SaaS Interviews with CEOs, Startups, Founders
Gus Chat Raising $5m on $15m Pre Right Now. Are The Worth That Much?
06 Jul 2020
Chapter 1: What is Gus Chat and how does it improve customer experience?
The thing is I'm focused on my average particularly because we're trying to turn a lot of our customers. So the ones that were paying $10,000, we essentially started losing all of those. We still have some consumers paying $1,500. Just take into account our general average would be $7,500 a month. You are listening to Conversations with Nathan Latka.
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My guest today is Pablo Estevez. He's the founder and CEO of Gus, an AI company that helps companies improve their customer experience with AI and virtual agents. All right, Pablo, you ready to take us to the top? Yeah, man. All right, so how is this different than call it Intercom, Drift, these other kind of chat tools? Definitely.
I mean, well, on the first hand, Intercom drift in these platforms, what they're really focused on, the case of Intercom, they're kind of more focused on how your agents respond to messages, and they still have a lot of a human-powered drive. Really, what we do with Gus, we focus way more on how your consumers speak. Obviously, we automate, so we don't have the human element.
So we focus more on how your consumers speak, how they consume from your brand. And we use all these data points that we collect. And in real time, we actually create a different customer experience for each person. So if you chat with someone on an intercom, the person on the other end is going to treat you personally, but...
They're not going to be able to be quick enough to know like, hey, this type of consumer that's bought this amount of products, we should upsell them on this particular functionality. Whereas our algorithm actually works in real time. They can do that for you. So that's particularly true with Intercom. And then with Rift, we're a way more enterprise solution. So we actually work with a brand.
We do all the user experience consulting. And then we create an enterprise solution that's implemented. It's way more robust. versus Drift, which is just kind of like a few questions, which works very well for medium-sized brands, but we work exclusively with enterprise. Okay, so what's your sweet spot in terms of pricing? Are brands paying $1,000 a month, $10,000 a month, a million a year?
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Chapter 2: How does Gus Chat differ from other chat tools like Intercom and Drift?
So you'll sell 25% of that company. Yeah. Do you have to do that? I mean, can you get, I mean, it's a lot of dilution. Is there some, do you really need $5 million to drive growth? That's a great question, man. I mean, we're obviously looking at alternatives. We're looking at financing as well.
We found an interesting company, which I won't disclose the name of just because I haven't run it through them, but they're quite interesting in financing a lot of the contracts. So we have... more than a million dollars in contracts. And you're like, look, for that million dollars in contract, if you give us a 20%, we'll give you an additional million dollars of direct financing.
And it's not an equity round, so that could be interesting. But in general, look, we want to push to grow. We understand that our business right now is very healthy. And if we hit the growth target that we think we considerably could hit, our next round would be a very big round. We expect to reach $7 to $10 million in reoccurring revenue with this round.
So we also have a problem on the opposite side. And when do you think you'll hit $7 million run rate? 2021. Okay, so assuming you raise $5 million on like a 15 pre in the next, call it six months, you feel like you can reinvest that quick enough where by the end of 2021, you're doing a $7 million run rate? Yeah. Up from about a $1.8 million run rate right now? It's been lower than that, but yeah.
Okay, well, 1.5-ish, 1 point, yeah, in that range. OK, interesting. Yeah. So I mean, the debt financing stuff is interesting, right? What you're referring to is an accounts receivable lender. There's a lot of these folks out there where they essentially will pay you up front for these contracts. But sometimes it can be pretty expensive, right?
It's like 20 percent kind of interest rate effectively if you calculate it. Is that what you've seen? Yeah, that's exactly what we've seen.
We have 85% margin, so in theory, and we've just started exploring this, so I haven't made up my mind as to how beneficial it could be to the company, but judging with our margins, in theory, it seems to be profitable, but I think it's really going to come down to when they actually pass an offer, and that's when we're going to be able to say, hey, look, there's something we can do right now.
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Chapter 3: What is the pricing model for Gus Chat's services?
All together. And why is that the right number? Excuse me? I can hear you cut off. Why is that the right number? Well, we kind of hit that quota target based on growth metrics we're looking for from last year. We're going to be way more aggressive in the coming year. But again, a lot of the focus for this year, we were way more focused on what's our cost of acquisition.
We bought down from $22,000 to $14,000. We were focused on what's the conversion that the sales development representatives from getting from email to qualified lead and what's a conversion between qualified lead and one customer. And the reason we did that is because the company was doing very good. The product is clearly doing great. We had a high product, a high market demand.
But over the time, we realized our sales team was just kind of like chasing a lot of leads, not a lot of them were qualified. So we said like, look, we're raising a growth around next year. Let's focus right now on a specific, on specific clients where we can have a high, uh, high return on investment for them.
Uh, and, and we kind of been structuring over the last six months, um, just economics of that round of, uh, sorry, of, of the sales team with the hopes that when we raise money, um, we can keep our CAC at the same $14,000. You're spending $14,000 right now to get a new $10,000 a month account. Roughly, yeah. Okay, so your payback, there's like two months, basically.
Why would you not, why not be more aggressive there, especially if you're raising a bunch of capital? Well, once we have the venture capital, we want to be way more aggressive. Are you burning capital today? Yeah, we're burning very little, but like roughly $10,000 a month. Okay, I mean, that's, I mean, how much do you have left in the bank? Is it enough runway?
Yeah, we have like $80,000, $90,000 in the bank, so we have eight or nine months. But, so essentially, like, we're ready to scale. We're about as ready as you can get to scale. Yeah. Churn's critical in a SaaS company. What's your gross revenue churn over the past 12 months?
I mean, again, the only customer, we've lost essentially since we last spoke, three customers that we kind of intentionally churned because we were paying so little. What's your number though? So gross revenue churn. Gross revenue churn, I mean, those three customers were paying roughly like $3,000 a month out of like an $80,000. So I mean, so $3,000 out of $80,000 MRR. So call it like 4%, 5%.
And expansion revenue has been, it sounds like, pretty good, right? So is that like, what's expansion revenue on the cohort over the past year? So we have 125% net revenue retention rate. And yeah, so expansion revenue. So just to give you an idea, a traditional client of ours would start with $3,000 and is paying today like roughly $12,000 over the course of 12 months.
But every customer wouldn't do that, right? I mean, otherwise you would be...
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Chapter 4: How has Gus Chat's customer base changed over time?
Yeah, exactly. So particularly what we did since we last spoke, we had a lot of customers. Of those 35 customers, a lot of them were very small companies. We focused in the last year on just acquiring enterprise brands. And within enterprise brands, we must roughly have today signed like around 13, 14 customers, of which since we last spoke, we maybe had three or four.
And those three or four that we last spoke have grown from essentially paying $1,000 to $3,000 a month to paying $10,000 to $12,000.
yeah no that's good that's good stuff all right let's wrap up here with the famous five number one favorite business book i just read super forecasters forgot the name of the author but it's phenomenal number two is there a ceo you're following or studying no not really number three what's your favorite online tool for building the company um hubspot which i think that's constant number four how many hours of sleep to get every night eight or nine and uh so what's your situation married single kids single uh okay and how old are you
I'm 25.
Chapter 5: What are the revenue growth metrics for Gus Chat?
25. Last question. What do you wish your 20 year old self knew? Um, lately I've been, I've been working a lot on focusing more on specific tasks. I've cleared up a lot of my calendar and I, that's something I recommend to a lot of people. So every day I have like roughly three hours with no meetings, sometimes even more.
Uh, and if I'd been doing that since I was 20, I think the company would have focused more on critical pain points and not just what's coming up on my calendar. Guys, there you have it. Gus helping 45 customers increase customer retention, increase sales and save money. Doing call at about $100,000 per month right now and revenue up from $40,000 a month just a year ago.
So healthy growth caught 160, 170% year over year. They raised about $1.5 million total to date, burning about $10,000 per month, $90,000 of cash left in the bank with a team size of 35 people, 12 engineers. three quota carrying reps, 125% net revenue retention, a two-month payback period, now targeting a $5 million raise on a $15 million pre-money valuation. Pablo, we're rooting for you, man.
Good luck. Thanks, man. Take care.