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Jan 26, 2018 · 20m · top-founders

916 SaaS: Y Combinator QA Company Passes $12m+ in ARR After Graham Shits on Name

Fred Stevens-Smith · 10m spoken Nathan Latka · 7m spoken
0:00 / 0:00

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In this episode of The Top Entrepreneurs Podcast, host Nathan Latka interviews Rainforest QA CEO Fred Stevens-Smith on scaling an on-demand QA testing platform from a Y Combinator pivot to over $12M in ARR. Fred breaks down Rainforest's hybrid human-AI testing model, remote company culture, SaaS unit economics, and client acquisition tactics.

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 43.1% of the talking time here. How this is scored →

Nathan as informed peer 5.8 Guest teaching 3.0 Guest disagreement 1.8 Nathan pushing back 2.6
05100:0010:0020:000:49–3:57 · Nathan as informed peer 5/10 Introducing Fred Stevens-Smith and Rainforest QA Nathan frames the software delivery problem by detailing how engineering leaders budget two buffer days at the end of sprints. Fred agrees and explains how Rainforest QA uses continuous integration and human-assisted AI to accelerate turnarounds.3:58–7:32 · Nathan as informed peer 4/10 YC Origins, Failed Names, and Going All In Nathan inquires about Fred's financial safety net before entering Y Combinator. Fred dismissively rejects the idea of corporate savings as a false narrative and explains how he and his co-founder were down to their last thousand dollars.7:32–10:24 · Nathan as informed peer 6/10 SaaS Monetization, Capital Raised, and Remote Culture Nathan picks up on Fred qualifying his funding as sixteen million raised publicly and presses him on whether a new round is underway. Fred confirms they are in the middle of a Series B.10:24–14:40 · Nathan as informed peer 7/10 Customer Milestones, MRR, and Combating Churn Nathan quickly computes Rainforest's MRR milestone by multiplying their 150 customer count by their $7,500 ARPU to estimate $1M in MRR. Fred confirms the milestone and discusses gross versus net revenue retention in startup cohorts.14:42–18:29 · Nathan as informed peer 7/10 Sponsor Break: HostGator Website Builder Following a sponsor break, Nathan digs into Fred's unit economics, walking through payback periods and multiplying a 5x LTV-to-CAC ratio to deduce an approximate 40-month customer lifetime.0:49–3:57 · Guest teaching 3/10 Introducing Fred Stevens-Smith and Rainforest QA Nathan frames the software delivery problem by detailing how engineering leaders budget two buffer days at the end of sprints. Fred agrees and explains how Rainforest QA uses continuous integration and human-assisted AI to accelerate turnarounds.3:58–7:32 · Guest teaching 3/10 YC Origins, Failed Names, and Going All In Nathan inquires about Fred's financial safety net before entering Y Combinator. Fred dismissively rejects the idea of corporate savings as a false narrative and explains how he and his co-founder were down to their last thousand dollars.7:32–10:24 · Guest teaching 2/10 SaaS Monetization, Capital Raised, and Remote Culture Nathan picks up on Fred qualifying his funding as sixteen million raised publicly and presses him on whether a new round is underway. Fred confirms they are in the middle of a Series B.10:24–14:40 · Guest teaching 4/10 Customer Milestones, MRR, and Combating Churn Nathan quickly computes Rainforest's MRR milestone by multiplying their 150 customer count by their $7,500 ARPU to estimate $1M in MRR. Fred confirms the milestone and discusses gross versus net revenue retention in startup cohorts.14:42–18:29 · Guest teaching 3/10 Sponsor Break: HostGator Website Builder Following a sponsor break, Nathan digs into Fred's unit economics, walking through payback periods and multiplying a 5x LTV-to-CAC ratio to deduce an approximate 40-month customer lifetime.0:49–3:57 · Guest disagreement 1/10 Introducing Fred Stevens-Smith and Rainforest QA Nathan frames the software delivery problem by detailing how engineering leaders budget two buffer days at the end of sprints. Fred agrees and explains how Rainforest QA uses continuous integration and human-assisted AI to accelerate turnarounds.3:58–7:32 · Guest disagreement 3/10 YC Origins, Failed Names, and Going All In Nathan inquires about Fred's financial safety net before entering Y Combinator. Fred dismissively rejects the idea of corporate savings as a false narrative and explains how he and his co-founder were down to their last thousand dollars.7:32–10:24 · Guest disagreement 2/10 SaaS Monetization, Capital Raised, and Remote Culture Nathan picks up on Fred qualifying his funding as sixteen million raised publicly and presses him on whether a new round is underway. Fred confirms they are in the middle of a Series B.10:24–14:40 · Guest disagreement 2/10 Customer Milestones, MRR, and Combating Churn Nathan quickly computes Rainforest's MRR milestone by multiplying their 150 customer count by their $7,500 ARPU to estimate $1M in MRR. Fred confirms the milestone and discusses gross versus net revenue retention in startup cohorts.14:42–18:29 · Guest disagreement 1/10 Sponsor Break: HostGator Website Builder Following a sponsor break, Nathan digs into Fred's unit economics, walking through payback periods and multiplying a 5x LTV-to-CAC ratio to deduce an approximate 40-month customer lifetime.0:49–3:57 · Nathan pushing back 1/10 Introducing Fred Stevens-Smith and Rainforest QA Nathan frames the software delivery problem by detailing how engineering leaders budget two buffer days at the end of sprints. Fred agrees and explains how Rainforest QA uses continuous integration and human-assisted AI to accelerate turnarounds.3:58–7:32 · Nathan pushing back 2/10 YC Origins, Failed Names, and Going All In Nathan inquires about Fred's financial safety net before entering Y Combinator. Fred dismissively rejects the idea of corporate savings as a false narrative and explains how he and his co-founder were down to their last thousand dollars.7:32–10:24 · Nathan pushing back 4/10 SaaS Monetization, Capital Raised, and Remote Culture Nathan picks up on Fred qualifying his funding as sixteen million raised publicly and presses him on whether a new round is underway. Fred confirms they are in the middle of a Series B.10:24–14:40 · Nathan pushing back 4/10 Customer Milestones, MRR, and Combating Churn Nathan quickly computes Rainforest's MRR milestone by multiplying their 150 customer count by their $7,500 ARPU to estimate $1M in MRR. Fred confirms the milestone and discusses gross versus net revenue retention in startup cohorts.14:42–18:29 · Nathan pushing back 2/10 Sponsor Break: HostGator Website Builder Following a sponsor break, Nathan digs into Fred's unit economics, walking through payback periods and multiplying a 5x LTV-to-CAC ratio to deduce an approximate 40-month customer lifetime.

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

0:00 · Nathan 73.8% · guest 26.2%0:00 · Nathan 73.8% · guest 26.2%3:00 · Nathan 13.7% · guest 86.3%3:00 · Nathan 13.7% · guest 86.3%6:00 · Nathan 33.5% · guest 66.5%6:00 · Nathan 33.5% · guest 66.5%9:00 · Nathan 22.9% · guest 77.1%9:00 · Nathan 22.9% · guest 77.1%12:00 · Nathan 44.3% · guest 55.7%12:00 · Nathan 44.3% · guest 55.7%15:00 · Nathan 53.2% · guest 46.8%15:00 · Nathan 53.2% · guest 46.8%18:00 · Nathan 66.9% · guest 33.1%18:00 · Nathan 66.9% · guest 33.1%
Sharpest disagreement ▶ 5:23 Calling corporate safety cushions a bullshit narrative

Fred strongly rejects Nathan's suggestion that founders save up a corporate salary cushion before starting up, labeling it a bullshit narrative that traps people in jobs.

 Hardest push from Nathan ▶ 8:27 Interrogating the qualifier 'publicly raised'

Nathan immediately catches Fred's deliberate phrasing that $16M was raised publicly and pushes to uncover their unannounced Series B round.

 Biggest teaching moment ▶ 13:06 Explaining startup churn dynamics and failure rates

Fred breaks down how SMB churn in early-stage tech is fundamentally driven by customers running out of money rather than product dissatisfaction, educating Nathan on cohort dynamics.

 Nathan holds their own ▶ 12:00 Nailing the $1M MRR revenue run-rate

Nathan demonstrates sharp financial command by combining Fred's customer count and average contract value on the fly to reveal Rainforest's undisclosed $1M MRR milestone.
the scores for every segment, with the reasoning behind each
ChapterTopicNathan as informed peerGuest teachingGuest disagreementNathan pushing backWhy
Introducing Fred Stevens-Smith and Rainforest QA 5311 Nathan frames the software delivery problem by detailing how engineering leaders budget two buffer days at the end of sprints. Fred agrees and explains how Rainforest QA uses continuous integration and human-assisted AI to accelerate turnarounds.
YC Origins, Failed Names, and Going All In 4332 Nathan inquires about Fred's financial safety net before entering Y Combinator. Fred dismissively rejects the idea of corporate savings as a false narrative and explains how he and his co-founder were down to their last thousand dollars.
SaaS Monetization, Capital Raised, and Remote Culture 6224 Nathan picks up on Fred qualifying his funding as sixteen million raised publicly and presses him on whether a new round is underway. Fred confirms they are in the middle of a Series B.
Customer Milestones, MRR, and Combating Churn 7424 Nathan quickly computes Rainforest's MRR milestone by multiplying their 150 customer count by their $7,500 ARPU to estimate $1M in MRR. Fred confirms the milestone and discusses gross versus net revenue retention in startup cohorts.
Sponsor Break: HostGator Website Builder 7312 Following a sponsor break, Nathan digs into Fred's unit economics, walking through payback periods and multiplying a 5x LTV-to-CAC ratio to deduce an approximate 40-month customer lifetime.

Statements from this episode (13)

Assertion Not checkable as stated
Stevens-Smith: Rainforest QA turnaround time is about 30 minutes
“So yeah, rainforest turn around times about 30 minutes.”
Fred Stevens-Smith Jan 26, 2018 ▶ 2:34
Assertion Not checkable as stated
Stevens-Smith: A quarter of Rainforest QA tests use robot testers
“Around a quarter of our results right now are being augmented with a robot tester alongside the human testers.”
Fred Stevens-Smith Jan 26, 2018 ▶ 3:43
Assertion Not checkable as stated
Paul Graham called Rainforest QA the worst company name in YC history
“Paul Graham, who is the famous founder of YC, announced on stage one week that we had the worst name ever to go through YC.”
Fred Stevens-Smith Jan 26, 2018 ▶ 4:33
Opinion
Stevens-Smith calls saving a corporate salary before founding a bullshit narrative
“That's such a bullshit narrative as well. Like all of my friends that told themselves that they were going to do that, they're still in those corporate jobs.”
Fred Stevens-Smith Jan 26, 2018 ▶ 5:28
Assertion Not checkable as stated
Stevens-Smith: YC sends founders daily 6 AM countdown emails to Demo Day
“The next day they send an email with the countdown to demo day, right? So the next day you get an email saying a 101 days to demo day and every morning at six AM you get that same email.”
Fred Stevens-Smith Jan 26, 2018 ▶ 7:20
Assertion Not checkable as stated
Stevens-Smith: Rainforest QA average contract is roughly $7,500 per month
“Per month, the average customer's paying us about seven and a half grand.”
Fred Stevens-Smith Jan 26, 2018 ▶ 7:54
Insight
Stevens-Smith: Hybrid office and remote cultures inevitably diverge without continuous intervention
“When you have a culture where some segment is in an office, some segment is distributed, some segment is in another office. You have to continually work to bring these cultures back together as they diverge over time, you know, because the culture for the remo…”
Fred Stevens-Smith Jan 26, 2018 ▶ 9:43
Disclosure
Stevens-Smith: Rainforest QA has roughly 150 paying customers
“About a 150 paying customers.”
Fred Stevens-Smith Jan 26, 2018 ▶ 11:29
Disclosure
Stevens-Smith: Rainforest QA converts 85% of 60-day trials
“Our conversion rate of that trial is about 85%.”
Fred Stevens-Smith Jan 26, 2018 ▶ 13:22
Disclosure
Stevens-Smith: Rainforest QA annual net retention is 115% to 120%
“And then the net revenue retention on an annual basis, about 115 to 120%, depending on the cohorts.”
Fred Stevens-Smith Jan 26, 2018 ▶ 13:25
Disclosure
Stevens-Smith: Most Rainforest QA churn happens when startups run out of money
“Most of our customer churn actually stems from the startup customer running out of money.”
Fred Stevens-Smith Jan 26, 2018 ▶ 13:46
Assertion Not checkable as stated
Stevens-Smith: Rainforest QA fully weighted CAC payback is about nine months
“So fully weighted and loaded by gross margin as well. CAC payback is about nine months for us right now.”
Fred Stevens-Smith Jan 26, 2018 ▶ 17:07
Assertion Not checkable as stated
Stevens-Smith: Rainforest QA maintains a 5x LTV to CAC ratio
“Five X is kind of where we consider that LTV to cat sweet spot to be right now. That's what we shoot for. That's where we are.”
Fred Stevens-Smith Jan 26, 2018 ▶ 18:09
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