Chargify CEO Paul Lynch believes SaaS companies who bill “per event” will experience faster growth and higher valuations.
Chargify acquired Keen to create an out-of-the-box events-based billing model to allow all SaaS companies to bill like industry leaders, Twilio, Datadog, and Sendgrid.
The combined company will hit $20m in revenue in Q1, passing 2,000 customers.
“Why did AWS win?” asked Paul Lynch, CEO of Chargify in our December 8th interview. “AWS won because of how they bill.”
When AWS launched their utility billing model in 2006, Lynch, a native of Dublin, was already a seasoned operator, entrepreneur, and investor. Today at 45, Lynch is running the #1 B2B SaaS subscription billing company, Chargify, with over 2,000 customers and soon-to-be over $20M in annual revenue.
His path into billing is a little unorthodox when compared to other leading SaaS entrepreneurs. It involves Irish whiskey, telecoms, and journeys off the beaten path.
Immediately after graduating University in 1998, Lynch moved to South Africa with French drinks giant Pernod Ricard, where he worked to open up the emerging Irish Whiskey market. At that point, South Africa had emerged from the Aparthied regime and was opening up for business. “I loved it,” said Paul, reminiscing.
“It was something completely different than everything I understood from my childhood.” This is where Lynch’s love of whiskey was born. “I can’t say we actually sold a lot of whiskey, but there was plenty consumed.”
Lynch Sees Subscriptions For The First Time in 1999
He moved back to Dublin in 1999, joining ESAT Telecom in the newly deregulated Irish telecoms market. Success followed when, in late 2000, ESAT was acquired by British Telecom for just under $2B.
For the next 5 years, Lynch carved out a career in the telecoms market, a pinnacle of which was the listing of Smart Telecom on the alternative investment market of the London Stock Exchange in 2004.
“The successful AIM listing of Smart, more than anything, was that eureka moment where I realized that I didn’t need to be part of a large corporation to win,” said Lynch. “It taught me that I could take small businesses and grow them. This has been the path of my career ever since.”
Hosting365 Exits After Passing $5m in Revenue
Not long after Smart‘s successful public listing, Paul saw the potential in another subscription-based business. That being the emerging high-growth hosting market. In 2005, Lynch invested in and took a growth position in Hosting365, an up-and-coming Irish web hosting and managed services company.
The next five years saw Hosting365 grow aggressively. In early 2008, seeing both the emerging opportunity & threat of the cloud, Hosting365 sold its legacy shared hosting and domain division for $3.8M to Italian Private Equity fund Dada PLC.
By this stage H365 had already taken the mantle of Ireland’s largest managed hosting business, and in 2010 it was acquired by Sungard Availability Services, a Silver Lake Capital backed data center managed services business.
“We’d worked night and day to drive the growth under really difficult trading conditions during the meltdown. Capital was scarce, the banks were bankrupt, and the government was in crisis as the European Union had appointed the “Troika” to effectively run the nation’s economy and ensure we didn’t default on our national debt!” said Lynch.
Even in the shadow of the macro economic difficulties, H365 continued to thrive. In 2008, they launched one of Europe’s first Infrastructure-as-a-Service clouds, continued to innovate around software management tools, and expanded their global presence by continuing to invest in their Polish organization.
Lynch continued, “No one was surprised when Sungard came calling. They wanted a strong Irish base to grow from, and Hosting365 was a perfect fit. It was a great outcome for everyone involved.”
The Next Business, Amazon, and Ed Byrne
It was during this 5-year period that two significant events occurred in Paul’s career:
1) he saw the strength that Amazon Web Services created through value-based pricing, and
2) he met Ed Byrne, who he continues to work with to this day.
“Hosting365 was a lot of fun. Day in and day out, we were taking on giants like IBM, HP, and even Rackspace. We were small, agile, and scrappy,” Lynch continues. “When 2008 hit, we were able to pivot fast, change our business practices, and continue to grow through the economic meltdown.”
After the Hosting365 exit, Lynch and Byrne founded Digital Mines, a Cloud Management software business (funnily nicknamed the “Uber system” long before the rideshare company).
“Digital Mines was a really exciting project. We’d seen the value of Cloud Management solutions in Hosting 365 and felt we’d found an under served and fast emerging market category,” said Lynch.
What happened next, however, completely derailed the business, as first Citrix and then Rackspace open sourced Cloudstack & Openstack in quick succession.
“We were burning $30k a month, which we were funding out of our own pockets. Looking to get investment under the economic conditions that had prevailed in Ireland post 2008 was like trying to summon a genie out of a lamp,” Lynch explained with his deep Irish accent.
Obviously, given this quantum shift, Lynch had some tough decisions to make. “At that point, there was no obvious economic recovery looking imminent, and I had a young family at home.”
When the call from an ambitious Irish business continuity company came, Lynch was ready to listen. “The process was short, and an agreement took less than a week to reach. Even though it stung at the time, looking back I feel in the greater scheme of things that decision has proven to have been the right one.”
While Lynch pivoted, Byrne stuck with Digital Mines, ultimately rebranding as Cloud Vertical and pivoting it into an AWS cost management business. Byrne went on to co-found Copper.io and, most recently, Scaleworks, while Lynch moved into a small Dublin-based company named Network Recovery Services.
“The whole disaster recovery/business continuity space had exploded post 9/11. However, newer technologies, like high-speed residential broadband and cloud solutions, were really shaking it up by 2010.” Lynch set about future-proofing the business, building out Infrastructure-as-a-Service solutions, innovating DR products for the Caribbean, and moving it away from its traditional work area recovery roots.
New Venture Hits $30m in Revenues
Between 2010 and 2015, Lynch oversaw an ARR increase from under $3.6M to over $30M as the now-rebranded “Another 9” went global. A9 grew its U.S. presence through M&A, opened up offices in the Grand Cayman to service the Caribbean, and enjoyed strong organic growth in Ireland and the UK.
“We built a suite of Disaster Recovery as a Service tools” where our customers were able to take advantage of our DR solutions without having to make massive upfront capital investments,” said Lynch.
The Caribbean, and in particular, the reinsurance & hedge fund businesses therein were perfect customers for this service. In its first year, the business went from nothing to well over $1M in ARR.
“I remember the first contract we signed in Bermuda was $24k MRR on a 36-month term. It really was a service these guys needed and were happy to pay for.”
By 2015, Lynch was happy to move on. “The perception of the glamorous life of the international business traveller is one based on emotion, not fact.” Long haul flights, hotel rooms and convenience food finally took its toll. So when the call from his old friend Ed Byrne arrived, he was ready to talk with Scaleworks.
Scaleworks Raises $85M For “Venture Equity” in 2015, Calls Lynch
While Lynch was growing Another 9, Byrne and his partner, Lew Moorman, founded Scaleworks, a $150M Venture Equity firm with a focus of buying SaaS companies doing between $3M and $9M in revenue, optimizing their processes, centralizing their teams, and driving growth.
“As a small business operator and entrepreneur, the Scaleworks model immediately resonated with me. If you’re too small for private equity and too low in growth for venture capital, who do you call when you want either investment or an exit?” asked Lynch. This is the space Scaleworks saw an opportunity in.
Assembla Acquired with $3M in Revenues
One of their first acquisitions, Assembla was a code repository and project management tool in need of leadership.
Assembla was founded in 2005 and had just over $3M in revenue when Scaleworks acquired it. “Looking at Assembla, to me, it was pretty obvious that the key issue it faced was a go-to-market problem as the platform itself was top class.” Lynch immediately moved the leadership team to San Antonio, TX, and set about building a strong, coherent growth strategy.
Within two months of taking the chair, Assembla was growing at an over 40% annualized rate, had clear goals within sales and marketing, it had turned the corner.
In mid 2017, Assembla underwent a full category design pivot and entered the secure code management space, leaving behind its legacy project management roots. “The move to enterprise cloud version control allowed us to change our service delivery model and increase our prices while still delivering excellent value to our customers.”
By 2018, the company was selling into the enterprise space, and new business average revenue per account (ARPA) had jumped from less than $50 to well over $500.
Compliance, GDPR, Security became the business drivers. “I knew we’d arrived when, in early 2018, we won a $19K MRR upgrade with one of our existing install base customers. They never would have even considered us 18 months earlier,” said Lynch.
Assembla Gets Acquired in Big Win for Scaleworks and Lynch
Good news travels fast, and soon offers to acquire the business started to appear. “We never ran a process on Assembla. The intention was to hold it and just continue to build value. However, when the offer from Idera came in, we felt it was the right strategic move both for Scaleworks and for Assembla’s customers”. In September 2018, Idera acquired the entire entity as part of a developer tools rollup that saw it purchase six companies during that year.
“I had mixed emotions when we sold Assembla. The team really had moved mountains to get it to that point. Idera, however, has been a great acquirer for the company and has continued to invest and drive its clear underlying value.” Assembla would be the first of many successful exits for Scaleworks.
Scaleworks Acquires Chargify and Venture Backed Keen.io
While Lynch was busy growing Assembla, the folks at Scaleworks weren’t resting on their laurels. In November 2016, they acquired Chargify, a market-leading billing and subscription management operator, and in December 2017, they acquired Keen.io, an apache streaming and embedded dashboard company.
Both these businesses would hugely impact the trajectory of Lynch’s career. After a small break back in his native Ireland, Lynch returned to San Antonio, where he operated as a venture partner/entrepreneur in residence, looking to acquire businesses alongside Scaleworks.
“We worked tirelessly, looking to find the next investment that would suit both me and Scaleworks’ operating tenets. Hilariously, the right business was down the hall,” Lynch said with a chuckle.
Lynch Takes CEO Role at Keen.io
In March 2019, Lynch took the CEO role in Keen.io, a business he was very familiar with, having worked alongside the leadership team since its acquisition. Four months later, he took over as CEO of Chargify, leading both businesses simultaneously.
“I always felt Keen, as an event streaming engine, had a huge part to play in Chargify’s future. Although it took some time to bring the two businesses together, the market power that Keen delivers to Chargify is enormous.”
Chargify, which was founded in 2009, was already a hugely recognizable company within the subscription management and billing space. Although established as the billing engine for Grasshopper, a telecoms business, it had been spun out as a separate entity prior to Grasshopper’s sale to Citrix and had attracted an investment by Mark Cuban.
“When I looked at the services being delivered by the existing operators in the billing space, it always fascinated me that no one was offering events-based billing in the same fashion that AWS had been so successful with in terms of cornering the hosting market.”
Lynch set about figuring out why Chargify and all its competitors weren’t offering anything more sophisticated than standard usage-based billing models.
“The reality is traditional billing companies just aren’t set up to manage large amounts of data ingress. If you send millions of events at a billing platform to do real-time rating and apply billing logic, it will quite simply fall over.”
A Big Vision: Chargify Acquires Keen in Early 2020
In March 2020, Lynch oversaw Chargify’s acquisition of Keen and set about bringing the two companies together. By embedding Keen into Chargify, it allowed Chargify to successfully manage the enormous ingress of event data safely into the platform, then proactively rate and bill per event.
For the first time, companies and customers had access to technology that the major players spent a fortune to build. “We didn’t invent Events-Based Billing, we just made it accessible to every B2B SaaS company on Earth. Events-Based Billing levels the playing field for companies big and small and offers them a huge advantage.”
So why is no one else doing this? “Because it’s incredibly difficult to build a platform like Keen,” Lynch declared. “Keen was a mature West-coast darling that raised $29M before it was acquired by Scaleworks. The amount of time and investment poured into Keen can’t be replicated easily.”
The Secret to SaaS Billing in 2021
So what does Lynch make of the billing and subscription management competitive space? “There’s been no innovation in this space for over 10 years. Zuora coined the term ‘subscription economy,’ and then shifted focus to marketing rather than developing,” Lynch commented with a light-hearted smirk.
“They ran enormous EBITDA and cash deficits to get them to the Nasdaq and now this low investment is coming home to roost.” Lynch stresses that he has enormous respect for what Zuora achieved but feels the billing market is ripe to be disrupted. “Yes, Zoura recovered some of their Q2, 40% market cap losses after their Q3 earnings call, but when compared to other category leading Saas businesses, they are egregiously under-performing the market.”
What About Chargebee and Recurly?
When asked about recent exits and investments concerning competitors Recurly (Acquisition by Accel KKR—value undisclosed) and Chargebee ($55M raise with Insight at estimated $500M valuation), Lynch is uncharacteristically coy.
“Subscription-based businesses are exploding. Traditional one-off business models are changing to recurring ones. In this kind of growth market, of course there’s going to be activity.”
On the specific deals Lynch says, “Recurly has been around as long as Chargify. I think it’s great they got an exit. I hope the check was massive. I wish them well and send them only good karma.”
On Chargebee, “Honestly, I’ve no idea what the raise valuation was. Good for them though! The market is big enough to sustain high growth for all of us. From a startup mentality, they’ve raised a lot of money over a relatively short period. I hope when the chips get divided up, the founders get what they’re due from all the great work and effort they’ve put in.”
More Companies Like AWS, Twilio and Datadog
On the future of B2B Saas, Lynch is very enthusiastic. “When you look at it, SaaS is a fast-moving, change-based industry and ecosystem. In that environment, there will always be winners and losers. Chargify is powering the winners.”
The winners, in Lynch’s opinion, are the companies who have already embraced value-based pricing. Companies like AWS, Twillio, Datadog, and Sendgrid have upped the ante of consumer expectation and provided a playbook for their younger counterparts to reach a new level of success in the market.
“Customers want to pay for what they use, not what they deploy. This is a proven model. Since we’ve launched Events-Based Billing we’ve seen our pipeline shift heavily to B2B SaaS companies and both our ARPA and percentage growth rate double.”
What does the future look like for Lynch? When I asked him, he smiled. “I’m loving Chargify and Scaleworks, San Antonio, and bringing disruptive technologies into an under-innovated industry sector.”
Chargify Plans to Stay at Bleeding Edge of Events-Based Billing, Pass $20m in Revenue
This year, Chargify is on track to maintain its rapid growth and plans on exiting 2021 with over 180 employees in offices across the globe, including Texas, Dublin, Krakow, and Sydney.
“When I look back to where it all began, driving up and down the Indian Ocean, between Mozambique and the Transkei territory, selling whiskey to anyone who would buy it, it feels like another lifetime. I think that experience, in many ways, molded my career. It taught me that no matter how good your product, platform, or service, there’s no substitute for effective go-to-market strategies when you’re attempting to grow a business.”
Lynch continued, “Events-Based Billing is just the beginning. The billing market is heating up, and we’re stoking the flames.”