I'm using a second account for anonymity, but this B&I board has been unbelievably helpful to me over the last several years leading to this place and I'd love to give back if anyone would find it valuable.

The company was a SaaS company that was about six years old. We sold to a PE group after a fascinating process with a number of suitors.

Feel free to AMA here, and I'm happy to answer with complete transparency.

Glad I stumbled on this one early. A few quick questions:

• How are multiples holding up in your corner of SaaS vs. 12-18 months ago?
• Were you hitting beyond Rule of 50/40 leading into the exit to maximize the multiple?
• What was the motivator for bringing in PE (or exiting if that is what you did), vs. keep pushing under prior paradigm?

Whatever your motivations were, congrats on hitting an exit!

Casey TableTennis said:

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Glad I stumbled on this one early. A few quick questions:

• How are multiples holding up in your corner of SaaS vs. 12-18 months ago?
• Were you hitting beyond Rule of 50/40 leading into the exit to maximize the multiple?
• What was the motivator for bringing in PE (or exiting if that is what you did), vs. keep pushing under prior paradigm?

Whatever your motivations were, congrats on hitting an exit!

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Great questions!

• Multiples are down from the crazy highs of 12-18 months ago, but good, growing, profitable companies are still seeing strong multiples. We actually got over 15x ARR, but that's not normative right now. But the PE groups were clear that great companies are incredibly desirable right now and it's the mediocre ones that have gotten hit the hardest with the market softening.

• Yes we were, well above. We were growing 60-70% year still and also profitable (although only slightly because we kept hiring new people).

• Some partners wanted to de-risk and basically just a desire to get out of bootstrapping mode. Also felt like we were hitting our limitations some on knowledge and how to scale. Going from 0-8M is one thing, but 3-5x'ing that is just a different animal.

Thank you! Very exciting and fun. Now to figure out what's next!

Will you be purchasing us 2 players a year or 3 players a year?

Was Vista one of the PE firms you spoke with? I know they are big in this space

Ha ha, no NIL money. We did endow our first scholarship this year.

We did not work with Vista, but we did talk to almost three dozen firms.

Congrats on the big win!

How did you mitigate your tax hit?

What is SaaS and what is PE?

cctexagMD said:

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What is SaaS and what is PE?

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software as a service
Private equity

What led you to forming the SAAS company? Was it a market opportunity you saw from a previous job? Something you had little knowledge in beforehand?

How much financial runway did you need from your personal finances to make the plunge to start the SAAS company?

Congrats by the way.

Round 2 for me:

• How long were you in discussions with the selected PE firm?
• Was it a broad search, or possibly more targeted from either side?
• Was the de-risking pro-rata, or did partners have varying degrees taken out? Really, I'm curious how the path of that conversation went and how the individuals and the group decided on their respective degrees of de-risking.
• Not so serious question... in your opinion, do any of the partners have any really cool plans for some of the freed up capital, time, and energy?

Long term cap gains was best bet. Not much else we could do from the high powered tax folks we talked to.

one MEEN Ag said:

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What led you to forming the SAAS company? Was it a market opportunity you saw from a previous job? Something you had little knowledge in beforehand?

How much financial runway did you need from your personal finances to make the plunge to start the SAAS company?

Congrats by the way.

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*Yes, saw a gap in our industry. Something people were doing manually and wasting a ton of time doing so. Market responded very quickly and it's only gotten faster as we took market share.

*Starting the company wasn't so expensive but not getting paid for a while was biggest cash flow issue. But clearly worth it in the end.

******

Casey TableTennis said:

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Round 2 for me:

• How long were you in discussions with the selected PE firm?
• Was it a broad search, or possibly more targeted from either side?
• Was the de-risking pro-rata, or did partners have varying degrees taken out? Really, I'm curious how the path of that conversation went and how the individuals and the group decided on their respective degrees of de-risking.
• Not so serious question... in your opinion, do any of the partners have any really cool plans for some of the freed up capital, time, and energy?

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*Total process from start to finish took about 3-4 months. We had over 30 bids, narrowed to a couple for final round, and then chose one. But once we chose a final partner after final bids were due we closed in less than 30 days which was crazy. But a ton of the due diligence was already done before we even chose the PE firm which helped.

*Pretty broad initially although we ended up with someone who knew a ton about our industry which was great.

*Def varying degrees. From very little to all. Some challenges around those discussions as it's hard for people not to take that personally and some sadness over a good thing coming to end and kind of never being quite the same, but in the end everyone had to do what their heart needed and what was best for their family.

*I'm biased, but yes. Lots of cool stuff should come out of this with not needing to work for money anymore. We're all in our young to mid-40's so lots of good life left to give.

That is awesome.

A quick warning you may want to share with the group... if it is on someone's heart to give associated with this income event, and they are flexible on timing, this may not be the year to do charitable giving. This seems to surprise a lot of people, but charitable gifts reduce AGI proportionately across the types of income. So, in a LTCG heavy year, the tax benefit of charitable deductions is very low. May make more sense to give in future years where there is a higher portion of income that is ordinary income treatment.

This won't work for everyone, as the scale of gifting could be a problem if gifting is large relative to future income. This is especially true given limitations on deductibility and with charitable gift carry-forwards expiring after 5 years.

Wouldn't it have made sense to do a CRUT if you were wanting to be charitable?

Curious about overall size/scale of company? What was breakdown of org structure?

What would you recommend to someone without programming/software dev skills who thinks they have identified an opportunity in the SaaS world?

I don't want to hijack the thread, so I'll limit myself to this reply.

CRUTs (nor CRATs) avoid the issue of deduction in current year offsetting primarily LTCG income. So, delaying a donation to next tax year whether outright, to a donor advised fund, CRT, etc... has the chance to improve the $ amount of the actual tax savings for the same $ amount of gift.

Personally, I like CRTs/DAFs a lot for appreciated securities. If there is still likelihood of continuing income, adding taxation from CRT annual distributions could be counter-productive. So, given already liquid (and LTCG treatment), easier to just give direct when desired and skip the headaches, IMO.

For those that might want a little more income in this next phase, don't mind the tax effect in subsequent years, the higher interest rate environment sure makes these a lot more attractive than they have been as a planning tool!

There is clearly room for more than one view on this topic. Just speaking from what I've seen work well.

After spotting the need, how did you assemble the right people to make your software /website a reality? I'm fascinated on startups, who brings what to the table as founders, and how you identify the right tech people to make the idea real …

bkag9824 said:

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Curious about overall size/scale of company? What was breakdown of org structure?

What would you recommend to someone without programming/software dev skills who thinks they have identified an opportunity in the SaaS world?

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*less than 50 employees and around 10 million in recurring revenue. Four executive roles, another 3 VP roles. Rest fall under support, dev, or sales/marketing.

*find a great person offshore and make their life incredible so they will help you do the same, or find someone in the US and be willing to pay them a lot from the start, or give someone some equity and let them win when you win. But you have to have someone good and fast because you will iterate 1000 times in the first year alone.

Quote:

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After spotting the need, how did you assemble the right people to make your software /website a reality? I'm fascinated on startups, who brings what to the table as founders, and how you identify the right tech people to make the idea real …

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*started with two founders then added two more executives with the right skills (one CTO and one Chief Revenue) and gave them equity to help it grow and grow fast. Then let each person start building out their own teams. We've had some misses along the way on lower level folks, but I think we've only lost a total of 4-5 employees the whole time. We're fortunate to have built a have fun, go fast, be kind, kick ass mentality that people have embraced.

Thanks for the AMA! Fantastic stuff and good luck in the future.
Got some basic ones for you:

Was this your first time in the startup world? If not, what key experiences did you use from the first time? If so, did you seek our mentors and how did that go?

How quickly did you get your first customers and how did selling the product go the first time you did it? At what point did you feel comfortable that it could "go live" for money?

I like your comment on the culture you built. Did everyone work remote or do you have offices? Any major keys to building that culture? Team building, simply paying well, dynamic leaders, etc?

Did every employee get a small part in the equity or only a few?

Thanks!

Would love to chat a bit about things some day. I work in SaaS and I know the only way to get out of needing a salary is to do what you have done. I'm in Dallas but go to most home games. If you're in either of those places I'd love to buy you lunch and pick your brain. Username @ yahoo

What was your biggest struggle:

1- as an executive?
2 - product wise?
3 - go-to-market wise?

File5 said:

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Thanks for the AMA! Fantastic stuff and good luck in the future.
Got some basic ones for you:

Was this your first time in the startup world? If not, what key experiences did you use from the first time? If so, did you seek our mentors and how did that go?

How quickly did you get your first customers and how did selling the product go the first time you did it? At what point did you feel comfortable that it could "go live" for money?

I like your comment on the culture you built. Did everyone work remote or do you have offices? Any major keys to building that culture? Team building, simply paying well, dynamic leaders, etc?

Did every employee get a small part in the equity or only a few?

Thanks!

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*Only one of the four executives/owners had been in a SaaS company at all, but the rest of us had all started various successful ventures, were entrepreneurs, and definitely had founders energy. That was critical to our success. We've had others in the industry that we leaned on for expertise and advice from time to time, but we didn't really have any key mentors per se. With the proliferation of information out there now (podcasts, articles, etc.) you can almost be "mentored" by anyone if you're willing to find their stuff and learn.

*first customers were initially friends in the industry who had the same problem we did. Then their friends, then we looked up and had 500 customers within about 6 months. Then we had to figure out a repeatable and replicable go to market motion that would help us sell to people who didn't already know and like and trust us. That meant a million experiments and a ton of pivots which I personally loved, but not everyone does.

*fully remote. I do think we pay well, we give people room to do their jobs (don't micromanage), and we have dynamic leadership that makes people feel a part of something bigger than themselves.

*no, everyone did not get equity. Only the key folks with a couple early people that were not execs getting a few shares.

500,000ags said:

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What was your biggest struggle:

1- as an executive?
2 - product wise?
3 - go-to-market wise?

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*For me it was learning an industry I hadn't been in before. The others had come from industry, and I had not. Then I had to build a team some of whom had industry experience and others who did not.

*How to build a product that is simple enough that anyone can use it but robust enough that the "serious" users like it. Related, how to listen deeply to our customers to build the product they need but not get bogged down into the minutiae of letting the tail wag the dog.

*after that first cohort of users we were selling a product to solve a problem many people had never tried to solve (because it felt overwhelming so they avoided it). So we had to first educate them on why they should solve the problem, and then educate them on why we were the solution they needed.

Thanks for doing this and this is totally awesome. Congrats and I hope to be in your shoes someday soon.


So at 15x of $10MM ARR -- that's $150MM?

Did y'all sell 100% of the company or just take some chips off the table?

If you're staying on, is there a plan/timeline for a second sale?

How much money did you personally take from the deal?

Assuming this is more money than what you've ever had before, do you have a team of people advising and helping you manage it? If so, who is on that team (banker, financial advisor, lawyer(s), accountant(s))?

bagger05 said:

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Thanks for doing this and this is totally awesome. Congrats and I hope to be in your shoes someday soon.


So at 15x of $10MM ARR -- that's $150MM?

Did y'all sell 100% of the company or just take some chips off the table?

If you're staying on, is there a plan/timeline for a second sale?

How much money did you personally take from the deal?

Assuming this is more money than what you've ever had before, do you have a team of people advising and helping you manage it? If so, who is on that team (banker, financial advisor, lawyer(s), accountant(s))?

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ha ha, I wondered how long it would take someone to do the math and then ask how much of that I actually made. I will admit I have used some round numbers in this thread just to try and maintain some anonymity because I know quite a few people here in real life, and money stuff just gets weird.

We did not sell 100%. A couple partners wanted to keep going with some de-risk, and others wanted to move on to other things. PE groups generally want to see a 3-5x return in less than 5 years so that is the timeline and goal.

I personally made about 6M from the deal which is more money than I've made the rest of my working life combined. No, seriously. Ha ha. Pretty wild.

My best friend is a comprehensive financial advisor so he's been very helpful. I also have an attorney and a CPA that I'm working closely with. The biggest thing for me with this money was to use it to create enough recurring revenue that I could make career/business decisions from here on out with no regards to money. I know I want to keep doing things and helping people and having fun, and I absolutely love that being compensated at market for those things is no longer my top concern if that makes sense.

"The biggest thing for me with this money was to use it to create enough recurring revenue that I could make career/business decisions from here on out with no regards to money. I know I want to keep doing things and helping people and having fun..."

This is awesome!! Congrats!!!

That's awesome, and this is a great thread.

Three followups:

1- For the product, what were the first hires y'all made? I ask because I'm always curious if you have a leadership with an engineering background, did y'all reach for a person with product experience or vice versa. Then what other help was needed to get to a beta.

2 - On the GTM, how much ARR do you estimate came from relationships before you needed to explore more traditional sales and marketing?

3 - Was there anything in y'all's cost structure that really surprised you at first?

Great thread. As a new startup in the Saas World is nice to see a win since there are so many that fail.

What problem did the company solve or if you can share, what is the company?

Congrats!

I invested in a SaaS company that a buddy started up about 6 years ago. They're up to $20MM in ARR and brought in PE about a year ago. They hit a 10x but still have some running room. He has moved on and started a VC fund focused on early days SaaS companies to help them go from $1 to $10mm ARR. know you started this thread on anonymity but if you have any interest networking with him I'd be happy to help make an introduction. Congrats on the success! Been great to read all your responses.

I just started a boutique due diligence and M&A advisory firm based in Fort Worth. Would love to pick your brain on the process, what you learned, who you worked with, etc.

Another story that gives me hope.

Took the initial investment off the table and letting the dice roll. Hope I'm not kicking myself in 3-5 years.

500,000ags said:

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That's awesome, and this is a great thread.

Three followups:

1- For the product, what were the first hires y'all made? I ask because I'm always curious if you have a leadership with an engineering background, did y'all reach for a person with product experience or vice versa. Then what other help was needed to get to a beta.

2 - On the GTM, how much ARR do you estimate came from relationships before you needed to explore more traditional sales and marketing?

3 - Was there anything in y'all's cost structure that really surprised you at first?

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1. We did have a co-founder with an engineering background and the first hire we made was a developer who specialized in the kind of technology we were building.

2. I would estimate 500k at the most. But what we did get was immediately valuable feedback and market validation. Those both helped immensely.

3. Can you ask this another way? I'm not sure I totally understand.