We had the chance to speak to Bennett Collen of Cognate. Bennett had a successful exit to GoDaddy. Lessons from his story are below.
Cognate found a niche with a deep need. In 2014, Bennett started Cognate within his dad’s law firm. Bennett’s dad is a trademark attorney and the problem Bennett saw firsthand was that small businesses wanted to protect and establish trademarks but couldn’t afford doing so. Because in certain countries one can own a trademark without trademark registration through common law rights, meaning the first user to gain notoriety with a trademark may be the rightful owner, it’s important to record a history of trademark use, particularly the first use of a trademark. Bennett hired a CTO, built a platform that allows trademark users to make a claim to their trademark rights, and ultimately spun Cognate out of Bennett’s dad’s law firm.
The blockchain was essential. Early customers had two issues with Cognate: i) they wanted to know how to trust the timestamps in the database; and ii) they were concerned what would happen to their trademark if Cognate as a startup were to die. To address these questions, Bennett looked into blockchain. He and his CTO realized very quickly that these problems could be solved with blockchain because blockchains: i) create immutable time stamps that cant be changed; and ii) use a decentralized ledger which would exist into perpetuity even if Cognate died.
Cognate avoided the lure of an ICO. About 12 months after deciding to use blockchain, the blockchain megacycle took off in mid-2017. People were asking Bennett when he was going to ICO, but ultimately he resisted. Everyone was trying to dream up blockchain services that used a token so they could ICO, but Cognate was solving a real business need and by the time the blockchain hype cycle really picked up, they already had paying customers and a real business. It was tempting to raise a lot of money which would allow Cognate to execute on their roadmap. Bennett and his team did spend time exploring an ICO, and as they did two big issues stopped them: i) the legal and regulatory uncertainty around blockchain ICOs was a big issue, especially for a company in the legal field as Cognate was; and ii) Cognate didn’t require a token for the service to function. Ether could be used to facilitate use of the platform just as well as a Cognate-specific token. Forcing a token didn’t seem like the right thing to do nor would it have been helpful to the business. In hind sight, the decision was prescient because the ultimate acquirer of Cognate wouldn’t have touched them had there been a Cognate token out there.
A partnership promptly turned into an acquisition. Multiple partnerships were built with domain name companies and eventually Cognate got in touch with GoDaddy. Bennett scoured his network to get the right intro to the business development team there. They began discussing partnership, got through a trial run, and GoDaddy pretty quickly suggested buying Cognate. 6 months later the deal was closed.
The process of selling is challenging. The actual process of being acquired was very stressful for Bennet – it’s long and arduous, your entire business is under scrutiny, you’re spending a significant portion of your company’s time and resources on the deal at the expense of normal operations and growth, you’re providing all your proprietary data to a third party, and there are multiple stakeholders to manage and satisfy. The sales process wasn’t enjoyable, but it was worth it for a good outcome.
Cognate didn’t have to go past a seed round. Bennett raised a small seed round only. When they were in the process of exploring a Series A, GoDaddy also submitted their term sheet to buy the business. The company had to decide whether to sell to GoDaddy or continue building. While the economics were compelling, the opportunity to see everything Bennett and his team had built go out to millions of customers right away was what really closed him. GoDaddy was the perfect partner, they were interested, so Bennett didn’t see a reason why he shouldn’t sell.
Big thanks to Bennett for sharing his story.
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