SaaS Interviews with CEOs, Startups, Founders
How Cyber SaaS Hit $2m ARR and 190 Customers So Fast
10 Aug 2023
Chapter 1: How did Darren Gallup achieve $2 million ARR with Carbide?
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Guys, 2007, he launched a tool for music festival to manage their events in Canada called Marcato.
By 2014, he was counting customers like Bonnaroo and Coachella, ultimately grew it into 2018 to $2 million in ARR profitable, basically bootstrapped with 14 people, sold it for a 5 to 10x multiple, and then got into Carbide because he was frustrated with all the security protocols he had to do at his first company, Marcato. Now today, Carbide has raised a seed, sorry, a pre-seed, a seed.
Most recently, that seed was in 2021. They broke 500k of ARR at that time, raised $4.1 million. Today, Over 2 million in ARR, targeting 3 million by end of Q3, and 4 million by the end of the year. Already serving 190 customers, helping them do things like SOC 2 compliance, get expertise in the cyberspace, along with three very powerful feature sets and feature tiers.
Hey folks, my guest today is Darren Gallup. He's the co-founder and CEO of Carbide, a cybersecurity firm that provides businesses of all sizes with the tools they need to adopt a strong cybersecurity and privacy posture, enabling them to protect their data from cyber criminals, transform security from potential liability to competitive advantage, and accelerate their growth.
Darren, you ready to take us to the top? I'm ready to do it. Let's go. All right, let's rock and roll here. So first things first, can you give a story of maybe a customer that used you today and how they use you, their specific use case? Yeah, you know, I'd say the majority of our customers have pretty similar use cases. And usually what it is, is they're selling a product.
A lot of times it's a SaaS, software as a service type product. They have some degree of confidential information. Maybe it's personal identifiable information, healthcare information, financial information, which are pretty common classes.
And they're selling to government, they're selling to enterprise, and they're being required to comply with a variety of cybersecurity best practices, standards, and frameworks. They may need something like a SOC 2 audit or an ISO 27001 audit. And more so nowadays, we're seeing on top of those requirements, they're getting requested to comply with various different data privacy regulations.
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Chapter 2: What challenges did Darren face while building Marcato?
Where we generally focus our energy and where we have more success with customers is when their needs are more complex than just simply getting a very fast and dirty audit. For SOC 2, it's when they have more multi-compliant environments, or they're just being required to do more above and beyond the simplicity of a SOC 2, for example.
Okay, and so with all that in mind, I sort of think of you as an enterprise version of Vanta based on what you just said. What's the average customer paying you per month or per year to use your technology? Yeah, it ranges anywhere from $7,500 to about $30,000. We do have an enterprise-grade package that can climb north of that substantially, but we're still working primarily with SMDs.
Like, we have a lot of customers that are as small as 20, 30, 40 employees. We have, you know, I'd say the bulk of them are probably more like 100, 150, 250. That's where we see a lot more. But we have tons of smaller customers that just because of the nature and complexity of what they're doing and the types of customers they have, They need something more complex.
They need something more rounded in their security program. What are the pricing axes that you're upselling against? Is it number? You just mentioned FTE. Is it feature-based upselling or some utility-based upsell? There's a little bit of both. So there's definitely a feature. There's like three tiers when it comes to features.
There's also a layer that we can put on top of our plans that provides expertise. So a heightened degree of expertise. I'm not talking about just standard customer success people, but having access to information security, data privacy expertise, running workshops, some upskilling to your team, that is a premium feature. But yeah, we do have our tiers, they're feature-based.
And then for our larger businesses, we do have a per customer sort of buckets
um that that sort of get involved we do our we do deals with companies that are say four or five hundred six hundred employees um they're paying a little bit more because of the volume of people and that are integrating with the and interacting with the tool i didn't hear you say anything that wasn't necessarily utility based up so i heard three feature buckets they can pay for services in the form of experts heightened expertise and then lastly you said three four or five hundred employees so just to be clear is there any numerical based upsell that is not a seed base for example
number of API calls per month, number of reports done per quarter, anything like that? Yeah, I mean, now that we're starting to launch a lot of stuff that's integrating with AI, there are some thresholds that are bucket into those tiers right now. I expect there'll be some more stuff like what you're referring to as we launch more and more of our AI-based features, because there are
sort of per quota token costs associated with that. So I would expect that we'll start rolling out more of that type of stuff as we start rolling out more of our AI-based features over the coming months. Okay. And Darren, give me more of the backstory here. What used your launch company? Yeah, it's pretty fascinating. My background is actually in music.
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Chapter 3: How does Carbide help businesses with cybersecurity compliance?
What was 2014 revenue on that music business, that music SaaS business? Revenue at that business, we sold that business in 2018. It was just over 2 million ARR. It's a pretty niche product, right? Yeah. Yeah. Okay, so from 2007 to 2018, you grew it from zero to $2 million in revenue, and then you sold it in 2018. Yeah, it was a profitable company at a little over $2 million in ARR.
Small team, like there's 14 people. We had like 300 events around the world that used some form of the platform and we sold that in 2018.
And that was really what got me into security because we were finding that later in the life of that company, as we started working with more corporate owned events, like, you know, properties owned by Disney and Live Nation and AG Live and organizations like that, we were putting through, we were starting to get put through pretty rigorous cybersecurity assessments and then data privacy elements were starting to come about with things like GDPR and
whatnot. So that just became a really big focus of my energy in the last couple of years of that business, keeping the company compliant and keeping the company trustworthy on that security front. So it kind of forced me to get pretty knowledgeable about the topic. And I ended up doing a couple of courses and it did a CISSP by the end certification, did a privacy certification as well. And
Just out of that journey, I started looking around and be like, oh, man, this is going to be like a big problem for a lot of companies. This is going to be a really fascinating transition where, you know, historically, people were kind of like make things fast and break them. And there wasn't really a lot of sophistication around looking at startups from a security trust perspective.
But that certainly really, you know, the needle on that turned really quickly. And that company was called Mercado, I believe, correct? That is correct. Yeah. You move past this, you immediately go into a carbide and cybersecurity like quick, almost like you almost, almost the way you say it's like, you want to move on so quickly.
It makes me feel like you feel like it's a weak story that it took you that long to 2 million in AR bootstrap. But I love the fact that it's a $2 million bootstrap profitable software company with 14 employees. I mean, that is like the new American dream. It's just, people don't celebrate that. So I want you to know, I love that story. I think that's fantastic.
Did you, what else did you learn sort of You're doing something very different now because you've raised a bunch of VC, right? So when you compare what you're doing now versus the good old days of bootstrap, profitable, no board, do what you want. How do you compare the two? Yeah, I mean, if I were, you know, I would there's pros and cons to both avenues. Right.
You know, I think I like the bootstrap approach. I mean, you could sell the company, have a much smaller exit.
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Chapter 4: What distinguishes Carbide from competitors like Vanta?
One to 2 million raise, something like that. You got it. You got it. Yeah. Cool. And then you did a, and I guess, why did you, you just made a bunch of money. Why go out and sell 15, 20% of your company on day one for a million bucks? I assume you could have self-funded. Yeah. But you know, I also had other personal projects and other things I wanted to self-fund. Okay. I see.
You know, and then you move forward to do the seed round. When was that? That was in 2021. Okay. Okay, 2021. And what kind of traction did you need to show sort of in that round to make sure it was a competitive round on terms that you liked without being super dilutive and a lot of negative backfill terms? Yeah, I mean, we were shy of a half a million in ARR.
So, you know, I think what helped us, though, is that the space was pretty hot. Yeah. Yeah. Yeah. I was sorry. I just got your events business mixed up with what you're currently going. And events in 2021 were not hot. So you sold. Yeah. Pretty stoked to get out when we got out to say the least. Yeah. How much was the seed for? 4.1. Okay. 4.1.
And then what was the thesis when you raised that money? You said we want to use this money for X. Yeah. I mean, it was really a double down on, you know, build out a sales team, bringing, bringing a leadership team. Like it was really just my co-founder and I kind of spinning plates and, building the business.
So we wanted to bring in a leadership team, some VPs to run departments, sort of formalize the business, put some more energy behind sales and market, and put some more energy behind building out our product, right? Because we were still pretty early. What's the full-time team size today then? Yeah, 34 folks on the team right now.
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Chapter 5: What is the average pricing structure for Carbide's services?
Wow. And that's up from what in 2021 when you did that round? I got about 16 or 17. 17, probably something like that. All right. So you've definitely made some hires there. So, and so, sorry, pre-seed, seed, and you have not done a series A yet? We have not done a series A. We are, we're starting conversations right now and hopefully we'll, you know, we'll be talking about term sheets in July.
Well, why now? I mean, many would say, I mean, some people would hear this podcast and go, man, Darren must really need the money because no one is raising equity right now because the market is so compressed. Now would be the last time you'd want to raise equity. Yeah. Yeah. You know what happens when everybody thinks that it's a really bad time to do something?
It can surprisingly be a really good time to do something. So what I see out there, if you look at the venture market, there's a lot of companies, there's a lot of venture, there's a lot of dry powder. There's a lot of firms sitting on money. So when you have a company, there's a lot of companies that are flatlining right now. They're really struggling to hit their targets.
So if you are, like for us, for example, we're 105% on target so far this year. So That's in a rough time. Now, we've been somewhat conservative looking at the situation in the macro environment to make attainable targets. Conservative goals. Right. You know, but sometimes, you know, investors are, investment isn't always magic, right?
Like it's a lot of, you know, it's a lot of sort of, you know, looking at America's opportunities. Like right now, we're still closing a lot of new business month over month. We've got different actions that are working and we want to put more velocity behind it because it's working.
I think the time to raise capital is when you have the ability to spend money and know that it's going to result in revenue growth, then spending money makes sense. Now, we might get shit terms and decide, you know what, let's just go more into boots. Let's stay in a more bootstrap mode.
At the end of the day, if we didn't do the Series A, we've got road to break cash flow positive by later in the year. What happens? End of the year. I would get it. Yeah, I'd be like December, January, February, you know, in that range, we'd be we'd be crossing over into that sort of, you know, cash flow positive point. So that's an option. Right.
So, you know, we're out there talking to people like, sure, we're not going to take a shit deal if we get to really if we get a reasonable deal. And, you know, it's again, it comes down to like, well, are these terms and is the solution in the end? Is it worth the value of growth trajectory transition that we can apply to the business by executing the capital? Right.
Darren, before we wrap up, yeah, I totally understand what you're saying. It makes tons of sense. Where are you today, though, in terms of total customers actively using the platform? Yeah, we've got about 190 customers on our platform right now. 190? Yep. Oh, that's great. Okay. Well, I mean, at that minimum, ACV, you told me earlier, I think you said $7,500. What would it be?
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