Nov 1, 2023 · 31m · top-founders
He hit $120m in ARR Then Sold $70m Unit for $250m, Today His Secrurity SaaS is Cash Rich... whats next?
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
Nathan Latka interviews Code42 CEO Joe Payne to examine how the company divested its $70 million CrashPlan backup unit for $250 million in cash, refocusing entirely on scaling its $50 million ARR insider threat security platform.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Nathan holds 34% of the talking time here. How this is scored →
Nathan as informed peer 4.9 Guest teaching 3.9 Guest disagreement 2.0 Nathan pushing back 3.0
speaking balance: gold is Nathan, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 14:38 Payne rejects disclosure of customer tiers and competitor names
Payne forcefully draws the line on confidential data, asserting that being private allows him to withhold metrics from competitors, outright refusing Nathan's prompt.
Hardest push from Nathan ▶ 14:54 Latka challenges Payne on selective financial disclosureNathan counters Payne's refusal by citing all the sensitive transaction numbers Payne had already volunteered moments earlier.
Biggest teaching moment ▶ 20:56 Payne explains stranded costs following carve-out divestituresJoe walks Nathan through the operational reality of carve-outs, explaining that buyers do not take all headcount, leaving temporary cost overhang on the remaining entity.
Nathan holds their own ▶ 20:56 Latka drills down into why a well-capitalized carve-out still burns cashNathan demonstrates financial acumen by pressing on corporate capital efficiency and questioning why the divested cash wouldn't isolate operating burn.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Nathan as informed peer | Guest teaching | Guest disagreement | Nathan pushing back | Why |
|---|---|---|---|---|---|---|
| The Insider Threat Problem and Incydr Product Architecture | 4 | 5 | 1 | 1 | Nathan asks broad architectural and threat model questions about insider risk. Joe educates him on the core discrepancy between external actor defense and internal employee data exfiltration. | |
| Pricing Strategy, Seat Costs, and Breach Economics | 5 | 4 | 2 | 4 | Nathan attempts to calculate ACVs at scale, pressing on whether average seat pricing drops to twenty or fifty dollars. Joe corrects him with empirical seat averages around eighty dollars and compares it to breach liability economics. | |
| Target Demographics and Mid-Market Sales Velocity | 5 | 4 | 2 | 3 | Nathan tries to pin down a single sweet-spot customer profile and calculate contract sizes. Joe refuses a rigid definition while explaining why mid-market deals currently exhibit superior sales velocity. | |
| Divestiture of CrashPlan and Strategic Focus | 6 | 5 | 6 | 6 | Nathan presses aggressively for specific enterprise customer counts and competitor names. Joe firmly shuts down disclosure, stating private company privileges, prompting Nathan to point out Joe's selective transparency. | |
| Sales Operations, Headcount, and Macro Procurement Headwinds | 4 | 5 | 1 | 2 | Nathan inquires about quota-carrying sales reps and go-to-market structure. Joe elaborates on enterprise procurement dynamics, noting procurement departments overruling security teams for the first time. | |
| M&A Strategy and Software Market Valuation Trends | 5 | 6 | 3 | 5 | Nathan questions why Code42 would burn cash after receiving a quarter-billion-dollar divestiture payout. Joe educates him on stranded overhead and the operational drag of retaining workforce when downsizing from a larger organization. | |
| Growth vs. Profitability, Rule of 40, and Strategic Networking | 5 | 4 | 2 | 4 | Nathan probes whether informal conversations with Vista Equity signify an upcoming acquisition. Joe dismantles the assumption, outlining the strategic necessity of networking with PE and strategic acquirers without fearing IP theft. | |
| Historical Revenue Milestones: Scaling from One Million to Scale | 5 | 2 | 1 | 2 | Nathan walks through historical revenue thresholds and transitions into the standard rapid-fire questions, matching Joe's Eloqua history with his own industry connections. | |
| Interview Conclusion and Code42 Executive Recap | 5 | 0 | 0 | 0 | Nathan delivers an end-of-episode recap summarizing Code42's carve-out transaction, ARR metrics, headcount, and positioning. |
Statements from this episode (21)
Payne: Most corporate data loss originates from insiders, not external actors
“Most data loss actually comes not from external actors, but from insiders, from employees, from contractors sometimes malicious, sometimes accidental, sometimes sort of in the middle, and so what we see is that about 60% of employees admit that they took data …”
Code42's largest enterprise customer has over 120,000 employees
“Our largest customer has over a 120,000 employees.”
Code42 averages roughly $80 per seat across its customer base
“The average is closer to 80 bucks a seat.”
Code42 research finds the average data breach costs an organization $16M
“Our research shows that the average breeze costs an organization, sixteen million dollars.”
Payne: Mid-Market Companies of 1,000 to 5,000 Employees Buy Fastest From Code42
“I will say the people that are buying fastest today from us are mid-market companies. So think of that as companies between sort of a 1005 thousand employees, because honestly they're making fast decisions today and it's much easier for them to make decisions.”
Payne: Large Enterprises Are Taking Unusually Long on Tech Purchasing Decisions
“Today in this economy, big companies are taking forever to make a decision on new technology purchases”
Payne: Code42 Surpassed $50M ARR on New Security Product Last Year
“We were over fifty billion in ARR last year on that one product, on the new product.
[614] Nathan Latka: You said fifty million, right?
[616] Joe Payne: Five-zero, yeah.”
Payne: Disrupting an industry requires extreme product focus, not broad suites
“And one thing I would tell any entrepreneur Is you better be focused. If you want to disrupt an industry, if you want to win in the space, you can't be a you can't have lots of different products doing lots of different things. You can do that when you become …”
Payne: Code42 sold CrashPlan for $250 million
“And we sold it for two hundred and fifty million dollars.”
Payne: Code42 had $120M total ARR before divesting $70M CrashPlan unit
“The fifty million was the insider product. It's the product that we kept. That product is at fifty million. The old crash plan product was another seventy million or so of ARR. So we were a hundred and twenty million. We got down to fifty million.”
Payne: Code42 has over 800 paying customers
“Well, we have over 800 customers today on paying customers. That's the only kind we have.”
Payne: 30 top security firms use Code42, including CrowdStrike and Cisco
“There's probably 30 security companies using code 42 today, and they're the big names in this space. It's people like CrowdStrike, and Okta, and Ping, and RapidSeb, and Splunk, and Cisco, and so it's, we have really, really good customers.”
Payne: Code42 has 25 to 30 quota-carrying reps
“I would say there's probably 30 of those, 25, 30 of those.”
Payne: Security budgets grew 5% in 2023 vs historical 30-35%
“I think the data showing right now, security budgets are growing about five percent in 20, 23. And, you know, historically over the last 10 years, security budgets grow 30 to 35%.”
Payne: Security M&A targets are not cheap because startups still hold cash
“It's interesting that the budgets are down to five percent growth, but we haven't seen valuations The valuation expectations for a lot of companies are still pretty high because people raised money during difficult times. I mean, during good times. And so they…”
Payne: 'East Coast offense' prioritizes spending cash on hand over early overspending
“I run what I call the East coast offense as opposed to the West coast offense, which is you pretty much spend what you have to grow your business as opposed to you know, overspending early”
Payne: Code42 will consume capital this year due to carve-out friction
“Our EBITDA is still being affected by the separation of our two businesses.
So we just sold that business last year.
So we're still working through some of that stuff.
we'll, we'll, we'll, we'll be a consumer of capital this year.”
Payne argues growth trumps profitability for SaaS companies before reaching scale
“I still believe, and I know it's unpopular this month, but the growth trumps profitability right now, especially if you're early in a market and you're not at scale.”
Payne: Big tech firms like Cisco and Oracle cannot execute stolen ideas
“I think sometimes entrepreneurs are worried that if they talk to a big company, if they talk to, you know, a Splunk or a Cisco or Oracle or somebody like that, that they're going to steal their ideas. And in my experience, those companies have trouble executin…”