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Lemlist Revenue Hits $40M: CEO Charles Breaks Down $25M Claap Acquisition Deal
00:19:07
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- [00:00]
Nathan Latka
Yesterday, he just signed a $25 million deal at Lemos to acquire a company called Flap. What I love about what he did is it wasn't your traditional deal structure. If you don't dig into the 25 million, you'll never know how creative you can get to buy other smaller companies to drive what's called your inorganic growth. Lemlist is now doing over 40 million bucks of revenue. I bet you they break 100 million by the end of 2028. With Charles leadership and Guillaume, the original.
- [00:22]
Part of the co founding crew and.
- [00:24]
His product led growth is just founder stories on LinkedIn. But the way they did the deal is it was basically 10 million bucks plus some convertible bonds for the founders at close of that 10, 15 million. 5 million was cash, 5 million was basically clap saying, okay, Lemlist, we'll give you a $5 million loan. You can pay us back over time at a 3.5% interest rate, but we'll defer it for two years. Right? So that's a cool way for the founders to get more money over time. And then the second part of the $25 million dealer structure, the last 15 million, is earnout for the Clap founders. If they stick with Lemlist and they grow it from 2 million bucks to 10 million bucks of ARR over the next three years. So before December of 2028, they'll earn that extra 15 million to get that total deal headline rate of 25 million bucks. Really creative deal structure. This one's a really good episode. Let's jump in.
- [01:10]
All right, folks, special guest today. I'm here with Charles Tono. He's the CEO of Lemlist and Lempire. As you know, we've had the CEO, Guillaume, the founder and other product experience folks from Lemlist speak at our events and on the podcast. Charles is leading the business into a new era. That's the post $40 million ARR era. And that starts with a big acquisition that they're doing today. We're recording this here Monday, October 20th. I think the acquisition also happened today. Charles, tell us what's going on and maybe for those that don't know what Lemlist is, tell us what the business is first and then why this acquisition made sense.
- [01:42]
Charles Tono
Yeah. First of all, thanks a lot, Nathan, for having me. It's a pleasure. And yeah, so we, we are having a very exciting journey at Lemlist because we are growing very fast and reached ar, as you mentioned. So Lemlist is a sales engagement platform. Basically, we help sales people to do outbound. So we help them like to find leads, to find their phone numbers and, and, and emails and then to engage on multi channel. So we support many different channels. So you cannot reach on email, you cannot reach on LinkedIn, through WhatsApp, through phone. So we, we try to be the platform that has the most capabilities in terms of engagement. And yeah, Lemnist, hopefully it's not done with the AWS outage today.
- [02:27]
Nathan Latka
I already checked, we're good.
- [02:29]
Charles Tono
But Clap is actually done. So that's for the fun part because of aws, I guess. And yeah, we just acquired Clap, which is a call intelligence platform. So Clap is basically an AI product that allows every sales rep to record their call and to generate high quality transcripts in any language. And the idea of this transcript is to do multiple things such as automatically get coaching and insight on the call, so help sales improve. But it can help to auto fill the CRM. So avoiding to manually fill the CRM. It prepares a note that you can integrate in the CRM or directly the different fields that you want to fit in. And it helps for, of course, yeah, sales coaching, sales enablement and many different use cases that you can decide. So that's very, let's say use case extensive product where you can have a lot of fun building like multi use case around the transcripts. And we're seeing like many people use it for that.
- [03:33]
Nathan Latka
And so this is just to be clear, this is really officially moving Lemlist from sort of maybe email marketing outreach automation tool. You're really moving into the sort of the granola feature, fathom, you know, call recording, you know, Clulee, whatever's left of Clulee, right space is this. How did you decide that Clap was the right company to go after? Did you use Lemlist? Say, you know what, we know we want to get into this space. And then it was do we build it or buy? Here's a list of who we could acquire. Or was this something where like you're buddy buddy with the founder, you go back 30, you know, 20 years, you're not that old and you say let's just do a deal together.
- [04:03]
Charles Tono
Yeah. So it's always a mix of things. The general idea is that so we were user of Clap and we love the product, we've been using many different products and one day I tried Clap and I really fell in love with the product and naturally all the team adopted Clap and the sales are using Clap every day. And so that was kind of like, let's say the starting point where we started to realize that the product was very good. And beside this, we're profit making. At Lemnis we do around 10 million profit every year. So we always want to invest in more growth and better product for our users. So that was another driver. And the last part is really that we saw very good combination because KLAP is selling to exactly the same people as we target. So sales team from three to 50 reps, sometimes a bit more. And they have the same kind of acv, they have the same champions which are rev ops, business ops or sales managers. And we saw a very strong potential in what they get from the conversation. So the conversation is like unused in many companies. So it's a lost asset. But if you use the conversation, you find lots of valuable things for sales. And one of the things is what I called internal signal, internal intent. And at Lemnis we're really trying to make outreach better and smarter and doing it to make it smarter. You need to have good intent to reach out to the right person at the right time. And in the conversation actually you have a lot of very interesting insights that you can use to outreach. I give you an example which I gave on my post, but at my previous company I was CRO and basically like my sales were calling all day and they were not taking any notes. So basically the CRM was empty. And because the sales turnover is high, so you replace your sales rep all the time. And because you have no notes three months after, six months after, when you give the account to another rep, which happens when you are kind of mature, the rep calls with absolutely no information, nothing on the account. But if you have something like clap, you have all the history of the distribution that you add with the account and you have intelligence and you can use this intelligence to prepare your next call. So instead of calling out of the blue with no idea on the previous calls, you will call and for instance you will know that the manager is called Eric, that they have three point of sales and they are opening a fourth one and they have this type of seasonality. And so you start the conversation with much more intelligence. And if you start from those things, you know, and that for me all of that is just an example. But in the conversation that are not used in most companies, you have a lot of intelligence that you can use to improve prospection and outreach. And this is the idea of combining clap and Lemlist.
- [06:46]
Nathan Latka
Yeah, this makes tons of sense. So start off as you guys are a power user, it makes a lot of sense with your audience. You go out you get the deal done with what was or what is Clap's revenue?
- [06:55]
Charles Tono
It's roughly 2 million AR.
- [06:57]
Nathan Latka
Okay, got it. And were they bootstrapped or had they raised a bunch?
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Charles Tono
No, they raised the seeds a few years ago initially to do Async work, and they were not able to build the category because it was like doing clip video for Async work. And they pivoted to conversational intelligence a year and a half ago, and they grew this product to 2 million ARR and kind of very fast growing, like recently about 10% month over month. And so they had, they had raised the seed, but now they were like almost breakeven. They were, they were, they were break even in terms of cash right now.
- [07:34]
Nathan Latka
And how many folks were on their team full time?
- [07:37]
Charles Tono
Seven.
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Nathan Latka
Okay, that's amazing. That's great.
- [07:40]
Charles Tono
And yeah, if you try the product. Yeah, you'll be shocked. If you try the product. If you try the product. Tell me and tell me honestly. But to be honest, everyone who has tried the product was shocked when they knew that it was only seven people. And it's one of the reasons why we bought Clap is because they have a very strong tech end product DNA and they lack a bit of distribution, which we are good at at Lemlist. So for us, it's a product that was under distributed in terms of potential. It's a product that is much better than the 2 million AR product. It's certainly at the level of a 20 million AR product. And the idea is that we can catch up on that and help and use our Lemnis customer base and audience to grow Clap. And so we're very bullish.
- [08:21]
Nathan Latka
Yeah, yeah. And what. So I want to dive. So the distribution, by the way, it looks like most of Traffic Organic comes from the blog. You guys obviously run really good Playbooks. We had, we had Kevin actually from your team come teach this at one of our events. And obviously we go through, you know, how you guys run your founder playbooks. You obviously have your all kinds of gold community courses. I mean, you guys name it, you guys do it. Product hunt launches. You've also done a bunch of these deals before. You know, you build many free tools, right? As lead gen. Can you tell me more about how the deal went done? When did you guys first reach out to the Clap team to actually talk about, hey, we would love to buy you guys?
- [08:55]
Charles Tono
Yeah, I reached out to Robin, the CEO in May, just randomly, and I didn't know him. I just said, hey, I love your product. I've been using it for one year would you be open to sell? He told me that it was not on his plate, it was not a project right now, but he will think of it. And then we had a few follow up meetings where I explained to him the vision of building a world class sales platform that is very product and tech driven, that we have the same DNA, that there will be a lot of synergies by integrating their intelligence and their conversation insights in Lemnist. And so slowly he bought the vision I guess and he wanted to do a competitive deal so he tried to find other buyers to see what type of price he could get. So we've been facing like two players including one a leading AI platform in France, like much bigger than us. And ultimately what made the difference, it's not really the price because we bid slightly less. It's more the fit with the product and the team. So they were convinced that we have very good synergies and that we can build something great together. So that's my learning that M and A is more about relationship and people than really strategy to be honest.
- [10:07]
Nathan Latka
And Charles, what did you guys end up bidding?
- [10:12]
Charles Tono
So the price is between 15 and 25 million but there are some components that are like earnout parts. So it depends on future growth. But basically we paid around 15 million right now and with add on price if they reach revenue targets and the.
- [10:30]
Nathan Latka
15 million sort of deal value at close today. You're announcing this today? Basically how much of that was like immediate cash versus an escrow for two years?
- [10:39]
Charles Tono
Yeah, it's a mix. It's 5050 but it's not an escrow, it's vendor loan. So it's basically like deferred cash. Yeah, it's just basically it's a debt but instead of getting the debt from a financial institution, you get the debt from the vendor. So basically they get deferred cash but they will get the cash.
- [10:58]
Nathan Latka
They're effectively giving lemlist an 8.5 million or a 7 1/2 million dollar loan. Then you pay them back over time.
- [11:05]
Charles Tono
Yeah, exactly.
- [11:06]
Nathan Latka
Yep. Okay, so the all in cash consideration for Lemless like here at close is basically around 7,8 million cash which is equal to 3 or 4x their current ARR. Is that accurate?
- [11:17]
Charles Tono
Yeah, it's slightly lower because there is a small part that is in convertible bonds for the founders. So the dealer structure is slightly more complex because we wanted the founders to be incentivized in fundamentals future empire value or Lemnis value. And so they have, they have some part of the price which is like convertible bonds. So basically they have like bonds that gives a. Yeah. Fee and again convert this bond into shares into some. Yeah, some scenarios.
- [11:46]
Nathan Latka
Charles, this is interesting. You know, people don't get in the weeds and very few companies build in public quite like you do. So thank you first for your transparency. It's educating like the entire audience. But let's like act like I was one of the co founders of Cloud Clap just to understand here you're saying, okay, Nathan, Handshake, we've got a deal. It's 15 million, seven and a half million will be on this sort of loan.
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Right.
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We'll pay you back. You know, Lemlist will pay Clap that seven and a half million dollar loan over time and then additional. Nathan Founder, we really want you to stay at Lemlist and build together. Here's a bond. What does that sound like? Does it say, Nathan, here's a $2 million bond with a 3% interest rate and you can convert it to Lemlist Equity at a $200 million valuation whenever you want. Or how does it actually work?
- [12:22]
Charles Tono
Yeah, so the precise number, I don't think that's always helpful, but it's like, let's give you an over idea. It's like I give you 5 million in cash. I give you 5 million. It's not the exact, exact amount, but that's close to the exact amount. Example, I give you 5 million in vendor loan, so meaning I give you 5 million cash now that you can split between investors and your team. Then I give you 5 million in loan, meaning that I will give you the 5 million for sure, but I will just give it through time. So it gives me time to generate more cash myself to pay you back. And then I will give you convertible bonds. So that's worth like, that's, let's say that 2 million of like worth of Lampire share. So let's say anything happen, any liquidity event happen, you can buy 2 millions of share. You can, you will have 2 million of share on this deal with, with a discount. So the discount is like 20 to 30%. So let's say that you have 20% discount. So it means that you will get the 2 million share, but you will buy them at 20% discount. So if there is a sell or partial sale of the, of the asset, then you get an upside. You get your 2 million plus 20% of upside naturally, plus the eventual capital gain that there was from the time you, you purchased to now.
- [13:38]
Nathan Latka
And just for the capital gain though, what Are you setting the valuation out of Lemlist today?
- [13:44]
Charles Tono
We don't set a valuation, we don't need to set evaluation. We don't know, to be honest, like you don't need to set a valuation because you convert the bound at the time that there is an operation. You know the 2 million worth, it's 20%.
- [13:58]
Nathan Latka
Okay, got it.
- [13:59]
Charles Tono
Yeah, sorry, I was not really clear.
- [14:00]
Nathan Latka
Maybe $500 million like a year from today for 500 million bucks you're basically saying okay, times 0.8, right. That's the 20% discount. Right. So that takes it down to 400 million and then they can basically buy 2 million worth of shares at that discount. So the gain is basically the extra 100 million. Right, on a pro rata basis based off the shares they bought.
- [14:17]
Charles Tono
Yeah, exactly. It's 20%. It's always 20%. I see, or 25% or 30% depend. And the last part that I didn't mention that can be helpful is the earn out part. So the earn out structure is there is some earnout presence. So you have to stay to just be here in the company to touch that. And it's a rather small amount and it's shared between the founders and. And you have performance or not. That depends on AR milestone. For the last deal we combined with EBITDA margin criteria. In this case we didn't. But yeah, basically just you reach a milestone of ar, you get some money and, and the more. And, and it can go up to 10 million AR.
- [14:57]
Nathan Latka
So time to get that full $25 million deal value. What does claps revenue have to grow to inside of Lemlist?
- [15:04]
Charles Tono
10 million AR.
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Nathan Latka
Oh, I see. In what period of time?
- [15:08]
Charles Tono
Three years.
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Nathan Latka
Three years, super.
- [15:11]
Charles Tono
But we'll do, we'll do in one.
- [15:14]
Nathan Latka
Interesting. Hey, this is really interesting. So is there anything else I should ask you about how you guys are considering and thinking about additional growth? We know the bootstrap story, we know the secondary with gam, we know the book. We know you come in, you're now leading revenue's grown from, I think when you took over, you took over right around like 20 million of revenue. Right. So you've almost already doubled revenue, right?
- [15:32]
Charles Tono
Yeah, exactly. When I joined, lemnist was at 15 million precisely. And now lemnist is at 36 and the other lampire products are at 4. So in almost 5. So we are around 40. Yeah, so yeah, now we are exactly. That's accurate. We are at 40 million a bit more now. And we are profitable. We try to remain around 25 to 35% of profit margin. Just because we always try to invest in the team. So we hire more developers, product managers, sales, to grow the company. But we always try to remain highly profitable. So our let's say threshold is like we always want to be above 20% EBITDA while we always invest in growth. So we just adapt. Let's say that the growth is slowing down, so we'll reduce hiring and when the growth is faster, we'll accelerate hiring. And we keep managing the companies this way. So we do just a monthly EBITDA check. And with the profit we generate, the ideas, the cash we generate. Yeah. So basically, as we try to remain above 20 to 30% EBITDA margin, most of the time around 30%, we have then a positive cash flow. And with the positive cash flow, we try to invest in M and A deals. Yeah. Because it creates more value for our end users ultimately. And we try to build the best platform. Yep.
- [17:02]
Nathan Latka
Now this makes a ton of sense and I appreciate you taking time with us. I told you I'd keep it for 15 minutes. So we're at time today. But to summarize again, you guys are acquiring Clap, you know, all in deal value of 25 million bucks. If they can grow the revenue from 2 million, where to say 10 million over time, over the next three years. But cash consideration up front, you've got 5 million sort of cash. 5 million vendor. Right. So you're basically, they loaned you money, you pay it back to them over time. You have some convertible bonds at a 20% discount to whatever the valuation is if a transaction happens that the founders are incentivized with to stick around longer. And then you got that earnout chunk where if they grow the revenue, they can get up 25 million bucks. Lemlist continues to grow past 40 million bucks of revenue. Charles, if people want to jump into the product experience and test you guys out with this new announcement, where can they find more about you online so.
- [17:43]
Charles Tono
You can follow me on LinkedIn? They can try clap on clap IO. So unfortunately the website is done. People say it's because of aws and I say it's because of the announcement that was so big that everything crashed at webflow. So the website is unfortunately done. But we have the stat and we already have an all time high, like maybe 50 times the normal creation of workspace. So we already see a big boom in the creation of workspace, creation of CLAP accounts. So I hope that you guys can try it and give me feedback. If you like it, tell me that you liked it. If you don't like it, tell me what we can improve. Always good to get feedback and make a better product for you guys.
- [18:21]
Nathan Latka
All right, Charles, CEO of Lummis, thanks for taking us to the top man. Congratulations on the deal.
- [18:24]
Charles Tono
Thanks so much for having me. Latin. Take care.
- [18:27]
Nathan Latka
I'm only telling you this because you watched until the end. Deal or Bust is coming back. The first season got millions of views. I go into small towns in the US I find the owners of SMBs. I asked about their revenue and I make an investment offer on the spot. Episode one of season two launches next week here on YouTube. We've got 16 episodes coming out very quickly. Don't miss any of them. Click subscribe here on YouTube right now and click like on this video. Then leave a quick comment and just say deal or bust. That way I'll know you watch to the end and you'll be one of my insiders here. As we do more episodes, maybe I'll ask you where we cast next, what kind of investment deals we'll do. Maybe we'll co invest together one day. But excited to show you that next week. All right, see you guys.