SaaS Interviews with CEOs, Startups, Founders
1699 UserTesting Grabs $100m Series D w/ $84m in Revenues While Rest Of World Virus Panics, How Will CEO Spend Money?
19 Mar 2020
Chapter 1: What significant funding did UserTesting recently secure?
User testing, time of crisis, interesting place, $100 million just raised. Andy, congratulations there. But not only that, just on raising, they're also driving real revenue growth. In fact, they're growing more year over year than they were on smaller numbers.
So call it 60, 70 million bucks in ARR, call it 18-ish months ago, now breaking past 80, 85-ish million in ARR, hoping to pass that $100 million mark on the next call at two to three quarters. We'll see what happens there. Again, serving, this is great, serving over 3,500 customers who are now doing, you know, potentially way more digitally in a time where you can't meet face-to-face.
Economics look super healthy, right? 14% gross revenue term annually, more than that in terms of expansion, so greater than 100% net revenue retention as they look to continue to scale their team of 500 folks, 80 engineers, 55 sales reps,
Chapter 2: How has UserTesting's revenue growth changed over time?
Hello, everyone. My guest today is Andy McMillian. He brings 20 years of enterprise SaaS experience to usertesting.com. As a former product executive at Oracle and Salesforce, he saw the critical role that customer centricity plays in creating great experiences. Andy, you ready to take us to the top? Absolutely. All right.
So we're in kind of unprecedented times, obviously, with this kind of virus crisis. User testing is an interesting spot because, well, many people would wonder, does this hurt or help you in terms of what you provide online? So give people the quick kind of product overview. And then, you know, what are you thinking about literally in this moment right now? Market's crashing.
What's going to happen?
Yeah, it's an interesting way to think about it, I guess. We are a product that helps people understand and view the experience often of their digital products.
So if you want to kind of virtually look over the shoulder of your user and understand what's it like to do mobile banking or to use your mobile ordering app or to do whatever that might be, that's what our customers use our platform to do. This has been an interesting moment in time for us. Like most folks, we've moved to kind of a work from home remote stance for our employees.
But a lot of our customers are now reaching out to us and saying, hey, one, we're standing up more and more digital channels to help people who are maybe in a shelter in place or whatever it might be that they're dealing with. It's also interesting from a product and marketing messaging perspective.
I actually believe most people in most brands are trying to be empathetic and do the right thing and reach out to their customers and help. But even that is a hard tone to get just right, where you don't want to seem opportunistic, like you're taking advantage of a pandemic to push your product.
At the same time, you might be sitting there thinking our product could be really helpful to people in this moment. And just like our company, we're going through that. We're reaching out to healthcare systems and everyone else and saying, hey, can we help you make your messaging clear and kind of help with the emergency? people trying to strike that balance.
And so we're seeing a lot of customers use our platform to test their messaging and test their content to really understand how it's received by their end customer.
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Chapter 3: What challenges is UserTesting facing during the current crisis?
It is for kind of an SMB customer. And then we scale way up. I mean, we're doing, um, you know, supporting massive research teams and design teams at some of the largest tech companies in the world that might be spending, you know, over a million dollars a year with us.
Okay. And have you changed anything about your, your cap table structure or still about $74 million raised?
We actually just raised a round. So we're doing this interview. We're recording it. We're going to do a press release in two days. But we just raised $100 million from Insight Partners. And have yet to announce that publicly, but pretty excited to have raised that.
Yeah, well, and it sounds like we'll probably release these around the same time there. Give me timing on that. Was the money wired and the deal done prior to the Wuhan news and the spread of coronavirus being mainstream news?
Yeah, we closed, I want to say, three weeks ago, four weeks ago. So really before it hit the US. I mean, it's just been kind of an interesting, it feels like a fast evolving story. But if you go back, I mean, it was December when we were first starting to hear about the challenges in some parts of the world. But
Um, yeah, we closed the round of funding before there was really a significant us impact to the owner, even really the impact of the global supply chain that we saw happen.
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Chapter 4: How does UserTesting help companies understand customer experiences?
Yep. And then this is obviously going to be rapidly changing as you figure out how the best way to use. I mean, you're in a very fortunate position to be on this kind of cash heap. Now you can really do some serious damage with it, especially if you look at, uh, you know, everyone, everything else is being cheap right now. What's your team size today though? How many people?
Uh, we're about 500 people. And how many engineers?
Uh,
Uh, probably 80 out of that.
Okay. And any quota carrying reps?
Yes. We have a SMB mid-market enterprise and global account teams that support that.
How many total people carry reps or carry quota?
I think we're at 55 right now.
Oh, wow. Okay. Fairly significant. That's good. Okay. So with those kinds of benchmarks, and again, I mean, look, by the way, from a growth perspective, that sounds pretty healthy, right? So if you've got 3,500 paying customers at still around that $2,000 ARPU, I mean, that puts you at about $7 million a month. You were at at least $5.5 million a month at about, what is that?
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Chapter 5: What is UserTesting's customer base and how has it evolved?
as a metric, but mostly focused on just CSAT, customer success, adoption. I view gross dollar retention as really an outcome metric from doing those things right.
Okay. This is really valuable benchmarks here. Going back to the current situation, you now have, again, let's say you have $100 million cash in a bank. You could look at what's currently happening in a couple of different ways. And I'll be evil here, right? So people can throw tomatoes at me instead of you. You can look at this and say, wow, I've been waiting for this moment.
It's been a bull market for the past 11 years. Everything's been overpriced. everything's cheap now, right? I should go invest aggressively. Again, I'm taking off my emotional empathetic hat where there's people dying, right? The other side of this is, you know, we, I actually don't know when it's going to end.
So I'm going to hold on to as much money as possible to make sure that user testing is good on burn for the next three years. If we add no new customers, right? Which path are you taking?
We're definitely leaning into growth, mostly because what we're seeing is our customers saying to us in this time, we need this help, right? We need to use your product to talk to customers. We need to understand their preferences and how they want to be communicated with. And so us building out our field capacity and kind of leaning into that, I think only makes sense for us in the market.
And it's probably the healthiest thing to do for the company. So we're going to continue to grow. We are seeing a lot of interest in international expansion as well. We opened our first office overseas. last April, so what now, 11 months ago. Hired our first employee. We're already at 42 people in Edinburgh, Scotland.
That's growing like crazy, makes up more than 10% of our revenue now internationally. We'll be looking to acquire internationally as well. One of the announcements we'll be making by the time this is live is we're acquiring a company called Teston, which is based in Norway, allows you to test in a couple of different languages that we don't yet support on our platform.
So I think that demand is going to continue to be there, especially as more and more companies think about how are they going to focus on digital means of communications and connecting with their customers and kind of this new model. We think that demand is just going to push us forward.
How did you find, so if someone's listening right now going, you know what, I'm in Andy's space, Nathan, I can't believe you got him on the show. You know, I don't know how I'm going to make it through this, but I've got 4 million bucks in ARR. I think it might be something Andy wants. I'm bootstrapped. I'm a sole decision maker.
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Chapter 6: What are the implications of UserTesting's recent funding on its growth strategy?
We spend a lot of time going to market with them. A lot of our customers are looking to really deploy enterprise class tools to go engage with customers. And so, again, every acquisition is sometimes stepping into a partnership area as well, where maybe partnering is what the customer really wants. And so I don't think about
How do I just collect a small amount of that revenue from my balance sheet? I think about what makes sense for our customer base. How do we over time build a lot of value for them? And very often that's playing in ecosystems, not just buying them up. So it could be, I mean, and there are, you know, I'm picking on your specific example. I don't mean to, I want to do that on purpose.
But there are sometimes things you look at and think, hey, our customers really do want us to go do this next thing. International expansion is a good example of that for us. And we will look at, in some cases, we'll build features that help us go do that. And in some cases, we might acquire those.
Mm-hmm. Mm-hmm. Have you, I doubt heads of corporate BD are thinking about this right now, but if they are sitting on a pile of cash they've been waiting to invest, they might come look at companies like you and say, maybe Andy's feeling the pressure. Maybe I can get him at something under a 20X forward-looking revenue multiple. Let me open that conversation now. Have you gotten emails like that?
And if so, how do you respond?
I think the companies that we would probably get those kind of emails from, we already spend plenty of time with and have strategic partnerships and go to markets around. I think they're pretty excited about the way we're building the business. Raising a funding round is not typically a near-term Exit strategy. So I think we're in this for the foreseeable future.
I think our management team, our board, our investors, our employee base, I think we see a lot of opportunity for us to go continue to build the business. But I don't think the size and scale we're at, I don't think those people kind of emerge from the shadows in a time like this. I think they're the people you already know and you're already doing a lot of business with.
Yeah. Last two questions. Again, you're obviously not going to have issues covering your burn through a time of crisis because you just raised so much money. But prior to the raise and prior to the crisis, when you looked at what you're burning per month, I mean, were you comfortable burning a million, two million per month as you invested in growth?
Yeah, absolutely. And that's probably right somewhere in that window is probably right about where we were. But again, on our CAC payback and all that kind of stuff, it's a good investment to be going and acquiring customers at the rate we've been acquiring them.
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Chapter 7: How is UserTesting planning to utilize its new funding?
We'll see interesting quarter right now, obviously. Very. So far, we've seen a mix. We've seen some people who are holding their budgets a little tight and saying, maybe we'll buy next quarter. And so you get some deal slippage, but at the same time, as I said, we've seen this demand where we have customers calling us up and saying,
we had a bunch of stuff we were going to do in person events and we want to move all of that onto your platform so we can stay connected with our customers. So it's pretty much balanced out for us at this point.
We'll see what happens. Last question. Uh, IPOs, a lot of people looking at direct listings. You can't really have this conversation or even think about it until you're at 80, 90, 120 million bucks in ARR and you know, zoom's case, 300 million in ARR. How do you think about the public markets?
I'm a huge fan of the public markets. I think it's a great way for companies to create value overall in the world. I think most great brands are public companies. I love the idea of being a public company at some point, but I don't think it's in the near term for us having just raised that round.
I would think we've got 24, 36 months or something before we'll get real serious about thinking about that.
All right, Andy, let's wrap up with the famous five. Number one, favorite business book.
Favorite business book is The Goal by Eli Goldrath.
Number two, is there a CEO you're following or studying?
I'm a huge fan of Eric Wan right now at Zoom. He's amazing.
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