SaaS Interviews with CEOs, Startups, Founders
Big exit or Acquihire? SpirdTech Exits With $2m+ in ARR and $4.5m Raised
30 Sep 2021
Chapter 1: What is the significance of SpiderTech's $2 million ARR?
I mean, have you guys broken a $2 million run right at this point, or is it something you're focused on doing this year? We have. You have? Okay. 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 Raul Sadu.
He's known as Silicon Valley's expert on policing. Currently works with over 50 local law enforcement agencies across the continent on police reform initiatives. He's the CEO and co-founder of SpiderTech, spelled S-P-I-D-R. He created the world's first automated customer service platform for public safety agencies. Raul, are you ready to take us to the top? Sure am. All right. What does that mean?
Who are the customers of policing agencies? Well, I mean, anybody who is interacting with a police officer or deputy sheriff at a local law enforcement level is essentially a customer.
If you're paying taxes or you're basically, whether you're getting, you call 911 because you need help or you're a victim of crime, or even if you're getting pulled over because you're basically paying for them to keep the road safe too, you're technically a customer of that agency. So who's paying you then?
Well, the agencies themselves, the cities and counties pay SpiderTech for the software that allows them to provide better customer service. And that customer service comes in the form of automated texts and emails that go out to the customers of that agency to keep them informed. let them know what's going on with the status of their case, their 911 call, their traffic collision, etc.
But it also goes out in the form of mobile-friendly surveys that are being sent to people who are interacting with those police officers so that those agencies can gather feedback every time someone interacts with them that can better improve their operations. And why do they need to use you for this versus sort of an instant of Twilio's SMS texting API? Right.
Well, in order for this process to be automated, you need to have a basically all-in-one system that integrates with the data systems that they're using today. For our platform to be able to send out a survey to someone who just recently interacted with a police officer because they call 911 or they're a victim of crime or whatever the circumstance is,
We need to be able to intelligently connect to the dispatch systems that they have or the records management systems that they have so that those messages can go out. And that every single survey that comes back can be attached to an interaction, which we have a record of. So all of those surveys, for example, we have...
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Chapter 2: Who are the customers of policing agencies?
But generally speaking, no, it's based on the size of the agency because the amount of data is going to be the same either way. I see. I see. Okay. What's the backstory here? When did you launch? Well, we started the company in 2015. My background is in public safety. I formerly worked as a paramedic and also police officer on the East and West Coast.
So I had a better understanding of what it was like to be a police officer and how to provide that type of customer service. I also had the technology background, having a startup in high school that kind of helped pay my way through college.
So I combined my love for technology and public safety in 2015 with two co-founders, one who was also in policing and another one who was on the technical side of things. And we launched for our first customer in 2016. And ever since then, we've been growing considerably. And tell me about first-year revenue. Do you remember how much you did in 2016? Yeah, I can tell you wholeheartedly.
It was a big fat goose egg in 2016 because in the beginning, we had to have law enforcement agencies to take a chance on us. They weren't willing to pay. It wasn't until 2017 that we started seeing any revenue and it was just a couple of contracts. What was 2017 revenue? Your first year revenue, I was curious. It was less than 100K a year. Okay, less than 100K.
And what did you learn from that first sort of 100K? Were you too cheap, too expensive, sales motion longer than you thought, shorter? What surprised you? Well, I mean, focus on doing a couple things really well, I think is the life.
I mean, just everyone knows this lesson, but it was just really shown to us that doing a couple things really well is more important than doing a bunch of things kind of okay, just to try and catch as many customers as you can. So I wouldn't say that pricing was necessarily an issue.
It was more so just making sure that we found that what we were doing is really good for those particular customers, and then trusting that that referral process and the network effects of that, especially in regional GovTech, will work out as intended. And that's essentially what ended up happening. First customers 2017, you learn from them. How many customers are you now working with today?
We have over 60 different agencies across the United States and Canada. Okay. And how many paid seats are there for officers? I couldn't give you the most recent sworn number off the top of my head, but I can say it's in the tens of thousands. Tens of thousands. Okay. And now can I multiply that? Can I take those 60 customers times call like a $2,000 a month average contract size?
You guys are about 120 grand a month right now on revenue, something like that? I'd certainly a little bit more than that. A little more than that. Okay. I mean, have you guys broken a $2 million run right at this point or is it something you're focused on doing this year? We have. You have. Okay. Okay. So a couple of questions on capitalization here.
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Chapter 3: How does SpiderTech automate customer service for public safety?
2016. Okay. And then in 2017, towards the end, we raised a proper seed round of about $2.5 million. It was priced with Alphabet, Sidewalk Labs, Birchmere Ventures, Stage Ventures, Heartland, and a few other more institutional-sized funds with repeat investors and a couple of strategic angels as well. And from there, we just started raising inside rounds to continue our growth.
In 2017, that $2.5 million, that was your first priced round. What valuation did you negotiate? I can't actually mention that right now. That was like five years ago, man. Come on. You can't talk about the valuation from 2017? Well, what I'll tell you this is, we were recently acquired actually about a month and a half ago. So I'm still constantly figuring out what I can and can't say. I see.
Okay. That explains things. That explains things. Okay. So you raised... Okay. Let's talk pre-acquisition here for a second. So the total you raised pre-acquisition was about 3.5 million or you did another inside round before that? Pre-acquisition is about 3.5 plus another about a million. So it's close to about 4.5 in total money. Okay. That's a big moment to decide to sell.
Why did you decide to sell? We got a couple offers and we didn't really want to sell. And I basically told the folks that we were talking to, here's the only way we would do a deal. It would have to be structured in a way that allows us to have upside to continue moving forward in the business, et cetera. So that we can all kind of, including all of our shareholders can
can enjoy this growth now that we're at this inflection point. And lo and behold, the buyer of the company said, okay. And they put something together that actually made sense and was what we asked for. And then they never changed the goalposts. We've gone through processes like that in the past where potential buyers come up with an interesting deal and then, okay, we might entertain this.
And then down the line, that ends up changing considerably. This was a class act buyer, strategic And I can tell you right now, it's a public safety company called Versaterm. And they stuck to their words and said, hey, this is what we'll do. It was what we asked for. And that was it.
Now, if you were doing or you're north of 160 a month today in terms of revenue, where were you exactly a year ago? So we can calculate a growth rate. Well, about a year ago, we were in the throes of coming out of the super scary municipal budgetary impacts of COVID. And we're starting to realize, okay, you know what? We can still make things happen and we can still sell.
We had a major customer come on board, a major city that doubled our revenue, almost doubled our revenue overnight in Q1 of 2020. And then coming into Q3 of 2020, we saw continuous growth that was a little bit more quarter over quarter than we had seen previously in the year before. And we think it would have been better without COVID, of course.
But then that's when we started realizing that from a municipal standpoint, which is where we make most of our money, we... we're going to be okay. Like the, these cities are not going bankrupt. In fact, in some cases they have surpluses of cash. They over, you know, a competent, you know, from a budgetary standpoint, plus the stimulus was coming.
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Chapter 4: What is the pricing model for SpiderTech's services?
Well, you just shared that you're above $2 million in revenue. I imagine if you can share that, you can share a growth rate. You got to pick and choose how much of a range you're willing to give before you get in trouble. Okay. Fair enough. Got it. So you can share that you're above a $2 million run rate, but you can't share what growth was over the past 12 months.
Tell me a little bit more about capitalization. I mean, typically once you raise, especially that 2.5 million in 2017, you've got to go, I mean, you're on the VC track. If you're not raising every 18 months, another institution around, it's a bad signal to the market. You guys didn't do another traditional round after that. You raised from insiders. I mean, was this an acqui-hire?
Was this a flash sale? No, no. In fact, we had the potential of competing term sheet. We had a term sheet for Series A. We actually ended up turning things down because we felt like this was a very, very rare type of acquisition that we could have easily walked away from. We had reached profitability last year as well. So we didn't necessarily need venture money to continue growing.
Of course, we wanted venture money if we were going to grow at a pace that we felt like would keep us optimized. But it was a Well, you have no choice. That's the problem with raising VC. If you're not growing fast, you made that choice the second you took your first dollar outside revenue.
So even if you're profitable, if you're not growing as a VC backed company, you're still cooked and you've got to take an exit like this to get out of a bad situation. Well, I think I would push back on that a little bit. I think it's a couple of variables that basically make that happen, that pressure happen. It depends on the type of VC money you took.
If you take VC money from micro VCs and angels and folks that are pretty much reasonable with how they expect the return to when they're going to expect the returns and give you that flexibility, then it's a little bit less pressure. If you're kind of stuck in this We got big institutional VCs, and this is what it's going to take to make shareholders happy. We've given up this amount of control.
This is what the expectation looks like. Then the pressure actually ends up building. But for us, we got to a point where we'd taken a couple rounds of funding. We had very flexible and reasonable venture capitalists who knew they got into a GovTech company, and they were willing to go both ways. Of course, the pressure comes to... Do you want to optimize? We didn't have to take an exit.
We could have gone the VC route and we were growing fast enough with the money that we had that we could continue to organically grow and still see growth rates of two to three X year over year. But if we wanted to spend that money up front, it'sā¦
To basically, instead of double our sales force to triple, quadruple it, go into, let's say, a fire vertical or a court vertical, of course, there's no way to do that without venture capital. And ultimately, the other aspect for what we're doing, going organically at the time versus basically going the VC route was... Some things you can't necessarily do faster.
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