SaaS Interviews with CEOs, Startups, Founders
Popular Identity Verification Tool Raising $60m on $400m Now with $10m in Revenue
21 Sep 2022
Chapter 1: What is the main topic discussed in this episode?
Okay. Now you're scaling nicely, right? So 200 customers out of $4,500 per month ARPU. I mean, that would put you at about $900,000 per month in revenue. Is that right? Yep. We are over that, actually. Okay. Over that. Are you past a million a month yet? Not yet. That's very close.
You are listening to Conversations with Nathan Latka, where I sit down and interview the top SaaS founders, like Eric Wan from Zoom. If you'd like to subscribe, go to getlatka.com.
We've published thousands of these interviews, and if you want to sort through them quickly by revenue or churn, CAC, valuation, or other metrics, 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 these podcast interviews. Check it out right now at getlatka.com. Hey folks, my guest today is Thomas Kedar.
He's the founder and CEO of Seon. He started the company with his co-founder when they were still students in university and built it from scratch. His personal experience has sparked an interest in fraud prevention and his vision is to build an innovative go-to solution for online businesses affected by fraud. Tomas, are you ready to take us to the top? Hey everyone. Thanks for having me, Nathan.
Yes, of course I'm ready. What's your personal experience? Did somebody rip you off or what? Yeah, it's very similar. So with my co-founder, Benson, we have launched a crypto exchange during our university years, it was a couple of years back, and we actually faced fraud issues ourselves. So, you know, we tried to solve the problem ourselves, but we couldn't find an efficient solution.
We have decided to develop a tool in-house and then pivoted into CIO, and now here we are getting ready for our Series B. Very cool. Okay, so you mentioned Series B, so you raised some capital. How much have you raised to date? We have raised so far 13 million USD. One three or three zero? One three. One three. Okay. And I guess break that down for me. When did you raise the first round?
The first round was when we have started the company. So about four years ago when we have formed the firm and then we have raised 500,000 as a seed investment. And then we've done bridge round of 1 million. And then we have- What year was the 1 million? The 1 million was 2019. Okay. Yes. And then we raised 10 million euros. And it was about a year ago. In 2021? Yes, that's right. Okay.
And so I guess, help me understand the need for the 10 million euros. Why did you need to raise capital to grow the business? In one hand, we have opened our first international office here in London, where I'm based at. And as well as we have expanded to US. So we have opened an office in Austin and to Indonesia, Jakarta, where we have in both this location, a business development office.
Interesting. Okay, tell us more about the product. So who's paying for this and what are they using it for? We work with some of the largest now banks, such as Revolut, Nubank. We work with subscription services such as Patreon. We work with online gambling companies, online lending companies, PMPI companies, so like Afterpay.
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Chapter 2: How did the founder address fraud issues in their early business?
That's right. That's incredible. And that's across how many companies who are hitting the API? Well, we have just close to 200 direct customers. But since we have some payment gateway customers, we are protecting more than 5,000 online businesses out there. I see. How many partners do you have that are one-to-many? Sorry, can you repeat that?
Yeah, so you have 200 direct customers and you reach another 4,500 or 4,800 through partners. How many of those partners do you have, the gateways? We have about four or five gateways, so not too many. I see. Okay. So those four or five gateways bring you another four or 5,000 sort of indirect customers. That's right. Yes. I see.
And how does the majority of the 90 million monthly API calls come from the payment gateways or your 200 direct customers? It's more the rest. So the big, bigger ones. These are all small, low-tail merchants. The majority of the revenue and the API cost comes from bigger businesses. But are the bigger businesses the ones that use you directly or the gateways? directly. Directly. Okay.
So the 200 direct customers, that's your biggest asset, your biggest customer base, your most revenue. Okay. That's right. And how do you price for this? I mean, obviously per API hit sort of pricing is very popular these days. You know, look at Snowflake and others, but how do you do it?
Chapter 3: How much funding has the company raised to date?
Very similar. It's usage-based. So we pay, I mean, we charge our clients a micro fee for each of the API calls. And then it's post-paid, such as AWS does. It's very straightforward. We try to do the opposite than what everyone else does in our industry. So it's a micro fee per API call. And then what else? That's it. That's it. Okay. So how micro?
Are we talking like a tenth of a cent or something like that? It's between four to eight cents. Oh, okay. So I got it. So four to eight cents. And has it always been that way or have you're moving sort of up or down market? No, it's always been like that. And we never raised prices since the beginning. Okay. Got it. So, so force four to eight cents per API call.
And do you make people buy like a number of credits ahead of time or do they pay as they go? Uh, pay as, pay as you go. So this is why it's so friction free. So, um, We always post a bill, our clients, so they don't have to top up anything. They can just use the system and then next month, beginning of it, we charge them. Interesting.
And so when you look at, on average, the 200 direct clients, they all obviously hit the API different amounts of times, but what's your sweet spot? What would you say the average customer is paying you per month? The average... The ACV is... Around right now, like $55,000 a year. So about $4,500 a month, I would say. Yep. Okay. That makes sense.
And they're not committing those contracts though, right? They're basically paying as they go. Yeah. Very cool. Give me more of the backstory here. So you launched in 2018. You've scaled. Now, do you have a co-founder? Yep.
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Chapter 4: What is the purpose of the recent capital raise?
Yep. My co-founder, Benz, he was my university friend. He is a COO of the company. He's based in Budapest. Interesting. And did you guys just split equity 50-50 at the start? No, it was different. We invested different upfront, so we have come to an agreement between us, but we are both happy with this agreement. Okay. So you own more or he owns more? Yeah.
Yeah, I think, yeah, since I'm the CEO and I have started with investment as a bootstrap investment, I own a lot. Yeah. I think it's important. So just to be clear, it sounds like you put in some of your own money at the beginning to help get the business going.
And because you put in money and your other co-founder maybe didn't put in as much or put in none at all, you got more equity at the start. Yep. That's correct. I see. Okay. Now you're scaling nicely, right? So 200 customers out of $4,500 per month ARPU. I mean, that would put you at about $900,000 per month in revenue. Is that right? Yep. We are over that, actually. Okay.
Chapter 5: Who are the primary customers using the identity verification tool?
Over that. Are you past a million a month yet? Not yet, but very close. Very cool. That would be a fun thing to celebrate. If you're doing about $900,000 per month right now in revenue, where were you exactly a year ago? Do you remember? We were one third of it. One third. Okay. So where does most of that growth come from?
Is it the same 200 customers picking the API more expansion revenue or is it brand new customers altogether? We've got lots of brand new customers. So we have almost double our client base, but as well as we see a healthy growth from the existing clients. So our NDR, metrics are very good. What is the NDR? How far above 100%? It's very close to 200, actually. Okay, about 200%. Yeah, that's great.
Obviously, it doesn't surprise me you're able to raise this much capital with that kind of NDR. Do you have any gross revenue churn? Not really. It's like 5% a year. We don't see businesses switching from us to other tools. What we see is they cease to exist, usually due to some business continuity issues such as COVID and so on.
So Tomas, 5% gross revenue churn means 105% expansion for a total NDR of about 200%. Interesting. Do you have a game plan for driving that expansion revenue? In other words, customer success reps that are incentivized with expansion or how do you do that? Yes, we have a bonus scheme in place for customer success. But since it's a usage-based pricing, we usually grow together with our clients.
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Again, both plural founderpath.com forward slash products forward slash valuations. For other people listening, using a transaction based pricing model or a per API call per seat, whatever they're thinking about bonus plans for their CSMs as well. Can you tell us a little bit more about how you structure your CSM bonus plan?
Yeah, we set up some base numbers for the expansion based on historical data. And then anything top of that, they get a chunk of the revenue, which is expanded on top of the average expansion. So it's not too much, but it's, you know, it's very motivational, I would say.
And, you know, it's something that, you know, I was not thinking before, but our chief commercial officer actually has came up with the idea and implemented just recently and actually works very well. So I can recommend to all the startup founders out there. So for 2022, you just did this, right? So what does a CSM have to get above in terms of MDR before they can start earning a bonus?
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Chapter 6: How does the company price its API services?
You think what? It's definitely doable. Okay. So if you raise it like a 70 million series, a, you can get up to like 150, $180 million series B, something like that. Um, yeah, well, you know, we raised, uh, 10 for our A in euros. And then this time it's going to be hopefully at least six to eight times multiplied. So our B will be around 60 to 80. That's what we are aiming at.
You know, it's still ongoing, so I wouldn't... Well, what I'm trying to get, though, Thomas, is how you're managing dilution. So raising $60 million on a $120 million valuation, you're selling a third of the business. That's pre-money, right? No, no. I mean, valuation would be like, of course, you know, we would dilute the same amounts before. So standard dilution, you know, between 15% and 20%.
Got it. So you think you can go out and command like a $400-ish, $420 million pre-money valuation, something like that? Yeah, yeah. 40x multiple? Yeah. What to see on the market today is quite insane. Valuations are multiplies of the 40 to 80. We see 80 and we'll see where we end up, but I'm quite optimistic. So I hope for the best. Yeah.
No, there's a comp from last week that closed Cognizant, $25 million in revenue, about doubling year over year, raised at a $436 million valuation. So we're seeing 20 to 80x multiples all over the place. Well, good luck. You have to let us know if that sort of goes through. Now, that capital, what would you use it on? I mean, dilution is dilution, right?
You're going to sell 10%, 20% of the business. Why do you need it? Yeah, we would like to open some more offices in one hand. Of course, you are mainly increasing the number of teammates in our headquarter, which is in Budapest, Hungary. That's where we keep the whole R&D and product development. So we would like to add almost 100 new engineers. The team right now is 140 people there.
How many engineers? About 70 currently. 70. Okay. Very cool. And just to close out the sales questions for you. So how many folks on your sales team carry a quota right now? All of them. How many? Yeah, we have about 10 BDMs and we have the same amount of SDRs. So we got 20. And we got, of course, BDRs too, but they don't have a quota really. So 10 carry a quota. Yeah.
No, I mean like the BDMs have a quota for the bonus scheme. And of course, the SDRs have just a monthly minimum quota. I see. Got it. And then how many CSMs do you have? I think it's all done now. Yeah. We're constantly recruiting. Got it. So between SDRs, BDRs, AEs, and CSMs, you've got about 40 people on the sales team. Yep. Very cool. All right, let's wrap up here with the famous five.
Number one, favorite book? No Rules Rules. You know what? No rules, rules. Number two, is there a CEO you're following or studying? Sorry, can you repeat that? Is there a CEO you're following or studying? Yeah, of course, like Jeff Bezos. Number three, what's your favorite online tool for building Sion? Favorite online tool, let's say Figma.
Number four, how many hours of sleep do you get every night? Eight hours. And what's your situation, Tomas, married, single, kids? Um, I have a partner, but it's not married. Okay. And how old are you? I'm 27 years old. Last question. Something you wish you knew when you were 20. Uh, I'm still 20. So I, when you were 20, two zero, two zero years old. Uh, Oh, Oh yeah.
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