CIBC Innovation Banking Podcast

[00:00:00] Damir Sit tight. Prove out some value. Let the flywheel start spinning. It doesn't have to be fast, and then start talking about what's actually happening. And as soon as you do sort of get ahead of the ball in that regard, you can kind of keep it that way. And then you're talking about facts and then you kind of are borderline overdelivering every time somebody talks to you. 

[00:00:21] Michael Hello, I'm Michael Hainsworth. The CIBC Innovation Banking Podcast explores the world of startups, growth stage companies and late stage companies that have made a big splash in their industries around the world. Professional investors need an efficient way to compare their universe of companies. And that's where Canalyst comes in. Its database of thousands of enterprises helps give the pros the edge they need to uncover more investment ideas, generate better returns and bring in more assets. It's also where Damir Hot comes in, the CEO and co-founder. Hot tells me that since he was a child, he wanted to be the co-founder of a tech startup. We sat down to talk about the state of startups today and tomorrow, and what the future is now that his seven-year-old superstar data miner is at the top of the pops. But we began by asking my favourite question. Can you explain what you and the company do, like you were talking to your parents? 

[00:01:24] Damir Canalyst, you know, I think regardless of who we're talking to, Canalyst is a pretty straightforward thing, done really well. So what Canalyst does is we take publicly available information on public companies and we basically curate and restructure it so that professional investors, the folks who manage your pension funds, mutual funds, that kind of stuff, can make better decisions and do their work more efficiently. 

[00:01:49] Michael I'm looking at your LinkedIn profile, and this seems to be the longest you've stayed in one place in almost a decade. What led you to co-found Canalyst some seven years ago? 

[00:01:59] Damir Yeah. You know, I sort of, like many entrepreneurs, was not a very good employee throughout the early part of my career and you know, candidly was working towards being an entrepreneur always kind of had that as an ultimate goal. And every time I left the company, I joined the next one in an earlier and a more senior role, and less cash comp and more stock. And then eventually there was nowhere to go but start from ground zero and so I found an amazing co-founder and then off we went. And this is, yeah, I think it'd be really tough to stay somewhere else for seven years. Given how I, how I work and how I operate, 

[00:02:41] Michael That seems to be the advice that anyone would give anybody exiting school and getting into the workforce for the first time. You don't want to stay in one place for too long. You want to learn what you can learn and then move on from there. So what was the moment that led you to decide it's time to go it alone? 

[00:02:58] Damir Yeah. I still don't know how founders do it "alone" alone. I mean, I think having a co-founder has been incredible for the record, and I highly recommend that as a strategy, even though it is the single most dilutive event you're ever going to undertake. You know, I took the approach of just, you know, building blocks in my career. I knew that I wanted to understand technology, I knew that I wanted to understand going to market and sales. I needed some exposure to leadership and kind of senior management. You know, I would say it could have just as easily been, you know, a five or six year stint and at one really great place where I grew fast enough to kind of keep growing with the company. And if the company, you know, conversely kept growing at the speed that I was growing at, I think those perfect matches of trajectory are rare. So I just wanted to be in a room where I was learning. I really optimized for that for the first kind of 10 or so years of my career. And I think it served me well. But I also think that, you know, everyone is confirmation biased by the time they're talking to you, so lots of different paths to it, I think yeah, just focus on the skills and, you know, everything else kind of tends to come later 

[00:04:05] Michael That point about the benefit of starting up a company with a co-founder. Tell me a bit about that because I can imagine for everyone, it's a little bit different. But for me, it means that I would be responsible to someone else, not just to myself, and that would be a driving factor in success. 

[00:04:24] Damir That's a really interesting perspective. Yeah, I think for my co-founder and me, I mean, I'll speak for myself, but I think in this regard we're relatively similar in how we just don't want to lose. Right? I mean, he doesn't want to lose for his own purposes. I don't want to lose for him, for mine. And it's actually, it's funny we bond over, you know, winning is great, but like, I just really hate losing. And so, so you know, when I mentioned the benefit of the co-founder, I think it's, you know, there are really challenging moments, there are really lonely moments. There are frankly moments that are, you know, uniquely exciting to somebody who has the full context of what you've been doing the last two or three years and kind of can appreciate something that to even to your family or to your close friends or even your staff can seem like it's not a big deal. You know, having a co-founder to celebrate those things with and to kind of have someone else appreciate those wins between that and the inevitable tough moments that come just running a business. Being a CEO, I think is incredibly rewarding. It can be at times a little bit tough and lonely. And I think having somebody who you know you feel you can share everything with has been incredible for me. 

[00:05:33] Michael So what should any startup entrepreneur look for when filling gaps in knowledge within a startup? 

[00:05:39] Damir Well, talk about confirmation bias. My background is engineering. I'm fairly technical kind of as a person, and I would still say, you know, I would hesitate to found a business without at least one person who's got some serious go-to-market experience, some serious sales experience. Ideally, that's in the CEO. You know, technical founder CEOs have done obviously incredible things. But I think if you want to maximize your likelihood of success and I think selfishly as an entrepreneur, you know, you're operating with an end of one. So I think while your investors have a portfolio of companies and they need the winners to be big, you also need your one thing to not be a zero. And I think the best skill that I've found, the most valuable one that I brought in, because you learn about stuff on the fly, but the most valuable one has been knowing how to sell and that, you know, some people call it storytelling. At the end of the day, you know, you're selling investors, you're selling prospective hires, you're selling obviously prospects and clients, you're selling yourself some of the time. And so I would say that's the number one thing. And then just a close second is logic. Just making sure that you're truly breaking things down to their elements and you're making the right choices based on the right data. 

[00:06:54] Michael So it sounds like what you're saying is you need capable generalists, but you also need a super specialist that has expertise in particular domains. What's the catalyst that has you going from hiring generalists to hiring specialists? 

[00:07:08] Damir Yeah, I mean, the catalyst for us has been growing large enough that we can afford to and that we can make use of those specialists. And when I say afford to, I mean, you know, it's less about the actual dollars or what have you. It's much more about when you hire a specialist they do a very narrow thing. And you know, on day zero, you don't have the capacity to have 30 people who are all highly specialized, right? You have to get two or three or four or five generalists. And then at some point, the breadth of skill-set that you need in total in aggregate in the business kind of stops growing as quickly as your business is growing. At that point you know, you can add depth in each piece of the skill-set. To us that has been sort of in the last two years, I would say. So kind of in that Series B, Series C range where we've been able to really say, OK, you know, I think we can bring in a specialist in this particular functional area to the person who runs customer support and is a professional at that or is an expert at that, you know, we're just another customer support problem to solve and another customer support team to build, right? And you know, early on, you need the one person who's familiar with your product, but also very good with clients, right? And I think that's a great example of where, you know, specialization can start to come in once you're big enough that there are some people who do support and then there are people to escalate to. While those are the same person, you need a generalist. 

[00:08:35] Michael Now, as far as your company is concerned, you analyze the big public companies. But every startup wants to eventually get to that particular point, whether they have an exit strategy to sell the company prior to that or otherwise, they all at some point want to be the next big thing. So what are the metrics that a company should focus on to ensure they rise to the top of your analysis results? 

[00:09:00] Damir Yeah. And you know, this isn't going to be rocket science, but I think just if you stick to these metrics and you know, they're different in different businesses. So, you know, for a SaaS business, obviously, it's the unit economics around how you acquire a customer, how you retain a customer and then your margin profile. I think, you know, with those just keep those three things going up and to the right and you're going to end up with a really great business. But the main thing is to understand what the metrics are that tend to identify the successful, mature versions of your business, you know, to the extent that's possible, I think, you know, many of us entrepreneurs talk about category creation and, you know, we're the only business doing what we do and there are no competitors. Sure. But if you squint and you find a public company that may be growing a little slower than you ot a lot slower than you and maybe 30 or 40 years old and doing it differently. But they're kind of in the same problem space doing the same kind of things with the same type of solution approach. You know, find those metrics. Figure out what the smartest investors, you know, buy-side and sell-side, talk about and think about in terms of the success or failure of that business and then look inside yourself and see whether, you know, some of those things apply, right? So in general, I think focusing on the one, two or three metrics that matter to your business rather than just revenue or cash flow, you know, very often those are the things you can actually manage and try and improve. 

[00:10:24] Michael You once told me that startup founders and leaders generally tend to let the story and the rhetoric get ahead of the facts behind the company, and that's always a big mistake. 

[00:10:35] Damir I'm not sure if it's always a big mistake, is it? Yeah, there are. There are some highly, some of the wealthiest people in the world are public company CEOs that have gotten their story well ahead. Right. But you know, I would say that that is the closest thing I have to a personal sort of conviction and philosophy on entrepreneurship. And I think it takes some of the artillery away early. You're not telling as big of a story day zero, you're not getting as much press in the first year or two of the business, which obviously would make it easier to recruit folks. Any time you make promises that your current facts don't necessarily prove out or support completely, you know, you are selling a vision and that's a big part of a CEO's job. But I think you're also taking on a bit of debt every time you do that. As simple as if you overstate your revenues, right? So like if somebody is talking to you and they ask you, you know what your run rate is and you say X, and it's actually 80 percent of X. You know, that just means that when you grow your business by 25 percent, you don't have any news to share. Right. So you've just mortgaged that news event because you needed it to be today and not in, you know, five months. I often apply that kind of lens and that has led me to say, You know what? I think if you can just kind of do your work, find the early customers, you don't need to do a huge marketing campaign to find your first ten clients. You don't need a ton of press to find your first five really killer early employees. Just go and basically, you know, hand-to-hand combat those things. Sit tight, prove out some value, let the flywheel start spinning. It doesn't have to be fast, and then start talking about what's actually happening. And as soon as you do sort of get ahead of the ball in that regard, you can kind of keep it that way. And then you're talking about facts and then you kind of are borderline overdelivering every time somebody talks to you. 

[00:12:26] Michael Tell me about what is actually happening right now. When you look at the bulk of the regulatory filings that you use to build your core financial models. What does that tell us about the impact of COVID-19 as we are hopefully coming out on the other side? 

[00:12:42] Damir You know, and this is actually not to be completely self-serving, but you know, part of what differentiates Canalyst as a product for our clients is that we don't just populate data templates for every company, right? So like an airline is an airline and an enterprise SaaS business is an enterprise SaaS business, and they have different metrics that matter, you know, back to our earlier conversation. So I think you're just seeing sector and even subsector specific unique traits. So you're seeing, you know, airlines, were having a resurgence and then oil rift and then that is obviously a challenge. I think you see certain sectors that just have really tough comps that are giving away, you know, giving back a lot of their valuation games and also their growth rates in certain cases that were sort of, you know, either pull forward demand or just, you know, frankly were COVID induced and maybe it's not a long term structural change to that business. And then other business, you just see that have been sort of COVID agnostic. I think, you know, those have sort of been flying under the radar. They're the ones that are relatively smooth, unexciting, stay out of the news, and just keep on making money and keep growing. And then finally, you know, there's obviously been a ton of sector rotation, a ton of sort of just things that are, I think, you know, most people would say monetary stimulus result rather than directly a result of the virus, right? So a ton of factors at play. Again, back to being completely self-serving, what you want to be able to do is you want to be able to just take a very quick look at, you know, things you haven't looked at in 18 months and say, OK, this thing looks like it's completely dislocated because of some macro event. You know, how do I wrap my head around it quickly? And then again, it comes to that business-specific, company-specific analysis rather than what have revenues done, because I don't think that's going to tell the whole story. 

[00:14:32] Michael COVID-19 threw a wrench into the works at the start, but with more than two years of these unprecedented times under our belts, startups and large enterprises alike have accelerated their growth plans, and it's paying off. There have been massive winners and massive challenges. So what does it take today to rise to the top of a Canalyst report? 

[00:14:54] Damir It's funny because when you look at the businesses as a whole, I think a number of them would fall into that category. You know, on a small scale and one that I'm intimately familiar with is Canalyst, which, you know, we said in March of 2020, when kind of everything was, you know, the world was closing down and looked quite volatile, you know, we kind of talked about it at the management level and said, "Look, money will continue to get managed." You know, we serve asset managers. There will be a pension fund in 2021. And you know, they're going to employ portfolio managers and analysts and those people are going to need to, you know, try and pick the stocks to go up. And we had to adapt a ton, right? So we had a completely in-office environment on a bunch of heavy hardware and multiple monitor setups. And, you know, we never thought we'd be a remote firm and yet, still today we've got 200 people mostly working from home. But the business trajectory, even in the metrics and kind of public facing things, there's been a number of them that have just kind of been unaffected from a customer value prop perspective. They've obviously, I think everyone's been affected in how they deliver. Now, you know, the obvious businesses that, you know, were not as agnostic were things like physical delivery, right? So I mean, e-commerce, those kind of things just had to do more of what they do. But if you look at, you know, something like a cloud service provider, maybe there was a little bit of marginal demand that got pulled forward. But at the end of the day, it sort of just kind of kept doing its thing. 

[00:16:27] Michael Your products were initially intended for public equity managers, but you now have more than 400 customers. How did you build that growth? 

[00:16:35] Damir Yeah, I mean, notorious for, you know, telling our our sales team and our marketing function, you know, our job is to find the next one. We don't have any sort of high volume channel strategy. We're sort of, we're a premium product that is a relatively, relatively niche we call it. It's a big niche. You know, we know who our prospects are. They're sort of on the order of 100000 individuals in the world that you know, we should be talking to and should use our product as it sits today, they sit across eight or nine thousand firms. We've got, you know, coming up on five hundred of those firms as mostly, you know, extraordinarily happy clients. We're working on the couple that aren't and so, you know, I might be a boring interview because there's just no magic to it. No magic to it. I think it is decent marketing and branding, making sure that the places that your brand does appear are places that are trusted and high quality and don't overpromise. And then just, you know, doing your work, just going and setting up meetings, getting people in front of the products, driving that process, making sure that they're extremely happy, making sure that they're extremely referencable. You know, something like 40 percent of our new bookings come from some form of a word of mouth. Again, you know, I think that's one of those things that you can't buy. You can't set out and say on day three or whatever, "You know what? Let's start getting a bunch of our new business from word of mouth." I think you have to just deliver an incredibly high quality product and you have to just do the work every day. Like I said, on a day to day, hour to hour basis, this is a boring job, right? It's exciting over a long period of time, and any one given moment is pretty dull. That's kind of like exactly the way that I hope it'll be forever. 

[00:18:21] Michael Well, it sounds like you've just answered my next question as well with that one, which is the fact that you've doubled revenue in each of the past two years. So what do you do for an encore? How do you repeat that performance? 

[00:18:33] Damir Yeah, you're never going to guess. We're going to double. And I mean, we've approximately doubled, you know, for the past few years. Earlier on, it was an even greater percentage growth. But it didn't matter because the basis was so small. But look, sometimes it's a hundred and twenty percent. Sometimes it's 90, the target's a hundred. There's a ton that goes into it. You know, you have to build the infrastructure to support twice or more than twice as many clients, a much larger team than you had last year, all those kind of things. I think what we look at is actually kind of what our constraints are to, you know, not maybe next year, but the year after that, you know, we talk about, can we grow 200 percent that year? Can we grow one hundred and eighty? Hopefully the answer is yes, and we can start planning for that and kind of inflecting the growth up even further. Because we think we're in a unique position where, you know, we have a pretty efficient model and a lot of leverage to our business. But then, you know, even if we say the answer is no, I think thinking about 200 has made 110 or 120 much more doable and, you know, seem like an easier task. So we do anchor ourselves internally too, you know, think about not how do we hit 100 next year? But you know, why is it only a hundred? And I think it's really if you balance that with obviously realism and kind of ground yourself in the facts of your business today, I think that's a powerful mindset. 

[00:20:02] Michael What's the future of Canalyst? The company has doubled its revenue in each of the past two years. It recently raised 70 million US dollars in Series C funding to bring the total to more than 100 million, and it's doubling its workforce in Vancouver and New York. Canalyst products were initially intended for public equity managers, but now the company has more than 400 customers. So I asked Hot, how did he build that growth and what does he do for an encore? 

[00:20:33] Damir Yeah, it's, you know, we look relatively smart. Having raised, you know, a large amount of money when we did. The reality is, you know, we feed the business, the capital that it shows us that it warrants in order to maximize our trajectory and maximize value creation. I know that's going to sound really cliche, but it's true. We decide when and whether to go to market to a large extent if you have the luxury of not having to. And then the market sets the price. And I think, you know, we look at our metrics, like I said earlier in a different answer, you know, we look at the unit economics of what it takes to acquire a customer of ours, how happy they are, how well they stick around, you know, whether they tell their friends. As long as those things are happening and we believe that, you know, our R&D is expanding our moat, we're building things that leverage the uniqueness of Canalyst which is our fundamental data set and how detailed and well-structured it is. As long as we know, you know, we have things we're going to build over the next five years, and if the metrics look really, really, really great and if we think it's a good time to go to market to accelerate and we think the talent is going to be available once we get that capital, then let's go and then we'll continue to invest and deploy that capital until we see the metrics turn. So far, I think we've been really, really privileged and really grateful and proud that the metrics haven't turned despite us kind of hitting it harder and harder. So at some point, we're going to find that the marginal dollar of R&D doesn't move the needle on growth or doesn't move the needle on average club client value. And at that point, you know, we'll start looking at, OK, what's the bottom line look like? 

[00:22:20] Michael The Canada Pension Plan Investment Board, meantime, not only participated in that C series, but I understand they're also an existing client. It must feel really good to have someone that's so happy with your work that they open up their wallet because they want a piece of that action. 

[00:22:34] Damir It's incredible. Yeah, we actually joke that, you know there's two ways to get money into the business, and one of them does not require issuing shares, and that's the better one. And so we love the client revenue. It's obviously on a, usually on a smaller quantum, but we love the recurring revenue for just our product rather than our stock. But you know, what is really special is we've got including Canada Pension, something like five or six of our clients who are very much clients first and then, you know, sort of open that conversation with us, frankly, which is incredible and are now meaningful shareholders. And you know what that says is, you know, sure, they appreciate the thing that we had when we were two or three or four years old, but they were engaged enough and kind of appreciated the thing that, you know, we believe Canalyst can become rather than the thing that Canalyst was two or three years ago. And I think that that's kind of the most exciting thing. And then the other thing is, you know, especially in the Canada Pension Plan's case, they've been such an incredible partner as a client. They've been an early adopter of basically every kind of new thing that we've built and oftentimes, you know, adopted it, gave us a bunch of feedback and stopped using it. But then sometimes, you know, helped us get it to a place where it's going to really be something meaningful. So we look for those kind of deeper relationships, and then, you know, we look at kind of where creating the additional economic ties of the capital investment actually kind of change the partnership and change the behaviors on both sides for the better. Right. And so, you know, rather than just collecting cheques and logos, you know, we really focus on how this can actually inflect the business in the next five years. And I think, you know, CPP is a great example that, 

[00:24:15] Michael Well, this has been fascinating. Thank you so much for your time and your insight today. 

[00:24:19] Damir My pleasure. Thank you. it was awesome. 

[00:24:24] Michael Damir Hot is the CEO and co-founder of Canalyst. It turns out the secret to success under COVID-19 is more of the same. Focus on the pain points your customers are experiencing, then deliver solutions to their problems. As Hot says, the devil is in the details and startup founders and leaders shouldn't let their story and rhetoric get ahead of the facts. I'm Michael Hainsworth. Thanks for listening.