SaaS Interviews with CEOs, Startups, Founders
3 Growth Tactics we Used to grow SEMRush to $330m ARR and Why Shares dropped 20% on IPO day
02 May 2024
Chapter 1: How did SEMRush grow from $3m to $330m ARR?
You are listening to Conversations with Nathan Latka, where I sit down and interview the top SaaS founders, like Eric Wan from Zoom. If you'd like to subscribe, go to getlatka.com.
We've published thousands of these interviews, and if you want to sort through them quickly by revenue or churn, CAC, valuation, or other metrics, the easiest way to do that is to go to getlatka.com and use our filtering tool. It's like a big Excel sheet for all of these podcast interviews. Check it out right now at getlatka.com. What was it like ringing that bell in the middle of COVID?
Our CEO, he was extremely upset. This whole chart is kind of my pride and joy.
Eugene, thanks for being here, man. All right. I'm not lying, right? You'll share more data since we've got a more curated audience.
Yeah, we're public. So if I share something I'm not supposed to share, you cannot trade our stock.
Fair enough, fair enough. So I want to first start and just jump right into the revenue graph, right? So you guys see the company really got going. What was actually first year? Was it 2013?
When I've met founders, 14.
2014 is when you met the founders. And what was the size of the angel check you put into the company?
So actually, they didn't take my money. They just offered me a job. I pursued them for two years, but they were so profitable, the margin was like 40%. They didn't know what to do with money. So I said, why don't we do it this way? I figure out how to speed up business and use more capital, and you give me shares.
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Chapter 2: What challenges did SEMRush face during its IPO?
Over $300 million of revenue today? Yeah. Yeah, absolutely. OK, great. I'm not driving your ARR. ARR, ARR. Over the next 20 minutes, I studied the public calls. We talked, obviously, before. We want to go deep on a couple sections, pricing, growth, and then the IPO. So starting on pricing, this was the original pricing page. It was before your time slightly, I think, right? We'll go back.
I want you guys to zoom in if you can read it. Can you guys read the price in the little yellow box? Is that big enough? It's $49.95 a month.
Chapter 3: What was Eugene Levin's experience with SEMRush's founders?
That's what these guys launched with. And maybe, can you describe the makeup of the two co-founders? Are they tech or business?
They're all tech engineers by trade. When they first launched semrush, actually, they used it for other businesses in traffic arbitrage space. So they needed a research tool to figure out where to buy traffic and whom to sell it to. And data was just so good that a lot of people started approaching them and asking an access to this. And that's how they've launched semrush.
But they didn't really know how to properly monetize. So I think they were giving away just too much of a value.
You guys can't read this. I'm going to read it, too. You'll see SEMrush was designed by the developers of SEO Digger and SEO Quake for Google Organics. So they had these micro tools. And to make them win, they built the side project. The side project ends up winning.
It's why we talk so much today about go build a side project in the Zoom marketplace, in the Stripe marketplace, in the HubSpot marketplace. because you just don't know where it's going to lead. These guys ended up sitting on, obviously, what we know now as a gold mine. Back then, 20 million domains, and you can see 85,000 users. One of the early go-to-market motions was this affiliate playbook.
So I'll let you guys squint in and read what the affiliate, the original affiliate motion was. Do you guys have an affiliate program today? Did this work?
MARIUSZ GASIEWSKI- Still have. It's not as big as it used to be. But I think early on, that was extremely important. The way affiliate marketing in B2B SaaS works is not that people will sell your product for you. But if they want to write some kind of article, having an affiliate program gives them extra incentive to write about you. So for us, it really helped to spread the message.
It would never work if product was not good. But because product was so good, affiliate network was a huge boost early on. Now it's, of course, a smaller part of the business.
So at its peak, how much revenue did affiliates bring the business?
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Chapter 4: How did SEMRush initially monetize its offerings?
No, not me.
No. Did you fire anyone that took money out? You said, oh, you don't believe in the vision.
No.
That wouldn't be good.
We didn't have to do that.
Yeah, that's good. OK, so you get this done. How much of the company did you sell in this round?
Do you remember? Yeah, the valuation was around $200 million.
200. OK, great. Got it. So 20%, 25% of the company is what you're selling there. Now, moving forward, I want to talk about this because everyone knows this graph, right? And it's all about for each cohort of customers you sign up, how does revenue expand or contract? What does net dollar retention look like over time?
The dark red bar you see here is basically the cohort of customers you guys signed up before 2016. And what we see, especially with the blue bar, is you're signing up more customers faster, but you're also getting them to pay more faster. How is that happening?
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Chapter 5: What role did affiliate marketing play in SEMRush's growth?
Because product is, I think, more complex than your average product.
You talk about startups and freelancers in that first plan. It talks way more from an emotional perspective to the folks that should be buying each sort of price point. But it still worked, because we see your average revenue per user, especially on, obviously, the ACV basis, growing year after year.
Talk to me about what the team looks like that's in charge of driving this kind of expansion in first year ACV.
So on the strategic level, it's really me and our ceo. And we do a lot of kind of high-level planning. So we design really kind of three axis expansion models. So axis number one is we want people to move between core plans. And this is primarily usage-based. And then second axis is number of users that we buy. So we think about viral hooks, how
how to sort of convince people to invite their colleagues to work together, because we have so much functionality that different teams in the marketing division can use products all together. And then the third axis is we have certain products, like our local listings product, that are not for everyone. So it doesn't make sense to put them on kind of main plan, core plan.
But it makes sense to sell them as an add-on. So we design portfolio of add-ons. And then we give this information to our R&D teams, and we have a lot of R&D teams, and they independently kind of drive strategy in all of those kind of three directions.
What percent of that $2,000 average year price point are add-on upsells versus the core base pricing? Do you know?
Actually, all those three acts is roughly third.
A third? A third. Oh, wow. Okay. So it's working. It's going well. 2021 comes around. It's in the middle of COVID. You guys say we hit 67,000 paying customers. Let's IPO. You are, if you look at the guy in the purple in the middle, you are two to the left. What was it like ringing that bell in the middle of COVID?
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Chapter 6: What were the key factors behind SEMRush's net dollar retention?
Paid media is like renting. You pay. You get results. You stop paying. They kick you out. You have nothing. And then with building house, it takes time to get a foundation right. But once you get it, it's just yours. And you keep getting the benefit of having the asset. So that's another reason why we were able to improve profitability and marketing efficiency so fast.
As he wanted to invest back in 2014, the founder said no. They hired him instead. He owned about 2% of the company at its peak before going up and IPO-ing in the middle of COVID. I mean, crazy bravery. 2021 IPO. Stockton takes a 20% on day one. They stable the ship. Net dollar retention growing nicely as they keep building out their product roadmap. Real AI play now.
Real expansion happening from $2,000 ACVs to $2,500 and above. Now getting more into AI and profitability. Guys, give it up for Eugene from SEM Rush. Eugene, thank you. Appreciate it, man. Great job.