Founded in 2015 by CEO James Isilay, B2B SaaS company Cognism has taken off like a rocketship: In 2019, it grew from $2 million to $7 million in ARR, then surpassed its $10 million run rate in 2020.
By the end of the year, Cognism expects to earn $11.5 million in revenue — and it projects $20 million for 2021.
Cognism’s prospecting tool helps businesses find and engage new customers in the B2B space. “We’re providing global contact data, so mobiles, direct dials, B2B emails,” plus the tools to engage that data to generate new customers, Isilay tells Latka in an interview
To provide added value to its own clients, Cognism recently acquired Mailtastic, a German email signature marketing platform, for $4 million in a mix of stock and cash options.
“When we’re looking at acquisitions, we’re also looking for tools that help us inform our data asset and improve our data quality,” Isilay says, also noting that this move ties back to his aspiration to increase customer conversions.
Combined with Mailtastic’s clients, Cognism services more than 1,000 customers. While some contract the platform for longer, the average lifecycle is 14 months, leaving it with a net revenue retention rate of 85% to 90%; 110% with Mailtastic.
However, Isilay says due to the company’s fast sales cycle, “A lot of these customers that churn out will come back; they treat the service almost transactional, then they return.”
At the time of this interview, Cognism earned $750,000 in net new MRR, which is close to pre-COVID earnings. To regain lost profits, it plans to increase its $14,000 ACV closer to $28,000 as well as target larger companies rather than small and medium-sized businesses.
Source: GetLatka
At the core of this SaaS model is what the CEO called an incredible inside sales and marketing engine — one it couldn’t advance without the 12 business development managers who earn a 10% commission every month they meet their minimum quota of $8,000 in new MRR.
In total, Cognism employs 179 people distributed around the world: a large data research team in Macedonia, which costs €500 (about $600 USD) per person each month to sustain. The engineers are in Zagreb and Zadar in Croatia, sales and marketing teams are in the U.K., there’s one office in New York, and there’s one employee in Vancouver.
Despite the challenges of COVID-19, Cognism is focused on growth.
After raising $23 million in primary and secondary capital across a range of European and U.S. investors, Isilay says Cognism still has a healthy cash balance. With reduced operational expenses under COVID-19 work-from-home orders, it can redirect funds to further build its sales and marketing team.
Eventually, Isilay will raise another round of capital — when he does, he’s confident his SaaS company will reach a $100 million valuation.
What is Cognism’s annual revenue?
In 2020, Cognism anticipates generating $11.5 million in ARR.
What is Cognism’s monthly revenue?
In 2020, Cognism generated $750,000 in MRR.
Who is the CEO of Cognism?
James Isilay, age 42, is the CEO and founder of Cognism.
What is Cognism’s valuation?
Cognism has a $72 million valuation.
Transcript Excerpts
Find your sweet spot — how to attract international acquisitions
“We could sell them the fact that they would grow faster with us. I think in Europe, in particular, there’s a lot of great product companies that don’t have the capital to grow and don’t have the investment in the sales team. Also in their home markets, it’s usually a little bit tougher than say in the U.K. or U.S. markets, both of which we have access to.”
Want to liquidate? Don’t overlook secondary capital
“[Secondary capital] is existing employees or existing investors selling their shares for a small discount to an investor. It’s a great way to get liquidity, and it’s becoming a bit more common. If you want liquidity at an earlier stage, that’s actually becoming an option now, whereas, from my understanding, it wasn’t much of an option even just a few years ago. But now, funds are getting more used to offering it.”
Think outside the box when hiring international teams
“When I looked at it, [Macedonia] was cheaper than having to hire in India. They’re in the same time zone, everybody is fluent in English; it’s a very cost-effective location. Like I said, one of our first backers was a firm called South Central Ventures from that region. Part of it is creating jobs in that region, so it was a really great fit for us to take funding from them and also build a base there. It was a double bonus.”
Turn a severe crisis into opportunities for growth
“I think COVID actually helped us get way more efficient. We didn’t need an office anymore. It slowed our headcount growth. … We really have an engine now where we can just put more money into headcount in terms of [sales development representatives] or into marketing, and then get more growth. It’s just really a question of how much we want to put the foot down on the pedal at the moment.”
Full Transcript Nathan Latka: Hello everyone. My guest today is James Isilay. He’s the CEO and founder of Cognism, a B2B SAS company, which was recently voted one of the top 25 startups in the UK by LinkedIn. Before founding Cognism, James was employed as an algorithmic trader. James has a Master’s of engineering and information systems engineering from Imperial College of London. James, are ready to take us to the top? James Isilay: Yes, for sure. Thank you. Thanks for inviting me to the show. Nathan Latka: You bet. Algorithmic trading. Did you get super rich carving milliseconds off of trades by installing hardware close to the stock exchange? James Isilay: Not quite. I was at at Swiss utility when I was doing the algorithmic trading. I was doing a bit more slower stuff, but it was good fun. I thought it was my dream career, but then I realized that it wasn’t. It was sitting behind a desk all day long, which I’m a bit more of a social person so it wasn’t for me really. Nathan Latka: What is Cognism? James Isilay: Cognism, we help businesses find and engage new business in the B2B space. We’re providing global contact data, so mobiles, direct dials, B2B emails, and then the tools to engage that data to create new business. We’ve also just recently acquired a business in Germany called Mailtastic, which is an email signature marketing platform. That really ties back to getting those prospects engaged to help increase conversions. Nathan Latka: When I hear about an acquisition like that and this space you’re in, what I really hear is it’s a data play. It allows you to make sure you have enriched contact data, etcetera. James Isilay: Exactly, yeah. That’s part of it. When we’re looking at acquisitions, we’re also looking for tools that help us to inform our data asset and to improve our data quality. Nathan Latka: Mm-hmm (affirmative). That acquisition was done back, I believe, on May 11th of this year, so fairly recently. James Isilay: Yeah. Nathan Latka: How did you meet the founders? Tell me how the acquisition went down. James Isilay: Yeah, pretty much because it was COVID and then we had all country lockdowns as well, it was a really interesting time to do an acquisition. We’d met them just before the country lockdowns had happened. We were able to travel and meet them once, but then everything was done over Zoom. We did all of it over Zoom. It’s funny because in Germany, you have to actually go to the notary and actually have the whole contract spoken out, even, you actually have a representative to sit there and listen to the entire contract spoken out, but they made an exception because of COVID and we were able to do everything remotely. Nathan Latka: Oh wow. That’s incredible. Okay, that closed earlier this year. Give me a general sense, what’d you guys pay for Mailtastic? James Isilay: I believe like in total it was around about $4 million, I think it was about $4 million. Nathan Latka: Okay. How do you structure that? You obviously have some scale, but you don’t have hundreds of millions to throw around. Was it an all stock deal, all cash. Was there an earn out? How did you structure it? James Isilay: It was a mix of stock and a mix of cash. Nathan Latka: Okay, got it. How do you, as a startup founder sell the Mailtastic founders on taking your stock instead more cash? You have to sell a vision to them and get them to believe in your vision. James Isilay: We’ve had an incredibly fast growth rate. We grew in 2019 from $2 to $7 million. We’ve got an amazing revenue engine. That’s the heart of our company really, it’s an incredible inside sales engine and a great marketing engine as well. We could sell them the fact that they would grow faster with us. I think in Europe, in particular, there’s a lot of great product companies that don’t have the capital to grow and don’t have the investment in the sales team. Also in their home markets, it’s usually a little bit tougher than say in the UK or US markets, both of which we have access to. Nathan Latka: Mm-hmm (affirmative). Just to be clear, you finished in 2019 with a run rate of $2 million and you’ve just recently passed a $7 million run rate? James Isilay: Yeah, that was at the end of 2019. We were $7 million and now we’ve just gone over $10 million. Nathan Latka: That’s great. Okay. I got my math wrong. Then you finished 2018 with $2 million, 2019 with $7 million and now you’re about you’re passing $10 million, $830 grand a month. James Isilay: Yeah, yeah, yeah. This month we did about $750K of net new business. Nathan Latka: $750K. James Isilay: Yeah. We’re getting back to where we were pre-COVID. We had a little bit of a hit with the worrying that happened with COVID for one month, but we’ve consistently grown and consistently hit our targets every month. Nathan Latka: Mm-hmm (affirmative). Walk me through what happened in COVID again; 2018, you’re at $2 million, 2019, you hit $7 million run rate in December with that C-note, call it eight, nine, 10 months ago. COVID then sort hits and you’ve only added about $2 million over the past 10 months. What impact did COVID have on that growth? James Isilay: Well yeah, we were at $3 million, right. I guess what really happened churn, I guess, customers that we had that were in the recruitment and the event space in particular got really heavily hit. I think in particular in the UK now, we’ve had a complete lockdown and then we’ve gone back just recently in the last couple of weeks and into lockdown. Those businesses are heavily hit. James Isilay: When we had started in 2017, we had a focus on SMB businesses. We’ve been moving up consistently away from the small companies up to larger employee companies. That was a large part of our customer base and that part, that customer base has been hit particularly hard as well. A portion of that is coming back, but that was the main hit. James Isilay: Then it was also just the disruption of going from an office to work from home. We’ve made that transition now of actually being able to effectively manage a remote sales team. But initially, that was a bit of a shock to our system because we had a great office culture and a great team in office. Nathan Latka: Yep. No, it’s a tough thing to balance obviously. A nice thing is you’re still getting growth and yet to your point, call it $2.5, $3 million, in new AR over the past, call it 10 or so months, you’ve raised capital obviously along the way. Tell us about that. James Isilay: Yeah. We’ve raised in total about $23 million from a mix of European and US investors. We’ve still got a very healthy cash balance from that. But yeah, initially we had investors from mainland Europe, from Switzerland and from actually from the Balkans, a Balkan fund. Then we got funded by UK investors, angel investors, and then more recently from a big USBC called Peak Span and then from AXA Investment Partners, which are also European-based. Nathan Latka: Break that down for me. You did $10 million with Peak Span in July of 2019. Is that right? James Isilay: Yeah. Nathan Latka: Yeah. Then $12 million from AXA, just in March this year? James Isilay: Yeah. That was a mix of primaries and secondaries, yeah. Nathan Latka: Yeah. Some folks don’t understand what secondary means. How does that work? James Isilay: Basically it’s existing employees or existing investors selling their shares for a small discount to an investor. It’s a great way to get liquidity and it’s becoming a bit more common. If you want liquidity at an earlier stage, that’s actually becoming an option now, whereas, from my understanding, it wasn’t much of an option even just a few years ago, but now funds are getting more used to offering it. Nathan Latka: Why would folks on your team do that if they know your financials and see you’re growing so fast, especially considering the tax consequences of cashing out a portion of their shares? James Isilay: Yeah. Speaking to some of my angel investors, especially from the UK, a lot of their angel investments have just died. Actually getting any money out of an investment is great. Nathan Latka: Oh. James Isilay: They’re very ecstatic to actually see any sort of return from a seed stage investment. I think just generally, everybody in my team is pretty much first time in startups. None of us are experienced entrepreneurs. Just getting some liquidity to get a life balance, it was a great opportunity, I suppose, to get the billable cash and buy some of the things that you wanted in life. Right? Nathan Latka: Yeah. About what portion of the 12 million ended up going to secondary? James Isilay: In total, it was about $5 million. Nathan Latka: Okay. What is that? 30%, 40% something like that? James Isilay: Yeah, yeah. Nathan Latka: Yep. Okay. Not bad. The rest of that, obviously just infused in the company. You mentioned healthy cash balance today, buy yourself some runway during COVID, obviously, it was probably a main priority. Help us understand what team looks like today. How many folks? James Isilay: In total, we’re 179 people. It is a very large number, but we have a lot of people in the Balkans. We have a large data research team in Macedonia. All our engineers are in Croatia, in a place called Zadar and some are in Zagreb, and then our sales and marketing team are in the UK. Then we’ve got a small office in New York and one person in Vancouver. Nathan Latka: What’s the total monthly expense for just the team in Macedonia, just give me an idea? James Isilay: Oh, in terms of expense. Typically, we’re paying about $500 euros per person there on average. That’s the average price. Nathan Latka: Per month? James Isilay: Yeah, per month. When I looked at it, it was cheaper than having to hire, say, in India. They’re on the same time zone, everybody is fluent in English. It’s a very cost-effective location. Like I said, one of our fist backers was a firm called SC ventures, South Central ventures, who are from that region. Part of it is creating jobs in that region. It was a really great fit for us to take funding from them and then also to build a base there. It was a double bonus really. Nathan Latka: How many people now are on the team there? James Isilay: I believe, in both regions, it’s about 60. Nathan Latka: Okay, about 60. Okay, great, great, great. Now help me understand this; Crunchbase, as you guys have raised $50 million, that’s obviously not accurate. James Isilay: Yeah. I asked that to be corrected. There’s a double count there. Nathan Latka: I’m like, “They’ve gotten a series B counted 20 times.” Got it, because then I was going to give you shit . I was going to say, “You’ve only built a $9 million company and you raised six X that? That’s not really capital efficient,” but you’re much more capital efficient than what that shows. James Isilay: Yeah, yeah. Yeah. I asked for that to be corrected, but it hasn’t, I’ll chase them. Nathan Latka: No worries. We got the right story here now. That’s all that matters. So 60 people in those locations, 179 on the team total. How many engineers would you consider are on the team? James Isilay: We have 15 coders and we have 24 with DevOps, which includes QA, 24 with DevOps and QA. Nathan Latka: Okay. How many folks in your team carry a quota? James Isilay: I would say carrying quota, I would say that’s a roundabout 12 right now. Nathan Latka: James, should I dig deeper here? At the top of the show, you said one of the things you feel like you’re very good at is your revenue motion. Should I dig deeper on how you built the sales team? James Isilay: Sure. Yeah, you can do that. Nathan Latka: How’d you build it, right? Let’s just start with a number and then work backwards. Right? What do you set quota at relative to their full on target earnings, base plus commission? James Isilay: In terms of the actual quotas, right now in terms of the actual BDMs or I guess what you call account executives, they have a minimum target of around about $8000 of quota that they’re meant to be bringing in per month. Then in terms of commission, we’re just about to change our commission model right now. I’ve been told it’s very generous. We set targets. We’ve been setting targets so that generally almost all of our reps always hit a target. We were quite generous on the targets and we’re getting a little bit tougher now in terms of targets. Yeah, but it’s $8000 minimum that they need to, to hit. Nathan Latka: Last month, how many reps hit your quota? James Isilay: All of them hit quota. Nathan Latka: That’s obviously not good. James Isilay: We need to be a little bit tougher. Nathan Latka: Yeah. Then you said your commission is generous. You usually here something like 30% or something like that. What is your commission at right now? James Isilay: Oh, it’s 10%. Okay, maybe we’re not that generous. Nathan Latka: 10% of monthly or annual. James Isilay: Of monthly. Yeah. Nathan Latka: Got it. If a quota is hitting their $8000 in new MRR target every month, they’re basically adding $800 a month to their comp, basically, 10% of $8K? James Isilay: Yeah. Yeah, exactly. Yeah. Nathan Latka: Okay. Got it. What were you going to say? It seems like you were say someone else there. James Isilay: Oh no, no, no. Nathan Latka: Okay. Got it. Commission is 10%. Here’s the big question: how long do you pay that commission? Is it every month for 12 months or 24 months or what? James Isilay: Yeah, it’s every month for 12 months. Nathan Latka: Okay. If a customer stays longer than 12 months, your margin automatically increases because you don’t have to pay a commission anymore. James Isilay: Exactly. Yeah. Nathan Latka: Interesting. How long are customers staying? James Isilay: In terms of the total time that they’re staying, I’d say that in general, it’s around about 14 months, but we have customers that are staying a lot longer than that. Nathan Latka: Maybe a better question is what’s your monthly revenue churn? James Isilay: Our net retention is around 85% right now and it’s moving towards it 90%. Nathan Latka: Well, James, that’s really poor. That’s a very poor net retention metric. Why is that so low? James Isilay: I think it’s quite typical in our industry. For Mailtastic, for instance, our net retention ratio is over 110%. Nathan Latka: Well, that’s great. James Isilay: In prospecting tools in the data business, a net retention rate of around 85% is, to my understanding from the history of the industry, quite common. We have a very fast sale cycle. Also a lot of these customers, customers that churn out, will come back. They treat the service almost transactional and they return. As far as my understanding and knowledge of the industry, it’s quite common. It’s a common metric Nathan Latka: We just saw ZoomInfo go public. Right? They’re obviously much larger, more mature, etcetera. They’ve been around for much longer. They’re at 120 in terms of net revenue retention. You would put them in your space, right? James Isilay: Yeah. I would put them in our space. I think that figure really applies to more the enterprise clients. If you actually look at their SMB net retention or their mid market, then I think it’s more towards our figure to my understanding. Nathan Latka: Yeah. According to the S1, they basically broke it down by three cohorts. They also broke it down though by on a revenue basis across the entire business. It came out to call it 110, 120, but look, you’ll get there. That’s why you go do an acquisition like Mailtastic. You’ll do more of this and it will become stickier and stickier over time. James Isilay: Part of that is we started in that SMB space and then we’ve moved up and moving towards enterprise right now. That’s part of the story. Nathan Latka: How many customers are you currently serving? James Isilay: In total, over 1000, if you include the Mailtastic clients. Nathan Latka: Okay. Got it. What are they paying on average per month then? James Isilay: In total, our ACV right now is about $14,000 per year. Nathan Latka: Got it, got it. That means ARPU is call it 1000, 1100 range, something like that. Yeah, interesting. Okay. Got it. Do you think you’ll break a $10 million run rate by the end of the year? You’ve got three more months. James Isilay: Oh no. We’ve already gone over $10 million. We’re over $10 million now. Nathan Latka: Oh, got it. James Isilay: We should finish this year at $11.5 and then next year, I’m certain with the kind of metrics that we’ve got that we’ll be at $20 at the end of next year. Nathan Latka: Interesting. That kind of confidence to me goes, “Oh, he’s putting a deck together. He’s about to go raise more capital.” James Isilay: Well, yeah. We always have a deck ready. I’m just quite solid on our metrics. Then the other thing is that we are aiming to increase our ACV. It was at $11K and now it’s at $14K and the aim is to get it towards the $28K. We know what we need to do in terms of product strategy to get there. Nathan Latka: Yep, no, that makes a lot of sense. How much are you burning per month right now? James Isilay: Right now at the moment, it’s only about $200K per month that we’re burning. Nathan Latka: That’s net burn, right? James Isilay: Yeah. That’s net burn, yeah. Nathan Latka: That’s not that bad. That money that you raised, you’ve got, call it, $10 million basically. Well, $5 million of the $12 was secondary, so you’ve got what, $6M or $7M still sitting in the bank. James Isilay: Yeah, yeah, yeah, yeah, yeah, exactly, exactly. Nathan Latka: Interesting. James Isilay: I think COVID actually helped us get way more efficient. We didn’t need an office anymore. It slowed our head count growth. There was a lot of positive effects, let’s say, from COVID, in just making us more efficient in terms of how we worked. We really have an engine now where we can just put more money into head count in terms of SDRs or into marketing and then get more growth. It’s just really a question of how much we want to put the foot down on the pedal at the moment. Nathan Latka: Yeah. I won’t push you harder than this high level question because it’s obviously sensitive information, but when you did do the $12 million round, did you guys break $100 million dollar valuation or do you think that’ll be your next round? James Isilay: Oh yeah. I think that will be our next round. Nathan Latka: Okay. Got it. You had to have been flirting with it though. You got to have been pretty close on the $12 million. James Isilay: Fairly close. Yeah. Nathan Latka: Yeah, yeah. Very good. All right, James, let’s wrap up here with the famous five. Number one, favorite business book? James Isilay: The Hard Thing About Hard Things by Ben Horowitz. Nathan Latka: Number two, is there a CEO you’re following or studying? James Isilay: Yeah, of course. Henry Schuck from ZoomInfo, of course. I like that they have an incredible revenue machine and also just their path to IPO through organic and inorganic growth is something to be studied. Nathan Latka: It’s a heck of a story in the use of debt when you look at the ZoomInfo acquisition and how they pulled that off. It was incredible. James Isilay: Exactly. Nathan Latka: Number three, what’s your favorite online tool for building your company besides your own? James Isilay: I think Gong, I like Gong.Also Slack actually, Gong and Slack. Nathan Latka: Number four, how many hours of sleep are you getting every night? James Isilay: About six. Nathan Latka: Okay. Situation James? Married, single, kids? James Isilay: Yeah. Married, two girls, 15, 11 and one boy, three years old. Nathan Latka: Oh, wow. How old are you? James Isilay: I’m 42. Nathan Latka: James Isilay: Oh, knew? I would say actually doing a startup, actually taking more risk away. I suppose when I graduated, the path was to go into investment banking, which is what I did and then I became a developer trader. I think if I would have taken more risk and actually gone and jumped into startup world earlier because I just love it. It’s just so much fun. Nathan Latka: Guys, Cognism.com a great prospecting tool. They’ve just passed $10 million in annual recurring revenue and will finish this year with $11.5 million with eyes on $21 million in 2021. They’re serving over 1000 customers. They raised $23 million bucks to do it. Their last run of $12 million bucks, $5 million of that was secondary, but the rest basically still sitting in the bank because they’re just burning, call it $200,000 per month right now, and maybe do another round in 2021. We’ll see what happens. Nathan Latka: A team of 179 people, big data team in Macedonia and another team in Croatia of developer; 24 engineers total, 12 quota carrying sales reps, about to change the commission structure to get a little more aggressive there. $8000 dollars in new MRR per month is quota for those AEs as James continues to scale the company. James, thanks for taking us to the top. James Isilay: Thank you. Nathan Latka: One more thing before you go, we have a brand new show every Thursday at 1:00 PM, Central. It’s called Shark Tank For SAS. We call it Deal or Bust. One founder comes on, three hungry buyers. They try and do a deal live. The founder shares backend dashboards, their expenses, their revenue, ARPU, CAK, LTD, you name it, they share it. The buyers try and make a deal live. It is fun to watch every Thursday, 1:00 PM, Central. Nathan Latka: Additionally, remember these recorded founder interviews go live. We release them here on YouTube every day at 2:00 PM, Central. To make sure you don’t miss any of that, make sure you click the subscribe button below here on YouTube, their big red button and then click the little bell notification to make sure you get notifications when we do go live. I wouldn’t want you to miss breaking news in the SAS world, whether it’s an acquisition, a big fundraise, a big sale, a big profitability statement or something else. I don’t want you to miss it. Nathan Latka: Additionally, if you want to take this conversation deeper and further, we have by far the largest private Slack community for B2B SAS founders. You want to get in there. We’ve probably talked about your tool if you’re running a company, or your firm, if you’re investing. You can go in there and quickly search and see what people are saying. Sign up for that at NathanLatka.com/Slack. Nathan Latka: In the meantime, I’m hanging out with you here on YouTube. I’ll be in the comments for the next 30 minutes. Feel free to let me know what you thought about this episode. If you enjoyed it, click the thumbs up. We get a lot of haters that are mad at how aggressive I am on these shows, but I do it so that we can all learn. We have to counter those people. We’ve got to push them away. Click the thumbs up below to counter them and know that I appreciate your guys’ support. All right, I’ll be in the comments. See ya.