XO Capital's Fund Stuff

"The Real Art of Negotiating Micro SaaS Acquisitions"

In this episode, Andrew Pierno from XO Capital offers an insider’s look at how to navigate the complex waters of acquiring a micro SaaS business. Drawing from his extensive experience, Andrew stresses the importance of simplicity and clarity in negotiations. Here are some key takeaways:

1️⃣ Price & Payback: Stick to your guns on the price and aim for a 2-year payback period. A firm price sets the stage for straightforward negotiations.

2️⃣ Deal Speed: If negotiations are dragging, take it as a red flag. Over-complication is not only a hassle but can be indicative of an uncooperative seller.

3️⃣ Initial Offers: Feel free to low-ball at first, especially for first-time sellers who may have inflated expectations.

4️⃣ Diligence: Always aim to agree on a price before due diligence. The aim is not to drive the price down during this phase but to confirm that the initial assessment was correct.

5️⃣ Two-Track Offers: Usually present two types of offers—one with a lower overall price but more cash upfront, and another with more seller financing but a higher overall price.

6️⃣ Turnouts over Earnouts: For businesses with less than 10k MRR and high churn, Andrew introduces the concept of a "turnout" — a reverse earnout that's paid if the MRR remains stable post-acquisition.

7️⃣ Reputation Matters: If you’ve done deals before, flaunt it. The reassurance can expedite the process.

8️⃣ Human Element: Being firm doesn’t mean being an ass. Reputation is everything.

9️⃣ Avoid Bidding Frenzies: Don't let emotions get the better of you. Remember, the price will determine the success of your acquisition.

Middle Finger Response: Expect initial resistance, but don’t be disheartened. Many sellers come back to reality and are open to negotiating after some time.

Whether you're a first-timer in the micro private equity space or a seasoned buyer, this episode is packed with actionable insights. Happy hunting!

Follow us for more episodes of 'Fund Stuff', the podcast that delves deep into the nitty-gritty of buying and scaling SaaS businesses.

Andrew dives deep into the concept of 'corporate versioning,' asking why companies don't iterate on themselves like they do their products. He also shares some cautionary tales from recent acquisitions that defy conventional business wisdom. Want to know what happened when they removed a mandatory credit card requirement for a free trial? Spoiler alert: it wasn't pretty.

Andrew also touches on his company's growth, internal changes, and the importance of staying profitable. With key insights into developing a company playbook, implementing culture, and raising over $500,000 through a flip fund, this episode is a treasure trove for anyone looking to understand the intricacies of modern-day entrepreneurship.

Listen in as Andrew unravels the complexities of the startup world and reflects on the importance of excellence, accountability, and the "year of efficiency."

️ Welcome to the XO Capital Podcast!
In today's episode, our host Andrew takes you on a deep dive into the fascinating world of Acquisition Entrepreneurship. If you've been hitting roadblocks in building a SaaS business from the ground up, this episode could be the game-changer you've been waiting for.

What You'll Discover:

Key Insights:
1️⃣ Acquiring an existing business can significantly reduce your investment risk and fast-track your path to profitability.
2️⃣ For software developers, the real hurdle isn't in building a product; it's in identifying a product that the market genuinely needs.
3️⃣ Our portfolio's realized gains have essentially paid for all our other acquisitions, allowing us to operate with "house money."
4️⃣ Acquisition Entrepreneurship offers a compelling alternative to the traditional route of starting a business from scratch.

Recommended Reading:
Don't miss out on the book "Buy Then Build" by Walker Deibel for an in-depth look at the ins and outs of Acquisition Entrepreneurship.

Metrics Explored:

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In this podcast episode, Andrew from XO Capital delves into the concept of identifying an ideal acquisition profile, which he fondly terms as the "buy box." He emphasizes the importance of parameters in seeking potential deals and highlights the criteria that define XO Capital's current buy box. Drawing on personal experiences, Andrew shares insights into the journey of acquisitions, ranging from small-scale investments to high six-figure ones, emphasizing the risks and returns associated with them.

One of the key takeaways from the episode is the significance of matching skills with potential businesses. Andrew mentions that while a business might seem lucrative, it might not align with the skills of your team, leading to operational inefficiencies. This is particularly true for vertical enterprise SaaS companies, where diving into a new industry can be daunting. Moreover, from an engineering perspective, he underlines the importance of a business's tech stack and how it aligns with the acquirer's existing technology.

Andrew also emphasizes the often overlooked aspect of liking the market and customers of the business you're operating in. Enjoying the people you work with and for can greatly impact longevity and prevent burnout.

Lastly, Andrew provides listeners with a comprehensive worksheet designed to help potential acquirers identify their own "buy box," touching upon various facets like price considerations, risk tolerance, operational costs, skills, technology, market, and customer matches.

Andrew encourages listeners to share the episode, promising more enlightening discussions in the future.

In this episode, Andrew from XO Capital gives listeners an insider's view of their acquisition process, focusing on their recent purchase of Growth Bar. Growth Bar combines keyword research with AI-driven content creation, offering a unified tool for SEO professionals.

Key takeaways:

In this candid discussion, Andrew emphasizes the importance of price in reducing investment risk and shares the thrill and challenges of venturing into relatively uncharted waters with advanced tools like Growth Bar.

Topic: Rethinking Product Analytics for SAAS and Understanding Customer Needs

Andrew from XO Capital announced the launch of their first Flip Fund, aiming to raise between $500,000 and $1 million. This fund plans to purchase a single software company, double its revenue, and resell it within 12 to 24 months. The fund, regulated under Reg D, allows for public solicitation of investment from accredited investors and is being managed through a company called Capitalized. The investors will directly be part of the same LLC as the fund's managers.

In addition to the Flip Fund, Andrew is running two experiments. First, he has created a Discord channel where people can discuss various topics related to acquisitions, with plans to eventually introduce a paywall. The channel was inspired by the work of Cody Sanchez from Contrarian Capital. Second, he's piloting an initiative he calls "Andrew as a Service," where he provides consultation services for a monthly fee, the proceeds from which he plans to use to fund his upcoming MBA at UCLA.

Andrew also shared an update on Growth Bar, a major part of their portfolio. They removed the credit card sign-up requirement and are currently monitoring the impact of this change on their revenues.

Finally, he introduced a personal AI coach that he created, which prompts users to set daily goals and reflect on their achievements. The service uses OpenAI's ChatGPT and is free for now.

In conclusion, Andrew's current focus will be on the Flip Fund and ensuring its success, as future iterations of the fund depend on the outcomes of this initial venture.

In episode 22 of "Fund Stuff", Andrew Pierno from XO Capital opens up about the latest developments in their project, the "Flip Fund", hinting at potential fundraising in the near future. He also discusses an innovative marketplace experiment with content writers aimed at bolstering revenue. Despite facing setbacks with their product "Support Guy" which failed to attract new customers, Pierno shares his newfound perspective on progress from a book titled "10 X is easier than two X". This concept prompted him to create a Slack bot using OpenAI to log daily victories, reinforcing the idea of measuring growth against past achievements rather than an ideal future.

Join us for an insightful journey into the world of short-term investment funds, where we focus on the innovative concept of a 'flip fund.' Dive deep with our host, a seasoned fund manager operating out of Texas, as he breaks down how the fund is structured and how members earn membership units proportional to their investment.

As the conversation progresses, we delve into various exciting and complex scenarios such as what happens when a sale doesn't occur within the set 12 to 24-month period, strategies when the fund is performing exceptionally well, and situations where a sale occurs earlier than planned.

You will also learn about how the fund manages early exits for members, how it handles excess cash flow, and the intricacies of billing hours. An integral part of this discussion explores transparency within the fund, as our host discusses the provision for read-only access to the bank account for investors.

Discover how this unique flip fund model allocates resources for small acquisitions, the role of contractors, and how the fund prioritizes different portfolio companies. There's also a focus on customer support and product development, where you will hear real-life examples of past acquisitions and their growth strategies.

Tune in for an enlightening session that will give you a fresh perspective on short-term investments, the commitment it requires, and why it may or may not be the right thing for you. Whether you're an experienced investor or a newcomer to the field, this podcast is packed with valuable information and practical advice that will help you understand the dynamics of a rapidly evolving investment landscape.