SaaS Interviews with CEOs, Startups, Founders
961 How He Sells Commercial Real Estate Data to PE Firms for $5m+ in ARR
12 Mar 2018
Chapter 1: What is the main topic discussed in this episode?
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 of 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 Michael Mandel. He's the co-founder and CEO of a company called CompStack.
The company creates transparency in commercial real estate by gathering information that is hard to find, difficult to compile, or otherwise unavailable. The world's largest brokerage firms and most preeminent real estate investors use CompStack's commercial real estate data to compare properties and make investment decisions. Michael, are you ready to take us to the top?
Absolutely. Sure.
All right. Tell us about Comstack. Give us more detail on what it does and how do you make money? What's your revenue model?
Absolutely. So we're a real estate data company. And our secret sauce really is that we crowdsource commercial real estate data. In particular, records of commercial lease and sales transaction data and deals that have taken place effectively. So we've got commercial real estate brokers, appraisers, and research people within real estate brokerage firms who actually trade data on Comstack.
We have a gamified system. It's a credit system. So they earn credits for sharing data on our platform. They can use those credits to get other data back out. And then we end up with a comprehensive database, effectively, of all the deals that have taken place in a given real estate market. We're live in over 70 markets across the U.S. and U.K., over...
So they're trading data in all these markets. And then from that database of deals that have taken place, we are then able to sell subscription access to that data to commercial real estate investors and lenders. So our customers are some of the world's largest investors. Banks, private equity funds, hedge funds, institutional owners. So people like Wells Fargo and JP Morgan and Morgan Stanley.
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Chapter 2: What is CompStak and how does it create transparency in commercial real estate?
They're paying based off of the number of seats, number of users they want on the platform, the number of markets they want to have access to, and specifically which markets they want to have access to. Each market is a different price.
When did you launch the company?
We launched in January 2012 in New York City.
And where were you at that point in life, if you don't mind me asking? Did you have any responsibilities, married, single, debt, no debt? Where were you?
Sure. I was married. Um, I didn't have any kids yet. I was still working as a, um, as a commercial real estate broker. So actually I started the company while working as a commercial real estate broker in New York city and did it, uh, basically from my desk, you know, after hours, um, until I was with Grubbin Ellis.
I was going to say, how'd you prevent them from trying to claw back that IP and saying, no, we did it on our watch. It's our, it's our stuff.
Well, I specifically asked my bosses at the time, you know, the head of the office, you know, I told him what I wanted to do and that I wanted to work on this and was that cool. And they, you know, they, he said it was fine. And then that boss left and I had to talk to the new boss because the company was going back.
The company was ultimately going bankrupt at the time that I was starting it up, starting up Comstack. So that as people were walking out the door, I guess I had more and more time to work on it.
And do you remember what first year revenue was in 2012? How, how small was it?
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Chapter 3: How did Michael Mandel fund the initial launch of CompStak?
Um, we, at the very end of 2012, uh, We closed, you know, Vornado and Tishman Spire, who are two of the largest landlords in the country or in the world.
Chapter 4: What is the revenue model for CompStak and who are its customers?
We managed to close them as our first two customers. So it was interesting. I mean, we weren't actively trying to generate revenue at that point, but we've gotten introductions and we ended up building our enterprise product to sell because we had interest and we're able to get those deals done. And it was an interesting experience because
It was probably too early to start selling because it was a data company.
Chapter 5: How does CompStak crowdsource commercial real estate data?
Were you writing the code, by the way, or had you hired a developer?
No, so I've got a co-founder who's our CTO. His name is Vadim, and he had been building trading systems and banking systems for banks.
Where did you find him?
Um, it's a good question actually. So when I was starting the company, I needed, I knew I needed a co-founder and I, cause I had actually worked on starting something else in the past where I hired some outsource guy and it was a mess. And so I realized I was not going to start a tech company without a technical co-founder.
So I, um, I actually was going to tech startup events in New York basically every night of the week. I'm trying to meet somebody and pitching people, everybody I could meet on the idea every night and trying to generate interest until eventually, actually, I had several people who were developers who had some interest in it.
And then I was talking to people and just got to know people and effectively had like a dating period with my co-founder where we got to know each other and make sure we felt comfortable working together.
Did you just put it right down the middle, 50-50? Or if not, how'd you have that tough conversation?
We did split it down the middle.
Wow, Michael, you're a fair guy. Okay, interesting.
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Chapter 6: What challenges did Michael face while starting CompStak?
Um, and then on the, that's on our enterprise side of our business on the exchange side where we bring on brokers and appraisers and research people, you know, we, we spend money on email marketing, um, some SEM, but it's more SEO driven, um,
and you know we also can you quantify that michael it's like last month how much total did you spend just on like direct paid stuff um you know at the top of my head i couldn't tell you for last month it varies quite a bit month by month based off of a lot of it is driven by how many events we've gone to and how much travel we've done that's like a huge percentage of it ignore that stuff i'm talking just paid google ads facebook ads direct paid channels are we talking like a grand or 100 grand or more
Oh, it's more along the lines of a grand or less. We spend very little on that.
Okay. And so again, you have a healthy first year annual contract value of around 50 grand. So back into CAC for me, fully weighted, are you willing to spend all that money to acquire the customer? So you have a 12 back payback or what are you optimizing for?
No, it's much less than that. I mean, our customer acquisition cost is probably more around, you know, 15 to $20,000. Okay.
The natural lane follow-up question there is what's holding you back from being more aggressive there? That's a really healthy payback period timeframe.
Um, that's a good question. You know, I think there's just only there's only so much that's reasonable to spend to to acquire these customers. I think most of it is just kind of traditional sales efforts. And I don't know that I could spend twice as much and get twice as much out is really the best answer to that.
Yep, that's the magic sauce. How do you find the new wells of money, right? The new pots of customers. And okay, and last question here on economics before we wrap up with the famous five. Churn is obviously critical in a SaaS business. What's your churn and what do you assume a customer's worth to you over their lifetime?
We have negative 6% or 8% net ARR churn. So we expand our customers at a much higher rate than our customers churn. Um, so that's, uh, you know, number we're very proud of. Um, it's been, you know, we, the actual true churn without expansions is low single digits.
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