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Last active Aug 29, 2015
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Panel at SXSWi on building companies on customer revenue rather than venture money

Series R: How Customer Revenue is Replacing Series A

Chris Savage (@csavage) - founder and CEO of Wistia

  • Better video for businesses - SaaS
  • 150k companies, 8.5 years of longevity
  • 35 team members, 1 office
  • Launched in 2006, got first paying customer about a year round in
  • Angel round after 2 years

Alex Moore - Boomerang (for GMail)

  • Released in August 2010 - initially didn’t charge
  • December 2010 - 400k seed round
  • July 2011 - turned on monetization
  • Became profitable in May 2012, paying themselves exceedingly little
  • December 2013 started doing some paid marketing
  • ~$3MM annual run rate with just the 400k raised

Nick Francis @nickfrancis - Helpscout

  • June 2011 launched
  • Raised ~800K seed, Techstars alum
  • Profitable since end of 2013
  • Did end up taking $6M of venture, being announced tomorrow

Sarah Bird - CEO of Moz

  • 18M Series B from Boundary in 2012
  • 150 people based out of Seattle
  • Model is 30 day free trial to monthly subscription

CLTV is on the low end for their space

  • $982 for Moz
  • $1,511 for Constant Contact
  • $31,806 for Hubspot (just went public, this is from their S-1)

However, much lower CAC

  • $137 vs. $655 vs ~$7K

Thus, a high CLTV/CAC ratio.

  • Break even in month 2 of customer. Versus Constant Contact: 21.7 months

  • Hubspot: Equity funding 100.5M

  • Moz: 19.1M all in

  • AR per customer - Hubspot is better

  • Revenue per employee (159K vs $359K) - Moz better

Number of salespeople:

  • Hubspot 124, Moz has none
  • Hubspot last 5 years of revenue 161.7 vs 72.5

Accumulated deficit:

  • Hubspot: -123.8M
  • Moz: -8.1M

Your attitude based on burn rates and macroeconomic factors will determine your attitudes on these

Why didn’t you go for funding out of the gate?

(Primarily a question for Sarah)


  • Economy sucked ~2008
  • We did explore VC funding but valuations were terrible
  • Very picky about who we brought on the team (board)
  • Also didn’t have to raise if we didn't like the terms. We were still profitable and growing


  • Many of our competitors went out of business - they grew too fast
  • The space moved faster than anyone thought - it was slow at first
  • Took 5 years to find traction
  • How the work is done is more important than what you’re doing. Very protective, haven’t given up any control.
  • We can go way slower sometimes - getting the UX right
  • It’s kind of like being a second or third time entrepreneur


  • There’s really only one playbook for taking VC and then going public or being acquired
  • There are a number of compromises you have to make to do this
  • Growing the company a bit slower. You don’t often have to be first in market, but being customer-focused


  • We tried to raise back in 2012 but it didn’t work out
  • “Series R” out of necessity
  • It was also better to spend 6 mos. building product rather than trying to raise money

How do you set expectations w/ your investors?


  • Gonna get in trouble with this remark, but tell your investors as little as possible :-)
  • One letter a year is required and that's all we send
  • Will always answer phone if they call
  • Reason is, if you update them a lot when things are going well and then become quiet when not, they will know what’s up
  • Will ask them for advice, though


  • Interesting, I update them every month


  • If Moz was an enterprise-focused business I would contemplate expanding my board to get those relationships, but we’re not
  • We were a community first, so it’s easier - a lot cheaper than other people’s problems to solve (hmm… Chef)
  • Mentorship. Sure, the board does, but startup community is an incredible community too


  • Don’t raise money just for connections or mentorship. In the end it comes down to money & understand what you’re getting into.

Things you wish you’d done differently?


  • Ran super-lean for a very long time which is necessary. But we also didn’t start running fatter once we achieved profitability and hire more people and wish we’d done that differently.


  • I have a lot of regrets but not about where the money came from. But once we got VC $ we did botch how we spent some of that.


  • Two things. One is after we raised our first round: there’s been 2 of us for 2 years. So we raised the first round, we’d have fake board meetings w/ investors. But we confused investors with team members. We waited to make big decisions once we were in the room, and it slowed down the company for 3-4 months. Second thing: we took a long time to let customers pay annually w/ small discount like 10%. Quickly about 20% of customers were paying annually. We were thus cash flow +ve a year earlier than we thought, which was totally game changing and we were able to hire 2 people. Those people had an enormous impact on how quickly we were able to grow. If we’d made that move a year earlier we could have done that and moved faster.

What changed for you to decide to raise money?


  • had to separate where the company is going and my personal views. Bootstrapping is my personal view but understood now that the company is hobbled by this at this point of growth, now that they’ve figured out customer economics & how to build the team. So it’s not in my company’s best interest to not raise money now to grow the business.


  • The category was moving faster than we were growing. We took the round b/c we wanted to make more and bigger bets. With the cash we did 3 acquisitions; 2 for IP, 1 for hires. We also doubled our engineering team: engineers don’t make money for you right way. We were paying $700K/mo to Amazon, which was insane, so we decided to pay and build our own data center. 2012 market was starting to turn around and got connected with the Founder Group and felt very comfortable with them.


  • One more thing. The whole premise behind this talk is why you should fund your biz with customer revenue rather than VC. It took about 4 years for us to figure out all the things . A typical Series A trap is too early and it’s very unlikely that you’ll go in the right direction. Centering every way you grow the business around the customer and what they need from your business first is key. After that, you can raise capital to grow the business.

Question from the audience: why is raising funding & satisfying your customers’ motivations' misaligned? Answer: Because raising funding is fundamentally about growing the company at all costs.

Nick - an example is salespeople. You can grow the company very fast, but it doesn't mean you're doing right by your customers.

Q. Chris, do you feel like you’ve missed any opportunities by not? A. Well, probably, but we’re very very focused on a very core group of customers. If I’d raised money maybe I could have targeted bigger groups? Another thing is that I have to really work hard to meet other mentors. But I do feel like I’ve built the company I wanted to build and there’s lots of road in front of us.

  • Alex: "What kind of cash flow economics & sorts of businesses is "Series R" suited to?"
  • Sarah: Our churn rate looks ridiculous. 25% churn rate in month 1. But it does rapidly decline after 3 months. By month 4, you are a “qualified” customer, as churn has stabilized. That’s why I talk about customers as qualified versus unqualified (see chart)

Categories of churn:

  1. There are people I’m going to lose no matter what I do; they are not my target customer.
  2. People I should be keeping but I’m not
  3. People who I will keep even if I don’t spend effort on them. They”get it” right away and without help.

So… I don’t care about category 1. I also don’t worry about category 3. What’s tough is how to tell these folks apart!

The more expensive and more complicated & custom your solution, the more human intervention is going to be required to make the sale! (obviously) e.g. Hubspot - very custom, very expensive

  • Chris - we can afford to charge less because our customers are SMBs.
  • Sarah - yes, our customers are SMBs and they like to purchase the way we are selling.

and time.

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