20VC: Why VC is Distorting a Generation of SaaS Companies & With $900M in ARR and a Market Cap of $2.6BN is Lightspeed the Most Misunderstood Public Company with Dax Dasilva, Founder & CEO @ Lightspeed

0:00The first two years I coded till foreign the morning every day. When I was encoding, I was with those early four customers that sit with those customers and watch them use the software and then iterate quickly so that if something didn't fit with their workflow or it didn't consider something that they needed to do with their inventory, there would be another iteration of the software that was out, you know, within a week or so, I've mentored companies that are building these, these SaaS solutions In order to have attractive metrics that are going to be interesting to VCs, there's short cutting a lot of the product development and the basics of building a business like we did.

0:38This is the story of light speed. Light speed with 900 million in revenue and a market cap of $2 .6 billion. The question stands, is this one of the most misunderstood companies in the public market? Today we're joined by Dax to Silver, founder and CEO of light speed, who bootstrapped the business for seven years before raising from Excel. Years later he took the company public on the Canadian Stock Exchange at just 70 million in ARR before moving years later to the New York Stock Exchange. But before we dive in today, all of you listening use tons of software every day. Sometimes it fills us with rage.

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3:53You have now arrived at your destination. Dax, listen, I am like a vertical sass nerd to the extreme. Which is a vertical sass nerd, right? Honestly, dude, there are so many reasons why I had so few friends at school, but that means I love your business. So first off, thank you so much for joining me day. It's great to be here. Thank you. Now I always think we're always kind of shaped by something in our childhood that maybe wasn't actually that easy. You know, for me it was actually my mother having MS and looking after her. When you think back to your childhood, was there something that shaped you or really impacted how you think and who you are today that stands out?

4:28I had a really beautiful childhood but I think the context of where my parents had just immigrated from. There was a dictator in Uganda. They grew up in Uganda. My family families from originally from India from the Portuguese colony called Goa, but they all moved to Uganda for jobs in the British Civil Service and then they were expelled by a dictator in 72. My mom was 18, my dad was like 223 and so in that context I was born, my sister was born in this new country where they were just super young and had to carve out an unexpectedly carve out a whole new life. And so the fact that we had, and like these incredible childhoods.

5:06We spent a lot of time in nature doing these low -cost things like camping, which is why I'm such a big, big proponent of the environment today. It came from a bit of a chaotic background and I sort of had the immigrant experience, definitely an introvert. Did you have entrepreneurial pursuits when you were young? I did. Yeah, my dad brought home a Mac, you know, when I was eight or nine. He was a graphic designer. Actually, it was a welder and the discovered that back in Africa, he was a journalist and that he was a communications guy, and so they gave this opportunity and I went, I nerded out.

5:36You're into vertical SaaS, I nerded out on UI design and a tool called HyperCard on the early Mac. And that's how I became a programmer. I mean, by 12, I had my own Mac, and by 13, I was working for a Mac developer that was building early networking software on the Mac. So that's the other part of my childhood where I'd like confirmed nerd, right? No, no, I'm so happy because I obviously invest day for a living and I have a thesis that the best founders always and consistently start entrepreneurial activities very, very young. I never meet them when they're 25 and it's their first thing ever. I'm pleased that you fit the thesis that I have.

6:11So I was like, I worked for that startup and got to see you like a startup from ages 13 to 15, the insides of one. It was like a husband, wife, and maybe a contractor. Quickly after that, I started building software on my own. So by 15, I was building software as an independent contractor. So yeah, what team of one, but you know, entrepreneur to the core. Why did you start light speed? Like did you, you know, the family that no background in restaurants, no like always all my grandmother cooking over stove and I fell in love with restaurants. Why did you start light speed and what was that a home moment?

6:45The environment that I grew up so obviously there's a big background in the early Mac and being a part of that Mac ecosystem where there was the early developers or the dealerships, you know, before there's Apple stores there was dealerships. I grew up in those dealerships I was doing tech support, I was working them as Adrian Little Nerd, but I started building software for those dealerships. They were building a lot of their own software. Each dealership was building their own software. It was usually the business owner building their own custom file maker. It was like a Microsoft Access database, homegrown.

7:16They were terrible. Over time, I was trying to build more and more software for these dealerships. If you think about what a Naples dealership would look like, it really is our ICPR, ideal customer profile of light speeds. the complex inventory centric retailer with high value inventory with serial numbers, multiple locations, purchasing across multiple stores and multiple currencies. It's everything we do as a as a it's everything we offer in the light speed software today to retail. So I was cutting my teeth building software, you know, contracted software for these dealerships between the ages of 15 and 28 when I started light speed and basically that moment of okay I'm not gonna build another custom piece of software for another Apple dealership.

8:01You all want the same thing We're building light speed here. So if we go back to that first product Did we have product market fit from day one and I'm just interested when you think back to that What are some of your biggest lessons from that zero to one discovery on that V1? The first two years I I coded till 4 in the morning for that first two years every day. I was fueled on, I don't know if Tim Hortons here in Canada, but it's like these French vanilla coffees that are like all caffeine and sugar. They're just like fueled by these things. They're just like coding. What was, I think what helped the product market fit happen is when I was encoding, I was with those early for customers.

8:38And they were like, I picked a variety of different customers and I'd sit with those customers and watch them use the software and then iterate quickly so that if something like that Something didn't fit with their workflow or it didn't consider something that they needed to do with their inventory. There would be another iteration of the software that was out within a week or so. They got them closer and closer to a perfect workflow. How did you think about building what they needed and not what they wanted? Because sometimes what they want isn't necessarily right. 100%. Right? And so that's where you've got to be.

9:09And I think that's like a little bit of where the tech support background comes in of like, this user wants to accomplish this. And they think they want to do it this way, but from your observations of what their operations look like and that's where you have to kind of in our in my case I want it to be physically there with the customer. It's probably not possible for every type of scenario But I wanted to observe what it looked like. I wanted to see what they were trying to pull off so that with what I wanted to create as a user experience Maybe we're going to leapfrog their expectations of what we want to do and so nobody asked for the mobile check out when you were doing that 4am coding and that intense customer discovery with them.

9:46Had you raised money at that point? No, we didn't raise money for the first time. This is what terrifies me. This scares the shit out of me that. No, because today, I've interviewed the founder of Clavio, UI, Path and Service Titan, and all of them said the exact same thing to me, which is we were so close to the customer, because we couldn't afford customer support, and we had to just do it all ourselves. And I asked them this question, If I had given you 5 million on a 25 million price, like you could probably get today if you go to the valley, would light speed in this case have been the same as it is today?

10:21I don't think so. Those seven years of bootstrapping, like we're in our profitable growth phase where we're now out of this growth growth growth at all cost phase and we're now into balancing growth and profit, that's like the early first seven years where we were profitable, we ran and the company grew with a great degree of balance. And I think that those are a great part of our DNA. We also had a really good seven years of really solidifying our identity. I think that's strong sense of identity and who we are, what we represented and how we did business helped a tremendous amount when we took VC money, when we went public, and also when we did M &A.

11:00When you merge other companies into your company, you have to have a strong sense of identity to allow other companies to be able to flourish as a part of your company and not try to suffocate them out of insecurity. I think that strong sense of identity is a hell out of the lightspeed to do a lot of the, what did you not do that with the benefit of hindsight? You're like, I wish we had done if we had more money. Could be a second product earlier, could be geography wise earlier, could be more engineers. What did you not do that with the benefit of more money? You wish you had had done earlier.

11:29So when we did get money, we transitioned our product into the cloud. We did it at the right time. We could have done it a couple of years earlier and it could have benefited us to have done it a few years earlier Our cloud product was out by 2013 Square some other folks like shopkeep had which we acquired later maybe had a couple years on us because of that But maybe that might have maybe that might have sped things up in our in our journey Why did you decide them was the right time seven years in so long period of time? When did you why did you decide that and what revenue were at when when you decided to raise them?

12:03You were at 10 million. It was actually just, you know, those folks that I just mentioned square and that it was a New York POS company going to shopkeep. There was new players coming onto the scene. At this point, we were competing with legacy black plastic POS systems. It was easy, compete with them. But then other POS systems that were more forward looking, more cloud -based, like square, even though it was very simple at the time, and like shopkeep, which was an iPad POS, which we had, but ours was in cloud -based. They started to come out even though they were very simple. They had hundreds of millions of dollars being funneled into them And it started to be I went from from the perspective of like yeah, I have no finance background ever really looked for investors to maybe it would be Maybe not a bad idea and we didn't actually go out looking for VC money We you were masters of the trade show.

12:51We'd done macro for many years and then we switched to doing NRA which is national retail Federation that happens in in New York in 2000 was 2000 in January of 2012, we had a number of VCs come to our booth and looking for the future of retail because every retail player is there and they identified late speed as that. And within a few weeks, we had Excel partners who, you know, the investors buying Facebook and then within two weeks of that, they were in Montreal at our office. And then within a few weeks of that, we had $30 million. $30 million investment. Well, actually the diligence took a few months, but are two within a few weeks we had a term sheet.

13:30And so it wasn't something that I contemplated. It was even something I fully understood of all of how all that worked. Participating preferred curve. I didn't know what that meant. When I hear you speak, you know, it lights people to phenomenal business and you're a phenomenal entrepreneur. Seven years to 10 million in a year. I mean that respectfully. But in today's like SaaS investor benchmarking, it's not fast enough growth. But now you're at Clote Wheel and this year like close to 900 million in a year. Yeah, it's physical either we just finished. Uh, it was about 900, but this fiscal year we are focused on to be a billion in revenue.

14:00Okay, but my point being, that was kind of slow trajectory. And so it's like, do you think SaaS investors today have broken models that will miss great companies like Lightspeed, given the new demands of venture? That's an interesting question. I know that when I've mentored companies that are building these SaaS solutions, in order to have attractive metrics that are gonna be interesting to VCs, there's short cutting a lot of the product development and the bare and the basics of building a business like we did. Obviously, it's less room to test and battle test and get to something really phenomenal.

14:37But the slow burn, I think that's there's quality that happens in that process and let it cook, right? I totally agree with you. I think we should actually ban companies that are not extremely capital intensive from raising for the first five years. It would be fascinating to see the outcomes of those companies and compare them like for like. Can I ask you, you mentioned the increasing competition there. What are your biggest lessons in how to play and win in intensely and increasingly competitive markets, given the journey that you've been on? It's always good to create your own greenfield, blue ocean, whatever metaphor you want to come up with.

15:12I think it's important for when you're competing that you know the actual value. Our value is not that we can take a payment. Our value is that we are running a complex operation for one of these businesses. that we're creating the competitive advantage for them versus their competitors. And so you've got to find that segmentation where you clearly have that right to win and you've got the right product market. What are your biggest product marketing lessons on how do we span that core customer ICP from say retail to also add in to hospitality without alienating the core that you've just acquired?

15:44Yeah, so it's always a little bit of a risk to defocus. And I think right now, now they've been back at light speed for five months as CEO, I was executive chair for two years. I think there are areas where it's going to be helpful for us to focus again where we've decided to spread our wings maybe in too many places, too many regions across too many products, a lot of acquisitions. It's always exciting to grow the business, especially when the market's rewarding growth. Can I ask you, when you think about your early go -to -market and early distribution, what did you not do well? What do you look back on and I was like, ah, that was a big mistake.

16:18And what do you learn from that? Well, the reseller strategy was really successful. In those first seven years or zero, we spent zero money on advertising. But we spent a lot of money on these reseller conferences twice a year. We'd have like three, 400 people show up. And actually, when the VCs came and saw that, they went undercover. They went undercover under false identities. It was a lot of fun. During our Dallas certification camp, our term sheet went from 25 million to 30 million because they were like, wow, you got a massive community of people around from Saudi Arabia and like in like Europe and Australia and all over the US and Canada and like everywhere people are coming to learn how to sell a light speed and are generally also users of light speed.

17:00I think we did a good job at first of integrating our direct go -to -market effort because we had internal sales people but we always gave priority to the reseller. I think as we got bigger we had struggles with okay when does it become a direct lead? When does it become a reseller lead? Some of the resellers worked as fast as the other ones. We're like, off, we kept that as a direct lead. We could just close that on our own. And then as we went into the cloud and there was less of a need for reseller to do hardware, we started to lean more and more towards doing everything direct. And then as we did high velocity sales model, we went very direct, cut out a lot of the reseller energy.

17:37And I think that a lot of that network died away. And And I think that might have been a mistake because now we're trying to bring it back a lot because there is more complexity now. If we're doing the more complex hospitality businesses and so on and we're building that partner channel, obviously it's a new evolved way of go to market with partners and we have a very huge direct effort and an outbound effort on the streets. So when you move more to direct sales, the traditional perceived notion is that actually It's quite a slow sales cycle. They're not generally that technology adopting. They have slower adoption cycles.

18:11Was it high velocity and also like your ACVs were still pretty high then. So was it high velocity and high ACVs? I'm fascinated. I mean our sales cycle was like 30 days. It's not enterprise sales cycles. What was the ACVs then? But this is bad then. So not obviously. Sorry. What's the acronym average contract value? Yeah, it's like a few you know sub five thousand and then a lot of cases, you know, I'm sorry I'm fascinating. How do you do it? You call them up and say hey, Docs Do you need all help with light speed? Do you go into the store? What was that? When it was our direct sales model like we're doing a lot of performance marketing You know, it's it's for people that are looking for retail point of what to sale systems or later hospitality point of sales systems You're generating all those leads and you're qualifying the leads then your sales people are closing and then the close rates We had really, really strong close rates because we prospected leads that were very much in our wheelhouse It was a good they were a good match for the product now today.

19:07We're going after ICP merchants and we're making a transition with locations Where before we were going after everything and a lot of our everything in terms of like every range of GTV, right? So 500 ,000 and above is really where light speeds determine where we can where our products is the best fit But we have tremendous, we have a lot of customers that are some 500 ,000 as well. I went to the site though, sorry to interrupt you to ask. I mean, this is the nicest way, but I didn't know how to say it nicely. It's super enterprisey. Like, there's no PLG motion there. I couldn't sign up and see much.

19:41It was heavy enterprise. Is that deliberate? I think for our ICP, which is 500 ,000 of annual transaction value, did you want to speak to somebody? There is complex operations. It's not something you're going to sign up for. and just start going with. There is a segment of customers that's below that, that could probably do that, but it's no longer our main target. Over time, you have to make choices and you have to choose focuses of like, who do you really serve? And who is really gonna wanna pay for all the functionality that we have? So it's a really rich system. If your needs are X, it may not be that you wanna spend the money on everything the lights we can do.

20:20You may be better served by a clover or a square or Shopify. I think it's really important that businesses have opinions, which is like if you're subbed 500K, all good, but we're just not the right provider for you, and there's many others that are. Find one on the products and then I want to go to the leadership. How much of like cost is on implementation, hardware, and how do you think about kind of reducing that as much as possible, because that's a real hit on margins. Yeah, that's why hardware sales are a big focus for late speed. Our revenue is primarily software subscription revenue and payments revenue.

20:52Do you think the markets understand the two and how they should be valued? The software in the payments piece? You know, there's always a debate of whether we want to be considered a software company or a payments company, what's better for light speed? I mean, my preference would actually just be that the markets understand us as a profitable growth story and you know, we've got three quarters of EBITDA positivity under our belt. And we still remain a bit of a show me story for the market. Why do you think you're a show me story? because I just tweeted before this show that you're one of the most underestimated or misunderstood public companies.

21:25Sorry, I mean that in the nicest way. But why are you showing me? So I think we've been a grow, grow, grow story for a long time. Last year, we spent the almost the entire fiscal year rolling out lights, we payments and making and converting a third of our base. Now we've got this really great foundation for profitability. I've spent a lot of time and focus on cutting off X. And so I think we're doing a lot of the things the market wants to see. I think it just wants to see that plus software revenue growth as opposed to payments growth for a few quarters. It all has got your high. It was that something that needs to be brought under control.

21:59It just hasn't been a focus and that's part of the reason why I think it's important for the founder to come back. It's a new phase for the company being a profitable growth story. Talk to me about that because you know you're chairman. You can be chilling on a beach doing whatever you want to do in a different capacity. Why did you decide to come back? And why was then the right time? What's great about being the executive chairs? It's great for a founder, because you can be on the email, you can be on the Slack, you can be in the, get the pulse of the business, but you really aren't in the day to day operations.

22:28You know, you can kind of see it happening, but being in the chair is very different. We are in a new phase and we've had, we've pulled off some incredible things, the acquisitions, getting through flagships, making the payments thing a lot of the market It was skeptical on the payment that we'd be able to execute on the payments thing. All that's been done. But now I think we're in this grown -up phase. We are no longer a teenager next year. We're turning 20, right? I want us to be a great adult. We know what the formula is. It's a good time for a founder to lead people through some maybe some structural changes.

23:01You know what I want to say? You might be able to ask it like, you come back because something is not right. You don't change things that are working perfectly well. What was not lacking path any while? We all want to see investor confidence return in the stock. I mean that's not been a good story. The story is the profitable growth adult version of light speed, right? It's got all of these things in balance. I felt JP felt the board felt that the founder... It's a good moment for the founder to be able to tell that story and lead the team through the transitions that are necessary. And we had to do some...

23:32in the five months I've been back, we had to do some tough things. We had to do a reduction in force. We've had to get into capital allocation strategy. We had to make some big clear statements that calm down nerves about no more M &A, no large M &A. And show great growth numbers, shows great forecast of a balance of profitability and growth. So there's been lots of not resets, but clear definitions of what it's going to look like for investors. And now I think that they want to see that consistency. After unpacking a couple of times that, you mentioned the roofs. What are big lessons in terms of how to do RIFS?