Aaron Lee can boast that he was an original Google Video founding engineer. Then he collaborated with a couple of fellow ex-Googlers to create a new platform that they sold to Home Depot, where he became CTO. In his most recent venture, Lee became CEO and Co-founder of Smith.AI, a human-centered AI customer engagement company offering SMBs a mix of inbound and outbound services like voice, webchat, and outbound SDRs as a service.
The affable CEO recently chatted with the GetLatka team to share why they chose to sell his previous platform to Home Depot, how being CTO at a company with 400,000 employees inspired his development of Smith.AI, and where he plans to invest capital to drive the next level of growth.
- $20m ARR, up 100% from one year ago
- Team of over 600, with 25 engineers, all in North America
- 3000 customers
- 60%+ gross margin
Solving a painpoint for 30m SMBs
According to CEO Lee, he hatched the idea for Smith.AI in 2015. “The genesis of the idea for Smith.AI was the painpoint for the 30 million US SMBs that don’t have the time or money to build their own team. While I was at Home Depot (completing the build of Red Beacon), they asked us if we could handle customer calls, SMS text messages, and Facebook messenger messages. Their call center was built for corporate use and wasn’t meant to handle the necessary customer engagement with pros and homeowners.” That’s when Lee realized there was an opportunity to help companies work with customers more efficiently, blending AI with human interaction.
Former startup Redbeacon raised $7.5m at a $30m valuation
After leaving Google in 2008 (during the month that the financial crisis hit, according to Lee), the CEO started Redbeacon with two ex-Googlers. “It was a good time to start a company. We spent a year building it, all bootstrapped.” Redbeacon was a platform that connected homeowners with home improvement pros. When they launched in TechCrunch, they received a startup prize and got funding of $7.5m at a $30m valuation in a month from Ramrock and Mayfield.
Use capital to expand Smith.AI nationwide, attracted Home Depot after building to 10m+ revenue
According to Lee, they caught the eye of Home Depot when they began to expand nationwide, hitting roughly $10m in revenue. But why sell? “Our biggest opportunity was Home Depot. They had all the ingredients: a distribution channel of 2000 stores, a 2-sided marketplace of homeowners and pros. They were very excited about building the connection between the two.” The CEO added, “We had huge support from Frank Blake, CEO at the time. He saw a huge opportunity to expand from product to services.” The Co-Founder added, “If you go to any Home Depot today, you will see my work there. They rebranded it Pro Referral.”
Lee stays for 3 years, received 90%+ in cash for Redbeacon
“We sold for way more than our valuation,” reflected Lee, adding, “Our investors and employees were all very happy.” Lee stayed on for three years as CTO at Home Depot. “It was enough time to take our model and expand it nationwide,” he clarified.
Bootstrapped beginnings, no salary for 3 years
“When we started, we bootstrapped the company,” revealed Lee. When Latka queried him about the equity split, Lee confirmed that he holds a greater stake in the business. He added that he put “hundreds of thousands” into the business, and the founders refrained from taking any salary for the first three years. After launching in late 2015, the company built its MVP in 2016 and had paying customers by the following year. They passed $1m in revenue in 2018.
Raised $7m Seed Round in 2019, added $6m in convertible notes in 2021
According to CEO Lee, he and his founder raised a Seed Round of $7m in 2019 and added another $6m in 2021. All are capped safe notes. When asked how high the cap is, Lee shared that it’s at about $100m, much to Latka’s surprise. “We opened a new note in 2021 when we were at $5 revenue,” explained Lee, adding that repeat founders with a track record of success can negotiate better terms, especially when they already have significant revenue traction.
Smith.AI serves 3,000 current customers buy a mix of services
Smith.AI currently serves over 3,000 customers and aspires to hit 5-6,000 by the end of the year, says the Co-founder. Their current model is a mix of “vanilla SaaS” with consumption overages for voice and webchat engagement, plus SDRs as a Service for outbound customer nurture. The current ARPU is $1000, although Lee noted that varies based on the services utilized. “Some customers may only spend a few hundred a month, others $10,000+,” explained the CEO. Subscription packages are based on estimated chats or calls per day.
$1.5m MRR doubled from one year ago
In the last year, the company doubled its MRR to $1.5m. Lee attributes the growth to a mix of upsells and cross-sells. “We definitely experienced growth from the cross-sells. And as we add more features, we are driving upsells as well,” the CEO shared. He added that the company is also beginning to attract more mature businesses, which translates to larger volume.
Team of 600+ at Smith.AI, predominantly “universal agents”
Lee’s team consists of over 600 full-time employees. Only 25 are engineers, and the vast majority are what he calls “universal agents”. Instead of having employees focused on inbound or outbound calling, his team members handle both to optimize the time while serving multiple customers. The entire team is headquartered in North America, which he admits affects his gross margin of 60%+. This blend of AI with human interaction is what sets Smith.AI apart.
Still burning $300,000 a month, with 24+ month runway, $10m+ in bank
Today, Smith.AI is still burning $300,000 per month, per Lee. He also confirmed that the company has at least 24 months of runway and over $10m in the bank. According to the Co-founder, what makes their company different is that most AI companies today are “just a nice UI wrapper on AI, without much revenue,” whereas Smith.AI is already driving significant revenue and growth.
Looking to sales and marketing to 2X growth
“We are focused on sales and marketing now. It’s the way to drive more growth,” Lee stated. He plans to commit capital resources to promote their unique training data set that ensures customer interactions are mistake-free, as Smith.AI delivers entire front-end call workflows to their customers: “We’ve seen it in ChatGPT. Generative AI can afford to make mistakes. We cannot.”
Famous 5
Favorite Book: CEO and Co-founder Aaron Lee chose Crossing The Chasm by Geoffrey A. Moore as his favorite book: “It’s a classic that has stayed true for decades,” he quipped.
CEO he’s following: “I am most impressed by Microsoft CEO Satya Nadella,” Aaron revealed.
Favorite online tool: Aaron named multiple tools his team relies on to build Smith.AI, including GitHub, Notion, ChatGPT, and AssemblyAI.
Balance: Aaron, self-described as “40-plus”, sleeps 6-8 hours per night. He is married with 3 daughters.
What does he wish he had known at 20? “I wish I had had a mentor that told me how to build companies,” Aaron shared wistfully.
