SaaS Interviews with CEOs, Startups, Founders
Fireside Chat with James Isilay of Cognism: Fundraising during the current economic climate
26 Dec 2023
Chapter 1: What insights does James Isilay share about fundraising in the current economic climate?
You are listening to Conversations with Nathan Latka, where I sit down and interview the top SaaS founders, like Eric Wan from Zoom. If you'd like to subscribe, go to getlatka.com.
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So I thought a lot about what I know you've done, because I only want people teaching up here that have actually done stuff. I want them to say, here's how we did it, and here's the proof. You've bought companies. You put the LOI up on the screen at the last event. I think a lot of people in a distressed situation, they may have competitors that are maybe in trouble.
They might be looking to buy events. So before we get into that, I just want to establish benchmarks and then jump into M&A strategy for Cognizant and how you're thinking about product roadmap. Before we do that, what's MRR today? 52 million a month. Give this guy a round of applause. AAR is 52 million. Okay, that's even up from back in September. So what's driven the growth?
That's what, 5 million more in ARR?
We went from 2021, we went from 11 to 22. Last year, 22 to 44. And this year, we'll end this month at 52. Wow. So what's driven the growth? Are you buying? Is it organic? How are you doing it? It's organic now. I mean, we bought a company called Casper, which is a PLG, like a focused business last year.
And so that when we looked at it was 1.5 million AR and now it's like around about 5 million AR. And talk about how you got that deal done. So how did you find the deal and what did you pay for it? So we found the deal because my sales team came to me and said we've got this new competitor. And they're coming up more and more.
And then what I did is I reached out to the CTO and the CEO to actually see, you know, to engage with them. And because they were in France, we didn't have a great French data set, so we wanted to improve our French data set. And also, they had a different model to us. They were more like, we're more positioned against ZoomInfo. They were more positioned against Lucia.
They were more a PLG motion. So I wanted to get a PLG motion for, you know, because we weren't very skilled at that, and our IT team wasn't. So I wanted for us to get the skill set for that.
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Chapter 2: How has Cognism achieved significant growth in annual recurring revenue?
So what multiple did you pay? 1.5 million ARR, you paid what? When we actually ended up acquiring them, they were about 2.2. So we paid 20 at the time. 20 million our cash up to now. Yeah, I know. And the cash is released in stages when they hit certain targets. So over a long period of time. So that's working out really, really well. They're highly motivated.
We've given them a little bit of equity as well. But actually having those kind of revenue goals to hit has created incredible focus. And also meant we haven't really paid out a lot of cash initially. So we're paying out cash as they hit targets. What percent of the $20 million was up front? I think around about, I'd say around about 20% of it was up front. OK, so a smaller chunk.
A lot of people in here may have been approached by bigger companies that say, we want to buy you. We'd like to buy you for $10 million, but we're going to do something out of earn out. And the second they hear, you've got to hit these revenue milestones to earn the earn out, they go, I'm never going to see this money because you control the business.
Aren't you a little disincentivized to see, Casper? I'm wearing the devil's hat here. aren't you disincentivized to see it grow because you don't want to pay the extra 80% of the sale price?
I want the growth. No, no. Not at all. I want them to succeed. And so, and it's also just, you want to work with motivated, if you acquire a company, you want to work with a motivated team. You don't want to work with a demotivated team. Yeah.
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Chapter 3: What strategies did Cognism use to acquire the company Casper?
So, I mean, there's every incentive to be engaged with them and every incentive to help them achieve those goals. I would, the faster they achieve their goals, the happier I am. Yeah.
Well, guys, this is pretty impressive. I mean, you effectively negotiate if a company is doing, you know, 2.2 at acquisition price and you pay 10%, 20% of 20 million is upfront cash, right? That's $4 million. You basically paid your risk upfront in terms of cash outlay was like a 1.9X amount. or something like that. Yeah, very low risk. Now, some other folks, anyone else?
Scott, have you bought any companies yet? You looking at it? Maybe? Thinking about it? Rajesh, is this built into your presentation tomorrow at all, how you bought Unboxed? Okay, that would be great. You paid all cash up front, right? 90%. And that was a $100 million deal, so it was 90 million up front. Interesting story there. Anyone else bought companies thinking about it?
Okay, let me ask you a different question. How are you now thinking over the next 12 months, how are you thinking about M&A in this sort of new world that we're in?
Right now, we're just finishing off a round, so we've got another round closing next Friday. What's the amount? It's 50 million.
Is that breaking news? It is, yeah. Round of applause, although he's... Stop that. Dilution?
How much? Like crazy amount? No, no, no. I mean, it's... We're doing that on a 425 pre. Okay, and you're raising 50? Yeah.
Okay. Okay. So, okay. A little more than 10%, 15 to 12. Okay. And do you have to do like an ESOP pool on top of the round as well? Another five, 10% for employees? Yeah, exactly. Interesting. Yeah.
We're pretty good at getting equity back to employees from investors.
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Chapter 4: How does Cognism differentiate between PLG and top-down sales strategies?
All right, so let me ask you this then. I imagine your ability to buy other companies, when you're buying other companies and saying, I'm going to give you stock and cognizant, you can now defend the valuation you want because you can say these investors just paid 450 pree.
We never had a crazy valuation. Some of our competitors were raising like 40Xs back in late 2021. We kind of kept our valuation reasonable. So I think the good thing as well is that our employees have seen growth in that equity, right? Versus now a lot of, I suppose, employees of those companies have their equity deep underwater. So we're in a good position in that we never really...
had an overvalued round. We didn't get those crazy valuations. What was your last round valuation? It was slightly below this round. So we got a slight up around this, which I think is quite unusual. The other companies I've invested in, I've seen like 50% cuts to the valuations from 2021. So we've got a slight increase, which is good.
But then I think right now, this is kind of like the low in terms of like historically, right? It's a little bit below market. So like everything you see upside from here, and that should help me with like new hires. So, for instance, we just got in the former kind of head of people from Datadogs joined us. So I'm able to get great hires now because we've got amazing growth. Yeah, great growth.
We've got a really good equity pool refreshed. And the people are getting that equity at a really good value. So it's going to help me with getting the next kind of, like, generation of talent in.
Well, guys, if there's any bootstrapper that really wants to just get the article in whatever press you want and say you raised it a billion-dollar valuation and you just needed to hire the talent executive, I'll put in however much you want over a 9,000-year period. It all hit in year 9,000.
You'll never see it, but it'll be true, and I'll write the press release, and we can get you the press so you can hire the talent without getting dilution, right? I think that there would be a service for that. I think people would pay for that, honestly. But anyway, James, this is very exciting. So how do you go from a $50 million run rate today to a $100 million run rate in 2025?
I think, again, it's like the last talk, investing in new people, making sure that we just... No, come on. Is there a big competitor doing $30 million in revenue that you're going to use the $50 million you just raised to go buy? I mean, I think we're mostly focused on organic growth right now. We've been growing... like over 100% per year. Most of that is organic.
So right now we're focused on organic growth. We want to be the best international contact data provider in the world and be really, really focused on that. Not go multi-products, be really good in our niche. And I think just from that and then getting our... sales teams to be multi-threaded and sell to enterprise. Like, that's our biggest challenge.
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Chapter 5: What are the challenges Cognism faces in the current economic environment?
He's busy. He's quite busy being a public company.
Okay, so Zoom hasn't made an offer yet. Would you sell? Right now, I'm really enjoying running this business. I'm really enjoying growing it. I love my exec team. I love the whole company. So I'm actually having a lot of fun. Right now, I want to take it to IPO. I'd love to become a unicorn. UK doesn't have too many of them. I think we've got about... The last count was 42.
I'm sure it's a lot less now. So I'd like Cognizant to become a unicorn, and then I'd like to list it. I think that's the path I'm going on right now.
So how much revenue? I don't know what it's like in the UK. How much revenue do you have to have to have a good IPO in the UK?
Well, I think my investors are kind of like targeted to 300 million AR for us to go to IPO. So the question is, how much do we do that organic? How much do we do that inorganic? I think we've got a lot of optionality there in terms of different paths to go down. But right now, we're focused on organics for the next couple of years, get the company profitable.
And then once we're profitable, then look at our options to speed up the IPO.
Is Zong in here with QCC? Not yet? Okay, I'll introduce you to him. Okay, we have two minutes left. Let's look at one or two questions. Rajesh, you got a question for James? Curious about anything? Yell it out. Top two challenges going forward in the next 12 months.
Right now it's hiring. We've got execs to fill in. So I'm looking for a new CFO. And then I've got another exec. So it's upgrading the exec where those execs are kind of not scaled. And then I think overall it's the economy, of course, right? So I'm sure everybody's seeing win rates kind of drop and deals getting harder to close.
So for me, it's really upgrading the sales team so they get more multi-threaded and we can start to get more of those enterprise deals. Because I think that that is where we need... The issue right now in win rates, particularly enterprise, is that there's more decision makers needed to close deals. So you need to get more multi-threaded and you need to teach your teams how to do that.
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