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Nov 9, 2018 · 24m · top-founders

1203 SEMRush to hit $80m ARR This Year, Here's How

Eugene Levin · 11m spoken Nathan Latka · 8m spoken
0:00 / 0:00

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In this episode of The Top Entrepreneurs, host Nathan Latka interviews SEMrush Chief Strategy Officer Eugene Levin to break down how the SaaS platform scaled past 60 million dollars in ARR with exceptional unit economics. Levin details his transition from venture capital, explaining how paid acquisition, capital deployment, and product education drive negative revenue churn and accelerate growth toward 80 million dollars in ARR.

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 40.4% of the talking time here. How this is scored →

Nathan as informed peer 5.0 Guest teaching 2.7 Guest disagreement 1.7 Nathan pushing back 3.3
05100:0010:0020:002:55–5:23 · Nathan as informed peer 6/10 SEMrush Product Offering and Pricing Strategy Nathan drills into the tier pricing and average customer revenue cohorts, comparing entry-level pricing to enterprise. Eugene explains that ARPU is below $200 but they also have accounts paying half a million dollars.5:23–8:44 · Nathan as informed peer 6/10 Founding Story and Scaling to Scale Nathan asks about the historical inflection point in 2012 when the founders committed full-time. Eugene provides customer count estimates and annual revenue numbers while Nathan does real-time ARR math.8:45–13:43 · Nathan as informed peer 7/10 VC Evaluation, CAC Recovery, and Growth Strategy Nathan checks CAC and payback assumptions, calculating an implied CAC from payback periods which Eugene refines based on entry cohort ARPU. Eugene details the growth strategy transitioning from paid search to international content marketing.13:45–17:32 · Nathan as informed peer 0/10 Commercial Break: HostGator Website Builder Commercial sponsor read for HostGator website builder; no guest interaction.17:33–21:08 · Nathan as informed peer 6/10 Churn Dynamics, Net Retention, and Educational Onboarding Nathan presses Eugene on user churn metrics, but Eugene deflects and explains that SEMrush focuses on net revenue churn. Eugene details their educational onboarding and academy certification.21:08–23:01 · Nathan as informed peer 5/10 Rapid-Fire Questions and Valuation Stance Nathan conducts the rapid-fire section and asks a hypothetical acquisition question about a $300M offer from HubSpot, which Eugene immediately dismisses as too low.2:55–5:23 · Guest teaching 3/10 SEMrush Product Offering and Pricing Strategy Nathan drills into the tier pricing and average customer revenue cohorts, comparing entry-level pricing to enterprise. Eugene explains that ARPU is below $200 but they also have accounts paying half a million dollars.5:23–8:44 · Guest teaching 2/10 Founding Story and Scaling to Scale Nathan asks about the historical inflection point in 2012 when the founders committed full-time. Eugene provides customer count estimates and annual revenue numbers while Nathan does real-time ARR math.8:45–13:43 · Guest teaching 4/10 VC Evaluation, CAC Recovery, and Growth Strategy Nathan checks CAC and payback assumptions, calculating an implied CAC from payback periods which Eugene refines based on entry cohort ARPU. Eugene details the growth strategy transitioning from paid search to international content marketing.13:45–17:32 · Guest teaching 0/10 Commercial Break: HostGator Website Builder Commercial sponsor read for HostGator website builder; no guest interaction.17:33–21:08 · Guest teaching 5/10 Churn Dynamics, Net Retention, and Educational Onboarding Nathan presses Eugene on user churn metrics, but Eugene deflects and explains that SEMrush focuses on net revenue churn. Eugene details their educational onboarding and academy certification.21:08–23:01 · Guest teaching 2/10 Rapid-Fire Questions and Valuation Stance Nathan conducts the rapid-fire section and asks a hypothetical acquisition question about a $300M offer from HubSpot, which Eugene immediately dismisses as too low.2:55–5:23 · Guest disagreement 2/10 SEMrush Product Offering and Pricing Strategy Nathan drills into the tier pricing and average customer revenue cohorts, comparing entry-level pricing to enterprise. Eugene explains that ARPU is below $200 but they also have accounts paying half a million dollars.5:23–8:44 · Guest disagreement 1/10 Founding Story and Scaling to Scale Nathan asks about the historical inflection point in 2012 when the founders committed full-time. Eugene provides customer count estimates and annual revenue numbers while Nathan does real-time ARR math.8:45–13:43 · Guest disagreement 2/10 VC Evaluation, CAC Recovery, and Growth Strategy Nathan checks CAC and payback assumptions, calculating an implied CAC from payback periods which Eugene refines based on entry cohort ARPU. Eugene details the growth strategy transitioning from paid search to international content marketing.13:45–17:32 · Guest disagreement 0/10 Commercial Break: HostGator Website Builder Commercial sponsor read for HostGator website builder; no guest interaction.17:33–21:08 · Guest disagreement 3/10 Churn Dynamics, Net Retention, and Educational Onboarding Nathan presses Eugene on user churn metrics, but Eugene deflects and explains that SEMrush focuses on net revenue churn. Eugene details their educational onboarding and academy certification.21:08–23:01 · Guest disagreement 2/10 Rapid-Fire Questions and Valuation Stance Nathan conducts the rapid-fire section and asks a hypothetical acquisition question about a $300M offer from HubSpot, which Eugene immediately dismisses as too low.2:55–5:23 · Nathan pushing back 4/10 SEMrush Product Offering and Pricing Strategy Nathan drills into the tier pricing and average customer revenue cohorts, comparing entry-level pricing to enterprise. Eugene explains that ARPU is below $200 but they also have accounts paying half a million dollars.5:23–8:44 · Nathan pushing back 3/10 Founding Story and Scaling to Scale Nathan asks about the historical inflection point in 2012 when the founders committed full-time. Eugene provides customer count estimates and annual revenue numbers while Nathan does real-time ARR math.8:45–13:43 · Nathan pushing back 5/10 VC Evaluation, CAC Recovery, and Growth Strategy Nathan checks CAC and payback assumptions, calculating an implied CAC from payback periods which Eugene refines based on entry cohort ARPU. Eugene details the growth strategy transitioning from paid search to international content marketing.13:45–17:32 · Nathan pushing back 0/10 Commercial Break: HostGator Website Builder Commercial sponsor read for HostGator website builder; no guest interaction.17:33–21:08 · Nathan pushing back 5/10 Churn Dynamics, Net Retention, and Educational Onboarding Nathan presses Eugene on user churn metrics, but Eugene deflects and explains that SEMrush focuses on net revenue churn. Eugene details their educational onboarding and academy certification.21:08–23:01 · Nathan pushing back 3/10 Rapid-Fire Questions and Valuation Stance Nathan conducts the rapid-fire section and asks a hypothetical acquisition question about a $300M offer from HubSpot, which Eugene immediately dismisses as too low.

speaking balance: gold is Nathan, purple is the guest (3 minute bins)

0:00 · Nathan 85.6% · guest 14.4%0:00 · Nathan 85.6% · guest 14.4%3:00 · Nathan 21.5% · guest 78.5%3:00 · Nathan 21.5% · guest 78.5%6:00 · Nathan 40.8% · guest 59.2%6:00 · Nathan 40.8% · guest 59.2%9:00 · Nathan 16.6% · guest 83.4%9:00 · Nathan 16.6% · guest 83.4%12:00 · Nathan 33.8% · guest 66.2%12:00 · Nathan 33.8% · guest 66.2%15:00 · Nathan 43% · guest 57%15:00 · Nathan 43% · guest 57%18:00 · Nathan 18.4% · guest 81.6%18:00 · Nathan 18.4% · guest 81.6%21:00 · Nathan 65.5% · guest 34.5%21:00 · Nathan 65.5% · guest 34.5%24:00 · Nathan 0% · guest 0%24:00 · Nathan 0% · guest 0%
Sharpest disagreement ▶ 22:30 Eugene dismisses $300M buyout offer

Eugene immediately shuts down Nathan's hypothetical acquisition scenario by asserting $300M is far too low for SEMrush.

 Hardest push from Nathan ▶ 18:43 Nathan presses for user churn

Nathan specifically demands user-based churn numbers after Eugene tries to give a qualitative explanation of customer retention.

 Biggest teaching moment ▶ 18:46 Eugene re-centers SaaS metrics on net revenue retention

Eugene explains why user churn is not tracked internally and educates Nathan on why net revenue retention above 100% is the true north star metric.

 Nathan holds their own ▶ 11:27 Nathan does instant CAC reverse calculation

Nathan instantly calculates customer acquisition cost estimates from Eugene's payback duration and ARPU figures.
the scores for every segment, with the reasoning behind each
ChapterTopicNathan as informed peerGuest teachingGuest disagreementNathan pushing backWhy
SEMrush Product Offering and Pricing Strategy 6324 Nathan drills into the tier pricing and average customer revenue cohorts, comparing entry-level pricing to enterprise. Eugene explains that ARPU is below $200 but they also have accounts paying half a million dollars.
Founding Story and Scaling to Scale 6213 Nathan asks about the historical inflection point in 2012 when the founders committed full-time. Eugene provides customer count estimates and annual revenue numbers while Nathan does real-time ARR math.
VC Evaluation, CAC Recovery, and Growth Strategy 7425 Nathan checks CAC and payback assumptions, calculating an implied CAC from payback periods which Eugene refines based on entry cohort ARPU. Eugene details the growth strategy transitioning from paid search to international content marketing.
Commercial Break: HostGator Website Builder 0000 Commercial sponsor read for HostGator website builder; no guest interaction.
Churn Dynamics, Net Retention, and Educational Onboarding 6535 Nathan presses Eugene on user churn metrics, but Eugene deflects and explains that SEMrush focuses on net revenue churn. Eugene details their educational onboarding and academy certification.
Rapid-Fire Questions and Valuation Stance 5223 Nathan conducts the rapid-fire section and asks a hypothetical acquisition question about a $300M offer from HubSpot, which Eugene immediately dismisses as too low.

Statements from this episode (12)

Assertion Not checkable as stated
Levin: Most SEMrush subscriptions cost less than $200 per month
“Majority of our subscriptions are still In you know, a little bit below 200 per month.”
Eugene Levin Nov 9, 2018 ▶ 4:23
Assertion Not checkable as stated
Levin: SEMrush enterprise accounts are approaching $500,000 per year
“We have huge accounts that, that I approach in half a million per year.”
Eugene Levin Nov 9, 2018 ▶ 4:48
Assertion Not publicly verifiable
Levin: SEMrush counts 25 percent of the Fortune 500 as customers
“We have seven out of top 10 world biggest advertisers. We have 25% of Fortune, 500.”
Eugene Levin Nov 9, 2018 ▶ 4:56
Assertion Supported
SEMrush was a side project for four years before founders fully committed
“So the first version was in 2008. But till 2012, it was more like a hobby. Not, you know, not a serious business, and they used to have other businesses. And only 2012, they like really realized that SEM rush on its own is probably going to be bigger than ever…”
Eugene Levin Nov 9, 2018 ▶ 5:41
Assertion Supported
Levin: SEMrush has up to 50,000 paying customers and 2 million users
“So we have a more than two million users, adding a lot of new users every month in terms of paying customers. It's Let's say between 30 and 50,000.”
Eugene Levin Nov 9, 2018 ▶ 7:56
Assertion Not checkable as stated
SEMrush hit 40% EBITDA margins and one-month CAC payback before Levin joined
“Company was growing back, back then more than 60% year over year 40% EBITDA margin and one month customer acquisition cost recovered.”
Eugene Levin Nov 9, 2018 ▶ 10:43
Insight
Levin: Recovering CAC in one month means a startup is underinvesting
“If we recover in customer position cost in one month, that means we are spending not enough.”
Eugene Levin Nov 9, 2018 ▶ 11:09
Assertion Not checkable as stated
Levin: SEMrush recovers its customer acquisition costs in five to six months
“And we are still recovering in five to six months.”
Eugene Levin Nov 9, 2018 ▶ 11:25
Assertion Not checkable as stated
Levin: SEMrush outspent all search niche competitors on Google AdWords
“We started spending a lot of money on on AdWords to the point where we realized we already spending more than any other company in this niche.”
Eugene Levin Nov 9, 2018 ▶ 12:28
Assertion Not publicly verifiable
Levin: SEMrush net retention tops 100%, a rarity for SEO tools
“So so that's slightly above hundred percent, which is yet again, really unseen in our industry.”
Eugene Levin Nov 9, 2018 ▶ 19:20
Prediction Partly held up
Eugene Levin expects SEMrush to pass $80 million ARR in 2018
“I need to check the model, but yeah.”
Eugene Levin Nov 9, 2018 ▶ 21:06
Disclosure
Eugene Levin says SEMrush would reject a $300M buyout from HubSpot
“No. I mean, no, no. It's just too low. You know, then they know that that would be too low.”
Eugene Levin Nov 9, 2018 ▶ 22:39
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