SaaS Interviews with CEOs, Startups, Founders
A PE Firm Should Buy This $7m ARR Company Stuck Inside a Publicly Traded Firm
17 Oct 2021
Chapter 1: What is the background of the company discussed in this episode?
We're a subsidiary of a publicly traded company. So the last thing that we disclosed was over 7 million in ARR. So you're right. You're right there. Yeah. I'm right on the money. Come on. I'm right on the money, baby. 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. Hey folks, my guest today is Massimo Argani.
He's building BeFree.io. He's the CEO of the company as a business unit. And the company is a business unit of a larger company called Growins. You can find them on Bloomberg. They're focused on democratizing content design. They've got a visual builder for email pages and pop-ups available at BeFree.io.
And they're embedded into over 600 plus SaaS applications, including 40% of Gartner's quadrant for multi-channel marketing platforms. Massimo, are you ready to take us to the top? We're ready. Yeah. I'm still shocked a guy as creative as you, you're still getting everything you want out of working in a subsidiary of a publicly traded company, but you're still enjoying yourself. Yeah, totally.
There's pros and cons, but it's fun. Yeah. All right. So what's changed since we last spoke? Is the playbook still the same? Again, you were really white labeling these sort of page builders for other SaaS applications. It's a big space. As you know, democratizing design, you look at the last raise that Canva did, 40X, their ARR. I mean, the space is just exploding.
And we're playing in the same space, focused on designing emails and landing pages, now pop-ups too. About 50% of B is the embeddable editor. So SaaS companies that embed B in their platform just because it makes sense instead of developing their own. And then the other 50% is people, it's more like the Canva side.
People that just come to BeFree.io and want to design emails and pages faster with no friction. And so they sign up for that. Interesting. Okay, so walk me through a little bit of the growth. So this is like, is most of your revenue coming from white-label partners paying you or from direct customers paying you like smaller ARPUs but higher volume?
Yeah, like I said, right now it's almost split 50-50, which also makes it difficult to say, okay, just focus on one of the two. They're growing fast, both of them, although they are very different. So on the embeddable editors side, only about 600 customers, monthly are by about $600. And you go from little startups to large, large SaaS providers.
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Chapter 2: What is the current revenue and growth rate of BeFree.io?
And there, it's a long sales cycle, et cetera, et cetera, because they're embedding our software in there. So they kick the tires for months. But once we're in, no churn. There's basically no churn because you cannot take out... a visual builder that you've embedded, right?
So gross customer churn is almost zero and the revenue churn is, net revenue churn is negative, you know, big time negative. On the other side, So you're a marketing team or a nonprofit that wants to design an email fast for a campaign. You go to BeFree.io and you sign up and that's it. Very much a product-led growth strategy. So there's the free editor that you don't even have to...
put in your email to use it completely free. And then you upgrade to B Pro when you want more stuff. And that's similar to a Canva play. And so there, a lot of users, tens of thousands of users of the very free version. And then we convert about 9% of those into free trials, over 10,000 free trials a month. And then down from there. 10,000 free trials a month. That's incredible.
When people convert on the SMB thing, what's the average ARPU there? It's about $25. That's higher than I would... That's actually... That's pretty strong, actually, for this kind of product. That's a good price. And it's there, too. We're very much still in a discovery space because we have... We just signed a deal.
Unfortunately, we can't disclose the company, but very large pharmaceutical company that has... Which company? Yeah, right. 1,500 people in their company designing emails with this thing. It's just basically a matter of people frustrated because if they don't have a tool like this, they have to wait for marketing to get the stuff done. How many are paying for it now? Just the SMB one?
About 11,000. You have 11,000 people paying 25 bucks a month? Right. And the spectrum, again, the interesting part of it where you see this huge potential and you see why Canva did that fundraising at that level of multiplier is that it's the little guy and it's the huge corporation that says, okay, this is a lot faster than usingā¦
agencies, or a lot faster just going through the bottleneck of my marketing team, right? Because you might have salespeople in 50 countries that just need to update that sales sheet in the case of Canva. In our case, they need to update that little email that needs to go out, right? And they need to do it now, not in three weeks from now. So it's a massive space. We're super excited. Mm-hmm.
I mean, so can I add those two things together? You've got 11,000 customers at $25 a month. That's $275,000 a month in revenue. Then 600 white label customers at $600 a month. That's $360,000 in MRR for a combined MRR of about, what, $635,000? So, um, again, we're, we're a subsidiary of publicly traded companies. So the last, the thing that we disclosed was over 7 million in ARR. So you're right.
You're right there. Yeah. Yeah. I'm right on them. I'm right. Come on. I'm right on the money, baby. Let's go. You are, you are, you are, you are. So, uh, so over, over 7 million in ARR, um, growing fast. And where were you a year ago? A year ago, well, this year we're growing over 50%. So you were at like 5.6 million or something about a year ago, run rate-wise. Yeah. 50% year-over-year growth.
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Chapter 3: How does BeFree.io differentiate between its customer segments?
That's nathanlatka.com forward slash remote and promo code L-A-T-K-A. Check it out today before you miss out. Tell me more about like you as a leader, right? So you're unique in that most of my interviewers are like founders that own 80, 90% of the business. You, I'm assuming, do not own 80 to 90% of BeFree.
I assume you have some sort of equity grant, but is the equity grant sort of through the parent company or do you actually own a portion of the subsidiary? So yeah, without disclosing stuff that I can't disclose, but yeah, a piece of it. And really, the one that's publicly traded is the holding company. So the U.S. corporation is just 100% wholly owned subsidiary.
And by the way, again, without disclosing anything that's not publicly traded information, the valuation of Growance, it's a publicly traded company in Italy. The valuation makes no sense. What is it? The entire group is, if you look at it right now, it's valued at around 65 million euros. And I just told you that B does $7 million in ARR growing at that rate.
And B is just a small portion of the company. So you do the math. Again, we're treated on it. It's public. It's public. What's revenue? What's the revenue multiplier right now on the valuation? It's one. What? Yeah. It makes no sense. Well, is all the other revenue just really shitty low margin revenue or something? Not really.
I mean, again, publicly traded information, publicly available information. Yeah, you can look at it, but EBITDA was, I think, $2.5 million in the first six months of the year. We just put out the H1 report. It's just that it's a small stock exchange in Italy without that much liquidity.
Yeah, but if this was the case, Massimo, anyone listening right now, and we have a lot of people listening that are private equity firms, growth equity firms, there's a lot of buyers that listen to this show. They're immediately and they should be thinking, why don't I go buy BeFree out of this subsidiary?
Because if I just re-put it in the US and put it here, we're going to get a 5x multiple on a 7.5 run rate. Have you been approached to do this? Why haven't you done it yet? We get approached daily pretty much because the parent company has a strong incentive to grow this as a key asset and unlock the potential of the parent company. Which again, right now it's kind of stuck in...
in a situation that's mostly due, we believe to the small market that we're traded on in Italy. And obviously we're looking at options. Yeah.
I was going to say, I mean, if the whole business is trading at a one X multiple and you're doing 7.5 right now yourself, if someone came and offered you two X that, so for, you know, 15 million on cash upfront, which would be like two X, the current share price shareholders would have to agree to accept that that's like a hundred percent premium on the current price.
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Chapter 4: What challenges does BeFree.io face with its white-label partners?
Why aren't you doing that? Well, first of all, I'm a product guy. I'm not a finance guy. That's who should lead the company. I have fun building products and we're having a lot of fun building, building our products. Um, and my colleagues are worrying about the other stuff. And I do believe that we're going to unlock this thing, um, Pretty soon, because it makes no sense where we are right now.
I think a lot of people simply have not understood what's inside Growins and what this company is doing. We have investors also on the other side of the Atlantic that don't necessarily deal with SaaS multipliers every day. And so they just look at maybe EBITDA or multipliers on EBITDA and that kind of stuff. So that's part of it. But yeah, I agree with you.
Again, this is all publicly available information. Nothing that's not publicly available. Guys, main sale, I know you're listening. Level equity, I know you're listening. SaaS group, I know you're like, give this man $14 million and let him spend this company out. Hello, you're going to double your money very quick. If I had $14 million to do the check, I'd do the deal instantly, okay?
I don't think we're interested in selling at that price because this B has huge, huge potential. Yeah, but it doesn't matter what you want to sell it because if it goes to a shareholder vote at a 2x premium on your current share price, it doesn't matter what you think. The shareholders are going to take that premium. Got it.
But, but, well, you're talking about the shares of the, of the, of the publicly traded company though, right? I see. Yes. Yeah. I mean, so what, what you would actually do is you would invest to take over a poor enough shares of the public traded company to force a spin out of B. So you would need, you know, 20% of 65 million, right? If you want to start guys, there you go.
Slowly start buying share prices. There we go. We're a little bit at the gate here on the Latka podcast today. All right. All right. Yeah. Anyway, that's the strategy, right? That's what you would do. Yeah. Again, we're traded on AIM, which is the smaller stock exchange. There's one in London and one in Milan because the Milan stock exchange used to be owned by the London stock exchange.
And these smaller stock exchanges have less liquidity, which in the end, that's at the core of AIM. kind of the nonsensical valuation, we believe. Yeah, I hear you. What's the team size today, only on B? B right now, I think we're 53, 54, something like that. How many engineers? Product plus dev is about 30 people. So very, very product focused, yeah. Yeah, very heavy.
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Chapter 5: What is the business model of BeFree.io?
Interesting. Any quota carrying sales reps? We have, I think now it's two or three that are in that kind of profile. What's the quota? Like a million a year? I don't remember, honestly. I have to ask our sales. No, you're good. Good stuff, man. Let's wrap up here with the famous five. Number one, favorite book? Oh, man. I just read The Hate U Give and the other two books that she wrote.
Very, very nice trilogy. So I'll go with that. That was a good book. Number two, is there a CEO you're following or studying? So one of my favorites, he's not the CEO, but desk trainer at Intercom. Again, I'm a product person and he's a fantastic product strategy person. One of my go-to's. Number three, what's your favorite online tool for building a business? For building a business?
Let's see, what do we use a lot? I mean, we're using the Atlassian suite quite a bit. So Slack a lot. I don't have a very favorite tool to build a business though. All right. Married, single, kids, what's your situation? I'm married with four kids. Wow, how old are you? They're between 13 and 20. Oh, me. I'm almost 50. Five, zero. Okay. And how many hours of sleep do you get every night?
What's that? How much sleep do you get every night? I'm trying to get more, man. I think I'm between six and seven right now. That's not bad. That's not bad. I can't believe you're 50, dude. You have the energy of like, you have like my energy. It's great. What do you wish you knew when you were 20? I mean, traveling. Traveling is awesome.
It's one of the reasons why it's fun to work at a company that's headquartered in Italy. We just did a team retreat in Naples, which was fantastic.
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Chapter 6: How does the guest plan to unlock the potential of BeFree.io?
Guys, there you have it. Be free. They're a website builder. They're a website builder and other WYSIWYG editor tools. But a lot of their revenue comes from taking their tech and white labeling it to other providers who then pay them $600 per month on average. They have 600 white label partners. That's 360 grand in MRR. Another 10,000 SMBs paid them. Sorry, 11,000 SMBs paid them directly.
$25 a month for a combined MRR of call at $635,000 a month. Over $7 million. They've said this publicly. Over $7 million in ARR growing over 50% year over year. Massimo, thank you for taking us to the top. Talk to you soon, Nathan.