Selling Your Startup to Private Equity l Andy Wilson CEO Logikcull and SaaStr CEO Jason Lemkin

We were on the venture track for a few years growing rapidly, but uncontrollably. And we made a very difficult decision to re-engineer the business model, re-engineer the executive team and some pieces of the culture so that we could build a long-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. They're like, oh, another 0% month.

I didn't cringe. I'll tell you why. 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 and employees. But, and when you see a founder start to check out, even just a little bit, even just as a hint, as an investor, I immediately quit. But when you get from Andy, it's, I'm just fighting. But the fact that, for what it's worth, the folks, that he never gave up, that energy, right? 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. There are founders I've quit on, but because they quit first. Welcome to this special edition of SaaStr Workshop Wednesday. I've got Andy Wilson here, and this is like a topic, selling your company to private equity, that I started writing about in SaaStr back in 2012, 2013, as these private equity firms, which Andy will share more about, started buying SaaS companies. I regretted selling just before this happened because when I was a SaaS CEO, frankly, there was between, say, selling your company for $100 million in an IPO, there were very few options. There were very few options. And then all of a sudden, private equity realized, hey, look, software businesses with 100% NRR, if they're not burning much, they're an annuity. They last for decades. And they came in and started buying companies. And last week, David Kellogg joined us that many of you know, Andy knows too. He sold Host Analytics for several hundred million dollars to a private equity Learn. And then I think about a year ago, Andy, you 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 broke or go home. 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 boards said, don't sell, it's too cheap. It's too cheap. Keep going. 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 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. This is how I summarized it. There's the, there's the IPO track. There's the never get anywhere track and never hit scale 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. 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. If you have these 4 bullets and you're 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 bar at the moment. 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, would you agree this is the PE track, Andy? Is this kind of what you saw and lived?

Absolutely. The bar might be a little bit higher on the revenue, but the growth is right.

Yeah.

Burn, you know, if you're cashflow positive, obviously that's going to be a big plus, but just having no burn is huge. And to your point about happy customers buying more, that's what they want because 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've got happy customers buying more, then there's probably ways to optimize that for even higher growth. So yeah, I think that's right.

So I think you went two waves. I 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? What was the journey here?

Yeah, it's just to backtrack a little bit further. We were, as you know, like we were on the venture track for a few years growing rapidly, but uncontrollably. And we made a very difficult decision 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.

Never mind.

That's not, not good. All the while burning cash.

I didn't cringe. I'll tell you why, but keep going. So 1 to 10 was very fast, 1 to 10 was very fast, right? 0 to 1 took 10 years because 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.

Yeah, no growth at all. But it was mainly by design because we were re-engineering the entire business model, big pieces of the, big pieces of the culture. So it was just 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 the time, maybe 40% every year, cashflow positive. Net dollar retention, I think was around 1, close to 110, somewhere around there.

Yeah. And as an aside, and let's dig into the process for what it's worth, why you say why 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 hint as an investor, I immediately quit. But when you get from Andy, it's, I'm just fighting. I have 11 different types of SaaS models. I'm trying pay by the second, pay by the year. Andy would try more versions of the model. And look, on the one hand, I'm like, Andy, you're crazy. 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 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? 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, and anyone that cares will back you. No one will quit. And I've been investing for since 2012, 2013. There are founders I've quit on, but because they quit first. Yeah. I always thought you would create some sort of win out of this. 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. Yeah.

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

That's right. 100%. No one. You got to lead by, you got to lead by example. And my like family motto, I grew up in a military family and my dad was, I think he said, never give up 10 times a day. Yeah. So it was just ingrained into my psychology. And yeah, that was the— I even have it tattooed on my arm.

Yeah.

So yeah, you gotta have that. And if you've got that and you have, you've burned the boats, so to speak, and you have no backup plan, that's all you can do. Just don't give up.

And there's a subset, and then I want to talk about, there's a subset of founders somewhere in the middle today who are, I call them the slugs of SaaS, and I don't mean to be mean because 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. Cause like it's harder and there's a whole group of them. And those are the ones I give up on. I'd rather you be growing 0% and killing yourself to reaccelerate the business than getting a message that we're pretty happy to have grown 15% this year. 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. That's maybe a good transition to some of the kind of the tactics, I guess, to help reaccelerate growth. Because if you're suffering from that, there's some things you, I think you can do. 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 a step back. And I want to talk about how you reaccelerate growth because that's a good topic, right? Just in terms of PE, 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 did they, how did the ultimate deal come together over time? Just share the narrative of how it happens.

Yeah, Shin and I, my co-founder Shin, we came to the realization this is not the venture path before private equity became part of the conversation. Doesn't just, it's going to be, it's going to take too long. We were going at it for 19 years. So we had made the decision like, okay, we are going to 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. And at the same time, position ourselves for optionality to sell the company to a strategic. So we, we had made that decision before private equity came about. So what ended up happening is 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. We hid nothing. And word started to get around that we were doing, you know, 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 just chit-chatting. He's like, we want to buy you for X. And I said, That's an interesting number. Let me think about that. I took it back to the board and the board said, that's an interesting number. Let's see if we can get a higher number. And so that kind of kicked the whole process off.

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. So yeah, on that call I told him like, here's what we're doing. Yeah. A lot of these people kick the tires. Hey, we'd love to buy you. And my response to that has always been the same. It's like, oh cool, thank you. We're not for sale, but what are you, what are you offering? What's, what's this? What's the meat behind this? And I said that exact same thing to, to this guy and he threw out a number and I was kind of shocked. Like that never happens. But anyway, I don't think that would've happened had we not been intentional about the path that we wanted to go on and then the changes that we made to 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. A lot were tire kickers. I think you said only 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, 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, my number here, 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, that just crossed $60 million. And I asked, I was really surprised. I'm like, how come you haven't gotten any of these P emails? He's like, oh, I get a lot. I just never responded to any of them. 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. There are people whose job it is, and now next you can talk about how you lubricated that process, made it better, but there are folks who choose to hunt you at north of 20 if you're structurally attractive for jobs. So they will find you eventually.

Yeah.

Yeah.

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

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 Chen did to make it more attractive to Pete.

Okay. So I'm going to 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 going to talk about that in a second. People on the bus. So I talked about 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 maybe one foot in, one foot out. No, this needs to be like, this is what we're going to do. 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 like 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 there, they're hoping for the IPO. Or that's what they're built for and that's no longer on the table, then you probably need to get them on the, off the bus. Some obvious things, start reverse engineering your mind as a PE firm and okay, what would a PE firm, if they bought me today, what would they do to my company? And so if you have a lot of nice-to-have hires, 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, 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 somebody 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 just, I need to 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 of magnitude more. And there's a lot of— makes no sense.

This business is not that complicated, guys, but it's overwhelming the scale of financial due diligence, right?

Yeah. It's so demanding. Yeah.

It's just nonstop.

So that's a, 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. We could talk about 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. Want to talk about incentives or cash?

Incentives.

Okay. 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. Stages of incentive structure. This turned out to be maybe the most important thing. Like the more I reflect on how did we go from 0% to close to 40% and adding tens of millions and now Logicals beyond that, how did 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 got rid of annual plans. Annual planning to us became silly. It's like, this just doesn't make any sense. 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 because you have to focus on the short term. Like that's the path that you're on. You're no longer on this, we're going to go IPO in 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 And I said, and you have to have both, and you have to have the revenue goals and the cash goals. So if we didn't hit our cash goal, but we hit the revenue goal, ah, sorry, nobody gets the bonus. Not gonna happen. So that was huge. And those percentages are based on, uh, so that the bonus percentages were an annual basis, but we would carve it up quarterly and there were accelerators too, you know, unlimited upside 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 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. First of all, a material incentive, 40% is a lot, right? 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 PE. 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 the one month before we were like 5.8 and someone freaked out for development team. They're like, we have to stop this acquisition. And to his credit, the SVB was like, it's one month. Let's average the last 12. But even, and that wasn't even for PE, just one month dropping below 6% growth. At Double Distribute, they freaked out and P is going to be just as sensitive, right? So you got to align a team and on cash, right? On all, but the 40% is enough to get people's attention, right? Yeah. But it's like, you got to get that money. The deals always slide to next quarter, but not in this plan.

Yeah. And the cash component, like that constraint really changed the culture. Like we went from, okay, let's hire this person to do we really want to do that? You get You get really jammed pretty quickly.

I don't think it's all good because 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. It's amazing what happens though. So all of a sudden our sales reps are getting prepaid deals. Some of them were getting prepaid deals paid up front.

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

Yeah, exactly.

This is great learning for PE. 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-offs. In my experience, I'm not saying it's not the right trade-offs, but sometimes you had 11 different payment programs. They don't all need to be prepaid, right?

I had 2, by the way. Okay.

2.

Easygoing and subscription. That's it. All right. Yeah. Anyway. Yeah.

But this is a great story. Align everything on the quarter, right? Cash comes in, everything. Expenditures are aligned on it, right? Think like a P firm.

Yep. Yep, exactly. And we would every week, like it was the drumbeat, every all hands, like this is how we're doing. Here's how we're tracking. Everybody knew what was going on. And we did workshops on like how to save more cash. There's a, there was a lot. 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? Pretty simple. The last thing there is just, as ZBB stands for zero-based budgeting, this is again, more tactical. I encourage any company on whatever path they'll do this every 6 months, right? I never, we never had in the company set budgets. We never did it. We always looked at it from bottoms up. 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 cut, I didn't even make a cut off for $5. We're going to look at every single thing because it didn't take much time. Like you just 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. This is morale.

Morale.

Yeah. 'Cause you go from, we're going IPO to now it's, we're going to be ringing the bell. They're like, okay, we're going to make a more sustainable business and everybody's going to benefit and here's how. This is tough. This is really tough, especially if you've got Changes on the bus, right? Like I had to replace pretty much my entire executive team, 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, customer empathy, because if you genuinely care about your customers, you're going to have empathy for them. And empathy ultimately leads to urgency. And we just over-rotated on customer engagement across the whole company. So we made contests on like, how many customers you talked to today or this week? We would get engineers embedded in an almost palantir-like model with a customer 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 go hard at it. Internal transparency, 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. We're talking like 15 minutes. This wasn't like a whole hoopla thing. And our, one of our core values was put the customer first. So we tried to take that as literally as possible and we would bring them into the all hands and we would start the customer, 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, so 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 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 what do they like? What do they love? So that we can 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 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. What are the goals this week? Every, every week there were 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. Here's how we're doing, guys. And I think that was, 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, like, instead of me grouching about all the change, let's compete the most customer meetings this week. Let's send an engineer to go meet at least on Zoom with a 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. Let's focus on what we can change this week. And so once you focus on 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, to, as CEO, you've gotta 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 not good, especially when you're on the W path. If you miss a quarter or a month, to your earlier point, like all the, all hell breaks loose. Like those companies are not— last thing I, I forgot to mention on the zero-based budgeting. Another thing that we did is we incentivized the finance team on a DSO target. So days sales outstanding is a critical metric for finance. And so ours was outrageous at one point. It was like well over 100 and we got it down to 30. That was the goal. Every week it was like, how can we bring this down?

Yeah, I like that. I, in the earlier stages, I just loved to track collections over MRR. But ultimately DSO is the, is how it gets done. But I love to see you collecting more than your MRR each month in cash. 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 just broke it. No, this is broken and that's, and you're not going to make me happy.

Yeah. You're not going to make me happy if the ratio isn't inverted.

Right. So yeah, that's a good one to drive down the DSO. How do you get the, 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. Carry on it back to the, uh, the table stakes, right? You need to be at a certain revenue and growth rate, et cetera. 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. It's, it's, it's, it's from a magician, 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 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 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? Like you don't want to go, if you're, unless you're going cradle to grave with Sequoia or somebody, seed to IPO. But in general, you want to match those things together and that PE firms are no different. There's certain PE firms that they only do billion-dollar deals like Salesloft as an example. And then there's firms that do below $100 million, and then there's 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 where they can create this Voltron-like SaaS startup to cross-sell, upsell to a similar customer base. And so we did that as well. 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—

you gotta have a bad cop. Gotta have a bad cop, right? Gotta have one.

Absolutely have it.

Earliest SaaS doorpost is when you sell your company. Unless it's CEO to CEO, there's a caveat here. You gotta use a banker. You have, 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.

Right. You think you've gotta be only the good cop, right?

Yeah. It's the sales rep and the sales manager. 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. And so you want to only interview those people and go for the top ones. 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 join these meetings, the investment bankers will pitch you, and then you run a little bit of an auction. That helps you control the process, helps you control the, 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 only going to want to do that when you have momentum. You got to have momentum. And so momentum is a couple of quarters of consistent revenue growth, right? Nothing crazy. If you're growing, if you're, I would increase our revenue targets by a couple percentage points every quarter. You got to have enough.

I think it's 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 lose that momentum during that window, you're fucked. That deal's going to implode or be shaved down substantially.

That's a good one. You got to have 3 quarters of increasing growth. To keep the momentum. Yeah. On the banker side, because 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? Could they ask, or did they just facilitate the process? Because I found you have to manage your expectations.

Yeah, for sure. And another thing I'll add about investment bankers, 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? If they can get you another $50, $100+ million and your price, make it worthwhile because they will go after it. And so we, we structured that pretty well for us. So yeah, we got 4 offers out of that. So that was great because that applied pressure on the one we ultimately went with. And got us out.

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

Yeah, that's right.

That's pretty good. But the one you got yourself kicked off the process.

That's right.

Yep. 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, but Like you can't, it's hard to hire an investment bank and say, 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 sort of firm-ish offer.

You got to have a talking horse or two, right? Yeah. Like it's important, I think, for leverage because in your mind you need to think, I will walk away any moment. If this doesn't work out, if I don't get everything I want, I'm happy to walk away. And so you have to have that confidence and having another potential offer on the table really helps with that. It helps accelerate things like, because the potential acquirer's going to want exclusivity for infinity. 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 we can talk a little bit about the timeline. Timeline for us was roughly 90 days from signing LOI to closing. There's a couple of extensions on exclusivity that were annoying, but once you sign that LOI, your leverage is gone. You're like, I can't do anything. We should talk a little bit about that. So LOI.

Yeah, this is a top mistake that founders make that do it the first time. You don't think you get to do this that many times in your life, but people are all friendly, right? There's tough questions, a lot of data, everyone's friendly, but anything you don't get on that LOI, 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. If there's some way they can carve a few million out of— there was something in the Adobe deal that I missed on how our deferred revenue worked. And like my champion was like, it's fine. And the corporate development at the end said, you got to knock a million and a half off the price because you have that much left of deferred revenue. And I'm like, what am I going to do? I'm like, I'm happy to walk away. And they're like, you signed it. You signed it. I'm like, I don't want to join a company where you're going to knock a million and a half 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— 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. I only had my portion. I'm like, don't do this. You're breaking the relationship. There's, we're doing it anyway.

Yeah.

But it was a terrible story, but it's a reminder. Once you sign that, no, it only gets worse. Like you can't add anything to that. Exactly.

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

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

The employee pool for cash. Yeah. That was huge.

Yeah.

Which is another thing. If you end up signing one of these, make sure everybody makes money. Even somebody that you just hired a week ago, make sure they make some money. It is at, at the end of the day, it's peanuts. 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 ton of money to.

Yep.

So obsess over the LOI, put everything that you want in there. That's your wishlist. That's— put everything that you want because after you sign that, it does not change. It's the, the term sheet, essentially. The, the other things that will go— that will help you get this done much faster Yeah, back to having a finance whiz on your team, get your shit in order. Like all of your data's probably all over the place, just a complete and utter mess, right? Your con— 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's, 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. But getting that set up, we use Box to get the data room set up. It's pretty easy to do. And then the last thing is beat the revenue forecast. Yeah. Under-promise and over-deliver.

Yeah.

And that'll also help you with your leverage.

Yeah. It's a good one to end on this. 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 deceleration, even if it's a hint, is going to freak people out.

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

Yeah.

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

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 miss any, 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, although I haven't done PE. 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?

Well, they increase the price by more than 10%. Yeah.

Even if they don't, 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. 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. But it's very hard. Even that discussion's 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? But I tried to—

I was playing the bad cop.

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've 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. And then he says, I'll give you $240. Like you gotta 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 camp.

Yeah.

Because when the CEO's putting all of their juice directly, when Mark Zuckerberg came in to WhatsApp and Instagram, he trusted 2% of the company. You gotta maintain that trust at the CEO level, right?

Yeah. Yeah. If you trust that person, I think that's totally correct.

Yeah.

And you save some money too. Investment bankers are expensive.

No, I still say pay them. 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, you, they don't want to work through a third party. They will if they have to, if it's a must buy. There are situations where it makes sense, but if they don't have to buy you, if it's elective, but yeah, we love Logical, but there's other players. Don't blow it when the CEO 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. Don't, yeah, don't, don't be greedy. I saw one deal 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 the CEO just couldn't take it anymore and just bought a worse competitor for $100 million, but just needed to get it done.

Yeah.

That's, and a bank didn't know. A bank just kept doing it and pushing. I'm like, guys, this isn't that great a company. Like this is, I, this was actually an accidental investment. That's my only one. Yeah. I love, this is a great summary.

Yeah.

So everybody, this was great. Andy, thanks for joining this. This was another great Workshop Wednesday. If folks missed any of it or whatnot, it'll be edited and on our pod and SaaStr and everything else pretty soon. Thanks, man. This was super terrific. Really appreciate it.

Yeah. Happy to be here. Thanks, Jason. Bye.