After Igor Marinelli, Brazilian Founder and Co-CEO of TRACTIAN recently broke $1MM in ARR, he sat down with the GetLakta team to talk business. Marinelli shared how the lessons he learned in his first failed startup impacted his approach to TRACTIAN when the startup expects to get Series A funding and how much his new venture could grow even if he failed to get a single new customer.
TRACTIAN, the first LATAM IoT company to be funded by Y Combinator, helps industrial teams worldwide determine when their machines are going to break. Their innovative integration of proprietary IoT hardware sensors and SaaS software optimizes maintenance schedules for industrial teams and eliminates unexpected downtime. TRACTIAN recently surpassed their first $1m in ARR while increasing existing customer sensor installations by 30% per month.
- Raised $3.7m in Seed round funding from DGF Investimentos at a $17m valuation
- Grown MRR 10X in the last 12 months
- Team of 60, with 40 engineers and 20 sales and marketing
Solving a Problem Instead of Creating a Solution
By applying several key lessons learned after his first app failed miserably, Marinelli is now confidently building momentum with TRACTIAN. His combination IoT hardware + SaaS solution is proving to solve a worldwide challenge for industrial teams—predicting when machine parts will break. In short, if companies can’t predict when their machines will fail, they can’t accurately determine the best time to schedule maintenance, and they risk unexpected breakdowns that would stall entire production lines.
Learning From Past Mistakes Accelerated Company to $1.2m ARR
Marinelli spoke openly and honestly about his failed chronic health disease predictor app, Blue AI. He humbly admitted, “there are three things money can’t buy: love, friendship, and product-market fit.” Marinelli further explained that the critical mistake in his first venture was being solution-focused and not problem-focused. That key learning set TRACTIAN up for success from the beginning.
10X MRR Growth from Simplified SaaS + IoT Model Revenue Model
Marinelli learned from his failed venture to solve customer problems and listen to the marketplace. As a result, the TRACTIAN solution is built to be “plug and play.” Its customer-friendly model makes it easy for prospective customers to try the solution without committing to pricey, slow upfront fees. Instead, clients pay a flat fee for each sensor, which they install themselves. As a result, ea
ch installed sensor brings TRACTIAN $45 per month in recurring revenue, and the average customer currently has 60 sensors.
2.5 Month Payback on Proprietary IoT Sensor Hardware
After evaluating the existing sensor options in the marketplace, Marinelli and his team built their own hardware sensors to support their software. “If you nail the hardware, you can go to market more successfully,” he explained. Marinelli leaned in on his engineering background to work with his founder partner to build a more intelligent sensor. Together they developed propriety technology that uses sound as part of the algorithm to detect minimal defects in each piece of equipment’s noise pattern. The manufacturing cost of each sensor is $100; at $45 per month in subscription fees, the payback for TRACTIAN averages a short 2.5 months. Plus, customers consider the TRACTIAN sensor to be an integral part of the machinery once it’s installed, which mitigates churn.
118% Net Revenue Retention
Marinelli calculates their current churn at 1.5% maximum per month or 18% annually. Virtually no customer uninstalls the sensors once installed on the machinery, partly because the sensor continues to “learn” about that specific machine. Combined with a 36% annual expansion revenue, TRACTIAN enjoys a healthy 118% net revenue retention.
100 Clients Delivering $36,000 ACV with Built-in Upsell Growth
The current TRACTIAN customer count now exceeds 100, including industry giants like Embraer, Electrolux, and Pirelli. Their initial sell-in to new customers typically starts by rolling out sensor installation on approximately 30% of their critical machinery assets. After observing the first-hand impact of the solution in action, most customers expand their sensors to the next most vital 1/3 of their industrial machinery. After seeing the automated insights and overall ROI, customers typically direct TRACTIAN to install sensors to monitor the entirety of the company’s production machinery.
Ceasing All New Customer Acquisition Efforts Would Still Drive 2X Growth
Although new customer acquisition currently drives 70% of their growth, Marinelli quipped that the company would still double in size in a year if they stopped all of their new customer sales efforts. Their existing customer base accounts for 30% growth per month in sensor installations.
All-inclusive $45 per Sensor Pricing Delivers Automated Insights by Actively Learning Each Machine
TRACTIAN simplifies its pricing for customers and prospects by charging $45 per sensor per month. As a result, companies can quickly try the IoT hardware/SaaS solution and then roll it out based on their unique needs. Once installed, the TRACTIAN solution sensors are constantly learning. The platform learns each machine’s fingerprint and generates automated insights so the industrial team can act before any machine shuts down.
4,000 Sensors in the Market, Growing at 30% Per Month
Marinelli confirmed that TRACTIAN has deployed a total of 4,000 IoT sensors in-market to date, and the number is growing at 30% per month. These propriety sensors monitor four things in each machine: vibration, temperature, energy consumption, and up-time. By using a 3g/4g network, TRACTIAN eliminates the need for routers and gateways, further simplifying their “plug & play” setup.
Sales Funnel Creates 100 Leads Per Month
The TRACTIAN marketing team is currently producing content, webinars, and courses to pack its sales funnel with educational touch points on the value and ROI of monitoring machinery. Resources on their website include an easy-to-use 4-question ROI calculator with a clever dropdown of relatable machine types for prospects that quickly calculates total dollars wasted, the amount saved per asset with TRACTIAN, and total annual savings.
Closing 27% of New Customer Leads
When asked about new customer acquisition, Marinelli explained to Latka that TRACTIAN is predominantly turning to outbound marketing tactics to generate 100 new customer leads per month. His sales team’s monthly conversion rate of 27% is currently driving 70% of the total ARR. Most of that new business is coming from SMB’s, although Marinelli’s team is seeing an uptick in Enterprise business opportunities. They are also being sought out by non-industrial customers who have specific machinery to manage, such as air conditioning systems in shopping centers or baggage conveyors in airports.
Y Combinator Contributes to $500K Pre-Seed Round
In February of 2021, just two years after its founding, TRACTIAN closed $500K in pre-seed round funding from lead investors Y Combinator, DGF Investimentos, Norte Ventures, and four other investors. Four months later, they followed up with a seed round, singularly funded by DGF Investimentos, a VC focused on the Brazilian tech space.
$3.2m Seed Round Values Company at $17m
The June 2021 DGF Investimentos Seed round funding of $3.2m valued TRACTIAN at $17m. Partners at DGF were impressed that this Brazilian company hit the trifecta of:
- Being a tech startup.
- Using a recurring revenue model.
- Offering a solution to those who need it most.
Marinelli confirmed they’d sold 28% of the equity in these early rounds and is prepared to sell more as they prepare for Series A in the next 12 months.
Equity Includes 12% ESOP
Marinelli and his co-founding partner currently control 60% of TRACTIAN, each owning a 30% equity stake in the startup. Twelve percent of the equity belongs to employees in a stock-options plan. As he prepares for Series A funding and beyond, Marinelli exhibited no qualms about giving up shares to the company grow, as he mused, “It’s better to have a smaller piece of a big cake versus a whole cake of nothing.”
12 Month Countdown to Series A Expansion
As TRACTIAN moves closer to a Series A funding round, Marinelli is clear about the expansion objectives. He expects to increase the size of the team to 100 while accessing new industries. To do so, the company plans to invest in maintenance content portals and product distributors to reinforce the TRACTIAN brand’s strength. Additionally, TRACTIAN expects to continue its international expansion with Series A funding. TRACTIAN currently exports products to specific existing customers in the US, Singapore, Algeria, Chile, and Argentina. Because customer maintenance teams install sensors themselves, TRACTIAN maintains only one office: its headquarters are in São Paolo, Brazil.
Five Facts About Igor Marinelli, Founder, and Co-CEO of TRACTIAN
Founder Igor Marinelli, age 24, is married and does not yet have any children, “or dogs,” he added. His favorite book is The Hard Thing About Hard Things: Building a Business when there are No Easy Answers by Ben Horowitz. His favorite CEO to follow is Sundar Pichai, the CEO of Alphabet, Inc and its subsidiary Google. Marinelli picked Hubspot as his favorite tool he cannot live without. And finally, the best advice he would give his 20-year-old self (from four years ago) is “drop out (of college) faster.”