Dan Martell - The Ultimate SaaS Financial Guide with Mark MacLeod @ SurePath Capital

00:00:00.000 If you buy shares in Shopify and you just decide, you know what, I made the wrong decision,

00:00:04.780 you can just go on the market and sell them. If you buy a company or you invest

00:00:08.600 in a startup, you can't undo that decision.

00:00:24.800 Mark, thanks a lot for coming on the show. Thanks for having me.

00:00:27.360 Appreciate you, man.

00:00:28.640 So for those that may not know your story,

00:00:32.200 ex-CFO at Shopify Tungle,

00:00:34.780 Montreal back in the day.

00:00:35.680 Way back, way back.

00:00:36.400 That's when I think we first met.

00:00:38.140 So Shopify, obviously that's a crazy ride.

00:00:40.840 Had Toby on here.

00:00:41.700 That was, I mean,

00:00:43.020 just one of the most fascinating conversation

00:00:44.500 because we are both technical.

00:00:46.300 So it was kind of neat to look at business

00:00:47.960 through that lens.

00:00:49.620 Then FreshBooks, CFO FreshBooks.

00:00:53.540 Yep.

00:00:53.900 And now SurePath Capital,

00:00:55.460 which is your boutique M&A firm.

00:00:58.940 Is that the way you would describe it?

00:01:00.160 Yeah, investment bank.

00:01:01.240 Non-sketchy investment bank.

00:01:02.620 Non-sketchy investment bank.

00:01:03.860 I like that because we'll talk about

00:01:05.340 what makes investment banks sketchy

00:01:07.460 because a lot of founders don't know

00:01:08.940 that there's this whole financing side of things

00:01:11.720 or exiting process.

00:01:13.560 But you've been known,

00:01:15.140 I think I first discovered you through your blog.

00:01:18.180 How many articles have you written?

00:01:20.740 No clue.

00:01:21.180 I mean, I started blogging in 2007.

00:01:25.060 Yeah.

00:01:25.460 startupcfo.com. Yep, .ca. .ca. Yeah. You don't have the .com? I don't have the .com. Weird,

00:01:31.380 but you have at startupcfo. Are you still on Twitter? No, you changed that. No, I handed it

00:01:35.460 off. There's a new, like a successor. Her name's Vanessa. She runs Cruise Consulting in San

00:01:40.200 Francisco. Okay. She runs the books. You've passed the baton. Passed the baton, yeah. Okay. And she

00:01:44.260 runs the books for like 400 SaaS startups, literally. I think everybody listening is

00:01:49.460 probably excited to know. So Vanessa at Cruz, K-R-U-Z-E Consulting. Wow. She's going to get

00:01:56.680 an influx of news. That's like the biggest, like people are like, who do I use for bookkeeping as

00:02:00.720 a SaaS? Cause there's all these like nuances, state taxes now is a big thing. That's right.

00:02:05.580 Yeah. Though they've made, they've figured it out and there's a real, they've got a bunch of

00:02:08.760 automation and they're only doing SaaS startups. I'm excited about that. Cool. So she's the new

00:02:13.060 startup CFO. But like, what was your fascination on sharing that content originally? Like,

00:02:18.060 Yeah. First of all, I love to write. And I find the process of writing clarifies my thoughts on a topic. So I actually learned and kind of crystallized my own thinking through doing it. And then, you know, this is before every VC kind of blogs now and shares thought leadership, and it's part of their funnel for bringing in deal flow. But this was sort of before that. And so...

00:02:42.460 Do you remember when your first post went out?

00:02:44.320 March 2007.

00:02:46.240 Wow.

00:02:46.760 yeah okay that was like on wordpress it was like or not not not word blogger yeah blogger it's like

00:02:52.280 super old school yeah but um yeah there were very few folks writing about startup finance and none

00:02:58.620 from an operating standpoint and you know i was in sass from the inception of sass before it was

00:03:04.440 even called sass yeah it was like esp or something whatever it was yeah and so yeah i was just kind

00:03:11.040 of crystallizing my own thoughts on the topic so i found it super useful and you've put out a ton

00:03:16.100 of content. Yeah. I've slowed down a bit recently, but certainly in the CFO days, especially when I

00:03:21.360 was doing multiple companies at a time. Cause that, and that's what I was wondering. Cause

00:03:24.640 like, were, were, were you doing Shopify and other companies? That's what it was. And then

00:03:29.480 eventually you went on full time. That's why I wasn't sure if you were. No, no. What happened

00:03:32.880 is I helped raise real ventures and was true. Fun fact. You were my investor. Yeah. Yeah. And

00:03:38.860 then you left. I was sad. Sorry, man. I was like, Hey Mark, I don't like this at all. Yeah. So I was

00:03:45.540 with Shopify through a really important period. They first reached out to me again, Toby, same

00:03:51.000 thing, read my blog, reached out and he was like, Hey, we're kind of growing like crazy.

00:03:56.200 What level were they at either years in business?

00:04:00.160 This was 2009, 2010. And so still pretty early. Profitable. It was real company. Had only raised

00:04:10.140 angel capital, but it was really working. And he reached out to me. He's like, you know,

00:04:15.540 we're not sure what metrics to track we track some we don't know these are good results or bad results

00:04:21.460 uh would you come and spend a day with us i did the output of that day was an excel spreadsheet

00:04:26.500 of what they should track and the benchmarks okay and to their credit and this just sort of

00:04:31.140 even even as a marketplace they were early to that yeah like marketplaces were still like

00:04:36.740 not a there wasn't a lot of data i mean really i think it was alister's book on the metrics lean

00:04:43.540 lean metrics that really kind of crystallized some of this stuff yes you know all before that yeah

00:04:47.940 that's crazy yeah and so so to their credit they went from not knowing what to track to hiring a

00:04:53.860 hacker out of amsterdam to build this amazing data warehouse that could have been its own startup

00:04:58.820 they could have been like the metrics back end for every sas startup out there everything fed

00:05:03.940 into the data warehouse yeah yeah so they were amazing including they built this thing it was

00:05:08.900 like a visualization of the world and you could see like real time transactions yes really you

00:05:13.780 see i've seen the more modern version they still showed on like black friday yeah black friday

00:05:17.620 so that started as internal technology that's amazing so i did that day with them and then

00:05:24.500 became involved as a part-time cfo uh assisting them and raising the series a and the series b

00:05:30.340 which ended up being an insider round because everything was working so well as a as an aside

00:05:35.220 When you say inside around, existing investors just topped up.

00:05:38.460 Yeah, I remember being in the board meeting where we said

00:05:41.520 we were going to go raise a Series B, and they were just like,

00:05:44.080 hey, give us some time, and they basically came back.

00:05:46.760 Like, please don't let us.

00:05:48.280 Yeah, it was like an offer we couldn't refuse.

00:05:50.180 And so an interesting aside, you think of Bessemer Ventures,

00:05:52.620 like one of the most storied venture firms ever.

00:05:56.420 Shopify is still their largest cash-on-cash return.

00:05:58.980 No doubt.

00:05:59.440 And that is because they doubled down.

00:06:02.020 As an aside, they've just done the exact same thing in Toast.

00:06:05.120 No way.

00:06:05.820 Yeah, just led a $400 million insider around.

00:06:08.000 I mean, it always made sense once I understood the idea of like Parada for angel investors.

00:06:13.200 Like if you look at your deals and it's like these ones are doing well, why would you go find other ones and have this same?

00:06:19.040 That's right.

00:06:19.400 I get portfolio approach and, you know, you have investors and LPs that, you know, assume you're going to do a certain strategy.

00:06:24.560 But got to double down on the winners.

00:06:27.100 The winners.

00:06:27.700 All right.

00:06:28.020 Because most don't win.

00:06:29.720 So the other thing I find fascinating is, you know, you've just seen the evolution of metrics in regards to like the concept of expansion revenue and SMB.

00:06:40.380 I mean, that's, you know, FreshBooks, you know, they're I think for a long time, they're very much on the S side of the SMB.

00:06:46.000 Still.

00:06:46.540 Yeah, still.

00:06:48.060 What have you seen in regards to the evolution of SaaS, you know, over the last 10 years, you know, either in the go to markets, the pricing strategies?

00:06:57.720 like what's got tons so much um kind of sort of seeing freemium come and go like yeah for now

00:07:06.220 it's product-led growth yeah now it's like if you stay long enough you find like oh they finally

00:07:11.320 have a name that's gonna stick for this thing that's right yeah um so saw lots of you think

00:07:17.080 freemium's coming back not necessarily i think um in certain instances it makes sense you know

00:07:25.820 I think where it failed is there was

00:07:28.240 if you look at the

00:07:30.000 conditions for success in freemium,

00:07:32.280 one, you need to have a very large inbound

00:07:34.020 funnel.

00:07:35.580 Two,

00:07:36.660 the incremental cost of serving

00:07:39.920 a new user needs to be near zero.

00:07:42.940 And third,

00:07:44.040 there has to be just a huge

00:07:46.220 differentiation between the free and the

00:07:48.040 premium such that if you

00:07:50.000 have this massive funnel, it's nominally 0.98

00:07:52.300 expensive to serve them.

00:07:53.880 Yeah. Then through good onboarding, great product, there's enough that upgrade. And there's such a compelling reason to upgrade that the revenue stream works. And I think it's a marketing decision, not a financial decision. It's really about top of funnel distribution. I think recently Vidyard, Michael it. Yep. That's I mean, that's a big bet. I haven't seen many companies at their scale, you know, decide to go freemium.

00:08:18.900 Yeah, that's right.

00:08:20.220 A huge, I mean, I would imagine the kind of immediate churn was non-trivial for that.

00:08:26.300 So you got to cross the desert on that move.

00:08:28.580 That's for sure.

00:08:30.040 But I actually think that move is a reflection of changes in the market that are one of the reasons why at SurePath we focus exclusively on SMB software.

00:08:41.320 You know, and maybe we'll talk about that.

00:08:42.520 I didn't know that.

00:08:43.280 It's SMB 100%.

00:08:44.760 That's all we do.

00:08:45.520 No mid-market.

00:08:46.440 Well, at the M.

00:08:47.460 Okay.

00:08:47.900 We do the M.

00:08:48.720 Got it.

00:08:49.200 So what kind of ACVs, you just stay anything under 100K kind of deal?

00:08:53.540 Yeah, we find generally, if you're getting north of kind of 50K a year even,

00:08:59.740 you're starting to move a little out of our sweet spot.

00:09:03.280 Definitely north of 100K ACV, that's closer to enterprise.

00:09:07.200 Got it.

00:09:08.140 Like the commonality with all of our companies is if they've gotten to a scale,

00:09:12.300 then they have lots of customers, small or midsize,

00:09:16.280 and therefore are data-driven, funnel-led companies versus,

00:09:21.440 you know, if you think about enterprise sales,

00:09:22.720 if you sell to a Fortune 500, guess what?

00:09:24.620 You've got a TAM of 500 companies, right?

00:09:26.900 So it's more hero-based, more sales-based.

00:09:30.820 You know, it's all the end of quarter.

00:09:32.680 You like the data-driven.

00:09:34.420 Yeah.

00:09:34.800 What are some of the clients you've worked with?

00:09:37.320 Tons.

00:09:39.120 So we raised $115 million for a company called Vena Solutions.

00:09:43.920 That's a mid-market kind of corporate performance management thing.

00:09:47.460 And is it both sides buy and sell?

00:09:49.720 We're mostly sell side.

00:09:50.780 Sell side?

00:09:51.180 Mostly sell.

00:09:51.860 So you help people exit or raise capital.

00:09:55.480 Raise capital.

00:09:55.860 And often pursue both simultaneously, which is a thing I hope we'll talk about,

00:10:00.520 just because they're continuing to raise additional capital is like a double-edged sword.

00:10:05.680 And it can be really easy to do in this environment where there's so much capital.

00:10:09.300 And then as founders, you could end up screwing yourself when it comes time to exit.

00:10:12.580 To the true cost of capital.

00:10:14.660 That's right.

00:10:15.360 So we did that, raised $60 million for TaxJar, awesome company serving e-commerce, merchants.

00:10:20.540 Nice work, Mark.

00:10:21.480 This is awesome.

00:10:22.640 So how do you explain what you do, the Boutique M&A Bank, like for a founder?

00:10:27.740 What's your definition?

00:10:29.320 Yeah, so if you think about startup life, it boils down to kind of a few big moments

00:10:34.240 where having the right advice, insights, network expertise could be literally game-changing.

00:10:41.600 Yeah. Jeff Bezos calls these type one decisions, right? Yeah. There you go.

00:10:44.720 And there's a few of them right in the life of a startup from the decision to raise capital

00:10:50.560 to maybe a strategic investor to ultimately exit. Yeah. And, um, so what we do, you know,

00:10:58.720 we, if you think about the early stage investment decision, it's sort of fundamentally a leap of

00:11:03.200 faith. Dan's onto something like screw it. I'm just going to bet on Dan. He'll figure it out.

00:11:08.240 It's literally that.

00:11:09.340 It's literally that, yeah.

00:11:10.260 People think there's more science.

00:11:12.360 But at the growth stage, every I will be dotted, every T will be crossed.

00:11:17.520 It's a very considered decision.

00:11:20.420 And growth stage being like a B round plus?

00:11:23.000 Typically, so there's sort of two flavors.

00:11:24.840 One is if you're on the venture treadmill, you've already raised your seed in your A,

00:11:30.540 it's sort of like B and up.

00:11:31.720 and then another thing that we find again in the smb world where smb markets are sort of large and

00:11:39.000 evergreen they've been around forever like a full half of our clients sort of skip venture capital

00:11:43.920 and go directly to private equity yeah um we're seeing a lot more of that i feel yeah yeah and

00:11:49.680 it's actually better aligned for founders because it's it's not benign but like unlike vc where like

00:11:56.440 as a venture capitalist would prefer that you go into a brick wall at 100 miles an hour trying to

00:12:00.760 create an outlier versus have a safe win.

00:12:04.280 So you're not aligned, right?

00:12:07.160 The PE folks only play sort of 10 million revenue

00:12:10.660 and above the cash flow.

00:12:11.860 Yeah, and so it may or may not be profitable,

00:12:14.580 but if it's burning, it's nominal burn.

00:12:17.180 Unit economics are everything.

00:12:18.800 It's just a repeatable sausage machine.

00:12:20.420 Like it just works.

00:12:21.380 And it seems like a lot more of these platform plays

00:12:23.520 where they buy a company as a platform

00:12:25.120 and then kind of roll up other companies in their space.

00:12:28.480 That's exactly right.

00:12:29.320 Sold a company, Joyst, into a platform that Providence Equity was doing called EverCommerce.

00:12:36.460 And they've had huge success with that.

00:12:38.960 So Vista, I feel, is the OG of this space.

00:12:42.800 That's right.

00:12:43.160 By the way, Vista has literally never lost money on an investment.

00:12:45.940 I know.

00:12:48.920 Robert is, I've got a man crush on him.

00:12:51.400 Yeah.

00:12:51.740 I've watched every video on YouTube he's ever done.

00:12:54.140 Yeah.

00:12:55.660 Vista is fascinating.

00:12:57.020 For anybody in this space, as you know, they're fascinating.

00:12:59.140 But when did the rest of the private equity world jump?

00:13:02.580 Because there's a few Georgian partners, I think, is in this space.

00:13:06.760 It seems like they used to do just like retail roll-ups, dentist's office.

00:13:12.140 When did they decide to get into this SaaS?

00:13:14.260 What did they see?

00:13:15.840 Did they just run out of opportunities, you think?

00:13:17.960 Or did they just saw the economics and they were like, whoa, this is...

00:13:20.760 Yeah, they were originally focused on bottom-line profitability.

00:13:23.860 And that is typically not strategic for SaaS, right?

00:13:27.720 What you want to do is acquire as many, you want your individual unit economics to be profitable.

00:13:33.180 Yeah.

00:13:33.420 And if they are, you want to get as many of those profitable annuities as possible.

00:13:37.260 Because it's a future, it's discounted cash flow into the future.

00:13:39.780 That's right.

00:13:40.260 And so at a certain point, the line will cross and your company will become profitable, but that's why.

00:13:43.860 And it's a decision you can make at any point if you want to cut costs.

00:13:46.420 Correct.

00:13:46.760 And that's why if you look at Salesforce, sort of the OG SaaS public company, they were massive before they became profitable.

00:13:53.620 That was a strategic decision.

00:13:54.920 And so the private equity folks sort of avoided SaaS

00:14:00.120 because it didn't fit their playbook of, you know,

00:14:03.240 taking a controlling stake in a company

00:14:04.880 and then putting a bunch of debt on the balance sheet

00:14:07.180 and using the free cash flow to pay off the debt

00:14:09.320 because it wasn't generating free cash flow.

00:14:10.940 Yeah.

00:14:11.480 But, you know, what's happened is like on-premise software is still,

00:14:16.560 like if there was a pie chart, on-premise is still most.

00:14:19.800 Is it really?

00:14:20.420 Yeah.

00:14:20.800 It's not cloud.

00:14:21.440 Especially in the enterprise world.

00:14:22.280 Most people listening to this have no clue at on-premise.

00:14:24.260 Right.

00:14:24.420 Right. I spent a lot of time in cold server rooms.

00:14:28.060 There you go. So especially in the enterprise space.

00:14:30.520 Yeah. But the trend is very clear, right?

00:14:32.280 It's moving towards SaaS.

00:14:34.280 And the private equity folks have just gotten religion that, you know, unit economics are actually more important than bottom line profitability.

00:14:43.580 And therefore, there are large companies to be built.

00:14:46.360 And in the SMB context specifically, where those markets are large and fragmented, and it's sort of mathematically impossible to win a market, especially if it's a horizontal thing, then they can consolidate, they can use their M&A capabilities to roll up markets, they can do all the things.

00:15:03.980 Okay, so that's where they're saying, hey, there's potentially a thing in, you know, one of my coaching clients just exited a PE firm in the kind of like ERP for SMB on the lawn care space.

00:15:15.780 And so what you're saying is it's hard to get scale horizontally, but if individually these companies in different segments have a customer base, then there's kind of efficiencies that we can roll them like five or six or seven of these together, consolidate some of the cost, and then we'll have a bigger platform.

00:15:39.240 And it seems like, I mean, private equity has always been, it's always been known as, like, buy it, sell to the next guy.

00:15:45.500 Is that still present in the SaaS private equity space?

00:15:48.900 Like, does everybody eventually end up selling to Avista?

00:15:52.600 Eventually.

00:15:53.520 I mean, you know, 96% of funded companies exit by way of acquisition.

00:15:58.820 96%?

00:15:59.900 4% by IPO.

00:16:01.100 Wow.

00:16:02.440 So the other data point I've always,

00:16:04.420 I call this like the true entrepreneurial all-star thing

00:16:09.700 if you're still CEO of the company you founded

00:16:12.180 when you go public.

00:16:13.060 Right.

00:16:13.780 That's like rare.

00:16:14.960 Super rare.

00:16:15.620 That's like the ultimate to me.

00:16:17.340 If you've been able to grow as a human,

00:16:19.280 because that's a different level of skill set

00:16:20.920 all the way on that.

00:16:21.700 Right.

00:16:22.060 That's rare.

00:16:22.780 Okay, so you're saying 4% go IPO, 96% exit through.

00:16:25.380 And so on a probability basis, what's going to happen,

00:16:27.900 so these PE investors are called sponsors.

00:16:29.860 And so you'll get a sponsor, they're going to help you grow to a certain level, and then flip it to the next sponsor.

00:16:37.240 And their whole pitch to you as a founder is, you know, like two bites at the apple.

00:16:43.380 Like you're going to have an exit today.

00:16:45.040 Get you some liquidity.

00:16:45.940 Do you risk it?

00:16:46.920 You're going to roll in.

00:16:47.820 Usually 40% keep on the next.

00:16:49.820 Yeah.

00:16:50.180 And then we're going to do all the things that we do, like our playbook, either from operational excellence to acquisitions, whatever,

00:16:56.940 to create a company that is larger

00:16:59.260 than you would have created on a standalone basis.

00:17:01.620 And then we're going to exit that.

00:17:03.120 And you can either leave the bus at that point

00:17:05.520 or you can keep going.

00:17:06.280 But either way, kind of two bites at the apple.

00:17:08.280 And I've seen it work.

00:17:09.720 It does.

00:17:10.080 I mean, it seems a less risky proposition

00:17:12.840 than the kind of like drive into the wall

00:17:15.260 at 100 miles an hour.

00:17:16.400 100%.

00:17:16.840 So from your perspective,

00:17:20.320 when you're working with founders,

00:17:22.880 you mentioned cost of capital

00:17:25.300 and, like, getting on this, like, fundraising train.

00:17:29.100 What are the new ways to think about fundraising?

00:17:32.020 Is it to stay bootstrapped as you can

00:17:33.600 and then maybe do some debt financing?

00:17:36.260 Like, there's all these new alternative debt financing classes.

00:17:39.860 Right.

00:17:40.480 What, like, what, for an SMB or mid-market, you know,

00:17:44.440 the clients you serve, what are the new things

00:17:47.040 that people may not be aware of in regards to

00:17:49.240 how they can get to scale and get some liquidity

00:17:51.700 and, you know, kind of get an outcome?

00:17:55.300 Well, I think strategy begins kind of with an end state and working backwards.

00:18:01.200 And so a lot of the conversations I have with founders, first of all, and to be clear, I get involved midstream, not at the early stage, right?

00:18:07.700 But if you can talk to them early, knowing where you're helping them out, what could they do differently?

00:18:14.280 I would say postpone raising institutional capital.

00:18:20.400 yeah until because pretty much other than co-founders early investors they're the highest

00:18:25.480 dilution highest dilution yeah and it's you're sort of signing up for a one-way journey yeah

00:18:30.700 and you often don't know enough to know whether you want to be on that journey yeah and then you

00:18:35.100 often end up going on that journey from like not the biggest position of strength yeah right and

00:18:42.000 so if you can claw fight bootstrap whatever like get it going get it going just anything and

00:18:48.980 everything to get it to a point where you are in a position of strength and you

00:18:53.480 can dictate terms then you're gonna suffer way less dilution right and you

00:18:59.360 know I look at you know many of the companies we exit you know the founders

00:19:04.140 own between five and ten percent yeah so it's still worth something yeah but you

00:19:10.640 know it's not it's not like like crazy I call it multi-generational wealth

00:19:15.620 creation right yeah so it's definitely not that not that so you know if i look at shopify as

00:19:22.080 obviously a great case study you know by the time it raised uh its first round of capital from

00:19:29.280 bessemer and first mark it was working uh we didn't need their money they were begging were

00:19:36.560 they the ones i heard they were sending like gold-plated old cash register machines trying

00:19:41.940 to get Harley and Toby, like there was the,

00:19:44.240 literally the, the, the chase was on.

00:19:46.340 Oh yeah, for sure. You know, there was a bunch

00:19:48.160 of investors around the table.

00:19:49.400 They were like, please let me in.

00:19:50.540 But when they saw, when they looked underneath the hood

00:19:52.940 and saw the metrics, they were just like,

00:19:54.880 we, we need to invest in this company.

00:19:57.740 I love watching Harley on, oh, what's that guy

00:20:01.340 that screams at people, the finance guy.

00:20:03.180 Oh yeah, yeah, yeah. Mad money or something.

00:20:04.700 Mad money. I just love it. It's like crazy.

00:20:06.280 It's like, he's like legit. It's, it's, it's impressive.

00:20:10.000 And it's, I mean, it's just, uh, it's a fun one for Canadians just cause it's such a,

00:20:14.600 it's just a cool example and just world-class like excellence.

00:20:17.680 Like I was only in the office, like maybe two days a week or whatever, but there was

00:20:22.100 a period there where the office I sat in was right next to Harley's and he would just work

00:20:26.640 it all day.

00:20:27.200 It was just like phone call, just hustling.

00:20:29.600 Yeah.

00:20:29.840 Like huge doing Harley. 0.90

00:20:31.360 Yeah.

00:20:31.500 He is like a force of nature.

00:20:33.340 Um, so postpone capital raising as much as you can.

00:20:37.500 But then is there some new options that you think that are interesting for farmers to look at?

00:20:43.000 There are.

00:20:43.520 You know, there's new alternative lenders like Lighter Capital, SAS Capital that come to mind

00:20:48.340 who, unlike a Silicon Valley bank, like a Silicon Valley bank really...

00:20:52.180 They've been around forever doing this gross stuff, and they seem to tag along to the VC.

00:20:56.320 That's it.

00:20:56.820 They're underwriting the VC.

00:20:58.020 Yeah, they're saying you've raised money, the VC did some, you know,

00:21:01.520 and there's capital there for us to kind of...

00:21:03.700 Yeah, and they get their warrants and all that crazy stuff.

00:21:05.700 But that, I mean, the newer stuff, like the lighter is interesting because it's, you know, I think they're considered revenue based financing, RBF.

00:21:12.860 Yep.

00:21:13.460 So they're tagging along to your profitability or your, you know, and then the payback terms.

00:21:19.600 Now it's still expensive capital.

00:21:21.180 I mean, it can be up to 30% annualized depending on the terms.

00:21:25.340 Is there any that people should stay away from or any terms that you're hearing that are just when in future rounds, you're like, I can't believe you took that on.

00:21:32.980 should people be asking to beg borrow and steal from their friends and family which i think is

00:21:36.680 like i mean if i had this going and i didn't have the capital i would be like hey brother you should

00:21:42.200 go get a line of credit right because i mean i'd rather give you yeah 10 you know i i so because

00:21:49.760 they're pretty stable businesses i mean that's what i love about well so this is an important

00:21:52.780 point i think in general it's like two things first of all i'd say whether you borrow from

00:21:56.020 your friends or family is totally a personal decision can you live with them losing their

00:22:00.960 money fair enough that's that's that's that yeah um but i think broadly the decision to bring on

00:22:06.460 debt like if you need money to take on experiments where the outcome is very unknown use equity

00:22:16.060 yeah equity meaning venture so people understand equity sell shares in your company sell shares

00:22:22.040 in your capital yeah it's not um if you are taking on money to execute programs with a high

00:22:27.860 You have repeatable scalability, yeah.

00:22:29.560 Debt is perfect for that.

00:22:30.660 That's a really clear thinking.

00:22:33.560 Who is this, Scott?

00:22:34.420 Do you listen to Scott and Kara Swisher, Recode?

00:22:37.740 Scott, he calls it blue flame thinking.

00:22:41.100 Okay.

00:22:41.520 So that was a very blue flame thinking approach to if it's repeatable, scalable, use debt.

00:22:47.060 If it's experimental in growth, even expansion, look at equity.

00:22:52.740 That's right.

00:22:53.460 That's a cool way of thinking about it.

00:22:54.980 Um, and then in regards to a process, when people think of M&A banks, you know, a lot

00:23:00.860 of founders are like, I'll just do it myself versus working with you.

00:23:04.080 What's your argument for, you know, what's the right size of business?

00:23:08.160 Should they approach somebody like yourself to get involved?

00:23:11.480 What's the value add that you bring to the table?

00:23:15.360 Yeah.

00:23:15.880 Uh, so that comes up a bunch.

00:23:17.500 I think, you know, first of all, most investment banks have a well-deserved bad reputation.

00:23:22.300 Yeah.

00:23:22.440 And it's like most industries, like real estate agents.

00:23:25.840 Yeah.

00:23:26.600 And so there's a lot of really sketchy, non-value add investment bankers out there.

00:23:30.900 But again, going back to what I was saying earlier, like there are a few moments where having the right advisor is literally game changing and that's all we do.

00:23:38.240 Yeah.

00:23:38.680 And so, you know, what I tell founders is a few things like one is like there's so much written about raising capital and yet many folks struggle with that.

00:23:52.440 there's almost nothing written about how to sell your business it's this total black box yeah and

00:23:57.800 it's super emotional you're gonna ride the highs and the lows and it's personal you're maybe picking

00:24:03.640 out the ferrari you're gonna buy like the yacht like whatever right it's hard you've got a mclaren

00:24:09.160 so you get it it's hard to not think of the future life and you're starting like you haven't even

00:24:16.680 exited you haven't even found a potential like there's no letter of intent it's really it's it's

00:24:20.840 it's a tough one. I totally get it. And so, so that's a thing. It's human nature, unavoidable.

00:24:25.720 And then you're negotiating against your future employer. So weird. Right. But the biggest thing

00:24:30.760 is like, if an investment bank does nothing other than create the perception of competition,

00:24:36.480 whether there is competition or not, they will enforce better pricing, better behavior from the

00:24:42.560 buyer. Right. Because if the buyer thinks they've just got an exclusive conversation with you,

00:24:46.340 yeah they've got all the leverage and there's tons of precedent for buyers to kind of you know

00:24:53.440 give you a letter of intent on one level and then once you've signed the letter of intent

00:24:57.800 you're off the market they find oh there's these issues you know we'll still do the deal but we

00:25:02.280 got to drop it whereas we force all the diligence to happen up front so it's down to like there's

00:25:08.880 going to be no skeletons in the closet so it's just confirmatory during the you know the exclusive

00:25:13.680 Because I will say, I just want to, because a lot of people listening may have never understood that there's people that help you sell your companies or raise capital.

00:25:21.780 But, and unfortunately, at the buying companies, there's literally titles called corporate development, business development.

00:25:29.360 It's their job to waste your time as a founder.

00:25:31.480 That's right.

00:25:31.860 Right, to come in, to say they're interested, and we want to just have meetings.

00:25:35.440 And as a founder, you get all excited, and you're like, oh my gosh, you know, big company Xs, you know, Google, whoever.

00:25:40.740 And if they're actually looking to acquire, they will literally term letter of intent, you don't know any better.

00:25:47.880 And then through the process, they will just beat you down where it's 30, 40% below what they originally thought.

00:25:54.140 Correct.

00:25:54.700 So the big buyers will do a thing called a market map.

00:25:57.120 If they're thinking of, you know, having, they need a solution in a certain category, they will literally talk to every vendor in that category.

00:26:05.300 So market map.

00:26:06.720 So even if they're not for sale, they'll talk to all the vendors.

00:26:09.940 That's right.

00:26:10.680 And their goal is to triangulate some data points, metrics.

00:26:14.240 Pick the best one.

00:26:15.040 Pick the best one.

00:26:16.600 Okay.

00:26:16.860 So they have their own playbook they execute against.

00:26:19.420 That's right.

00:26:19.940 And so, you know, every single CEO will get an outreach.

00:26:24.080 You know, we're interested in, you know, exploring a strategic discussion with you.

00:26:28.900 Every founder will be like, oh, my God, they want to buy me.

00:26:31.620 They're going to buy one, right?

00:26:32.820 If there's 20 players in the space, you've got a 5% chance you're going to get bought.

00:26:36.100 yeah so and and so people so in regards to like how that process works with somebody like yourself

00:26:44.740 mark like what do you do um you know because i've gone through i kind of know uh like unpack it for

00:26:50.260 people in regards to like you know initial conversation you put together x process takes y

00:26:56.820 yeah you know like that whole what could somebody expect as an experience yeah so so first of all

00:27:03.460 of all, we're super specialized. We only do SMB software companies. Awesome. And we only do them

00:27:08.800 at scale, like 10 million revenue and above. Okay. So 10 mil AR plus, you're thinking you

00:27:13.760 want liquidity in the future. Should they wait until they're ready to sell? No, because good

00:27:20.440 things don't just happen. Yeah. Right. And really what we want is optionality and leverage. Good

00:27:27.000 things just don't happen. Yeah. That's a t-shirt, man. That's good. I like that. That's good. People

00:27:32.880 does this show up one day no but i love it because you're essentially making markets you're creating

00:27:36.520 market you're creating competitive process so what we will do we like to have long-standing

00:27:40.580 relationships with clients like if we're going to sell your company and take a piece of it

00:27:44.680 yeah uh we should behave like a shareholder and add value along the journey not just in the last

00:27:49.940 mile right so we want to be involved earlier informally or not like we don't even have to

00:27:54.660 be a formal signed up client it's just like understood like we have this great relationship

00:27:59.540 with SurePath. They've got all kinds of value. And like, when the time's right, we're going to

00:28:02.900 make one call. Like, that's our strategy, right? Is to eliminate competition. And, you know, on

00:28:07.660 the buy side, because we only sell to SMB buyers, we're dealing with a very finite pool of, you

00:28:16.140 know, strategic buyers. So, you know, we know them really well. You know, like the guy who runs our

00:28:20.440 San Francisco office, like his job is to know every exec that can sponsor an acquisition inside

00:28:25.400 all the most active SMB buyers,

00:28:27.280 you know, Intuit, Square, GoDaddy, etc.

00:28:29.420 And not only know what they're thinking,

00:28:31.060 but shape what they're thinking.

00:28:32.840 So a big part, if someone wants...

00:28:34.320 Shape what they're thinking, yeah.

00:28:35.760 You know, like, you know, suggest ideas, themes,

00:28:39.000 what we're seeing in the market,

00:28:40.120 companies that they should talk to,

00:28:41.380 whether they're a client of ours or not.

00:28:43.000 We do that all the time.

00:28:45.120 So engage in this two-way dialogue

00:28:47.140 to, you know, really understand...

00:28:49.660 Add value to their life.

00:28:50.780 Let them know where you guys are seeing the market going

00:28:52.660 because you're also...

00:28:53.740 because you have access to the clients.

00:28:55.380 Now, I mean, from an outside perspective, it sounds like there could be a conflict of interest.

00:28:59.820 Because if I'm selling, I'm selling one company, you might be selling three or four to the same buyer.

00:29:06.800 Right.

00:29:07.180 How do you resolve that to a founder?

00:29:10.080 Well, I'd say our bread is buttered on the sell side, right?

00:29:12.960 We have done buy side work, but the vast majority of our practice is sell side.

00:29:17.960 Okay.

00:29:18.480 And it's a really small world.

00:29:22.900 Yeah, you can't.

00:29:23.780 You can't.

00:29:24.200 You know, new clients want to speak to previous clients, so we have to crush it.

00:29:29.000 And then, and also, by the way, our business model is totally driven by crushing it, right?

00:29:34.060 Yeah.

00:29:34.360 You know, your upside is on percentage of.

00:29:38.120 That's right.

00:29:38.820 We're incented to make the deal as big as possible.

00:29:41.000 And I would also say, like, if we just caved, you know, to the demands of the buy side, they wouldn't respect us.

00:29:48.280 So.

00:29:48.940 I had a client once.

00:29:50.160 They went through a process.

00:29:51.820 um i think nine nine of my coaching clients have exited in the last 12 months and one of them said

00:29:56.560 um about profitability because he came back and i was like hey you should unpack what you learned

00:30:02.420 through this process for everybody and he said for every dollar of profit i saved i lost like

00:30:06.780 six or seven dollars in outcome yeah because he was he was so worried about being hyper profitable

00:30:12.900 because he came from a more traditional background it was like 50 60 net profit right wow yeah and

00:30:19.820 And he said the sad part was after I exited, they made all these things like built out an outbound sales team, you know, improved our demand.

00:30:30.360 Like all these things he knew he could have done that he didn't do.

00:30:33.560 So they're getting all the upside.

00:30:34.860 Right.

00:30:35.380 And he could have got the upside if he started to.

00:30:37.680 Is that the kind of stuff that you help companies understand early so that they can amplify the potential number?

00:30:44.220 100 percent.

00:30:44.800 Right.

00:30:44.940 So, you know, I've spent 14 years operating these kinds of companies, three years investing

00:30:49.120 in them, and now five years doing this.

00:30:51.700 And so I've sat on every side.

00:30:53.780 And so this is also another reason why I like to get involved as early as possible so we

00:30:57.840 can have that conversation.

00:30:59.520 You know, look at your runway if you're still burning.

00:31:01.700 Otherwise, look at your operating plan sort of regardless.

00:31:04.340 Yeah.

00:31:04.800 And make sure you're on the trajectory that's going to maximize your optionality.

00:31:08.880 You know, maximize your appeal to investors if we're going to go down that path.

00:31:13.200 maximize, you know, potential valuation to buyers, you know, or both. Right. Yeah. And

00:31:18.840 for recurring revenue businesses, all else being equal, the single biggest driver evaluation is

00:31:24.680 year on year revenue growth rate. Yeah. So I will say that buyers, um, don't love buying burn.

00:31:32.100 Yeah. Especially public, you know, anything that can reduce earnings per share, they don't love.

00:31:36.700 Yeah. Um, so there is a balancing act, but ideally like, so in that case, he shouldn't

00:31:42.760 have had 60 profit he should have had 10 profit and grown that's the whole that's that's what

00:31:48.280 he's like in hindsight it costs him a lot of money that's right and it and it and and to anybody else

00:31:55.340 not knowing what you know and i know it sounds like the you know like be as profitable as you

00:32:00.120 can be lean and mean and right um but not when there's a market but going back to the experience

00:32:05.500 so because i just want to really demystify a little bit because it's um a lot of the people

00:32:11.480 listening are bootstrap SaaS founders. They've not raised capital. If somebody engages you,

00:32:20.140 and so there's come early, maybe 8 million AR or whatever, they're on their path.

00:32:25.840 But what's the expectation if they say like, hey, we're interested, right?

00:32:32.120 Because I feel like founders are interested in wanting to be wanted, but you don't want to work

00:32:38.880 with somebody that's like kind of interested in exiting because then it's obviously a big waste

00:32:42.800 of time so like what what if you help them through that process like what is that timeline look like

00:32:50.560 realistically yeah you know if someone comes to us and like i want to sell my business now

00:32:56.380 yeah if they don't have meaningful inbound interest we decline because oh if they're not

00:33:01.300 organically getting their own inbound interest today if they want to sell today yeah if they

00:33:06.140 come and say, I want to be in a position to sell 18 months from now, and we form conviction that

00:33:12.440 there are buyers in that category, we'll absolutely engage. Perfect. That's a really good, yeah. Yeah.

00:33:16.820 But if someone says, I want to sell my business today, then like, if you want to sell today and

00:33:22.500 you don't have inbound buyers, you're not going to sell. Like, you know, like most buyers,

00:33:26.940 especially sophisticated ones, don't really react to cold, you know, intros from banks.

00:33:33.460 yeah this is why most investment banks suck for technology companies literally that's what they're

00:33:38.780 doing they're putting their whatever prospectus yeah they got this you know confidential info

00:33:43.200 memorandum if you printed it it's like a bible yeah and they just they're taking the approach

00:33:48.200 that they took to like old school banks like if you're selling a small bank to a big bank it's a

00:33:52.900 financial decision yeah if you're buying a software company it's a product it's a strategic decision

00:33:58.900 Yeah. So you're not investing based on like an inbound from a bank. Yeah. Right. It's it's you actually have to. And that's, again, why we're specialized. And what we're trying to do is engineer inbound interest by having conversations that are not attached to a process. They precede a process. Right. So that's why we want to be involved early.

00:34:21.020 what in regards to like some of the metrics you know obviously year on year revenue growth which

00:34:27.220 is a great number because it's taken in consideration you know churn revenue churn and

00:34:31.660 you know top of funnel growth i mean it seems like there's a lot more around payments i know

00:34:37.460 that i've noticed that much my client base where if you can get involved in the payment pathway

00:34:43.060 that's interesting um what are some of the like how about i ask you if you had to engineer the

00:34:50.440 perfect b2b what would the numbers look like in regards to expansion revenue

00:34:59.160 so broadly before we layer into expansion um

00:35:04.920 3x ltv to cac fully loaded basis yeah fully loaded meaning like lease cost for that yeah

00:35:11.320 personnel not just your marketing programs but your bodies right people have no clue how to truly

00:35:16.360 right so like that's a baseline yeah you know i think below that you're not that good a company

00:35:21.400 yeah ideally it's four and above i think if it's like six you're not being aggressive enough yeah

00:35:26.680 right you should be spending more right so so that's a thing um you know cac payback should

00:35:32.760 you know again if you're going back to this notion of 4x ltv to cac your payback should be

00:35:37.160 you know 25 of lifetime value yeah uh so that's a thing you know if i think about

00:35:42.760 out baselines on like kind of churn like on a logo or customer basis I think if you're north

00:35:50.020 of two and a half three percent per month it's a lot of gravity it's hard to recover unless you

00:35:56.120 have some sort of product that's got a 250 a month kind of yeah yeah ideally and this is where

00:36:03.480 expansion comes into play so ideally get your pricing right get yeah have for those customers

00:36:08.940 that stay, in an ideal world,

00:36:11.520 they actually make up the lost revenue

00:36:13.820 so that your net...

00:36:14.780 That's an ideal world.

00:36:15.800 That's ideal.

00:36:16.420 So it doesn't happen a ton.

00:36:17.880 Yeah.

00:36:19.840 And so I think even if you're...

00:36:21.560 So if it's like 3% churn on a logo basis,

00:36:24.560 one and a half on a revenue basis

00:36:26.360 is actually considered really good.

00:36:28.380 If it gets to zero or gets into negative,

00:36:31.120 then you're printing money.

00:36:33.260 And this is actually where payments

00:36:34.460 is pretty interesting.

00:36:35.200 So I was involved in the project

00:36:36.540 to launch payments at FreshBooks.

00:36:38.460 to have over half of their revenue oh they actually i knew that mike talked about it so

00:36:43.520 that's that's part of the infrastructure there's a fresh books payments product and does that mean

00:36:48.220 because the first time i ever talked to mike he was talking about like if i invoice to another

00:36:52.580 fresh books customer and they pay me yeah is there a float component yeah well we're not what we they

00:36:58.840 are not monetizing the float it's just like it's not a big deal but is it is it still not transacted

00:37:04.940 on the rails of a bank account?

00:37:07.940 Like if I pay using my account

00:37:11.200 and it just transfers,

00:37:12.580 like there's no...

00:37:13.140 Most of it is credit card.

00:37:14.120 Okay, so it means a transaction

00:37:15.360 to pull the money

00:37:16.160 through the credit card.

00:37:17.100 That's right.

00:37:17.560 Got it.

00:37:18.400 But the interesting thing,

00:37:20.020 again, in the SMB context,

00:37:21.440 like there's only so much

00:37:22.740 a small business customer

00:37:23.900 is willing to pay for software.

00:37:25.380 Willing us to pay, yeah.

00:37:26.240 But what they pay to get paid

00:37:28.220 comes out of like 0.64

00:37:29.340 a different psychological bucket.

00:37:31.000 And you put those two together

00:37:32.260 and the blended ARPU

00:37:33.520 is actually pretty interesting.

00:37:34.680 yeah and then it adds more value so it reduces churn so it's like a virtuous it's such a it's

00:37:39.320 such a i remember the first time we were doing flow town um investors so who's your question

00:37:43.640 we said smb and he just said there's a reason why they're in a they're a small business like they

00:37:47.720 don't there's certain caps to what they're willing to pay if they're truly a small business so it's

00:37:54.720 really looking at the transaction flow and this is where payments is interesting because it can

00:38:00.000 be quite meaningful and i know i i heard the uh so let's say the fees let's two and a half percent

00:38:05.080 or whatever on a monthly basis whatever your fees are like the market values it at like 20 times

00:38:09.760 like upside because it's just like locked and loaded people pay it that's right so there's a

00:38:15.440 high multiple on the on the payment revenue yep so if you can just look at shopify by the way

00:38:20.900 you know you look at they take do they run the payments through shopify and again it's over half

00:38:25.200 their revenue yeah it's uh what they call merchant solutions so if you can if if you have an smb

00:38:32.720 product that's involved in a transaction invoicing collecting you want to front load that in your

00:38:39.200 product roadmap absolutely absolutely it's just it's stickier a lot of money awesome good

00:38:46.880 because they don't think the people you're building sass you're like yeah you know i'm

00:38:50.480 just going to use stripe i'm just going to do this yeah i'm not going to be involved and you

00:38:53.920 You should start with Stripe because you need a meaningful amount of GMB for the math to work, but it should be, you know, something where you can white label.

00:39:04.320 And there's a bunch of different ones for white labeling.

00:39:06.840 Yeah.

00:39:07.460 That's cool.

00:39:07.840 We actually really like WePay for SaaS businesses serving at SMB.

00:39:13.200 Like, they're really good for that.

00:39:14.480 Okay.

00:39:14.780 So, they like to white label that kind of whole infrastructure.

00:39:17.920 Yeah.

00:39:18.900 So, again, I keep coming back to this because I really want to unpack it for people.

00:39:21.960 So the experience is they work with you and then you, you, so they have to have inbound.

00:39:27.220 And then in regards to like, do you put together something?

00:39:31.460 Do you like, um, and then is that shopped around?

00:39:35.820 How does, and what's the timeline typically?

00:39:39.120 Yeah.

00:39:39.540 So one thing I want to make clear, so a lot of this conversation sort of presumes that

00:39:42.820 the buyer will be strategic, you know, like an Intuit or a Google or something versus

00:39:47.400 a financial buyer.

00:39:48.480 Yeah.

00:39:48.660 But more and more of the buyers are financial.

00:39:50.620 Yeah.

00:39:50.820 And those are two different people need to know.

00:39:53.060 Strategic buyers versus a financial buyer.

00:39:54.500 That's right.

00:39:55.180 So financial buyers are now a quarter of SaaS exits and growing.

00:39:59.560 Oh, wow.

00:40:00.180 They are managing $2 trillion of capital.

00:40:03.520 And if you think about the decision, like for a financial to buy a company,

00:40:09.840 it's not unlike an investment decision.

00:40:12.440 They will just evaluate you on your own merits, like team, vision, metrics, space.

00:40:17.640 Like you'll just look at you in isolation and make a call.

00:40:20.300 And so it happens pretty quickly.

00:40:21.860 And so the way we run private equity, kind of, we call it like majority recaps, maybe selling greater than 50% of your company.

00:40:28.840 So majority recap is when more than 50% of the equity.

00:40:31.560 It's when the existing shareholder, you're doing a recapitalization of the company that is going to result in a change of control, where the new owner is going to own more than half.

00:40:40.040 Okay.

00:40:40.260 And that's like pretty standard for private equity.

00:40:42.340 And that's like a bunch of what we do.

00:40:44.000 Yeah.

00:40:44.140 This goes back to two bites at the apple, right?

00:40:46.360 Where the existing shareholders are going to own a minority, but now they're going to work together to build this bigger pie, right?

00:40:52.260 So those things we run in a not dissimilar way to how we run fundraisings full stop, you know?

00:40:58.080 So you'll come in, you don't have to have inbound interest already.

00:41:02.920 I've been on the other side as an investor.

00:41:04.600 I can look at a company, I'll know if it's fundable or not.

00:41:08.060 We're going to work with them to create a full-blown investor-grade pro forma model,

00:41:13.000 you know, a presentation, data rooms.

00:41:16.900 What's a data room?

00:41:18.460 I know.

00:41:18.960 So there's two.

00:41:21.500 One is like a preterm sheet data room.

00:41:23.600 So all the information that an investor would need to know in order to arrive at a decision,

00:41:28.320 yes, I want to invest in this company.

00:41:30.000 So just so founders know, this is cool.

00:41:31.600 They're essentially in their software that enables this,

00:41:33.700 where you put everything into like this digital room.

00:41:37.580 So that as you bring somebody on that's interested,

00:41:40.100 you don't have to like repeat the same stuff.

00:41:42.400 And it's just like...

00:41:43.140 We literally even have the CEOs screencast the pitch.

00:41:46.400 So they're not giving the pitch 30 times, right?

00:41:48.560 And like everything's efficient.

00:41:50.680 And it's really to create a competitive process

00:41:52.840 and a compressed amount of time.

00:41:54.380 Correct.

00:41:54.920 And then that way we can track engagement.

00:41:56.780 We know who's engaged and what.

00:41:59.460 And it also means, you know, again,

00:42:02.280 we only work with growth stage companies.

00:42:03.900 So those CEOs, they're busy.

00:42:05.520 We don't want to waste their time.

00:42:06.760 So the only investors or buyers that get in front of them are ones that are engaged and qualified.

00:42:11.340 Is that unique to your approach that some don't?

00:42:13.720 Because I feel like some clients I've worked with, they spent way too much time meeting with people.

00:42:18.840 And I was like, isn't that what the M&A guys are supposed to do?

00:42:21.600 Yeah, that's our job.

00:42:22.920 Anyone who gets in front of our client is qualified and informed.

00:42:27.100 And therefore, when they do speak to the CEO, they're not asking any of the preliminary stuff.

00:42:35.180 Like they're deep in the weeds trying to get to a decision.

00:42:37.800 Right.

00:42:38.500 So that's a thing.

00:42:41.220 Just having been best to grade pro forma.

00:42:43.960 Yeah.

00:42:44.300 What does that mean?

00:42:45.380 It means like,

00:42:46.560 again,

00:42:46.900 again,

00:42:47.400 we do SaaS business.

00:42:49.440 It didn't mean like,

00:42:50.760 like dissecting the buyers trust that you put the numbers the way they would.

00:42:57.400 It's more like,

00:42:58.360 if you think about running a SaaS business,

00:43:00.200 there's lots of little knobs and levers that you can twist and turn to

00:43:03.580 optimize.

00:43:04.000 Yeah.

00:43:04.440 we will have identified those.

00:43:06.860 And so as an outsider,

00:43:08.540 you can come in and look at those assumptions.

00:43:11.880 They're very explicit.

00:43:13.120 You can play with them as a buyer.

00:43:14.840 You can look at, well,

00:43:16.160 I don't need that company to do paid acquisition

00:43:19.080 because I have this massive channel.

00:43:20.640 What are my savings?

00:43:22.780 So I can do my synergy analysis.

00:43:25.140 And I can literally, I can do all the what ifs.

00:43:28.200 Like it just is a fun,

00:43:29.040 I have dissected the business, right?

00:43:31.480 So like-

00:43:32.360 It takes, I mean, it's just, it's super cool because it's efficient, but for a founder that's put their blood, you know, it's their baby.

00:43:40.760 So it's almost like you're creating the tools for the buyer to dissect.

00:43:45.760 I mean, it's a little intense, but really that just allows people to quickly, like you said, synergy analysis, whatever.

00:43:53.880 Because what I've always found interesting is every industry, raising capital, exiting companies, they have their lexicon, they have their process, their best practice.

00:44:02.360 is and for founders never gone through it which most never have correct um it can be super scary

00:44:08.860 right because like at every turn they're like is this right like am i supposed to give them all

00:44:14.540 this information i don't know any better um and i mean in regards to the outcome like you helping

00:44:20.840 clients get that that level of detail put out in the market create a competitive process you have

00:44:26.300 the relationships with all the potential strategics um what do you think the upside difference you

00:44:31.260 know, I don't know if there's any data around this M&A bank versus none. What is the average

00:44:35.860 upside? Do you think that? Yeah, I think it's massive. It's hard to AB test, obviously. Fair

00:44:41.080 enough. But it's massive on two dimensions. One, I think the outcome is significantly larger. But

00:44:46.600 if you look at it on like a probability adjusted basis, like your probability of getting to any

00:44:51.000 outcome by yourself is far lower than with. Wow. So you're saying that just on the probability of

00:44:57.740 an outcome being achieved do you think for a lot of them it may not have happened is it because

00:45:02.840 they're they weren't able to present it properly do you think it was the emotional component of

00:45:07.740 the founder having to go through that maybe pulling back because it just got frustrating

00:45:10.920 yeah it's you know it could even be like so for instance the the decision to buy a company like

00:45:18.160 if you buy shares in shopify and you just decide you know what i made the wrong decision you can

00:45:23.240 just go on the market and sell them. If you buy a company or you invest in a startup, you can't

00:45:29.100 undo that decision. So what you're selling is trust every step of the way. And that comes down

00:45:34.560 first and foremost to character of the management team, but it comes also based heavily on data.

00:45:39.700 So let's just take a pro forma model. You know, you are a bootstrap business. You kind of whip

00:45:44.820 something together. That portrayal of the business is going to be nothing like what we are going to

00:45:51.780 build, right? And so our thing is going to convey trust by just showing you exactly how the business

00:45:57.400 works. We have de-risked it. We have looked at all the cohorts, all the segmentation. There'll

00:46:01.980 be no questions as to how to run that business. Whereas the bootstrapped, hey, my best effort,

00:46:09.040 I kind of whipped something together is going to create all kinds of questions. And at a certain

00:46:13.020 point, the investor or the buyer just be like, it's too much risk. I just can't get my arms

00:46:17.920 around this right so that so that's a thing huge and then if they were able to do that which they

00:46:22.980 don't have the expertise to do that getting an upside i mean just negotiating against your future

00:46:27.980 employers weird as hell that's right and there's just lots of tactical little things like like lots

00:46:32.960 of exits like they'll say this and it's like you know like right you know you can play the whisper 0.93

00:46:37.400 and be like that's bullshit right that's not normal yeah if you're selling you've never done 0.63

00:46:41.440 that you're like sometimes like a buyer will come in with a lowball offer and we'll tell them like 0.99

00:46:47.000 we're not even putting this in front of our client like right basically we're offended yeah you know

00:46:51.220 and yeah go away and i've never seen you upset you just say it you know like i'm upset yeah exactly

00:46:56.940 um and you just can't do if you're negotiating with future employer you cannot do that right so

00:47:02.840 there's those kinds of things even little tactical things like don't give the buyer your cap table

00:47:08.880 until they've given you a preliminary number because if they have your cap table they can go

00:47:13.460 they can reverse engineer and figure out what's the minimum number to get the investors over the

00:47:17.780 hump. Like just a hundred little tactical things like that. Right. That's amazing. Um, as we wrap

00:47:23.580 up, Mark, uh, I love to ask, you know, looking, you know, cause we've known each other for a long

00:47:28.320 time. Um, looking at your journey, you know, sure path, even just your personal, you know,

00:47:34.660 getting your fitness on and whatnot. Um, who have you had to become personally to be the person

00:47:40.620 leading this company today and successfully building this, this brand? Awesome question.

00:47:46.920 Okay. I would say, uh, the journey has been pretty natural, pretty authentic. Um, like I feel,

00:47:54.800 so the beginning of my career was actually in public accounting and, uh, it's as boring as

00:48:01.160 you could imagine it to be, but in any event, like I was not part of a big four. I was, uh,

00:48:06.820 My original firm was, you know, nine partners, 90 staff dealing with owner managed businesses.

00:48:11.800 I worked directly with the founder, this guy, Harry Nixon of Smith Nixon.

00:48:15.980 He took me under my wing because he was Scottish and I was Scottish.

00:48:19.000 And anyway, I learned from him kind of what an honor it is to be of service to entrepreneurs.

00:48:26.980 And that has literally been the role through my entire career in different kind of forms, right?

00:48:34.020 Like, if I thought of, like, when I was a venture capitalist, it wasn't about the money, especially because our checks were pretty small, because we're a seed stage fund.

00:48:41.880 It was about being an advisor, mentor, helping hand, you know, at the service of CEOs.

00:48:48.640 When I was a CFO, it was recognizing that startup success is highly correlated with the CEO success.

00:48:58.240 And therefore, if the CEO is technical, as an example, a product person, how do I run kind of operations?

00:49:05.460 How do I do a bunch of stuff outside of finance so that that person can do their thing?

00:49:10.360 Or if that person's a rainmaker, again, how do I enable him or her to be out of the building and feel safe that I'm managing the shop, right?

00:49:19.160 So it's all about bringing leverage to that founder.

00:49:22.060 And, you know, I had opportunities to become CEO along the way. 0.94

00:49:25.900 And I recognized from being at the right hand of CEOs, like, that's a really shitty job. 0.94

00:49:29.960 I don't want that job. 0.96

00:49:31.380 Forget it.

00:49:32.180 I want to be in support of them.

00:49:34.500 And so it's the same thing now.

00:49:36.540 Yes, I'm technically CEO of SurePath, but whatever.

00:49:38.940 We're a tiny company.

00:49:39.780 It is like, for me, it's actually about serving.

00:49:44.040 be serving it's like really core to who i am as a person my values and my purpose so it's just

00:49:52.220 it's super natural i kind of feel like i'm meant to do this dude it's it's neat that you share that

00:49:57.100 um because now that you say it it's it's an obvious through line yeah that's really cool

00:50:02.300 yeah just just in honor of the uh the creators out there i've i always try to share because i mean

00:50:08.780 i'm an entrepreneur i like to create but i never forget that everything in this world is better

00:50:12.980 because somebody decided to make it better.

00:50:14.780 Like, and it could be as simple as like

00:50:16.260 somebody helping you mow your lawn, wash your car.

00:50:19.100 Like somebody woke up and said,

00:50:20.560 I think I can help somebody else

00:50:22.540 get more leverage out of it.

00:50:23.740 If you think about it, I mean,

00:50:24.540 if you just distill entrepreneurship,

00:50:26.000 it's about getting more time,

00:50:27.720 being more efficient, more effective.

00:50:28.840 And our world doesn't get better

00:50:30.500 if entrepreneurs aren't out there creating.

00:50:32.280 That's right.

00:50:32.720 And I think that's just super cool.

00:50:34.220 Yeah.

00:50:34.440 So with that, appreciate you, Mark.

00:50:35.800 Awesome.

00:50:36.400 Thanks for having me.

00:50:37.100 Amazing talk.

00:50:42.980 You

Dan Martell - June 07, 2021

The Ultimate SaaS Financial Guide with Mark MacLeod @ SurePath Capital

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