SaaS Interviews with CEOs, Startups, Founders
1323 How FinTech Company Wave Is Deploying $100m in Capital, $25m+ in ARR
09 Mar 2019
Chapter 1: What is the main topic discussed in this episode?
very interesting company wave apps. Again, another great example of one of these folks using kind of a freemium model. We've had a lot of these people on Congo came on same kind of model. It's really interesting. Get postman also doing it. We've had a plebo came on 70,000 customers, freemium model. Another good one to study here. I got launched in 2011 in the financial technology space.
really serving small business owners. That's it. They currently have between 10,000 and 100,000 paying customers, paying $70 a month, growing 80% to 100% year over year, hoping to hit $50 million in ARR by the end of the year in 2019. Less than 2% logo churn per month. Really hard to do in this space. Super healthy. That's because they understand the activation metrics.
Chapter 2: What is Wave and how did it start in the FinTech space?
Paying less than $70 to acquire a new lead that they're confident will convert definitely before 24 months of using the platform. Team of 200 people based mostly in Toronto and other remote locations. This is the top entrepreneurs podcast where founders share how they started their companies and got filthy rich or crash and burn.
Each episode features revenue numbers, customer counts, and other insider information that creates business news headlines. We went from a couple of hundred thousand dollars to 2.7 million. I had no money when I started the company. It was $160 million, which is the size of many IPOs. We're a bit strapped. We have like 22,000 customers.
With over 5 million downloads in a very short amount of time, major outlets like Inc. are calling us the fastest growing business show on iTunes. I'm your host, Nathan Latka, and here's today's episode. Hello, everyone. My guest today is Kirk Simpson.
He's a serial entrepreneur and co-founder and CEO at a company called Wave, which he's led to nearly 3.5 million small businesses registered with 100 million in funding raised from investors around the world. He believes in giving back to the tech community as a mentor and an angel investor. Kirk, are you ready to take us to the top? All right, let's go. All right, very good.
So FinTech is obviously hot. There's a lot of companies kind of pushing the $80 to $100 million ARR range. Expensify comes to mind. I just had the Venna folks on, which is doing top-down ERP solution-related things. You're in the space too, but it sounds like going after SMBs. Tell me what you do and how you make money.
Yeah, so first of all, we actually, we don't love the SMB title, because in some ways, if you look at the US census, that's anywhere from businesses with one employee to 500. We think there's massive differences in how those businesses operate. We like to call we're going after SB small businesses, zero to 10 employees under $2 million of revenue.
Most people aren't aware about 95% of all businesses in North America are in this size. And we're aiming to give them better financial management tools. We give away our invoicing and accounting software 100% for free. And then we monetize by putting payments, payroll, lending, offers, et cetera, in the application and get those deeply embedded into what the small business owners are doing.
And you're owning all these different things. I mean, look, I look at a company like Cabbage, they do one of those things and they have 5 billion in loans outstanding. Do you integrate with them or you compete directly with them in different spaces? So we've done the partnership route. You know, our payments business, for instance, was built on top of Stripe.
We get to a point of scale and quite frankly, our users want us to deeply integrate it. And so most of this stuff over time, we've been building ourselves. And again, the goal there is no small business owner wants to be doing this stuff. They're not passionate about accounting or invoicing or payments or all that kind of stuff. They're passionate about their business.
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Chapter 3: How does Wave monetize its free services for small businesses?
And tens and tens and tens of thousands are paying us every month. And I won't go much deeper than that. And our opportunity, I gave you the sign-up number. So lots of people at the top of the funnel. We just got to continue to rigorously push on driving more and more of them into an active state. Yep.
So when you say tens and tens, basically minimum 10,000, maximum 100,000 in terms of paying folks, you have in the hundreds of thousands that are actual users on the platform. So there is some freemium component to this. Yes, 100%. Yeah.
And the interesting thing that we see, Nathan, is that we'll get some people to be paying in the first month, and then we'll have others who are using the free platform for 24 months and on the 25th month convert into pay. Yeah. And so we see... we see a real long tail in terms of adoption and we're okay with that.
You said, you said, sorry, 24, it might take 24 months for the conversion to happen. Yeah. I mean, we see a real long tail on that. Yeah. Which is fine though, because your CAC is not super high, right? So you can afford to give them the time. Correct. Our CAC is very, very small. Yeah. Like the, do you optimize that for like, you know, one month R so 70 bucks or less or even lower?
Uh, we see it much lower than that, to be honest. Um, and, and the reason for that is because of the offering, the way that we've, um, we've been rigorous in our click rate optimization on our homepage and that kind of stuff. 85% of our signups are coming through organic unpaid channels. Well, but, but, but do you have an SEO or content team? Like, are there other things touching that? Yeah.
Although we're relatively new into content, uh, we've always done well on SEO. Um, Um, and you know, more and more, we're seeing the CAC to LTV be in a place where we can really double down on paid spend in the right channels. Uh, all of that sort of put together drives towards that 80,000 a month mark.
Kirk, at your, at your sub, at your sub 2% gross logo term per month, you can get lifetime values that start to lie to you pretty quick. You could argue for, you know, unlimited on some of these accounts where there's expansion revenue and things. How do you keep yourself honest on what lifetime value is?
Cause ultimately you're, you just said you're using it as an indicator to dividing by three to go back to what you're comfortable with on CAC. Well, the first thing is, is that, you know, with, with a lot of our, um, a lot of our revenue being in the payment space, we need to be honest about our, with ourselves about what gross margin is, right? So we look at gross margin LTV.
So that's the first thing. Very, very important, right? Very few people come on the show and explain this. So I want you to give you a second to explain that actually math equation for that. Yeah, for sure. So essentially in our business, because we're paying out to Visa and MasterCard and Amex on our payments revenue, it's important to not look at the gross revenue, but instead to the net.
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Chapter 4: What strategies does Wave use to maintain low customer churn?
We want to use it to preload it with an answer to a whole bunch of questions. And it's been, it's been working amazingly well for that. So we've actually been pushing them to allow usage of that tool in a new way that they hadn't even sort of brought forward to this day. And we're finding it's working really, really well.
And new, new folks landing on the website, these small business owners, they don't call, they don't call you on that and say, this is a, this is a robot. I don't want to do this. No, in fact, but I think the key thing is we make it clear it's bought. So you're pretending it's something else. I think there's an issue. We make it a hundred percent clear. This is a bot.
This is to answer your key questions. If you need help click here, we'll, we'll answer them. Um, but it, you know, the, the amount of them that are going from the bot into wanting to interact with a human is very small. Got it. Number four, how many hours of sleep do you get every night? Uh, depending on the day, five to eight, I would say.
And I would add in one other thing, which is, you know, if I could tell myself something two years ago, three years ago, I've been getting up and doing a bootcamp three days a week now at like six in the morning. And it's the best thing I've ever done. What is, well, and what's your situation, married, single kids? Married, I'm 44. I got three kids, 13, 11, and eight.
And I used having kids and the busyness of that, let alone the business to justify not working out. And I changed that a couple of years ago and it's been a game changer for me. I love that. All right. Last question. What do you wish your 20 year old self knew? Learn to code. Quick, didn't even hesitate. Learn to code right out of the gate. Guys, there you have it. Very interesting company.
Wave apps, again, another great example of one of these folks using kind of a freemium model. We've had a lot of these people on. Konga came on, same kind of model. It's really interesting. Gitpost, man, also doing it. We've had Plebo. came on, 70,000 customers, freemium model. Another good one to study here.
Again, launched in 2011 in the financial technology space, really serving small business owners. That's it. They currently have between 10,000 and 100,000 paying customers, paying 70 bucks a month, growing 80 to 100% year over year, hoping to hit 50 million bucks in ARR by the end of the year in 2019. Less than 2% logo churn per month, really hard to do in this space, super healthy.
That's because they understand the activation metrics, paying less than 70 bucks to acquire a new lead that they're confident will convert. And definitely before 24 months of using the platform, team of 200 people based mostly in Toronto and other remote locations. All right, guys, there you have it. Kirk, thank you so much for taking us to the top. Thanks for having me.
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