The Exchanges

Q That's great. Um, I, I think it was also public. You last run a finance, well, well, When was, uh, was it public the valuation when you passed kind of the billion dollar mark and what round was that? Do you remember?

A Um, so we, uh, again, we, you know, I've always thought that, that entrepreneurs who brag about how much they raised or, or what their valuation are, it's sort of like if you brag about how big your mortgage is, um, it's, it, it feels sort of distasteful, but we, you know, we've said that we crossed over a billion dollars, uh, in valuation in, uh, the round that we did in December of 2014. But, you know, one of the things that I think that we've always done is, um, we, we don't, we don't talk a lot about the money that we raise or, or anything else. So every round that we've done, we've kept secret for at least nine months after we did it. So the round that we, that we raised in December of 2014, uh, we actually announced finally in September of, of 2015. So it's, um, you know, I think that raising money is, is, is sort of a, a necessary part often of building a business like Cloudflare, but It's not necessarily something to be proud of. It just means that you didn't actually generate enough revenue yourself to cover the costs that you had. And so, you know, I, I wish that more people would focus on, you know, how, how quickly you've gotten to sort of break even, how quickly have you actually ramped kind of your revenue rates? Um, cause that's, that's what really matters for, for a business.

AI assessment note: “we crossed over a billion dollars, uh, in valuation in, uh, the round that we did in December of 2014.”

Q Matthew, sorry. Can you maybe put some kind of number around that? What do you mean remarkably low as a percentage or a fixed number?

A Well, I mean, I, I think that more than half of our business comes from just straight inbound, no marketing involved, um, that is built around sort of the halo of the brand word of mouth and, and otherwise, you know, we, on a traditional marketing basis, we've been terrible traditional marketers. Like we've been very little on, you know, you don't see Cloudflare billboards on the one-on-one in San Francisco. You're, you're, we don't spend a lot on, on, uh, any of the traditional marketing channels. Um, and yet Every day, you know, 15,000 new sites sign up, uh, for our service, most of whom heard about us with, there were zero, uh, customer acquisition costs. Um, you know, as you go up, you know, for our larger customers, we've got, we've got sales teams that support those, but our sales team, you know, our, our inside sales team, uh, is doing, uh, on average over 1.3 million dollars in ACV on a, Per ramped rep basis, which is over what period of time?

AI assessment note: “more than half of our business comes from just straight inbound, no marketing involved”

Q 700 people. I assume they're based all over the world. I'm curious at your kind of scale, what are you, what is your direct report? What does your management team look like? How have you structured that?

A Yeah, so we, you know, the, the way that you, uh, the, the variable that you, uh, turn up or turn down in order to determine how much hierarchy there is in an organization is how many direct reports, uh, can anyone have as a max? Um, you go to the Harvard Business School, they say the right number is between six and seven. Um, we tend to think that we, we hire people who have a little bit more, um, self-direction, and so we think the right number is between nine and 10. Um, I've got about nine, uh, direct reports, uh, to me. Um, my co-founder, Michelle, uh, is, is our, is our, is our COO. Um, so the people who would report to me would be, you know, our head of sales, um, uh, the, our, our head of security, our CTO, um, head of product, um, those sorts of, those sorts of folks are the people that report to me. And, and again, fairly, fairly traditional, uh, organization. I think we're a little bit flatter, um, And some organizations, because again, we've allowed more direct reports per individual than some people do.

AI assessment note: “I've got about nine, uh, direct reports, uh, to me.”

Q Yep. Last question here before we wrap up with the famous five. Growing through acquisitions, you've done four. How do you think about acquisitions, and is it something you're looking to ramp up? You're, you're currently on the hunt for additional acquisitions that make sense.

A Um, I would say that every acquisition that we've done, um, the, the first and foremost, uh, question is, is there real, is there, are there individuals in real talent here who, who we feel will be, um, uh, will be able to contribute to the team, fit in with our culture, and that would work out. Most of the acquisitions that we've done have been, um, aqua hire, uh, types of acquisitions. I think we've done, um, uh, two that have had A little bit of a, a technology, uh, component, uh, to them, but again, still very, very small teams, 10 or fewer, uh, people as part of that, uh, nothing so far in order to, uh, in order to grow revenue. So I think we're always looking for smart, fully formed teams that we can kind of bring in and that they can then very quickly ramp up. And, you know, I, there, there, there's sort of two different ways that you can do technology acquisitions. Um, I think the challenge with most cloud companies is we're so tightly coupled That it's really difficult to, um, take an outside product and have it naturally fit into, into our ecosystem. So usually when we're doing technology, thinking about technology acquisitions, it's what are things that are in sort of adjacencies that we don't have to deeply integrate into our technology stack, but they could maybe have some sort of, uh, benefit, uh, on, on the side.

AI assessment note: “So I think we're always looking for smart, fully formed teams”

Q Hey, no, no, it's a, it's obviously a bad question. If it's not on your radar, it would be on your radar if it was important. So we'll skip it over. We'll skip over. But, but generally crypto, as it relates to security and decentralization in your space, is it something you're thinking about or no, not really?

A Well, I mean, I think, um, you know, if I wasn't the CEO of Cloudflare, I'd be worried about Cloudflare because, because we are, you know, we are a centralizing force. Um, and I think that, Um, the internet goes through waves of, uh, technology in general goes through waves of, of centralization, decentralization. Jim Barksdale, one of the co-founders of, of Netscape, said there are only two ways to make money in, in technology. Um, you can either bundle or unbundle. And so, you know, I, I think it, it is obvious that there will be, um, great forces trying to figure out how to unbundle who the leaders are today, and whether that's Cloudflare or Facebook or Google or otherwise. Um, that, you know, history doesn't stop. And so, um, it's something that, that we're watching. I think it's smart that, you know, Mark over at Facebook is, is thinking about that. Um, I don't know whether it's going to be crypto in any of the forms that it is today, but I do think that something decentralized is, is, uh, is important. And I think that that, that is likely to be disruptive to a number of companies that are, that are very successful today, including potentially ours.

AI assessment note: “it's something that, that we're watching. [...] something decentralized is, is, uh, is important”

Q Lifetime value can be a vanity metric. It's very easy to let that number lie to you when you start saying, well, it could be an infinity, because our CAC is nothing, and here's how it works. Do you use lifetime value at all to drive your day-to-day decision making that are related to products, or not really?

A We, we, I mean, to be honest, we haven't as much largely because we have not been as traditional of marketers. You know, lifetime value is a great way to figure out how much you should spend then to acquire a potential customer. And so, you know, it's something that, um, you know, I, I'm sure we calculate as part of, as part of the business and we try and try and figure it out. But the, the challenge for us has been, I mean, I guess the opportunity has been that since we have not been spending as much on a, on the traditional marketing channel, um, focusing on lifetime value has, has been less of, uh, sort of the focus for the, the first, you know, eight years of CloudFlows history. I think going forward as we're becoming more sophisticated on the marketing channel, that'll be something that we, we think about. And then, you know, part of our challenge is, um, it really is one funnel. Like, you know, sometimes people will start as a free customer and, Um, but then they take off like, um, you know, a major ride hailing service in, in Europe started Um, as a, a free customer, as they, as they started up, they then graduated paying us 200 dollars a month. They now pay us, you know, hundreds of thousands of dollars a year. And so trying to figure out when someone starts as a free customer, what the lifetime value of that customer is, is, I mean, that, that obviously is the exceptio…

AI assessment note: “to be honest, we haven't as much largely because we have not been as traditional”

Q of going public, many of them will articulate one of the only big pros they see besides obvious capital is there's something about being public that communicates trust and in a business like security that can potentially help you, you know, land and expand and retain enterprise kinds of customers. Would you generally agree that's the one big upside? And, and do you, again, see any big cons to that?

A You know, we haven't had, I, I think that that's, that's potentially, you know, something that people say that hasn't been something that has held us back. Um, nobody, I mean, maybe there would be some marketing benefit from being public, but, but again, I, I think it's, there's actually a responsibility to an organization, to your investors, to create some liquidity. And I, and I also think that, you know, the, it's pretty amazing that you could have invested in an Apple or a Microsoft or an Amazon, uh, As a public market investor and had there be significant upside from there, I think this sort of, um, allergy to being a public company is a disservice to public markets, uh, generally. And, you know, I, I think we, we, it was probably too easy. I was at, I was a securities attorney back in, in 2000. It was probably too easy to become a public company in the late nineties. It's probably too hard, uh, to do it now. And, and you, again, you want to write that Have the right balance between those things, but allowing public market investors and not just, you know, venture capitalists or, or people who are accredited to be able to make angel investments, be able to benefit from the innovation and the wealth that that creates. I think is actually a really important thing for markets generally.

AI assessment note: “maybe there would be some marketing benefit from being public, but”