Building a Generative AI Venture from Portugal: João Aroso, CEO of Leadzai (Part 2)

Sramana Mitra: What kind of deal was it? What were you charging? What were they charging you to let you sell on there through them?

João Aroso: It was a revenue share model. We had a very light minimum commitment, around a $100K a year. Everything was revenue shared.

Sramana Mitra: What kind of revenue share?

João Aroso: Initially, 100% of the setup fee was ours, then it was fifty-fifty for the first year. From the second year onwards, it was 75% in their favor.

Sramana Mitra: I see. So this included hosting?

João Aroso: Yes, it included hosting by them.

Sramana Mitra: The second year onwards, it was mostly hosting; the work was done earlier. How long into your journey did you close this deal with the Portuguese telco?

João Aroso: Two years in.

Sramana Mitra: Did the funding you raised sustain you through those two and a half years?

João Aroso: No, in the first year and a half, we survived on about a 100K euros. It was mostly founders working and one or two hires.

Sramana Mitra: How many co-founders were you?

João Aroso: Two others besides me.

Sramana Mitra: Did all of you code?

João Aroso: I didn’t; my background isn’t in coding.

Sramana Mitra: I see. So, you survived the first year on your own. Two and a half years in, you get this telco deal. In between, you get some SMB clients on your own. Were there other telco deals?

João Aroso: Yes, we did some other telco deals, then we sold the company.

Sramana Mitra: Tell me more about the exit. What were the metrics? Who bought the company, why, and what was the positioning?

João Aroso: The Portuguese telco bought all the technology because they were focusing a lot on cloud solutions for SMBs.

Sramana Mitra: How much was the exit?

João Aroso: It was around $7M.

Sramana Mitra: What was your revenue at that point?

João Aroso: Maybe around $500K a year.

Sramana Mitra: This was 2014?

João Aroso: Yes.

Sramana Mitra: Did you have to stay with the telco?

João Aroso: No. Back then, we bought the Portuguese Yellow Pages with the telco. It was actually very interesting.

So, we were working with them. Then they were distributing us. Then they
bought our technology. Then we went into the Portuguese Yellow Pages, which used
to be owned by them. We then bought the company from them. So, it was an
interesting deal.

Sramana Mitra: So this is after you exited to the telco?

João Aroso: Yes, but it’s pretty much at the same time.

Sramana Mitra: How much did you pay for that?

João Aroso: I can’t disclose that.

Sramana Mitra: So what happened? What did you do with that?

João Aroso: So that was a particularly interesting business because I was always fascinated by the SMB space. The Portuguese Yellow Pages back then was very focused on old style products like print books
and directories. From a liquidity standpoint, there were severe cash constraints in the company. They were struggling a lot with how to change the product.

What attracted me the most to that company was their incredible sales force. They had relationships with tens of thousands of SMBs in Portugal. Bear in mind that Portugal is a tiny market, so they’d a huge
market share within the SMB space.

We ended up acquiring the company to transform it into a digital
product powerhouse.

Sramana Mitra: And that must have included website development. Did it have a non-compete?

João Aroso: Obviously we used our technology as well. We bought it from Portugal Telecom.

Sramana Mitra: Again?

João Aroso: No, we didn’t buy the technology, we licensed it. We resold the product that Portugal Telecom was selling.

Sramana Mitra: Ok, what was the justification of buying the Yellow Pages and having this huge sales force at your disposal? What else did you sell to this audience?

João Aroso: We kept the same core principle of trying to connect supply and demand. It’s what the Yellow Pages used to do back in the book days. They’d give SMBs access to a wider audience. We kept the same assumption, but we focused on digital products.

The biggest change that we made was a huge partnership with Google. Back then, Google Maps was starting to come into the picture, especially in the listing space. Pretty much what today is Google My Business, back then it was like your business listing on Google Maps. We focused a lot on the
efforts in the directory space to put it on Google Maps, because we thought that probably the most relevant aspect for Portuguese SMBs is to sell with Google Ads, websites, and Facebook pages.

Sramana Mitra: I see. This is starting in 2014.

João Aroso: Yes.

Sramana Mitra: And you funded this with your own exit money from the previous business?

João Aroso: Not only, but also.

Sramana Mitra: What was the additional money that you got?

João Aroso: At the end, most of it, yes. The additional money was raised from outside investors.

Sramana Mitra: How much? Were the investors in Portugal starting to operate already?

João Aroso: They were Portuguese investors. They weren’t typical VCs. I wouldn’t even call them angels because they didn’t use to do that for a living. There were just executives that we reached out to and
explained what we wanted to do.

Sramana Mitra: So what was the distribution between your own money versus outside money?

João Aroso: Roughly fifty-fifty.

Sramana Mitra: How much? What was the total amount of money that you were applying to this?

João Aroso: I can’t disclose that.

Sramana Mitra: Give me a ballpark. In your first business, you put in $1M And you’ve got a $7M exit on about a half a million-dollar revenue. I can understand that business. I presume this business is going
towards an exit story as well. To be able to understand what that story is, I do need some ballpark. Tell me whatever you can.

João Aroso: Most of the exits was allocated to building up the Yellow Pages, especially because we sold
pretty much to the same player that we bought the company from.

Sramana Mitra: So you sold it back to the telco.

João Aroso: I sold my business to the telco and I bought the Yellow Pages from the telco.

Sramana Mitra: Right.

João Aroso: We literally didn’t sell the company. We sold all the IP of the company. It was pretty much intensively allocated to building the Yellow Pages. We raised outside investors for that. We
restructured debts. The company was almost running into Chapter 11 equivalent here in Portugal.

Sramana Mitra: Your company was running into bankruptcy?

João Aroso: No, the Portuguese Yellow Pages.

Sramana Mitra: OK. So, you got a good deal on buying the Portuguese Yellow Pages. You only sold the technology, you got all the exit money into the company entity. You bought the Yellow Pages from that same company. Then you raised almost an equivalent amount of outside money to build
that business.

This segment is part 2 in the series : Building a Generative AI Venture from Portugal: João Aroso, CEO of Leadzai
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