How SecurityScorecard Grew from $70M to $130M ARR with 2,800 Customers and Cash Flow Positive Operations (Interview with CEO Aleksandr Yampolskiy)

Introduction and Revenue Growth Overview

Nathan Latka

00:00You've seen one of their free reports or use them in a PLG motion. We're gonna dive into the full growth story today, potential IPO plans, net dollar retention, revenue growth, and more. Please help me welcome to the stage, Aleksandra Yapolsky from Security Scorecard.

00:15Good to see you, man.

00:16>> Good to see you.

00:16It's been way

Aleksandr Yampolskiy

00:17>> too long. Great to see you.

Nathan Latka

00:18It's been way too long. Do you remember that photoshoot from the the last time we were in your office? That was fun.

Aleksandr Yampolskiy

00:23>> I remember the photoshoot. It

Nathan Latka

00:25was a

Aleksandr Yampolskiy

00:26>> lot of fun, and I think we went and played first ball.

Nathan Latka

00:27You kicked my I know you just set me up. You wanted me to tell you everyone, you kicked my butt, but that was great. So we we interviewed you back in 2022 already. So just the quick sort of sound bite, and then we'll go back into the full story. Growing from $70,000,000 to a $130,000,000 of revenue, did it come from adding new customers, or was it expanding current accounts more?

From $70M to $130M ARR: New Customers vs. Expansion

Aleksandr Yampolskiy

00:47>> Both.

Nathan Latka

00:48I knew you gonna pick one.

Aleksandr Yampolskiy

00:49>> If it what came drove more growth?

00:51>> So a big focus for us today is expanding new customers because what we do is we pioneer the concept of how to quantify cyber risk. We built a platform just like credit scores. Our security scores are used by over 2,800 customers worldwide, nine of the top 10 banks, governments in 46 different countries, insurance companies, but the average deal size is about 30 to 40 ks. Okay. Right? So a simple math is that if we help 10%

01:24>> of our customer base better operationalize a product and really adopt it to manage their third party's report to the board, we're going to double our revenue without acquiring a single customer. So upsell and providing more value to existing customer base is a big focus.

Company Background and What SecurityScorecard Does

Nathan Latka

01:39Yep. Well, let's get into the backstory. It's not gonna be twenty minutes. It's gonna be over the eight minutes, so we'll talk fast. But talking about your focus on customer success and growth there, your experimentation framework, which is great based off a book. We'll share the book in a second. Then we'll wrap up with what you view as a CEO's job and how you've capitalized as well. So jumping into sort of customer focus, just for people

01:59to understand what you do today, help us understand where you're at, how you got there. You can spend a minute on this.

Aleksandr Yampolskiy

02:04>> Sure. Well, I was a chief security officer at Guild Group, and before that worked at companies like Goldman Sachs, Oracle, Microsoft. And I saw a big, big problem, like a big epidemic that's only getting worse. We're all interconnected to each other. Everything is moving to the cloud, yet you have absolutely no idea how secure your information is if you upload it to Dropbox, or if you store code on GitHub or you send your paperwork to a

Origin Story: The 2014 Napkin Sketch

Aleksandr Yampolskiy

02:29>> law firm. So we pioneered a way to measure and quantify risk from outside, and we built a software. The idea appeared in 2014 was, in 2014 just a sketch and a napkin, zero customers, two people, zero revenue. And, we created a new industry to measure and quantify risk all the way into today where 70% of the Fortune one hundred uses us.

Nathan Latka

02:51As a paying customer.

Aleksandr Yampolskiy

02:52>> As a paying customer, about 500 employees, 70 of Fortune one hundred are gonna probably finish this year between one thirty to one forty million ARR.

Nathan Latka

03:02Did you personally code the original MVP?

Aleksandr Yampolskiy

03:04>> I wrote the original MVP, and my development team was still complaining about the code that I wrote and trying to eliminate it for the past ten years. So in hindsight, they should not have written the first code.

Experimentation Framework: Big Flops and Big Wins

Nathan Latka

03:16You won that war though. It still works. It's still there. Now this is what website looks like today, just so you guys can all get your bearings on what they're offering. Again, you maybe have seen their their reports floating around in terms of the PLG bottoms up motion. Revenue growth goes like this, and you've gotten to this point using and you call it your sort of your experimentation framework. So let's spend about a minute and a

03:36half on this framework. Help us understand what we learned from these two tests.

Aleksandr Yampolskiy

03:41>> Look, the big lesson in the past ten years is that ideas we thought were good ended up being bad, and I and many ideas we thought were bad ended up being good. So on the right, that's the big flop that I was proud of, but I had this idea that we need to build a new functionality for insurance companies to look at concentrated risk. If you have multiple companies storing your data, how do you look for

04:05>> similarities if everybody is hosted on that? So we took a 10 person team, four months, cost us millions of dollars to build the feature. And then I didn't bother training the sales team. I did not bother marketing, did not add a single dollar of revenue, even though when I was starting this, I was so sure it's gonna be a differentiator for us. On the left, one of our developers at the time, that was back in 2016,

The Free Report Widget That Became a Lead Gen Engine

Aleksandr Yampolskiy

04:30>> who's now founder and a CTO of his own company. He said, you know what? I'm gonna code up a widget where somebody can go to your website, put in a URL, and I'm gonna send you a report with your score. Like, literally, nobody asked them to do it. He just did it on a weekend, and that became one of the lead leading legion mechanisms for us for multiple years where people wanted to find out the score.

Nathan Latka

04:52How many people have downloaded that report?

Aleksandr Yampolskiy

04:53>> Oh,

Five by Five by Five Experimentation Framework

Aleksandr Yampolskiy

04:54>> I mean, there's over 80,000 companies who downloaded this report. And so the point is most companies overvalue great ideas. Cheap, quick experimentation always beats great ideas, and that's the culture you wanna build. And a simple framework that we use that was actually, it's a really boring, horrible book, but I'm gonna summarize for you the whole idea

05:17>> of Hold on.

Nathan Latka

05:18Should they buy the book and just read

Aleksandr Yampolskiy

05:20>> No. Just Google it. And Google it. Mike Schrag is actually our adviser. We've been working with him for a long time, but here's the idea. Five by five by five. Take five people, five days, $5,000. If somebody tells you it's gonna take me two months to build a feature, I'm like, okay, how do you do it in five days? They're gonna give you a blank stare and say it's impossible. I'm like, okay, maybe you can mock

05:40>> it up. Maybe you can send it to 10 people, see how many people download the report, and either prove or disprove hypothesis. But we really adopted this experimentation framework in every team, technology, product, marketing, sales, because it really starts driving agility and, you know, failure should be exciting if it's done in small increments. And so this experimentation was quite crucial for us over the ten years.

Funding Story and Cap Table Overview

Nathan Latka

06:04Let's jump into part two, CEO job and capitalization of the business. So let's talk first on capitalization. Obviously, you have quite a funding story. Again, we had the privilege of getting up, and I actually took a snippet here of the magazine. It was great putting on the cover. This magazine sold very well, by the way. So you have a second career if you ever wanna go looks. We'll flip to the your story here, and what you'll

06:22see when we once we get to the feature story here on security scorecard of the point, $71,000,000, a billion valuation, and you told me I had 200,000,000 cash in the bank. That was the foosball table where you kicked my butt. We built your everything graph up there on the upper right talking about specific product launches. And on the next page in the bottom right, you were kind enough to talk to us a little bit about how

06:42you had the equity structure, which again, we always publishes in the magazine, a lot of good data in there. I wanna talk about that cap table, that pie chart a little bit because the theme, right, folks are thinking about how do they capitalize the business. You did your first round in 2014, 2,000,000 on 6.2 post. Let me just ask you this. Looking back at the seed all the way through the series, do you any regrets about

07:02how you structured any of these deals or the timing?

Seed Round Structure and Valuation Discipline

Aleksandr Yampolskiy

07:05>> So the one thing that I really was careful and the previous speaker spoke about it, make sure to the valuation matters a lot less than all the other things you negotiate. The one x liquidation preference, the control and the structure of the board, very, very important. You know, if you start agreeing to higher valuation because of some bells and whistles, participate in preferences and coupon mechanisms, you're kind of screwed, especially in this environment. So, what I'm

07:33>> very proud of is that we never really took a crazy valuation. We always made sure that we have good composition and control of the board to this day. Very, very important.

Nathan Latka

07:43But with the board, how many today? Five people? Seven? Three?

Aleksandr Yampolskiy

07:46>> There should be more. There are about seven seven, eight people on the board, and it's an even split. Common and preferred is an even split along with independents. But make sure you retain board control. That's very important. Otherwise, you'll get fired as a founder regardless of whether you're doing a good job or a bad job, by the way. If it's your baby, you want to control the company.

08:09>> Sure you don't agree to any crazy kind of coupon, participate in preferred structures, and be careful who you partner with. The best investors are not going to bother you. They're not gonna help you. Nobody's gonna help you. You're in by yourself no matter who promises what to you. But the worst investors will actually give you better advice and and really create more headache for you. So I'm quite proud that we

Board Composition and Founder Control

Aleksandr Yampolskiy

08:30>> did a good job.

Nathan Latka

08:31When you launched, did you and your cofounder, did you split equity fifty fifty at the start, were you majority?

Aleksandr Yampolskiy

08:36>> I was a majority shareholder.

Nathan Latka

08:37Okay. Because your idea Yeah. Yeah. Okay. Got it. Like, significant, like, 70%, and he was thirty

Aleksandr Yampolskiy

08:42>> Eighty twenty.

Nathan Latka

08:43Eighty twenty. Okay. Fair enough. Well, then all this is gonna be wrong. Alright? Because you didn't own 50% of the store, you owned 80, but people can just increase this by what is that? 25%. Multiply by 1.25, the green column, you'll get to sort of Alex's stake. I mean, when you look at these, I just

Aleksandr Yampolskiy

08:57>> That's an embarrassing situation to start showing my net worth in

Nathan Latka

09:00>> front Well, it's okay.

09:00People, but it's all public.

Aleksandr Yampolskiy

09:01>> It's all public.

Nathan Latka

09:02It's important. This is how you have to learn. Right?

Aleksandr Yampolskiy

09:04>> That's SaaS

09:05>> I mean, it's actually more than that because, look, as a founder, if you stay for a company for a long time, a lot of the time, the founders feel that they need to be slaves to the idea. The simple argument you need to make with your board if you're fully vested is, look, if you had to go recruit an outside CEO, you would have to pay what, 4%, 57%? So if you're doing a good job and

09:24>> you're fully vested as a founder, regardless of what you have, you should have skin on the game and you should have additional vesting stuff. Otherwise, you can just leave and go start the next stuff. So, yes.

Nathan Latka

09:34You'll you'll and your your your that little italic text you see below my chart I put together is exactly what Alex is talking about, which is we assumed no new ESOP pool being created at each round, and we assumed the start was fifty fifty. Now what you're saying is obviously, you had more than fifty fifty at start, and it sounds like you've got a new ESOP pool established at each round.

Aleksandr Yampolskiy

09:52>> Correct. Every round, we establish and we re up

Founder Equity Split and ESOP Strategy

Aleksandr Yampolskiy

09:57>> all of the top performing executives and the people who don't perform or do an average job, we get rid of them very quickly. And then I do think it's actually a huge mistake to have a fifty fifty split with your founder when you start a company because even if it's 50 oneforty nine, somebody needs to be in charge and control the board. I'm an investor. I'm an angel investor into about 23, 24 different startups at different

10:19>> stages. And number one reason why many companies fall apart is founder conflicts. So make sure

Nathan Latka

10:26Founder confidence?

Aleksandr Yampolskiy

10:27>> Founder conflict.

Nathan Latka

10:28Conflict.

Aleksandr Yampolskiy

10:29>> Yeah. So make sure you really love kind of your cofounders. So And the same for your exec team. You need to be on good terms. You need to enjoy presence of your exec team.

Nathan Latka

10:38So my conservative modeling puts you at current ownership around 10%, but true or false, you figured out a way to get above that by being smart as you've negotiated?

Aleksandr Yampolskiy

10:47>> Yeah.

Nathan Latka

10:49Round round of applause for being transparent. Yeah. That's good. We have to encourage good behavior. You know, this is very helpful, but I thank you for being open. You're really gonna hit the next slide.

CEO Job: Founder Mode and Hiring Philosophy

Aleksandr Yampolskiy

10:58>> And look, on the CEO on the job of a CEO, there was a good article that came out about founder mode that some people read by Paul Graham, resonated a lot, I think, with all of us. Look, I think like many articles, I think there's a lot of truth to it, but one big advice, do not listen for advice from people who've not done your job. That's my number one advice. It doesn't matter if you have

11:20>> an investor from Sequoia or Andreessen. We've taken money from top investors, including Sequoia. It doesn't matter if you are a board member as a billionaire or this or that or have been on the board of Oracle, Google, etcetera. If the person has not done the job, take any advice with a grain of salt. Any generalization has lots of limitations. For example, I hired just like in that article. My worst hires were polished executives with Amazon, Google.

11:46>> They would come in. I start micromanaging. They would tell me, I'm a terrible CEO, and then I leave them alone for three months and they fuck everything up. And then I have to fire them and I get more bad Glasgow reviews. And then reality is it actually matters. It's called situational leadership. It's not micromanagement. The situations where you trust but verify, and you dig in, and you give very specific tasks. But the best thing for us

12:11>> that worked really well is hiring up and comers with a chip on a shoulder, and we really got very sophisticated about how to screen for talent. We actually have a psychologist who interviews he used to be coached to Steve Jobs, actually, and Larry Ellison, but he interviews every VP higher and above, and I get a 40 page report on what does a person like, not like, culture, curiosity. So the job, I think, of a CEO is

Talent Screening and Culture Fit

Aleksandr Yampolskiy

12:36>> to be the main provocateur. Like, you don't want to go solve the problem for all the people, which is your superpower as a founder, but you want to make sure people are curious. If they're not curious, they're probably wrong people. The

12:51>> average tenure of my team is people stayed for a while. There are people who've been with me for five years, people who came back, but screening for culture fit up front has been one of the most important things I'm proud of that we've done in the past couple of years, and it really changed the trajectory by being very sophisticated how you screen the talent.

Nathan Latka

13:11Guys, in summary, past ten minutes, we touched on customer focus driving that growth from 70,000,000 of AR to one thirty, which is impressive. We talked about the experimentation framework

Aleksandr Yampolskiy

13:19>> And cash flow positive, by the way.

Nathan Latka

13:21On cash flow positive

Aleksandr Yampolskiy

13:22>> growing on a cash flow positive way.

Nathan Latka

13:23Well, I do have one quick I remember when I was in your office, you said it'll be was kinda off the record, but I can make it on the record because it's old now. You're like, you know, we're looking at, you know, maybe IPO ing right now. You ended up not I kept watching the news. No IPO. What happened?

Cash Flow Positive and IPO Plans

Aleksandr Yampolskiy

13:34>> Well, you're not gonna go away. Well, right now, if you look at threshold for IPO, you're at, three, four hundred million.

Nathan Latka

13:40So the bar

Aleksandr Yampolskiy

13:41>> just moved. So the bar just moved.

Nathan Latka

13:43So I mean, look, we're actively looking at tuck in acquisitions. We're going to do this year 01/2030, 01/1940. Next year, we're probably going to grow at 25, 30%.

Tuck-In Acquisitions and Growth Outlook

Nathan Latka

13:54You're buying when you say tuck in, you buying other companies?

Aleksandr Yampolskiy

13:56>> Yes. So we're gonna grow organically at 25, 30%, and we're gonna look actively at tuck ins as well at $2,040,000,000 era range. So I think there's lots of interest and opportunities ahead.

Nathan Latka

14:07Yep. Well, guys, heck of a story. Super transparent. He'll be around more for lunch again. Got Launched the MVP to the detriment of his other engineering team, but it got the job done. Quick experiments like the job reports or the report and security report ended up bringing in 85,000 leads. The company has turned those leads via multiproduct suites sent to an average customer value of $23.24, $25,000 per year. Now sitting at a $130,000,000 of AR with

14:30plans to grow to another $140,150,000,000 bucks in the next call at six to eight months. We're certainly rooting for

Aleksandr Yampolskiy

14:36>> you 40 in the next few months.

Nathan Latka

14:37Even a shorter period. Always faster growth for this guy. Guys, give it up for Alex at security scorecard.

Aleksandr Yampolskiy

14:42>> Hey. Thanks.

Nathan Latka

14:43That was awesome. You're always great. Thank you so much.