SaaS Interviews with CEOs, Startups, Founders
Just $10m raised to hit $30m in ARR, how the king of capital efficiency did it
16 Aug 2022
Chapter 1: What is the story behind Chris Morentes and Surefire Local?
We have, you know, about 6 million in cash that we raised. I acquired three companies along the way. So, you know, for all stocks, so, you know, a capital stack of around 10 million in preferred. But then, you know, when we felt like we got the product to a point that it was the best product in the space, and we are right now, we've accelerated that.
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 Chris Morentes. He's a technology entrepreneur and business leader on a mission to help small businesses leverage the power of digital transformation.
He's the CEO of Surefire Local and has focused the company's efforts to build powerful marketing solutions that give SMBs cost-effective, easy-to-use tools, usually only available to the big guys.
Chapter 2: How has Chris achieved capital efficiency in his business?
He's having a lot of success doing it. Chris, ready to take us to the top? Yes, let's go. All right. Now, pre-show, you were just telling me how capital efficient you are. I don't know what you can share or not, but you've got to brag a little. I'm giving you permission to brag a little bit. Can you share a little bit about how capital efficient you've been?
Well, we've been doing this for 10 years, and we also are a company that had to make a transition from managed services to now being a software company. But one of the things, having been around the block and a little bit of an older entrepreneur, shall I say,
Chapter 3: What challenges did Chris face transitioning to a software company?
is making sure that you retain control of your company. And you talk about this, Nathan, all the time in your blogs, your interviews, everything you do. But two things happen when you raise a lot of money early. One is you lose real control, operational control of your business. But two, you really own a small fraction of that business. And in all likelihood,
you're going to continue to lose more of that business because the whole game in the VC world is let's get in and fund this company, get them to either fail fast, spend a lot of money, or if we see them spending money and getting some traction, we'll put more money in. What does that do? That continues to dilute you. They are not on the same page.
operational plane as an entrepreneur and you know that's a it's not to say vc money isn't good or they're not good people or they're not yeah i don't want to you know just cast a dispersion over them but you know if they're not you know they're not in the same um you know the same objectives that you do as an entrepreneur i started this to serve a market and by serving that market
to make money for my family and myself and my investors. And what year was that? When did you start, by the way? 2010. And so are you able to share how you structured your capital stack today? Are you able to share sort of the equity you raised versus the debt? Yeah. We have about $6 million in cash that we raised. I acquired three companies along the way for all stocks.
Chapter 4: How does Chris structure his capital stack and funding?
So a capital stack of around $10 million in Preferred. But then when we felt like we got the product to a point that it was the best product in the space, and we are right now, we've accelerated that. Then I knew there was time to make the bet on the go-to-market.
And that's when I started, we're an Austin-based company now, started the Austin office with Mike Pierce and the crew down there, and really took that debt to really accelerate the go-to-market and get that go-to-market motion right. And that's when debt really works well.
I mean, it's okay to use friends and family money to get the product right and start to feel like you got that product market fit. Debt is a great way, non-dilutive way, to really accelerate growth and get to breakeven. So how much debt did you raise? Total right now, about $10 million. So more than the, or almost equal if you include the dollars for the acquisitions, but about equal.
Almost equal. And like I was telling you earlier, we'll exit this year about $30 million ARR, growing ARR at about 70%. And we'll be at breakeven. We'll actually just about there. Any day now, we'll get there again. We were at breakeven. Before that, in the earlier days, that's why we were very capital efficient.
And then we started spending money to build the whole go-to-market and customer success organization and be able to scale that and use debt to do that. And now we're getting back to that break-even.
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Chapter 5: What strategies did Chris use to accelerate go-to-market efforts?
We'll be able to continue to grow above 50% without any other new capital. And I'm able to make, with the board, good decisions on where we want to go from here. And Chris, a couple of things on the debt side, because you've done a really good job getting fantastic terms. And full disclosure, guys, we missed Chris. We were too small when he was raising $10 million in debt.
So we, unfortunately, did not get the privilege of doing his deal. Maybe in the future, though, we'll see. I would do 1-800-Nathan for debt at this point in time. Well, look, it's a big space. We're happy and we want to chat about all the options. So I believe you're working with Bridge Bank and Recurring Capital Partners, and they've been great partners for you.
Help other entrepreneurs understand what are some of the things that a founder should negotiate for when they're raising debt from anyone? Us, Recurring Capital Partners, Bridge Bank. Yeah. So when you're super capital efficient and you don't have a
VC sponsor, it's tricky because the traditional banks like Bridge Bank or Silicon Valley Bank or Signature, some of the other ones that a lot of folks have heard of, their go-to-market plan is get a company just raised a bunch of money from a VC, give them a revolver, and they know that VC is going to back up that debt play, and they're not going to ask for personal guarantees, right?
So we're talking about debt without any personal guarantees, which is important for most entrepreneurs. You guys, you shouldn't be signing any debt deals where you as the founder are signing personal guarantees. We obviously don't ask for that at FounderPath, but if anyone asks for that, you should run.
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Chapter 6: How does Chris utilize debt to drive growth?
There's too many other good options. Exactly. Yeah, yeah. Exactly. So the way you could do that is really simulate the VC by doing a deal with like Founder Path, with you guys, Nathan, or Recurring Revenue. There's others in the space too, in the venture debt space. If you've got a good story and you're showing traction in growth, you don't have to be at even break even, but if you're showing
that you've got a product market fit and you could grow and you've got that, you're somewhat dialed in, you know, you could go to a venture debt provider and you could get some type of a multiple on your debt.
And, you know, once you do that, if you start to really show that you're using that debt wisely and you're able to continue to expand, then all of a sudden you make the other banks like the bridge banks and others feel comfortable that, you're not that kind of a risk anymore. You needed recurring capital partners first and prove that it worked and then brought in Bridge. Exactly. Exactly. I see.
We happened to use Tamiya first, and then we settled Tamiya and brought in recurring for various reasons. But we were able to get Bridge Bank in once we got... to me, in place for $3 million at that time. Yeah. There's all kinds of flavors of terms associated with the Tamaya loan or current capital markets and the thousands of other, not thousands, dozens of other players out there.
Let me just fire a couple at you and see how you respond.
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Chapter 7: What are Chris's insights on customer success and retention?
Chris, I'm going to act like I'm Bridge Bank. I'm offering you $10 million. Do you want a 12-month payback period or a 48-month payback period? And how should founders think about payback periods? I would move that payback period as far back as you can. Because it's sort of like a balloon loan for a home. All of a sudden, you're just going to owe a bunch of money.
And really, as an entrepreneur, you just want predictability for as long as you could get it. So I hope that answers that question. Okay. Let me give you another one. I have another hypothetical that I know my audience is thinking about. Hey, Chris, I want to give you a $2 million loan against your B2B SaaS revenues.
I can either give you a flat sort of 16% interest rate with a four-year payback, or if you want a lower interest rate, I can give you a 10% interest rate, but with 2% warrants. Which deal would you take? For me personally, I would rather not give up the warrants. You know,
you know, because, you know, I mean, the whole purpose of debt is that you try to limit, you know, but it depends on how big the warrants are and what kind of a partner it is. I wouldn't say it's off the table at all. You know, and if, you know, if it's a reasonable sort of warrant conversion and, you know, and even you can game it where you can put incentives in place for you to
Chapter 8: What advice does Chris have for entrepreneurs regarding funding?
Usually, this is a bridge to, ideally, a private equity round, not another venture round, but a private equity round. You should be thinking about how your business is going to mature over the next couple of years, what that ideal place is going to be, and you could game optimizing the cost of that loan. to where you think that's going to be. Let me give you another one.
This one's a little bit trickier, but I know you've seen all this, so you're the guy to answer. Hey, Chris, I'm going to give you a $2 million loan. We can either give you a 15% flat rate and no cash covenant, no 1% draw fee. no 20K legal bill at the start.
Or, you know, we can give you 12% capital, so cheaper interest rate, but we require you keep a million of the 2 million in the bank at all times. You're responsible for our legal fees at the start. And there's other sort of backfilled terms. How do you think about those two things? Yeah, I'd rather like, you know, look, when you're doing venture debt, it's going to be expensive.
And if you're talking about it, like when you do that, as an entrepreneur, you've got to be of the belief that the value creation you're going to be able to do, because again, the thesis here is that you're using that debt to really accelerate sale.
You know, you're not using it for product development, all those, maybe a little bit, whatever, but, but really, you know, it's to accelerate sales, you know, and, and I could tell you my personal experience is,
when I did that, that deal two years ago, you know, we were hanging around 10, 11 million ARR, um, had a great product, but you know, if you think, so I can't tell you how many people Nathan were telling me, you're crazy. I can't believe you're paying that much for debt. Okay. Well, I, quadrupled the valuation of my company for my investors in May. Is it expensive?
That's why the key decision is that with that money, you're going to be able to really drive value and you're super confident of that. Whether it's two points here or two points there is not going to make or break. I'd rather have less cash going out the door so you're able to create more value. Yeah.
My counter would have been, no, the debt might be 19% interest, but you know how much the equity would have been worth if I raised and then quadrupled the valuation, right? It would have been way more expensive there. Yeah, exactly. Exactly. What is going on podcast crew? I want to let you guys know I'm recording this just for you.
We've got the big event coming up here shortly in about two weeks. Founder 500 in Austin, Texas. We've got over 500 B2B SaaS founders getting together. Over 100 of them have more over 150 actually have more than a million in revenue. It's maybe the largest gathering of B2B SaaS founders with real revenues. anywhere in the world. It's just going to be an amazing group.
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