How YellowDog Serves 30 Recurring Customers and 4,500 Render Customers with a 12-Person Team (Interview with CEO Simon Ponsford)

Introduction and Background

Nathan Latka

00:00Hey folks, my guest today is Simon Ponsford. He has over twenty years experience in high growth startup environments, working in technical architect, CIO, CTO, and CEO roles in both Europe and North America. He spent time in academia working as senior scientist in distributed computing, and also has over twenty years cloud computing experience related patents to his name, now building yellowdog.co, which accelerates applications in the cloud. Simon, you ready to take us to the top?

Simon Ponsford

00:24>> Absolutely.

What YellowDog Does

Nathan Latka

00:25All right, what's that mean, accelerate applications in the cloud?

Simon Ponsford

00:29>> Really, it goes back to the concepts really distributed computing about being able to take an application that runs on more than one core and being able to distribute that across many cores generally in the cloud. And for us, it means almost unlimited scaling, taking people to hundreds of thousands or millions of cores to get their workloads or their applications, jobs completed very quickly.

Sales Model and Core-Hour Licensing

Nathan Latka

00:52And so do you sell based off number of cores you're helping manage or what's the sales model?

Simon Ponsford

00:56>> The sales model is all about licensing. So it's all about number of core hours that people use that we effectively manage for them.

Nathan Latka

01:04Okay. And is that only upsell or do you upsell product enhancements, number of seats, anything else?

Simon Ponsford

01:09>> No, no. We try and keep it really simple. So if you know what sort of scale you want to run to, you know exactly how much it's going to cost.

Customer Pricing and Market Segments

Nathan Latka

01:17This makes a ton of sense. So what are companies paying on average per month to use the technology?

Simon Ponsford

01:22>> It really depends. You get some small companies that are just maybe paying a thousand dollars running some relatively small jobs, where you'll get others paying tens of thousands of dollars to be able to scale such as tens of thousands of cores, and keep those jobs running 24/7.

Nathan Latka

01:37And so would you say maybe a sweet spot for you might be someone paying $10,000 a month?

Simon Ponsford

01:42>> I would say probably the sweet spot for us.

01:45>> It's almost like two different markets. There's a sweet spot in the small and mid market, which is generally around about $5,000 then the upper end, it's probably closer to 50,000.

Nathan Latka

01:59Interesting, okay. But you sort of skipped the middle. You see either people are lower or higher, but very few in the middle.

Simon Ponsford

02:04>> There are very few in the middle. It's a really interesting market. Either,

02:11>> essentially you've two ways of working. You're either a place where you could have worked traditionally on premise, but you're a new business maybe and you're born in the cloud. So you haven't gone for any on premise infrastructure, you've gone entire into the cloud. So those are people that could have run on premise. And then you've got the larger organisations are really just looking at cloud to scale and they couldn't achieve that or couldn't achieve it easily

02:33>> on premise. And so they're much bigger. So you don't find there's too much in between.

Nathan Latka

02:37And so without obviously naming the customer, what is the largest customer paying you per year and how many cores does that get them?

Simon Ponsford

02:45>> The largest customers are actually generally paying for a certain number of core hours. So quite a few million core hours.

Nathan Latka

02:53Okay, and what is the price point they're paying? Are we talking like million dollar accounts or $500,000 accounts or something else?

Simon Ponsford

02:57>> You're talking those accounts are generally more than just about sort of 250,000, maybe a little bit higher.

Nathan Latka

03:02Okay, maybe $250k a year or something like that. Okay, cool. So big gap here, give me the backstory, when did you guys launch?

Simon Ponsford

03:08>> So we actually, the business itself started in 2015. So we've been going for over six years. And we actually launched our first product about six months into the business. But that was very different. It's just a very small subset of the functionality we have today. So we started generating revenue, I guess, very early on in our journey, but we are quite different from where we started out. Very early on, a lot of people coming to The

03:35>> U. Were people that wanted to make movies and animation and be able to render special effects, etc. So that was really a big market for us when we kicked off. It was really that transition whereby studios needed to move from say HD filming to four ks and they didn't have enough compute. And so they chose yellowdog in order to be able to get that compute generated from the cloud.

Nathan Latka

03:57They're effectively renting other people's compute power.

Simon Ponsford

04:01>> Absolutely.

Customer Count and Market Breakdown

Nathan Latka

04:02Yeah, interesting. Okay, now how many customers are you serving today?

Simon Ponsford

04:06>> In the render market, we've got about four and

Nathan Latka

04:09a half thousand customers.

Simon Ponsford

04:11>> In the other market, it's much smaller today. So you're talking sub a 100 in those other markets.

Nathan Latka

04:16In what other market?

Simon Ponsford

04:18>> So essentially you've got markets in financial services, you've got markets in life sciences, a lot of people trying to do drug discovery, etcetera. You've also got customers doing things like modeling for thermodynamics, those sorts of things. So you've got to kind of split across those, but by far our largest market to date has been in animation render.

Recurring vs Bursty Revenue

Nathan Latka

04:38Okay, and so 4,500 customers, those are all paying customers, right?

Simon Ponsford

04:43>> They are kind, but they are, those customers are generally customers are very much very bursty workloads.

Nathan Latka

04:49So they will come along and they might pay for a month of the year, and then they'll go away because that's all they need

Simon Ponsford

04:55>> to use us for. Those customers aren't general subscription ones, it's generally the other markets outside of Render, where people want to come along and just go for a longer subscription. So life sciences, etcetera, will just be generally set steady through the entire year as well we'll foresee their financial services.

Nathan Latka

05:11So how many are actually paying consistently every month? Well, what's that market?

Simon Ponsford

05:15>> That market's only about 30 customers today.

Nathan Latka

05:1730 customers. Okay, cool. So you use the one time revenues from 4,500, mainly coming from animation studios and rendering studios to sort of power your R and D to build a core product that 30 people pay for every month really predictably?

Simon Ponsford

05:29>> Yep.

Nathan Latka

05:30Okay. And can I take 30 times that $5,000 a month minimum price point you're doing over $150,000 a month right now in revenue?

Simon Ponsford

05:38>> Yes, you can.

Nathan Latka

05:39Okay, fair enough. And bootstrapped or did you guys raise?

Simon Ponsford

05:43>> No, no, raised. We raised early on. We started a crowdfunding. What funding? Crowdfunding.

Nathan Latka

05:50Oh, crowdfunding. How much

Simon Ponsford

05:51>> did So you we raised £150,000 initially, and then we've been back out and did another raise through that. And then we also went through angel funding, and we've also been through VC funding as well.

Nathan Latka

06:03When was the last VC round?

Simon Ponsford

06:06>> Our first VC round was in 2017, and they we've been continued support ever since then.

Nathan Latka

06:12How much did you raise in that round in 2017?

Simon Ponsford

06:15>> I think about 1,500,000.

Nathan Latka

06:17Okay. And what you would you call that your sort of pre seed seed round?

Simon Ponsford

06:22>> Yeah. I I call that up. Well, I I would say all of these really just being pre series A. I really suspect our our series A to be going on next year.

Nathan Latka

06:30I see. Okay. So the the 1.5 was in 2017. Was there another round you did between then and today between that Yeah.

Simon Ponsford

06:37>> We did various raises.

Funding History and Total Raised

Simon Ponsford

06:38>> We we we've done about 8,000,000 in total.

Nathan Latka

06:40Okay. Got it. So you raised another 6,000,000 in last year or something like that?

Simon Ponsford

06:45>> Over the last couple of years. That was end of twenty seventeen.

Nathan Latka

06:48I see. Okay. So so what do you mean by that? You sort of split the things up and sort of raise on a rolling basis as you needed it? Or what's that model look like?

Simon Ponsford

06:55>> Generally, we raise essentially product development when we've raised also to go to specific markets. So to start going into new markets, we've done specific raises.

Nathan Latka

07:05I see. Okay. So I guess the reason I'm asking is the 6,000,000 you raised over the past sort of three or four years, what like, how'd you set valuation for that?

Valuation History

Simon Ponsford

07:14>> How do you set the valuation? Generally from new parties coming in and really just agreeing valuations around that. Our highest valuation was somewhere around $14,500,000.

Nathan Latka

07:27Sorry, 14 And and 500,000 how much did you raise at that valuation?

Simon Ponsford

07:32>> Probably raised about 1,000,000 at that time.

Nathan Latka

07:34I see. Okay. And that was your most recent round?

Simon Ponsford

07:37>> No, actually, would say our most recent round has been a little bit lower than that. Okay. Just because of COVID and pandemic. It's generally brought it down a little. So that was really 2019, very early twenty nineteen. And then going into last year, it's slightly down, think as many people are up here.

Nathan Latka

07:59Well, thanks being honest about that. You know, down rounds are a real thing in life. You have to manage through them. How were you able to convince investors to put money in when it was a valuation that was lower than the 14,500,000? That's a hard storyline to manage.

Simon Ponsford

08:12>> It is a hard storyline potentially for people that have already invested. But actually when people see the value, and I think a lot

Nathan Latka

08:20of people have been with us right the way through the journey,

Simon Ponsford

08:23>> and they see the value in the product, and they see what we're able to deliver and they see the results in terms of what we're able to scale. So I think people generally still encouraged to see it. And

Nathan Latka

08:35now what does growth look like? If you're doing $150,000 a month today in revenue, where were you exactly a year ago? Do you remember?

Simon Ponsford

08:41>> No, last year was a really bad year. Okay, so last year because of the pandemic and because of really reductions in those customers needs to do render. As soon as live action filming really stopped, there wasn't really much of a need to add special effects to film.

Nathan Latka

08:57So we're just talking about the 30 core customers, though. We're not talking about the one time revenue from the rendering studios.

Simon Ponsford

09:05>> Our render revenue was still higher. So I think that probably took a good 400 ks off of the annual.

Nathan Latka

09:14But when you just look at the 30 customers paying $5,000 a month or more, right? For the longer term engagements, today is a $150,000 a month. What was that exact number basically a year ago? Was it a $100,000, $50,000, something lower, I assume?

Simon Ponsford

09:27>> Oh, you you you said that would have been so much lower. That would have been, like, 30?

09:31>> $3.00.

Nathan Latka

09:32Oh, wow. So that's grown like significantly over the past twelve months. Were a bunch of those customers with you pre pandemic and you just signed them back up or are they brand new customers?

Simon Ponsford

09:41>> They're generally brand new.

Nathan Latka

09:43Think- How'd you do that? That's impressive.

Simon Ponsford

09:45>> Well, no, I think brand new. A lot of people we were talking to were very early on. So we'd already started engagement early on. A lot of things slowed down during the pandemic and then people started signing up as we started coming out of COVID.

Most Recent Round and Down Round

Nathan Latka

10:00I see. Got it. Okay, interesting. Now when you did the down round, what valuation was that at? The most recent valuation?

Simon Ponsford

10:07>> That's come out at 12.5.

Nathan Latka

10:09Okay, so it's not significantly lower, just slightly lower. And that was last year?

Simon Ponsford

10:16>> That's actually gone through this year.

Nathan Latka

10:17Oh, that's this year. Okay. Yeah. Fair. And you raised what? About 4 or 5,000,000 on that? Something like that?

Simon Ponsford

10:23>> No. No. We've we've just done we're we're almost complete, like, one and a half on that one.

Nathan Latka

10:27One and half. Okay. You really have done a lot of rounds. So 1.5 in 2017, 1,000,000 in 2019 at 14,500,000, then a bunch of ones in between then and this year where you raised 1,500,000 on 12 Yep. Point

Cap Table and Equity Breakdown

Nathan Latka

10:40Fair enough. Would you ever consider raising like to buy out early investors? I mean, does your cap table look like today?

Simon Ponsford

10:45>> A cap table is a little complicated because there's a lot of people in there, like you say from the various different rounds. And people have asked about cleaning up the cap table, etc. And whether people could be bought out. Yes, there seems to be no need to do

Nathan Latka

11:01that because a lot of people that came

Simon Ponsford

11:03>> in early have followed on. It's not as bad as it could be.

Nathan Latka

11:07How much do you still own, Simon?

Simon Ponsford

11:10>> I'm at around 8%.

Nathan Latka

11:13Eight? Does that ever demotivate you? Like, you ever go, man, I wish I own twenty, thirty, 40%?

Simon Ponsford

11:20>> No, not really. For me, I've been through a lot of startups and it's already about the potential. So if you thought the business is going be worth, it's still going be worth 10,000,000 or so in ten years time, then that would really demotivate you. But I can see us growing significantly and getting a much better valuation.

Nathan Latka

11:39Can you paint a little color? Like who's the next largest shareholder? Where's the rest of the equity?

Simon Ponsford

11:44>> So we've got some VC backing, but it's essentially holds a large part of that. How

Nathan Latka

11:53much do VCs own altogether? Like 60%?

Simon Ponsford

11:57>> VCs are in around just about, let's say about 43%.

Nathan Latka

12:0243, okay. So you plus the VCs are a little over 50 and then the rest are what like one off angel investors?

Simon Ponsford

12:09>> There's couple of, yeah, there's quite a lot of angel investors. Then also the crowdfunding, they come in as a group, they come in at somewhere at seven or 8%.

Nathan Latka

12:19Oh, interesting. What platform did you use to crowdfund? Start Engine or something else?

Simon Ponsford

12:24>> Seedrs.

Nathan Latka

12:26Spell that.

Simon Ponsford

12:28>> S double e d r s. Seedrs.uk.

Nathan Latka

12:32Interesting. Was it an easy process to use those guys seamless?

Seedrs Crowdfunding Experience

Simon Ponsford

12:37>> I think they are ideal when you start out. Yeah, Essentially all you do is you create a video, a bit like a Kickstarter. They're pretty good on the due diligence, making sure you've got the idea, all your credentials, everything you've done before. They publish everything online and you just wait for things to come in. You get lots and lots of questions. So there's a lot of interaction with shareholders early on, but then yeah, it's relatively straightforward.

Nathan Latka

13:05And what does the team look like today? How many folks full time?

Team Size and Engineering

Simon Ponsford

13:09>> So the team is 12 people.

Nathan Latka

13:1112. Imagine engineering heavy. How many engineers?

Simon Ponsford

13:15>> So engineering is seven people.

Nathan Latka

13:17Seven. Okay. Do you have quota carrying sales reps?

Simon Ponsford

13:22>> We haven't, no. We're only just engaging sales, say that full capacity.

Nathan Latka

13:29Yeah, interesting, interesting. What about net dollar retention? Do you manage, do you measure stuff like that currently?

Simon Ponsford

13:35>> Retention, I wouldn't be able to tell you straight off the top of my head what that would be.

Nathan Latka

13:40That's okay, very cool. What's next up product wise? Simon, before we wrap up, what are you excited about building and releasing?

Product Roadmap

Simon Ponsford

13:47>> So we're continuing to build our platform. We'll continue to bring a lot of intelligence into the way that we use cloud resources and a lot of intelligence in terms of being able to select very cost effective, say spot instances or solutions in the cloud. We have something called an index, which gives us a view of the costs across all the different cloud providers. And really making a lot more use of that to the benefit of our

14:11>> customers is really what we're going to be concentrating on for the next few months.

Famous Five Rapid Fire

Nathan Latka

14:15Very cool. Rooting for you. Let's wrap up here with the famous five. Number one, favorite book?

Simon Ponsford

14:21>> Journey to the Center of the Earth.

Nathan Latka

14:23Say that one more time?

Simon Ponsford

14:24>> Journey to the center of the earth.

Nathan Latka

14:26Number two, is there a CEO you're following or studying?

Simon Ponsford

14:30>> No. No. I'm not.

Nathan Latka

14:31Number three, what's your favorite online tool for building the business?

Simon Ponsford

14:35>> Perfect what tool?

Nathan Latka

14:37For any tool that your favorite tool for building yellowdog.

Simon Ponsford

14:41>> Favorite tool? I think it's really been Xero, to be honest, just in terms of being able to understand subscription revenues and understand how to build it up.

14:55>> Yep.

Nathan Latka

14:56Number four, how many hours of sleep do you get every night?

Simon Ponsford

15:00>> Between four and five.

Nathan Latka

15:01Okay. And situation, married, single, kids?

Simon Ponsford

15:04>> Kids, married.

Nathan Latka

15:06Married. How many kiddos?

Simon Ponsford

15:07>> One.

Nathan Latka

15:08One kid. Okay. How old are you, Simon?

Simon Ponsford

15:10>> I'm 48.

Nathan Latka

15:11Last question. What's something you wish you knew when you were 20?

Simon Ponsford

15:19>> I wish I'd been a bit more ambitious in 20.

Nathan Latka

15:22Guys, there you have it, yellowdog. They sell licenses based off number of core hours started in 2017, 2015, really selling to rendering studios that needed more capacity to do these, high resource rendering. Moving into other fields as well like financial services, they've got 30 core customers that pay $5,000 a month doing over $150,000 a month in revenue, up from $30,000 a month just a year ago. So nice growth. They have raised capital, call it, 6, 7, 8,000,000

15:47to date. Their last round was 1,500,000 this year at a $12,500,000 valuation. Pretty efficient in terms of team size. 12 people, seven engineers. Growing nicely here. We'll see what happens next. Simon, thanks for taking us to the top.

Simon Ponsford

15:58>> Thank you.

Nathan Latka

16:01One 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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17:10for that at nathanlatka.com/slack. 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. 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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Simon Ponsford

17:36>> See you.