Samsara at $500,000,000 (!) in ARR ... Growing 72%! Woah!

Hey everybody, I wanted to talk about the latest SaaS IPO of a company called Samsara that you probably have not heard about, but it has rocketed from 0 to 500 million ARR in six years. Pretty incredible. And I want to do a deep dive because there's a bunch of interesting things about Samsara that. And it's a company you probably haven't heard of, but I think we can all learn about it by way of background. Samsara is ultimately a product that tactically does fleet management. It manages fleets of vehicles, although folks in this space position themselves as IoT Internet of Things companies. And that's certainly true. Samsara can track many different types of objects, but really its core customer is still around fleets. It's an old space called fleet management software, but connectivity of the Internet and the ability to develop next generation hardware and other solutions has remade this. This space that used to be dominated by old companies like Fleetmatics that Verizon bought for 2 billion and several others. And the founders of this company had done it before. They had found a networking company called Meraki that they sold to Cisco less than a decade ago for over a billion, which at the time, which at the time seemed like a lot of money. And they took that networking experience and wanted to apply it to mobility and fleets. And they've done it. And this time they've built a company that's worth five, far more than ten times their last exit. And making the founders billionaires. As we'll chat about and look, sometimes we learn more from companies that have had a few bumps. Samsara really didn't. They founded it together and 18 months afterwards they launched and boom, it was a rocket ship. Now there have been challenges underneath it and they've needed to go up market and build multiple products that we've talked about. But 0 to 500 million in six years, great. Growing 72% at 500 million in ARR and wow. And interestingly, for a product that isn't viral, it has a magic number, an LTV over CAC ratio of over 8. So this is a pretty darn good business model and we'll see that helps. In terms of the cap table, the founders own a lot. Okay, so let's go through five interesting things and four to five bonus points. So number one, and this is a theme we've talked a lot about in the series, but boy, it's reinforcing to see it is that to get big, to get past 100 million and now to 500 million and then a billionaire from Samsara, they really needed multiple products. Now Samsara claims a whole suite of products and they do have it, but there's two that really matter and they're related. One is for traditional telematics and fleets and other vehicles and one is for video around it. And they're different. But what's interesting is that they both do over 200 million. So both of them contribute over 40% of the 500 million plus in ARR. And imagine if Samsara had just stuck to its initial application, it would be less than half its size. It is interesting that its two core products are about equal and that they've learned how to sell them both together, essentially doubling in many ways the effective price point. And I think that's what a lot of people are going to see, especially folks that sell to SMBs. And we'll talk about Samsar has gone more enterprise but it certainly has tons of SMB customers. You probably need multiple products. Even easier earlier with SMBs because the deal sizes are smaller and Samsara is an example, it has two core products. So I don't think you generally need to think about multiple products at 1 million, 5 million, even 10 million ARR, but probably even after that you need to start planning. And Samsara did, which is how can you sell to your same happy customers at least two products to really grow into the nine figures and beyond. Two interesting for folks. Samsara has software but it also has hardware component, hardware component that goes into these vehicles and it's not cheap. And yet Samsara has 72% gross margins. This will be more interesting to folks that have some experience with these blended hardware software models. But few of them get 72% margins. And how do they do it? Well, to some extent they finance some of this hardware which partially gets it off their books. But they also do something which is work but which is common in their niche, which is they have customers sign three to five year long contracts and that lets them guarantee they can amortize these hardware costs over up to 60 months. And look, SMBs and smaller customers usually don't like to sign three to five year contracts but they're able to get them do it because they understand that they're getting hardware for it and it needs to be amortized. So it is an interesting reminder that you can achieve 70 plus percent margins in these hybrid SaaS and hardware models. Point 3 Interesting around going global fleet management. I know a bit about this space. It has very localized regulatory and other requirements. The deploying fleet software and fleet tracking in Europe is very different than the US and very different in parts of Europe and very different outside of the US. And so it's interesting that at 500 million in revenue Samsara gets 90% of its revenue inside of the US it's just barely going global. It was only 7% in 2020 and only 10% today. So look, one of the biggest boosts that most of us in SAS can do is get up to that traditional 20 to 30 even more percent of our revenue outside the US. I mean most US at least most English speaking countries, if you develop a great product, will eventually adopt you. You'll take off early in the UK and Australia and others. And if you localize your product more. But it's not always true. The more regulatory requirements. We see this a lot in Fintech, we've seen it@bill.com and others and we see it here at Samsara. Getting through these localization and regulatory issues is hard even for extremely well funded startups. And while I assume that in four to five years Samsara may be be well over 20 or even 30% of its revenue international, it's barely 10% at 500 million in ARR. The fourth point is just interesting how Samsara breaks out how much headcount it has in sales. So Samsara has 1500 employees doing 500 million in revenue. That's reasonably efficient. But 700, 694 to be precise. But 700 are in sales. 700 are in sales. So that's very interesting. And it's average core customers are between 5 and 20K. These are folks you need to do inside sales and maybe a little low end field sales with. But almost half their company is in sales at 500 million AR. And that's a good metric to think about if you're going to do a sales driven SME or SMB motion. You may need as much as half your company in sales and 700 out of 1500 is quite a bit per samsara. Point 5 is just interesting around metrics. It's interesting around metrics and Samsara is a sophisticated app, it's a complicated app and they've gone more upmarket and what they've done and most companies going public to a little bit of fiction is they define who their core customer is and you'll see folks like Zendesk, who we love, kind of ignore churn in the one to four seat range. We see this with Monday and others and what Samsara has done a Little bit of a cheat is they say, hey look, our core customers are the ones that are 5K and up. That's where we're going. We're going more and more upmarket. Bigger and bigger deals, which we'll talk about next. And these tiny customers, these 1K to 5KV customers, customers that pay even under $100 a month, are half their customers by number, half of their 25,000, but only 7% of the revenue. And you know, this is something we all have to think about as we grow. What do we want to do with our long tail? And sometimes in applications that, that where we can leverage the wrong tail for community and leads, the Mongos, folks like that, Datadog, our long tail is incredibly important. And even though Datadog's long tail, its smallest and free users are a small amount of revenue, they can grow into big customers and they're very important for companies like Datadog and Mongo. But frankly they're not that important from Samsara anymore. They've outgrown their smaller customers. And so you'll have to think about this. Do you want to outgrow your smallest customers or is there power in the long tail? And Samsara has basically said the small ones are half by number, but they're only 7% of our revenue. We're not going to call them core and therefore we're not even going to reflect them in our metrics. Okay, so a few extra bonus points. Six is just verticals. And I, you know, Samsara may disagree. I still think that Samsara is mainly a, an incredibly impressive fleet management play. But not only do they have two core products, vertical expansion has been interesting. So transportation, if you think about it, is the core of the core for fleets. But they have expanded aggressively in verticals. And while transportation is their largest vertical, it's only 23% of their revenue today. Retail, 17%. Construction is their third field. Services, utilities and energy, manufacturing and more. And it's just a reminder that even if your product does one core thing, having vertical specialization, having teams that are good at different industries and expanding your industry footprint can be one of the great ways to grow. And so Samsara is at 500 million in ARR. But if they only had focused on sort of the most obvious applications for their product, transportation, they'd be 100,000,000 million revenue, only 500. So think about aggressively invest in verticals. That can be material especially they can basically use your same product. Samsara is an example of more verticals equals a lot, lot more revenue number seven just to check in on NRR. Such are North Star metric in SaaS and Cloud. Samsar has pretty good NR. I mean it's great, it is enough to drive this company to billions in AR, but it's sort of mid pack for the best SaaS companies. It's 115% overall which is pretty darn good for SMEs and 125% for their 100k plus customers which is their biggest engine of growth which we'll talk about next. I'm sorry it doesn't have a lot of million dollar deals or big deals but 100k is really where they want to go and get out of these 1 to 5k deals and 125% NRR is consistent. That's where you should aim for. 100k plus deals and 115% overall. So probably blends to 90 to 100 for those tiny ones that they call non core and that's pretty typical and that's why they want to move away from them. Okay, point 8 just going to the one before is Sensar has been a rocket ship again. 0 to 500 million essentially in 6 years. But these 100k customers are its future. And so it's just an interesting case study of going SMP small, medium and larger customers and having thousands and thousands of small businesses but Stemsara outgrew them. It's the 100k customers and literally at the start of 2020 they had 9200k customers. So it took them a while. They weren't, they weren't closing 100k customers literally every single day just in 2020. Fast forward today they have 715, now they're closing two a day from one every two a week. So from two a week to two a day that's pretty impressive growth of 100k customers. And if you're like Samsara, what's interesting is you may need to get there. But they didn't have to start there. They grew into their 100k customers as they got better they expanded their functionality, they expanded their sales team. Two final points, 0.9. We hit on briefly before but just want to hit into it again. These three to five year non refundable contracts with SMBs. Look we see this in super enterprise stuff. ServiceNow does it with its with you know well over a thousand $1 million ACV deals. Salesforce tries to get you to do these multi year contracts. Marketo does but we don't see it that common with the mid market and Smaller customers. But in this industry and in industries where you pair hardware and software, it makes a lot of sense. I invested in a company somewhat similar to Samsara, More Plug and Play, that did just SMBs and they did not have these long term contracts. And it really created a lot of stress around the hardware costs. The hardware costs were only about $80 per customer. But if a customer is paying you 20 or $30 a month, that adds another three to four months to your payback. And if you don't have a guaranteed contract, it's so stressful. In general, this hardware customer and the amortization over time is stressful. So notwithstanding that, I think we're all moving to more customer centric contracts. More utility based pricing. Longer term contracting for SMBs can make sense if there's, if there's fixed, significant fixed costs, they'll be okay with it and SAMSAR approves. You can build a rocket ship with multi year contracts with SMBs if there's a fair and valid reason for it. The Last point, point 10 is more about the cap table. Now the Samsara founders were second time founders. They had a unicorn the first time when a unicorn was rarer. Weren't a thousand unicorns back then. And so they took advantage of that fact to raise more money earlier from Andreessen. And then they took. But they also took advantage of the fact that they built an efficient model. They built a model that wasn't viral, it wasn't on its own, but they built a very efficient sales and marketing engine. So they really only raised two rounds. Okay, One. One from Andreessen and one from General Catalyst. And we can't all pull that off. Look, you need capitals like oxygen. You've got it. Your job as founders is to feed your company oxygen. But it is interesting if you're able to skip a round or two. An early theme on Saster. And this is what Samsara did. What is the outcome? Well, each of the co founders owns 25%, Andreessen owns 18, and General Catalyst, the other investor owns 10. So both each of the founders owns more than any of the VCs and together they still own half at IPO. That's incredible. It makes them billionaires many times over. And look, it's not all about the money and all of these economics are profound. But dilution is an interesting journey. Samsara is an example of if you're fortunate enough for the stars to align, if you're fortunate enough to build an efficient model, and for them, if you're fortunate enough to be second time founders that can push up the valuation and therefore raise more in each round. Boy, you can still build something that's very sales driven. With only two funding rounds, maybe almost one and a half. And the founders can still own half or more at ipo. Pretty cool. So congratulations to everyone at Samsara Boy. Just an epic ride and we'll check in again at a billion and 2 billion in arrival.