The Exchanges

Q Got it. Got it. Got it. Got it. Okay. So code 42 no longer has crash point. A private equity group bought that. I think it was mill point capital, right? Did a carve out there. Okay. And why get rid of that? If it was just like printing. I mean, it sounds like it was a really great business.

A It was a good business, um, but it was a declining business. And, um, and the people that you sold to in that business were, uh, IT people and you were selling to old organizations that hadn't moved to the cloud yet. So you could see the trick where that business was going to go long-term. And also we were selling now to security people. So, um, our focus is on a completely different buyer, solving a completely different problem. 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, uh, you can't have lots of different products doing lots of different things. You can do that when you become bigger and your CrowdStrike or your, you know, GE or your some large company, you can, you can have lots of different products in your bag, but if you want to disrupt the market and win in that market, you better be very focused on it. So that's why we did that. It made a lot of sense for us and we sold it for two hundred and fifty million dollars. So we Yeah.

AI assessment note: “It was a good business, um, but it was a declining business.”

Q though, a company with a 120,000 employees using you, if you build them the full rate of a hundred bucks per seat, you're doing the same math I am, right? We'd love for you to be making twelve million a year on that contract. Maybe you are. What would you say the average, though, customer paying you is paying per seat? Is it more like maybe 20 per seat, 50?

A Oh, no, no. The average is closer to 80 bucks a seat. So, you know, there's, there's companies that are paying us more than that, uh, obviously, but, and there's, Companies that buy a 120,000 seats, they, they get to price. They get a better price as you would expect. So, um, it's, it's all over the map, but we have a number of multimillion dollar a year customers for sure. And, um, you know, this is a multimillion dollar problem. It's, um, our research shows that the average breeze costs an organization, sixteen million dollars. So a big company is going to pay a lot of money if they have a breach from an insider. So we're, we're a small drop in the bucket compared to that.

AI assessment note: “The average is closer to 80 bucks a seat.”

Q He is press trained. I'm going to keep pushing. This is good stuff. Walk me through how you plan to grow code 42, right? So, so what's the team look like today? And are you doing an outbound sales motion inbound? What's it look like?

A Great question. So we have, we have, we have, uh, uh, we have, uh, obviously everybody's doing, we all do inbound. You have to do inbound, right? If you're crazy, if you're not to, we're, um, We're aggressively looking at intent in the market, so we use tools like Sixth Sense to look for who's interested in buying in this space. Um, we have a new business sales team that's entirely dedicated to new business, and we have a customer success team that's entirely dedicated to make our customers successful and to grow their accounts. So, um, we, You know, these are, uh, a lot of SaaS companies follow this model today. It's something that I helped pioneer when I was running Eloqua to, to set, to separate those two functions and have what we at the time coined as hunters in the forest, which is your new, uh, you know, new business people, but then also hunters in the zoo, which are people that are hunting for business in your install base.

AI assessment note: “we use tools like Sixth Sense to look for who's interested in buying”

Q What are you buying? I mean, what are you interested in?

A We haven't bought anything. And again, this is all about focus. So we, you know, it's a very high bar for us. You know, it's a very high bar. You're You know, it's worth buying because it's not as opposed to building. And so far in all the analysis we've done, we, every time we look at something that we really get excited about it, we end up saying, well, we could build most of what they have, or we don't want to take on their, uh, customers or their challenges. So we're being very judicious about that. It's the other thing that hasn't happened yet in security. 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 still have money on the balance sheet. And until people start running out of money, valuation expectations, uh, Are going to still be high. So things are, that's a long way of saying things are not cheap yet.

AI assessment note: “We haven't bought anything. And again, this is all about focus.”

Q You mentioned you talked to Vista recently. Are you in talks to sell the rest of the company to them?

A No, no, no. I was just, you know, I meet with people all the time. You know, that was a casual breakfast. There was nothing going on. I think I, you know, for your listeners and your, your watchers of the podcast is, You should always be talking to everybody in your, in your market space, uh, particularly strategics who think about how they're building their businesses and, you know, what holes you might fill and what innovation you have. And 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, um, in my experience, those companies have trouble executing. On their own, like building their own products. They don't have the, they don't have the capability to just to listen to small companies like us steal our ideas and go execute them better than we do. And so I'm always telling people like, you know, get in there, make sure they know what you're doing and how they're doing it. So I do that with, with strategics and people that are in our space. Cause we, you never know those partnerships are going to come, but I also like to meet with the private equity people because they have great insights and, You know, Vista is probably the largest software company in the world today. So they're a great company, you know, to hear how they'r…

AI assessment note: “No, no, no. I was just, you know, I meet with people all the time.”

Q Yeah. I guess going back really quick to your guys' capital structure story, obviously a nice big moment last year with the sale, but, um, your guys, I think your first round was like 20, wasn't it back in 2012 with Excel for fifty million bucks, but you said the company launched 20 15. So what was going on there?

A Well, the company's been around since 2001. So a crash plan has been around for a long time. So the previous, uh, founders raised money from Excel in 2012. And that was the, the only round that they did. And then I joined in 2015 and then raised money in a B round in 2015. And, um, but I think that round was eighty five million. And we, You know, we use that money. We're pretty cashflow. I run what I call the East coast offense, uh, as opposed to the West coast offense, which is you pretty much spend what you have to grow your business as opposed to, um, you know, overspending early, you know, early. So we try to run it. So we've been pretty capital efficient, uh, throughout the process and we'll continue to try to be that way.

AI assessment note: “Well, the company's been around since 2001. So a crash plan has been around”

Q Do you feel good about how you have their plans structured in this new macroeconomic environment in terms of their quota, the OT to quota ratios, things like that moving into next year, or have you had to make some adjustments?

A I think we're all looking at quotas, uh, given the macro economic environment. And you know, the macro has been interesting for security, especially because a security in the last few years has sort of had a blank check. You can, if you needed a product, you just ask for it and you got it. And I've seen, I've been involved in two deals this year where procurement overruled security on, on, on the deal. And I have never seen that. I've never seen a procurement person You know, um, tell a security, uh, leader that they can't have a product that they wanted to do. We're going to go with a cheaper product. Um, so that's a really, that's a sea change. 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%. So this has been a really tough year in security. So for me and my team, the way we're looking at it, we'll, we'll relook at what is next year going into 20, 24. We'll look at territories. We'll make sure there's enough business there for our, for our teams to, uh, to do well.

AI assessment note: “we'll relook at what is next year going into 20, 24. We'll look at territories”

Q Understood. And what do you charge for this technology on average per month or per year?

A Well, that's a, you know, we sell to organizations from as few as 200 people. Uh, our largest customer has over a 120,000 employees. So what we charge really depends on your size, but Think about it as, you know, maybe, um, you know, a hundred dollars a year, 120 dollars a year per employee. Um, that's just a good rule of thumb, but obviously it depends on, you know, the sophistication of the product that they buy, how many features they buy, et cetera. I mean, our product, as an example, connects to things like salesforce.com. That's an option you can have So you can see who's exfiltrating data using Salesforce. Our product connects to your OneDrive, your G drive account to see who's publicly sharing documents that they shouldn't share there, because that's where all our data sits. You know, our, our product.

AI assessment note: “maybe, um, you know, a hundred dollars a year, 120 dollars a year per employee.”

Q Let's jump back into the interview. That makes sense. And what would you say, you know, you have teams as small as 200 and as big as a 120,000. What would you say your sweet spot is a thousand person team? What would an average be there?

A Well, you know, Nathan, the thing I love about SaaS software is it's democratized software for everybody. So the same awesome product that I'm giving people, uh, you know, at a 120,000, I'm giving to a 200 person company. So I'm giving them that same power and capability. Um, So I'm not going to define a sweet spot per se. 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. Today in this economy, big companies are taking forever to make a decision on new technology purchases So again, that if, if you talk about who's buying today, I would say the sweet spot is in that 1000 to 5000.

AI assessment note: “I would say the sweet spot is in that 1000 to 5000.”

Q Give me more of the backstory here because you said something interesting. You said you started this inside of a company called Inside. Uh, did you lead the spin out or help me understand how you got this intellectual property outside of a parent co?

A So, so I joined a company called crash plan, um, in 2015. It was called code free to, but the product was called crash plan. It was an endpoint backup product. And the board hired me to figure out what we were going to do with that product longterm. And that's an endpoint backup product. So basically think backing up all your data from your laptop into the cloud. Um, and the idea was that like, look, that longterm is going to go away because most people keep their data in the cloud today. You keep your data in one drive, you keep your data in G drive, et cetera. And so we set out to figure out how we could use all the skills we had to build a company that added a lot of value in the market.

AI assessment note: “I joined a company called crash plan, um, in 2015”

Q Um, and some people, some people get creative there and say, well, they're free customers, you know?

A Yeah. Yeah. No, no. We, we, you know, it's interesting because we, our product requires a lot of, uh, you have to install our product. You have to put, there's a sensor that sits on the end point. There's no sort of PLG model where the average person could just download it themselves. Also, because we're looking at what insiders are doing, there's also no natural growth for an insider to say, Hey, I want to put a agent on my machine to see, you know, how I'm exfiltrating my own data. Um, in fact, most insiders don't want that on the machine at all because they want the opportunity if they, when they leave, if they need to, to, to take things with, uh, with them. I mentioned security companies, security companies, there's probably 30 security companies using code 42 today, and they're, 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. And you're the smartest people in security and they're using us to solve this problem. So it's a, I think it's a real validation for us as the, as the folks you want to talk to, um, just to solve what is a really difficult problem.

AI assessment note: “There's no sort of PLG model where the average person could just download it”

Q EBITDA margin, basically, to get there, right? So, I mean, when you talk, I don't know if JMI is still on the cap table, but when you think about how to position the company for the next couple of years, do you want to get back to the rule of 40 at some point? And if so, what, what, what is the split between growth and cash flow, you think?

A I think all of us want to have the rule of 40. I was talking to some Vista folks a few months ago, and they go, we like the rule of 50. And I was like, well, who doesn't like the rule of 50? So I, I think, yeah, we all aspire to get, to get to, uh, 40%, uh, growth plus EBITDA. And, you know, honestly, I think if, uh, you know, growth is out of style right now, but I, I think long-term growth always trumps, uh, for a SaaS business because the, the, the way the economics model, the economic model works is If you're growing at a high rate, great things can happen. So, um, you know, I would always err on the side of trying to be high on, on that growth. Uh, and then, you know, you want to monetize and you want to be profitable at the right time. And, you know, different companies have done it different ways. Um, we've, you know, Salesforce proved that you can get to a billion dollars and it's have a ton of leverage in the model. And, um, I don't think the market is going to stand for that for most people today. But I do think that, that, um, that I still, I still believe, and I know it's unpopular this month, but the growth trumps profitability, uh, right now, especially if you're early in a market and you're, and you're, uh, not at scale. I mean, we're not a hundred, we're not a hundred million dollar company today. And so, you know, there's still a big grab and you want to, You'r…

AI assessment note: “I would always err on the side of trying to be high on, on that growth.”