Chapter 1: Who is Anand Kulkarni and what is LeadGenius?
Good morning. Our guest this morning is Anand Kulkarni, and he's really a special guy, president and co-founder of LeadGenius, backed by Y Combinator, 500, Andreessen, and Sierra Ventures. LeadGenius has raised over $8 million to pursue a combination of sales automation technology and anti-poverty social work.
In a previous life, Anand was a mathematician, NSF fellow, and PhD candidate at Berkeley, where he taught entrepreneurship to undergraduates. Anand, are you ready to take us to the top? Absolutely. Let's do this. All right, let's do this. So first things first, right before LeadGenius, were you teaching full time? I was and I was not. I was a researcher at Berkeley.
In my spare time, I would teach classes as graduate students often do. I was drawn to entrepreneurship because that's where a lot of the fun was in teaching. Got it. So walk us through what LeadGenius does and how you make money. Sure thing. So LeadGenius is AI for sales. We think of it as top of the funnel automation.
Companies come to us when they're looking to map out new leads in their market, people who are going to buy from them in the future. We automate the process of figuring out all the companies in their space, all the people who are decision makers at those companies, figuring out how to contact those people.
And then we automate the email back and forth going from our customer salespeople to the prospects that they want to speak to at those companies. So can you give a real life example just to really bring it home? A real life customer? Sure. Sure.
So we've got a company who is right now using LeadGenius to map out every director of IT at a Brazilian telecom company with the interest of selling them IT products and services. So they were interested in companies that were between 100,000 in revenue and about 10 million in revenue. So there's a finite number of those companies. That information is always changing.
We use a combination of crowdsourcing and crawling to go out and find this information from a combination of public databases, company websites, as well as social networks, personal profiles, and so on. So the end result was a set of companies that they wanted to sell to and an effective way for them to reach out and talk to them. Okay, and what do they pay you for this?
So we generally charge between $2,000 a month all the way up to our biggest customers who give us up to a million a month. It really depends on how hard it is to find those leads in particular. Okay, so give us a sense. First off, what year did you start the business? This was 2011. 2011 you started it. And give us a sense of size. So in 2015, what was total revenue?
2015, we got up to just about $8 million a year. Okay, $8 million a year. And you look at this as a SaaS business, right? We treated it fully as a SaaS business, that's right. Okay, so it's fair to say you were doing about $650K in December, which forward-looking run rate is $8 million. That's right. Okay, very cool.
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Chapter 2: How does LeadGenius automate the sales process?
And let's just use February 2016 as the month to take data from. Sure. We serve enterprise customers and that's a segment where we're looking at about 200 customers and some change. Okay. And average revenue per user is approximately what? Right now it's close to $40,000 per user. And that's annually or monthly? That's annually. Okay. $40,000 annually.
And then do you, I imagine you have a lot of this data because you've been around a while, but in terms of a customer acquisition cost and churn and lifetime value, what do those look like and how do you think of them? Okay, good. So we have some of that data on hand. It's tough, huh? Yeah. Well, we've tracked it a lot.
We think about things in terms of lifetime value to CAC ratio because that's really the numbers that are interesting for us. So right now we're averaging customer durations. We model it with about a two and a half year span. And we enjoy a pretty good CAC to LTV ratio. LTV to CAC right now is about 10. So we are getting a pretty good return on investment.
So just to be clear, you're modeling two and a half years in terms of lifetime value in months. So 30 months, the average customer stays with you, paying you on average $40,000 per year. And so your total lifetime value in terms of dollars is what? I don't know that number off the top of my head. Is it about 100 grand? That's what the math comes out to. That sounds roughly right.
The tricky part is that we've actually been around on this product for just about three years. Got it. A lot of these numbers are probably going to go up as we see customers stick with us. They're all extrapolations at this point. When you say your CAC to LTV ratio, again, lifetime value is approximately 100 grand.
You're saying you're getting 10 to 1, which means you're spending about 10 grand to acquire a new customer. Is that accurate? I think it's probably a little more than that. If you bundle in full sales and marketing costs fully loaded, I'd say it's closer to 15. Okay. And what percentage of your revenue is professional services versus pure SaaS?
So we think about everything as part of the software sale, but a portion of that is attributed to what we would consider the cost of data acquisition. So that doesn't mean professional services per se. We don't have any, say, consulting teams that we send on site. What we do have are a crowd of folks who help us get certain kinds of data that might be tricky to get using automated methods.
So good examples might be, gosh, the last time somebody changed jobs, which is data that you might find on the Internet but wouldn't really be able to crawl. Or, for example, information about the number of sales positions that are open at a company, which is a predictor of how often companies will buy sales products.
That's information that for our customers, there aren't really a lot of solutions out there that will provide, but which make a big difference in their purchasing strategies. That makes a lot of sense. Real quick, flipping back to unit economics, you said you projected about a 30-year lifetime value in terms of months. Is that fair to say then you're looking at about a 3% monthly churn?
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Chapter 3: What is the pricing model for LeadGenius services?
So it's not marginal growth. It's not like one half percent or like a fry relative to a burger. It's literally they're doubling or tripling the initial purchase. That's right. Now, we actually do think about adding a fry model at some point in the future. We're about to release a new email product to go along with our lead generation and lead enrichment services.
And that'll be a true fry co-sale, right? Somebody who's buying leads from us will also... buy an email automation system, and then we could look at adding in other parts of that stack as well. Yep, that's really smart. And real quick, I want to make sure I got these numbers right. The total MRR in February was what? Let's see, we were probably close to about 700 and change.
Chapter 4: How has LeadGenius's revenue evolved since its founding?
Yep, that's right. But I want to double check that number first. Sure, sure, yep. While you're doing that too, just confirming location, you guys are based in San Francisco? We're actually based just across the bay in Berkeley, California. A little better economics there, huh? Slightly better. We have a pretty big office as a result. How many team members?
So we've got 50 folks locally, just shy of 50, plus a crowd of about 500 people around the world who are helping us with data acquisition. Got it. And that's kind of what you talked about in terms of the upfront cost in getting some of the data. That's right. I mean, we have crawlers and technology that grab data once we know where to get it.
But setting up those initial relationships with data sources requires some human effort. Got it. And let's go real quick into capital raised. The last round was for how much and what have you raised total? So we've raised total about $8 million. The last round was $6 million from, of course, all of our existing investors plus Sierra Ventures who led the round. Got it.
And here's a question I always have. Was Sierra in? And what round was that? Series C? That was our Series A. Series A. Okay, great. Believe it or not.
Chapter 5: What are the unit economics of LeadGenius?
Did Sierra get in on the seed round or were they new in the A? They were new in the A. So Sierra doesn't do a lot of seed investing to begin with, but our seed round was ā we were part of Y Combinator and 500 Startups. So we were able to raise without going to a lot of conventional institutional VCs. It's only when we needed to get a larger scale partner that we started talking to Sierra.
So what month did you raise that $6 million? I want to say this was about ā 20 months back. It was August of 2014. So if I was a betting man, I'd say you're looking at raising somewhere around $10 million on a pretty healthy, maybe $90 million pre-money somewhere in the near future? Well, it's hard to speculate on what the market will give us.
But at the point that we look like we'll need more capital, we'll go out and try and raise as much money as we think we need on the terms that I think we can get. In all seriousness, when do you make that decision? I mean, what things are you looking at in the business when you know it's the right time? Okay, great.
So I think the same answer we'd give here is the same answer we'd give for any entrepreneur, which is you should look at the milestones you're trying to achieve for the next part of the market, figure out the capital you need to get there, and decide how much you'll need to get there. So for us, we look at this space in terms of what's driving our growth.
We dog food our own product, so that's a significant amount of our own spend, as well as hiring salespeople and engineers here on site. And we have an internal number for where we want our metrics to be before we can successfully go out and raise enough to get us to the next level. Is that just MRR or is there a specific other set of metrics you're looking at? Well, I think it's two.
The first is going to be, of course, MRR. And that's, of course, a number that's going to be interesting to watch. But I think the more interesting question is whether we think we are going to be able to deploy all that capital in a way that meaningfully changes our growth curve. We've been moving at a pretty fast pace over the past 18 months, and it's one that I think we can keep up. Of course,
If we think we can achieve an actual inflection in that hockey stick to go even more steeply up and the terms look good, then of course we'll look at making those numbers real. Back 20 months ago when he raised the $6 million, what was the pre-money on that round? Actually, I'm not sure that I can disclose that without going too much into details that might affect...
might not be prudent to share. What was a range? Keep it as vague as you want. Um, sure. So, uh, we raised in the, um, you know, the tens of millions of dollars, uh, valuation. Okay. And is it fair to say that, uh, you know, moving forward as you look, obviously when you raise capital, you have to give up equity unless it's venture debt.
I mean, are you really at this point aiming for, for evaluation that is in the, instead of in the tens more, maybe in the hundreds of millions instead? Well, that's a great question. You know, for us, I think the valuation. Actually, that's a bad question because I don't want it to be focused on valuation. Let me ask something different. That's what I was about to say.
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Chapter 6: What strategies does LeadGenius use for customer acquisition?
I'm 31. Okay, great. So here's my question. Again, you're in a relationship. You're 31 years old. Yes or no, are you getting eight hours of sleep every night? Believe it or not, the answer is yes, most nights. There are some nights where I end up feeling very inspired and go ahead and pound through a lot of work. But most of the time, I manage to get an eight-hour night.
The secret is just going to bed early enough that you can be in the office at 8 a.m. There you go. And last question, Anand, take us back 11 years. What do you wish your 20-year-old self knew? I wish I had known how much fun it is to start a company because I would have done it a lot sooner. Yep. Top Tribe, there you have it. Start Sooner from Anand.
Launched Lead Genius in 2011 after leaving Berkeley. Now 2016, he's raised over $8 million as doing over 700 or about 700 grand per month in revenue as of February 2016 with big plans along the way. Anand, thank you for taking us to the top. Thank you, Nathan.