SaaS Acquisition Stories w/ David Horne & Marty Balkema - Co-founders at Calm Capital

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I'm super excited to be here with David Horn and Marty Bao Chemi from. Yep, Balcoma. I tried doing that live on air. Everyone, everyone. Some podcasts I go on and I said they'll ask my last name up front and I'll say, nope, you got to do it live. So I kind of shoot myself in the foot there. But thanks so much for joining me on this podcast. I appreciate the time.

Yeah, thanks for having us.

Yeah, appreciate it.

So that being said, Calm Capital definitely heard a lot of great things about your guys' firm. But for those listening, do you want to give just a brief overview of what you guys do? Just brief, sort of like two minute pitch?

Yeah, sure. Want me to go, David?

Yeah, go for it.

All right. Yeah. So, you know, David and I have been close friends for over 20 years, so we've talked a lot about doing something like this for a long time. And we started Calm Capital in the beginning of 2020. And David's background is he had founded a marketing and design agency and I had co founded a custom software dev shop. And then we also kind of together co founded a subscription based software support business and a fintech, small fintech company in the payments world. And we just saw an opportunity to kind of use our backgrounds to really, you know, I guess almost like play a different game versus founding companies and, and growing them ourselves and operating the businesses that, you know. So we started a holding company essentially and we, you know, kind of grandfathered in the things that we had already started to where comm Capital held the interest, holds the interest of those. And, and then since then, in the last two years we've, we funded a Shopify app business, we bought a WordPress theme business, we bought a content UI design business, subscription business, and then last year we bought a SaaS company that helps audio creators market their content. So it's been a fun couple of past couple of years for sure.

That's a pretty diverse portfolio. I like it. So when you guys, you know, think about acquiring startups, what do you guys look at? Like, what is an ideal acquisition target for Calm Capital?

Yeah, I think we first start with like, what's a, is it a good business? And we kind of have this underlying thing. You know, good businesses rarely go out of business, great companies sometimes go out of business, but good businesses rarely go out of business. So, you know, profitable, cash flowing, pretty easy to manage, has, you know, some kind of growth trajectory versus going backwards. So that's kind of where we start. And then, you know, looking at the people aspect of it. You know, we also don't necessarily want to be, you know, operators. So if, if the, if this, if the sellers, if the selling founders are kind of leaving, we start recruiting like a CEO or a manager kind of from day one. They're usually involved due diligence with us, so it's a good fit, you know, or there's a kind of a team in place that maybe there's someone there that can kind of get promoted into that manager level. Or in some cases, you know, we're finding where the founders just want to put some money in the bank, but they still want to keep working on the business. And in that case we're fine with them sticking around.

Nice. So in terms of like, let's like, make up a perfect acquisition target for you guys. So, like, what would it be? Would it be, let's say, a million in profit SaaS company in Martech, if you had to just make up a company in terms of like, size, what does it do? You can have some fun with this. You can make. I see you got like, you know, looks like a DJ set in the back. Maybe it's like software for DJs or something like that. But what's like, like, if, if something came across your desk today, you guys would get really excited about it and like, what about like, would it be the profitability, the size, the market? That's a hard question.

So, yeah, I, I don't know as though, I mean, we could try to answer that with like a type of business or an industry, but I think more than likely we would. You know, it's a lot better to. Yeah, I mean, a million in profit. We definitely learned a lot. You know, we've had a progression of the, of the business size businesses we've bought so far. Right. And we're starting to learn that, you know, the same amount of work that it takes to find and acquire and, and finance, you know, like wave the last business, you know, we probably could have done that same amount of work and bought something that was, you know, two or three times as big. And I think the biggest thing is, yeah, the free cash flow. And it comes with a team, even if it doesn't come necessarily with the, you know, the founder, if the founder is the CEO or whatever, I think we can hire for that. But, you know, the big thing is it's got to be generating free cash flow from, from month one. And I think it's, you know, David and I had a good conversation yesterday, but it's, it's a business that is in whatever industry or space or market that it plays it. I think our ideal business we're learning is it needs to be like a, an essential business like the operating system, not an add on, if you will. So not a business that people can choose to use or not as a SaaS tool, but a business that everybody in that industry needs. I would say the other thing is we're really learning that we want to find businesses that have a finite market. We know exactly who the customers are now if we can, and then we can continue to try to capture more market share and then from that platform move potentially into other markets.

Nice. Would you guys say you're pretty agnostic in terms of, you know, the type of startups that you're looking to acquire? So it doesn't matter if it's Martech. I know some firms focus on like just dev tools or some firms focus on Shopify, SaaS apps, some on E commerce. Are you guys just kind of, it doesn't matter. Cash flow is kind of king.

Yeah, I think with our kind of background on the consulting and services side, we've been involved in helping so many different types of businesses. We feel like we have a little bit of, you know, kind of an approach or a playbook that'll work regardless of the industry really. Just kind of, I mean we, we kind of talk about the three P's so like patient, purposeful, profitable. So patient as in doesn't have to double, you know, every year to keep up or whatever. You know, we can, we can have a long term view business that's going to be around for a long time, you know, profitable. As Marty kind of just talked about purposeful being like solves a problem like a, like a good problem in a, for that industry. So less, yeah, a little more agnostic on the industry side and more kind of around the, the type of business so that we can kind of take our talents and abilities and lead it.

Nice. I like that. So with, you know, all the businesses and all the startups that you talk to, you know, there's a lot of founders that are, you know, probably listening and going to be looking to sell their business in the next year. If you had to give just like, you know, three pieces of advice to people looking to sell their business maybe directly to comm Capital, what would that be like? How can they increase their chances of, you know, being acquired?

Yeah, that's a good question. I mean I would say number one, for, for their own sanity and enjoyment, they should look for people that have good alignment with so some of those early conversations that they're having with potential acquirers, does it, does it kind of feel right? Is it a partnering like conversation? I think that that's really important. We certainly take that approach where there's lots of businesses to buy, there's lots of deals to be had, but even if the numbers are great, it's going to be typically a pretty long process right from day one to close and then potentially beyond that if there's some kind of an earn out situation. Right. So I think that's number one. You just want to have good alignment, you know, have somebody acquiring, hopefully somebody acquiring your business that cares about the business and being a good steward of it beyond the transaction and caring about your people and your customers and your users, et cetera. So I think that's number one. I mean, I think other advice for, you know, as far as getting ready is just getting, I mean, I'm sure that they, everyone says this, but we are going to ask for all the same typical data. Right. So getting really organized I think is super important. You know, having as many, if you've got three years worth of metrics and numbers and having the customer data really well organized I think is super important to us. We want to know a lot about how did these customers get acquired. We want to know how long they've been there. We want to know about the expansion, we want to know, you know, if there's any segmentation or cohorts or anything like that. Basically how did they, how did they come to be a customer and you know, what's working and not working to continue to get customers. I think also from our perspective too, you know, those are the two big things is we want to know that when you flip the switch and it's now our business, our customer's going to keep coming in the door just like they were before. And will current customers be supported. So having a really good ongoing support solution, Pat, you know, beyond acquisition at minimum, and having a customer acquisition strategy and, and operation that doesn't stop right after acquisition, I think, I mean, some of this is common sense, but actually being able to show that as a buyer, I'm sorry, as a, as a seller, I think is really important. And then obviously like documentation and all of that, I mean all of this stuff adds more value overall in our minds.

Yeah.

Because again, we're looking in a decentralized approach. We're looking for somewhat of a turnkey situation, right. Where it, it keeps going and can keep growing, you know, month over month after the Transaction.

Yeah, I. I mean, this is great advice. I mean, I think a lot of sellers just, you know, sometimes underestimate just how, you know, impactful or just how much they can increase your odds of being acquired by just preparing a little bit in advance, putting together P and L, you know, connecting financial metrics or sharing them, having a list of common questions that, you know, you guys are going to ask. Like that, I think shows a lot of seriousness on the seller side and then also makes, you know, just much easier for, you know, a buyer like you guys, who are probably looking at multiple businesses at one time. And if you have to go and get that information, it just makes, like, you know, that whole process harder for both parties. So that's. That's great advice.

Yeah. One of the things, I'll just say real quick to add on to that real quick is one of the things David challenged, boss. Me too. This past year was to say we need to act like the sellers at all times. You know, maybe quarterly update all that information you just said about each of our businesses so that we are continually prepared in advance if an opportunity arises for us to become a seller and not just a buyer. Right. And so we're going through that right now where we're preparing to sell a couple of our smaller businesses, and now we're. We're on the other side of it, and we know what we like as a buyer. Right. And so I think that that's good discipline for business. Even if you're not ready to sell.

Right now or if you ever sell.

Yeah, if you ever sell. But if you're constantly preparing it, it'll be a more valuable business, even if it's years from now before you sell.

I love that. Because you never know. Like, someone could just reach out, like a strategic buyer or a private equity firm like yourself and just being like, hey, there's kind of everything ready to go. Obviously, with NDA signed and, you know, good call with you, there's some alignment in terms of, like, this is an opportunity, there's interest. But, yeah, just preparing in advance. It's, It's. It sounds like such basic advice, but it just goes over the heads of so many founders that I work with. So it's. It's good to just keep reiterating that the more you prepare, it's kind of like anything in life. Like, the more you prepare, like, the better the outcome's going to be.

Just like 30 more seconds on that, I would say, even beyond all that is knowing what you want. Right. If you were to Sell. Because I think that as we've talked to more businesses, I'll be like, okay, what do you want? You know, what are you. What's your asking price? What's the perfect scenario for you if you were to sell this? Yeah, a lot of times they don't have an answer, and sometimes it's, I want a lot of cash, and sometimes it's, you know, a different situation. So kind of knowing what you really want, I think will help that alignment and making for something, Making something happen faster.

Yeah, that's really good advice, because then you can make it happen. You have clear. As entrepreneurs, there's always kind of this weird dance of like, you know, we're for sale, but not really, but maybe if you give us a lot of money. But I think the more upfront and transparent you can be like, hey, we're looking to sell a business for these reasons. This is kind of our ideal outcome. I think just being direct with that is, again, just kind of streamlines everything for both parties. Moving on to my next question. Favorite acquisition. I know you guys have done a few, but do you have a story of maybe one business that you bought that you don't have to say the name. You can give as much detail or as little detail as you'd like, but just favorite acquisition story from Calm Capital.

Marty, why don't you jump in with just the most recent. I mean, I think that's.

Yeah, I'll talk about Wave. You know, so. So our most recent was a year ago this month. And, you know, without getting into all the details of it, you know, Wave is. We're really excited about Wave and where Wave's going. We've got a great, great CEO there that we hired during the acquisition process and brought him on board. And, and, you know, I think the. The fun part of the story was kind of how we. How we found Wave. So, you know, like what your. What your company does. Microacquire is super useful, but I think you might have just been getting off the ground at that time, you know, late 2020. But we were basically. We paid a college intern to give us a target list, and we gave some criteria, of course, and he worked up a spreadsheet and a model and basically a scoring mechanism. We came up with 50, 50 targets, and they were ranked and we started, and then we kind of dispositioned each of them to say, like, how would we get in contact with these folks? And. And long story short is we in. You know, we reached out to maybe the top 10, and one of those is Wave, which we found on Indie Hackers. And they had been telling their stories for a couple of years on Indie Hackers. And we basically just cold Reach outreached and just said, hey, David actually did this. And he just said, hey, seems like we have a lot in common, would love to. Love to talk, but we didn't necessarily say are you. Is your business for sale? Right. And then we jumped on a call and little did we know they had already been having a few conversations with other folks like ourselves. And long story short is that was a really fun process. It was three founders and really great guys. We negotiated the entire deal directly with them over Slack. So after the first call, we started a Slack channel, shared Slack channel. And we started, I don't know, probably David from what Thanksgiving to the end of March is when we closed. So not even six months. And we kept the transaction costs really low and I don't know, we probably had four or five zoom calls during that time.

Nice. What does Wave do for people listening?

Yeah, so Wave currently is a tool that helps audio creators, so mostly podcasters create, you know, digital shorts and short videos to post on social and promote their audio. So musicians, public speakers, podcasters, et cetera. Our roadmap is pretty ambitious going forward with some of the technology that we're bringing. Bringing on. We also Wave then acquired another company recently where we were just acquiring the technology that helps with transcription. And we're going to be doing some neat things around episode transcription and archiving and things like that.

Nice. I'll put that in the show notes for anyone that might be interested in checking that out. That sounds awesome. Congrats.

Thanks. Yeah, thanks.

Moving on to. Really, my final question is, you know, we've had 2021 was a pretty crazy year for just, you know, acquisitions, M and A in general. Any predictions for, you know, the upcoming year, what you expect to see? I know this is kind of a. Another sort of crystal ball question like what's. But any, any comments on that? Maybe goals for comm capital, maybe overall industry trends? You think we'll start seeing.

Yeah, I'm not, I'm not super trendy. I would. I think Andrew, I think they're. I mean, I don't think. I don't see the deal flow like slowing down. If anything. I think it's. It's increasing. I think we'll see more. Continue to see more people looking to sell. I also think especially with some of the relationships like y' all have built at Microacquire, there's a lot more funding options Available than before. Like people I think that are on the buy side or catching up to the sell side knowing that, oh I, that before we bought our first business, it's like, how do you fund some of these if you don't have an exit that gives you cash or cash flow? I mean, we were fortunate we had cash flowing businesses that we were able to kind of leverage or whatever. But yeah, I think seeing more competition on the buy side, I, I think is, is something I'm, I'm seeing. I mean you see way more than we do. So we should be asking you, you this question versus me asking us.

I'm happy to answer it if you'd like.

Yeah, yeah. School loss, man.

You know, I think, I think we're gonna see two things. Number one is I think we're gonna see a lot more just general private equity activity specifically from first time buyers. Like people, you know, you know, just hearing about the success of like, you know, basically, you know, entrepreneurship through acquisition is, is really becoming a trend that people are really, you know, opening up to way more than say two years ago. Like when I sold business apps four years ago, the number of private equity firms was minimal. And now it's like you can't go a day without hearing a new firm popping up or something like that. And you know, I'll bet some are, you know, legit and some are not. But yeah, I think just more optionality for founders. So it's just good for everybody. There's more deal flow for buyers, there's more optionality for founders. So I think just in general, you know, the market's just going to keep increasing just because of the awareness that, you know, I remember when I was again running my, my, my first startup, you would think of acquisitions only being done by Google and Apple and you'd think of getting acquired as this moment. I always call, I always joke around where, and this is true, I actually would think like one day a company would come back, you just got acquired with like a big check and they're like, you won't. Not, not understanding like the process. So I think just the more that, you know, founders are educated on acquisitions and what they need to do to prepare. Listening to podcasts like this and you know, learning about firms like you guys, I think, you know, it's just good for the overall startup ecosystem. So yeah, I'm biased, but I'm bullish.

Well, and I would say and, and we, you know, from our position, we really appreciate the work that you've done. Your team has done around Bringing more awareness to this so that more people do know because we think on both sides. You know, here Marty and I were like, hey, not that our startup days were over, but we're, you know, been married for a while, we have kids that are at ages where they need more time from us. And we had built, spent our entire careers helping other businesses grow. So the idea of like going zero to one for something just, it wasn't as appealing.

It's zero to one. You're eating glass for cheating. Yeah.

So we're like, maybe we can do one one to whatever. Right. And the people that love doing zero to one keep doing zero to one and we'll, we'll be there on the other side of that.

Yeah, that's probably my favorite part about Microquire is, you know, it's, it's really a transfer a lot of the times between, you know, builders and scalers where builders get to build a company, get it to a point where maybe it's as far as they could take it on their own or maybe they've lost interest and they pass it over to, you know, a firm like you guys, where you breathe in new energy and you know, you really, you know, bring more support to the existing customers and keep that business going. So it's, it's like win, win on both sides.

Oh, absolutely. And the customer wins the most. Right. Because one, they had a problem, someone that started something, solved their problem and then hopefully companies like ours, and there's a lot of good firms out there that are buying the companies and keeping that going, where there's, we always joke, like, you see these businesses that are so impressive, they've been around for 70, 80 years, right. In kind of the real world. Not offline type businesses, but the SaaS and Internet type businesses, like there hasn't, there's no precedent, like it hasn't been around that long. But there will be a time where you can look at a SaaS company and be like, that's a hundred year old SaaS business. And it's going to take, you know, a bunch of different people to kind of keep that going and hopefully continue to add value to the community it serves. So we're happy to be playing in the space a little bit.

I love that. Well, that's all I got. So thanks so much for joining me on this podcast. I think this is super useful for both buyers and sellers. And with that said, if people want to get a hold of you guys at Calm Capital, where's the best place to get a hold of you guys?

Yeah, we have calmcapital.com is probably the, the best website. We're not super active on social media, but we're, you know, we're around. You can find me at David Horn and Marty Balcom online also.

But.

Com Capital is probably the first. ComCapital.com is the first place.

Right on. I'll put that in the show notes. But Marty and David, thanks so much for joining me on this podcast. I really appreciate it.

Yeah. Thanks, Andrew.

Thanks, Andrew. Yeah. Keep up the great work. We enjoy all, all what you're doing. Appreciate you.

Appreciate you guys. All right. Cheers.

All right.