SaaS Interviews with CEOs, Startups, Founders
1337 How RedisLabs Scaled to $60m+ in ARR More Efficiently than MongoDB
23 Mar 2019
Chapter 1: Who is Ofer and what is his background?
Hello, everyone. My guest today is Afar Bengal. He's the co-founder and CEO of a company called Redis Labs. Before that, he was a serial entrepreneur who has founded and led several companies in the areas of data communications, telecommunications, internet, homeland security, and medical devices.
He was the founder and CEO of RIT Technologies, which is now in the NASDAQ at RITT, a provider of highly sophisticated telecommunications and data communication systems to major corporations. world carriers. He began his career as an aerospace engineer in the Israeli Air Force and then built his own aerospace engineering consulting firm.
As a hobby, he's also invented, developed, and licensed toy concepts to companies such as Milton Bradley, Hasbro, and Tommy. Afar, are you ready to take us to the top? I'm sorry, I didn't hear you so well. I said, are you ready to take us to the top? Sure. We should end this right now. You don't sound very excited. Say again? I said we should end this right now. You don't sound very excited.
Shall I start dancing? No, I'm kidding. Okay. Tell us about the company. What does Redis Labs do and what's the revenue model? How do you make money?
So we are a database company and, you know, the database wealth has changed a lot in recent years after being sort of very conservative and stagnant for about 40 years, you know, since the beginning in the mid seventies with companies like Oracle, IBM, Microsoft, et cetera. In the Last 10 years or so, the market is open for new type of databases, which are called NoSQL databases.
And you have companies in this space, such as MongoDB, which went public about eight months ago, DataStax, Redis Labs, and some others. This company started about seven years ago around something else, as many startups do. The basic idea was to accelerate the performance of applications, and we did that by building a caching system.
When we did that, we found an open source, cute open source by the name of Redis, which was started by an Italian guy out of Sicily, a guy by the name of Salvatore Sanfilippo. And he started it as sort of, you know, half hobby, half for something that he built for Telecom Italia. And he put it as open source.
And we found it and we thought, hey, you know, this is great as the engine under the hood for what we were doing at that time. And after a year, we saw that it's picking up in the market. And this was 2012 offer? This is basically around 2012. Yeah, we started in 2011. A year after, we saw that Redis is becoming so popular as an open source that we better do something about it.
And we decided to become a Redis company. So the original name of the company was something else. Then we became Redis Labs. And from that on, and later on, Salvatore joined the company as lead open source. And today we do basically everything development of the open source and what we call Redis Enterprise, which is our commercial offering. Which is kind of what you upsell, right?
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Chapter 2: What does Redis Labs do and how do they generate revenue?
We think it's not good. So this is a fully automated system. We have, you know, we manage over hundreds of thousands of databases. Across how many clients? Well, we have today approximately 8,500 clients. enterprise clients and approximately 100,000 free customers on our free tiers. And all that is managed by five DevOps. So that's all. And what's the total team size today?
So we have approximately 200 people in the company, a little bit over than that. This is going to grow to 270 towards the end of the year. It's basically half and half, half in Israel, which is R&D, and then all the rest, headquarters, Sales, marketing, and everything else is in Mountain View, California. It sounds like a good split there. And give me a sense, too.
So these people that pay you, right? It sounds like you're approaching this from an enterprise space. You talked about 10 Fortune 100 or Fortune 500 companies using you guys. But you have 8,500 customers. So there's a long tail here happening. What's your core focus? Kind of the long tail or the enterprise? Enterprise, absolutely. And just to give you some names of customers.
So, you know, we have customers from all verticals. So in banking, we have American Express, Charles Schwab, Wells Fargo. In financial services, we have MasterCard, Visa, Intuit, Pfizer. E-commerce, we have Walmart, eBay, Starbucks. In social, we have Twitter, Twitch, Shutterfly. In media, we have MSN, DreamWorks, The Martin Fool. In advertising, we have Havas, Revmob.
In technology, we have Apple, Cisco, Dell. Communication, Comcast, AT&T, Verizon, Vodafone, and so on and so forth. I can give you many, many names like this. So I'll offer, sorry, let me ask you, go ahead. I was gonna say, let me re-ask my question, right? So I get it, you work with enterprise customers, that's clear.
But if I forced you to not, you could go down every customer cohort, but if I forced you to just give me like an average, what would you say the average customer pays you per month or per year for this database as a service? So, database as a service is our long tail where we have, I would say around $1,000 per month. I'm sorry, per year.
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Chapter 3: How did Redis Labs evolve from a caching system to a database company?
And then when you go to the software side of the business, which is larger, we are talking about, if you take the overall average, it's around 60K per year. If you are talking about Fortune 100 customers, it's around 300K per year. That's the average. Obviously, we have customers paying millions of dollars per year. Yep. No, that makes good sense.
Now, if I take $60,000 per year price point monthly, that comes out to about five grand a year. And you just said you have 8,500 enterprise clients. If I multiply 8,500 times five grand a month, that would put you at 42 million a month. Is that accurate? How did you get to that again? I'm just using your numbers.
You just said you had 8,500 customers and you said the average contract value is $60,000 a year, which comes out to $5,000 a month. So $5,000 times 8,500 customers would put you at about $42 million per month. Let me put it straight. So we have 8,500 customers. Out of them, approximately 250 are software customers, and these are the big enterprise customers.
The service customers are much smaller. Okay, got it. So the service customers are the ones that you said were closer to the $1,000 a month versus $5,000. Exactly. Oh, I see what you're saying. Okay. Got it. Good. So, so enterprise, you have 8,500, just to summarize that you have 8,500 total paid customers of which 250 are enterprises with an average ACV of call it 60.
The rest call it a 200 are more around a thousand bucks a month, something like that. Yeah. I see. Okay, good. So look, if I add up the same thing, I can add up kind of those two revenue streams to put you at a revenue kind of monthly recurring right around the $9.4 million mark. Is that more accurate? Uh, it's, it's more accurate. We are not there yet. I mean, we are getting there.
Uh, we are not when we are not there yet. When will you pass it? Do you think what's your goal? I'm sorry. When do you think, when do you think you'll pass 9 million a month? What's your goal? That will be approximately a year from now. Oh, great. That's good. So what's the, what growth rate are you looking at today? Year over year. So the company is growing approximately 60% year over year.
And, uh, you know, uh, we are building the company to become a major software or major database company. And we think that in order to do A nice, sizable IPO, we need approximately two, two and a half years. Yep. Okay, that's great. I want to talk more about kind of the story in terms of how you're signing up these customers. You just listed very impressive customer lists there.
Before I do that, your goal again next year is to hit $9 million a month in revenue. Give me a general sense of where you're at today. Well, you know, we are not sharing numbers because we are a private company. But, you know, I think that if you take what I said about being approximately two years away from IPO, you can get a very general sense of where we are.
Well, if you said you said just a second ago, you're generally growing about 60 percent year over year. So if your goal a year from now is to be at nine million, I could kind of say, OK, well, if his goal is 60 percent growth to get to nine million, then he's probably somewhere around call it six ish right now, six million per month. Is that accurate math?
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Chapter 4: What are the deployment options offered by Redis Labs?
And I can come up with more. Yeah, no, that makes good sense. Walk me through. So you broke down your team earlier, 200 people. You split between Israel, Mountain View. Israel is mostly R&D. Where are you scaling right now? Are you employing like an internal sales team? Are you growing your sales operation via your inside sales team? Yes, well, our field sales operation is growing constantly.
And this is where, you know, most of the growth in terms of HR headcount comes from. And, you know, the idea is that I would say 60, 70% of the growth in headcount in years to come will be in sales stuff. And the rest is, you know, R&D product and other things.
Now, Alfred, it's, you know, a lot of people, you know, they scale their inside sales teams too early before they have a lot of confidence in their unit economics. You have a big enough cohort where I'm going to bet you have some confidence there. So talk to me about some of the unit economics on these customers, which relates to obviously how you incentivize a sales team.
For example, churn is critical in a SaaS company. What's your churn today? So churn is relatively low. You know, we are talking about a single digit churn. And that's annually? Annual. So less than 10% logo churn annually? Less than 10%. Moreover, our expansion is very good. So in any given quarter, half of our growth comes from expansions.
And if you look at cohorts, et cetera, so typically a customer doubles its expenditure in two years, in 24 months. Which is pretty good. So, you know, we feel that the, you know, the economics of the business are, you know, are strong.
So if you take that back and you look at maybe a number that encapsulates all of that, which is net annual revenue retention, it sounds like you're above 100 percent. But how far above 100 percent? Not sure that I can answer that. I have to check. Okay. What do you mean by that? Like you're not sure what that number is or it's not something you measure? I'm not sure about the term. Oh, I see.
I see. So in a given year, you lose some revenue, but then you drive expansion revenue as well. So let's say you lose 5% of your revenue, but you grow accounts by 25%. Well, the growth of 25% minus the loss of 5% would put your net annual retention at 120%. Yeah. So, you know, what I'm saying here is that in terms of, this is what we call net expansion, basically. Net expansion. Okay.
So I'm assuming you guys are above 100%. I'll have to take another look to get the right numbers, so just ignore. Well, do you know, generally speaking, I mean, 100% is a target a lot of people go for. Do you know, generally, are you above or below 100? I think that we are better than that. Yeah, yeah.
That would make sense if you're doubling customer accounts every two years, assuming your churn's not super high. Very good. Well, but you can have, just to be clear, sorry, the reason I asked about churn again is because you said you have 10%, less than 10% logo churn annually, correct? Yes. Yes. Okay. But if you're churning.
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Chapter 5: How does Redis Labs manage its customer base and what is their team structure?
Yes. I see, I see. Okay, very good. What about, again, spending to drive growth? How aggressive are you being in terms of your payback period? In other words, how much are you willing to spend to acquire a new customer? Again, you know, these are numbers that, you know, we are not sharing at the moment. And to be honest, you know,
Some of it we are not tracking at the moment because we are in a very aggressive growth period. But Offer, that's more reason to track it. If you're scaling an inside sales team and you don't know what your payback period is, that would be very, very nerve wracking from an investor's perspective. So first of all, you know, we do not rely on inside sales.
I thought you just said you're scaling an inside sales team. No, no, no. I said we are scaling our field organization, reps, reps organization. Okay. Talk to me. Talk me through the difference there. How will these reps work? So these reps work the old way of, you know, knocking on doors, talking to the customers, convincing them to buy, maintaining the relationships and so on and so forth.
And when you talk to such big customers as we do, there is no other way. You cannot do that with inside sales. Inside sales is more for the long tail, small customers. When you talk to these giants, You need to be in constant contact with them.
You need to be, you know, with contact in many different, you know, dimensions with solution architects, with salespeople, with finance and many other, you know, many other departments within those companies. Great. So Offer, if we use your term, which are field reps, right, you still have to have some math around.
It's going to take four meetings over a year to close a $100,000 per year customer. So if I hire a new rep, it's going to take them six months to get on board and I have to feed them 20 leads per month. That's what I mean by economics, right? So that's then how you get payback. Do you have that stuff modeled yet or are you confident in it? Not yet. Okay, so that's what I'm saying.
Earlier, you said you're driving a lot of growth. I said your team size is just 200. You said, yeah, it'll be 270 by the end of the year. And most that's going to come from hiring these reps, but you don't have it modeled yet. I'm trying to understand where you have confidence in that model working for you if you don't have it modeled.
You know, we look at, you know, what we are doing versus other companies. So just to give you an example, you know, we, this company so far raised $78 million. Okay. And if we go to the market again before an IPO, and we haven't decided yet, we will probably raise not more than $50 million, which will sum the total investments at around 130, okay?
If you take a company like MongoDB, they raised approximately north of 300 million before they went public. This means that we probably are way more efficient than MongoDB, and that is considered a very successful company. Does that answer your question? It doesn't actually.
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Chapter 6: What is the average revenue per customer for Redis Labs?
Quarterly, 50% of their growth is coming from expansion revenue and customers typically double their accounts every two years. Tuma 200, based between Israel and Mountain View, offer thank you for taking us to the top. Thank you, Nathan.