SaaS Interviews with CEOs, Startups, Founders
Details of $20m Revenue Profitwell and $55m Revenue Paddle Deal and what led to the $200m Acquisition
27 Jun 2022
Chapter 1: What is the significance of the $200 million acquisition?
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. So guys, hey, welcome to our episode of The Top. We're excited today to have Patrick Campbell and Christian with Paddle.
Again, obviously a major deal recently announced, and it's obviously exciting and certainly inspirational. But my hope today is to drill deeper into origin stories of both the companies and then leap forward back to today. What does 2023 look like in the space they're both now playing together in? So we're going to jump into all of it today. Christian, Patrick, you ready to take us to the top?
Vodka, let's go. Sweet. So obviously, Headlined, if you guys haven't read in the news, obviously you guys, Patrick, you sold your company to Paddle here recently. You chose to put a $200 million deal price. Just, I guess, tell me quickly why putting that price out was important.
Chapter 2: How did Patrick Campbell and Christian meet?
And then let's go to origin stories about ProfitWell and Paddle.
Yeah, definitely. So it was one of those things where, one, I think it's a good win for the team. We were a little nonspecific, like over 200 million, because also we're continuing to work on a team. And so it's like, I don't know, there's some advantages in being public. There's advantages in being opaque. We kind of chose translucent, basically. And I think it was one of those things.
I think it's a good win for the team. But also, I don't think... I think Paddle doesn't get as much clout as it should. And so I think this is kind of like our coming out party together of like, no, you should respect these guys. They have a CEO of a multi-billion dollar company recently told Christian, he was like, oh, what was the price? And Christian told him, he's like, oh, you have balls.
And it's like, yeah, we want to take this market.
Chapter 3: What are the origin stories of ProfitWell and Paddle?
We want to own the market. And that's kind of what's driving that decision amongst the team as well.
And to close that open loop, what do you guys define as the market you're playing in today? What are you going after?
Yeah, it's a good question. I think the way we've been looking at it is like payment infrastructure. I think that's a big thing that we think about. You have these infrastructure companies that are like Stripe in our space and then obviously like AWS and other spaces and stuff like that. And then
Those infrastructure companies help you support, build whatever app, like every single person you interview or listening to this podcast. We're kind of in the middle.
We're going to do for the subscription dollar what Salesforce did for the customer record, where a dollar through Paddle is going to be worth a lot more coming out of Paddle than using infrastructure that is currently on the market, basically.
So if you guys win, what does Zora's stock price go down to? It's a good question.
It's different.
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Chapter 4: What challenges did both companies face in their early years?
But I think that if we win, the entire market increases. There's a world where you're using Paddle products and still using Zorro as we move forward. I think we're going to have everything for you. But I think if we win, the entire market is moving. The entire subscription market is moving, if that makes sense.
I think also this space is so large. There are a dozen companies directly playing in it and probably several dozen, if not hundreds, playing indirectly in it. If you think of all the payment providers and the service providers and people like that who also play in this space, the TAM is huge. Yeah.
Yeah. The switching. I mean, Christian, you gave a great interview in 2020 with Dan Martell where you said, yeah, we are seeing a lot of people sort of switch from Zora for X, Y, and Z reasons. I mean, is when you're on sales calls, people switching to paddle, are you really, I mean, is it the switching from Zora? Is it from charge? Be like, where are you earning more customers from right now?
Chapter 5: How does Paddle define its market and competition?
I'd say it's probably reasonably distributed. It obviously depends substantially on stage. So by number, it's probably people building things themselves. Maybe they've cobbled something together from a handful of different parts. They're probably not using a billing system like Zora or anything like that. They've kind of got started with something. They've scaled to 50K in MRR.
It's gone from being a side project to a real business. And then they need the infrastructure in order to kind of help them scale. And they don't necessarily want to throw people at that. They want someone to do it for them. So by number, it's probably those. By scale of company, I think it's a similar story, but...
but there tends to be probably multiple systems, especially in these larger companies. We rarely see a company exclusively using one thing.
Chapter 6: What is Paddle's revenue model and how does it work?
They're often using different things for different markets and different territories. And one big piece of kind of the pull on Paddle is because we've been very internationally focused and do it for you focused on all of these things.
It becomes a point where you're doing $50 million in ARR, and it's coming through three or four different channels or systems, and you don't necessarily have a single source of truth for this stuff. So you decide to consolidate around one system. So it tends to be kind of both stories, different types of customer.
And just so people are not familiar, how is Paddle making money today?
So we monetize the transaction volume that flows through Paddle. We don't take a monthly fee. We don't take a minimum. We don't take a setup fee. We don't do any of that stuff. We only win when the customers win. So we monetize the payments that are coming through Paddle, regardless of the underlying kind of payment method that is used. And we take a percentage transaction fee.
Chapter 7: How did the COVID-19 pandemic impact Paddle's growth?
Still about 5%.
Uh, 5% and 50 cents is the kind of publicly available pricing. If you kind of self-serve sign up on the website, obviously there is a whole spectrum of customers. If you're doing a hundred million dollars a year, sort of the pricing does go down.
If your sales mix looks a little bit different, like you're heavily sales assisted versus like in doing lots of wire transfers and things like that and invoices. versus sort of credit card subscriptions, the pricing will look different again, usually to the downside. So sort of 5% and 50 is typically the maximum you'll be paying. And then based on those different factors, the price will go down.
Now, as we talk about how both you guys got going, ironically, I think both of you launched in 2012, which is fun because we can compare sort of even tracks here, right? But if we go back to 2012, Christian, was this always your billing model? Was it always 5% and 50 cents or have you pivoted over the years?
I think we had slightly higher pricing in the beginning. It was like 7% or 8% or maybe even 10%. And that was really when we were focusing on the initial people that we built Paddle for were people who look like me. So pre-Paddle, I built a software company.
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Chapter 8: What lessons were learned from the acquisition process?
Really ran headfirst into the problem that we try and solve, scaled it to 3 to 5 million in ARR, and ran into this problem where we had a few hundred thousand people using these products and tens of thousands of them paying for it in every country you can imagine. and ran headfirst into these challenges of how we scale.
So initially was building it for kind of the indie hacker, the bootstrapper, the kind of person like that picked a very simple kind of pricing model, which I think was about 10% of transaction. And then gradually you realize that sort of 10%, like a flat percentage doesn't necessarily work kind of quite as well as a percentage in a fee. And then kind of just adapted from that.
But we sort of, it's actually one of the funny parts of like this deal of like, we've obviously been, acquired a company that are probably the number one experts in pricing that exists sort of in this space. And I don't think that we've changed our pricing for maybe five years.
So there's a pricing change coming up, Patrick, huh? There's a pricing change.
So I think what's really kind of funny and what I was going to jump in there with is like, when you look at 5%, it's like, oh my gosh, there's an initial reaction and that does happen on the sales call. But to contextualize that, it's not like we're just processing payments. If we were just processing payments, that would be a very dramatic, oh my gosh, why are you guys so expensive?
I think what people don't understand is the complexity of what Paddle actually does. Tax is completely taken care of. Not like, hey, we show you how much tax. It's like, no, no, no. It's completely taken care of. Like, if your tax gets messed up, we go to jail. You don't go to jail. We go to jail because we're the ones that are actually paying those actual taxes.
We handle payment orchestration in the sense of, oh, it looks like checkout.com is a better backend. That's what we're going to process the payment through versus Stripe versus where these other things are. And then currencies, all this other stuff out of the box.
And so that's the thing that I'm working on in terms of pricing is how do we best contextualize it so that when you look at that 5%, you're not like, Comparing it to, well, if I spin this up myself, I only pay 2.9%. For actually what we're doing, it's relatively inexpensive for all the back office stuff that we're doing for you, essentially. And so, yeah, it's definitely a project I'm working on.
Now, guys, as we keep building on sort of the story and go touch base with Patrick here in terms of how he launched. Christian, I mean, you did this. How old are you today? I'm 27. I'm 28 next week. Oh, happy early birthday. Very cool. When you hit, though, your first million bucks in revenue on that first project, how old were you?
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