Building a New Age AI Services Company: Cognida CEO Feroze Mohammed (Part 7)

Sramana Mitra: Now, you raised your seed round on an IP-led hypothesis or plan.

Feroze Mohammed: It was IP plus services. It wasn’t pure IP.

Sramana Mitra: But it was more an IP-led pitch.

Feroze Mohammed: Sort of. I won’t say it was an IP-led pitch. It was a differentiated services pitch.

Sramana Mitra: You raised Series A recently, right?

Feroze Mohammed: Yes, that’s right.

Sramana Mitra: So, what is the difference between the seed pitch and the Series A pitch? Times have changed.

Feroze Mohammed: I think the Series A pitch was more about the large opportunity. When we were doing the seed pitch, the buzz around Gen AI and OpenAI wasn’t there. AI, at that point of time, was more brass-tack stuff. It was about data science. It was about building predictive models and all that. Then, of course, things changed with Gen AI. There was a lot more awareness about AI.

The Series A pitch was more about the larger opportunity of building a Palantir kind of a services company, or the new-age Accenture digital for AI, if you will. So, the Series A pitch was leaning more towards that. It wasn’t so much about building a repeatable SaaS AI solution.

When we are doing the seed, it was more about how we can get to a great solution-market fit and repeatability on certain solutions, and how would you have a sort of a services plus IP mix in a highly differentiated company. We see a much bigger opportunity now. As I said, we see an opportunity of creating the next big AI-led services company in this space.

Sramana Mitra: And what kind of assumptions are you making or your VCs making for this Palantir kind of a company? What are your assumptions on margins?

Feroze Mohammed: I think we would definitely have a higher margin than the traditional services space. Even today, I think our gross margins tend to be very high. Of course, we deploy a lot of that in building further modes and building more library of use cases and solutions. Our eventual margin profile would be higher than a services margin profile. It would probably be somewhere in between services and a SaaS margin profile that you would have.

Sramana Mitra: So, any numbers?

Feroze Mohammed: It’s too early right now. I can predict on a steady state. We would love to operate north of 50% as a gross margin in a steady state.

Sramana Mitra: What about operating margin?

Feroze Mohammed: The operating margins are, again, a function of what are the other investments you continue to do as you scale and grow. I think we also anticipate a much higher trajectory of growth compared to, I mean, any of the steady state companies. So that’s the reason why I think the net margin profile would be a function of the growth.

Sramana Mitra: I think what you’re pointing out is that the model is SaaS-enabled services. It’s not pure services. It’s SaaS-enabled services. There’s a significant high gross margin SaaS component to your business, which is what allows you to be this kind of a higher margin venture scale company.

Feroze Mohammed: That’s right. There’re two parts where the non-linearity comes from. One is, of course, the hard IP. The other part is, as you pointed out earlier, as we get more and more domain specific, a lot of our initial part of the consulting itself is going to become a high margin because there will be broadly said IP elements there as well.

Sramana Mitra: Well, you have specific business processes that are specific to specific domains that you have figured out. So, you walk into clients and say, “OK, we can solve this problem. This is how we’re going to solve this problem. Insert the solutions directly.” That has a lot of value.

Feroze Mohammed: And a lot of assets get built in the consulting layer as well.

Sramana Mitra: Very interesting. So, let’s keep in touch and we will definitely be paying attention to this trend.

Feroze Mohammed: Great, nice to talk to you, Sramana. Once again, thank you for having me on the call. I really appreciate this. Thank you. Take care.

This segment is part 7 in the series : Building a New Age AI Services Company: Cognida CEO Feroze Mohammed
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