Atlassian Acquires Loom: Founder Shahed Khan Goes Deep on Paywall Launch ($1m ARR in 24 hours)

Hello, everybody. My guest today is Shahed Khan. He's the founder of Loom. He previously worked as an entrepreneur in residence at NFX, a venture capital firm focused on investing in networks and marketplaces. Prior to that, he was an analyst at Los Angeles-based venture capital firm Upfront Ventures. Shahed, you ready to take us to the top?

Yes.

All right. Very good. Yeah. So you're building Loom now, which I think a lot of people have heard of. You guys have really taken off, kind of asynchronous video communication for teams. What am I missing? Anything else you want to add in terms of what you do?

Nope, that pretty much nails it. Loom is the easiest way for people to record a quick video of themselves and share that video with a team member, whether people are remote or distributed. It's easier than hopping on a video conference call or sending a very lengthy email or screenshots with arrows scattered all over them.

There was— I think the way I came across you is I buy and sell companies, and one of my little tactics to find companies to buy is to go to the Google Chrome Web Store Sort by productivity, look at highest users to fewest, and then if the update date by the developer was more than like a year ago, I assume it's inactive and they think it's worthless. So then I go out and try and buy it. And I remember coming across you guys earlier when you had like 100,000 users, clearly very active though. Now you're up at, I think, almost a million on Chrome. Is that your number one growth channel?

Uh, so I would say our growth channel is pretty organic. If you send someone a Loom video, they'll watch it, they're curious, and they'll sign up. There are a couple of growth tactics that we have implemented, such as once a user's done watching a video, we try and prompt them to sign up, to either reply to a Loom video with another Loom video. But we use those different product hooks and triggers to kind of continue the growth loop.

Have you actually gone deep into kind of K-factor, invites sent, and then try and figure out how to shorten the viral coefficient cycle?

Yeah, we, we, so we experimented quite a bit with like a referral system where we would give, say, like $5 in Loom credits for every person you'd refer back to Loom. And that kind of encouraged people early on, probably when we were at 100,000, 200,000 users, to invite their coworkers. Because there's like inherently, you know, a network effect when if I invite another person from my company who's also using Loom, and we share videos with each other, We're incongruency when it comes to relaying information back and forth. Now, it's just part of our process. We experimented with to-do lists, checklists, various formatting. We actually had a growth engineer at one point whose job was solely to launch an experiment once a week. A lot of those experiments, those that exceeded, we launched into production. Those that did not work, we ultimately just moved forward.

Wait, what was the frame? I'm always interested in testing frameworks. If you believe that whoever tests the fastest today wins, and you look at Amazon that was probably running a billion tests right now, Facebook, same thing, then you want to understand testing frameworks. So how did you set this growth mark, you know, whatever you want to call him or her, what structure did you give them so they could get the velocity of tests as high as possible?

Yeah, so we came up with a bunch of ideas. You know, there's, there's a lot of things that we can experiment around, whether it's triggering someone to record a Loom video, giving them like jobs to be done, specific use cases. Or if they're writing up an email, it's like, hey, you know, we noticed that you're spending a lot of time drafting up an email, just record a Loom video. It'll take you 2 minutes to, you know, convey your message.

Inside Gmail?

Inside Gmail, yes. So at one point we actually had a— so anyone who had the Chrome extension was able to either compose a new email with text or create a Loom recording. And then that video would natively insert into the compose window. And for anyone who had the Chrome extension, they'd be able to watch the video inline in the email. And for those that didn't have the Chrome extension, which was obviously most of the users, or sorry, most of the recipients that were receiving the email, it would just be a thumbnail with a play button that they would click on and it would take them to Loom's website.

Got it, really interesting. Yeah, there's something to be said for this. I mean, I even find myself now when I get texts, I'm just busy, it's just so easy to hit the record audio button and literally even if it's only a 3-second audio, I'm way more likely to do that than try and knock out a text. I mean, there's something about the communication and moving away from even text, like video, audio thing, and you're potentially in a very interesting spot to go after that, what feels like it's gonna be a natural big market.

Yeah, so the one thing that we talk about quite a bit here at Loom and also to our customers is we see that consumer behavior tends to lead the path of enterprise by around 2 years. So what we saw with Instagram, Snapchat, where people would pull out their phones and they're pretty, you know, like they're social, it was socially acceptable to record yourself and send a video of yourself speaking to the camera. And like these bite-sized video, like video recordings files, we're starting to see that trend in behavior kind of come into the workplace. And that's why we feel, you know, with video, and as more companies are becoming remote and distributed, Synchronous calls aren't always the best answer, so sending an asynchronous quick message that takes you just 2 minutes, 3 minutes to record tends to be the better option.

Guys, there you have it. Shahed is saying he is Snapchat but B2B, right? That's how it works. Shahed, walk me through, okay, so we've talked about a lot of stuff here. What do you care most about right now? I assume it's just free user growth, right?

Yeah, right now, so it's completely free user growth. As we've been launching experiments, We haven't necessarily paid anything. There hasn't been any paid marketing done on our end. It's normally been like the community has been talking about Loom, and if I'm a designer at one company and I hang out with one of my other designer friends, I'll bring it up in conversation. So word of mouth is also very key for us.

Is there a paid model though?

So right now we've been completely bottoms up, and actually as of February 19th, we just launched Loom Pro. Which is our first premium product.

Wait, Shahed, is that code for your first paid product?

Correct.

Okay.

Yes. So it's at $10 per user per month, and that basically allows you to do things on top of the existing free products, such as if you're a salesperson and you record a video for one of your clients and you're trying to, you know, upgrade them, or if you're recording a video for a lead and you're trying to convert them, you can basically attach a button at the end of your video That'll allow them to go straight to, say, your upgrade page. So there's a lot of things that we're allowing, we're trying to take the behavior of people recording videos and making them more tactical in nature. So there is like a call to action, or there is analytics in terms of who watched the video, how long they watched it, and where they fell off.

Sure. When did you launch the company? What year?

So we launched Loom, the product itself, June of 2016.

Okay, and so here's what I'm gonna ask you, right? People listening are gonna go, well, how did he have the luxury of not having to worry about, you know, revenue and a pricing page until now, right? He's 2.5, 3 years in. So what's the answer to that? I'm gonna guess here you potentially raised right out of the gate because you were an EIR.

Uh, yes. So I would say we started off the company, my 2 co-founders and I, uh, we— I mean, obviously very humble beginnings. We lived in an apartment in San Mateo. My co-founder Joe actually stayed in my room with me, and it was basically us just bootstrapping. In fact, we actually launched Loom used to be called OpenTest, which was a completely different idea that we spent 3 months building, couldn't find product-market fit, pivoted into a different idea. Same scenario, built a product, didn't find product-market fit. Then at the very end, as we were running out of cash, we had to come up with some Hail Mary. That's when we realized that people were actually using the Chrome extension we had built that was mainly targeted towards user testing, People were actually recording these videos and sending updates to their coworkers with the exact same extension. So we decided to follow that path and then launched the product in June of 2016, and then in 2.5 years we went from 0 to now 1.1 million registered users in about 21— on about 21,000 companies around the world.

Okay, so 1.2 registered users and, sorry, how many companies?

1.1 million registered users and on 21,000 companies around the world.

And so the— Question I have to follow up with there is, that number's great, it's a good bite, but how do you measure who's active or engaged?

So we look at, so we have video recorders, and then we also have video viewers. So anyone who engages within the video platform, whether they're recording video, commenting on an existing video, reacting to videos with emojis, that's kind of like what we dictate are active users.

Which is what right now in terms of MAU?

So we have around 200,000 monthly active users.

Okay, that's pretty good on 1.2 registered. I mean, that's almost pushing 20%.

Yeah.

Yeah, no, that's not bad at all. Interesting. Why is now the right moment to put up a paywall?

So initially, when kind of going back to your initial question around like, how did we finance this? And like, how did we put off, you know, putting up a paywall for about 2 and a half years? We did, you know, raise some venture financing. We raised just under $14 million in total. It was a pre-seed, a seed, and then our Series A was most recently led by Kleiner Perkins partner Ilya Fushman, who comes from a background from Dropbox. We announced that on February 19th as well. Initially, as we started to see the momentum growing early on, we realized that this was a new behavior. Our initial goal was to get as much adoption and become ubiquitous as a product within a lot of these organizations. So one company, we went from 20 employees when we were raising our seed round to today, about a year and a half later, we're at just over 1,000 employees from that company had naturally adopted Loom because the product is inherently viral, and there are some product triggers that led people to also signing up.

So what is the— I mean, you know, we've had the Typeform folks on, we've had a lot of people that have gone like from freemium to paid where they've built like a million-plus base and then introduced paid. It's always interesting to me to ask the question, when you're taking your first stab at a test like this, like, how do you come up with a price point and how do you decide what to put behind the paywall and what to keep in front? And so what are— how many users in the first month of this $10 paywall being live do you think will hit the paywall and what percent do you think convert?

Yeah, so I mean, because we already have the existing user base and we've been kind of promoting And playing with the idea of Loom Pro. We actually had a coming soon video that we launched, so we're hyping it up with our existing user base. And once premium, or once Loom Pro had launched, because we're still in the mid-month, we're expecting anywhere from 3% to 4% of the existing user base of active users converting over to Pro. And then also putting in triggers where the next step for Loom is to build team accounts. Where right now everything is a very individualistic product and experience. So if I wanted to collaborate with, say, another salesperson at my company, um, on a particular project and we're using Loom, uh, right now I have to send these individual videos and files and folders to them. So if, if I can just get my entire team onto Loom, um, to create again like that network effect, uh, that's kind of like what we're striving for with team accounts. That will ultimately also be a big

200,000 active users, they engage with the video, at least one video, view it, whatever, send a video each month, 3% of those converted when you put the paywall up, that's 6,000 at $10 a pop, so $60,000 there in terms of monthly recurring revenue you think is gonna happen how quickly?

I would say roughly out the gate, so that's because that's existing users, that's like immediate conversions.

Yep.

And that's more on like, I mean, I'm putting, I'm pulling that number from like a financial model that we put together, so the numbers are, a little bit more on the conservative side, but I do think we, you know, as a company and as a community, we definitely will do better.

Yep, yep. No, that's great. And then you mentioned a little bit getting in like the team space. That's then starting to push up to some companies that have raised a crap ton, and you're talking like the Mondays of the world, this kind of space. Why kind of get into that? I mean, is there not an opportunity to just like be the video, like the video thing back and forth, and just API or add to the app exchanges of these kinds of tools, or actually gonna go build a team and kind of project management tool?

Yeah, I would say there's, there's a lot of avenues we can go down. Um, the one that's been the most fascinating— I mean, we've gotten a lot of inbound from a lot of, you know, like you said, the Mondays of the world, um, that have reached out to us saying, hey, you know, we want to take Loom and build it inside of our product using your API.

Did they offer to acquire you?

What's that?

Did Roy offer to acquire you?

Uh, did Roy?

The founder of Monday?

Oh, no, no, no.

Okay.

No, but like, I mean, there's companies similar to Monday that have reached out, some who've tried to acquire, you know, for the sole purpose of like, you know, this, like basically what we're doing on the asynchronous video side. But for us, what's most fascinating right now is seeing how a lot of the knowledge worker behavior is going from more, you know, text-based to And live video conferencing to an asynchronous format. And people, because, you know, like we said and talked about, are more comfortable broadcasting themselves, we're starting to see that trend, and we want to be the leaders of that trend. And we currently are, you know, riding that wave, which is why now it's like the best time to be working on, working on Loom for us.

What's the team size today? How many people?

16.

1-6. Everyone in San Fran?

No. So we are actually, due to the product, due to us being a remote-friendly and distributed-friendly product, we are a remote-first company. So half of our team is scattered across Europe and Canada, and we actually have our DevOps engineer based in Omaha, Nebraska.

That's funny. You said you're just now announcing a raise. How much was the raise that you just closed?

$11 million.

Okay, so you've had, you basically have $3 million in the company up to date before then?

Correct, yeah.

Okay, how much of that $3 million would you say went towards driving the growth of the 1.2 million users, or was most of the $3 million towards salaries over the past 2, 3 years?

It's definitely, I would say it's definitely like people budget, so like the, just like headcount and things like that, whereas I would say most of it was investing into people and also investing into product.

So let me ask you a question, and I don't know that you're gonna be able to answer this, but I'm hoping you can still help us learn something here. Most B2B SaaS companies, which I wouldn't put you in this category yet because your economics are more like a consumer app right now, but most consumer apps that hit a million users are actually not valued that highly. You gotta get to like 10 million, right? Or like 15 or 20 million before you really start getting good valuations. So in the— Yeah. In the meetings with VCs that you just recently had when you closed the $11 million, how did you frame it to make sure you didn't get pushed down on valuation being compared to consumer apps, but try and paint the picture of your B2B SaaS?

Yeah, I think a big part of that is showing, like looking into the data and the cohorts of how engaged a lot of the users are and like what are the jobs to be done and like desired outcomes that they're performing with Loom that they, you know, Couldn't have done prior to Loom being a product. So I think if you look at the specific behaviors and seeing how Loom is adopted, say from like an individual contributor all the way up into— all the way up to an executive, and then an executive records a video summarizing, say, like a quarterly update and sends that to his entire marketing team. And then you have like this trickle effect where like now the entire marketing team is signing up because they see their manager, their boss, uh, using the product as well. So I would say like looking at those behaviors that we start to see in a lot of these companies with Loom, um, was one of the bigger selling points, and that's kind of what's going to allow us to, um, you know, see how Loom evolves.

Just to be clear, that is what allowed you to get more of a B2B SaaS valuation?

I would say, I would say it was a, it was a big part of it.

Yeah, I mean, because most— I mean, look, if you raised $11 million, and I'm doing very much back of the napkin here, But if you're only selling 20% of the company, right, at $11 million, that means pre-money valuation is whatever it is, $40, $50 million pre-money, right, on basically a million, kind of a million 2 registered, 200,000 active, and hopefully what becomes a strong B2B SaaS revenue stream, almost like an asynchronous version of Zoom, right? Which is interesting. Eric is potentially about to go public. Would you sell to Zoom?

I love Eric. He's a very nice guy. We have like Conversations about selling the company have not been a topic here. I would say everyone is generally excited about, like, the opportunity that's ahead of us, and I think we're pretty, you know, we're in, we have a very clear path to get there.

Last question before we wrap up with the famous 5. In terms of going out to raise $11 million, you just did, did you get the company to break even before then so you had the most leverage, or were you still burning?

So, I mean, like, from a financial perspective, we were still burning because we were completely bottoms up and we just launched our premium tier. It was more so looking at from a cost perspective. There are a couple of things that went into place. We did patent the way we do our upload and how we save costs being a video company. That was one thing investors looked at, like, can this scale, say, if we're 15, 20 million users tomorrow? Sure. Then my co-founder Vinay, who is our CTO, also has a background in video, and his previous company, He worked at and led an engineering team at a company called UpThere that was acquired, and that was basically taking on Dropbox for storage specifically.

Shahed, sorry, just go back to my original question. What I'm trying to understand is how much time did you give yourself in terms of runway before you started raising the $11 million you just closed? So if you were burning $100,000 a month and you had $600,000 in the bank still, you gave yourself a 6-month timeframe to raise. What timeframe did you give yourself to raise?

Yeah, so I would say we had about, um, we had about 8 months of burn. Oh, plenty. Yeah, when we started to think about our Series A, and then the process itself, like going from initial meetings to term sheet, took about 2 weeks. Uh, that was mainly because we were building relationships, um, from our seed to our A, uh, so it made it a lot easier for us to go in and have some of these, uh, initial conversations.

Yep. And in terms of burn, I mean, can you share generally what you're at? Are we talking like $100 grand a month net burn or more?

I would say above $100 grand. So 16 people, half remote, half here in San Francisco, and also being a video company.

I should have guessed a little higher. You're in San Fran. Can we put a cap on that and say between $100 and $500K?

Yes.

Okay, fair enough. Good. I won't push you more there. Good stuff. All right, let's wrap up with the Famous 5. Number 1, what's your favorite business book?

Favorite business book. It's not necessarily business, but it's growth-related. And it was— I would say it's something that we handed to all of our employees here at Loom and actually did a book club around, is Nir Eyal's book.

Hooked.

Hooked, yes. It's actually— it's a big driver of how we thought about growth. And then also Brian Balfour. It's not a book, he's a person. He's also been a big advocate and like, that's kind of helped guide us in terms of how to think about user behavior and user triggers as it relates to product-led growth.

Number 2, is there a CEO you're following or studying right now?

I am. I mean, I'm following Naval pretty closely. AngelList? Yes, a big fan of Naval. I love how he thinks and how he communicates and articulates his thoughts. Around business, around everyday life, work-life balance.

Good. Number 3, what's your favorite online tool for building the company besides Loom?

Notion.

Notion. Yep. Number 4, how many hours of sleep do you get every night?

Around 7.

And situation, married, single, kids?

Single.

Not married, no kiddos?

Nope.

All right. And last question, or sorry, not last question. How old are you?

23.

Okay. Now last question. What do you wish your 20-year-old self knew?

Um, so 20-year-old self, basically where I was before I started the company, um, that being a founder is very, very tough, and you only understand how tough it is once you just jump in into the deep end.

Guys, there you have it. This is how you know Shahed just closed a round of funding, is he grew his beard out to look older. He probably got a couple points on the valuation just from that alone. Shahed again launched Loom with his co-founders back, uh, call it 3 years ago in 2016. They've been pre-revenue to date, but they've gotten 1.2 million users, and 200,000 of which are actively using the product. They're launching at $10 per month price point now. It's live today, hoping for 3% of the 200,000 registered users to convert at $10 a month, so call it $60 grand a month there in revenue fairly quickly. We'll see what happens. They've raised $14 million to date, team of 16, all remote, burning between $100 and $500 grand a month as they, as they did that last raise. Shahed, thanks so much for taking us to the top.

Thanks, Nathan.