Agiloft is a global leader in contract lifecycle management software. It’s CLM improves contract management for legal departments, procurement and sales operations.
Nathan Latka sat down with Colin Earl, founder of Agiloft, to get the inside scoop on how it’s shaking the SaaS scene. Key metrics include:
- 1500 customers
- 50 engineers
- Growing 40-60% YoY
Nathan Latka (00:00):
Hey folks, my guest today is Colin Earl. He’s a software industry veteran with 25 years of experience as a developer, product manager, and CIO. He worked at IBM, General Electric, and three startups before founding Agiloft. They’re a leader in contract life cycle management, and they’ve been featured many times in the Gartner Magic Quadrant. Colin, are you ready to take us to the top?
Agiloft CEO Colin Earl (00:19):
Nathan Latka (00:20):
So you first have to tell people, what does that mean? What does contract lifecycle management mean?
Agiloft CEO Colin Earl (00:25):
It just refers to curation and management of contracts, typically contracts between B2B organizations. And to set the stage for this, negotiating and agreeing upon one of these contracts can cost well in excess of $100,000 in attorney fees. So it’s not a small issue. Of course, the entirety of business is focused around contracts, and those define the relationships between the companies.
Nathan Latka (00:56):
Now, this is fun for me, Colin, because the last time you came on was back in 2017. So you’re one of my first interviews. We’re now almost 3,000 interviews in, and the world has changed significantly since when we last spoke. So let’s get the updated story here. What kinds of customers are paying you for your contract lifecycle management software?
Agiloft CEO Colin Earl (01:14):
Organizations from the very largest enterprises down to a few SMB companies. There’s a list of customers on our website, but it includes the likes of CDW, Chevron, right down to startups.
Nathan Latka (01:33):
So Colin, you’re going to hate this as an engineer, but if I forced you into an average, what would you say the average customer is paying you per month?
Agiloft CEO Colin Earl (01:41):
We don’t disclose that information, but it’s significant. Ranges from a million plus at the high end down to a few thousand at the low end.
Nathan Latka (01:59):
So someone can get started on you guys for as little as $1,000, $2,000 a month?
Agiloft CEO Colin Earl (02:03):
Nathan Latka (02:04):
And for someone that’s paying… One thing I want to understand is, what’s the difference between someone paying you two grand a month versus someone paying a hundred grand a month? What are you upselling? Is it number of contracts, number of seats, something else?
Agiloft CEO Colin Earl (02:15):
It’s primarily the number of seats. There’s also different versions of the software. For example, the higher end customers will typically use the API. They may be using 24/7 support services, et cetera.
Nathan Latka (02:28):
Are those the main, too, though, it’s support services and API frequency?
Agiloft CEO Colin Earl (02:32):
Support services, API frequency, and of course, the number of users.
Nathan Latka (02:37):
Yep, yep. No, that all makes sense. Okay, great. And now, this is what you call the slow growth story, but it’s still a great story. This isn’t something where you went and raised a bunch of capital and exploded overnight. You launched this, I believe, in 1991, correct?
Agiloft CEO Colin Earl (02:49):
That’s right. Yeah.
Nathan Latka (02:51):
So been going. And pretty capital efficient, I think. How much have you raised to date?
Agiloft CEO Colin Earl (02:55):
We had a round funding from FTV about a year ago. Until then, we had no funding at all. Had grown purely through brute staffing, and actually achieved number one ranking in the Gartner Magic Quadrant, at least in the critical enterprise capabilities report, without having a penny of funding, purely through bootstrapping.
Nathan Latka (03:23):
Okay. Now, how many customers are you serving today? I think in 2017, you said you’re working with about a thousand?
Agiloft CEO Colin Earl (03:29):
Yeah. The number is… A partial listing is available at our website. There’s about 500 companies listed at the site. A number of organizations ask that we don’t disclose their names or logos.
Nathan Latka (03:43):
Colin. I’m not asking you to disclose the list of your customers, I’m just trying to understand number of customers. This signifies if you’re moving up market or moving down market based off the number at the top of your funnel. So how many total customers are paying at least a dollar?
Agiloft CEO Colin Earl (03:57):
But I won’t answer that directly, but I will say that growth over the past year, in terms of new sales, has been more than 50%, and the prior year was about 40%.
Nathan Latka (04:10):
Okay. Now when you say year over year, 50% growth in new sales, do you consider upselling a current customer a new sale?
Agiloft CEO Colin Earl (04:16):
Yeah. So it’s actually more growth in revenue, I should say.
Nathan Latka (04:21):
Yeah. Got it. So you may not be adding a bunch of new customers, but if you’re expanding wallet share across the current base, you can still get great revenue growth.
Agiloft CEO Colin Earl (04:28):
Yeah. And of course, we are adding a lot of new logos, but we’re also getting a lot of demand from the existing customer base.
Nathan Latka (04:37):
I mean, is the general… When HubSpot went public, they made a very intentional thing to say, “Guys, listen,” to the analyst, “Our average ARPU is going to decrease because we’re going to open top of funnel. We want a wider net. We’ll drive ARPU expansion over time.” It’s a very intentional decision. How are you guys thinking about customer growth over time? Are you happy with just maximum 2,000 customers and driving wallet share and ARPUs up? Or will you ever really open top of funnel and have a self-service, $100 a month tool?
Agiloft CEO Colin Earl (05:04):
We don’t anticipate having a $100 self-service tool. And the reason for this is that Agiloft was really designed to meet the needs of sizeable enterprises, organizations with complex requirements, complex workflows, demanding loads, et cetera. And that level of sophistication necessitates a certain level of sophistication in the product itself. It just isn’t a great fit for the extreme low end.
Nathan Latka (05:42):
That makes sense. What does the sales motion then look like today? Do you have a bunch of account executives calling into new accounts? Or are you mainly more heavy on CSM, customer success reps that are just driving expansion in the current base?
Agiloft CEO Colin Earl (05:53):
It’s not so much sales people calling in for new accounts, but new potential clients coming to us, registering at the website, and then getting a follow up call from a product specialist or a sales specialist.
Nathan Latka (06:08):
So how many people total are on the team today?
Agiloft CEO Colin Earl (06:12):
We don’t disclose those numbers, but as you can see from the LinkedIn profile, in excess of 200.
Nathan Latka (06:20):
Okay, got it. So over 200. And how many of those folks would you consider engineering, in-house engineers?
Agiloft CEO Colin Earl (06:27):
About a quarter.
Nathan Latka (06:28):
Okay, so pretty heavy then. At least 50 there are engineers. And then, are there any functions you’ve decided to outsource because you feel like it was more effective for the business?
Agiloft CEO Colin Earl (06:38):
Not so much functions. I mean, there’s the number of services that we outsource. We don’t run our own mail server, for example, we use the hosted version of Microsoft Exchange. We use PWS for hosting abroad. We offer hosting on AWS in Virginia as well. So whenever you can use… And this is, I think, a general rule. When there’s a commoditized product out there that’s best of breed and backed by a significant organization like Amazon or Microsoft, you are almost always better using that than developing your own.
Nathan Latka (07:18):
Going back on to the background, it’s rare you see a founder stay committed for almost 30 years, so applause to you, to one startup here. But do you remember, can you take us back, do you remember the year you passed a million dollar run rate?
Agiloft CEO Colin Earl (07:32):
Nathan Latka (07:33):
What year was that?
Agiloft CEO Colin Earl (07:35):
It was back in, I think it was ’89.
Nathan Latka (07:42):
Oh, so you didn’t-
Agiloft CEO Colin Earl (07:43):
Actually, no. It was… Sorry. It was not ’89. 2000, 2001. It was quite a while. And the reason for this is that if you bootstrap an organization, you have to develop some working capital. And we developed that by providing consultancy services. We then used that money to fund development of our first product, and then used the money from that product to fund development of the Agiloft suite today. And it takes a while. And if I had to do it again, maybe I’d raise capital at the beginning.
Nathan Latka (08:26):
Now, are you the sole founder or how many founders are there?
Agiloft CEO Colin Earl (08:29):
I’m the sole founder.
Nathan Latka (08:31):
You are the sole founder? Okay. So you kept 100% equity all the way up through the beginning of, I guess, 2019, 2020?
Agiloft CEO Colin Earl (08:42):
Oh, no. The equity was shared with the employees. And I think it’s part of the Agiloft culture that every employee gets some piece of equity. And when we had the investment from FTV, millions of dollars went to existing employees, as well as, of course, a fair chunk to myself.
Nathan Latka (08:57):
Yep. Before we get to the FTV stuff, because that was obviously a big decision you made in the life cycle of the business, there’s a lot of bootstrap founders that listen to this show. And one of the things they struggle with is when to set up that employee stock option pool. Or should they just stick with dividends and use free cash at the end of the year to incentivize them? How did you make that decision when to set up and incentivize employees with equity?
Agiloft CEO Colin Earl (09:18):
Pretty much right from the beginning. Yeah. One of the core tenets of Agiloft is to align the self-interest of the company, the employees, and the customers. And one of the ways that you align the self-interest of the company and the employees is by giving them a piece of it.
Nathan Latka (09:38):
And so, what was there… Again, there’s people listening here, they want to learn from you. What percent did you decide on day one to reserve for employee option pool?
Agiloft CEO Colin Earl (09:48):
Around about 10%.
Nathan Latka (09:50):
And looking back, would you do the same thing again? Or would you make it bigger, smaller?
Agiloft CEO Colin Earl (09:55):
I think we’d do the same thing again.
Nathan Latka (09:58):
Okay, got it. So then, over time, really all the way up 20, 30 years later, you basically owned 80 to 90%, you used the option pool to incentivize key employees for other 10%, and that was until… FTV was really the first, we’ll call it, outsider on your cap table then. Is that right?
Agiloft CEO Colin Earl (10:13):
Well, the initial option pool was about 10%. We expanded that option pool as the company grew.
Nathan Latka (10:19):
So walk me through that process. Did you just find yourself, you deployed the full 10%, and there was still great talent you wanted to go acquire, so you need to add more?
Agiloft CEO Colin Earl (10:26):
Nathan Latka (10:28):
Yeah. So how’d you think about expand… Can you share? Did you double it, or triple it, or what?
Agiloft CEO Colin Earl (10:34):
Well, what you do is you look at what will it take to make the company really attractive to a potential employee? How many such folks do we anticipate hiring on before we get to the next level of revenue? If you’re giving somebody, say, 0.1% of the company or 0.5% of the company, that’s very different if the company is at a revenue of say $10 million a year as opposed to $1 million a year. So the size of the pool is dependent upon both the number of employees you’re looking to hire, and the level of seniority, and the size of the company at the time that you hire them. And we more than doubled the equity pool.
Nathan Latka (11:29):
And then you obviously made capital decisions in 2020 with bringing FTV in. Can I ask how much equity you still own today?
Agiloft CEO Colin Earl (11:37):
I’m still the largest shareholder.
Nathan Latka (11:41):
Good answer. All right. So you still own more than 50%. Why’d you make that decision? Why not sell a majority to FTV? Why did you want to keep more than 50%?
Agiloft CEO Colin Earl (11:49):
Well, to be clear, I didn’t keep more than 50% of the stock. I’m the largest shareholder.
Nathan Latka (11:54):
Oh, I see. Got it.
Agiloft CEO Colin Earl (11:56):
But there are other shareholders. There’s employees, there’s FTV, et cetera. And we brought in FTV because we felt it was time to accelerate the growth of the organization. CLM is an extraordinary and rapidly developing and evolving market, and it’s nice to take some cookies off the table.
Nathan Latka (12:17):
How much of the $45 million was secondary?
Agiloft CEO Colin Earl (12:21):
Enough that I don’t have to worry about money.
Nathan Latka (12:26):
That’s more dependent on expenses than how much they take in secondary. Keep your expenses low, you can live on nothing.
Agiloft CEO Colin Earl (12:31):
Well, yeah. And I don’t have expensive tastes, but it was nice to buy a nice house. I’m delighted to say I now live in the house that was previously owned by the inventor of LDAP.
Nathan Latka (12:48):
Oh, wow. Very cool.
Agiloft CEO Colin Earl (12:49):
Yeah. Kind of cool.
Nathan Latka (12:49):
Very, very cool. That’s incredible. Can I push you a little harder? Was more than 50% of the $45 million secondary or less?
Agiloft CEO Colin Earl (12:59):
I don’t want to get into those details.
Nathan Latka (13:02):
It’s something that I respect.
Agiloft CEO Colin Earl (13:06):
What I’ll say is this. The goal wasn’t that I become wealthy. If I’d simply wanted a ton of money, then I’d have sold the company. The goal was that I get enough money that the company can afford to expand rapidly and aggressively without my worrying about it. So it gave us freedom to grow the sales organization, to grow and expand the marketing organization.
Nathan Latka (13:34):
Well, Colin, if that was the only focus, none of it would’ve been secondary. You took part secondary because you deserved to take part secondary. You work hard for 20 years, you bootstrap a business. It makes sense. The reason I push you on the question is because there’s a lot of founders listening today that have bootstrapped to five or 10 million, and they’re being approached by growth equity firms and trying to figure out how to negotiate what percent they should ask for secondary versus keeping in the business.
Agiloft CEO Colin Earl (13:55):
Right. And what I’d say is this, is that if you want to grow a company rapidly, as Salesforce did, it’s one of the classic examples, you have to be willing to go into the red, because growth is expensive. It is almost impossible to double revenue year over year without going into the red from a gap perspective. And that’s, at least for me, a very uncomfortable thing to do. And at a certain point, you’re going to run into cash flow issues. So to do that, you need to pull in investment capital, you need to build the balance sheet. But if you want to be comfortable doing it, you also need to pull in enough secondary so that your retirement is taken care of. And that is how I think about it, or thought about it, and how I recommend others think about it as well.
Nathan Latka (14:54):
That’s really helpful. Thanks for that. Rounding this out. Obviously, you now have additional capital on the balance sheet to drive additional growth. Do you see a clear path to breaking a $50 million run rate in the next 12 to 24 months?
Agiloft CEO Colin Earl (15:06):
That is certainly our goal. Yes.
Nathan Latka (15:10):
Does it feel reasonable or does it make you a little uncomfortable? It feels like a stretch goal.
Agiloft CEO Colin Earl (15:14):
I think it’s reasonable.
Nathan Latka (15:15):
Okay. Very cool. Yeah, and the reason I ask $50 million instead of something else is I take your more than 1,000 customers today at around a $2,000 ARPU puts you at $3 million a month. And annualized, it’s about $36 million. If you keep growing at 50 to 60% year over year, that gets to that $50 million here fairly rapidly.
Agiloft CEO Colin Earl (15:32):
Right. But one of the things that happens is when you get to a certain point, you become well known in the market. And we achieved that with both the number of customers and the Gartner Magic Quadrant, and then it begins to build in itself pretty rapidly. Getting to that point is a lot tougher than exploiting it once you get there.
Nathan Latka (15:55):
Well yeah, I mean it took you 10… I appreciate you sharing this, but it took you 10 years to get to that million dollar run rate, I believe. Correct?
Agiloft CEO Colin Earl (16:00):
Yeah, there about.
Nathan Latka (16:01):
Yeah. Right. So, that’s the grind. That’s what it’s all about, is the grind. Can I ask you how long it took you to get to $10 million run rate?
Agiloft CEO Colin Earl (16:11):
Less than… I was going to say less than half that time. But yeah, around about that.
Nathan Latka (16:18):
So roundabout, that would’ve been like 2015-ish?
Agiloft CEO Colin Earl (16:21):
Yeah. I’d say the other factor, of course, was that we transitioned from being a consulting organization to a product organization. And as a product organization, you can grow so much faster.
Nathan Latka (16:39):
Yep. Why weren’t you able… I mean, so call it $10 million in 2015, and now you’re around $30 or $40 million. Why weren’t you able to grow faster in that period? Did you just hit a roadblock where you needed to bring in external capital to take some other experiments, some other tests?
Agiloft CEO Colin Earl (16:54):
Agiloft was focused on the platform because it’s a no code platform. It allows you to build any enterprise application. And one of the first applications we focused on was service desk, support, which is a large market but heavily saturated. And it’s much, much harder to grow in that market than a relatively greenfield market like CLM. When we made the transition to focus on CLM to put core development expertise into building the CLM platform, that growth really began to accelerate.
Nathan Latka (17:35):
And now today, with the additional capital and the expansion revenue you’re seeing, is your net dollar retention above 100%?
Agiloft CEO Colin Earl (17:41):
Nathan Latka (17:42):
Do you have a goal there, or is that not important?
Agiloft CEO Colin Earl (17:46):
Yeah, well our goal is simply to make it as high as possible. But getting it above 100% is a comfortable place to be. And it’s been above 100% for a number of years now.
Nathan Latka (17:59):
Yep. This space, can you get up to 120, 130%, which would be world class compared to publicly traded SaaS companies?
Agiloft CEO Colin Earl (18:12):
I think so, but it all depends upon the level of saturation you get with the initial sale. In some instances, people begin with a relatively small deployment for maybe one division of a multinational company, and then they grow from there. And of course, you get extraordinary multiples if that’s what happens. If, however, you begin with an enterprise deployment across the entire organization, you’re only going to get incremental growth as the parent organization grows.
Nathan Latka (18:48):
Unless you develop new product lines to sell into different functional roles at that logo?
Agiloft CEO Colin Earl (18:53):
Just so. And that’s one of the things which is happening, is that people having seen success with Agiloft for CLM are then looking to expand it for matter management, case management, et cetera.
Nathan Latka (19:07):
Are you building any new product lines outside of CLM?
Agiloft CEO Colin Earl (19:10):
We’re building adjacent applications to CLM. Matter management, case management are good examples closely tied to CLM. They’re processes which involve contracts that involve negotiation and discussing between sites, but they’re not going to call to CLM itself.
Nathan Latka (19:33):
Valuation is obviously a sensitive topic, so I won’t ask you what the valuation was when you worked with FTV. You probably can’t answer that. But can I ask you, in terms of the multiple against your AR, was it more or less than a 10x multiple?
Agiloft CEO Colin Earl (19:44):
It was more than a 10x multiple.
Nathan Latka (19:46):
Okay, got it. More than 20x multiple?
Agiloft CEO Colin Earl (19:51):
Let’s not… Unfortunately, not. Maybe it should have been.
Nathan Latka (19:55):
Fair, fair, fair. Okay. So between 10 and 20x multiple. That’s helpful. Let’s wrap up, Colin, with the famous five. Number one, what’s your favorite business book?
Agiloft CEO Colin Earl (20:04):
The Tipping Point. It isn’t strictly a business book, but it’s extraordinarily helpful.
Nathan Latka (20:10):
Number two, is there a CEO you’re following or studying?
Agiloft CEO Colin Earl (20:13):
Yeah. Reed Hastings. Extraordinary guy.
Nathan Latka (20:16):
Number three, what’s your favorite online tool for building Agiloft?
Agiloft CEO Colin Earl (20:22):
I don’t really have an online tool for building Agiloft. It’s developers.
Nathan Latka (20:30):
Yeah. Number four, how many hours of sleep do you get every night?
Agiloft CEO Colin Earl (20:33):
Nathan Latka (20:34):
Okay. Situation, Colin? Married, single, kids?
Agiloft CEO Colin Earl (20:37):
Very happily married. One kid.
Nathan Latka (20:41):
Okay. And how old are you?
Agiloft CEO Colin Earl (20:45):
Old enough to have gray hair.
Nathan Latka (20:48):
I have gray hairs coming in now, and I’m only 31.
Agiloft CEO Colin Earl (20:50):
Not as many of them. Look at me.
Nathan Latka (20:53):
All right. All right. Take us home, then. Something you wish you knew when you were 20?
Agiloft CEO Colin Earl (21:00):
I think what I wish I’d known is that you really have to be… If you want to make a difference in the world, you have to be willing to reject the conventional wisdom. You also have to be willing to look at the conventional wisdom and see where you can learn from it. Because there’s an entire history of learning background, which has gone into that. But if you simply accept what people are telling you as being the gospel truth, you’re never going to be more than a wage worker.
Nathan Latka (21:35):
Guys, a 30 year old overnight success story, Agiloft. Took them 10 years to boot you up to a million bucks in revenue, as they transitioned from an agency to a products company. Broke $10 million in terms of run rate in 2015. Now they have over 1,500 customers they are serving in the contract lifecycle management space with a team of 200. He decided last year in 2020 to go ahead and raise $45 million from a private equity firm, FTV. A portion of that went to incentivize and celebrate early employees who took equity early on. And obviously, a portion also went to Colin. But now they’re doubling down on growth, growing 40 to 60% year over year, with plans to break that magical $50 million run rate here in the next 12 to 24 months. Colin, thanks so much for taking us to the top.
Agiloft CEO Colin Earl (22:14):
Thank you, Nathan.