Every SaaS company will become a fintech: Chargebee co-founder and CEO Krish Subramanian

When the pandemic hit there was a lot of scepticism around whether we should double down on investments or be careful (and take a step back) but we made a commitment to execute this. At the end of 2020, we were 300 people, 90 percent of them in India, now we are a thousand people, 80 percent in India, 150 people in the US and 50 people in Europe. Scaling the team outside India was a key factor to serving customers and that went well for us. We also acquired three companies, something we had never done before.

How does your moving to Europe make a difference? And why not the US?

I don’t think it makes a big difference because my work is mostly internal. But I help recruit the right talent and by being available, especially when hiring 200 people outside India. My availability for the larger team helps, to bring them in, interview people, help onboard at the VP, CXO level. I can help there.

Have you already seen your ACV (Average Contract Value) go up significantly? How does it look comparing 2020 and 2022?

We are yet to see some of the impact. We are just beginning to sell some of the products we acquired. The focus is on the CFO’s office. We are solving all the problems around revenue management -- churn management, revenue recognition. Some of these products will bring a 20 percent uplift in revenue from those accounts.

These 150-200 people you hired abroad, were they mainly for sales?

Sales, product implementation, support for enterprise accounts, marketing. Except product managers/engineers most other functions. We have five engineers in Poland but we haven’t set up a centre there yet officially.

Last time we spoke, when you became a unicorn, your co-founder Rajaraman told us about entering new sectors such as ecommerce, media and IoT (Internet of Things). What are your ambitions sector wise?

So, we got HIPAA (US: Health Insurance Portability and Accountability Act) certification recently, which is important for healthcare. But I’ll give you an interesting example; pet insurance, which is not a very interesting idea in India. I learnt that 80 percent of pets in Sweden are insured because by law, the way you’re required to take care of your kids, the same goes for pets too. This company has expanded to the US and has licences for 20 States. A modern company that's thinking customer-first is interesting for us. Across verticals these are the companies we work with.

How will this pet insurance firm use Chargebee? What product will they use?

So, when a customer visits their website someone might want to sign up. The customer can be from any of the 50 countries they serve, which means they use different payment methods. Chargebee makes the payment infrastructure easy, integrates PayPal and other services. We calculate taxes based on the customer’s location and the business entity that will deal with the customer.

You have held a round when SaaS stocks have otherwise fallen sharply. Did that affect fundraising?

This round was raised on the back of some acquisitions, expanding product lines and new growth vectors we are seeing. We have not used most of the money we raised in our last round. We are in a position where we could invest in growth without raising money. So, we raise money thinking: Do we have an opportunity to redefine the category? But yes, when you’re not in the market looking to raise, it becomes easier.

One of the defining themes of SaaS the last few years has been expanding valuation multiples. A few years ago, 10-12x (of annual revenue) seemed generous. Today 30x seems standard. But when public stocks are falling, how do you view your valuation?

This is something we have debated a lot and thought about. It depends on each category, whether you’re a pure play SaaS company, or SaaS plus fintech, and what are the opportunities for growth. For example if you saw Shopify five years back, you would have assessed them only as a software company, when they were experimenting with payments. They are not a payments company even today but they make 2x more money on payments. As Angela (Strange), partner at Andreessen Horowitz (one of Silicon Valley’s top VC firms) says, every SaaS company will become a fintech company. It is a very interesting hypothesis.

There is a verticalisation of software happening. The valuation assigned depends on long-term quality. But one thing that has definitely changed is predictability; being able to say where this business will be in 24-36 months. There are more data points available than ten years back. That’s why most SaaS companies were valued at 6-10 times (revenue), with the best at 12 times. Today, investors can predict growth -- is this a single product or multi product company, where will it expand...

So, today you have one product and are valued at say 20x, but if you have multiple products but the same persona, your risk of selling is lower. The Average Contract Value (ACV) of these products matters. You can have 10 products but if each product adds only 3 percent to your ACV, that is not interesting. Your valuation multiple will change versus products being enterprise ready for multiple customers.

Second is the growth rate. Companies growing at 80 percent versus 50 percent year-on-year get different multiples because it indicates future cash-flow potential. It is a science, not an art but you still pick a number based on your hypothesis. And then working backwards, an investor has to ask whether there is still enough room for his upside.

We obsess about this to make sure we don’t get ahead of ourselves but I don’t know the absolute right answer to picking these numbers.

Are you thinking about an IPO, given the company is ten years old?

There is no hurry, but we will consider it in 2-3 years.

How tough is hiring in the current environment? Everyone is worried about a talent crunch, more so for SaaS, where employees are leaving fast because of WFH and global teams...

We became remote-first and we still don’t have offices in many places. Now, except for engineering, all teams are distributed, and that helps because you don’t get stuck for critical hires based on a single location. As an industry, we also have to learn to groom our own talent. Deliberately going for campus hiring, conducting boot camps, etc. Earlier you also did this when you didn’t have money but now you do it to mitigate long-term risk. We don’t want to keep competing for the same talent. There are also 3-4 consumer facing functions where we don't look for SaaS experience. We have people who can train them for SaaS context. That way you go beyond your normal talent pool.

Over the last year, what has surprised you about the business, positively or negatively?

How quickly we can go up-market and sell to larger customers surprised us. We actually hit double our plans for the larger customer base. That, with the large market opportunity, was a huge surprise for us. We work in a world where 85 percent of businesses have in-house systems. Even for large companies, in-house systems are running inefficiently. So, we are not winning business from competition, but getting new customers. That’s a huge surprise. There is a lot of headroom for growth.

The talent war is becoming very real, but it is good in a way because talent has a lot more opportunity in good companies. I think the talent war is a net positive because it will bring more people into the industry. The number of people moving from (IT) services to software products is a huge surprise.

Krish, why do you call the talent war a net positive? Most founders we speak to are extremely worried that this cost is not sustainable, and that employees jumping jobs every 12-18 months for a 100-150 percent hike are setting themselves up for failure. They say the ecosystem may not be able to handle it.

The number of people leaving in 12-18 months is about 3-5 percent of our employee base. I would rather focus on the 95 percent. A lot of people are able to invest in their career longer. It is also our responsibility to continuously educate them and make them feel like they are getting a new job. Nobody likes to do more than three years of the same job.

So, two years back we implemented a policy called Internal Job Postings (IJP). Any job available for outside people to apply, an internal person can move into the role if you have completed 12-18 months in Chargebee. This creates a conducive environment internally and you solve a problem rather than blaming market conditions for it.

With respect to your fintech/SaaS comment, do you see Chargebee as a fintech then?

Our DNA is SaaS. Solving a problem through software is our core competency. But we play adjacent to fintech, which means we are close partners with payment systems, with disruption in banking services etc. We see ourselves as SaaS plus fintech.

As your company scales quickly, how do you make sure you scale as a founder? Running a $500 million company is different from running a $3.5 billion company two years later right?

I was asking others the same thing two years back, when we were raising the previous round. So, someone like Deven (Parekh, Managing Director of Insight Partners) has a different viewpoint on this. I asked him how do I as a founder know I am doing the right job? He said you need a big market opportunity, which we have. And whether I am continuously surrounding myself with a better team, people better than me... That builds me up.

For example I know nothing about planning today, at this level. But bringing in Mike Beach as our CFO was very helpful. He’s someone who’s been a public markets CFO for over a decade and levels up the team. What he brings to the table helps me. The most important factor is that I should not become a bottleneck in the next stage of execution.

I should also understand our own constraints, which come in the way of disrupting ourselves. Because, when you grow larger, you become a victim of your own success because something is working well and it becomes harder to back new initiatives, since all resources go into what is working and what is predictable. How do you innovate from within and back these ideas that have no proof points but require nurturing? That becomes a long-term success factor.