Yotpo Revenue, Valuation & Funding (2024)

hello everybody my guest today is tomorrow to grin he is the ceo and co-founder of a company called iato the leading commerce marketing cloud for d2c brands having raised over 100 million dollars yatpo has a global team of 350 and 4 000 plus clients that include glossier steve madden mvmt think and away travel tomorrow was the chief designer for intel and graduated from tel aviv university all right tomer are you ready to take it to the top yeah all right all of you x israeli defense folks you're always making hundreds of millions of dollars so when do you hit a billion dollars in revenue yeah it's a good question i would say a billion dollar probably we need like six seven eight years something like that at work very good all right let's jump into the business so so what's the company doing are you pure play sas yeah so we are pure play sas and what we're trying to do is we think the shift of amazon created the world of a lot of direct to consumer brands and everybody's going right to consume and we think the most important thing that they need to have is their experience or their marketing effort because nobody buys a nike shoe because nike is the most comfortable shoe in the world right products are becoming commodity and it's only about like how can you create an experience to bring consumers and get them buying again and again and for that we're trying to build like an integrated marketing stack that's going to give you everything that you need in order to build the best experience for your consumers yep okay so so give me a brand i mean you mentioned thinx and some other brands in the in the bio but can you tell me a story of how one of these brands is actually using it to me increased lift or average cart price or whatever the utility metric is you're driving definitely actually one of the brands i like the most is sol digenero and it's a small brand of cosmetics that i just love the founder she's great and like the killing it and not a lot of people know about them so my favorite brands are actually when i'm telling about brand are the brands of the tomorrow like chubbies i don't know if you're familiar with them yeah man's like really cool so i think we're doing a few things one we have like four products currently our entire strategy and i'm sure we're gonna talk about it like product expansion but we started as a reviews platform okay so we really help those brands generate content from their customers think about like product reviews site reviews and then we enable them to deploy it on the website email marketing social marketing search marketing to both increase like conversion rates retention rate and decrease customer acquisition cost and we can talk about exactly how we have a integration with google shopping and we also have tons of widgets that you can put across the buyer journey to convert them better then we launch another product yeah sorry go ahead no no i want it real quick before you go to the other three products um i talked to a lot of multi-product companies and a very telling kind of question and answer is always what percent of your current paid base is currently paying and using for more than one of the products in other words how good are you at cross selling inside a product what is that number for you do you know yeah so now it's like 57 that's pretty good 47 and 42 are more than three products that's very good oh three products and more sorry three products and more well you only have four right yeah yeah you'll have more well let's come back to that yeah let's come back to that later in the show so so on average you know this because you listen to the show but on average you have companies paying for one two three four uh or even four products sometimes what's a brand gonna pay you caught per year to get started on the platform yeah so even we have a free product and a self-serving that you can start with like 29 or 19 dollars a month it's actually our best legion it's less as a revenue driver for us it's more about a collision because we believe that in commerce you have to serve the smaller players because the glossier wasn't glossier like five years ago right so we actually like to support those so on our free product we have like 60 000 brands that are using our free product so that's a been very very good for us as well how have they found the free product is this an seo player what's the play there yeah so in commerce it's not a some of it is seo but to be honest it's more about like you have a few ecosystems so the biggest one is shopify then you have magento or now adobe commerce cloud you have salesforce commerce cloud you have sap hybris you have b commerce woocommerce so what we did is we built a really really intimate integrations with those we really walk in a lot to increase presence there so from education to marketing dedicated in those ecosystems and that's like the number one i'll say another thing that's working for us really really well is the agencies currently we have a few hundreds of agencies that are deploying europe on their customers so think about like e-commerce dev or marketing uh agencies that are leveraging your for their customers so tomorrow all the revenue you added last month what percent was through your agency channel 26. okay that's pretty good now now are your margins naturally worse than that channel because you pay cake back to the agencies or no yeah yeah on the first year yeah but unroughly like our margins are like 80 and a little bit i'd say 81.82 and so like we're actually enjoying like really high gross margins so that's something that we are more than fine doing that's good okay i want to get more your back story but first so um ignoring new customers and kind of how you're using the free product to drive the lead gen the average customer you have today what are they paying per year for the platform yeah so again it's really really very the variance is really really big so averages here is like can be confusing i'll say yeah and but i will say like we look at this like two tiers or three tiers we the smbs on average are paying around 15k a year and the mid markets are paying around the 45k a year and we have a handful of enterprises we haven't started going after enterprises we have a handful that are paying like around 190. okay um okay interesting um and when you break down the revenue split between smb mid and enterprise would you say it's like you know 20 40 you know 40 or what does it look like no no no so smb is where we started and we are very very focused i will say smb is around like 50 to 60 percent okay and mid market mid market is our fastest growing part of the business but it's still of the total revenue base i would say between probably 30 to 40 and enterprise is another 10 interesting okay so you have really perfected the model of moving people from a fifteen thousand dollar plan to a forty five thousand dollar plan by cross selling products it sounds like that's your biggest growth driver right now yeah that's one and also we live in industry that we are lucky that a lot of those businesses are exploding right they're growing themselves yeah one when you look at it was public but when you look at like a kylie cosmetic right one of our customers like massive growth like amazing growth because of like their the kardashian brand so i think those businesses are growing so we are growing with them and definitely the the second driver that the massive one is the multiple product without a doubt how have you made sure to align your product pricing axes so that you can capture more wallet share as these brands grow or do you tie directly to gmv or number of skus or what is it yeah so it's a great question i don't think we like master it yet we're walking on it and i think like pricing is a never-ending uh like it's always evolving right and so i think it really depends on the product and there's some product that's like it's different so you think about like reviews it's more about like how many consumers we're gonna engage with how many consumers we're gonna send review requests photo requests etc a loyalty and referrals it's more about like how many customers are in loyalty club or how many customers did the referral and so it's we try to basically align it to usage per product yeah okay but it's generally tied to some activation metric related to the customers of kylie cosmetics how many reviews can you drive for kylie from her customers how many can you get into her loyalty program for your other product things like that so then kylie specifically not using our loyalty but again you can go back to like steve madden right let's use our loyalty and uh our reviews yeah yeah okay interesting put this on a timeline for me when you launch 2011 we launched something completely different end of 2011 like completely different we can talk about that as well then i think the first product went live like end of 2012 okay probably the real product and we started monito monetizing 2000 end of 2014 or beginning of 2015 we actually started monetizing okay and how many customers have you scaled to today so now we have around like 4 000 paying customers okay and we have like i mentioned like another 60 000 on the like three products and that they're using the platform as well so let me ask you you talked you kind of hinted here at a pivot so between 2011 and 2014 when you launched your pricing how were you paying yourself did you guys raise capital on day one yeah yeah it was the joker that i'm telling internally that we thought would be a non-profit organization until but we understood like revenue is better than raising money so yes it was based on like fundraising that we did so before 2014 before you introduced pricing how much total had you raised i think it was uh let me calculate one like 12. and then today how much total 101. okay 101. and why did this kind of business need to raise that kind of money to scale yeah so i think when you think about what we're trying to do we're trying to do a few things one like multiple product is really really heavy on engineering and so on one hand you need to create like each product right you need to develop features and to make sure that you're gaining market share and ahead of the curve on the other hand you need to continuously launch new products and you need to build a data platform so that's like really heavy on data science and engineering that's the first one and second i'll say like we are like to be like to move fast and like make big bets and be like aggressive when needed so that allows us to do that and move quicker than most and i'll say like and i'm sure you know that like an inside sales model and the targeting starting like smbs it's really usually it's like a capital intensive at the beginning and so i would say those are the mix of things but it's primarily engineering okay so how many people total on the team today yeah so currently we're around the 340 something people okay and how many are engineers we have in engineering around 100 people okay um okay so pretty health pretty healthy amount of engineers there now are they based in the states or do you have an outsourced dev team in israel or somewhere else no no so we actually founded the company out of tel aviv in israel so our largest headquarters is actually still tel aviv around 200 people engineering data science ops some of the service people some of the finance people and we have here in new york where i am based around 125 sales marketing client services we have a small sales office out of london and we acquired a company out of boston so we now have a boston office very which company in boston swell interesting yeah yeah now that the loyalty all these different product categories you're hitting are very fragmented so it doesn't surprise me that you've kind of gotten bit by the m a bug i'm sure you probably have a couple more in your pipeline yeah all right let's dive into this model you've been the inside sales model so it's rare i find someone that has a freemium product that can take sixty thousand free years and convert some percentage of them right into a fifteen thousand dollar first year acb plan so here here the here's how i wanna kind of break this down numbers wise um i wanna understand expansion but first let's do the not so fun thing so gross churn annually is about what on a revenue basis yeah so again i'll divide it i'll give you the total and i'll divide it to two segments before that it's important to say when you say like converting from freemium yes if freemium is our largest lead source but also we have a lot of customers that are starting from like 20k a year that's not just like one funnel if that makes sense it's just an important note and so i'll say i'm gross chen total our grocery now i think the last time i checked was like a 90 percent i'd say where the split is between s and b's that's around like 84 that's your way that's your attention just to be clear not your churn no yeah that's a retention not net potential growth retention yeah you're right that would be like exactly that'd be very bad business i know and the net retention oh no sorry the gross retention on mid market customers is 99 okay so yeah so so so if you so the the easiest way i find to chat about this when there's a company like yours that's very mature and you have multiple cohorts and you should split those out is to you know the reason you have revenue churn is because it allows you to ignore massive arpu differences right so if you kind of give me the revenue number there across your entire base i mean it sounds like it's probably gonna be something like two or three percent annually gross revenue churn gross revenue churn let me again i'm thinking about net retention so i'll give you the net retention we can go backwards from there yeah what's net retention across the whole business net retention across the entire business is like 95 okay and what's expansion typically across the entire business expansion revenue yeah so you can think about right we said like 89.99 it's like probably five percent of the entire customer base where mid market customers is around the the net retention is 140 on average and on the smbs is like 94 on average okay okay so if you're if your net retention across the entire base is 95 that means all 95.5 okay 95. yeah that means so so that means even though you do have a good expansion machine it sounds like you said across the entire customer well smbs it was five percent mid market it was forty percent um that means your churn on those have to be obviously greater than five percent and forty percent since your net revenue is ninety five percent net revenue retention is that right yeah and also yes and no because uh the mix of smb is much heavier on like the current customer base versus the mid market so in the mean market for example it's like 99 net retention and gross retention yeah right and on the smb it's probably like 89 yep yep yep no that makes sense okay and then so so break me kind of break down this model for me right so so what is your kind of sdr to ae to customer success what are your kind of ratios look like have you built out your performance for salesperson onboarding yeah yeah definitely so a we're big believer in the model and we really both of the founders are engineers so we like to engineer things we even engineer the go to market engine a little bit even too much i would say but the idea is like so we know already when elites come with like tons of machine that we build internally should it go through an sdr or directly to an ae or directly to someone else like you're pretty good in numbers now and accuracy so that really helps to improve efficiency from where we started to where we are today so i'll say on the mid market we try to do it like actually two to one in favor of the sdr okay and in smb it's more about like probably one to one or one to 1.5 in favor of the sdr yep yep yep okay so a min market two sdrs for 1a smb it's maybe one and a half sdrs for 180 okay that's good and then what about after the sale happens does the account executive stand on them to get them activated or is there cs rep yeah i don't know there's a csm and so on the bigger one there's even an implementation team on the bigger deals but it's mostly like 98 and you get a csm that's csm shield here helping you with like onboarding and then they help you with um sorry with uh like optimization activation qbr's et cetera do you tie the csm to one ae each or one csm handle five a's yeah so we try that uh the way we look at it is like acv per css so it's not paradise meaning we want a csm to manage between 1.1 to 1.8 million dollars yep and so that's where we are at that's an interesting yeah that's it that's okay that's an interesting way to model that so let me ask you a question if your csms drive um better than average expansion revenue on the 1.1 to 1.8 million acvs they're managing are they quota carrying do they get a part of that upside definitely that's one suggestion just like a sales person yeah interesting very cool all right good so um good that's helpful 101 million raised 340 folks on the team 100 engineers uh 95 net revenue retention founded in 2011 had a bit of a pivot in 2014 past four years five years you've grown about 4 000 customers you said your smallest customers are paying call it you know 1.7 to 2 000 per month or call 15 to 20 000 per year right yes besides the one that are in self-service that are paying like 90 a month like one nine just like uh to start with so okay so help me understand kind of mrr then from the annual customers you're right yeah we have some monthly self-service that's more of a legion and so for us they're paying like they can pay like 19 yeah so i can't take 4 000 customers times the 24 000 acv to get like a 90 you know 8 000 98 million dollar run rate right now you're below that because of your smb cohort yeah okay yes i hope next year we'll get to that number okay i mean next year i hope and and what do you think you'll finish this year at um so i i don't want to jinx it but i would say like definitely north than like much more north than 50 million dollars a favor okay and probably lower than uh 70. okay and what what are you at today and so again i want to see how the quarter ends and what they'll say we're like north of 40. okay north of 40. that's good and then what does growth look like over the past 12 months so 12 months ago what were you if you're doing 40 today what were you doing 12 months ago yeah so yeah yeah so we've been growing in the last 12 months around like 80 82 83 something like that okay very healthy very good all right let's uh let's wrap up here with the famous five number well first off any um when was the last round of capital that you raised like a year and a half a year and a half ago okay so your rate you're raising right now what valuation are you raising at no actually we're not raising are you profitable now no unfortunately we're not comfortable but we have enough a lot of money in the bank we have like around uh 50 million dollars in the bank we're burning around 1.1 million on a monthly basis your net burn is 1.1 yeah yeah that i mean good so you got plenty of runway there that's obviously a healthy place to be um are you going to use some of that caption acquisitions am i going to hear an acquisition announcement in the next six months definitely definitely we're working on it very reactively which which product line will this acquisition get bolt on to the loyalty the reviews are one of the other two yeah so i it's going to be actually we are still debating eternity if it should be like on one of the product line or a new product line ah it's more about like finding the right team of what we learned so we really try to spend as much time with the founders as possible and with the management teams i think it's more important than uh i don't know on which product line we want to bring it down yeah all right very good tomorrow let's wrap up with the famous five number one what's your favorite business book so actually there's i it's it's a new one uh it's not like explicitly a business book but i actually find it very very soon it's called like how to raise successful people and it's really really good number two number two is their ceo you're following or studying uh actually there's a few i think like i'll be here a cliche but i think ben hovitz and his journey in his company was like for me unbelievably what he was able to pull off and so i don't know if i think everybody's following him i don't know i'll call it like a super special following him but yeah number three tomorrow what is a favorite online tool you have to build your business so online tools we have a lot and i will actually say one of the things that's uh not likely maybe segment yeah it's like i think it's doing a great job number four how many hours of sleep are again every night so i have two young boys like one is a baby so uh not a lot unfortunately between uh i'll say four to six okay that's good that's good yeah and then yeah that's okay so married and two kiddos and then how old are you i'm 34. 34. very good all right last question what do you wish your 20 year old self knew yeah how important it is to be humble because everything is tougher than you think guys be humble the company yatpo launched back in 2011 went through a couple pivots now has raised 101 million dollars burning 1.1 million dollars per month but over 50 in the bank so plenty of runway as they look to scale helping e-commerce brands like kylie cosmetics scale with four different distinct product lines 95 net revenue retention annually right now again three distinct cohorts they have uh these inbound leads uh are both generated from their 60 000 folks on their free platforms via integrations with woocommerce uh bitcommerce and these other magento shopify et cetera and also folks coming direct uh into their mid market plans even at 45 000 starting acvs tomer thank you so much for taking us to the top thank you