Paddle and Profitwell $75m Combined ARR, Whats Next After $200m Deal

Paddle.com is one of the world’s leading SaaS solution for payments, tax and subscriptions. They allow company of all sizes to ease their way into acquiring a strong customer base with an all-in-one platform for the transfer of funds.

Nathan Latka sat down with Christian Owens and Pat Whelan, senior management at Paddle.com to discuss the acquisition. Key metrics include:

• $75m of combined annual revenue
• Over 900 customers prior to the acquisition
• Acquisition of Profitwell to enable enterprise customers to outsource backoffice

Nathan Latka (00:00:00):

So guys, hey, welcome to another episode of The Top. We’re excited today have Patrick Campbell and Christian with Paddle. Again, obviously major deal recently announced and it’s obviously exciting and certainly inspirational, but my hope today is to drill deeper into origin stories of both the companies and then leap forward back today, what does 2023 look like in this space they’re both now playing together in? So we’re going to jump into all of it today. Christian, Patrick, you’re ready to take us to the top?

Paddle HR CEO Pat Whelan (00:00:22):

Latka, let’s go.

Paddle CEO Christian Owens (00:00:23):

Go.

Nathan Latka (00:00:25):

Sweet. So obviously headlined, if you guys haven’t read in the news, obviously you guys, Patrick, you sold your company to Paddle here recently. You chose to put a $200 million deal price. Just I guess tell me quickly why putting that price out was important and then let’s go to origin stories about ProfitWell and Paddle.

Paddle HR CEO Pat Whelan (00:00:41):

Yeah, definitely. So it was one of those things where one, I think it’s a good win for the team. We were a little nonspecific over 200 million because also we’re continuing to work on a team and so it’s like… I don’t know, there’s some advantages in being public, there’s advantages in being opaque. We chose translucent, basically. And I think it was one of those things I think it’s a good win for the team. But also I think Paddle doesn’t get as much clout as it should and so I think this is our coming out party together of, “No, you should respect these guys.” A CEO of a multi billion dollar company recently told Christian, he was like, “Oh, what was the price?” And Christian told him, he is like, “Oh, you have balls.” And it’s like, “Yeah.” We want to take this market, we want to own the market, and that’s what’s driving that decision amongst the team as well.

Nathan Latka (00:01:29):

And to close that open loop, what do you guys define as the market you’re playing in today? What are you going after?

Paddle HR CEO Pat Whelan (00:01:34):

Yeah, it’s a good question. I think the way we’ve been looking at it is payment infrastructure. I think that’s a big thing that we think about. You have these infrastructure companies that are like Stripe in our space and then obviously like AWS and other spaces and stuff like that. And then those infrastructure companies help you support build whatever app, like every single person you interview or listening to this podcast, we’re in the middle. We’re going to do for the subscription dollar what Salesforce did for the customer record, where a dollar through Paddle is going to be worth a lot more coming out of Paddle than using infrastructure that is currently on the market, basically.

Nathan Latka (00:02:14):

So if you guys win, what does Zuora’s stock price go down to?

Paddle HR CEO Pat Whelan (00:02:20):

It’s a good question. It’s different, but I think that if we win, the entire market increases. There’s a world where you’re using Paddle products and still using Zuora. As we move forward, I think we’re going to have everything for you. But I think if we win, the entire market is moving, the entire subscription market is moving, if that makes sense.

Paddle CEO Christian Owens (00:02:39):

Yeah, I think also this space is so large, there are a dozen companies directly playing in it and probably several dozen if not hundreds playing indirectly in it. If you think of all the payment providers and the service providers and people like that who also play in this space, the TAM is huge.

Paddle HR CEO Pat Whelan (00:02:59):

Yeah. Yep.

Nathan Latka (00:02:59):

The switching though, I mean Christian, you gave a great interview in 2020 with Dan Martel where you said, “Yeah, we are seeing a lot of people switch from Zuora for X, Y and Z reasons.” I mean, when you’re on sales calls, people switching to Paddle, is it the switching from Zuora? Is it from Chargebee? Where are you earning more customers from right now?

Paddle CEO Christian Owens (00:03:17):

I’d say it’s probably reasonably distributed. It obviously depends substantially on stage. So by number, it’s probably people building things themselves. Maybe they’ve cobbled something together from a handful of different parts, they’re probably not using a billing system like Zuora or anything like that. They’ve got started with something they’ve scaled to 50K in MRR. It’s gone from being a side project to a real business and then they need the infrastructure in order to help them scale and they don’t necessarily want to throw people at that, they want someone to do it for them. So by number it’s probably those.

Paddle CEO Christian Owens (00:03:56):

By scale of company, I think it’s a similar story, but there tends to be probably multiple systems, especially in these larger companies. We rarely see a company exclusively using one thing, they’re often using different things for different markets and different territories. And one big piece of the pull on Paddle is, because we’ve been very internationally focused and do-it-for-you focused on all of these things, it becomes a point where you’re doing $50 million in ARR and it’s coming through three or four different channels or systems and you don’t necessarily have a single source of truth for this stuff so you decide to consolidate around one system so that it tends to be both stories, different types of customer.

Nathan Latka (00:04:40):

Oh, what’s going on there, YouTube? Good to see you guys. Now imagine this, you love watching these interviews with SaaS founders, but imagine if we took all of the valuation data out from over 2,807 interviews I’ve done manually. Saves you a lot of time. Well, we’ve done this. We’ve built it into the beautiful interface inside of Founderpath. Check this out. I’ll show you how you can access this in a second. But you log in, you connect your Stripe account, you see your valuation in real time, you can see what it changed over the past 88 days and even set goals for valuation this year. Now, the secret to valuation is there’s many different ways to value a SaaS business. So the reason you’re going to see three or four different valuations inside of your Founderpath dashboard, this is all free by the way, is because depending on who’s doing the buying of your SaaS company, you’re going to get a different valuation.

Nathan Latka (00:05:29):

A VC’s going to pay a different valuation. Private equity firm is different. If you’re going to do a minority sale, that’s different. And if you sell the whole business, that’s a different valuation. You can see all those when I hover over here. So the teal is what a VC would pay, yellow is what private equity, and red is if you sold the whole thing outright. Now what’s cool about this is this is not built off random data. Again, you guys hear these interviews on YouTube, all these datas are built from real time valuation data points founders share with us on the show. So traction, 1.2 million seed round, 3.7 raise, they sold 22% of their business. Go in here and filter by the event. Maybe you only want to see companies that have sold the whole business. Well, here are a bunch that have been acquired, the valuation and the multiple.

Nathan Latka(00:06:14):

Maybe you’re going out right now and you’re raising your seed round. We’ll go in here and look at all this recent seed deals that went down, what they raised, what valuation they raised at and what percent that they sold. There’s never been a larger data set of SaaS valuations than what you can get now inside of Founderpath and we’re thrilled to bring it to you. All right, we’re going to go back to the YouTube video here in a second, but if you want to check this tool out, if you want to jump in and sign up, you can check it out for free to get your valuation at this link, this link: founderpath.com/products/valuations. Or if you go to founderpath.com and hover over products, click on Get Your Valuation Here and go ahead and sign up to give it a whirl. Again, all that valuation data live right inside the platform. I hope to see you there. All right, let’s jump back into the interview. And how is, just if people are not familiar, how is Paddle making money today?

Paddle CEO Christian Owens (00:07:09):

So we monetize the transaction volume that flows through Paddle. We don’t take a monthly fee, we don’t take a minimum, we don’t take a setup fee, we don’t do any of that stuff, we only win when the customers win. So we monetize the payments that are coming through Paddle regardless of the underlying payment method that is used and we take a percentage transaction fee.

Nathan Latka (00:07:29):

Still about 5%?

Paddle CEO Christian Owens (00:07:32):

5% and 50 cents is the publicly available pricing if you self-serve, sign up on the website. Obviously, there is a whole spectrum of customers. If you’re doing a $100 million a year, the pricing does go down. If your sales mix looks a little bit different, you’re heavily sales assisted versus doing lots of wire transfers and things like that and invoices versus of credit card subscriptions, the pricing will look different again, usually to the downside. So 5% and 50 is typically the maximum you’ll be paying and then based on those different factors, the price will go down.

Nathan Latka (00:08:06):

Now as we talk about how both of you guys got going, ironically, I think both of you launched in 2012, which is fun because we can compare even tracks here. But if we go back to 2012, Christian, was this always your billing model? Was it always 5% and 50 cents or have you pivoted over the years?

Paddle CEO Christian Owens (00:08:19):

Always… I think we had slightly higher pricing in the beginning, it was like seven or 8% or maybe even 10. And that was really when we were focusing on… The initial people that we built Paddle for were people who look like me. So pre Paddle, I built a software company where I really ran headfirst into the problem that we try and solve, scaled it to three to 5 million in ARR and ran into this problem where we had a few hundred thousand people using these products and so tens of thousands and paying for it in every country you can imagine and ran headfirst into these challenges of how we scale.

Paddle CEO Christian Owens (00:08:55):

So initially was building it for the indie hacker, the bootstrapper, the person like that, picked a very simple pricing model, which I think was about 10% a transaction. And then gradually you realize that 10%, a flat percentage doesn’t necessarily work quite as well as a percentage and a fee and then just adapted from that. But it’s actually one of the funny parts of this deal of we’ve obviously acquired a company that are probably the number one experts in pricing that exists in this space and I don’t think that we’ve changed our pricing for maybe five years.

Paddle HR CEO Pat Whelan (00:09:33):

Yeah.

Nathan Latka (00:09:34):

So there’s a pricing change coming up Patrick, huh? There’s a pricing change.

Paddle HR CEO Pat Whelan (00:09:37):

Well, so I think what’s really funny and what I was going to jump in there with is when you look at 5%, it’s like, “Oh, my gosh,” there’s an initial reaction and that does happen on the sales call. But to contextualize that, it’s not like we’re just processing payments. If we were just processing payments, that would be a very dramatic, “Oh, my gosh, why are you guys so expensive?” I think what people don’t understand is the complexity of what Paddle actually does. Tax is completely taken care of. Not like, “Hey, we show you how much tax,” it’s like “No, no, no, it’s completely taken care of.” If your tax gets messed up, we go to jail. You don’t go to jail, we go to jail because we’re the ones that are actually paying those actual taxes.

Paddle HR CEO Pat Whelan (00:10:16):

We handle payment orchestration in the sense of, “Oh, it looks like checkout.com is a better backend, that’s what we’re going to process the payment through versus Stripe versus where these other things are.” And then currencies, all this other stuff out of the box. And so the thing that I’m working on in terms of pricing, is how do we best contextualize it so that when you look at that 5%, you’re not comparing it to, “Well, if I spin this up myself I’ll only pay 2.9?” For actually what we’re doing relatively inexpensive for all the back office stuff that we’re doing for you, essentially. And so yeah, that’s definitely a project I’m working on.

Nathan Latka (00:10:54):

Now guys, as we keep building on this story and go touch base with Patrick here in terms of how he launched, Christian, I mean you did this, how old are you today?

Paddle CEO Christian Owens (00:11:02):

I’m 27. I’m 28 next week.

Nathan Latka (00:11:06):

Oh, happy early birthday. Very cool.

Paddle CEO Christian Owens (00:11:08):

Thank you.

Nathan Latka (00:11:08):

When you hit, though, your first million bucks in revenue on that first project, how old were you?

Paddle CEO Christian Owens (00:11:14):

I was probably 15-ish, 15, 16.

Nathan Latka (00:11:20):

Matches my research. We’re good. We’re right online right now.

Paddle CEO Christian Owens (00:11:22):

Perfect.

Nathan Latka (00:11:23):

So when you hit 16, 17, you’re breaking 3, 5 million bucks in revenue before you move into Paddle. One of the questions I get though a ton from parents who listen to this show is, “How do I raise founder and entrepreneurial-thinking kids?” You’re the perfect person to ask this question. Can you identify things? I know it’s a little sensitive, but what is your relationship with your parents and did they do things from ages zero to 14 to make you think like this?

Paddle CEO Christian Owens (00:11:48):

That’s a good question. I have a great relationship with my parents and I think the biggest thing of all of the things is I think they encouraged curiosity. They would give me an old VCR player and I would deconstruct it and pretend I was making something when I was… Some of my earliest memory when I was three or four is deconstructing old home appliances. And I think they always encouraged that stuff rather than being like, “That’s dumb,” or whatever. And then I think when I started to get into computers and the internet, I am 27, but I still grew up with dial up and things like that, so I was still early on that curve, they really encouraged that stuff. They didn’t necessarily understand it, but they encouraged me to learn these things and experiment and do that stuff.

Paddle CEO Christian Owens (00:12:43):

So I think just encouraging curiosity. I wasn’t very book-smart as a kid. I wasn’t very a good student because I would get distracted and bored and I was always more interested in sort of, “Oh, I can go and tinker around and build something on the computer,” than I was paying attention in a class. So I think that was a constant battle for them of, “Okay, do we encourage him to do more in school and do the homework and take away the internet privileges until it’s done? Or do we encourage the internet stuff because he seems to really enjoy it?” Yeah. I mean, I’m not a parent, I’m not going to pretend to tell people how to parent, but I think that’s the thing that sticks out in my mind, is encouraging that curiosity.

Nathan Latka (00:13:26):

So they sure did obviously drive that curiosity. You were curious with customers, you build the business, that first business to 3 to 5 million bucks and then you say, “I’m losing all this money to these weird fees. I need to go understand these fees. Oh, my gosh, there’s a massive amount of money, I should go build a company around that.” I think that was maybe 2011, you get Paddle going in 2012. Now, were you sole founder in 2012 or did you have co-founders?

Paddle CEO Christian Owens (00:13:47):

So I had a co-founder after the fact, about a month and a half in. So Harrison, who you might have met.

Nathan Latka (00:13:56):

Okay.

Paddle CEO Christian Owens (00:13:56):

And have worked with me. I met him online and I hired him into the previous business.

Nathan Latka (00:14:01):

Wait, where online did you? Should I? This is dangerous. Where online did you meet him?

Paddle CEO Christian Owens (00:14:03):

No, no, it was some forum or something, I can’t even remember. But I met him online and he was working with me helping me on the previous business and I just went off and started doing Paddle and then immediately a weekend or something said to Harrison, “Look, I’m doing this thing, it’s been a frustration of hours at the company that you’ve been helping me with…”

Nathan Latka (00:14:25):

What was the name, by the way, of that first company?

Paddle CEO Christian Owens (00:14:28):

The name of the first company was called Involer, I-N-V-O-L-E-R. It was invoicing software for freelancers and we used to partner with people and do bundles and things like that, which is where a lot of the revenue came from. But yeah, started the business technically on my own, but then before we even launched anything, raised any money, did any of that stuff, Harrison was a co-founder.

Nathan Latka (00:14:52):

And I’m going to go over and capture Patrick’s origin story, which involved multiple co-founders as well. But for you specifically, this is a question every founder listening right now deals with, is who has much, who’s putting more money, who has more to lose? Is it 50-50? 50-50 is usually the easy answer because you avoid the tough conversation. It’s rarely exactly equal. How did you have the equity conversation with Harrison?

Paddle CEO Christian Owens (00:15:12):

It was fairly easy on the basis that I was bringing over the initial money in order to do this stuff because the other business was reasonably successful. It was fairly low margin because we did a lot of promotional stuff and discounts and things like that, but it was profitable, it made money and things like that, so I was bringing forth the first capital to put into the business.

Nathan Latka (00:15:38):

How much? Christian, are we talking 100 grand, 200 grand? How much are you thinking?

Paddle CEO Christian Owens (00:15:42):

I actually don’t even remember because it was in little chunks as to we built this stuff. It was probably… Call it 100K to begin with. So I think we knew that it was going to be majority me. I think, I don’t even remember what the initial equity split was. It was like two thirds, one third or three quarters, one quarter or something like that. But it was a fairly easy conversation for us to have on the basis of how the business started.

Nathan Latka (00:16:17):

So something like 70 you, 30 him, 80 you, 20 him, something in that sort of range?

Paddle CEO Christian Owens (00:16:21):

Roughly in that range. Yeah.

Nathan Latka (00:16:23):

Okay. Let’s pause there. Let’s go over to ProfitWell. Patrick, did you have your own version of an Involer?

Paddle HR CEO Pat Whelan (00:16:30):

Not really. I didn’t have… My parents… To my dad, the idea of starting a business is a little bit like blasphemy. He’s not a Luddite or anything like that, but he’s a big union guy out of the Midwest. We grew up pretty poor, got laid off a lot because… He was an incredibly hard worker, incredibly smart, but it’s hard being a skilled tradesperson 20 years ago. Now there’s such a shortage you have electricians making 120 a year not working more than 40 hours a week. It wasn’t like that 20, 30 years ago. And so I think my dad, it was always like, “Oh, you should go be a doctor. You should go be a lawyer.”

Paddle HR CEO Pat Whelan (00:17:12):

He didn’t want me to be a lawyer, but he was like, “If you don’t want to be a doctor then go be a lawyer.” Like the classic, “You’re going to be the college kid. The first college kid needs to go be a professional.” Then he was also in the Navy and so when I went and worked in the Intel community in DC he was very like, “Oh, that’s great, you’ll have a job forever. That’s awesome. You’re doing good, honorable work.” And then I was like, “Ah, I’m going to go to work at Google.” He’s like, “Oh, that’s fine. Large company, you’re going to be safe.” Then I was like, “Oh, I’m going to go to this ventured-back company.” And he’s like, “What? What are you doing? This is crazy.” And so I think from my origin story…

Nathan Latka (00:17:47):

Wait, what was the ventured-back company?

Paddle HR CEO Pat Whelan (00:17:49):

It was a company called Gemvara. They were a Blue Nile competitor, customized jewelry. And that was actually one of the first projects I got assigned. I was basically working on pricing there and because of the customization, they had 1.6 million different SKUs and that’s an interesting pricing problem.

Nathan Latka (00:18:08):

Oh, my God.

Paddle HR CEO Pat Whelan (00:18:08):

Yeah, it was an interesting pricing problem.

Nathan Latka (00:18:09):

By the way, this is why I love getting origin stories, because everything today starts making so much sense when you hear stories like this. Patrick, guys, is a fricking jeweler. He’s trying to sell 1.6 million different SKUs when he is, what? How old were you Patrick?

Paddle HR CEO Pat Whelan (00:18:21):

God. Had been 22 or something like that.

Nathan Latka (00:18:23):

And what? You’re 30, 32 today?

Paddle HR CEO Pat Whelan (00:18:25):

About 33. Yeah. Yeah, yeah.

Nathan Latka (00:18:27):

33. Okay.

Paddle HR CEO Pat Whelan (00:18:28):

It’s kind of funny too. It was really interesting from an origin story perspective too because I have Asperger’s, that’s another thing I don’t think I’ve ever told you and I’ve been more open about that recently. And I think the social elements of starting a business were always what scared my parents and what scared me a little bit because it’s like I’m functional, but it’s not like it was like, “Oh, you’re going to go do something where you have to rely on relationships.” And it was an interesting conversation about that. But then I think tech is one of those beautiful places where you can go work on a giant data set and then you find those social interactions and then you build from there.

Paddle HR CEO Pat Whelan (00:19:11):

But yeah, I was at Gemvara for nine months. I was not enamored with the culture. Honestly, my trajectory was probably always going to lead to doing my own thing or at least getting a job where I was just in a box all day every day because I didn’t like bureaucracy. I always felt like I knew, or not knew, but I cared more than my boss. I think it was always that feeling of, “Oh, I’m going to put the time in and then that doesn’t get always rewarded in certain places.” Because at Google you can’t move jobs no matter how good you are. I built this very money-making algorithm for their ad product and…

Nathan Latka (00:19:50):

And how did you do that, Patrick? Because you’re not an engineer, right? Or are you an engineer?

Paddle HR CEO Pat Whelan (00:19:53):

Data science. So I have a data science background.

Nathan Latka (00:19:55):

Data science, okay.

Paddle HR CEO Pat Whelan (00:19:56):

I can do a lot of modeling and stuff like that. So I would never call myself an engineer, but data science, absolutely. That’s the kind of work I was doing at NSA and then at Google I used some of the similar models to basically build this. All it was was it took a book of business, a sales book of business and prioritized it. That’s really all it did. Because at Google, their sales teams aren’t like true sales teams, they basically say, “Here’s 90 accounts, go grow them.” And it’s over a quarter, 90 accounts, it’s a prioritization problem. So I built this thing that basically said, ” Hey, I know the Quant team told you that these are the accounts you should focus on, but they don’t have these bottom-up inputs, put in these bottom-up inputs and we’ll prioritize it.” I think the first quarter I did it, I hit 180% without working that hard and then I started scaling it manually across the sales teams.

Paddle HR CEO Pat Whelan (00:20:46):

I made Google a ton of money. But the point I was trying to make was they gave me an award and a $5,000 bonus and they were like, “Yeah, we’re going to shut this down.” And I was like, “Why?” They were like, “Well, it’s really cool, but this $600 million opportunity isn’t big as this billion dollar opportunity and it’s Google.” And I was like, “Well, can I work on it?” “No, no, no, no, you haven’t been here two years. You have to go be a salesperson still.” And I was like, “Screw this. If I’m going to bounce my ass, I want to at least fail on my own and succeed on my own kind of a thing.” And so yeah, that’s what led me to startups, basically. And then the common theme was when I was at Gemvara for nine months, I was like, “Ah, this culture isn’t great.” And I was a young punk ass kid too, so it’s just a different world than I am today. Now I’m an old punk ass kid, basically.

Nathan Latka (00:21:33):

All right, so 2012 you get going. What is the ProfitWell or Price Intelligently MVP in? And same question, do you sole found or there are multiple founders?

Paddle HR CEO Pat Whelan (00:21:41):

Yeah. So not a great origin story there or founding story. I think everything’s good now and everything worked out, obviously, but I had never founded a company before I started getting into the Boston ecosystem and I got introduced to these other two people who were thinking about the similar space and one of them had never started a company before, the other had only done ventured-back stuff and wasn’t a founder. And so all of a sudden it was like, “Let’s do this thing while we’re working on other stuff,” these two people. So they were like, “We’ll do part-time, right?” And I think that’s like famous last words. If someone’s going to be part-time, you have to set really, really clear expectations about value, all this other stuff. And these guys were both in this space, they’re a decade older, so I just made a lot of naive Midwestern assumptions.

Paddle HR CEO Pat Whelan (00:22:28):

And I don’t think anyone was nefarious, or at least it’s so much better to think of it, because they’ve been in the business the whole time they’re on our board, they were never full time in the business. But I think that was something that would’ve saved a lot of calories and just a lot of frustration, setting really clear expectations. Because we messed up the equity structure. We basically were like, “Well, we’re all co-founders, let’s do thirds.” So these guys who were never a day in the business, all of a sudden had a lot. And then once someone has something, it’s really hard to get it back. And so thankfully over time they were really earnest…

Paddle HR CEO Pat Whelan (00:23:03):

Thankfully, over time, they were really earnest on keeping things going. Their stakes are more angel investor stakes, if that makes sense. Everything got recapped, but not in a true recap fashion. That was one thing that, I would say is, founder vesting, always do founder vesting. Always, always, always, everyone should vest. It will work if you don’t do that, but I think that helps a lot. And then-

Nathan Latka (00:23:29):

Christian, you’re doing this, too, obviously when you’re bringing on new employees at Paddle, right? Are you guys both still year cliff, four year vesting? That’s the standard you stick with?

Paddle CEO Christian Owens (00:23:36):

Yeah, absolutely.

Paddle HR CEO Pat Whelan (00:23:37):

That’s what we do. We actually at ProfitWell, the one thing that we did is we did backward bending vesting. So it was 10, 20, 30, 40, it’s kind of like how Amazon used to do it. So you only get 10% of your allocated shares when you get over that one year cliff. And so most of your shares will come into the third and the fourth year. We did 25, 25, 25, 25 vesting at first. But then it was like, we had to make a decision as a bootstrap company, do we just want to hoard the equity amongst the exec team basically? Because that’s what a lot of bootstrap companies do, and we always had intentions of growing and being a large company. So it was a little easier, because we were like, No, we need people who are going to be here eight, nine years, that type of a thing to come with us.”

Paddle HR CEO Pat Whelan (00:24:20):

But. Yeah, founder vesting and then also just setting expectations early on. And the MVP to get back to your question was this little software product that basically you would send a survey through the link that was produced through the software, and then someone could answer these pricing questions. We pulled the data in, and then, basically, the algorithm would crunch the data and give you this willingness to pay information. So it was supposed to help product people with pricing their products.

Paddle HR CEO Pat Whelan (00:24:46):

We very quickly learned that pricing, there’s a trust gap. There’s a lot of products out there that have trust gaps, where it’s like you can give them the tools to do the thing, but at the end of the day they’re going to be like, ?Can someone just do this for me and help me understand what I should do?” You’d have some of the smartest… Some of our earliest customers, they’re like public companies, and they would be some of the smartest people. Give them any other problem, any other problem, even if they don’t have the skills to do it. I give an HR person an engineering problem, they’ll like go try and figure it out. Pricing, everyone kind of gets uncomfortable, and they just are like, “Oh, well figure it out next quarter.” And then you go five years without changing prices, which Christian-

Paddle CEO Christian Owens (00:25:23):

Low blow.

Paddle HR CEO Pat Whelan (00:25:23):

… has done so.

Nathan Latka (00:25:25):

Christian, are you going to add something there?

Paddle CEO Christian Owens (00:25:27):

No, I was just saying that’s a-

Paddle HR CEO Pat Whelan (00:25:28):

He was just making a joke.

Paddle CEO Christian Owens (00:25:28):

… low blow. Yeah, that’s right.

Nathan Latka (00:25:30):

Okay. So couple things here, I’d love to get a little more insight in. Patrick, what you just described. Obviously, first off, thanks for sharing it. Obviously, equity stuff early on is really difficult to talk about. However, ton almost… I can name way more founders that deal with this issue than ones that get it right from day one. In other words there are-

Paddle HR CEO Pat Whelan (00:25:47):

That’s why I’ll bring it up.

Nathan Latka (00:25:48):

Yeah, so do you actually… Okay, so there’s three co-founders, you own 33% each. I’m going to make this up. You realize a year in that some of them are less involved. You need to figure out a way to get that equity back. Do you go raise from some angels you respect to buy them? How do you do it?

Paddle HR CEO Pat Whelan (00:26:07):

One, I bring it up, because I was so embarrassed when this happened, and it was one of those things where as soon as I started bringing it up to some founder friends I started making, they were like, “Oh, yeah, happened to me too.” It happens all the time, because you’re not going to spend the time arguing over something that doesn’t have any value or something that doesn’t exist. And then all of a sudden when stuff starts being valuable, it’s like, “Oh, man, there’s no incentive. These guys had no incentive to recap or anything like that.” Now it did over time-

Nathan Latka (00:26:38):

Patrick, hold on, set a timeline for us, when was that moment for you? When was there something to lose? Was it 2013? 2014? 2015?

Paddle HR CEO Pat Whelan (00:26:43):

It was about 2013.

Nathan Latka (00:26:46):

Okay. And you had revenue at this point.

Paddle HR CEO Pat Whelan (00:26:49):

All of sudden… Yeah, we close or I close, and when I say we, it’s really me. I was the only one full-time. I was working 18 hours a day. Within nine months I had closed probably about 200 grand in-

Nathan Latka (00:27:00):

Sales.

Paddle HR CEO Pat Whelan (00:27:01):

… sales. And I wasn’t making anything. That was the funding in the business. That’s when I started bringing on Peter, who you’ve met before. And so all of a sudden I got Peter brought on, and then this is where it started kind of crumbling. It was like, “Okay, so Peter’s really going to be my co-founder,.”because these guys are helpful and don’t get me wrong, but they’re not co-founders, right?

Nathan Latka (00:27:22):

Yep.

Paddle HR CEO Pat Whelan (00:27:23):

That’s why I say founding advisors, board members. But Peter and Facu, who came on 2014, 2013 as a contractor, and then 2014 full-time, those are my co-founders, right?

Nathan Latka (00:27:32):

Yep.

Paddle HR CEO Pat Whelan (00:27:32):

And I’m not trying to take away from those guys. I love them, they’re my brothers, all that kind of stuff. But we definitely had to go through some years of development to… And it’s hard, because like I said before, I can’t think of them as being nefarious. I tell the story to a bunch of people and they’re like, “Yeah, they were trying to screw you over. They recognized a young person, and they were like, ‘This guy’s going to go build a company, and we’re going to get a big cut.'” But if I think that way, then I can’t work with them, I can’t be friends with them, those types of things.

Paddle HR CEO Pat Whelan (00:28:03):

I think more like none of us knew what we were doing. The problem was is like, “Okay, so how do you unfurl this?” The easiest thing to do is just recap and just be like, “Hey everyone, let’s recap.” But it’s hard. The incentives aren’t there, because they’ve already been given something. And so what we ended up doing, there’s a couple things, and there’s some things I would do differently before. One, I just-

Nathan Latka (00:28:26):

Well, tell us what you did first, and then what you would change.

Paddle HR CEO Pat Whelan (00:28:29):

So what I did is, straight up was just like, “Hey, guys, I need more of this. I don’t know what the expectations were. Everyone had a little different thought in their head. I need more of this. We need more. We need this. I need to be taken care of.” And then what I ended up doing is, I got a number of large grants to fix the first mistake.

Nathan Latka (00:28:52):

Wait, how much total in grants?

Paddle HR CEO Pat Whelan (00:28:56):

I want to be careful about percentages and stuff like that. But we went from 33-

Nathan Latka (00:29:01):

Oh, oh, sorry, you mean equity grant? I thought you meant grants from the government.

Paddle HR CEO Pat Whelan (00:29:05):

No, no, no, no. We’ve never raised money. We’ve never gotten any money from anywhere. So long story short-

Nathan Latka (00:29:09):

You’re talking option grants?

Paddle HR CEO Pat Whelan (00:29:10):

Yeah. So I got a number of very large grants to start evening things out option grant or equity grants basically. And then what ended up happening is I brought Facu on. Facu wasn’t going to come on for a small percentage as the first actual product engineering leader, so he basically got a co-founder share, which didn’t come out of my side. It came out of their side, basically. And then the big things we did over the years is we would have milestone grants.

Paddle HR CEO Pat Whelan (00:29:39):

So once the business hit a certain amount, essentially, we’d get these giant grants for probably 10 to 15 different people in the company. And those names would change depending on the cycle of the company and things like that. And I would get and the people, myself, Facu, Peter would get these large grants as well to maintain and, also, increase essentially the stakes.

Nathan Latka (00:30:00):

I see.

Paddle HR CEO Pat Whelan (00:30:00):

And in the end-

Nathan Latka (00:30:01):

So this wasn’t you taking equity from those two other founders you started with that owned 66 behind them, what you were doing was issuing new grants, so everyone got diluted on a weighted-

Paddle HR CEO Pat Whelan (00:30:09):

Yes.

Nathan Latka (00:30:09):

… average basis, for Facu, for-

Paddle HR CEO Pat Whelan (00:30:12):

Totally. So the people actually in the business and the co-founders of Peter and Facu and myself, we ended up with a lot more than we had essentially in the beginning, and these guys basically just went down over time. Which honestly was a very stressful way to do it, because I think that it was a lot of mind games that I would… I don’t know if they actually thought the way that I was thinking they were thinking, because all of a sudden you’re in this game theory baloney, basically. Where you’re sitting there and you’re like, Okay, well, I don’t know if he’s going to go for it,” that type of thing.

Paddle HR CEO Pat Whelan (00:30:45):

And you’re not having these straight up conversations and you don’t trust these guys at all. I didn’t trust these guys. And it’s been really hard over the past 10 years, because it’s almost like I can’t trust them. And it breaks my heart to say that, but it’s like, it’s a weird… I don’t truly know. And we’ve all grown and we’re all good and we’re brothers and hanging out and all that kind of stuff. But it’s one of those things that I don’t think it was the best way to do it, but it was the best way we all knew how to do it, including them.

Paddle HR CEO Pat Whelan (00:31:13):

And so I think what I would done is, and I would do this again now, let’s say, I was founding a company with someone who just wasn’t working out. I would go to this group and say, “Listen, this isn’t working out. You might have thought this was going to work out this way and you didn’t know. I thought it was going to work out differently as well. Let’s recap this. Let’s figure this out. I think what’s fair is this amount for you. I think this is fair for me since I’m the one going forward. Let’s do that.” And if they said, “No,” I would be like, “Okay, well then I’m going to leave and I’m going to basically do the same thing or something similar.”

Paddle HR CEO Pat Whelan (00:31:46):

At one point, this is details that have never come out, and I don’t think we needed to do this, but we did. Facu didn’t sign his employment agreement for like a year, because we were worried that we were going to have to take the source code… And some of this is basically just building contingencies in case these guys didn’t go for something. But it would’ve been so much easier to just have a very mature conversation. I don’t know if I was in the place, I don’t know if they were in the place to have that, in the beginning. But that would’ve been a better thing of, literally, “Cool, I’m going to go work on this now, on this new entity, rather than dealing with this entity. Because this isn’t going to work, and I don’t want this hanging over my head for next whatever number of years.”

Paddle HR CEO Pat Whelan (00:32:25):

So, yeah, it was definitely something that was tough. And the other way to do it would’ve been to raise money to buy these guys out. I don’t know, in my mind, in this structure that I described, it’s kind of distracting the business significantly for a clerical error rather than actually moving forward. So I think I would have just restarted the company or come up with a new name or something like that.

Nathan Latka (00:32:50):

Now, Patrick, these guys deserve a lot of credit for, maybe it wasn’t the perfect situation, but they at least heard you out, you got to a solution you liked. I mean, can we name them to give them credit. I mean people can look these two people up, but it’s pretty clear who they are. I think they deserve some credit.

Paddle HR CEO Pat Whelan (00:33:06):

No, I love these guys. Don’t get me wrong. And they’ve helped the business in many, many ways. They’ve pushed me. They’ve pushed the business forward. So there’s no animosity on my end. I don’t think there’s any animosity on their end. They got good chunks, good checks, the past couple of weeks here.

Nathan Latka (00:33:19):

Christian smiling-

Paddle HR CEO Pat Whelan (00:33:22):

So it’s not like-

Nathan Latka (00:33:23):

… so I know that that is true.

Paddle HR CEO Pat Whelan (00:33:23):

Yeah. So it’s not an animosity thing. Christopher O’Donnell, like Christopher O’Donnell and I are very similar in many different ways. I think that’s why we work really well together in terms of trying to create greatness. He made HubSpot what it is. He is top 10 product leader in the world, in the freaking world in terms of B2B SaaS. And Aaron White, one of the best technologists I’ve ever met. He’s a CTO and running tech over at Vendr.

Nathan Latka (00:33:50):

Vendr.

Paddle HR CEO Pat Whelan (00:33:51):

These guys are my brothers. And so I don’t bring up the story for any animosity. I bring up the story of it would’ve saved all three of us a lot of bullshit and emotions if we would’ve just handled this the other way. And I’m 99% certain they agree with this as well. We kind of stopped talking about it four or five years ago, because we were like, “Cool, we’re on a path. It doesn’t work for us to rehash this a bunch of times, because let’s just move forward,” if that makes sense.

Nathan Latka (00:34:20):

Makes a ton of sense.

Paddle CEO Christian Owens (00:34:20):

You would’ve got to the same outcome but with less heartache along the way.

Paddle HR CEO Pat Whelan (00:34:25):

Totally. We would’ve probably gotten to the exact same numbers that we got to, if we would’ve had that conversation year two, then doing all these little bits over the past 10 years essentially.

Nathan Latka (00:34:36):

Now, Christian, the other way to do this is-

Paddle HR CEO Pat Whelan (00:34:38):

But then again, I don’t know, maybe I wouldn’t have been incentivized. Because going after this revenue milestone was a lot of like, “Well, I know I’m going to get the next equity grant. I know the whole teams going to get the next equity grant.” So I don’t know, maybe the way we did it was right. I don’t think so, because it definitely caused me a lot of bad nights. But I think it was definitely one of those things that you just have to have good communication and good alignment, and I think I didn’t really do that maturely in the first few years. I just got into this hole of these guys are a little more of my adversaries than they really are.

Nathan Latka (00:35:08):

Guys, hopefully, you’re learning a ton from this. I mean what’s really interesting to me is Patrick comparing against Christian, so Christian, you were able to keep everything very clean at the beginning, because you already had an exit, a mini exit or a mini company under your belt with profits, and you could just put the money and then do it.

Nathan Latka (00:35:21):

This is why I try and get founders all the time. I say, “Guys, just get your first exit done. It doesn’t have to be 10X. It doesn’t have to be a Christian/Patrick deal, just get your first deal done, so you have some money so you can go double down on yourself the next thing.” And Patrick, who knows, but if you maybe had 500 grand when you launched, maybe it would’ve been a cleaner cap table from day one.

Paddle HR CEO Pat Whelan (00:35:40):

Maybe. Yeah, I think that it’s not always about money, right?

Paddle CEO Christian Owens (00:35:45):

Yeah.

Paddle HR CEO Pat Whelan (00:35:45):

I think dating your co-founder for a little bit or dating those folks, I know for the rest of my life I’m building companies with the people I’m already building with. And I like the plus or minus of those people will just depend on interest and timing in those types of things. But I think it’s one of those things where finding that tribe is almost more important. I think, for example, Harrison’s not in the business anymore. Christopher and Aaron, I haven’t directly worked with, but the next company, if we’re like, “Oh, cool, we’re going to start this cool thing,” there’s a list of people we contact first, right?

Nathan Latka (00:36:22):

Yep.

Paddle HR CEO Pat Whelan (00:36:22):

Because they’re known quantities, we know strengths, weaknesses, we know all of those things. And it’s like, I don’t know Harrison that well, but what I know of Harrison is like, yeah, I’d love to be on a founding team with him. And so I think that’s the thing that finding your tribe and being a bit patient, and then being easy on yourself when stuff messes up and just being really communicative and confrontational, not in a volatile way, but just confrontational I think is really important, because these hard conversations are the ones that you put off. And these hard conversations, if you’re putting them off, these problems only get bigger.

Paddle HR CEO Pat Whelan (00:36:57):

They only become higher stakes. Getting equity from these guys later in the business is so much harder than if we just fixed it in the beginning. Just from a physics perspective.

Nathan Latka (00:37:07):

Guys moving away from equity, A lot of really good lessons here. Let’s talk about First Million Revenue. Christian, what year was that for Paddle, do you remember?

Paddle CEO Christian Owens (00:37:14):

So we started the business in 2012. I want to say it was probably, so it was late 2013, maybe 2014. I don’t remember exactly. We fluctuated a bit. We probably got up to… So end of 2012, we started the business. 2013, sort of early mid 2013, we launched the first version of the product. First version of the product was basically what exists today, but with a marketplace on the front as well, because we thought that that was kind of the way to entice people to use Paddle. Ended up shutting that down and then just focusing on the do it for you, the infrastructure piece. Scaled relatively gradually from there. So it was probably, yeah, 2014.

Paddle CEO Christian Owens (00:38:05):

I remember we got to about 500K in ARR, sort of fairly quickly, once we actually hit our stride with what the product was. And then so we got from zero to 400 and then went back down to about 50, because we lost a customer that was contributing like 350K in ARR and then we had to then rebuild from 50 kind of back up. So, yeah, that was a fun year.

Nathan Latka (00:38:32):

And I mean in terms of usage and adoption of the product back in 2014, a million bucks in revenue, for you, if you’re taking a five percent fee there, is it fair to say GMV on that was somewhere around what, 20 million bucks that year?

Paddle CEO Christian Owens (00:38:45):

Roughly, somewhere in that region. Yeah.

Paddle HR CEO Pat Whelan (00:38:48):

That’s the thing I like about Nathan. He’s really good at basic math and this stuff. This is how he trips up founders and telling secrets. That’s how it is.

Nathan Latka (00:38:55):

No, you guys are-

Paddle CEO Christian Owens (00:38:56):

You’re asking me stuff from a decade ago now, so-

Paddle HR CEO Pat Whelan (00:38:58):

He’s always be like-

Paddle CEO Christian Owens (00:38:59):

… so I’m going to mess this up.

Paddle HR CEO Pat Whelan (00:39:00):

… ” What’s that number?”

Nathan Latka (00:39:00):

Well-

Paddle HR CEO Pat Whelan (00:39:01):

:Oh, and that number I asked you about 30 minutes ago, I’m going to multiply these now.” I love it.

Paddle CEO Christian Owens (00:39:05):

The best part of this is that Nathan is about to just quote the interview that I did with him-

Paddle HR CEO Pat Whelan (00:39:10):

I know he’s so good.

Paddle CEO Christian Owens (00:39:11):

… five years ago, and then he’s going to see if they corroborate each other. And I’m going to mess something up.

Paddle HR CEO Pat Whelan (00:39:15):

You’re going to be like, “Oh, my God.”

Paddle CEO Christian Owens (00:39:15):

Yeah.

Nathan Latka (00:39:17):

So Christian, in September of 2020 you did an interview with Dan Martell, where you talked about passing 900 customers on 14 million in revenue. Part of that interview you talked about how fast you were growing year over year. You also broke 130% net dollar retention, incredible metrics. And in that interview you also said you still had 20 million bucks in the bank. So we have to of talk on your funding story as well, because you chose to raise capital, a lot of capital between 2012 and 2020. Tell us about that.

Paddle CEO Christian Owens (00:39:43):

Yeah, I think, actually raising capital was the first thing that we did as a business. And it kind of comes back to Patrick’s point earlier, and it wasn’t the initial round of kind of funding, which was just a seed round from one angel investor. It was 150K pounds, so 220 dollars.

Nathan Latka (00:40:07):

I mean most people are selling a big… I mean were you able to minimize delusion, because you had your own money at that point, you didn’t need his cash or her cash?

Paddle CEO Christian Owens (00:40:13):

Yeah, we didn’t raise the money for the money. Going into that I was like, “Okay, Harrison and I, we’ve built a business before and it’s done reasonably well. We’ve never built a company.” And we went into this very much with the idea of we are going to build a company, and this will be worth a billion dollars someday, pick some random number out of the sky.

Paddle HR CEO Pat Whelan (00:40:37):

Billion four.

Paddle CEO Christian Owens (00:40:38):

Billion four. So that was very much the intention from day one. The previous business was bootstrapped, and we could have kept going with it, and doing all that stuff. But it was a very intentional moment where we were like, “We’ve built a business, we’ve never built a company.” So we went and raised that sort, call it 200 grand initially. And part of that, it was I was an entrepreneur, a guy called Mark. He bootstrapped a business to, I think, it was probably like 20, 25 million in revenue, based in London.

Paddle CEO Christian Owens (00:41:10):

He ended up selling it for a couple hundred million, and part of the deal was he invested this money, but Harrison and I got to move into his office. And every time we had a question it was like he’ll point us in the direction of the people who deal with that, and we’ll go and bribe them with chocolate and candy and stuff, so that we can… a payroll issue or whatever. So that was literally how we got the initial knowledge that we needed to build a company. So we made the decision very early that we were going to raise money. And then we didn’t raise a lot of money, though, we ended up-

Nathan Latka (00:41:47):

Christian, hold on, hold on, before you finish the funding story. I mean you’re 18 at this point, bribing this guy with chocolates to get free office space. So you bring in 200K there mean, what did the valuation conversation sound like back then? And can you share what the valuation was?

Paddle CEO Christian Owens (00:41:59):

I don’t remember what the valuation was explicitly. I think we have to remember what the environment was back then. I think it was definitely north of 10%. It was sub kind of like 25.

Paddle HR CEO Pat Whelan (00:42:16):

Being a European company as well. UK, Europe didn’t have the cache. I mean, still it’s-

Paddle CEO Christian Owens (00:42:22):

I think if you fast forward a little bit, we ended up topping up that seed round, I think, probably the year later when we met some more investors and things like that/ that we did it on a convertible note, the other 800K, and it was convertible at a discount to when we did the series A. Because we knew at that point we were going to be venture backed, and we were going to go down that route. But our Series A was three million bucks, this was like 2014-ish, ’15 or something like that. A three million dollar round these days is a pre-seed round. It’s like a pre-seed round for your pre-seed round. You found that down the back of the sofa at Sequoia’s sort of office. So it was a very different environment back then.

Nathan Latka (00:43:13):

And was that Series A that 10 million valuation range, you just maybe sold 10, 15%, again?

Paddle CEO Christian Owens (00:43:19):

It was somewhere in that region. I get confused because I’m talking three million US, and then I don’t know what the valuation actually was, but, yeah. Yes, it was-

Nathan Latka (00:43:28):

Well, no, it’s good. I mean the reason I’m asking is a lot of listeners right now, that was the same year you broke a million bucks in revenue. So if you’re listening right now and you’re breaking a million bucks in revenue, frankly this is a seven year, eight year difference, between when Christian did this and when you guys are at today, but gives you at least one comparable. Now fast-

Paddle CEO Christian Owens (00:43:41):

But, also, that’s probably roughly where the market is right now-

Nathan Latka (00:43:45):

Today.

Paddle CEO Christian Owens (00:43:46):

… for raising-

Paddle HR CEO Pat Whelan (00:43:47):

We’ve gone back to normal.

Nathan Latka (00:43:50):

And you guys had perfect timing, which we’ll get to here and talk about the deal in a second. Let’s actually fast forward a couple years. So let’s fast forward to maybe Christian in 2020. So when you guys look at growth rate, you now have raised a bunch of capital. You’re trying to grow. You got a clear vision. You’re building out your executive team. What we’re able to drive in terms of revenue growth from 2020 to 2021? Percentage is fine.

Paddle CEO Christian Owens (00:44:11):

Sorry. Sorry, you cut out then.

Paddle HR CEO Pat Whelan (00:44:14):

Yeah, you cut out percentage, right-

Nathan Latka (00:44:15):

Percentage revenue growth from 2020 to 2021.

Paddle CEO Christian Owens (00:44:20):

It was really high. Because it was a sort of a little bit of a COVID aberration, because we saw the tailwinds of all of that. We at least doubled the business over that in a period of time.

Nathan Latka (00:44:40):

Sorry, obviously, COVID aberration there, but so 200% growth. I mean earlier in 2020, again, you guys have done great interviews over the year, so there’s nice history to rely on here, but you’d communicated you broken about 14 million bucks of ARR in 2020. So a 200, 300% growth from 2020 to 2021. It’s fair to say you broke 2021, well, north of 30 million bucks in ARR.

Paddle CEO Christian Owens (00:45:02):

Sure.

Paddle HR CEO Pat Whelan (00:45:03):

See, he’s doing it.

Paddle CEO Christian Owens (00:45:03):

He’s doing it.

Paddle HR CEO Pat Whelan (00:45:03):

He’s doing it.

Paddle CEO Christian Owens (00:45:03):

He’s doing-

Paddle HR CEO Pat Whelan (00:45:04):

He’s doing his Latka-

Paddle CEO Christian Owens (00:45:06):

… his thing.

Paddle HR CEO Pat Whelan (00:45:06):

… thing.

Nathan Latka (00:45:08):

These are important milestones to understand for my audience.

Paddle HR CEO Pat Whelan (00:45:11):

Latka, you know we love you. I’m just letting-

Nathan Latka (00:45:12):

I know. I love-

Paddle HR CEO Pat Whelan (00:45:13):

… you know, you know we love you, but we have to rib you a little bit, because you’re good at your job.

Nathan Latka (00:45:19):

No, I know. I love you guys more. This is great. Okay, now, so that’s sort of story on Paddle side. Patrick, let’s quickly go fill in your sort of middle eight years here. That first 200,000 bucks in sales that you landed. What were you selling? What’d you sell?

Paddle HR CEO Pat Whelan (00:45:29):

So I had this $50 a month pricing software product. Yeah, great price for a pricing software product. And we ended up having this guy named Scott Kirsner, who’s a Boston Globe columnist, he basically wrote this article. I didn’t beg him, but I was definitely like, “Oh, it’d be really great if Scott Kirsner wrote an article on us.” And so I had some inbound. And we had compete.com, which some old school folks listening might remember, SmartBear and-

Paddle HR CEO Pat Whelan (00:46:03):

… Which some old school folks listening might remember, Smart Bear, and Hallmark and Adidas, these four companies contacted us off the article, and Runkeeper at the time as well. And basically three of them were like, “Yeah, yeah, yeah, cool software product, can you just do the thing for us? Can you just give us the data at the end rather than us doing all the stuff with the software?” And at first I was like, “Oh, you just don’t like services. Oh no, I can’t do this.” Because I was still thinking like, “Oh, we’ll raise money at some point.” And then they basically were like, “We will pay you a lot of money.” And a lot of money at the time was thousands of dollars, tens of thousands of dollars. And I was like, “Cool.”

Paddle HR CEO Pat Whelan (00:46:40):

So, it was basically a tech enabled service. I would get the output from the software, I would give it to them in basically a PDF, and then I would give them some commentary on it and then they were like, “Can you give me more commentary?” And I was like, “I don’t own the services.” And they were like, “Well, okay, we’ll pay you a lot more money.” And I was like, “Great.” And so it morphed into that. Price Intelligently has basically evolved as a tech enabled service for the past decade and the software increases every single quarter and it’s been a good ride.

Nathan Latka (00:47:15):

So, I guess how many $50 per month plans did you sell before you said, “Okay, Runkeeper, I’ll do your tech enabled service thing?

Paddle HR CEO Pat Whelan (00:47:23):

We didn’t shut that product down. We should have earlier, but we didn’t shut it down for… I think until 2015, and there were not many people on it. We hid the page but we hadn’t shut down the product for a while.

Nathan Latka (00:47:39):

I mean, you’re talking under 10K of MRR of people paying 50 bucks a month.

Paddle HR CEO Pat Whelan (00:47:43):

Yeah. Probably under a thousand dollars MRR. Because we got it out there. And then you have to understand at that time there wasn’t this Indie hacker community, there wasn’t Product Hunt. I was literally just blogging and writing two blog posts a week about pricing in order to… And sharing them on LinkedIn and doing the share in the LinkedIn group hack that we all did for a little while, and that’s what was driving traffic. And then they would download the ebook, I would get them on the phone and that was our cycle or my cycle, basically, to getting folks moving.

Nathan Latka (00:48:11):

Okay. I mean, is that what now the free version of Prop Well eventually became? Was that original tool 50 bucks a month?

Paddle HR CEO Pat Whelan (00:48:19):

No, no, no, no. So, there were two things. We were trying to find… So, the first idea was, well, what if we hosted every SaaS pricing page in the world? What would that look like? That was the first idea. And then slowly over time we were like, “Well, if we’re going to optimize the pricing page, we need this other data.” We need up funnel data, we need retention data, we need a unified data stack. And we’re like, “Okay, well what if we just went and got the unified data stack.”

Paddle HR CEO Pat Whelan (00:48:45):

We wanted this product that could be more pure software. And so that was the original idea was kind of what if New Relic was for revenue? What would New Relic look like for revenue monitoring? And then we were helping a company in terms of  IPO with their pricing and we discovered that they were calculating churn and MRR incorrectly. So, we kind of started on this, “Cool, let’s do this Financial metrics product.” And we got out there, we had 10 people on it.

Nathan Latka (00:49:12):

What year was this, Patrick?

Paddle HR CEO Pat Whelan (00:49:14):

This was 2013. Late 2013, early 2014. And all of a sudden what ended up happening is we were about to announce it to our really weak email list, and then all of a sudden Josh Pigford of Baremetrics got out there and got the hacker news crowd, the Microcom crowd. Everyone was loving it because it’s like it’s a good idea. And sure, Mogo was kind of building in parallel, as well. And there were 30 different products in the market within six to 12 months. And so we were building this thing very slowly and then all of a sudden it was like, “What should we do?” Well, the market is crowded now. Analytics products are notoriously difficult. We had known this from our pricing customers. Analytics was a really hard thing to monetize. We did our own little pricing research and customer development, and basically discovered we really have to go up market or give this away for free, or stop building it all together.

Paddle HR CEO Pat Whelan (00:50:06):

An up market meant we had to raise money. We weren’t really ready to do that at that point, in our minds. Shutting it down didn’t seem right because we knew there was this future with the data that we could get. And so that’s where the free product came to be. And that’s honestly, that’s where we should have raised money, right there. And the reason is because it all worked out.

Paddle HR CEO Pat Whelan (00:50:26):

But distribution on a free product is really difficult because you have to support that free product. And a free product, what a lot of people don’t realize it has to be better than the paid competition. If it’s worse than the paid competition, what ends up happening is people don’t use it, because it’s not worth their time most of the time. And the other thing is if it’s a financial product, it has to be accurate. Inaccuracy for a financial product, people will not appreciate but they won’t use your product if it’s inaccurate. And so it’s one of those things that was really important. We should have raised money right there, at least a small seed fund or seed round or something like, that in order to accelerate that probably by a year. We probably lost a year by not raising a small round for that.

Nathan Latka (00:51:05):

And so with this strategy, what year did you guys break 10 million bucks in revenue? Do you remember?

Paddle HR CEO Pat Whelan (00:51:11):

I don’t remember. I think maybe… I actually don’t remember. I want to say 2018. 2019. For some reason it’s just coming into my head. But I have no idea. And you’re probably be like, “In an interview that you and I did in 2016, you said you were 6 million, or something like that.”

Nathan Latka (00:51:29):

Yeah, since this is a friendly interview, I’ll just share with all of you guys that have your own podcast and do interviews. Information is way more powerful when people don’t know you have it. So, just because you know the numbers, it doesn’t make sense to tell the person you’re interviewing what the numbers are they said historically. It’s much better to hear what they say today, then after fact they’ll compare it to what they said in the past.

Paddle HR CEO Pat Whelan (00:51:46):

I know that’s why-

Nathan Latka (00:51:47):

Even if you are right on the money, there’s nothing here that’s way off from what you and I brought together.

Paddle HR CEO Pat Whelan (00:51:53):

I love you unless there’s a recorded microphone. Okay? No, I just kidding.

Nathan Latka (00:51:56):

You still love me right now. This has been very fun. I’ve very much enjoyed this so far. And we’ll spend, maybe-

Paddle HR CEO Pat Whelan (00:52:01):

You’re on your best behavior and I love it. No, no, I’m just kidding.

Nathan Latka (00:52:04):

Well, I’m not as aggressive because I had to just prepare for this one a bit more and really think about the storyline. So, let’s build back this for a second. Of that 10 million revenue, Patrick, how much of that would you say was sort of the Adidas, the Runkeeper, the Smart Bears of the world that are paying you a hundred thousand, $200,000 contracts?

Paddle HR CEO Pat Whelan (00:52:22):

I think in 2018, 2019 it was the vast majority. So, our revenue… Because we didn’t start stepping on the gas for Retain basically or recognized our two paid other products until probably 2019. So, we had a trickle of revenue probably in 2018 from Retain when we started building it up and then our serious sales team didn’t really start until late 2019, 2020. And that’s when the software stuff started going. And the revenue on the Price Intelligently side, the LTV is amazing. It’s hundreds of thousands of dollars. The churn is tough because these very large companies, these enterprise companies, those are the ones who end up not churning because they always have budgets for this type of research and things like that.

Paddle HR CEO Pat Whelan (00:53:11):

It was the Johnny and Jane startups who would buy a year of Price Intelligently and then after that year they’d spent 150, $200,000 and it was like we had given them so much that it was going to take them another year to just implement everything and they were kind of already implementing it three years in. So, we stopped serving… Well, we really stopped focusing on them. We’d only take them inbound and only under certain circumstances. And we started focusing probably in 2017, 2018, going up market essentially for that product. But yeah, that’s that timeline there, its hard- 

Nathan Latka (00:53:41):

Yeah, it’s really hard. I mean, of that 10 million of revenue, is the average contract like 200 grand, so you’re only working with 25 customers a year sort of deal? is that the kind of-

Paddle HR CEO Pat Whelan (00:53:52):

I think the ACV was lower, closer to 150, I think, during that time. It’s hard. I do have a product that I could log in and tell you this information, but I really don’t remember. Yeah, I don’t remember exactly right now, but yeah, it’s… That’s why I don’t remember, because I have a product I can log in.

Nathan Latka (00:54:10):

The point is, though, you’re working with a very limited number, 60 to 70 customers a year, right? At 150k a pop.

Paddle HR CEO Pat Whelan (00:54:14):

On that product, yeah. And then on ProfitWell, the metrics product, their users because they’re not paying us, but then all of a sudden you have thousands and thousands of companies every single year, up to about 30,000 now on that particular product. And that’s also a hard thing about free is support. If you can have a free product that’s better than the paid competition and the support is good, holy cow. It’s an amazing thing for your brand and your market. So, we made serious dedication that we wanted great support even though it was free and it’s all cost. And so you have to have a larger vision if you’re doing that, which we definitely did have.

Nathan Latka (00:54:53):

So, Christian, this is going to be sort of a weird question but it’ll be a good one. If I asked you to describe how Patrick was making money on the software tools that he really got going in late 2019, 2020, Retain plus… Patrick, what was the other one?

Paddle HR CEO Pat Whelan (00:55:06):

Recognize, revenue recognition.

Nathan Latka (00:55:07):

Retain and recognize. Christian, how would you describe the revenue model on those?

Paddle CEO Christian Owens (00:55:11):

I would describe… Recognize is a little bit different. Recognize for those who don’t know is a revenue recognition like ASC 606 retroactive product. That’s literally a kind of monthly fee… Because it tends to only be applicable to larger enterprises.

Paddle HR CEO Pat Whelan (00:55:32):

Over a million a year, typically.

Paddle CEO Christian Owens (00:55:34):

… Care about it. On the Retain side of things, I would say it’s a very similar model to Paddle. It’s sort like that product for those that sort of haven’t come across it before is a product that helps you fight kind of voluntary and involuntary churn. So, credit card failures, cancellation, sort of all of that stuff, and is priced on the basis of how much revenue does Retain generate you or save you? How many customers does it stop from churning or bring back into the product through all of these different channels, email, SMS, sort of automated of payment retries, all of this stuff.

Paddle CEO Christian Owens (00:56:09):

It’s very quantifiable. There is a before Retain and after Retain number that you can point to and Retain effectively monetizes on the base of how much money it recovers. It’s historically has been a monthly fee because they haven’t… Because ProfitWell hasn’t actually been party to that kind of payment. But you can obviously take a monthly fee divided by how much money it’s recovered and you can then equate that to a percentage, as well.

Nathan Latka (00:56:40):

I see. So, Patrick, when you’re selling Retain today, I mean, is that what it is? Is it, “Here’s how much we think we can save you. You’re going to pay us this amount, which is kind of equal to this percent, but you have to lock in for a year at this fixed subscription price.”

Paddle HR CEO Pat Whelan (00:56:51):

No, you don’t have to lock in at all. I mean, that’s the beauty of it is I think it’s purely pay for performance right now-

Nathan Latka (00:56:57):

What is the average percent you’re keeping then, on that would you say?

Paddle CEO Christian Owens (00:57:02):

I can tell you.

Paddle HR CEO Pat Whelan (00:57:03):

Is it five?

Paddle CEO Christian Owens (00:57:04):

It’s roughly between four and 6%. It’s still tiered right now.

Nathan Latka (00:57:09):

Someone did their due diligence.

Paddle CEO Christian Owens (00:57:09):

I did do my due diligence.

Nathan Latka (00:57:11):

I was about to say, that’s why Christian might know your business, Patrick, better than you with the tier –

Paddle HR CEO Pat Whelan (00:57:17):

I don’t know. But no, what it is basically we can establish a baseline of your recovery, and we can do this not only for credit card failures but also of people who hit your cancel button, how many actually churn. And what we can do is we can establish that baseline and then our products are free up until that baseline. So, if you’re recovering every 20 out of a hundred failed payments, the first 20%, no matter your size, is always going to be free, and then we can calculate the revenue delta. Let’s say we increase it to 40%, we can calculate that revenue delta, and that delta basically corresponds to a particular yield. And as we recover more, we have very large companies on that product where we’re recovering millions of dollars per year in additional revenue for them. They’re not paying us millions of dollars per year.

Nathan Latka (00:58:05):

Yeah, you’re keeping a percent of it.

Paddle HR CEO Pat Whelan (00:58:06):

And it’s not quite a straight percentage. And the reason is that on that type of a product, and it’s actually a little bit different on billing, which is kind of a fun pricing conundrum, like a percent cut feels punitive. But if I position it as a flat rate, that is essentially a percentage anyways. That little mind trick makes the sales process so much easier.

Paddle HR CEO Pat Whelan (00:58:29):

So, if we just said, “Hey, it’s 5% of whatever we recover or 5% over a particular baseline,” our sales wouldn’t be as strong as like, “Here’s this number. We recovered $10,000, the price is going to be $8,000 for that first month.” All of a sudden it just changes that conversation, if that makes sense.

Nathan Latka (00:58:45):

I see. Guys, I moved my next meeting so we could have 15 more minutes together, but I want to be respectful of your time. Do you have 15 more minutes?

Paddle HR CEO Pat Whelan (00:58:52):

Yeah, yeah. Sure.

Nathan Latka (00:58:52):

You’re good? Okay, got it. So, on that Retain product… I mean, so Patrick can you share in 2020, what was a total amount of dollars that you guys say, “You know what? We feel like if they didn’t have Retain, they would not have kept this amount of dollars.” Across the whole customer base.

Paddle HR CEO Pat Whelan (00:59:09):

Ten He’s going to multiply it by 5% and then all of a sudden he’s going to-

Nathan Latka (00:59:13):

Well, no, it’s not a straight revenue, right?

Paddle HR CEO Pat Whelan (00:59:16):

I honestly could not tell you what that number is. I’m not evading you. I do know that right now, last month I believe, we were recovering… We have the ego number and then we have the real number. The ego number is the amount of dollars that go through all Retain forms. That’s the number I know.

Nathan Latka (00:59:43):

What’s that?

Paddle HR CEO Pat Whelan (00:59:45):

That’s 22 million a month.

Nathan Latka (00:59:51):

Just to be clear, that’s money that you guys touch that you feel like you’ve saved and then you have to tell a customer, “We believe it’s because of us.”

Paddle HR CEO Pat Whelan (00:59:58):

So, that number is what we touched that went through our stuff, but then we have to take out the baseline. It’s not like we brought an additional 22 million. I think it’s…

Paddle CEO Christian Owens (01:00:10):

Also that number, the 22 million number is also MRR.

Paddle HR CEO Pat Whelan (01:00:13):

Yeah, it’s MRR. So, it’s like that’s 240, 250 million plus a year, right now, and that number’s going up every single month.

Paddle CEO Christian Owens (01:00:20):

But it’s calculated as MRR. So, it could be a thousand dollar transaction but actually only equates to it’s $83 of that number.

Paddle HR CEO Pat Whelan (01:00:30):

Something like that. That’s the ego number. We would need to take out…

Nathan Latka (01:00:35):

Sorry, sorry. Christian, I want to make sure I clearly understand that. Patrick, you too. You’re saying last 30 days you feel like about 250 million of monthly recurring revenue went through the platform of which you helped keep 22 million?

Paddle HR CEO Pat Whelan (01:00:48):

No, no, no, no. That kind of muddles it a little bit. Basically, the last 30 days we’ve recovered 22 million through Retain.

Nathan Latka (01:00:58):

Oh, of MRR.

Paddle HR CEO Pat Whelan (01:01:00):

Yes. Most of it is MRR.

Nathan Latka (01:01:00):

Got it.

Paddle HR CEO Pat Whelan (01:01:01):

There’s a portion of it that’s like an annual we recovered that isn’t MRR. So, it’s a little under 22 million. And then to get to the number you’re asking, we’d have to take out the baseline.

Nathan Latka (01:01:12):

I see.

Paddle HR CEO Pat Whelan (01:01:13):

Which I don’t have offhand.

Nathan Latka (01:01:15):

This is still powerful. So, just to put this in a sense, to make it very clear, Retain’s working across 30,000 connected accounts, you guys effectively helped Retain top line, the big number, 22 million of MRR, almost 250 million bucks of ARR. Of which you feel like some portion of that is directly attributable to the technology you’ve built.

Paddle HR CEO Pat Whelan (01:01:31):

Yeah, hundred percent.

Nathan Latka (01:01:33):

Perfect. I love it. See, this is so easy. That was perfect.

Paddle HR CEO Pat Whelan (01:01:35):

This is so easy.

Nathan Latka (01:01:37):

Let’s fast forward. We got Christian’s growth rate, right? Sort of past, call it, two years. What did you guys grow at past 12 months?

Paddle HR CEO Pat Whelan (01:01:45):

I don’t know. I’m trying to think if he knows any other numbers.

Paddle CEO Christian Owens (01:01:48):

Well, I think the difficult thing on this is, obviously, if you take… Patrick mentioned earlier that obviously the PI business has been growing over time is a reasonably substantial portion of revenue, and then I think has Patrick mentioned, really started focusing sales team build and go to market stuff on Retain and the software products, probably like 2018, 19. So, I think there’s two lines of business here. One of them is growing… The PI business is growing really nicely and it almost mirrors the software company. It a little bit odd. But then Retain and the software products that’s been ripping.

Paddle HR CEO Pat Whelan (01:02:30):

Yeah, Yeah. So, Retain, we more than doubled in 2021.

Nathan Latka (01:02:37):

From ’20 to ’21, it more than doubled?

Paddle HR CEO Pat Whelan (01:02:40):

More than doubled. PI, I think, is growing. It had a good clip. I think the problem is bookings didn’t double, but it was, I think, greater than 50%. But you also have to keep in mind there’s some serious churn there. The retention is not like software retention. And so it’s just a little bit different. And I think that’s a thing with, if you’re going to do a productized service for a tech enabled service, for those listening, you have to set… I wouldn’t set professional service expectations because I think then you’re like, “Oh, margin doesn’t matter, the growth doesn’t matter.” I would set more of an expectation of like, “No, no, no, let’s compare this to software but realize it’s not going to be software.” The margin on that business is closer to 55, 60%. With Retain the margin is like 95%. If that makes sense.

Nathan Latka (01:03:33):

No, that makes perfect sense. Makes perfect sense. So, fast forward. Christian, you said sort of PI is, again, obviously a material part of the revenue. The story there from 2012 to 2019 really was only that until you guys got serious about Retain and Recognize in 2020. Can you share… I mean, when you say material important, I mean more than 60% of revenue you guys would attribute to PI?

Paddle HR CEO Pat Whelan (01:03:54):

In 2019 or 2018… Yeah, 2018 and 2019, definitely.

Nathan Latka (01:04:03):

Well, yeah, because that was really the only thing you were doing, right?

Paddle HR CEO Pat Whelan (01:04:03):

Yeah, exactly.

Nathan Latka (01:04:07):

I mean, today though, are you able to share… I mean, PI was more than 60.

Paddle CEO Christian Owens (01:04:11):

I think the thing we can share is every single year, so if you look back from ’18, ’19 today, every single year it has encompassed a larger percentage of the overall business, and will continue… In the long term, I think that business will end up being kind of 90 plus percent of the…

Nathan Latka (01:04:35):

You’re talking about Retain and Recognize?

Paddle CEO Christian Owens (01:04:37):

Yeah. The software revenues of ProfitWell alone will end up being 90 plus percent of the business.

Paddle HR CEO Pat Whelan (01:04:47):

I think the way we’re looking at it now is of the combined business, PI is probably evolving into something that’s a little bit more, not just pricing service, but also some other growth service. So, we can play around not only with the margin of that business, but also the growth of that particular business in a lot of different ways. And so there’s some interesting implications there and I think that we’re like… We’re probably going to continue to grow it, but we’ll see how it evolves, right?

Paddle HR CEO Pat Whelan (01:05:17):

Because it’s kind of like a very efficient, very effective professional service organization. But like I was saying before, I don’t want to refer to it as that because a lot of professional service organizations are like, “Oh, just margin neutral. If we lose some money, it’s fine.” I don’t think that’s how we want to run it because I think we want to be an accelerant of the Paddle customer base and also an accelerant of people coming into the Paddle ecosystem, things like that.

Nathan Latka (01:05:43):

So, here’s my best estimate of ProfitWell revenue at the end of 2021, so back in December/ these two can comment on if not, but for the audience, here’s sort of where my head is at, right? They break 10 mil. And there’s a lesson at the end of this, which I’ll touch on too. But it sounds like 2019, about 10 million bucks of revenue is pure Price Intelligently. They get going on Retain and Recognize in 2020. They grow it to about 22 million bucks, right? Last 30 days of revenue retained, of which Patrick has to say, “Hey, customers, we think we are responsible for helping you keep some percent of the 22 million.”

Nathan Latka (01:06:16):

Let’s say he can only say they are responsible for 10 million of that and they price against 4%, right? 4%. The low end of what Christian said, four to 6%. That means that product is generating about 400,000 bucks of monthly recurring revenue or about 5 million in run rate currently. Great growth. Sounds like Christian is saying basically over time that product can be 95% of this business, but today sounds like between five and 10 million is Retain and Recognize, and between 10 and 15 million is effectively PI. So, when you guys sold going to that sale conversation, Patrick, were you guys sort of in that 20 to 25 million total revenue range?

Paddle HR CEO Pat Whelan (01:06:51):

I will not confirm or deny anything. Yeah, I won’t, but I will say –

Nathan Latka (01:06:58):

Okay, so editors, he just said… Yeah, just edit out the part where he said he can’t confirm or deny. Just stick the, “Yeah” in. Perfect. There’s our clip.

Paddle HR CEO Pat Whelan (01:07:04):

Yay. No, totally.

Nathan Latka (01:07:07):

By the way, I don’t think you should shy away from this. The reason I’m summing this up is not to I get you in a gotcha, what it is to showcase.

Paddle HR CEO Pat Whelan (01:07:11):

No, I know.

Nathan Latka (01:07:12):

A lot of people build an agency to get smart about their customers and then they actually shut the whole thing down instead of trying to attain high margins.

Paddle HR CEO Pat Whelan (01:07:17):

No, I don’t think you should shut it down. I think there are circumstances in which you should continue to run them. We would get so many Retain and ProfitWell users from people coming into Price Intelligently. I think what’s really interesting is the revenue number is… Not to get really meta here, it’s a weird… I don’t know why we don’t share these things, but once you get over 10 million, it’s almost like there’s no advantage to sharing.

Paddle HR CEO Pat Whelan (01:07:48):

Your logic is sound, you’re in the ballpark, but I’m not going to say if you’re higher or lower, but you’re in the general ballpark, if that makes sense. But it is one of those interesting things. Now, I’m at a venture backed unicorn and it’s one of these things where I’m always like, huh, we don’t share these things publicly and I’m not really sure why, but I think it’s also because of you just reserve your optionality going forward with future of rights and that kind of stuff.

Nathan Latka (01:08:15):

That’s exactly right. It’s a great press release for you guys once you break a hundred million run rate. You want save it for you to make that announcement when you break it. I get it.

Paddle HR CEO Pat Whelan (01:08:21):

See what he did there?

Nathan Latka (01:08:23):

Christian, that press release is coming out sometime in the next 12 months, right?

Paddle CEO Christian Owens (01:08:27):

Who knows? Maybe the press release should’ve gone out.

Paddle HR CEO Pat Whelan (01:08:30):

Maybe we just didn’t send a press release and we should have.

Nathan Latka (01:08:32):

No. The other benchmark here I’ll say, guys, is listen, if you’re like Patrick and you’re bootstrapping your company, whether it’s a mix of his version of PI and Retain plus Recognize or whatever, one quick way to of understand how bootstrappers are doing, on average, if most customers or employees are in the US, they do about 250,000 bucks of revenue per employee. So, at 71 employees today, based off Patrick’s LinkedIn profile times 250K, puts revenue right about 19 million bucks of run rate. I think they’re a little higher than that, at around 23-ish. Gives you a really good estimate though, and gives you an idea of are you above 250K in revenue per…

Nathan Latka (01:09:03):

Gives you a really good estimate though, and gives you an idea of, are you above in 250K revenue per employee or not? Healthy SaaS company? And it gave Patrick the optionality to go pursue Christian. Now let’s get into the deal guys. It wasn’t just Christian, Patrick, how do you start having the conversations about, okay, we might sell this thing.

Paddle CEO Christian Owens (01:09:15):

That was all Christian.

Paddle HR CEO Pat Whelan (01:09:18):

It was all just a verse, I just looked into his eyes.

Nathan Latka (01:09:20):

Christian you should take it then. What made you move?

Paddle CEO Christian Owens (01:09:23):

I think we definitely weren’t the only people involved, but I think we kicked off the conversation. I flew to Boston and I kind of pitched Patrick on this idea.

Paddle HR CEO Pat Whelan (01:09:35):

We had no intention of selling, honestly. We were going to raise money and then Christian was like, “What if we buy you?” And I was like, “What? I didn’t know that was an option.” It’s not… It’s almost like you’re bootstrapping. You’re like go, go, go, go, go, grow, grow, grow, grow, grow. You’re like an operator and then you’re like, “Oh I didn’t even…” You’re not thinking of an exit a lot of times. I think there’s some founders, that’s how they think, it’s like, ” Great, I’m going to optimize this, in two years I’m going to do that.”

Paddle HR CEO Pat Whelan (01:10:03):

For me and Faku and Peter, that’s just not how we thought. I do think, we then, it was one of those things where… I was saying this before, all of a sudden we were three weeks in and we’re like, “Oh my God, we’re in a process. I didn’t realize it, but we’re in a process.” And so I think that’s a lesson for some folks. I think you should always be ready to run a process.

Paddle HR CEO Pat Whelan (01:10:23):

And that means, even if you’re bootstrapped, have a deck, have an overview memo or a deck or whatever it is. Have some of your financials or a data room. You don’t have to have an actual data room but have something you can provide that’s data roomesque. Those types of things you should just have for basic hygiene.

Paddle CEO Christian Owens (01:10:43):

It’s the same, just to add, if you’re a venture backed, you should always have this stuff to hand. I think you speak to lots of founders who are raising money and they find themselves in the process. You’ve spoken to two people over coffee and suddenly you have a time sheet like, “Oh what do I do with this?”

Paddle HR CEO Pat Whelan (01:10:58):

What do we do now, yeah. And that was a thing that like… And all of a sudden, thankfully, this is another thing that you should do is, you should always keep potential acquirers. I would say warm. So for the past number of years we had a slide in our board deck of here are the potential acquirers. And then basically where is the stage of conversations with them? And with some of them it’s like nothing. Right?

Nathan Latka (01:11:19):

Who were the other ones in the board deck?

Paddle HR CEO Pat Whelan (01:11:24):

I think we had about 15 people. The obvious ones were Strip Charge Bees, Zora, Shopify was one of them. Adobe, HubSpot, Salesforce, Square, Adian.

Nathan Latka (01:11:39):

That’s great. That’s helpful.

Paddle HR CEO Pat Whelan (01:11:39):

I think those were the most obvious ones. I don’t know, there’s probably some off the wall ones I’m not remembering. Oh, some of the rev-based financing guys, Pipe, Cap Chase, of recent, they were on the slide as well. And it doesn’t mean you’re selling to any of these people. It just means that these are the people that, if I get into a process, all of a sudden these are the people I contact or the people I get back channeled to and stuff like that. And so December and the first part of January was not what I expected it to be.

Paddle HR CEO Pat Whelan (01:12:08):

Basically what ended up happening is we were really excited about Paddle and we got over the whole ego part of like, oh yeah, we can get more resources by joining forces. And I’ve always liked Christian and the missions are very, very similar. Different entry points but very, very similar.

Paddle HR CEO Pat Whelan (01:12:25):

And so all of a sudden it turned into, okay, we’re running a process. So back channeling all these other things, getting the intros, playing the game. I got to the point towards the end of that first week where I was just emailing people. I was like, “Hey, this is what’s happening. If you want to talk, let me know.” Rather than doing the whole, Oh my God, let me get someone to intro and suggest that we’re in a process because I think there’s enough urgency with a lot of this stuff when you have a suitor. And so it’s one of those things where…

Nathan Latka (01:12:51):

Christian he just called you a suitor, huh?

Paddle HR CEO Pat Whelan (01:12:54):

I know my sultry suitor in Christian here. But no, long story short though it to kind of finish it off ’cause I do think it’s helpful having… We had a memo that was basically, this is how we think about the world. Here’s everything. We had a basic data room, there was just a Google sheet. We did play the game, kind of this type of thing. But then we were kept conversations, obviously. I came to London in December or November, early December came in January? Nope, I don’t know if it was in January. I can’t remember.

Paddle CEO Christian Owens (01:13:24):

I came to Salt Lake.

Paddle HR CEO Pat Whelan (01:13:26):

You came to Salt Lake as well.

Paddle HR CEO Pat Whelan (01:13:27):

So yeah, there was definitely some meetings and honestly I think it was, if I look in hindsight, I wouldn’t have seen this at the time, but it was kind of like, no, we wanted to do this but we also wanted to not be irresponsible to shareholders and stuff. So we did get other offers. Those other offers, they were not as compelling from a team perspective. They might have been more lucrative depending on how you look at it, but it was one of those things where the core of us, as well as myself, wanted to keep going. We didn’t want to, cool half the team leaves and we’ll get director level roles somewhere. We wanted to be involved and have high leverage in terms of the big game, I guess is the best way to put it.

Nathan Latka (01:14:11):

Christian, deals are moving animals and the first term sheet you gave to Patrick and team, what was the total deal price? Was it far below 200 or do you stick to right around 200?

Paddle CEO Christian Owens (01:14:23):

It was lower. I’ll say that it was.

Nathan Latka (01:14:27):

Well you picked a hell of a target. I mean, if I’m going to go buy a SaaS, I’m not going to pick an ex NSA guy. I mean, come on.

Paddle HR CEO Pat Whelan (01:14:33):

Yeah, that is true. It was several was tens of millions lower.

Nathan Latka (01:14:43):

And what kinds of things could you have done? This is, guys, for all you listening around trying to buy your first SaaS company. Maybe it’s not for 200 million bucks, maybe it’s for a million or 5 million. Christian, what are things you could have done to try and prevent Patrick from running a process so that you could get it cheaper?

Paddle CEO Christian Owens (01:14:58):

I don’t think that… I don’t know whose quote it is or whatever it’s, businesses are either bought or they’re sold. ProfitWell was bought. It was not sold. Patrick didn’t go through a decision where he’s like, “You know what? I could use a new car. I’m going to go sell-“

Paddle HR CEO Pat Whelan (01:15:20):

We talked up until the day before we signed a term sheet of whether we’re doing this or not. There was a lot of uncertainty.

Nathan Latka (01:15:27):

What was term sheet date? What was term sheet date?

Paddle HR CEO Pat Whelan (01:15:28):

The day we signed, January 10th ish. 10th, 15th. Somewhere around there.

Paddle CEO Christian Owens (01:15:34):

The first time sheet probably came a week, two weeks before that. It was sort of just between Christmas and New Year.

Nathan Latka (01:15:39):

And then deal closed final red lines was what? April 14th?

Paddle CEO Christian Owens (01:15:43):

I think sign was April 8th. Close was April 20 something.

Paddle HR CEO Pat Whelan (01:15:50):

23rd, 24th.

Paddle CEO Christian Owens (01:15:51):

Yeah. Split sign close. Which was fun to find out.

Nathan Latka (01:15:53):

Close is money wired, right?

Paddle HR CEO Pat Whelan (01:15:57):

Yeah, basically.

Paddle CEO Christian Owens (01:15:58):

Yeah. Essentially.

Paddle HR CEO Pat Whelan (01:15:59):

I think technically.

Nathan Latka (01:16:00):

I got basically and essentially. What am I missing about close not being a hundred percent a wire?

Paddle CEO Christian Owens (01:16:04):

Oh no, no. That was part of it as well though with just other pieces.

Paddle HR CEO Pat Whelan (01:16:08):

We had this giant if then statement going with investors as well. Because it wasn’t Paddle just had the money in the bank. We had to raise, which I was very tangentially involved in, but Christian had to… It’s kind of funny, I don’t know how many of these happen in SaaS. A dozen? Put it this way, convinces us to sell, manages us through that whole process, while he’s managing it after we send. A term sheet goes and raises hundreds of millions of dollars to pay for it in a not so great market. And then all of this stuff has to cascade together in terms of legal as well as the funds and all that kind of fun stuff.

Paddle HR CEO Pat Whelan (01:16:48):

Because if you think about it too, this is something I didn’t know, but when you go to a KKR and you’re like, “Great, I will take a hundred million of your dollars or I’ll take 200 million of your dollars.” It’s not like they just have that money in the account. They have to go talk to their LPs who have committed and basically do a capital call and the LPs can be like, “Nah, I’m good.” That’s possible. Which is kind of crazy.

Paddle CEO Christian Owens (01:17:14):

Especially in an environment where we’ve seen tech stuff-

Nathan Latka (01:17:17):

Well you guys had great timing, you guys had very nice timing in here. KKR would have no issue.

Paddle HR CEO Pat Whelan (01:17:21):

You should give us all of your money to manage. We’re very good with timing.

Paddle CEO Christian Owens (01:17:24):

We’ve said that kind of more than anything else. It’s definitely not skill, it was luck. But two months earlier and we might have raised a three and a half billion dollar evaluation.

Paddle HR CEO Pat Whelan (01:17:33):

That would not have been good.

Paddle CEO Christian Owens (01:17:34):

And that wouldn’t have been good for the company because it would’ve been overpriced. We would’ve been trying to grow into it. Two months later I think the deal might probably done have happened at all.

Paddle HR CEO Pat Whelan (01:17:41):

Not because any of us would’ve pulled out. It’s just the money might not have come.

Nathan Latka (01:17:47):

Yeah. KKR’s got a Cal LPs and LPs don’t wire. That’s what happens. I mean, Christian let me ask you a question about doing a deal like this. Look, I don’t know how much cash obviously you had in the bank pre-deal, but you could’ve done this deal. It just would’ve been very uncomfortable in terms of how low your cash balance would’ve been if you didn’t go out and get this extra 200 million bucks worth of cushion. Correct?

Paddle CEO Christian Owens (01:18:10):

In terms of being able to do this off balance with past trends completely?

Paddle HR CEO Pat Whelan (01:18:14):

He’s trying to figure out, he’s trying to figure out the cash equity split right now, that’s what he is trying to do.

Paddle CEO Christian Owens (01:18:18):

We’re not a super high burn business, we’re not profitable prior to this. I think. Could we have done it? Maybe, probably not.

Paddle HR CEO Pat Whelan (01:18:32):

I think it would’ve been irresponsible.

Paddle CEO Christian Owens (01:18:34):

Yeah, it would’ve been irresponsible.

Paddle HR CEO Pat Whelan (01:18:35):

Like from a CEO financial perspective-

Paddle CEO Christian Owens (01:18:38):

Given that we’re a loss making company and we’re focused on growth, we would’ve had zero to fairly negative runway afterwards.

Nathan Latka (01:18:51):

Yeah. I mean, based off what I’ve cobbled together, right Christian, you did an interview in late 2019 where you shared you had 20 million left in the bank. You then raise another 68 million series C November 2020. So that’s assuming no burn. That’s 68 plus 20, Right? That’s 78 98. 88 million bucks of cash in the bank. Let’s say you burn 8, so you have 80 million cash in the bank. I don’t know how much of the 20 million bucks was cash for equity, but I’m going to assume it was somewhere around 50 50. You could’ve figured a way to get this deal done, but it would’ve been very silly. Very, very, very, very, very silly.

Paddle HR CEO Pat Whelan (01:19:18):

He’s so good.

Paddle CEO Christian Owens (01:19:19):

It would’ve been irresponsible.

Paddle HR CEO Pat Whelan (01:19:20):

Latka is so good.

Paddle CEO Christian Owens (01:19:21):

He’s really good.

Paddle HR CEO Pat Whelan (01:19:22):

I like him.

Paddle CEO Christian Owens (01:19:24):

It would’ve been irresponsible for us to do. The thing is with this type of transaction as well is whether we could have done it without raising money or not, it’s sort of irrelevant to would we have done it without racing money. And I think one of the things with this is our ambition level of beach company individually was already high. I think the ambition level of the combined company is even higher. So it’s sort of-

Nathan Latka (01:19:56):

Knowing you both personally, I totally agree. Just knowing you guys as individuals together, I’m going, “Oh my god, this is one plus one equals seven.”

Paddle CEO Christian Owens (01:20:07):

And it is sort of like that-

Paddle HR CEO Pat Whelan (01:20:08):

Probably 12, for sure.

Paddle CEO Christian Owens (01:20:10):

… And that’s kind of the rationale for us. And it’s so it becomes a question of could we have done this? Maybe, maybe not. Would we have done it if we hadn’t had tens and tens of millions of dollars after the transaction in order to be able to go and deploy together in order to be able to create something, to realize the potential of something being greater than the sum of its parts? Probably not.

Nathan Latka (01:20:32):

And just to be clear, the 200 million raised series D, that was all cash or was a portion of that SVV debt?

Paddle CEO Christian Owens (01:20:38):

Portion of it was debt.

Nathan Latka (01:20:39):

Yeah. Okay. Okay. What’s that usual spec? I mean, 150 cash, 50 debt?

Paddle CEO Christian Owens (01:20:44):

It was vast majority cash. I actually think the number, if you include, we rounded it to a whole number, but the actual number, including the debt, was pretty substantially north of 200 million.

Paddle HR CEO Pat Whelan (01:20:59):

Yeah.

Nathan Latka (01:21:01):

Christian, my fault. How far substantially are we talking like 300 million or under 300 million.

Paddle CEO Christian Owens (01:21:06):

Oh, under 300 million. Just kind of-

Nathan Latka (01:21:09):

Got it. So somewhere between no debt and a hundred million of debt somewhere in that amount of debt on top of the 200.

Paddle HR CEO Pat Whelan (01:21:14):

That is the range.

Nathan Latka (01:21:17):

I’ll that range.

Paddle HR CEO Pat Whelan (01:21:20):

What is the interest rate on it? What do you pay towards your interest rate, let me back channel it-

Nathan Latka (01:21:24):

You worked with SVV, right? Did Patrick, did you guys work with Aaron directly?

Paddle HR CEO Pat Whelan (01:21:30):

Who?

Nathan Latka (01:21:30):

Did you work with Aaron at SVV, the head of Amnia?

Paddle CEO Christian Owens (01:21:33):

Yeah, so I mean we’ve been an SVV customer for nearly a decade. Yeah, so we’d had debt facilities for them before as well that we’ve always kind of maintained, just to have an insurance policy. So they were our first choice. We went through a couple of other providers as well and eventually came back to SVV and people that we knew and yeah.

Nathan Latka (01:21:59):

Yeah, you guys can’t share terms. So I’ll share based off conversation I have with other folks in SVV directly. I mean, these are great terms. SVV’s very friendly if you raised a bunch of cash to go get a line equal to something like 20 to 30% of the total equity check where they can come in and give you a four year term and something like 3 to 5% effective cost to capital. It’s a great way to beef up the balance sheet a little bit.

Nathan Latka (01:22:19):

So obviously these guys, again, can’t comment on their own terms, but that’s sort of what you can expect. So I guess moving forward guys, so the space combined together, obviously you’re building this together. One of the things you told me preshow is you feel like what’s getting a bit lost in translation here is that you guys are really thinking about this as sort of a do-it-for-you play moving forward. What does that mean?

Paddle HR CEO Pat Whelan (01:22:40):

So the basic idea is that if you think about the first wave of SaaS, like let’s say 2015, it was very focused on building tools that enabled you to do work or enabled you to show your boss you’re doing work. You think about Salesforce, like Salesforce isn’t built for the sales rep, it’s built for the VP or the director level, the reporting, making sure the AEs are doing their activities.

Paddle HR CEO Pat Whelan (01:23:04):

I think as the market’s gotten more and more competitive, this next wave of SaaS is basically focused on how do I enable you, Nathan, the ability to focus on your customer and focus on basically your product and your team? The three things that you should be focused on by basically taking all this other stuff off your plate and doing it for you. And you’re seeing this in a number of different ways that products are being built, like Rippling is being built in a very do- it-for-you way.

Paddle HR CEO Pat Whelan (01:23:30):

You have products like Main Street, all these other things where it’s like you just plug something in or you just put in some inputs and it’s just taken care of for you. The most dramatic example of this has been basically the robot type tools, even Zapier, these types of things. I think that’s the next wave of where things are going and where we kind of feel is there’s all these things that you shouldn’t be an expert in. There’s all these things that you’re probably not going to be a true expert in when it comes to billing, running and ultimately growing your subscription business. And we can take all that off your plate.

Nathan Latka (01:24:03):

Yeah, and Christian, do you think it is really… I know you guys is, your genesis is SaaS and subscription, but you’ve also identified some big opportunities with game developers, applications, other things like that. Help me understand in three years, what percent of your customer base do you think is nontraditional SaaS?

Paddle CEO Christian Owens (01:24:21):

Oh, I would be reluctant to put a percentage on it because I just don’t know how some of these things are going to go. But I think there is a question that in three years time, what is SaaS? Are we still calling it SaaS? Is it recurring revenue? Are we kind of going more towards usage based or micro transaction pricing, whether it’s on the B2C or B2B side? So I think there are all of these kind of questions that are sub-questions of that.

Paddle CEO Christian Owens (01:24:47):

I think for us, there’s a very natural progression for us, I think from B2C software to B2B software to usage based pricing to kind of, okay, on the consumer side, games they have recurring revenue, but do they have subscription revenue? They probably don’t have subscription revenue, but they certainly have, if you’re thinking about Fortnight or something like this, they certainly have recurring revenue of repeat purchase and I think the constant along a lot of these businesses is going to be like, is this transaction truly digital?

Paddle CEO Christian Owens(01:25:21):

I think the step for us between do we do this for SaaS business and do we do it for a game is of fairly short versus the step of do you do it for a SaaS business versus it for Glossier or one of these sort of D to C eCommerce people. It’s a pretty big gap. So I think as we continue to grow, the breadth of these things will expand within digital and software and kind of software adjacent. But I think that our definition of what is consumer software and things like that, it’s probably going to evolve over that same period of time as well.

Nathan Latka (01:26:00):

Guys, on that note, you just heard two very interesting stories, both launched in 2012. Obviously Patrick with Price intelligently hustled his way with three other co-founders who weren’t as engaged with him to 200,000 bucks in sales, ultimately said, “You know what, man, I can help Adidas, Smarter, Runkeeper, help them for 150 grand contracts, help them get their pricing right, do it for you.”

(01:26:18):

That grew about 10 million bucks in revenue by 2019. By 2020 he goes, “You know what, man, we’ve got a real opportunity with helping people retain and also their recognized product growing quickly. Over 22 million of retained revenue in the past 30 days of which ProfitWell keeps some percentage of that, but that business line growing quickly. More than doubling, tripling year over year while that underlying price intelligently tool continues to grow, but harder. Christian believes that now, post acquisition that retain post recognized tool will eventually make up more than 95% for the original ProfitWell business.

Nathan Latka (01:26:45):

Meanwhile, on the Christian side, right, he’s got 14, 15, 16 years old doing millions of revenue going, “I hate these little 4% fees that are killing me, These taxes I don’t even know about. How do I automate all this?” He said, “You know what? I’m going to quit this thing. I’m going to launch Paddle back in 2012 myself.” Put in a hundred grand of his own money, brought in a co-founder Harrison, who got caught 20, 30% whatever, ultimately said, “You know what we’re going to raise no matter what.”

Nathan Latka (01:27:06):

So bootstrapped verse raise, he ended up having caught 900 customers, 14 million bucks of ARR in 2020, more than doubling year over year to well north of 35 million last year, maybe 40, 50 million, 60 million this year as they continue to grow. But together, they’re hoping to really usher in this new space, middle layer infrastructure, and most importantly, not just saying, here’s a tool for you to use, but actually doing it for you. Follow the journey, follow the deal, go to wesigntomorrow.com to see how they got it done. And most importantly, check out paddle.com, profitwell.com to test out the product. Gents, thanks for a great time today.

Paddle CEO Christian Owens (01:27:39):

Thank you.

Paddle HR CEO Pat Whelan (01:27:39):

Thanks, homie. Great summary. Love it, love it, love it.

on, a big fundraise, a big sale, a big profitability statement, or something else. I don’t want you to miss it.