SaaS Interviews with CEOs, Startups, Founders
1331 How CloudFlare Broke $100m in ARR Securing The Internet, No $2.5B Amazon Acquisition
17 Mar 2019
Chapter 1: How did Matthew Prince start Cloudflare?
He tinkered his way in 2010 into launching Cloudflare. Now today, you know, they've raised 182 million bucks, but more importantly is to understand, again, how they've been able to drive growth in an efficient, effective way to solve a real problem. They went from zero to 50 million bucks in their first four and a half years by 2015. Today, again, growing between 50 and 100% year over year.
And these are much larger numbers doing north of 100 million bucks per year today. Again, ARPU and the self-serve market that they've got about 100 bucks in that same cohort, less than 3% gross logo turn per month. When you go to their enterprise cohort, you've gotten well north of 100% yearly net revenue retention, which is healthy, healthy payback period.
Team of 700 folks based all around the world, again, focused on security and internet, really internet and shaping the future of what the internet looks like. 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 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 Matthew. Prince. He's the co-founder and CEO of CloudFlare.
Their mission is to help build a better internet. Today, the company runs one of the world's largest networks, powering more than 10 trillion requests per month, nearly 10% of all internet requests, and more than 2.5 billion people worldwide. Matthew, are you ready to take us to the top?
Absolutely. Thanks, Nathan, for having me on.
So my research team put in bold at the top of the notes, they said, Nathan, we read this Scott Sandell Rosewood NEA sandwich story. And you've got to clear the air quickly and ask the question everyone wants to know, which is what is Matthew's favorite sandwich since he didn't touch him that day?
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Chapter 2: What is Cloudflare's business model and revenue structure?
And so I think that while it absolutely is the case that when you're you know, there were three of us that started a business in a, in a small office over a nail salon in Palo Alto, California. So, you know, back then it would not have made sense for us to do full KPMG style audits today when we're North of a hundred million dollars in revenue, we have over 700 employees. Um,
it's the right time for you to make sure that you've got, you know, a responsible board with outside directors to make sure that you're going through accounting and the procedures that are, that are correct, that you're doing full audits and whether you're a public company or not, there's a time that you, you've got to grow up and, and sort of companies that sort of say, we're going to be Peter Pan forever.
I, I, I, I would, I would worry about what's going on behind the scenes there.
Yeah.
Well,
I have had other security companies on that are in the call at 80 to $150 million ARR range. And when I asked them the question about the pros and cons of going public, many of them will articulate one of the only big pros they see besides obvious capital is there's something about being public that communicates trust.
And in a business like security that can potentially help you, you know, land and expand and retain enterprise kinds of customers. Would you generally agree that's the one big upside? And do you, again, see any big cons to that?
You know, we haven't had... I think that that's potentially something that people say. That hasn't been something that has held us back. Maybe there would be some marketing benefit from being public. But again, I think there's actually a responsibility to an organization, to your investors, to create some liquidity.
And I also think that it's pretty amazing that you could have invested in an Apple or a Microsoft or an Amazon company As a public market investor and had there be significant upside from there, I think this sort of allergy to being a public company is a disservice to public markets generally. And I think it was probably too easy. I was a securities attorney back in 2000.
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Chapter 3: How has Cloudflare achieved significant growth in revenue?
200 to 5,000 is a big jump. 5,000 to, you know, 50,000, 500,000, you know, is a really big jump. And so it really is different segments of the business where we're trying to segment it based on the value that we're being able to deliver.
700 people. I assume they're based all over the world. I'm curious at your kind of scale, what are you, what is your direct report? What does your management team look like? How have you structured that?
Yeah. So we, you know, the, the way that you, uh, the, the variable that you, uh, turn up or turn down in order to determine how much hierarchy there is in an organization is how many direct reports, uh, can anyone have as a max? Um, you go to the Harvard business school, they say the right number is between six and seven. Um,
We tend to think that we hire people who have a little bit more self-direction. And so we think the right number is between nine and ten. I've got about nine direct reports to me. My co-founder, Michelle, is our COO. So the people who would report to me would be our head of sales, CEO. our head of security, our CTO, head of product, those sorts of folks are the people that report to me.
And again, fairly traditional organization. I think we're a little bit flatter than than some organizations because again, we've allowed more direct reports per individual than some people do.
Yep. Last question here before we wrap up with the famous five. Growing through acquisitions, you've done four. How do you think about acquisitions and is it something you're looking to ramp up? You're currently on the hunt for additional acquisitions that make sense.
I would say that every acquisition that we've done, the first and foremost question is, are there individuals and real talent here who we feel will be able to contribute to the team, fit in with our culture, and that would work out. Most of the acquisitions that we've done have been Aqua hire types of acquisitions.
I think we've done two that have had a little bit of a technology component to them. But again, still very, very small teams, 10 or fewer people as part of that. Nothing so far in order to grow revenue. So I think we're always looking for smart, fully formed teams that we can kind of bring in and that they can then very quickly ramp up
And, you know, there's sort of two different ways that you can do technology acquisitions. I think the challenge with most cloud companies is we're so tightly coupled that it's really difficult to take an outside product and have it naturally fit into our ecosystem.
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Chapter 4: What is the significance of Cloudflare's valuation and funding history?
have at CloudFlare. Founder Matthew Tinker, it's important. He tinkered his way in 2010 into launching CloudFlare. Now today, they've raised 182 million bucks, but more importantly is to understand, again, how they've been able to drive growth in an efficient, effective way to solve a real problem. They went from zero to 50 million bucks in their first four and a half years by 2015.
Today, again, growing between 50 and 100% year over year, and these are much larger numbers doing north of 100 million bucks per year today. Again, ARPU and the self-serve market that they've got about 100 bucks in that same cohort, less than 3% gross logo turn per month.
When you go to their enterprise cohort, you've gotten well north of 100% yearly net revenue retention, which is healthy, healthy payback period. Team of 700 folks based all around the world, again, focused on security and internet, really internet and shaping the future of what the internet looks like. Matthew Prince, thank you for taking us to the top.
Thanks for having me on.