Fireside Chat with Fiverr Founder and CEO Micah Kaufman

Thanks for having me. I'm glad to be here. Ma, you know, Sean, it's Sean's birthday today. He's 37. Oh my god. Happy birthday, man. We met when he was 25. Amazing. Congrats. He's always throwing celebrations. But back to work. To start out the first five minutes, not even a couple minutes, I think everyone should hear from you the origin story of Fiverr. What was the original insight of Fiverr? What were some of those hard decisions you had to make early on, 10, 15 years ago, to get where you are today?

Sure. So you're right to call the fact that it's a two-sided marketplace where you have supply and demand. On the supply side, you have freelancers that are individuals with a few years of experience all the way to highly skilled individuals that have done work for the largest brands in the world, all the way to mega agencies that are providing tremendous amount of output for their customers. Many of them are making multiple million dollars a year on our platform. So you have a very wide variety, and again when you think about the types of services that are being listed on Fiverr, they start from basic somewhat simplistic types of services and they go all the way to very very complex projects. If we started from the $5 price point, today you have transactions that start at $5 and end up at hundreds of thousands of dollars per one transaction. So obviously that correlates with the type of supply that needs to tackle these different types of services, and it started from very simple services and now you have very very complex services that have to do with software creation, publishing of it, helping our customers market their creations and scaling it up. So you have a very wide variety. On the demand side, again since we started with microservices at the beginning, it was mostly discovered by micro businesses and SMBs, and over the years as we've extended the supply side or the skill side, we've started to attract the more large customers with more nuance, more complex types of needs. So you can find any type of customer from an individual that wants to start a business and they need to create an app or a website or promote their product, all the way to the majority of Fortune 500 companies that are doing much more complex and higher scale types of services on the platform.

Sure. So when you look at the makeup of Fiverr's revenues and you look at the cohort behavior, as you've said, more than 60% of our revenues are coming from repeat businesses. So these are businesses that came to Fiverr, had a great experience, and started expanding the type of work that they do. And as they build more confidence and as I said before, it's all about trust. When you establish trust and when you get a great experience, you allow yourself to think about other things that you can do with the platform, which makes them expand what they're doing. Some of these customers might be agencies that have repeat work and we support some of their skill needs within the agency. That could be very large companies that have ongoing projects and they constantly need to create more. It's customers that started building something with us, but then as I've said, you build something, you need to publish it, you need to get audience for it, you need to market it, you need to grow it, you need to continue investing in what you're doing in your product, in your go-to market. And we've been able through trust to drive them to do cross-category purchases over time and make Fiverr their go-to place for anything they need around digital services. And you said that at the beginning at the intro. What we've identified over the past few years is that more and more businesses are not just relying on their full-time employees, but they augment that talent with highly skilled individuals or agencies that can tackle very specific types of needs that some of them are one-time or some of them are multiple time, but they don't justify hiring someone full-time for it. So they use the platform because of its convenience and the fact that those who care about work classification and all of that, we support all of that ecosystem by allowing them to maximize the benefits of working with talent from all around the world. So we've seen that trend growing, and actually the fact that more than 60% of our revenues are coming from repeat goes back to the predictability of the business. I've been talking about this since IPO. I mean, and you called out this as well. The profile of the company over the past six years since going public has been very very different. The company was generating less than $100 million in revenues with negative, I think it was 16% EBITDA, all the way to more than $400 million and over 20% EBITDA and 25% next year. And printing about $100 million free cash flow. So it's a very different company than it used to be, and the types of customers have been growing with us. Sometimes because of economy there's a little bit more pressure on micro businesses because the cost of borrowing money is slightly higher. Larger businesses are taking advantage and they're reinvesting their capital into growth and they're being more prominent on the marketplace, and this has been our strategy in the past few years investing in these types of customers. You've called out the fact that there's some trends in how much customers spend and then there's also trends in the active buyer count. All of this is by design. So we've really refocused our energy and our investment in more complex types of projects for larger customers that can be retained for longer periods of time. They have a larger wallet. They appreciate the power of working with remote and flexible talent and they make the most out of it. It's not that we lost interest completely in smaller businesses. But when you want to create a very robust business over time, you need to focus on those customers that are not one-timers, those who can be retained, that they have the spend capacity and where you can make the most influence and help the most create the most value.

It's close to 800 different categories, and they fall under big verticals including everything between design and graphics to software development, marketing, video productions, writing services, music, audio, business consultancy, finance, obviously AI related services, data services, I mean the list goes on and on. Anything you can imagine. And actually when we look at those categories, and sometimes people have this idea of displacement of specific types of services, for us this has been the reality for 15 years. Categories come and go, and that's natural. We've seen categories that have popped up, have been exploding for a year, and then they go out of favor. That's not a new thing for us. But the amount of new categories that we create is always larger than those that are out of favor. And so that dynamic is something that is constantly happening. And one of the strengths of Fiverr as a two-sided marketplace, a horizontal marketplace, is the ability to identify trending services and needs, make sure that we fill the skill side of it first, the talent side of it first, and then we're able to start transacting around those new categories extremely fast. Everything I describe right now, identifying the need, getting the right talent, and starting to transact with customers, is a cycle that takes about two weeks. So this is super fast. And in peak quarters, we've been introducing, I don't know, 30 to 40 new categories a quarter. So this depends on what we're seeing on the trends. And we've become very efficient identifying those trends, whether within Fiverr or outside of Fiverr, and making sure that we represent those trends and those skills on the platform as soon as possible.

Yeah.

Yeah. You called the numbers correct. So the transactional portion of what we're taking is about 27%, out of which 20% is from the seller side. You can think about it as a marketing fee or expenses, which I would argue, and so do our sellers, that it's not very high in the sense of compared to what they need to spend in order to win a customer. When you start as an agency or as a freelancer, you invest 100% of your time trying to get customers because you don't have any. Even if you do have a few customers, there's time until these customers become happy and trusted customers and they maybe talk to others that give you some credibility in the market. But this cycle is very slow. And what we've identified, what we've found out, is that freelancers and agencies are spending tens of percentages of their time and their resources in trying to win projects. Now, when you think about it, some people would say, 'Great. So if I want to get a $100 transaction, it's very different than $10,000. Why do you get the same fee?' And the reason is the simplicity to winning a $10,000 transaction outside of Fiverr is really really hard. That burden we take away from these talented people, who by the way, not all of them like to be marketers of their own practice. They enjoy doing their own thing, whether that is coding or designing. It doesn't mean that they love being salespeople and chase their customers and then having issues with not getting paid on time and sometimes not getting paid at all for whatever reason and dealing with the minutia of the legalities of putting a contract and securing that they get paid on time and if something goes wrong they have a safety net. All of this is missing outside of a platform like ours. And so we solve for all of this. And when you think about it, it allows them, since they name their own price, they can set whatever they want. They know that we're being a partner only if they succeed. Only if they got a customer, only if that customer paid, right? So their win, their success is our success. It's as simple as that. Now, the other services that we've provided to sellers are optional. They don't have to use them. The only reason for people to pay for these services is if they create value, and the fact that it does, that's the testament of the value of these tools and their growth. So you've mentioned things like promoted listings or what we call Fiverr Ads. Now, if Fiverr Ads, if you invest a dollar and you get half or nothing, you would not use this tool. It's optional. The fact that this is ROI positive, meaning you always get more than what you invest, makes sellers use it. The other is a suite of what we call the seller tools, which are a suite of tools that provide analytical tools and access to a success manager within Fiverr that helps those who want to grow their business have the right strategies on how to do this and can get more exposure in other categories and get the best practices that we learned from other agencies on how they grew their business. Again, you don't have to use it. If it's not accretive, if it's not creating value, people would not use it. The fact that they do and the retention of these tools is very high speaks for the value it creates. I think that we're in a good place there in terms of the portion that we get from the transaction. That said, there's a long list of additional value creation tools that we are providing over time, and so as long as they create more value than they cost, it's a good deal and everyone wins.

Yeah. So I'll start by saying that AI is creating more value than it is destroying. And what we've been seeing is that mostly if you think about displacement of specific skills, these are usually low skills which are associated with smaller transactions. So we've seen, and we actually gave some disclosure around this, and we said that when you think about what we call the simple versus complex types of services that we have on the marketplace, simple is less than 20%, the complex services is around 40%, and the rest are neutral over time, meaning that they don't change, they don't go up or down. AI has no impact on it. And so what we've seen is, as I've said, we're creating more categories than we're removing categories that are no longer relevant. Two, the types of services that are associated with AI, just being able to remove the background from a photo. Great. So you don't need a person to do that. That's a $5 service anyway. And it's a one time and whatever. So that's great. And by the way, our philosophy is if a machine can do the job of a human being, human beings should not do this job. Period. We're not trying to defend things that computers can do on their own. That's great because it frees up people's time to find other skills and develop these skills. And we've seen even when you think about it, as technology comes in and allows people to build more on their own, let's take vibe coding as an example. What we've seen with vibe coding, and that's incredible. I mean, the fact that you can talk to a machine and it creates all kinds of funky stuff is great, but the reality is that the vast, the overwhelming majority of people that try to vibe code, and I'm not talking about like a birthday invitation or whatever, they're trying to create a full website or an app. The vast majority, over 90% of these people would not finish building because at some point it just doesn't do what it needs to do or it asks you questions that you can't answer. It asks you to connect to a database and run through security issues and what like, it's Chinese for anyone who doesn't know how to code, right? So this is where people get stuck. So seemingly you can create more stuff, but by the way from a competitive standpoint so does everybody else. Everybody has access to AI and people are constantly looking for a competitive advantage, and at the end they come to experts. Can you spend a month learning to vibe code like a pro? Maybe. But all of that one month to build one website, just take a pro to do it. It's so much simpler. And this is why we've seen AI related services, vibe coding is one of them, that are exploding on Fiverr. Or people that vibe coded something and now they want to transform it to another platform because they don't need to develop anything more. And so we've seen those trends going up, and actually this is pushing customers to more complex types of needs where the average transaction is higher, where the opportunity to retain those customers over time has been going higher. And for those who have listened to the earnings calls, I've been talking about this in numbers, and you see AI driving categories like programming and technology up 14%. And you see this across many other related AI related categories. And so we're definitely benefiting more from it. And actually the way we use AI internally has been changing the efficiency of the marketplace. So when we think about AI, there's probably three investments that we're doing. One is investing in AI categories. So categories that have to do with AI app development, mobile development, anything that has to do with data relating to AI, machine learning, analytics, visualization, anything that has to do with AI artists, AI for businesses, either consulting, strategy, teaching people within organizations how to be more AI natives, AI video productions, AI audio, AI content. There's a tremendous amount of categories being created around AI. The second one is really around how we think about using AI on our own platform to make it better. So how we use AI to power the marketplace experience and make the matching faster, more efficient, more nuanced. And the third is AI in the operational efficiency and how we work as a team. How we code the platform, how we design, how we do marketing, how we do customer care. All of this has been introducing incredible efficiencies which also allowed us to do things like shorten the path to 25% EBITDA by a year.

Spending a lot of time reading and writing to the team.

Look, I consider myself an entrepreneur. Even though it's been 15 years since the original creation of Fiverr, I still look at myself as a builder. So the funnest part is building things that change people's lives.

It's definitely the passion of our team to win the game.

Probably not letting the noise distract us from fulfilling our mission of changing how the world works together.

100% leader.

Thanks for having me and thanks for the confidence. Thanks, ma.