SaaS Interviews with CEOs, Startups, Founders
Practice Ignition Breaks $24m Revenue, Raises $50m at $330m Valuation Helping 5,000 Accounting Firms Scale
04 Jan 2022
Chapter 1: What is the main topic discussed in this episode?
billion bucks in GMV at a 5% take rate is your lowest. That means that a minimum... Oh, 50 bits, 0.5. Sorry, sorry, sorry. Sorry, 0.5% take rate. I mean, your minimum revenue there is 5 million bucks there, right? If that's your lowest take rate, probably higher. Yeah. Yeah, that's great. Okay. Yeah, yeah. Thankfully. Thankfully.
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 of these podcast interviews. Check it out right now at getlatka.com. Hey folks, my guest today is Guy Pearson.
He's got more than a decade of experience in professional services. He's a chartered accountant, chairman of Interactive Accounting, a progressive accounting firm he founded in 2009, and an angel investor in multiple portfolio companies. Today, he's the CEO and founder of Practice Ignition, the world's first client engagement and commerce platform for professional services businesses.
Guy, are you ready to take us to the top? Yeah, mate, let's go. Thanks for staying up late. I think you're based down there in Sydney, right? I'm up early. It's 7 a.m. here. Oh, my God. We've got the coffee in. You've got your coffee in. I'm at the other end, mate. Yeah, okay, fair. Well, okay, so practiceignition.com is a site. Now, just to be clear, you are not a consulting company.
You build software for consulting companies. Correct. I see. 100% right. I explain to my mom like Shopify for services, right? So if you think about it like that, we're the engine that used to run the revenue on payments and connect through the third-party workflows so they can have their tasks, billing, collections all tied together to a digital handshake. That's kind of what we do.
And so to help me understand, I mean, can you name a customer that's paying you and what they pay you for specifically? Baker Tilly in the US would be one of the larger ones. Yeah. Let me think about what else. You said Baker Tilly? Baker Tilly. So they're a large CPA firm in the US and Canada. And they pay us for software to help run their contracts.
And accountants usually re-engage or reissue contracts every year. So there's a sort of a phone plan if we can dumb it down to that. Are you selling mainly to accounting firms? 100% at the moment. 95% of our customer base are CPAs and bookkeepers around the world.
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Chapter 2: What is Practice Ignition and how does it serve accounting firms?
Interesting. Okay, so there is a sector focus here. It's not just any consulting firm in the world. No, that's true. We do have some really wonderful customers in many different industries, like small ISPs, education providers, lawyers, digital agencies, marketers, etc.
But the large primary bulk of our focus has been on bookkeeping and accounting, as every professional services business has a CPA or has a bookkeeper. So it's very much sort of let's solve their problem and then they can recommend it to their clients in a long run. I see. Okay. That makes tons of sense.
So what is the average, you know, Baker Tilly, not actually Baker Tilly, but what's the average customer paying you per month or per year to use the technology? The payment is about US 400 a month for a mix of software and payments. So sort of a blended piece. The average software clip is about 150 US and the payment's about 250. Interesting. So what is the 250?
Is that a percentage of the volume they process through your platform? Correct. So we process both ACH and credit card in about five countries around the world, US, Canada, UK, Australia, New Zealand. And we've got a couple of billion dollars of revenue under management and we process north of a billion annually at the moment, but obviously that rate's sort of growing up. Got it.
So you process over a billion per year and these are individual accounting firms like Baker Tilly sending invoices or quotes to their customers. When you add all those up, it's over a billion. You take a small cut of that. Correct. So that's exactly how it works. Come on guy. What's the cut? What's, what's the smallest, uh, smallest, uh, we take about, well, I mean, it's on the websites.
It's very easy to say, but the blended take rate for ourselves is about 50 bits at the moment. Um, we're looking to push that up. Um, through getting the volume up there and negotiating on our cost side, but also just thinking about how we charge smartly for people so people are feeling like they're paying the right amount for the right service.
Ultimately, what we're trying to do is just make sure there's no administration issues Make sure they don't have to use another system. Make sure the clients can see their payments and understand where they're coming from and that everyone's kind of happy on the two-sided agreement. Yeah, I mean, but Guy, I mean, look, just quickly, I mean, a billion bucks in GMV at a 5% take rate is your lowest.
That means that a minimum... Oh, 50 bits, 0.5. Sorry, sorry, sorry. Sorry, 0.5% take rate. I mean, your minimum revenue there is 5 million bucks there, right? If that's your lowest take rate, probably higher. Yeah, that's great. Okay. Yeah, yeah. Thankfully. Thankfully, that's good. What is the, how do people get down to 50 bps? Like what do they, what do most people start at?
Is it like 250 bps, 2.5%? No, yes. So the gross rate before we have to pay any of our providers is sort of 270 bps in the US on credit card. And this is a headline rate. But we have a flat fee charge for ACH presently. And so if you're processing B2B payments, similar to say like a bill.com, but you're running it through us, between the two parties, they're paying a fixed fee of maximum $1.
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Chapter 3: What types of customers does Practice Ignition primarily serve?
So we had like a family, friends and fools. So my brother, my best mate and my old business partners and my old CPA firm. Then we had a bunch of angels, which was anchored by a guy called Craig Wingpot, who's effectively like our Intuit founder, but just in Australia. And on the back of that, we then raised from Hill Ventures, which is up in Canada.
I'm based in Sydney, Australia to sort of put how far we had to go. And so John Stokes up there, I read our first seed check and kind of split the round in two and we had a, enterprise software was the company founder here, lead the second part of the seed round a year later, so it sort of split.
And then it was on to Series A with Australian funding, particularly now it's great and it keeps getting better, but we had four VC funds and two billionaires write us a five million Australian dollar check to give you an idea. So it's three and a half US. So, At that point, we were like, you know what, maybe this raising thing isn't for us.
We actually got through the break even in 2019 and sat down with friends and advisors and whatnot and was sort of like, well, where to from here? We had this much of the share of the market. We had product market fit and we ended up going to look for the biggest and the baddest and had Tiger Global come along to lead our Series B in 2019, which is phenomenal. And yeah, like you said, JMI recently.
So, Yeah, because you look at the crunch base for us, it's like little bits of capital and kind of like big chunk and then bigger chunk. And next, it'll be $5 billion valuation. My mother would be so proud. Take me back. I mean, managing dilution is obviously critical.
You want to build a big business and also try and preserve as much ownership for you and your co-founders and your brother, your best mate as you can over time, right? So when you guys went out and did that 3.6 USD around back in the Series A back in 2017, do you remember what valuation you raised that at? Yeah, I do. Was it very dilutive? It was. So Australians, how would you put this?
They like to see efficiency and capital deployment. As a mindset, we're used to profitable companies. And so when you've got something that's not profitable but growing quickly, people sort of struggle. We really needed the capital. We found great partners once the price was on the low end. But we also were sick of raising. So this is going to be our last round.
So that obviously played into the price as well.
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Chapter 4: How does Practice Ignition's pricing model work for its customers?
But we brought on some great partners. So those people who joined us actually helped us get to the B round and onwards. So there's a mix of what if. What's the number though? Are we talking like you sold like 20% of the business or like 30% of the business? 30. 30. Okay. That's not horrendous, right? I mean, you know, it's on the high end, but it's not terrible.
I think it's because we don't ever really got 12 months capital, as you can see from our race history, right? So it was sort of like the ongoing dilution and the small step ups in between each round up until the B and then the C. So, yeah. Yeah. It was painful at the time. Yeah, yeah, painful, but now worth it. You guys are scaling nicely.
How many customers are you working with now today, like Baker Tilly's? 5,000. Oh, my gosh, 5,000. Baker Tilly would be on the high end. We probably should stop using their name because they're sort of one of the largest in the world. Okay, I'll stop using it. So she's a good friend of mine. Zen Accounting in Canada would be a good example of a great customer that fits right in our ICP.
There's about 5,000 of those around the world that we're working with today. Okay. Okay. And can I sort of get a range here if I take those 5,000 customers times the $400 average ARPU? I mean, that puts you at like $2 million a month in revenue. Is that about right? Yep. Yeah. It's pretty close. And if that's where you are today, what is growth over the past 12 months? It's funny.
COVID's been an accelerator and a headwind for us because you've got accountants looking after their clients, doing forecasts and all these things they never would have done probably for years. And then you've got the wanting to get paid and having moved online. So we've grown about 70 plus percent last two years running, which is not terrible, but we would have liked to have grown more.
And hopefully that's what's coming as accountants particularly look forward to getting paid and Yeah, I've taken care of their clients and now I need to take care of their own business. And so what we're seeing is an acceleration and we've made some really great partnerships recently to help us sort of conquer the US. So Gusto, Thomson Reuters, Intuit, PCG Group.
So we're kind of off into the races and we're looking forward to coming to bring all the goodness that we've got down here into the US market and ramp up that market there. Tell me more about the team today. How many folks are full-time? It's changing a lot every week. We're north of 150. I think we'll finish the year at 170. Give you an idea of the rate we're hiring at the moment.
And we started the year at about 100. That's a good question. About 20. But we've got about 20 positions coming down the pipe in the next couple of days. So we're trying to ratchet it up. We went to market and scale by making sure we took care of it in a manual way. So taking care of the customers on the post-sale side and learning what they needed.
And then on the inbound side, we just had basically content to four marketers driving people in for sales. And we're switching that gear into product-led growth to take them through the journey and still keep the team that we've built. And then adding on, I think our marketing team has gone from four to 20 people in the last four months. Oh, wow. So we're ratcheting on.
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