Madwire is a SaaS platform providing both an all-in-one marketing platform geared toward SMBs and an optional marketing services add-on program that can empower SMBs with ad management, content marketing, social media marketing and other services.
Madwire has been extremely capital efficient raising just $7m to generate $100m in revenue.. Now, the company is looking to raise $100m+ with the right private equity partner to continue executing its SMB SaaS rollup strategy.
Stats at a glance:
- $1800 average revenue per user (ARPU) is a combination of a $395 per month SaaS platform with optional marketing add-ons
- A team of 572 employees, including 40 engineers and nearly 300 marketing staff
- Mostly bootstrapped company with $100m ARR across approximately 20,000 paying customers
Madwire CEO JB Kellogg sat down with Latka for this October 14 interview to discuss where the firm is headed
Madwire Average New Accounts Start at $1800 per Month
Madwire’s core service offering — the company’s all-in-one marketing SaaS platform — costs $395 per month. However, most customer accounts don’t start out at that level. The average new account at Madwire starts at $1800 per month, thanks to the quality and value associated with Madwire’s add-on a la carte marketing program.
With a $1,800 ARPU across a customer base of 20,000 SMBs, Madwire is well-positioned for profitability and growth.
How Madwire Grew to $110M ARR (Stayed Flat During COVID)
Madwire’s $110m annual recurring revenue in 2020 was the product of continued growth even in a challenging year. The company scaled quickly from 2015 through 2018, moving from a $15m ARR in 2015 to $100m ARR in 2018. Growth has continued since, though it was slowed due to the COVID-19 pandemic, which hit Madwire’s SMB target industries harder than average.
In fact, Madwire even proactively paused many SMB customers’ payments during the required closures and lockdowns that hit restaurants, fitness clubs, and some retail SMBs early in the pandemic. So growth in 2020 was slow, for strategic and human reasons. But that growth has already rebounded in 2021 as the SMB customers who weathered the pandemic remained active with Madwire and have resumed payments. Some customers have scaled back or downgraded plans as they did the same with their marketing budgets, but most have continued at least at the $395 per month SaaS level.
Year-over-year growth has been around 30% for the last five to seven years, with an obvious exception during 2020. Now, in 2021, according to quarterly figures, the company is back to a growth rate of around 30% over last year. A quick return to the previous trajectory gives Kellogg confidence that continued growth is probable.
572 Team Members Drive Ongoing Value
Madwire continues to grow its own staff to meet customer demand and drive ongoing value. Among its 572 team members are 40 engineers and 29 sales employees. Also, due to the push into value-add marketing packages and services, Madwire employs nearly 300 marketing staff to meet both its own marketing objectives and those of its customers that purchase marketing services from the company.
1.5% Per Month Churn Rate Among Core Customers (12+ Months)
As a company targeting SMBs, overall churn rate is relatively high at 60%. Some of this is due to the high average failure rate for new small businesses and overall higher levels of volatility and experimentation in the market. For this reason, Madwire considers the first 12 months of the customer relationship a “paid trial” and expects high levels of churn.
However, once clients reach that 12-month mark, they tend to stick, Kellogg observes. Businesses that succeed tend to grow quickly and expand their usage of the Madwire suite of services. The company begins upselling more aggressively at the 12-month mark, and it also sees churn drop precipitously: monthly churn among core customers (those with 12+ months on the Madwire SaaS platform) is just 1.5 percent.
ARPU for these core customers, says Kellogg, is around $2,500 per month, with some clients scaling as high as $20,000 per month.
New Payments Feature Generating $1m Monthly GMV and Growing
New for 2020 was a payments feature within the Madwire SaaS platform. The company has onboarded roughly 75% of new accounts into the payments feature, resulting in $1m monthly GMV. The company takes 1%on payments collected through its platform. It’s still early but Kellogg believes this business line will grow the fastest in 2022, its already doing $120k/yr in revenue.
Madwire Makes DA Davidson Top 100 Privately Held Tech Firms
In 2021, Madwire landed a spot on DA Davidson’s The Herd report, which features the top 100 privately held tech firms based in the USA. Making the list at all is a testament to the growth and value that Madwire has achieved. But a closer look reveals a salient observation about Madwire’s place in the top 100.
Considering other firms with similar ARR figures on the list, most have raised significantly more capital than Madwire. Quite a few have raised more in capital than their current ARR — a fairly normal ratio among scaling tech startups. But Madwire’s capital investments thus far have been so minimal they were listed as “N/A” on the DA Davidson list.
Kellogg’s takeaway regarding this observation is this. Madwire has been extremely capital-efficient throughout the organization’s history with a capital efficiency ratio of 14.6x ($14 of ARR generated for every $1 raised) As a result, prospective investors can see this capital-efficient track record as evidence of how Madwire would execute a roll-up strategy.
Can Madwire Acquire Its Way to $200m in Revenue?
As the company looks to the next steps in terms of growing, adding additional SMB customers through conventional new customer acquisition remains part of Madwire’s strategy. But, according to Kellogg, this strategy is only a part of the company’s growth plan. Kellogg wants to push Madwire into further levels of growth through strategic mergers and acquisitions.
Many Madwire customers continue to rely on other paid tools for industry-specific functions not available in Madwire. The company is actively seeking to acquire certain of these tools for integration into the Madwire suite of solutions. Through cross-selling and upselling, Kellogg believes Madwire will find expansive growth through this strategy.
Specific verticals in which Madwire is seeking to execute this strategy include these:
- Contracting
- Medical
- Fitness
- Entertainment
- Ecommerce
Madwire has capital on hand to privately finance smaller acquisitions of this type. But larger acquisitions demand a strategic partner. For this reason, the firm is seeking a private equity partner that shares its vision for expansion through feature and engineer acquisition.
Co-CEO JB Kellogg describes the company’s goals in seeking a private equity partner:
“Ultimately, we’re looking for an investor that’s looking for a platform you can bolt into, one platform that you can easily integrate these tools with, along with the team and the culture. We’ve done two acquisitions now, and they have both been smooth. We’d like to go faster if we could. We just need the capital to do so.”
$100m to Fuel Madwire’s Vision for a Technology Tool Rollup through M&A
Madwire is currently looking for the right private equity partner to fuel a rollup of the necessary technology tools through a series of M&A transactions. Kellogg believes that a $100m initial infusion will enable the company to make the acquisitions necessary to execute the strategy. He’s willing to sell 20% of the business – a target valuation of $500m.
The vision for these next steps includes two prongs: first, integrating those acquired tools that would benefit all verticals into the core Madwire and Marketing 360 offerings. The second prong takes a different approach for tools with more vertical-specific uses. Kellogg envisions these populating a marketplace within the Madwire ecosystem and retaining branding for these vertical-specific tools.
These tools would then become fishhooks that pull companies into the broader Madwire ecosystem — at whatever point a company is ready to expand the relationship.
By building a marketplace of branded tools 100% owned by Madwire, the company looks to follow in the footsteps of other tech companies who have executed roll-up strategies. Notable examples include EIG, which in the early days went out and bought HostGator, Constant Contact, and others. EverCommerce took a very similar approach, and both these companies drastically increased ARR by the time their acquisition sprees wrapped up.
Madwire looks to become the next tech firm to take this strategy. With the right private equity partner, capital-efficient Madwire and Marketing 360 are poised to see growth on a similar scale.
