SaaS Interviews with CEOs, Startups, Founders
Brazilian Cloud Security SaaS Hits $750k ARR With $350k Raised, Opening $5m Series A Soon
03 Oct 2021
Chapter 1: What is the main topic discussed in this episode?
Last month in US dollars, like $300,000. No, sorry, $650,000.
In terms of ARR?
In terms of ARR, yeah.
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 Enrique Vaz.
He's the co-founder and CEO of CleanCloud, a Brazilian cloud security startup. He worked for a few years as a corporate lawyer and then became an entrepreneur, founding four companies across multiple industries. Enrique, are you ready to take us to the top?
Yes, great to be here, Nathan. Thank you for the invite.
You bet. Okay, so CleanCloud, who's paying for this? Help me understand who your customers are.
Okay, so we are focused on mid-market and small and medium enterprises. So companies, especially on highly regulated markets, such as financial sector, health, insurance, and things like that.
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Chapter 2: What is CleanCloud and who are its target customers?
Got it. And then frequency of compliance check. So higher frequency and more databases means you're charging more money. Exactly. Okay. And give me the backstory here. When did you launch the business?
So we started CleanCloud back in 2017. We started looking for security, performance, and cost reductions. And what we saw over the first two years that our customers were looking for cost optimization opportunities, and there was a big gap and a big need in the market for compliance solutions.
So we pivoted in 2019, and later that year in December, we launched King Cloud Score, focusing, like I said, on the main compliance and frameworks and benchmarks for AWS Azure and Google Cloud.
And sorry, you said 2019? 2019, yeah. Okay, got it. 2019. And have you bootstrapped or did you decide to raise capital?
Yeah, we raised a small round with a VC here in Brazil called Vossa Nova when we first started. Then we had a pre-seed with a friend and family and then a seed round led by two angel groups in Brazil, Angels of Brazil and GV Angels.
Mm-hmm. So that seed round that you did in 2019, how much was that for?
It was a small seed, like 250K US dollars.
Okay.
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Chapter 3: How does CleanCloud's pricing model work?
And how did you do that? Was that on a convertible note? Yeah, convertible note, yeah. What cap? Do you remember?
On that round, there was like two valuations because at that time we had one co-founder that left the company. So we had this primary and secondary valuation and the average, we don't discuss this number, but it was around $2 million. Yeah.
Well, you bring up a good problem, which is there's a lot of people that a co-founder leaves and you have to figure out what valuation do you buy them out at versus then what valuation do you go raise at? And usually you want to buy them out at the lowest price and then go raise at the highest price. So how did you manage that?
Exactly. A good thing is that we didn't break up or anything. He had some personal issues that he lacked, left the company. And he has some experience with startups. So he knew that with the percentage he had, which was 20%, the company wouldn't be able to raise another round or a series A, whatever it is this. So it was a good conversation. Of course, it's a difficult conversation to have.
Hey, investors are coming in at X and you're leaving at Y, which is three, four, five, 10 times lower. But he understood the issue. He understood what was fair. And what we did is that we buy out 75% of his equity. So he kept a little bit because he was in the early years of the company and we found this was fair.
And so we were able to get to this number and ended up being good for everybody because for the investors, they could got into on a lower valuation when you look at the average. And for me and my other co-founder, Jefferson, which is our CTO, we were able to cap more of our equity.
So just to be clear, Enrique, he owned 20%, the co-founder. You bought back about 75% of his stock, which is about 15% of the business at around a 5X valuation discount to the 2 million. So somewhere around a valuation of like 100 grand, 200 grand, something like that.
Exactly, exactly. Something between 5 and 10X discount.
Yeah, that's great. So if the valuation was like 200 grand to buy back his 15%, he got like a 10 or $20,000 check basically to sell back 15% of the business to you guys.
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Chapter 4: What was the backstory behind CleanCloud's founding?
Yeah. So if you raise 5 million and you only want to sell 25%, you'd be looking at like a, call it a $15 million pre-money valuation, something like that.
Yeah. I think there'll be something between 10 and 15. Yeah.
Robert Leonardus Which would be a 15 to 25X multiple on your about a million dollar run rate.
Yeah. Yeah.
Yep. It feels pretty market. It's exciting. Now, you mentioned CapTable and early investors. You already told us about your co-founder. How much do early investors own?
Around 30%, including the founder that led the company. So on our seed round, we created an SOP, stock option pool. So we have 70% on let's call insiders, me, my co-founders, and some employees. And 30% on investors.
Breakdown, you guys, the co-founders versus your ESOP. How much do the co-founders own? Just you two alone?
The ESOP is like 13%. I see. And the reminder, 27, 30% each, right? Yeah. 31.5% each.
Got it. So you guys as co-founders own about 62%. Your ESOP pool is 13% and early investors own still about 20%. Exactly.
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Chapter 5: How much funding has CleanCloud raised to date?
So someone with that kind of strategy, some companies with PLG strategy on their portfolio would be interesting as well.
And Enrique, what's the team size today? How many people?
We are with 22 people right now. We are here in Brazil working on a hybrid model, sales and product coming a few times a week to the office and the development team 100% remote. And how many engineers are there?
We have six engineers. Six engineers. Any sales reps that carry a quota?
Carry quota three. Three. What's their quota? Two. Two and ahead of sales. Their quota is $60,000 a year, USD.
What does that mean, $60,000 USD a year?
$60,000 in ARR is their quota.
If they only close $60,000 in new ARR each year, that barely covers their base compensation.
Not really. Their fixed compensation is like $1,000 a month.
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