The Exchanges

Q Interesting. Okay, that's great. And did you, were you always sort of going this top-down approach, or back in twenty-twenty when you launched, were you going more bottoms up? I'm just trying to get a sense if there was a transition from sort of PLG to Enterprise Motion or something in between.

A Sure. Yeah, so with the discount plan, it was very much, um, well, it was kind of a hybrid. So we signed a deal with a nationwide dental network, so we sort of had a roster of dentists, very large one, nationwide. But we still had to go location by location by location, Getting individual dentists to opt in to being part of this discount plan. When we pivoted to AI, we started out with about half a dozen locations that we had prior relationships with, really to kind of prove the product out. Um, and then we started going to conferences. You know, we found with our last business, Silver Sheep, that, um, we really sold a lot to surgery centers, so we went to a lot of conferences in the space, and that worked well. So it started out more bottoms up, Um, simultaneously we were having conversations with, uh, larger DSOs and then private equity firms that own the DSOs, and as we've gotten more traction with them, we've been a little bit more focused on the, um, top-down, although we are going to, like, you know, a lot of conferences this year.

AI assessment note: “So it started out more bottoms up... we've been a little bit more focused on the, um, top-down”

Q How did you get that done, though? You lost all your leverage. Didn't they just pound you on valuation? It looks like you grew it to over eight figures of revenue.

A Yeah, so, um, yeah, we did. Um, the short, I don't know, but I think it's because we had a breakup fee. So we had, we had signed a term sheet with them. Uh, that term sheet expired. We had a competing offer. Uh, we had two competing verbal offers, and we had one competing term sheet. We got them back under term sheet, but as part of that, we required them to have a million dollar breakup fee. So I think the answer is, Probably because of the breakup fee. They, I mean, they wanted to buy us, but I think that that was the, the pill that they didn't want was to not close the deal and pass a million dollars.

AI assessment note: “I think it's because we had a breakup fee”

Q Yeah. Very interesting. Well, take us into that. Let's just fast forward to the product today and then we'll go back and get your and Sam's history. So the website header says automate your customer's Support calls with voice AI. Is this broad? Are you in a specific niche? Tell us what the product does today.

A Yeah. So I think when people write AI is the technology of our lifetimes. And when you look at the opportunities that people are zeroing in on to use AI inside of a business environment today, there are two big use cases people are pointing to. The first one is AI coding. And the second one is AI customer support. So we are in this massive opportunity space of AI customer support. And, and there are two approaches that That exists right now. There are these generic horizontal platforms that are really going after companies in any industry. And then there are these hyper focused verticalized industry solutions. And that's the bucket that we're in. So we started in the transportation space. We have added retail and healthcare over the last couple of years, but it is a very deep verticalized solution for companies in those industries.

AI assessment note: “hyper focused verticalized industry solutions. And that's the bucket that we're in.”

Q Yeah, fair enough, fair enough. Okay, talk me about pricing. How do you, how do you get people paying for this thing? Is, you know, is average ACV called mid-market enterprise? How do you think about that?

A Yeah, so inside of these industries that we operate, one of the beauties is This works for companies of all size, and because of how easy it is to get up and running, it's not prohibitive, and it's not just for the large companies in a space. So for all organizations, we're able to offer no money up front. We handle the setup and the integration at no cost, and then we do what we call listen mode, which is basically intaking a couple thousand of their phone calls to understand across, you know, if we use a retail example, there are 200 different call topics where we have automated workflows out of the box. What are the ones that are most important for them, for that company, which then establishes a roadmap for, uh, what the prioritization is going to be for turning on new automations week over week. At the point when we do that, we'll enter into a proof of concept period and the customer's primarily just paying us a dollar 50 per contact that we're able to resolve end to end.

AI assessment note: “primarily just paying us a dollar 50 per contact that we're able to resolve”

Q Wow. Okay, so what happened? It just lost for everybody? Shut it down?

A Yeah, I mean, so we didn't shut it down. We had, uh, tens of customers at the time. Still wasn't anywhere near, like, a million in ARR. We were always, like, the anointed winner of a market that was inevitable, but never actually happened. So it very much felt like a vitamin, not a painkiller, if I'm honest with you, Nathan, uh, which is very different to Cadence today. I lost a bit of hair during it, but it was fun, but we, we had, uh, our biggest line of business was with offices, so we're fortunate. Accenture were customers, Okta were customers, Uber were piloting with us, and this was the time of agile working was a phrase, so basically you could pick up your laptop and work anywhere in the office, and so Cadence, uh, Chargify rather, we have a swear jar every time I misname it, and you could wirelessly recharge all around the office, right, and so, um, this is March, 2020, when we all get that Text message saying shelter in place. Pandemic strikes. NASDAQ come to us, and NASDAQ say, hey, we're going to go from three buildings to one building. We're going to reduce, in Manhattan, we're going to reduce the number of desks we have by 49%. Hey, Chargify, your cloud management platform for all these wireless charges that are going to be on all of our desks, can we ditch the wireless charging part of it and just use your software to manage our move to hybrid? And Nathan had thre…

AI assessment note: “we didn't shut it down. We had, uh, tens of customers at the time.”

Q All right, fair enough. Let's dive deeper into that. 20 22, you launched Ledge. Are you sole co-founder? Did you raise on day one? What did the initial sort of cap table look like?

A So, I have a co-founder, a software CTO, who's a phenomenal engineering leader. Spent some time in the Israeli Defense Forces as well. Worked at larger companies like Intel and Checkpoint, and then actually joined a few Israeli startups. Rose all the way up through the ranks, eventually becoming VPR&D at a few Israeli companies, as well as an Israeli unicorn. So found the company with, together with Asaf. We started out raising capital towards the tail end of 22, when there were concerns about a potential recession, and it was a fairly abrupt I'd say change in atmosphere and sentiment going from the craziest of days early on in 22 to a lot of concern towards the tail end of that year, which is when we started the company when we raised our seed fund. We had, uh, I'd say a lot of luck in finding a great partner for us, uh, with new enterprise associates, NEA, and specifically we teamed up with, at the time, a partner who knew a lot about About what it was that we were building, having spent time as an operator himself at Airbnb building a lot of the financial kind of backbone and infrastructure there. And so the fit that we had with him was tremendous, and we were quite fortunate, I think, in that regard.

AI assessment note: “I have a co-founder... We started out raising capital towards the tail end of 22”

Q How did this, where'd you guys come up with the idea for the business? How did it get going?

A Yeah, I think the, the key is, is you have kept start with ping pod. So the predecessor business was ping pod, which is an operating business. So ping pod is a network of autonomous table tennis clubs. Uh, it was founded in 2019 by Max David Silverman and Ernesto Ebwin. I was the first outside investor in that business. Um, and the problem they were trying to solve, you had Basically, at that point in New York City, you had kind of one large entertainment destination, had to play ping pong, and then you had kind of basement dojo style clubs, and there was really nothing in between. And, you know, the reason for that was you have relatively high rent in New York City of relatively high labor costs, so the possibility of running a profitable ping pong club without food and booze was very little at that point. So we looked at that cost stack and said, hey, if we could do something about the labor piece, insert technology, then there might be a third way. To, to do this. Um, so that was the idea. Could you, could you take out that front desk, uh, type labor run without kind of onsite labor, um, all the time. If you could do that, you could extend your, your hours to 24 seven. So you're increasing capacity at the same time that you're reducing kind of your, your labor overhead. So you're working on kind of both sides of the math equation. And if you could do that, then you could do …

AI assessment note: “the problem they were trying to solve, you had Basically, at that point in New York”

Q That's awesome. Okay, I have to go back to how you funded the business, because I think you guys did a ten million series A in twenty-twenty-two, which would have been right before you launched the software. So are both of these companies under the same thing, and you, you sort of raised money with the legacy business, but are sort of using it to invest in the software business?

A We raised money that ten million dollars series A was for ping pod. Um, that was sort of before pod play existed. Um, and yes, some of the money from that was kind of the initial seeding of the, the, the pod play business. We spun out pod play as a standalone entity, uh, in August of this year, which was a prelude to raising a series A for standalone pod play, um, which we did in October. So eight million dollars series A round led by frontier growth. Um, which is kind of an OG investor in the vertical SaaS space. Um, we're super excited to kind of, you know, lock arms with them. They've been investing in vertical SaaS since 1999 before, you know, I say before vertical SaaS was a thing. Uh, and they've invested in, you know, some big names that you would, you would know, uh, from the vertical SaaS space. Uh, they, you know, focus entirely on vertical SaaS. So it's industry specific software, um, and have just deep Experience and network in the space, which was exactly what we were looking for, um, to sort of lock arms for somebody who would be kind of down in the trenches with us.

AI assessment note: “We spun out pod play as a standalone entity, uh, in August”

Q with you. You guys hit the ground running really hard and In 2018. Let's, I want to fill in the story between 2018 and 20 25, but I also don't want to lose the audience if they're going, what the heck is an HOA? You know, maybe they're a millennial. They're going, I've never lived in a neighborhood before. Tell us what you sell here while I'm on your website.

A What's the product? So, so the, we call the industry community association management because it's more than just HOAs, but what the heck is an HOA? An HOA is a homeowner association. Even if you haven't lived in one, you've probably heard of a homeowner association or HOA or some kind of meme about it. It's, you know, these are typically, uh, neighborhoods or communities that have some sort of common area property. Think clubhouses, amenities, golf courses, restaurants, pickleball courts, just nice landscaped grass, anything like that. But it also encompasses condominium buildings. So if you live, if you buy a condo, there is a shared common, uh, piece of real estate. It's the elevator, the lobby, the roof, the things like that. And there's a structure, a little kind of almost like a little city that has a little constitution that are the covenants that kind of manage how you have to live in those communities. You can not do certain things like not paint your house pink, which preserves property values, but you also get benefits like the use of these amenities and common area assets. So there's a whole industry of specialty property management that really focuses on serving just these community associations, serving owned real estate instead of things like Multifamily rental. And those are our customers, those professional community association management companies.

AI assessment note: “An HOA is a homeowner association. Even if you haven't lived in one”

Q SAS if you're already ingrained and a guy from the space like Dave knows the space well, and you guys built this great code, why not do payments? Why not do Loan to community centers. Why not do like whatever? How are you thinking about sort of what spaces to go into now that you have a beachhead, a mouse traps already, are already in these 500 community manager relationships?

A Yeah, it's, it's a great question. And so to be clear, we started with, with just a SaaS solution. We started with that beachhead. That was the pure kind of single product for, for multiple years. Over time, it's really expanded everything from payments. We have a payments platform and a payments product that is used across our customer base. That's both inbound payments from homeowners to their HOAs, as well as outbound from HOAs to vendors. We provide a number of different treasury services for community association banks to connect them to the deposits that they are linked to through those associations, which, which is significant. It's, you know, it's a, it's a, it's a place where a lot of relatively low cost deposits are kind of aggregated by community association banks, as well as, uh, other products around kind of The vendor management ecosystem that our folks doing work in these HOAs, whether that's landscapers or electricians or insurance companies, et cetera. So we've over time really stretched into a lot of the different components of this ecosystem. But to your point, the beachhead and the first and most important vital product for us has and will always be that SAS product that is the general ledger system of record.

AI assessment note: “Over time, it's really expanded everything from payments. We have a payments platform”

Q Interesting. Interesting business model, interesting use case, very specific niche, which we love. Tell me more about the Private equity store. Again, you get going in 2018. You guys scale 2019. When did you bootstrap up to? Like, when did you raise your first external capital?

A Yeah. So we didn't raise any, uh, real external capital until 2022. So it was the, the summer of 20 22, um, which was great. I mean, that kind of run. And really 2018, we had had a couple of paying customers late 2017 is where, like, kind of, we got those first folks. 2018 first year in market. So we had had About five years of, of survival under our belt in terms of bootstrapping the business along, and growth was really good. It wasn't, this is, has never been a, uh, a highly capital intensive business, but we saw an opportunity in twenty-twenty-two that we really had gone from just capital efficient to capital constrained and knew we wanted to invest more in product, knew we wanted to invest more in engineering, and really take a big swing at this industry. And so, uh, we partnered with JMI equity and a minority investment in 20, 22, which was great. They've been fantastic partners to us. Um, we've grown the business, um, more than 10 X since then. Um, so that's been a great kind of growth story since 2022. And then based on homes or revenue, uh, revenue, uh, uh, and homes not far off either, but, uh, but, but, but certainly revenue, uh, Um, and then, and then this past year, uh, in terms of, of funding, we did a minority, uh, recap, brought in another minority investor in Cove Hill, um, Cove Hill Partners. That was fantastic. We closed that investment and announced it, uh, …

AI assessment note: “we didn't raise any, uh, real external capital until 2022.”

Q what pricing axes to price against? Because again, you have use it, you have a bunch of different products, more than 10 that I see listed on the site in terms of the things they can get from you. And then you can price each of those differently. Plus you can price for product upsells. How do you decide that? I mean, it feels like a very complex pricing structure.

A No, actually it's a pretty standard. Think about it this way. I have a band that say a zero to a 100,000 address. Think of that as your Basic, and then you have a product. A product maps to those, so each product has a price, and then when you bundle multiple products, you get a discount. So let's say the price for their cost estimator, their renovation cost estimator, which is one of our most popular products, it can range between five to 25,000, based on, uh, also, like, there are certain, for example, banks require a lot of InfoSec services, so that changes the price structure. But let's say it's 10,000 a month, Very simplistically. If you add two more products, each one of them is going to, let's say, 5005 thousand, and then you get a discount on the 20,000 that we've just added up. So it's really a very simple matrix. It's pretty straightforward. It's by bands of addresses, by product, and then once you have that price, you add them all up and you apply the discounts.

AI assessment note: “It's by bands of addresses, by product, and then once you have that price”

Q Uh, okay. But this is where people will get stuck, right? Because there's, there are people, first off, most people watching this, they're just very bad on camera in general. Some people are even worse at trying to figure out to write scripts to have other people talk like on camera, right? So how are you helping people write scripts that convert like your Facebook ads convert?

A Yeah. Uh, that's a good point. So first I think that's, One skill that, uh, until now was very important, but, uh, that is gonna be completely replaced by AI over time. Um, basically what will happen, I think, is You'll describe your product. AI will come up with a script for you that will use a platform like Arcades automatically, find the perfect actors, put that into your ad account and test that automatically, and then use the data from the ad accounts to come back and generate new versions of the script. I think that's the vision that we have, and that's going to be the future, but right now you can basically help get help from these tools. And we, for example, we built this hook generator Where you can describe your product and it will generate hooks for you. The hook is the most important part of a script. It's the first sentence. It's what will get people to click on, uh, a video. So you can basically go to hook generator, get archives.ai slash hook generator, describe your product, and it will automatically generate the hooks for you and give you ideas of hooks that are, uh, likely to work well. And that's a good starting point.

AI assessment note: “we built this hook generator Where you can describe your product and it will generate hooks”

Q I'm raising capital. But what a lot of folks don't realize is if you're going to do a data room and do all the work already, you might as well talk to buyers and equity investors and put them against each other to get what you want as the founder. Is that what happened here? And if not, tell us what did happen with CSI. Why'd you sell to them?

A So CSI is the, for especially people who may not have the background, is the largest acquirer of vertical market software companies in the world. Uh, they own 2000 other brands and labels, uh, like Club Caddy, um, that are all, you know, either top or, you know, one or two in, in the specific vertical, um, that they service. So hospitals, legal, hotels, you know, yacht clubs, every vertical needs software. Um, Constellation software is the market leader in private club software globally. They have 55% market share, and they had one of those legacy solutions that, um, you know, I had mentioned there were mature server-based solutions. There were immature cloud-based solutions, and we were the first full club-based management software that was cloud-based, and so there were really good synergies for together one plus one could equal three. Because we had the next generation product, and they had the majority of the market share, and so, um, you know, it, because the deal was structured right, we set it up so that we both won off of that opportunity of, um, it just made more sense, and there, there was the possibility, at least, for more upside, um, you know, by selling to CSI.

AI assessment note: “we had the next generation product, and they had the majority of the market share”

Q know, what prompts someone like you, I mean, everything we know publicly about a genre, I mean, when you left in 22, this thing is, it's doing great, you know, it's in the dev tech space, you know, it's, it's, it's grown like a weed. Wayne, why, why decide to sort of leave? Were you maybe just bored or something else? Can you share your story and transition to Tembo?

A Yeah, I mean, I tell a lot of people this, especially in the entrepreneurial ecosystem. I was, I was, I was offered a chance to sell my shares in secondary at our Series B, Series C rounds. You know, that was, this was the Zerp era, and I said yes. You know, I was basically, the way I saw it was, you know, I'm a founder, you know, sitting at a, at a poker table with a big giant pile of chips, and I have no, no money in my bank account, you know, and someone says, would you like to leave the table? It's like, Uh, yeah, let's, let's make this, um, equity real. Uh, so I had a rare chance of making it happen without, without the company being acquired. Um, you know, we just had a lot of interest in our, in our rounds and, you know, I'd been doing that, that company since 2015. So, you know, seven years in, um, I also had hired a CEO, you know, we hired a CTO, we hired a bunch of leadership. And so, you know, I just wasn't, I'm, I'm an early stage person. Um, I'm a from zero to blank, uh, person, you know, not, not what they're doing now. It's not my, not my talent.

AI assessment note: “I was offered a chance to sell my shares in secondary at our Series B”

Q Okay. Yeah. Super cool. So let, let's jump into this really quick. Tell us what the application does. This was the first one quiz or what's it do?

A Yep. If you're familiar with photo math, it's kind of a similar user experience where a student can take a picture of something that they're stuck on, like a concept or a question that they're working through or a practice question they're working through and instantly get thrown into an AI tutoring session where they go back and forth with the AI. They're given step-by-step guidance and explanation. They're even given like pointers to resources on the web, um, so that they can like further, further their learning. Um, and the idea that was super like innovative here from back in the day was that, uh, we basically like I was like, mimic this photo math, like, 24 seven tutoring experience, um, and took it to every subject, uh, possible, every sort of topic possible. Um, and yeah, at a high level, this is pretty much, uh, what Quizzard, um, is going for.

AI assessment note: “a student can take a picture of something that they're stuck on”

Q How do you decide what to automate? How are they working? How do you tweak them over time? Before we do that though, I don't want to gloss over those growth tactics you're using. Cause they're obviously working really, really well. You've grown to six million bucks of revenue. And I meant to ask you to, when did you launch the tool? So we can sort of a growth rate.

A Yeah, it was January, 20, 24 when we first, uh, onboarded one customer. It was very private at the time. It was like just a couple of friends in the industry. We were working in the mobile app industry. That's how we got the idea. By the way, we were running a, a seven figures mobile app and advertising it with like a lot of UGC creatives. And we realized, okay, like this is something, uh, that's going to be, Uh, completely changed with AI and we decided, okay, this is a much bigger opportunity that this mobile app studio that we are working on. So we decided to sell it and to start like building, uh, this tool. So in January, we started like onboarding a couple of customers and step by step, it grew like very quickly. In the first months we did a lot of like, uh, revenue, like straight away. So we understood we had product market fit. Now it was about Building a better product and bidding, building the growth strategy to, to reach out to more customers.

AI assessment note: “Yeah, it was January, 20, 24 when we first, uh, onboarded one customer.”

Q Wow. So how much of your day is like just coming in here and like clicking start on all these tasks? I imagine you just have like a bunch of computers up where it's like start, start, start. You get your breakfast, you hit start, start, start, start. You come back an hour later and you like, you just did like 30 days worth of work.

A Actually for a lot of them, I don't even need to click start. Uh, they are, for example, I have one, uh, that, uh, maybe I can show you, but it might be a bit too complex, but that basically will send me, uh, messages in Slack every single day when my competitors run new ads that are worth replicating. It will scrape the ads libraries and yeah, it will download the ads from Facebook ads of my competitors and it will like Take the transcript of this ad, send it to ChatGPT, and then, uh, ChatGPT will rewrite the same ads, but for arcads, and it will send me that in, uh, Slack with a message like, uh, this ad was running on your competitor's account, and now you can replicate it and click this button to replicate it.

AI assessment note: “Actually for a lot of them, I don't even need to click start.”

Q forget to do. You have to be a great, you have to be a historian almost like you have to document history. What does well, because that's how you're going to train anything like a gum loop. But Romain, I think is obviously very good at that. He describes it as, you know, a simple Google doc, but you can see here, walk us through Romain. What have you documented?

A Yeah, a hundred percent. AI, what you have to understand is AI is very good at duplicating stuff. It's, uh, I think it's gonna be good at creating very soon, but right now, like, it's, like, really world class at taking something that is good and doing something similar. So, uh, yeah, I made this list of very good, uh, Twitter posts, and, uh, actually this one was from the founder of Gumloop, and, yeah, I, I saw all of these Twitter posts that I think were very good, so that there are There are 10 of them, and I added them to the Google Doc, and then I, let's go back to Gumloop, I told Gumloop, ok, this is my input, and the input is what I want to talk about, so this time I was, I wanted to talk about a new feature for Arcade, where you can control actors' emotion. In the post, we'll show sad and angry. And so those are the two inputs that I gave to the Gumloop flow. The thing I want to talk about and the list of inspiration posts from the Google Doc. And then Gumloop will combine them together, so it will, like, combine these texts with the content of the Google Doc that it will read, and then it will send that to a prompt and ask ChatGPT, okay, I want you to ingest all these articles from the inspiration list. And then carefully choose one article in the inspiration list. Uh, and you basically need to do a similar post inspired from one of these articles. And I say something …

AI assessment note: “I made this list of very good, uh, Twitter posts”

Q those two answers. What I thought you were going to say was, um, your affiliate program and product time. Um, so I want to dig deeper here, right? So you saw that natural organic posting like happening, but you then launched your affiliate program. I think fairly early on, when did you launch that? And, and would you consider that a key to going from zero to a million quickly?

A We launched the affiliation program pretty much like I think it was 30 days after we had our first customers, because at the beginning of Submagic, we had zero euros to invest into marketing, and I was used to do affiliate marketing in my first company, where I was myself an affiliate for other, uh, businesses, and so affiliation is amazing when you don't have a lot of revenue. It's super, like, it's a good way to, like, attract people and pay them only if they make sales. So we had no choice to do affiliation. So I started this affiliate campaign and I was just telling people like, if you make a viral short form content talking about some magic and it goes viral, you're going to make a lot of revenue because myself, I did it once and the, the short form went, I think it did like a 100,000 views and it drives like 3000 dollars MRR directly. And I say to my users like, this is the proof that it's working. You should do like kind of content like this. I really literally Teach them how to make viral short form content, talking about some magic. And they just like keep posting content over content over content every day because they were making revenue. The success of a good affiliation program is your affiliates needs to make revenue and needs to make money out of it. So yes.

AI assessment note: “We launched the affiliation program pretty much like I think it was 30 days”

Q Uh, yeah, let me, let me just actually, here, I'll just make this easier, I'll just actually share the parts I'm specifically curious about. So, yeah, this onboarding flow here, right, how do you decide what GIFs to show, what headlines to show, what to put in the onboarding flow here?

A Yeah, so, that's a good question. Initially, we had no animations, we had no GIFs, it was, Very bland. We only asked the questions we needed in order to give the user their calorie daily intake estimate that they would need to gain weight or lose weight, and That was, it was purely utility, but then over time, we started A-B testing different things. We started adding in different questions, which made the user spend more time, but these questions didn't actually have an impact on the end result at all, but we saw an increase in conversion rate, and the hypothesis there, which is pretty confirmed, a lot of other people see this, is just that the user invests more time, so something like following a specific diet, it doesn't impact their app experience at all, But that actually boosted the conversion rate, adding these questions. And then we add the idea to, okay, let's add a screen that says, thank you for trusting us. Let's add a screen that says, you're going to lose weight faster with Cal AI. And that was cool. That increased the conversion rate. So how do we take this one step further? We animated those screens, tested it again, also boosted the conversion rate. So it's just been a game of creating hypotheses and then testing them out.

AI assessment note: “it's just been a game of creating hypotheses and then testing them out.”

Q way. It's just, this is never going to happen. She's got profit sharing plans set up. You know, she's in full control. She's doing this with family members. This is great. Help us understand sort of, um, what, what, right before you guys signed the M&A deal and it closed, um, what did you grow revenue to and what ultimately made capacity the right fit for You Can Book Me?

A Um, so we had, we've got You Can Book Me running at a really nice five million dollars a year, um, profitable, as you know well, you know, I've spoken a lot about creating a profit, which you need to do if you're bootstrapped over long term, you need to start making money, um, uh, to make it worthwhile, frankly. So we've got to that stage and, um, really at the end of the day, I'm looking for how do I get You Can Book Me to the next level? How do I get this, you know, this, um, business that we have built, which Has, has got to a point which is really exciting, really something that, you know, means something for our team, our company, but also our customers. How do we get it to the next level? And actually, there's a combination of reasons why. And, and, um, I should say at this stage, you know, we didn't go through a process. We weren't for sale. We didn't put up some big estate sign, you know, up in our, in our lot, um, capacity approached us. And, um, we like, we really liked, um, The offer. We liked, we liked the fact that they're in customer support and AI for customer support. It's a huge problem that needs to be solved. Um, we know it, we feel it inside. You can book me. So I knew that, you know, what they, um, are doing, what they're, what they're building for their own customers is a really strong product offer that we know our customers could really benefit from. The…

AI assessment note: “we've got You Can Book Me running at a really nice five million dollars”

Q in capacity, because you told me in our pre-call, you have a thesis, you built a list of 24 key items you think every company needs when they think about inbound and customer support, and you said, quote, We're going to go build or buy in all of these spaces. Which of those 24 items led you to searching for booking tools and then ultimately led you to email Bridget?

A Yeah, so when we think about the 24 steps of the customer experience journey, we can kind of divide them into three buckets. You've got self-service, so that's where a consumer can get help from an AI agent without having to talk with a person, without having to fill out a contact us form, without having to place a call to a human. That's where we started. That was kind of Capacity's bread and butter. It's where we have a lot of product entry points in that part. What we realized as we got into it, though, And that was kind of the original thesis of Capacity when we launched back in, uh, early 2017. Big thing though that we realized is that no matter how good your AI system is, you have to be able to handle the questions the AI doesn't know how to answer. So the second big pillar that we focus on is this whole agent assist concept. How do we help support teams do their best work when something does need to escalate up to a person? As we got into it, we started working with a lot of these support teams, particularly Marketing and sales support teams. They're like, David, our biggest workflow is being able to get leads into our business, being able to book appointments, being able to bring people in. And so our third bucket are those kind of campaigns and workflows. We have other types of campaigns we do, uh, SMS campaigns, voice dialer campaigns. We have multiple types of workfl…

AI assessment note: “our third bucket are those kind of campaigns and workflows... scheduling is one of the biggest ones”

Q Okay, so what is that? That's like 40% of the total business.

A Oh, it was huge, yeah. And from profits, it was all of our, well, you know, we were losing money, right? So it's, it was 200% of our profits. And so, um, you know, when we got there, everyone said, well, go sell the government business. Like, why are you, if you're trying to build a software company, why are you trying to hire a government business? I was like, we could do that. But then when I disclosed to market that the government business is printing ten million bucks, They're gonna see that our software business is on fire, and that our customer NPS is -60. Our CSAT was -99. We didn't have one, one customer that was green on our, on our, our CSM scores, right? And so, um, it was meant in many ways to kind of let, give us time, candidly, two years to rebuild our products, so that we could then say, alright, now we don't need this government thing to keep us going. So that's why we kept it for a long time. We sold it, and immediately deployed it back in this acquisition you showed. And so, you know, our capital allocation philosophy has sort of been, We don't want to sit on your cache as a public company, we want to deploy it, and you've got nowhere to put it, we'll give it back to you.

AI assessment note: “Oh, it was huge, yeah. And from profits, it was all of our... 200%”

Q Should they buy the book and just read it?

A No, just Google it, and Mike Schrag is actually our advisor. We've been working with him for a long time, but here's the idea. Five by five by five. Take five people, Five days, 5000 dollars. If somebody tells you it's gonna take me two months to build a feature, I'm like, okay, how do you do it in five days? They're gonna give you a blank stare and say it's impossible. I'm like, okay, maybe you can mock it up. Maybe you can send it to 10 people, see how many people download the report, and either prove or disprove hypothesis. But we really adopted this experimentation framework in every team. Technology, product, marketing, sales, because it really starts driving agility and, um, You know, failure should be exciting if it's done in small increments, and so this experimentation was quite crucial for us over the 10 years.

AI assessment note: “No, just Google it, and Mike Schrag is actually our advisor.”

Q Should they buy the book and just read it?

A No, just Google it, and Mike Schrag is actually our advisor. We've been working with him for a long time, but here's the idea. Five by five by five. Take five people, Five days, 5000 dollars. If somebody tells you it's gonna take me two months to build a feature, I'm like, okay, how do you do it in five days? They're gonna give you a blank stare and say it's impossible. I'm like, okay, maybe you can mock it up. Maybe you can send it to 10 people, see how many people download the report, and either prove or disprove hypothesis. But we really adopted this experimentation framework in every team. Technology, product, marketing, sales, because it really starts driving agility and, um, You know, failure should be exciting if it's done in small increments, and so this experimentation was quite crucial for us over the 10 years.

AI assessment note: “No, just Google it, and Mike Schrag is actually our advisor.”

Q And then, that's good, right? And then we'll talk a little bit more about the layers, the lawyers, and the process you did on the exit. So all that in the next 14 minutes, but let's talk about the product for a second. This is your homepage. This is what you do.

A Yeah. So Issue is this massive digital publishing platform, primarily catering to marketers to take their marketing content, collateral, sales materials, brochures, um, publications, all the, a whole range of different documents, mostly created in using Figma, Adobe, or Canva, gets uploaded to Issue, Issue hosts it, Um, transforms it into a range of assets. So you create one piece of content and it can get transformed into a video and link enhanced paginated version, an article using AI, social posts, whole range of different assets that can then be shared anywhere, embedded anywhere, and then provide a whole range of data and analytics around that content. We landed on this homepage about two years ago. Um, We had our version of the purple homepage.

AI assessment note: “Issue is this massive digital publishing platform, primarily catering to marketers”

Q So you get this deal done just recently. For those of you that joined late, over a hundred million dollar exit on thirty-two million bucks of revenue, this is a company that is known for doing these kinds of deals. They've bought these other kinds of companies, which Joe mentioned. What should people be prepared for if they're entering an M&A process with a Bending Spoons? Lawyers, banking fees, process?

A Yeah, so, you know, you have, if you typically have a banker, That's a couple million dollars. Um, your lawyer, I think most people think, oh, I'll just get an M&A lawyer at the time I'm doing an M&A. Maybe your law firm does it. The lawyer you use makes a big difference. We worked with Goodwin Proctor, um, Larry Chu. You know, when I talk about folks we work with, I try to be as honest as possible. Like, if they're not good, I'll tell you. If they're great, I'll tell you. Um, Larry Chu is a fantastic lawyer at Goodwin, and he helped make phone calls and talk to people in the midst of this process that enabled us to navigate through both the term sheet and the contract Way more efficiently than otherwise.

AI assessment note: “if you typically have a banker, That's a couple million dollars. Um, your lawyer”

Q Which two did you buy to bankruptcy? And how does that work?

A Cross Talon out of French bankruptcy and Zen Lube out of German bankruptcy. Um, and, uh, well, it's, it usually works that there's an administrator in the U S it's chapter 11 in Germany, France, other European countries have similar, uh, similar types. Um, and then there's an administrator and that person is charged, uh, for, for selling, selling off the assets. Um, And then you just negotiated with that person, not with the founder. It's obviously a very different style, a lot more formalities. Um, but it's, uh, it's great because, you know, you preserve a company, preserve your team. Uh, it has its own challenges, but it's, um, it's a worthwhile exercise. And in both cases, it worked really well. We have, um, in one case, the founder is still operating it across the law. In the other case, we found a new management and, and in both cases, the companies are super strong now. They're profitable. They're growing again. Um, and they're building on the product, um, and, um, they, they just, they just were mismanaged before, and they were, they were overspending.

AI assessment note: “Cross Talon out of French bankruptcy and Zen Lube out of German bankruptcy.”

Q you know, person on their email, a send it thing and get a 60% open rate and a, and a 10% open to click through rate. You know, that's world class, but to get them excited about screenshotting that active campaign report, putting it up on LinkedIn and giving sort of, you know, your brand additional love is a whole nother activation channel, right? How do you make that happen?

A Yeah, for sure. So we've gone through a lot of iterations, and in the early days, we grabbed our highest NPS folks, we sent out an email to them, and I essentially just evoked, like, I'd love to know what do you love about ActiveCampaign, if you would share it, you know, yada, yada, yada. That obviously worked only for the best advocates. I'll kind of fast forward to the final version where we had, I think it was like our last one got 60 different customers to post, and the keys there were a couple fold. Number one is to give them an exact day, Number two, to give them an exact scope. So we'd love to know why you came from MailChimp or why you came from Brevo or ConvertKit to active campaign. So specific day, specific scope, and then some amount of reciprocity. So how can we help them? We're a big team. We have big social, so we can help repost their content. We can help have 50 members of our team jump in and engage on that content. If they have an asset like a podcast, we can get our team to follow and engage in that asset as well. So I think having reciprocity And also having a defined scope of exactly when and what that is what got the most buy-in to get customers to all post and weigh in on a channel like LinkedIn.

AI assessment note: “specific day, specific scope, and then some amount of reciprocity.”