Startup Acquisition Stories with David Mellstrom, Co-founder of Buddy

Foreign. I'm here with David Maelstrom who recently had a company acquired on acquire.com David, how you doing today?

Doing well. How about yourself?

Doing good. Happy Monday. So I know the company, but I'd love for you to maybe give an intro of yourself and just a background on the company that you sold.

Yep. So quick background on myself. I was co founder and CEO of Buddy. Buddy enables brands, specifically E commerce and CPG brands, to sell products natively via text message. So, you know, you may have signed up for your favorite brands text message marketing updates before we take that one step further and allow brands to send messages with products in them to their customers via text and then customers can simply reply yes back to that text message to make a purchase. So it basically takes the step out of the process of buying a product online where you're clicking a link, going to a website, pulling out your card, and actually checking out online. All the brands that use Buddy have their customers credit card information stored on our platform so that when their customers text back yes to purchase, the purchase just happens seamlessly. The order goes through to the brand and they send the product to the customer. So quick. Yeah, I'll give you a quick background on myself and kind of how we started the company. So my background's in B2B SaaS investing. So I spent the past five years before I started Buddy investing at an early stage fund at the Series A. Series B stage. Saw a lot of marketing companies come to pass. And really when the pandemic kicked off, two things kind of boomed for us in the things that we were looking at. And that was really E Commerce and digital communication. I mean, everyone saw what happened to Zoom and then everyone saw these deals happening in marketing software with Klaviyo Attentive. You saw the mailchimp Intuit deal. But we felt like those companies weren't taking marketing far enough. And there was still a huge gap between, you know, receiving a message from a brand and actually making a purchase. So we set out to remove all the friction in the middle and make purchasing a seamless process via text message.

This, this is like a badass company, man. Well done. I guess my next question is just like what made you want to, you know, build this? Or what was like the light bulb moment? Because I want that like where someone texts like a brand I'm interested in, I just text yes. And then I get a refresh of the product or something like that.

Yeah. So I would say it's really a few things. I mean, we saw this wave of Text message marketing come to fruition where historically it was, email marketing was kind of the digital medium that everyone used and everyone was using some form of paid ads, whether it was social media or Google or what have you. And text messaging kind of burst onto the scene as this more authentic, organic, you know, really just a medium that resonated a lot better with younger consumers because everybody's checking their phone. You know, if you checked your phone right now, you probably have 500 unread emails, but maybe like one or two unread text messages and you're just more, you're more likely to open a text and want to, you know, want to read it. Cause you know, it's short form content, it's easy to relate to. And the inbox, the text message inbox is usually reserved for friends and family. So if you let a brand into your text message inbox, you're probably going to read it. So it's just incredibly more effective than other mediums out there, whether it's email or social media. And then that ease or that frictionless buying process is something that people have really gotten used to with, you know, things like Amazon or Bolt. I know we saw, unfortunately we saw fast come to pass, but one click checkoff really took off during the pandemic as well. And we thought it was just a much easier way to deliver that experience on a phone.

I love that, I love how you took. Cause I've seen similar solutions where you can, you know, if you leave a shopping cart full of stuff, it'll text you or something like that. But I've never heard of a solution where you can purchase stuff just so seamlessly. So I like how you kind of combine those two problems together. So well done. That sounds awesome. So you build the company up. How did you get the first couple.

Customers pounding the pavement? So we were like DM warriors on Instagram for like two or three months and, and that worked. We got to, you know, I'd say probably 25 or 30 customers just using the like pure DM, you know, scrappy outreach.

I love that, you know, creating scarcity and sales, especially when you're first kicking things off, can be because they're, they're bought into the product. I'm sure they gave you great feedback and you know, really, that's awesome. You really want to condense them into a timeline just so again, you create urgency right where they have to make a decision under a certain timeline. So very well done. I think that's a huge tip for other sellers or other startups. Looking to get acquired. Because when you kind of don't have a timeline, buyers can really extrapolate that in a week and turn into a month. But when you have multiple parties interested and you put it into one day, say hey, we want Lois on this day, that could be a very, very powerful way to get buyers to quickly say yes or no. And sometimes no is just as good as a yes. In terms of the buyer that you ended up going with, what did they do to stand out? Was it the offer? Was it the terms? Was it you just got along with the individual? What made you of the group of buyers that were interested, select the buyer that you went with?

Yeah, I mean it's kind of all of the above. It was definitely who they were. Like we trusted them as people and built a really deep sense of trust and respect. Day one, the offer and the terms were great. It was all in more than we were hoping for. And really it was their vision to carry on Buddy, to continue to build out the platform and really move up market in terms of the customer base. So our goal was always to reach out to enterprise brands and get the just throwing out names but like the Macy's of the world to use Buddy. And although we weren't able to accomplish that when we were operating the company, they have a lot of really good blue chip or enterprise level contacts that they've already started to reach out to about using Buddy. And at the beginning of the process, you know, I thought Buddy would be more of like a tack on to the software that they already had. And it ended up that they were so excited about what we were building that I think we will actually kind of transition into the core of their platform and then they will build, you know, two or three other modules around that core infrastructure that we brought to the table.

That's awesome. You got like the trifecta, you know. Cause when you build something, you know, you kind of want to see it live on and you know, grow or continue to be invested in. So sounds like you got great terms, great asking price and then just a buyer that is going to be investing in the development to take it further than you know, you could necessarily on your own. I'm sure you could have. But enterprise sales cycles, as you know, are so long and so tedious that you're able to, you can accelerate that. So that's awesome. And then. Okay, so you find the buyer. Tell me about due diligence. How did you handle that? Any headaches, any learnings going through that process? I've heard everything from it's the craziest thing ever to, you know, quick and easy, you know. How was that part for you?

Yeah, I would say I was probably more difficult during due diligence than the buyer's team was. So they, they hired legal counsel to like do a legit due diligence process. And for the most part, I managed everything on our end. So again, my background, you know, having been an early stage investor previously, like been through this process many, many times, seen the movie play out many different ways, and felt confident to take on their legal team myself. They didn't ask for anything that was like outside of the norm or that wasn't market. And we were able to negotiate some favorable terms around, you know, capping things like indemnification, timeline amounts and, you know, some of the, some of the minutiae that gets lost in deals like that. So, I mean, it was pretty, I mean, I'd say it was pretty straightforward and seamless.

All in all, nice. Good work on being able to go through that. I did that myself and I might be able to kind of relate. I remember going through due diligence on a prior company and I just, you know, being. It was like my baby. When they'd ask like a simple question, I'd be like, what? Like, and then reflecting back, I was like, I wish I was a little bit, you know, more, more tempered going through due diligence, but it can be such a stressful setup.

You know, we had a messaging provider, we had integrations with e commerce platforms, we had integrations with payments providers, and all of these had accounts associated with them. So we basically just transferred ownership of the account from our company accounts to their new company accounts and made sure that we were in lockstep with the buyer the entire way through. And because of the fact that we were open and transparent and just kept in really close contact with the buyer throughout the whole process, I think that's what led it to going so smoothly.

Nice. I like that. Yeah, I think just people underestimate just how much just goodwill in an acquisition can go. Just being on the same page, being clear on what's going to happen on what date. Why are you doing this? Having some sort of, you know, document process, whatever you want to call it, just saves so much headache so you don't get through due diligence and you're like, what do we do? Or something like that. So it sounds like you were dealing with a sophisticated buyer, which also makes life, you know, a lot easier, I guess. You know, my, my next question would be is. So you successfully sold Buddy. Sounds like everything's going good. What are you up to now? I got to assume you're, you're working on something new or.

Yeah, yeah, so, so we sold Buddy. Wasn't, wasn't a life changing outcome, but it did provide some, you know, some bridge, I guess, bridge money to go on to the next thing. So my, you know, when I was investing, I was very Focused on vertical SaaS, these core systems of record, systems of action. And what we built with Buddy, I would say, was more of a point solution, although it will be the core of the platform that the buyer is building and building around. I'm actually a lot more comfortable in, you know, things like CRM, erp, you know, these, these heavier, more enterprise platforms. So I'm, I'm going to be building, you know, something that's, that's probably heavier than what Buddy was. A lot more, more enterprise, more system of record, like. But I really like building in the blue collar space. So, you know, like I told you before, before, you know, we started the podcast, you know, I started, started Buddy kind of on the heels of listening to you and Nathan Latke, you know, kind of go through this whole process of talking to people who had started companies, had them bought and the like. And I got connected with this SMB acquisition community of people buying, you know, H VAC companies, plumbing companies, landscaping companies, all of these older, more boring businesses. And a lot of these older, boring businesses are also using old and boring software that was built 40 or 50 years ago and there's nothing else out there. It's not like the latest grads from Stanford are going out and they're like, oh, I want to build software for landscapers. So I think in that realm the competition is very limited. The software is archaic and there's an interesting kind of dynamic shift in ownership in these companies. So look at like your local H Vac company. It's probably a 50 or 60 year old guy that owns the company and he's thinking about, you know, either selling it or passing it down to his son. Either way, the new owner is going to be slightly more sophisticated than the last. And they're people that have grown up using and interacting with modern software. So they're going to expect more than those old archaic legacy systems. And that presents an incredible opportunity for someone like myself or anyone else who wants to go in and build software to disrupt these old legacy industries and just bring them up to speed with things that you and I use every day that are very secondhand or commonplace to us and just helping bring blue collar businesses into the digital age.

That's awesome, Maya. My previous startup sold a small business. And we would always say small businesses lack time, aptitude, and money. And I think that's like the perfect storm. It's just I don't have money for this because I think the average SMB budget is 500amonth on marketing spend, and I've seen that increase. And so as more and more people look to buy, you know, Main street businesses and then upgrade them with software, I think you're right. There's a huge opportunity and I think it's smart that you're kind of thinking of, you know, during a gold rush, you want to be selling the pickaxes for the tools for the people acquiring these businesses. So I like that, man. Well, I'll be rooting for you, dude, if I can help. I. I literally lived in SMB selling for eight years, so I can tell you all you need to know. If you ever need help.

I appreciate it. I'll probably be taking you up on that.

Well, David, thanks so much for coming on this podcast. If people want to get a hold of you, pick your brain, ask you questions, where can they get a hold of you?

Totally. So LinkedIn. You can find me on LinkedIn, reach out directly or shoot me an email. Personal email is last name first. Namemail.com melstromdavidmail.com uh, cold outreach is always welcome. Uh, I try to respond to all cold outreach, although it might not be immediate. Uh, I will get back to you and you know, I'd love to connect with, with anyone that's interested in chatting.

Right on. Well, David, congrats again on the acquisition and I'm looking forward to seeing what you do next.

All right, thanks. And thanks for making it so easy.

Thanks. I gotta thank my team for that, man. All right, cheers, David.

All right, see you, Andrew.