SaaS Interviews with CEOs, Startups, Founders
3 Strategies I Used To Scale SecurityScorecard to $70M ARR, 1,700 Customers, & $200M in Cash
07 Jan 2025
Chapter 1: What strategies helped SecurityScorecard grow to $70M ARR?
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We're going to dive into the full growth story today, potential IPO plans, net dollar retention, revenue growth, and more. Please help me welcome to the stage, Alexander Yapolsky from Security Scorecard. Good to see you, man. It's been way too long. It's been way too long. You remember that photo shoot from the last time we were in your office? That was fun.
I remember the photo shoot was a lot of fun, and I think we even played football. You kicked my butt. I know you just set me up. You wanted me to tell everyone you kicked my butt, but it was great. So we interviewed you back in 2022 already. So just the quick sort of sound bite, and then we'll go back into the full story.
Growing from $70 million to $130 million of revenue, did it come from adding new customers or was it expanding current accounts more? Both. Pick one. What drove more growth? So a big focus for us today is expanding new customers because what we do is we pioneered the concept of how to quantify cyber risk. We built a platform just like credit scores.
Our security scores are used by over 2,800 customers worldwide, nine of the top 10 banks, governments in 46 different countries, insurance companies, but the average deal size is about 30 to 40K. Okay. Right?
A simple math is that if we help 10% of our customer base better operationalize a product and really adopt it to manage their third parties report to the board, we're going to double our revenue without acquiring a single customer. So upsell and providing more value to existing customer base is a big focus. Well, let's get into the backstory. It's not going to be 20 minutes.
It's going to be over the eight minutes. So we'll talk fast. But talking about your focus on customer success and growth there, your experimentation framework, which is great based off a book. We'll share the book in a second. Then we'll wrap up with what you view as a CEO's job and how you've capitalized the business as well.
So jumping into sort of customer focus, just for people to understand what you do today, help us understand where you're at, how you got there. Spend a minute on this. Sure, well, I was a chief security officer at Guild Group and before that worked at companies like Goldman Sachs, Oracle, Microsoft, and I saw a big, big problem, like a big epidemic that's only getting worse.
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Chapter 2: How did SecurityScorecard expand its customer base?
And so the point is most companies overvalue great ideas. Cheap, quick experimentation always beats great ideas, and that's the culture you want to build. And a simple framework that we use that was actually, it's a really boring, horrible book, but I'm going to summarize for you the whole idea over here. Hold on. Should they buy the book and just read? No, just Google it. Google it.
Mike Schrag is actually our advisor. We've been working with him for a long time. But here's the idea. Five by five by five. Take five people. Five days, $5,000. If somebody tells you it's going to take me two months to build a feature, I'm like, OK, how do you do it in five days? They're going to give you a blank stare and say it's impossible. I'm like, OK, maybe you can mock it up.
Maybe you can send it to 10 people, see how many people download the report, and either prove or disprove hypothesis. But we really adopted this experimentation framework in every team, technology, product, marketing, sales, because it really starts driving agility you know, failure should be exciting if it's done in small increments.
And so this experimentation was quite crucial for us over the 10 years. Let's jump into part two, CEO job and capitalization of the business. So let's talk first on capitalization. Obviously, you have quite a funding story. Again, we had the privilege of getting up and I actually took a snippet here of the magazine. It was great putting on the cover. This magazine sold very well, by the way.
So you have a second career. It's my good looks. We'll flip to your story here. And what you'll see when we get to the feature story here on security scorecard at a point, 71 million bucks, a billion valuation. And you told me you had 200 million cash in the bank. That was the foosball table where you kicked my butt.
We built your everything graph up there on the upper right, talking about specific product launches. And on the next page in the bottom right, you were kind enough to talk to us a little bit about how you had the equity structured, which again, we always publish those in the magazine, a lot of good data in there. I want to talk about that cap table, that pie chart a little bit.
because it's a theme, right? Folks are thinking about how do they capitalize the business. You did your first round in 2014, 2 million on 6.2 post. Let me just ask you this. Looking back at the seed all the way through the Series D, any regrets about how you structured any of these deals or the timing?
So the one thing that I really was careful, and the previous speaker spoke about it, make sure to, like the valuation matters a lot less than all the other things you negotiate. The 1X liquidation preference, the control on the structure of the board, very, very important. You know, if you start,
agreeing to higher valuation because of some bells and whistles, participating preferences and coupon mechanisms, you're kind of screwed, especially in this environment. So what I'm very proud of is that we never really took a crazy valuation. We always made sure that we have good composition and control of the board to this day. Very, very important. So with the board, how many today?
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Chapter 3: What is the importance of upselling to existing customers?
If it's your baby, you want to control the company. Make sure you don't agree to any crazy... kind of coupon participate in preferred structures and be careful who you partner with. The best investors are not going to bother you. They're not going to help you. Nobody's going to help you. You're in by yourself, no matter who promises what to you.
But the worst investors will actually give you better advice and really create more headache for you. So I'm quite proud that we did a good job. When you launched, did you and your co-founder, did you split equity 50-50 at the start or were you majority? I was a majority shareholder. OK, because your idea. Yeah. OK, got it. Like significantly, like 60%, 70%. And he was 30%. 80%, 20%. 80%, 20%.
OK, fair enough. Well, then all this is going to be wrong, right? Because you didn't own 50% at the start. You owned 80%. But people can just increase this by, what is that, 25%? Multiply by 1.25, the green column. You'll get to sort of Alex's stake. I mean, when you look at these, I just. That's an embarrassing situation to start showing my net worth in front of random people. Well, it's OK.
Chapter 4: What challenges did SecurityScorecard face in its early days?
But it's all public. It's all public. It's important. This is how you have to learn, right? That's SaaS. I mean, it's actually more than that because, look, as a founder, if you stay for a company for a long time, a lot of the time the founders feel that they need to be kind of like slaves to the idea.
The simple argument you need to make with your board if you're fully vested is, look, if you had to go recruit an outside CEO, you would have to pay, what, 4%, 5%, 7%. So if you're doing a good job and you're fully vested as a founder, regardless of what you have, you should have skin in the game and you should have additional vesting stuff.
Otherwise, you can just leave and go start the next stuff. So yes. That little italic text you see below my chart I put together is exactly what Alex is talking about, which is we assumed no new ESOP pool being created at each round, and we assumed the start was 50-50.
Now what you're saying is obviously you had more than 50-50 at start, and it sounds like you got a new ESOP pool established at each round. Correct. Every round we establish and we re-up all of the top performing executives and the people who don't perform or do an average job, we get rid of them very quickly.
And then I do think it's actually a huge mistake to have a 50-50 split with your founder when you start a company because even if it's 51-49, somebody needs to be in charge and control the board. I'm an investor. I'm an angel investor into about 23-24 different startups at different stages. And Number one reason why many companies fall apart is founder conflict.
So make sure... Founder confidence? Founder conflict. Conflict, yeah. Yeah, so make sure you really love kind of your co-founders. And the same for your exec team. You need to be on good terms. You need to enjoy presence of your exec team.
So my conservative modeling puts you at current ownership around 10%, but true or false, you've figured out a way to get above that by being smart as you've negotiated. Yeah. Round of applause for being transparent. Yeah, that's good. We have to encourage good behavior. This is very helpful, but I thank you for being open. You're really going to hit the next slide.
And look, on the job of a CEO, there was a good article that came out about founder mode that some people read by Paul Graham. It resonated a lot, I think, with all of us. Look, I think like many articles, I think there's a lot of truth to it, but one big advice, do not listen for advice from people who have not done your job. That's my number one advice. It doesn't matter if you have a...
investor from Sequoia or Andreessen, we've taken money from top investors, including Sequoia. It doesn't matter if you're a board member is a billionaire or this or that, or have been on a board of Oracle, Google, et cetera. If the person has not done the job, take any advice with a grain of salt. Any generalization has lots of limitations.
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Chapter 5: How did the founder's coding impact the company?
Guys, in summary, the past 10 minutes, we touched on customer focus, driving that growth from 70 million of AR to 130, which is impressive. We talked about the experimentation framework. And cash flow positive, by the way. And cash flow positive. We're all growing on a cash flow positive way.
Well, I do have one quick, I remember when I was in your office, you said, it was kind of off the record, but I can make it on the record because it's old now. You were like, you know, we're looking at, you know, maybe IPO-ing right now. You ended up not, I kept watching the news, no IPO. What happened?
Well, you're not going to go ā well, right now, if you look at threshold for IPO, you're at like $300 million, $400 million. So the bar just moved. So the bar just moved. So, I mean, look, we're actively looking at token acquisitions. We're going to do this year $130 million, $140 million. Next year, we're probably going to grow at ā 25, 30%.
When you say tuck-in, you're buying other companies. Yeah, so we're going to grow organically at 25, 30%, and we're going to look actively at tuck-ins as well at 20, 40 million era range. So I think there's lots of interesting opportunities ahead. Yep. Well, guys, heck of a story. Super transparent. He'll be around more for lunch.
Again, got going, launched the MVP to the detriment of his other engineering team, but it got the job done. Quick experiments like the job report or the report, the security report, ended up bringing in 85,000 leads. The company has turned those leads via multi-product suites set into an average customer value of $23,000, $24,000, $25,000 per year.
Now sitting at $130 million of AR with plans to grow to another $140 million, $150 million in the next, call it, six to eight months. We're certainly rooting for you. No, $140 million in the next few months. Even a shorter period. Always faster growth for this guy. Guys, give it up for Alex at Security Scorecard.
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Chapter 6: How did the experimentation framework drive growth?
Hey, thanks. That was awesome. You're always great. Thank you so much.