>> Sorry, 4,000,000.

Nathan Latka

12:18Million per month.

Revenue Milestones and Growth Rate

Raghu Ravinutala

12:21>> No, no. So So several of the customers are also in the early stages. So we have a commercial segment. So there are segments of customers who land at even four ks or five ks as well. But I'm not sharing the broad revenue metrics, I just kind of give a very broad range so that I think you can you can pick a number. So we're somewhere somewhere in twenties to thirties or 20 to 30 plus. So 25

12:48>> to 35 is where you can take a broad range on

Nathan Latka

12:51Can you can you break 35,000,000 run rate this year, you think?

Raghu Ravinutala

12:57>> Oh, so we are we're pretty much there. Right? I think. Yeah. 35,000,000 Sorry for

Nathan Latka

13:02then. What what I guess I should ask. What's your goal for the end of this year? Do can you do you think you can break, like, 38, 39, 45?

Raghu Ravinutala

13:08>> We are looking at doing about 2.2 to 2.5 x in our booking numbers from last year. So we would be much upwards, much higher upwards of the numbers that you're

Nathan Latka

13:22talking about. So just to understand growth rate again, you're flirting with sort of 35,000,000 run rate right now and you double year over year, that means you were doing like maybe 15,000,000 run rate last year.

Raghu Ravinutala

13:30>> Would say right, I mean, the numbers that I can share, Nathan, just so that is, I think broadly we are somewhere between the twenties and 35. So we're doubling, you can calculate anywhere between 40 to 60 is what you can broadly assume that we are targeting this year.

Nathan Latka

13:50Oh, oh, sorry. You're already at 25 to 35 and you're targeting 40 to 60 by the end of this year.

Raghu Ravinutala

13:56>> That's correct.

Nathan Latka

13:57Oh, I okay. Sorry. What I'm trying to understand is your growth rate over the past twelve months. The past twelve months.

Raghu Ravinutala

14:03>> Oh, oh, the past twelve months. So the growth rate has been about one forty to 150%, Nathan.

Nathan Latka

14:10Okay. Yeah. Yeah. So if you're doing between twenty five and thirty five now, right now, let's just say 30,000,000 is you were doing something like 10 or 15 exactly one year ago?

Raghu Ravinutala

14:19>> That's correct.

Nathan Latka

14:20I see. I see. Okay. And so the reason I asked that question is because it sounds like a lot of your growth is actually coming from expansion of current accounts, not brand new customers. Would you agree with that?

Raghu Ravinutala

14:32>> I would say that it's a split for sure. We run a high NRR, so we run a 150 to 160 percent NRR.

Nathan Latka

14:40So That's incredible. I mean, I'd say world class is like 150, 160%. So that's just an incredible you already know that, but that's incredibly high.

Raghu Ravinutala

14:47>> Yeah. So we run a high NRR and that's due to the business model as well. So we try to land at prices, at a volume. And once the customer scales, the volume automatically scales. They make more number of calls, people chat more. So, but that takes us to only certain part of the growth number, right? So there is a lot of new revenue that's coming in. Just to give calculations, someone were looking at like 8,000,000 to

15:17>> 10,000,000, so 150% NRR will only take them to 14 or 15,000,000. Right? So Yep. You still build a new revenue on top of it.

Nathan Latka

15:26Do you remember the year you passed a million in revenue?

Raghu Ravinutala

15:29>> Oh, yeah. Absolutely. Very clearly. The toughest, toughest part I ever had.

Nathan Latka

15:34Yeah. What year was that?

Raghu Ravinutala

15:36>> This was 2018, end of two thousand eighteen, early two thousand nineteen. Yeah.

Nathan Latka

15:41Wow. Okay. So million dollar run rate then, and then what you passed 10,000,000 sort of late twenty nineteen, early twenty twenty?

Raghu Ravinutala

15:47>> Yeah. Kind of broadly there. You're kind of That's awesome.

Nathan Latka

15:50Now have you done all this bootstrapped or you decided to raise capital?

Fundraising History: Series A, B, and C

Raghu Ravinutala

15:54>> So we kind of bootstrapped almost close to 1,000,000 ARR. So we were bootstrapped profitable till that time, but we took time to get there. We took time. We took almost two and half to three years to get there from zero. But we raised capital when we were like almost close to 1,000,000

16:12>> in ARR.

Nathan Latka

16:13Okay, so that would have been like 2018. How much did you decide to raise?

Raghu Ravinutala

16:17>> We raised the initial one of about 4,000,000.

Nathan Latka

16:20Okay. And that would be like your pre seed?

Raghu Ravinutala

16:24>> No. So we raised it in India. So in India, was it was series a.

Nathan Latka

16:28Oh, Okay. Series. And is that all you've raised to date? Just the 4,000,000?

Raghu Ravinutala

16:33>> Oh, no. We raised 100,000,000 overall. 104,000,000

Nathan Latka

16:36>> overall.

16:36Okay.

Raghu Ravinutala

16:37>> So after that we raised our series B and series C and yeah. So right now we are in the clear venture capital

16:46>> path.

Nathan Latka

16:47Ravi, break those down for me. When was a series B and how much?

Raghu Ravinutala

16:50>> So, series B was in 2020, was about $20,000,000. And so, A 2019, series B 2020, which is $20,000,000 Series C in 2021, which is about $78,000,000

Nathan Latka

17:07Interesting. What makes this business so capital? I mean, it's a lot of capital to raise, obviously. So you've diluted a bunch unless a lot of this was like secondary or something like that, right? Most people, their series A are selling, you know, 10% to 20%, series B, it's 10 to 15%, and series C, it's about 10%. Were you sort of around those same ranges?

Raghu Ravinutala

17:27>> Yeah, so we broadly can say that, yeah.

Nathan Latka

17:29Mean What makes the business so capital intensive?

Raghu Ravinutala

17:33>> Oh, so this is a market that we are creating. I don't think there was a lot of market that was existing and we were going behind very fast growth rates. So this could be a completely profitable company if you were taking a lower growth rates.

Team Size, Engineers, and Bangalore HQ

Raghu Ravinutala

17:52>> I mean, we were profitable when we were at a million dollars. I think the Pretty much of the capital burn happens through sales and marketing where you kind of invest upfront in capacity, invest in getting into newer geographies to drive that growth rates a little bit ahead of the curve. Mhmm.

Nathan Latka

18:14And and so, I mean, series c, if you sell somewhere around 10% of the business, right, and that was last year when you were like maybe 15,000,000 run rate, and that means you were raising it like a $607,100,000,000 valuation if you only sold 10% ish.

Raghu Ravinutala

18:27>> I'm not talking about valuation, but, yeah, I mean

Nathan Latka

18:30Well, Morangu, sorry. I'm just using what you just told. I asked you was 10% series c. You said, yeah, about there. So I'm just I'm not making stuff up. I'm using your what you just said.

Raghu Ravinutala

18:38>> Yeah. So I said it's it's kind of about this. It's not exactly 10%, right? It's more a little bit more than that. So the valuation you would expect is it's not at 700, a little lesser than that.

Nathan Latka

18:49Fair enough. Fair enough. That's fine. Maybe you sold twelve, thirteen, 15%. Whatever. My point being though is valuations have compressed over the past twelve months. Right? So how how how are you reacting to a comp you know, a comp you know, macroeconomics that are just poor today than they were a year ago?

Raghu Ravinutala

19:05>> Yeah. I think broadly we have a lot of the capital raised more than 90% in the bank. Right? I think, it's it's not like we are consumed, a lot of capital. Think

Nathan Latka

19:16That's that's all the capital you've raised or just the 70 you have 90% of 78,000,000?

Raghu Ravinutala

19:20>> For the CVC. Yeah.

Nathan Latka

19:21I see. I

Raghu Ravinutala

19:22>> see. Okay. Right. Yeah. And as a company, we know that we can't let up on growth, but at the same time, I think right now efficiency is kind of considered significantly for potentially the next capital raises. And in general, as a company, you want to get to a more sustainable rate, right? So I think there's a lot of focus on making sure that we improve our sales productivity numbers. We, but we continue on the growth rates

19:52>> that we are targeting to 2.5 X and also kind of limit the number of geographies that we are going to trying to expand at the same time. Right? You want to go by one. So some of those decisions and also on the product side, just kind of having a lot more focus on the current feature set rather than lot of experiments. So a lot of investment behind high conviction areas and kind of tuning down investments in

20:23>> experimental areas is what I would say. And we kind of have plans where the existing capital can take us through the next two to three years pretty according to the plan.

Nathan Latka

20:38And Ravi, what's the total what's the total I don't mean to cut you off. We're just short on time. What's the total team size today? How many people?

Raghu Ravinutala

20:44>> So we are about eight fifty people,

Nathan Latka

20:47Nathan. And how many of those are engineers?

Raghu Ravinutala

20:50>> About 300 Wow. Of them

Nathan Latka

20:53are engineers. Are they based like, I've interviewed so many just incredible founders in Bangalore and Chennai and I mean, so many places. Are most of engineers based in India?

Raghu Ravinutala

21:03>> Almost 99%.

Nathan Latka

21:05Ninety percent?

Raghu Ravinutala

21:06>> Ninety nine.

Nathan Latka

21:08Wow. Which city?

Raghu Ravinutala

21:10>> So, they're spread across the, ideally to Bangalore, but after the pandemic, people are working from their places. But I think the headquarters is Bangalore.

Nathan Latka

21:20Very cool, very cool. Listen, heck of a story here. We're rooting for you. Let's wrap up with the famous five. Quick answers here. Number one, favorite business book?

Famous Five Rapid Fire

Raghu Ravinutala

21:29>> Hard Things About Hard Things.

Nathan Latka

21:30Right? Number two.

Raghu Ravinutala

21:32>> Yeah.

Nathan Latka

21:33Number two, is there a CEO you're following or studying?

Raghu Ravinutala

21:35>> Oh, yeah. So Snowflake Slootman.

Nathan Latka

21:39Yep. Did you read his new book, Amped Up?

Raghu Ravinutala

21:41>> Oh, yeah. Of course. Absolutely. Really good.

Nathan Latka

21:43Right? Alright.

Raghu Ravinutala

21:44>> You you remind me a lot of him actually in terms of pricing model.

Nathan Latka

21:47Yeah. Number three, what's your favorite online tool for building Yellow?

Raghu Ravinutala

21:52>> I would say Canva in the initial stages. Wouldn't have survived without that.

Nathan Latka

21:57Number four, how many hours of sleep do you get every night?

Raghu Ravinutala

21:59>> Oh, seven to eight hours.

Nathan Latka

22:01And what's your situation? Married, single, kids?

Raghu Ravinutala

22:04>> Married with two kids.

Nathan Latka

22:05Oh, wow. How old are you?

Raghu Ravinutala

22:07>> I'm 44.

22:10>> 44.

Nathan Latka

22:11Last question. Something you wish you knew when you were 20.

Raghu Ravinutala

22:14>> Oh, starts I would've start your business takes risks much earlier in your life. I mean

Closing Summary

Nathan Latka

22:20Guys, yellow.ai, trying to be the world's leading automation platform. Their biggest customer pays over 1,000,000 per year, you know, 0.5¢ per minute of call handling, for example, as one of their pricing tiers. They serve over a thousand customers today. They're building their US presence rapidly. It's growing faster than their other regions. They've got, again, thousand customers today, flirting with sort of 25 to $35,000,000 in ARR today, doubling year over year, targeting ending this year between 40

22:51and 60,000,000. They've raised 78,000,000 series C last year, selling somewhere around 10% of the business, but they they have more than 90% of that still in the bank. So they're good to go in terms of making it through any pending recession. Eight fifty folks on the team, check them out at yellow.ai. Raghu, thank you for taking us to the top.

Raghu Ravinutala

23:07>> Thank you. Thank you very much, Nathan.

Nathan Latka

23:11One 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, 1PM

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24:20for that @nathanlatka.comslashslack. In the meantime, I'm hanging out with you here on YouTube. I'll be in the comments for the next thirty minutes. Feel free to let me know what you thought about this episode and if you enjoyed it, click the thumbs up. We get a lot of haters that are mad at how aggressive I am on these shows, but I do it so that we can all learn. We have to counter those people. We got

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