LIVE SaaStr Workshop Wed: If You Fall Off the Venture Track, Stay on The PE Track w/ Andy Wilson

I think about a year ago, Andy, who I was proud to be the first investor in, took his next-generation SaaS eDiscovery business, reaccelerated the growth, and sold it for hundreds of millions of dollars to a private equity firm that actually combined it with another complementary player that was even bigger to take these companies public together. And it was a great exit for the company. They bootstrapped the company the first 10 years, raised a couple rounds of venture capital, but never got crazy, never raised a unicorn round. And had not only a lucrative but a very great outcome for having a private equity firm buy you. And there are actually hundreds of these PE firms. And so I asked Andy to share the learnings. And the title here is a little dramatic, but it's something I'm actually telling a lot of founders today, a lot of founders today, because in 2021 everyone was go broker, go home, right? The, the, the last investment I made that had a big exit from the bubble was in December 2021, Salesloft sold to Vista for almost $2.5 billion. And a lot of the board said, don't sell, it's too cheap, it's too cheap, keep going. We don't— we don't— now today I'm telling folks, maybe slow it down a little bit. And most importantly, what I'm telling founders today is like, a lot of folks are growing faster than ever. It's good times in AI, it's good times in security, it's good times in vertical SaaS. Other folks have seen their growth slow since 2021. And instead of grouching about it on LinkedIn or complaining about it, and then I will shut up and I want— and Andy and I will discuss it. I was telling folks, get yourself on what I call the PE track. And what is the private equity track? It's changed a little bit. And then I'll ask Andy and maybe, maybe if we can fast forward to the next slide, Taylor, Caitlin, it's here. But I describe the— well, there's supposed to be a slide zero.

Anyhow, it's the next one.

Yeah, is it next one? Okay. Yeah, this is kind of how I summarized it. There's a— there's, um, there's the unic— there's the IPO track, um, there's the never get anywhere track, and kind of, kind of never hit scale and, and slowly die track, the zombie track. You don't want to be in the zombie track. But there's one in the middle that's under discussed. If you can get to approaching $20 million ARR— and I want to hear Andy's thoughts on these until we dig in— $20 million ARR You don't have to grow 100%. If you can grow approaching 30%, but importantly, not really be burning much. PE doesn't want to buy a company that's burning $1 million a month. That's not their job. And generally speaking, if you have 100% NRR or higher, a lot of PE firms will view you as an annuity. This is going to last a decade and they will buy you often for pretty darn good price. If you have these 4 bullets and you're in a somewhat— you don't have to be whiz. You don't have to be open AI, you just have to be in a somewhat interesting space, like just enough that they can see an IPO or an exit for them coming. And so if you stay on this track, you can have a 9-figure exit without having to necessarily kill yourself that you can't build a $500 million company growing 50%, because that's the IPO at the bar at the moment. That's what— we've only had 3 SaaS IPOs since 2021: Klaviyo, Rubrik, and OneStream. They're all growing 50% of $500 million AR, and it's not like easy. So talk about this. Is this— is this— would you agree this is the PE track, Andy? Is this kind of what you saw and lived?

Absolutely. I mean, the bar might be a little bit higher on the revenue, but the growth is right. The burn, you know, if you're cash flow positive, obviously that's going to be a big plus. But just having no burn is huge. And to your point about, yes, happy customers buying more. That's what they want because, you know, PE firm is looking at how they can, you know, further squeeze more dollars out of the company and hopefully the right way. And if you get happy customers buying more, then, you know, there's probably ways to optimize that for even higher growth. So yeah, I think that's right.

And what was— and so I think you sort of went two waves, I think in like You kind of had some PE firms take a pass at you in like 2021, and then they came back in 2023. Like, what was the process? How did this all work? Did they find you? Did you find them? Like, what was, what was the journey here?

Uh, yeah, so, um, just to backtrack a little bit further, you know, we were, as you know, like, we were on the venture track for a few years growing rapidly but uncontrollably. Um, and, and we made a very difficult decision to to re-engineer the business model, re-engineer the executive team and some pieces of the culture so that we could build a longer-term business and a lot more sustainable, a lot more predictable. And it took 2 years of flat growth, which I remember. I bet those investor updates that I would send you, you'd cringe a little bit. You're like, oh, another 0% month over month. That's not good. All the while burning cash at the same time.

Actually, I didn't cringe. I'll tell you why, but keep going. I'll tell you why I didn't cringe next, but keep going. Yeah. All right. So, 1 to 10 was very fast, right? 0 to 1 was actually, took you like 10 years. 0 to 10, 1 took like 10 years 'cause you went from services to SaaS. 1 to 10 went really fast. And then you hit a wall and there was like no growth for 2 years, right?

Yeah, no growth, no growth at all. But it was mainly by design because we were re-engineering the entire business model and big pieces of the culture. So it was just a really painful pill to swallow, but we came out of it and started to reaccelerate growth from zero. And by the time we sold, we were close to $40 million in revenue and growing at, I think at a time, maybe 40% year over year, cash flow positive, net dollar retention I think was around 1. Close to $110 million, somewhere around there.

Yeah. Yeah. And as an aside, and let's dig into the process for what— why you say why, you know, it's funny when I get for folks that are, that watch this now or later on the Pod or YouTube, when you get these investor updates, when times are tough, right, from founders, it's really interesting. It's really interesting because you look, do the founders still believe? To the extent you care about your investors, and your investors are not that important, right? They're just one constituency of many. There's customers or employees. But, and when you see a founder start to check out even just a little bit, even just as a hit list investor, I immediately quit. As soon as I hear I'm spending more time in Hawaii, or, you know, I'm proud of the team for not growing this quarter, or like, uh, you know, we're, we're— but when you, when you get from Andy, it's like I'm I'm just fighting. Like, I have 11 different types of SaaS models. I'm trying pay by the, by the second, pay by the year. Like, Andy would try more versions of the model. And look, on the one hand, I'm like, Andy, you're crazy. Like, you can't change your pricing and business model every week. So that, in a sense, that was a flag. But the fact that, for what it's worth, the folks, that he never gave up, like that energy, right? Even when the trend— maybe I wouldn't have done the transition the way he did if I were asked. Maybe I wouldn't have changed the management team. I wouldn't have made some of the decisions he made. So what, right, on the long journey? But for what it's worth, if you want to keep employees, investors, and others on the journey, show that you are fighting as hard as ever, because then anyone that cares will back you. No one will quit. And I have founders I've been investing for since 2012, 2013. There are founders I've quit on, but because they quit first. Yeah, so you say, yeah, you probably thought, but no, I never— I always thought you, you, uh, would, would create some sort of win out of this. Um, I just maybe thought there was a lot of ping-ponging, but never had any doubts, not even 1% doubt, for what it's worth, folks.

That's awesome.

So yeah, drag the team.

They—

if you don't believe 110%, no one's going to believe in the tougher times.

That's right.

No one.

You gotta lead by— you gotta lead by example. I mean, my own like family motto, like I grew up in a military family. My dad was, I think he said, never give up 10 times a day, you know. So it's just ingrained into my, uh, psychology. And yeah, that was the, uh, even have it tattooed on my arm. Um, yeah, so yeah, you got to have that. And if you've got that and you have, you've burned the boat, so to speak, you have no backup plan, I mean, that's, that's all you can do, you know, just, yeah.

And there's a subset, and then I wanna talk about, there's a subset of founders somewhere in the middle today who are, um, I call 'em the slugs of SaaS, and I don't mean to be mean cuz I, I care about founders, but they're growing in the 15 to 20% range and they're cool with it. They're cool with it. They're cool with it cuz like it's harder. Um, and there's a whole group of 'em and those are the ones I give up on. Like I'd rather you be growing 0% and killing yourself to reaccelerate the business than getting the message that we're pretty happy to have grown 15% this year. Like, I don't want to, like, it's just not inspiring. Right. And anyone that's on the journey will expect bumps, but yeah, don't be a slug of SaaS. Right. Don't just, don't settle. Don't settle.

Absolutely. Absolutely. Well, I mean, that's maybe a good transition to some of the, uh, kind of the tactics, um, uh, to help reaccelerate growth. If you're, if you're suffering from that, you know, there's some, there's some things you can, I think you can do. Every, every business is going to be a little bit different, but I think there's some horizontal good advice.

Let's talk about the tactics before we get there. Hold on, just to step back. I don't want to talk about how you reaccelerate growth because that's a good topic, right? Just in terms of private equity firms, because it's not a world that founders, until you hit a level, I've heard a bunch about. Did they start to approach you? How, how did they, how did the, how did the ultimate deal come together over time? Just share the narrative of how it happens.

Yeah. So Shin and I, my co-founder Shin, we came to the realization like this is not the venture path before private equity became part of the conversation. Like this is just, yeah, it's going to be, it's going to take too long. I mean, as you know, we were going at it for 19 years. Well, you're pretty damn young. Yeah. You know, and just, you know, shit changes, right? Like my kid just graduated high school. He's in Morocco on a gap year program. Like, it's just a lot. Yeah. Life changes going on. Um, so, uh, so we, we had made the decision like, okay, we are going to, uh, put this company on a path where number one, we want to build a great business. We still wanted to build a long-term business, but we wanted to do it on our terms. Um, and at the same time position ourselves for optionality to sell the company to a strategic. So we, we had made that decision, uh, before private equity, uh, came about. So what ended up happening is, you know, because we're very transparent, like you see those investor updates, like we share a lot of information both externally with our board advisors and internally with employees, you know, hid nothing. Word started to get around that we were doing pretty well and landing some key Fortune 500 customers. And the head of a private equity firm out of LA called me out of the blue and, you know, just chit-chatting. He's like, we want to buy you for X. And I said, that's, that's an interesting number. Let me, let me think about that. I took it back to the board. The board's like, that's an interesting number. Let's, let's see if we can get a higher number. And so that kind of kicked the whole process off. And, you know, and how did he—

if he literally made an unsolicited offer with a fixed number, did he have an investor update? How did he know your exact metrics and numbers?

He didn't know the exact metrics and numbers. I shared with him how we were doing, you know. So yeah, on that call I told him like, here's what we're doing. Yeah, a lot of these people kick the tires, you know, hey, we'd love to buy you. And my response has always been the same. It's like, oh cool, thank you. Well, we're not for sale, but what are you offering? What's the meat behind this? And I said that exact same thing to this guy and he throw out a number and it was kind of a shock, like that never happens. So, but anyway, I don't think that would have happened had we not been intentional about the path that we wanted to go on and then the changes that we made to, you know, get to that type of conversation in the first place.

And let's talk about that intentionally next. I think it is interesting. It may surprise folks that it was an inbound and, you know, Dave Kellogg Jason M. Lemkin had about 60 firms approach them. Now, a lot were tire kickers. I think you said only like 6 got to the data room, right? But what folks might not realize if you haven't gotten to say $20 million ARR is you don't realize that at these PE firms, maybe there's a guy that said you were smaller, but there are usually legions of associates, analysts, vice presidents whose job it is to talk to every logical, whether they do the deal or not. They need to hunt everyone in software that reaches a certain amount of scale And so if you cross $20 million-ish, my number here, and you have some good numbers and you didn't raise at a $2 billion valuation, like structurally attractive, you'll start to get these inbound emails, right? I literally talked with the founder I invested in the other day that just crossed $60 million. And I asked, I was really surprised. I'm like, how come you haven't gotten any of these PE emails? He's like, oh, I get a lot. I just never responded to any of them. Like, you will get them if you haven't, if you're structurally attractive, right? If you're structurally attractive. You don't have to do anything. You don't have to hustle necessarily. You don't have to go to the right conferences or do anything. There are people whose job it is. You can— and now next you can talk about how you lubricated that process, made it better. But there are folks whose job is to hunt you at north of 20, right? If you're structurally attractive, their job. So they will find you eventually.

Yeah, yeah, yeah. And the higher up in that, uh, totem pole, the better in terms of outreach. Um, I didn't really have much success talking with the BDRs of private equity, you know. So yeah.

So, and so what, and so you talked about getting the company fit to be attractive to PE. So what are the things that you and Shen did to make it more attractive to PE?

Well, okay, so let's go to the next slide here so we can kind of go through how I've structured my thoughts here. So there's a lot here, but I'll give you some kind of basics. And I think all the things I've bolded here are, in my opinion, maybe the most important. So incentives being number one. I'm gonna talk about that in a second. But, you know, right people on the bus. So I talked about like your co-founders. If you have co-founders, you need to make sure that you're aligned, like you are in agreement. Like we are doing— this is what we're going to do, right? There's no like, oh, let's maybe, you know, one foot in, one foot out. No, this needs to be like, this is what we're going to do. So, and same is true with your board. So you need to get the board aligned on that. I would withhold talking with anybody other than that on your executive team because you might not have the right people on the bus on the executive team. I'm not going to go into details about the people that you have in particular, but if you have somebody that's like, you know, they're hoping for the IPO, right? Or that's what they're built for and that's no longer on the table, then you probably need to get them off the bus. Some obvious things, you know, start reverse engineering your mind as a PE firm and like, okay, what would a PE firm, if they bought me today, what would they do to my company? And so like, if you have a lot of nice-to-have hires, you know, you're going to want to trim that and really get down to basics. The one thing that I think you absolutely need to have on your team is a finance whiz. You know, somebody who is just like a freak in the sheets, like they can just manipulate a spreadsheet like you wouldn't believe. Preferably has come from a banking background and has been a part of these types of deals, whether that's a mid-market bank or a large bank. It doesn't particularly matter. And someone who's going to work and burn the midnight oil because that's what's going to happen. Like when you go fast forward and you get into the whole deal process, there will be many weekends and late nights where you're responding to like a flood of random due diligence requests and most of them are finance related.

Much more than you'd expect from a VC, right? Much more like an order of magnitude.

Way more.

Right.

Oh yeah. Orders, orders of magnitude more. And there's a lot that makes no sense.

Like, this business is not that complicated, guys, but the amount of detail that they want is— yeah, I mean, if you don't have it internally, maybe you got to outsource it, right? Get the help, right? But it's overwhelming the scale of financial due diligence, right?

Yeah. Well, I mean, I don't even know if you could outsource it. It's so demanding. You know, it's just nonstop. So that's, I think, a critical hire. We had a VP of finance that had that background and it worked out great. Like, it was very smooth, very organized. You know, we could talk about, you know, later, but that person ends up running point on the data room and pretty much every due diligence request because the vast majority of them are going to be financially related.

Yeah.

You want to talk about incentives or cash? Incentives. Incentives. Okay. Yeah.

Okay.

So show me the incentive and I'll show you the outcome. I think it was a famous Charlie Munger quote or Warren Buffett, one of those sages of incentive structure. This turned out to be maybe the most important thing. The more I reflect on How did we go from 0% to close to 40%? You know, and adding tens of millions, you know, now Logical's, you know, well beyond that. How do we do that? It was the incentive structure that we created. That's, I think, the majority of impact. And so I'll tell you what we did, and your results will vary, but we got rid of annual plans. We, we got rid of annual plans. Annual planning to us became kind of silly. It's like, this just doesn't make any sense. You know, you're, you're, you're not that good at predicting on such a small base. So we went to quarterly plans and we built a bonus structure that was available to all executives, all managers, all directors, and some ICs. It was a company pot. That if we hit our quarterly revenue and cash targets, then everybody got a bonus paid that quarter. So because you have to focus on the short term, like that's the path that you're on. You're no longer on this, like, we're going to go IPO, you know, a number of years from now. You need to focus on the short term. And so condensing your goals into these quarter chunks can be pretty impactful. And so, and I said, and you have to have both, and you have to have the revenue goals and the cash goals. So like if we didn't hit our cash goal, but we hit the revenue goal, sorry, nobody gets the bonus, not going to happen. So that was huge. And those percentages are based on, so that the bonus percentages were an annual basis, but we would carve it up quarterly and there were accelerators to, you know, unlimited upside, you know, if we blew it out of the water, But again, both of them had to hit. And so the higher up you are in the organization, the higher percentage of your salary, the bonus. So like, you know, our executives were getting about 30 to 40% of their salary as a potential bonus pool. And then managers would go all the way, ratchet down to like 15%, somewhere around there.

Interesting. I like that. It's, it's, well, I think that by big, first of all, a material incentive, 40% is a lot, right? Focus on hitting quarterly top line and cash goals, period. Move away from the visionary stuff for the year. Let's align with what's going to matter, which is a cash efficient business that's growing very repeatedly, like very repeatedly, right? It wasn't even P. I remember when we were getting acquired by Adobe the month before, like we were growing always in the mid-sixes percent per month at $10 million. Okay, so doubling, right? The one month before we were like 5.8 and someone freaked out on the corporate development team. They're like, we have to stop this acquisition. And to his credit, the SVB was like, it's one month. Like, let's average the last 12. But even— and that wasn't even for PE, just one month dropping below 6% growth at WSR, they freaked out. And PE is going to be just as sensitive, right? So you got to align the team and on cash, right?

On all.

But the 40% is enough to get people's attention, right? Yeah, of course. Don't let that deal— the deals always slide to next quarter, but not in this plan.

Yeah, well, and the cash component, like, that constraint really changed the culture. Like, we went from like, okay, let's go to this trade show, let's hire this person, to like, do we really want to do that? You know, like, you get religion pretty quickly.

I don't think it's all good because I suspect if you're I suspect when you move to that mode, you do sacrifice medium and long-term marketing, right, by its nature, and you sacrifice— but I don't know that it's bad because you're in this mode, right? You're in this mode, right? But it's hard to invest in something with a 14-month payback, isn't it, if you're on a quarterly plan?

That's true. Uh, well, I mean, it's amazing what happens though. So all of a sudden our sales reps are getting prepaid deals. Some of them are getting multi-year deals paid up front.

They'll get prepaid deals up the wazoo if, if you tie to cash, right?

Yeah, exactly. So, so that's why I just don't know that that—

I think this is the right— this is great learning for P. I don't know that, but there are, you know, if you're going long, there are downsides to pushing for cash. You will break some customers, you will break some relationships, right? I don't think it all has some trade-off. In my experience, I'm not saying it's not the right trade-offs, but sometimes, I mean, you had 11 different payment programs. They don't all need to be prepaid, right?

I had 2, by the way.

Okay.

Pay-as-you-go and subscription. That's it.

Pay-as-you-go. Okay, we'll call it 2 or 3. Well, you get the— Victor gets to write the history.

You're right. You're right. Yeah. Anyway.

Yeah, but this is a great story. Align everything on the quarter, right? Cash comes in, everything. Spends— your shares are aligned on it, right? Think like a P firm.

Yeah, exactly. And we would, you know, every week, like it was the drumbeat, every all hands, like this is how we're doing, here's how we're tracking, right? So everybody knew what was going on. And we did workshops on like how to save more cash. You know, there's just, there was a lot, you know, once you get focused on those two things, it's like, okay, what is, how is this going to help us grow revenue? How is this going to help us grow our cash balance? Yep. Pretty simple. The last thing there is just ZBB stands for zero-based budgeting. This is again more tactical. I encourage any company on whatever path, but like, you know, do this every 6 months, right? Like I never, we never had in the company set budgets. We never did it. We always looked at it from bottoms up, like, okay, does this, is this really justified? And then once we got on this path, we standardized it to do it pretty much every 6 months, where we would work bottoms up and we would look at every expense. I didn't even, I didn't even make a cutoff for like $5. It was like, we're going to look at every single thing because it didn't take much time. Like you just, you have a finance whiz organize it for you and categorize it, and then you can look at it top down in buckets and then you can go bottoms up and you start cutting. And it's pretty magical how much money you can save when you do this. Stuff creeps up. So, uh, want to go to the next one? This is morale. Yeah, yeah, because you go from like, we're going IPO, okay, now it's, we're gonna be ringing the, the, the bell, they're like, okay, we're going to make a more sustainable business and, uh, and everybody's going to benefit and here's how. Uh, this is tough, this is, this is really tough, especially if you've got, you know, changes on the bus, right? Like I had to replace pretty much my our entire executive team. That was pretty tough. Yeah. Whole sales team, had to replace that except for one guy. That was tough. That was tough for morale. But I'll tell you what I did to keep that morale going. And it all comes from customers, I think in general, customers' empathy because if you genuinely care about your customers, you're going to have empathy for them. And empathy ultimately leads to urgency, right? And so we just over-rotated on customer engagement across the whole company. So we made contests on like how many customers you talk to today or this week. We would get engineers kind of embedded in an almost Palantir-like model with a customer, you know, where they were working with them side by side to understand what their true problem was. And then come back with a solution. That also helped with the third part here is increasing product velocity is possible if you can get the people actually working on the code, connecting with customers on a regular basis and hearing from them. You will have higher urgency because unless they're sociopaths, like they're going to have empathy for the pain that a customer is experiencing.

I love that.

Yeah. And then they'll, they'll, they'll go hard at it. Internal transparency, big, big thing for us. So we, every week we would do an all hands except for I think one week of the month we would skip it, just give people a break. And it was pretty quick. You know, we're talking like 15 minutes. This wasn't like a whole, you know, hoopla thing. And our, one of our core values was put the customer first. So we, we tried to take that as literally as possible and we would bring them into the all hands and we would start the custom, we would start our all hands with a customer conversation. And the way that we did that, I would just call them because, you know, people, customers feel awkward like joining a giant Zoom meeting and it's hard for them to be themselves and tell you honest feedback. So I would just call them through Zoom and we would have a quick chat about, you know, their experience with Logical, what they don't like. So kind of shit sandwich them so that we don't end on a bad note. And then, you know, what do they like?

What do they love?

So that we can, you know, shower the team with praise. Yes, little tactics like that, I think go a long way. And then my co-founder and I did a weekly podcast, like an internal podcast where we would tell customer stories. We did internal shoutouts where we would hear about, you know, people doing amazing things for customers and we would share those stories. That was pretty big. And then I would send a weekly email every Sunday that would go over how we're doing against our goals, where we need to improve and what we're doing this week. Like what are the goals this week? Every week there was like a new, okay, here's what we're doing this week. And it was always aligned to ARR and cash. And then we would share that information at the all hands meeting. Like here's how we're doing guys. And I think that was huge. Customer engagement, increase that, increase internal transparency. And then we also adopted the cadence, if you're familiar with that. David Sachs wrote about it, where we would do quarterly product launch events. That was pretty good for morale and additional customer engagement.

Yeah, I think when things are tougher for whatever reason or going through a phase change, breaking stuff down into smaller, shorter chunks always helps, whether they're micro milestones or other goals, especially ones you can even accomplish this week. It just keeps— but like, instead of me grouching about all the change, let's compete for the most customer meetings this week. Who had the most? Let's go meet. Let's, let's send an engineer to go meet at least on Zoom with the customer. Like, it just, it focuses people on the right things when you break it into micro milestones rather than just being grouchy and looking at the 12/31 goal, right?

Totally. Exactly. It's like, let's focus on what we can change this week. And so once you focus on, you know, revenue and cash as a target, You're just trying to unblock. What is the one thing that you can unblock this week?

Yeah, what's the one thing you can unblock this week?

Yeah, it's just going to get you a little bit more, a little bit more. And when you have that level of granularity, it becomes a lot easier for you to— because as CEO, you've got to change the goalposts, right? But you don't want to go too far out. You want to just do it incrementally so that you can still win. Like, you don't want to miss a quarter. Like, that's, that's not good, especially when you're on the PE path. Like, if you miss a quarter or a month, you know, to your earlier point, like all the— all hell breaks loose. Like, it's not making us survive. Um, yeah, so, uh, last thing I forgot to mention on the zero-based budgeting, uh, another thing that we did is we incentivized the finance team on a DSO target. Um, so days sales outstanding is a critical, uh, metric for finance. And so ours was outrageous at one point. It was like well over 100 and we got it down to 30. So that was, that was the goal. Every week it was like, how can we, how can we bring this down?

Yeah, I like that. I, in the earlier stages, I just love to track collections over MRR, but ultimately DSO is the, is how it gets done, right? But I love to see you collecting more than your MRR each month in cash. That, that's a sign you're doing okay. And then you get more sophisticated like you But I see so many folks who it's the opposite, right? The cash collected is below the MRR and you're just broken. No, it's broken. And that's—

and you're not going to make it so much worse.

Yeah, you're not going to make me happy if the ratio isn't inverted, right? So yeah, it's a good one to drive down the DSO. All right. What do we have next? Yeah, I know we have some good questions I want to get to before we run out of time, but let's, let's make sure we get here. How do you get this? Well, how do we get the interest of the firm? How long is it going to take? We hit this a little bit, but what other insights do we have here?

Yeah. So, you know, caveat it back to the table stakes, right? You need to be at a certain revenue growth rate, etc. Okay. So one thing I would encourage all founders to read, regardless of what you want to do, but there's a great book on essentially how to sell your business. It's called Magic Box Paradigm. It's a horrible title. That's like, it's, you think it's for magicians. But it is a, it's a book on how to sell your business and it gives you a whole framework. It's written by Silicon Valley lawyers, done a lot of M&A, and so it gives you a ton of, you know, inside baseball knowledge on things that you probably wouldn't know. So read that because that will give you a framework. Okay. And part of that framework is how do you get interest from a PE firm or a strategic? You've got to do the research. You've got to find all these different firms that match where you're at. Similar to raising money from venture capitalists, you want to match your round with the fund, right? You don't want to go unless you're going cradle to grave with like a Sequoia or somebody, seed to IPO. But in general, you want to match those things together. And that PE firms are no different. There are certain PE firms that they only do like billion-dollar deals, like Salesloft as an example. And then there's firms that do, you know, below $100 million, and then there's kind of the mid-market firms. So you want to make sure that you find those firms. Ideally, you can find a firm that has companies that are complementary to what you're doing, because that's what a lot of PE firms are looking for. They're looking for a roll-up, you know, where they can kind of create this, you know, Voltron-like SaaS startup to cross-sell, upsell to a similar customer base. And so we did that as well. So investment bankers, you know, I think they get a bad rap. People think they're expensive. I think they're worth their weight in gold. They can basically be your bad cop, right, to your good cop.

You got to have a bad cop. Got to have a bad cop, right? You got to have one. Absolutely. The earliest SaaS post is when you sell your company, at least unless it's CEO to CEO, there's a caveat here. You got to use a banker. You have to, because you can't— if you're the bad cop, your life's going to suck and you're going to get less money.

Yep, totally.

You got to be only the good cop, right?

Yeah. It's the sales— the sales rep and the sales manager. You know, let me talk to my boss. So investment banker, like, how do you do that? So what we did is we— so first you want to find an investment banker that can do your type of deal, right? So if you're looking, if you think you could sell for hundreds of millions, That's a mid-market investment banker. Um, and so you want to only interview those people and go for the top ones. Uh, I, I would recommend just standard 3 that you interview. Do it very tight, you know, because you're going to make a decision probably within 2 weeks. So you have your board, um, join these meetings, the investment bankers will pitch you, and then you kind of run a little bit of an auction. That helps you control the process, helps you control the, um, the fee structure. And then you hire an investment banker. Now your investment banker is going to want to go to market like ASAP, but you should only go to market to— and you're going to do a lot of pitches like I did dozens of pitches. You're going to want to do that when you have momentum. Yeah, you got to have momentum. And so momentum is a couple of quarters of consistent revenue growth, right? Nothing crazy. Like if you're growing, if you're I would increase our revenue targets by a couple percentage points every quarter, just a little bit. Yeah, you got to have enough.

I think it's, it's like 3 quarters for PE, like it's probably 3 months for a VC early stage. You need 3 quarters of strong growth, right? But people aren't going to look much— they're not going to care what happened beyond those 3 quarters, are they?

Yeah, no. And you need to have insight into momentum. You got to maintain that momentum because once you sign that LOI, and you're committed, like if you, if you lose that momentum during that, that window, you're fucked. Like that deal is going to implode or be shaved down substantially.

That's a good one. You got to have 3/4 of increasing growth, right, to keep the momentum.

Yeah.

On the, on the banker side, because I always, you know, one of my top regrets as a founder was not hiring a banker the second time. Huge regrets. Did they actually bring you any potential PE buyers that actually gave you an offer? Like, could they?

Yes.

Or did they just facilitate the process? Because I found you don't— you don't always— you have to manage your expectations.

Yeah, for sure. And another thing I'll add about investment bankers, you know, once you get into the fee structure negotiation, aligning incentives, again, super important. So you want to give them a lot more upside potential, right? Like, if they can get you another $50, $100+ million, um, in your price, like, make it worthwhile because they will go after it. And so we, um, we structured that pretty well for us. So yeah, we got, uh, 4 offers, um, out of that. So that was great because that applied pressure on the one we ultimately went with and got us.

But did you ultimately go with Just so we all can learn from this bank investment banking process, you got 4 offers, they generated 3 and you generated 1?

Yeah, that's right.

That's pretty good. That's better than my experience. Those just published, they just did a take private and you're public, you have to share all of it, right?

Yeah. I think you're cutting out there, Jason. You might be switching onto WiFi or something.

But the one you got yourself kicked off the process.

That's right.

Yeah. Right. You created, it sounds like you created the catalyst and they went out and got you 3 more offers, which is their job. They don't, it's harder for them to get you the one in my experience. Like you can't, it's hard to hire an investment bank and say, look, I got no one that wants to buy me. You go find somebody. But if you have one, that's a great moment to go hire a bank. Right. One, one sort of. Firmly.

You got to have a stalking horse or two, right? Yeah. Like, it's, it's important, I think, for leverage, because in your mind you need to think, I will walk away at any moment, right? Like, if, if this doesn't work out, if I don't get everything I want, like, I'm happy to walk away. And so you have to have that confidence, and having another potential offer on the table, uh, really helps with that. You know, it helps accelerate things, like, because, you know, the, the potential acquirer is going to want exclusivity for infinity, you know, so like you've got to control that exclusivity ask. And I think you can do that by building leverage with competing offers. All right. So did we go over everything we wanted to go over on how long is this going to take? So we can talk a little bit about the timeline. Timeline for us was roughly 90 days. From signing LOI to closing. There was a couple of extensions on exclusivity that were kind of annoying. But once you sign that LOI, your leverage is gone. You can't do anything. So we should talk a little bit about that because that is— maybe that's— I think that's the next slide, actually. So Yeah. Okay. All right. So, L.O.I., what'd you say, Jason?

Yeah, this is a top mistake that founders make that do it the first time. You get to do this that many times in your life, but you built— people are all friendly, right? There's tough questions, a lot of data, everyone's friendly. But anything you don't get on that L.O.I., it's like Mission Impossible to get anything added. And then people will also pick at you, like hopefully not your sponsor, but people will start to pick at those terms. Like if there's some way they can carve a few million out of— like, there was something in the Adobe deal that I missed on how, um, how, how our, um, you know, what do you call it, how, uh, how our deferred revenue worked. And like, my, my champion was like, it's fine. And the corporate development at the end said, you got to knock $1.5 million off the price because you have that much left of deferred revenue. And I'm like, what am I going to do? Am I, you know— and I, and I'm like, well, maybe I'll walk— like, I didn't care. I'm like, I'm happy to walk away. And they're like, well, you signed it. You signed it. I'm like, I don't want to join a company where you're going to knock $1.5 million off this price. It doesn't matter to Adobe, right? It does. It's not going to change the course of your business. You're never going to remember, but you're fundamentally damaging your relationship with me. You're— you're— don't— I said to them, don't do this because you'll never know. It's not like I kept all the $1.5 million. I only had my portion. I'm like, don't do this. You're breaking the relationship. There's like, we're doing it anyway. Yeah, but it was a terrible story, but it's a reminder once you sign that, like, no, it only gets worse. Like, you can't add anything to that.

Exactly. So that's like obsessed, like truly obsessed over this. Talk to founders that have been through it and learn from— I talked to Jason M. Lemkin, like, Jason, what would you do differently? And you gave me some great ideas.

I gave you some good tips. I gave you some good tips.

Yeah. The employee pool for cash, like, that was huge, you know? Yeah. Which is another thing, like, you know, if you end up signing one of these, like, make sure everybody makes money. Even somebody that you just hired a week ago, make sure they make some money. It is at the end of the day, it's peanuts, right? So we ended up carving out, I think, 1% of the purchase price as a pool. And then we built a structure based on longevity and then we had a separate pool for just impact players, people that we just want to give a shit ton of money to. Yep. So obsess over the LOI, you know, put everything that you want in there. If that's your wish list, put everything that you want because after you sign that, it does not change. It's the term sheet, essentially. So that's a big one. So we're talking about getting acquired on your terms. Again, LOI, LOI, LOI. Can't stress that enough. The other things that will help you get this done much faster Back to like having a finance whiz on your team, get your shit in order. Like all of your data is probably all over the place, just a complete and utter mess, right? Your sales contracts are probably all over the place. You've got to proactively get all that stuff organized and ready to go. Ask your VCs for a typical due diligence checklist that they've had for previous companies that they've sold. And they'll happily give it to you and you'll be shocked at how absurd it is. Like it is really ridiculous. But you can get the vast majority of that information done before you even sign the LOI and have it good to go. It's a good operational exercise. It makes you better in a number of ways. So getting that set up, we used Box to get the data room set up. It's pretty easy to do. Um, and then the last thing is, you know, beat the revenue forecast. Yeah, under-promise and over-deliver. Uh, yeah, and that'll also help your leverage.

Yeah, it's a good one to end on this. Maybe we can take some questions, Taylor, if we have. Like, your growth doesn't have to be epic for PE to write you a good check, right? But you got to beat the forecast. You got to have momentum, right? You got— whether you're growing 30% or 40%, you don't have to be 100, but make sure it's— if you Engineer, whatever. I love this quarterly everything. Make sure it's 30, 31, 31.5, 31.8. Don't let it dip even a smidge, even a hint. It's just going to create— people are reading tea leaves, they're making a bet, and any, any deceleration, even if it's a hint, is going to freak people out, right? Yep.

I mean, we every, almost every day after we sign the LOI, how's the quarter looking? How's the quarter looking? Jesus.

Yeah.

Should we just share our Salesforce dashboard with you so you can follow along in real time? Um, but yeah, it is. I think it's because, you know, if you do screw up and you signed it, uh, it's not the end of the world, but you're probably gonna get worse terms and maybe a lower price, you know. So yeah, it matters.

Cool. All right, I love this. So reaccelerate growth. You had to completely rebuild your management team, lost almost the entire sales team. That could be a whole session. And move to quarterly metrics and nail them, including cash, and get the incentives aligned on it. Don't, don't miss— whatever you do, miss no quarter. Hire a bank. I agree 100%. You had a better experience than I've had. You actually got 3 other offers, though. I haven't done— even if you don't, just having a bad guy to deal with your offer, you'll make more money and you'll have, and you'll have less stress, right?

They increase the price by more than 10%.

Yeah, even if they don't increase the top line price, they may make the holdbacks better. They may make the time. They can argue for— you know, it's hard for you when they say, Andy, we just want you to stay 8 years after the deal. We love you. And you don't really want to stay 8 years. It's hard to be the bad guy.

I was like, nope, not happening.

No, it's hard to be the bad guy. But the bank can say, listen, Andy's great, but he's a pirate. He's a romantic. You can have him for 6 months or a year. Right. But it's very hard. Even that discussion is very hard to have with an acquirer when— and so I deeply regret the second time not having a banker because I had to have the tough conversations and it was awful. It was just awful. It was an awful experience. I made a mistake, right? And I tried to— Yeah, yeah. I think if it's— see, listen, if Mark Zuckerberg calls you up and does the deal himself, this is the other learning. Don't bring in a banker. Actually, I have seen— I want to get questions. I actually have seen several deals broken where the CEO reached out and they were— they knew each other, right? Hey, Andy, we've been competitors or partners. I'll give you $200 million. And you say no, right? And then, then he says, well, I'll give you $240. Like, you got to just agree when it's CEO to CEO. You can't hire a banker. You can't go to 28 rounds. You can't do what, what a corporate development team can do or PE firm. That's my one asterisk and dagger. If the CEO reaches out to you and you know her or him, and it's a great offer, ask for a little more, but then shit or get off the can.

Yeah.

Because when the CEO's putting all of their juice directly— when Mark Zuckerberg came in to WhatsApp and Instagram, if you trust them, 10% of the company, you got to maintain that trust at the CEO level, right?

Yeah. Yeah. If you trust that person, I think that's, that's totally correct. Yeah. And you save some money too. I mean, investment bankers are expensive.

No, I still say pay them. I still, I still say it's worth it, but it's just, it's just—

I agree. If you hire one, it's worth it.

When the CEO reaches out to you personally, directly, and you've met them, they don't want to work through a third party. They will if they have to, if it's, if it's a must-buy, right? There are situations where it makes sense, but if they don't have to buy you, right? If it's elective, but like, yeah, we love Logical, but there's other players. Don't blow it when the CO puts their own juice for you. Pick up the phone, talk to them, have an honest conversation, ask for 20% more, maybe more, but then call it a day, right? Call, like, and then just be kind, right? Don't, don't, yeah. I saw one deal during peak COVID where the company was in this box and the CEO reached out and said they'd buy them for over $200 million. The company today is worth zero. And they just put, they hired a bank and the bank pushed it and pushed it and pushed it. And the CEO just couldn't take it anymore and just bought a worse competitor for $100 million, but just needed to get it done. Right.

Yeah. That's a bank.

Didn't know a bank just kept doing it and pushing and pushing. I'm like, guys, this isn't that great a company. Like, This is, I, this was actually an accidental investment. Like, okay, but let's take some questions before we run out of time. That's my only one. But yeah, I love, this is a great summary.

What questions do we have?

Okay. We have a question from Kelsey. Kelsey, I'm gonna bring you up now if you wanna come and ask your question live for Andy.

Hi.

Yeah. Can you hear me okay?

Yep.

Yep. I can hear you.

Great. Well, thank you for being here. I thought it was super insightful. Just a quick question from the kind of the beginning of your slides when you talked about soliciting some of the interest from potential acquirers and sharing some metrics and kind of keeping them interested, but maybe not oversharing. Do you have a sense of what metrics are okay to share in that situation and which ones are maybe, you know, saved for a post-NDA, post-data room invite? But, you know, what's, what's open? And then I guess as a follow-up, does that change if you're talking to a PE versus a VC?

Uh, well, for sure, I think, um, the PE versus VC, yes, absolutely. So yeah, it's a sale process, right? So you're, you're trying to sell your company, so you know your audience. So the, the PE firm, what are they going to be interested in versus VC firm? Yeah, PE firm, uh, we mentioned in the beginning, you know, they're interested in a few things like are you growing at a healthy clip, Right? Are you, are you burning a shit ton of cash? Yes or no? Like, are your customers actually staying with you? Are they happy? And then the form of that is net dollar retention. Um, I, I saw no downside in sharing that information with them. Yeah. Because I know that's what they want to hear. Like, it's, it's only potential upside. Like, if they're like, hmm, you know, they're leaning in. I mean, what would be off limits is, can I have a list of all your customers? You know, we didn't, We didn't even share that until very late into the stage after the LOI. We, we numbered them all like a customer 45, you know, they're paying us $500,000 a year. Who is that? Well, I'm not gonna tell you until we get like really close to, you know, signing this deal. Yeah, because this one, this one was a competitive, you know, it's a larger competitor that we combined with. So it was important for us to, maintain that confidentiality. But I don't see any reason why you should withhold, you know, your growth metrics. You should be proud of those things. Okay, great.

Just, just to echo it, I find it's great to hear that you say that. If I— way too many founders think this stuff's too confidential or there's a reason to, to hold back, right? Um, sharing— my rule is share anything you could find on Google or figure out and share all your good metrics.

Okay, absolutely.

Revenue per employee, you know, like assume whatever you think is confidential, only 10% of it is. Even your customer list, like if you have customers on your website, just share those ones.

Yes.

You don't want to share that Salesforce is paying you $200,000, don't share. But if Salesforce is on your website, then make a customer list for them and include Salesforce. Just don't put the dollar in, right? Or just, or like, don't connect the dollars to the logos. But like, we all think we need these NDA— you need an NDA for like 6 things, okay? And you should get an NDA for those, but all the rest, just let it. Whether you're $20 million, $30 million, $18 million, even if your competitors find out, who cares? You got bigger.

There's really not much they can do with that information.

Yeah, just cut through the noise, share the good stuff, hide a few bad things until you're down the funnel. Even the bad stuff, share it once you've had a couple conversations. And it's just, we all think this crap's confidential and it's all on Google anyway. The number of employees—

you'll have an employee steal information from you. Like, we had an employee steal our entire customer list, go to a direct competitor, and they were 0% effective. Trying to steal our customers.

Yeah, you gain more by sharing, especially with P&Vs. You just save so much time by sharing this stuff, right? You save so much time.

Yeah, it's confidence.

Good question.

That's good.

Good question.

Thank you, Kelsey. Mike, you're up next.

Hey guys, thanks so much for the time and for taking the questions. My issue is that we're at a very early stage. We're just hitting our growth stage. But I'm getting calls every day, right? Emails. And even a strategic recently reached out, put me in touch with the CEO of the other company that they're thinking is going to be a good mesh for us.

There you go.

And I just feel like it's too early for me because of course I'm having fun, but I see a different valuation once we get further down the growth stage. So tell me, what's the right move?

Hmm. I mean, I think it's a pretty personal decision at the end of the day, you know, like But I think Dave actually talked about this last week, didn't he, Jason? Like if you— and he wrote a post recently, like when you should think about actually selling your company. He has a lot more mathematical approach to it.

Well, I'll give you my heuristic for this question, right? Which is I'm getting— I'm doing— I'm hitting the growth stage. I'm getting these PE or other inbounds. I don't want to sell. What should I do? Right. Here's my— here's my rule. Each week, do one meeting for 20 minutes, 15 minutes, 20 minutes. Now, if you want, you can make it one a month for PE. One a month, I'm fine with. Okay. But I don't think we're so important that meeting for— taking the best VC meeting once a week and best PE meeting maybe once a month. For me, my rule is take one VC meeting a week for 20 minutes as a founder. It will not kill you. Okay. I'm not— let's step back to VC. I'm not raising any money. I just raised. I'm not going to talk to anybody for a year. That can be fine if you're hot, right? But it's always easier to raise money from someone you've talked to before. It is always easy. And the founders that I know that crush it in venture, they just— when they just email everybody out on a Friday and they get term sheets next Friday. And how do they do this magical act? It's so hard. They talk to them already. And if you're not good at it, here's my rule for VCs: take one meeting a week. If it's the most junior analyst and you hate analysts, but you don't have a better idea, do that one. And don't do 2 hours and don't share a data room. Just talk to them and share 4 metrics. We're at $10 million ARR, growing 80%, and they want to know more. Just say, I'm not comfortable sharing, but like, it's good to chat. And then do 30 minutes a week as a CEO. And if you want to do one a month for PE because you're far out, maybe that's a different way. I haven't thought about it that way, but my rule is don't not do them. Just pick the best one. And you don't have to sell your company. And don't do an hour and don't prepare a data room, but take the meeting. I find as the years go by, You will be happy you took 1 out of 10 of those meetings. You will be happy. You will be happy that you took 1 out of them.

So I'll add to that. So K1 is the firm that bought us, and I was looking back on some of the email communications. I started talking with them years before. See? But here's the thing. I would— Mike, did they tell you how much they want to buy you for, give you a range?

No, they want my stuff first.

Oh yeah, well, uh, I mean, like, the high-level metric should give you— give them enough to give them a range. Like, you know, so the, the thing that I always did, and I only had one time where somebody actually gave me a number after I told them that the metrics, uh, was, you know, hey, we're not really for sale, uh, but, you know, since you're interested, what are you offering? Like, you knocked on my door, you know, like, you're— what are you trying to, to buy us for? Can you give us a range? And then if they say, well, give me some top-level data, give them your growth rate, give them your revenue, you know, and a couple of these simple metrics. And because otherwise it could be a complete and utter waste of your time to go down that road if they try and lowball you, you know. Yeah.

Or it could be a surprise and yeah, give me a number, I'll take it.

You never know. Yeah, just ask. You know, you don't ask, you don't get.

You don't ask, you don't get.

No, that's good advice. Thanks so much, guys.

Thanks for your question, Mike. Okay, we have one, we'll close with one more question from James. James, if you want to come on and ask your question, we'd love to hear.

Yes, thank you. Thanks so much. Great conversation. Really enjoyed this. One of the things that I loved as part of this is aligning incentives and compensation. I feel like too many companies don't do this. And so I'm curious, how you really rallied the employees to move to a comp plan around cash burn and revenue goals, and what unintended consequences, positive or negative, did this have internally and externally on your customers? Okay. I mean, people love money. So if they're making more money, they're going to be a little bit happier. And that's why we got everybody involved in this. That was huge. You just, you have to be careful with the targets. You know, you don't want to make it unachievable, right? But you don't want to make it too easy. It's got to be that Goldilocks zone where people feel confident that they can hit it and potentially exceed it, you know, where they can make even more money. So, you know, and every, every all hands we're sharing these numbers, like, here's what's going on. Like, everybody knew how much money they were going to get. And what happened from that was employees started asking a lot more interesting questions like, what, what, what does this customer need? Like we would share like, hey, these are the customers are at risk. Like these might churn and if they churn, this is gonna impact our cash, not now, but like in the next, you know, month, the next quarter, et cetera. And so you start sharing this type of information with people and you've got smart people. They're gonna figure out solutions to save those customers. I mean, it was, it's not rocket science, but you know, once you incentivize those behaviors, you're gonna get what you want. Like you want revenue growth, people are gonna be rewarded for that. You want cash conservation as well, they're gonna be rewarded for that as well. And they're gonna help you get there. Customer impact. So one thing that I did, I'm not a fan of customer success owning any kind of upsell target at all. I give them bonus. I gave them bonuses for finding deals because you want them to be on the customer's team. And as soon as they start trying to negotiate upsells, it's like, wait a minute, are you part of the mafia here? What's going on? So I had salespeople handle that and salespeople are pretty good at figuring out if this is worth their time, you know, and they're not gonna, at least my salespeople weren't gonna strong-arm customers because that was anti-customer first. So we were pretty adamant about aligning to our core values of putting the customer first and doing the right thing.

Yeah, I think we're in the minority there, Andy, but I'm with you. I think, I think that's the word success. Yeah, I think that based on our latest survey, more than half of CS teams now report to the CRO, which I hate. But anyhow, we can, we can wrap it up there. It sacrifices the long term for some short term. And, uh, but, uh, the ship may have sailed.

No, it's offense versus defense, you know. Customer success is defense.

That's what I always believed. Um, and, uh, yeah, if there's no— if there's no one whose job it is to make your customers actually successful, then they won't be successful at all. I'm not sure why this is so controversial, but every investor update I get where the company's growth is decelerated, I see, I've moved— we've moved CS to— into the CRO, and it's so much better.

I'm like, for now you can change that with incentives. So we had that for a brief period of time and we made it so that the customer success bonus was on GRR and logo retention.

So yeah, that's great. I love that. That was our logo retention. That's your job. Come hell or high water, keep them.

Yep. Defend that revenue, you know, but don't fuck over the customer.

Drive up our logo retention, get a big bonus. Right. But yeah, but absolutely. Yeah, all right, I think we're over. So everybody, this was great. Andy, thanks for joining this. This was another great Workshop Wednesday. Um, if folks missed any of it or whatnot, it'll, it'll be edited and on our pod and SaaStr and everything else pretty soon. So, um, thanks, man. This was super terrific.

Really