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 be the first investor in, took his next generation SAS eDiscovery business re accelerated 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 by 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 last investment I made that had a big exit from the bubble was in December 2021. Saleslops sold to Vista for almost two and a half billion dollars. And a lot of the boards that 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, 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, 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 described 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, there's the unic. There's the IPO track, there's the never get anywhere track and kind of, kind of 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 arrangements, 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 a million dollars 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 four bullets and you're in a somewhat, you don't have to be whiz, you don't have to be open, 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 nine 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 three SaaS IPOs since 2021. Klaviyo, Rubrik and OneStream, they all growing 50% of 500 million AR. And it's not like easy. So talk about the. 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, p firm is looking at how they can, you know, further squeeze more dollars out of that, out of the, out of the company and hopefully the right way. And if you've got 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?

Yeah, so 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. And, 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 long term business and a lot more sustainable, a lot more predictable. And it took two years of flat growth, which I remember I bet those investor updates that I would send you, you'd cringe a little bit like, oh, now they're 0% month over month. That's not, not good. All the while burning cash at the same time.

Actually I didn't, I didn't cringe. I'll tell you why. But keep going. I'll tell you why I didn't cr.

Next.

But keep going. Yeah. All right, so 1 to 10 was very fast. 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 because you went from services to SaaS. 1 to 10 went really fast, right. And then you hit a wall and there was like no growth for two years, right?

Yeah, no growth. No growth at all. But it was mainly by design because we were re engineering, you know, 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 re. Accelerate 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 somewhere on there.

Yeah. Yeah. And as an aside, and let's dig into the process for what it's worth. Why you say why? You know, it's funny when I get. For folks that are that watch this now or later on the Potter 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 as 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, 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, 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 to 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 and anyone that cares will back you. No one will quit. And I've, I, I have founders I've, 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 would. 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.

Wor folks, that's awesome.

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

That's right. You got to lead by. You got to lead by example. And my own like family motto. Like I grew up in a military family and my dad was, I think he said never give up ten times a day. You know, so it's just ingrained into my psychology. And yeah, that was the. Even have it tattooed on my arm. 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 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 because like it's harder. And there's a whole group of Them and those are the ones I give up on. Like I'd rather you be growing 0% and killing yourself to re accelerate the business than getting the message that we're pretty happy to have grown 15 this year. Like I don't want it. 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 sassy. 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 kind of the tactics.

Yes.

To help re accelerate growth. If you're, if you're suffering from that, you know, there's some, there's some things you, 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 and I want to talk about how you re accelerate 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 much 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 Shannon 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, is going to be, it's going to take too long. I mean, as you know, we were going at it for 19 years. What do you put it that way? 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 of life changes going on. 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 had made that decision before private equity came about. So what ended up happening is because we're very transparent. You see those investor updates. We share a lot of information both externally with our board advisors and internally with employees, you know, hid nothing. And word started to get around that we were doing, you know, pretty well and landing some key, you know, Fortune 500 customers and the head of a private equity firm. And out of la called me out of blue and you know, just chit chat and he's like, we want to buy you for X. And I said, that's, that's interesting number. Let me, let me think about that. Took it back to the board and 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. You know, a lot of these people kick the tires, you know, hey, we'd love to buy you. And, and my has always been the same. It's like, oh, cool, thank you. Well, we're not for sale. But what are you, what are you offering? What's, 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 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, 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 had about that now a lot were tire kickers. I think he said only like six got to the data room.

Right.

But what, 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, 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 customers and, and you didn't raise it 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 p. 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 any. 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 who's just 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 totem pole, the better in terms of outreach. I didn't really have much success talking with the BDRs of private equity. Yes. So yeah, so.

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

Well, okay, so let's go to, let's go to the next slide here so we can kind of go through how I structure my, my thoughts here. So there's, there's a lot here, but I'll give you some kind of basics. And, and I think all the things I've bolded here are, in my opinion, maybe the, 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, 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 gonna 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 gonna do.

So.

And, 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, on, like, your executive team because you might not have the right people on, on the bus on the executive team. I'm not going to go into details about, like, the people that you have in particular, but if you, if you have somebody that's like, you know, they're, 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 on the off the bus. Some obvious things, you know, start, start reverse engineering your, 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 somebody who's going to work and burn them in that 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.

To much more than you'd expect from a vc, right? Much more. Like an order of magnitude, right?

Oh yeah, orders orders of magnitude more.

And there's also a lot of 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.

Yeah.

So that's I think a critical hire we had, 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 can 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.

Want to talk about incentives or cash incentives? Okay. Yeah. Okay. So you know, show me the, the incentive and I'll show you the outcome. I think it was a famous Charlie Munger quote or Warren Buffett, one of those, you know, sages of incentive structure. This is, 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, not 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, 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, your goals into these quarter chunks can be pretty impactful. And so, and, 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 on there.

Interesting. I like that. It's. Well, I think that my 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 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. Right. 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, like let's average the last 12. But even. And that wasn't even for PE. Just one month dropping below 6% growth at double. Just revenue. They freaked out. And P is going to be just as sensitive. Right. So you got to run the team and on and on cash. Right on.

All.

But the 40% is enough to get people's attention, right?

Yeah.

The deals always slide to next quarter, but not in this plan.

Yeah, well, and the cash component, like that, 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, you get, you get religion pretty quickly.

I don't think it's all good because I suspect, I suspect if you, 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. 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 prepaid deals paid up.

They'll get prepaid deals up the wazoo 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 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 two, by the way. Okay. And subscription. That's it.

P, A Y, G A Q, F. Okay. We'll call it two or three. We'll, we'll. You get. The victor gets to write the history.

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

But this is a great story. Aligned everything on the quarter. Right. Cash comes in, everything spends, insures are aligned on it. Right. Think like a P for.

Yeah, exactly. And we would, you know, every week like it was the drum beat. Every, all hands. Like this is how we're doing. Here's how we're tracking. Yeah, 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, 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, I encourage any company on whatever path, but like, you know, do this every six 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, does this, is this really justified? And then once we got on this path, we standardize it to do it pretty much every six 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 gonna look at every single thing. Because it didn't take much time. Like, you just, you know, 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 want to go to the next one? This is morale.

Morale.

Yeah. Yeah. Because you go from like, we're going ipo, 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 entire executive team. That was, that was pretty tough. 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, you know, customers, I think, in general customers, empathy. Because if you, 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 a, 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. Unless they're sociopaths, 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, 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 in to 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, 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 ship 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 shout outs 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, you know, against our goals, you know, where we need to improve and what we're doing this week. Like, what are the goals this week? Every. Every week there was like a new, okay, here's what we're doing this week, you know, and it was always aligned to AR 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. That was huge, you know, customer engagement increase, that increased internal transparency. And then we also adopted the cadence, if you're familiar with that. David Sacks 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 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 revenue and cash as target, you're just trying to unblock. What is the one thing that you can unblock this week?

Yeah, what's the one thing I block?

This. 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 P path. Like if you miss a quarter or a month to your earlier point, like all the, all hell breaks loose, it's company going to survive. Yeah. So last thing 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 day sales outstanding as is a critical metric for finance. And so ours was outrageous. At one point I was like well over 100 and we got it down to 30. So that was a bit, that was the goal every week. It was like, how can we, how can we bring this down?

Yeah, I like that. I, 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, you're just broken. No, that's.

And you're not going to get so much worse.

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 dsm. All right, what else? 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 back to the, this table stakes, right. You need to be at a certain revenue 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 that's like you think it's from 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 and 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, you've got to do the research, you've got to find all these different firms that match, you know, where you're at. Similar to raising money from venture capital is you want to match your, your, your round with the fund. Right. You don't want to go, you know, if you're, unless you're you know, going cradle to grave with like a Sequoia or somebody seed to, to ipo. But in general you want to match those things together and that PE firms are no different. You know, 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 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 where they can kind of create this 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.

You gotta have a bad cop. Gotta have a bad cop. Right. You've gotta have it earliest. Astro post is when you sell your company. At least unless it's CEO to CEO. There's a caveat here. You gotta use a banker. You have. Cause 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 can't. You gotta 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. 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 two weeks. So you have your board 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, the fee structure. And then you hire 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 grow, if you're in. I would increase our revenue targets by a couple percentage points every quarter. Just a little bit, you know. Yeah, you gotta have enough.

I think it's, it's like three quarters for pe. Like it's probably three months. For a VC early stage you need three quarters of strong growth. Right. But people aren't going to look much. They're not going to care what happened beyond those three quarters, are they?

Yeah. No. And you need to have insight into. And 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 like, that deal is gonna implode or be shaved down substantially.

That's a good one. You gotta have three quarters of increasing growth. Right. To keep the momentum.

Yep.

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

Yes.

Or did they just facilitate the process? Because I found you, 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 the 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 plus million and your price, like make it worthwhile because they will go after it. And so we, we structured that pretty well for us. So, yeah, we got four offers 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 four offers. They generated three. And you generated one.

Yeah, that's right.

That's pretty good. That's better than my experience. You know, I just published. They just, 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 WI Fi.

Or something, but the one you got yourself kicked off the process.

That's right. Y, Right.

You created, it sounds like you created the catalyst. And they went out and got you three 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 firm.

You gotta 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 really Helps with that. You know, it helps accelerate things, like, because, you know, 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 authors. 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, you know, once you sign that Loi, your leverage is gone. You really can't do anything. So, you know, we should talk a little bit about that because that is. Maybe that's. I think that's the next next slide, actually. So. Yeah. Okay. All right. So, Loi, what'd you say? Jason?

Yeah, this is a top mistake that founders make that do it the first time. Not that 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 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, 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. How. How our, you know, what do you call it?

How.

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 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? 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 gonna 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.

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 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. 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, that was huge. You know, 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. Right. 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. We built a. 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. So obsess over the loi. You know, put everything that you want in there. Know that's your wish list. That's. Put everything that you want. Because after you sign that, like, it does not change. It's. It's the. It's a term sheet, you know, essentially. So. 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. The other things that will go. That will help you get this done much faster. Back to, like, having a finance whiz on your team, get your. In order, like, out. All of your. Your data is 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. 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'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, you know, in a number of ways. So getting that set up, we used box, you know, to get the data room set up. It's pretty easy to do. And then the last thing is, you know, beat the revenue forecast.

Yeah.

Under promise and over deliver.

Yeah.

And that'll also help you your leverage.

Yeah. It's a good one to end on this. And 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 a hundred, 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 ll. 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? But yeah, it is. I think it's because, you know, if you do screw up and you signed it, 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 re. Accelerated 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 three other offers alive and done. Peep. 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. Even if they don't. Even if they don't increase the top line price. They may, they may. They may make the holdbacks better. They may make the time they can argue for. They. You know, it's hard for you when they say, andy, we just want you to stay eight years after the deal. We love you and you don't really want to Stay eight 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, he's, he's a pirate. He's a romantic. You can have him for six 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, I, 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.

Yeah, yeah.

I think if it's c. 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 a 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. * 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 is putting all of their juice directly, when Mark Zuckerberg came in to WhatsApp and Instagram, if you trust 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.

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 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, 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 day 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 it just needed to get it done, right?

Yeah, that sucks.

And 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. This was actually an accidental investment. Like, okay, but let's take some questions. That's my only one. Yeah, I love. This is a great summary.

What questions do we have?

Okay, we have a question from Kelsey. Kelsey, I'm going to bring you up now if you want to come and ask your question live for Andy. Hi. Yeah, can you hear me okay?

Yep.

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. But maybe not oversharing. Do you have a. 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. And then I guess as a follow up, does that change if you're talking to a PE versus a vc?

Well, for sure, I think the PE versus Yes, absolutely. So, yeah, it's a sale process, right? So you're trying to sell your company so you know your audience. So the PE firm, what are they going to be interested in? Versus the VC firm? You know, PE firm 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 burning a ton of cash? Yes or no? Are your customers actually staying with you? Are they happy? And then the form of that is net dollar retention. Yes, I saw no downside and sharing that information with them because I know that's what they want to hear. It's only potential upside if they're like, they're leaning in. I mean, what would be off limits is, can I have a list of all your customers? 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 half a million dollars a year. Who is that? Well, I'm not going to tell you until we get, like, really close to, you know, signing this deal.

Yeah.

Because 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 say that if I weigh too many founders think this stuff's too confidential or there's a reason to. To hold back. Right. 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 website, just share those ones.

Yes. Okay.

If you don't want to share that. Salesforce is paying you 200,000. Don't share. But a 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. 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 six 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, 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 zero percent affected.

Yeah.

Trying to steal our customers.

You know, you gain more by sharing, especially with PNVCs. You just save so much time by sharing this stuff. Right. You save so much time.

Yeah. It's confident.

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? Every 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 match 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?

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 P.E. or other inbounds. I don't want to sell. What should I do? Right. 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, 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 two hours. And don't share a data Room, just talk to them and share four 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 I see. 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 one out of ten of those meetings. You will be happy. You will be happy that you took one 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 rec. 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, I mean like the high level metrics 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 the, the metrics was, you know, hey, we're not really for sale. 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, just 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, 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, 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 unattended consequences, positive or negative, did this have internally and externally on your customers? Okay. I mean, people love money, 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, 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, or 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 going to 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 going to figure out solutions to save those customers. I mean, it was, it's, it's not rocket science, but, you know, once you incentivize those behaviors, you're going to get what you want. Like, you want revenue growth, People are going to be rewarded for that. You want cash conservation as well, they're going to be rewarded for that as well. And they're going to help you get there customer impact. So one thing that I, I, I did, I, 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 sales people 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 on my customer, my salespeople weren't going to strong arm customers because that was anti Customer first. So we're 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 customer 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 wrap it up there. It sacrifices the long term for some short term and. But the ship may have sail.

No, it's all, you know, customer success is defense.

That's what I always believed. And 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. Not sure why this is so controversial, but I see 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. It's so much better. Like for.

You can change that with. 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. 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 over the customer drive up.

Drive up our logo retention. Give a. 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. If folks missed any of it or whatnot, it'll. It'll be edited and on our pod and faster and everything else pretty soon. So thanks, man. This was super terrific. Really appreciate.