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Big news, GatherUp was acquired in November 2019. The first episode of a 3 part series on the sale of GatherUp, Darren interviews Aaron on "The Why" GatherUp sold, what the founders wanted, tips to prepare for an acquisition and more.
Show Notes
Helpful links from the episode:
- Official Press Release from Alpine Software Group (ASG)
- Acquisition announcement and interview on Search Engine Land
- Alpine Software Group
FULL SHOW NOTES
[ INTRO music]
00:09 Aaron Weiche: Episode 16: Selling GatherUp - Part 1, The Why.
00:16 INTRO: Welcome to the SaaS Venture podcast, sharing the adventure of leading and growing a bootstrap SaaS company. Hear the experiences, challenges, wins, and losses shared in each episode. From Aaron Weiche of GatherUp and Darren Shaw of Whitespark. Let's go.
00:41 AW: Welcome to the SaaS Venture, I'm Aaron.
00:44 Darren Shaw: And I'm Darren.
00:45 AW: And we are back in the year of 2020 after finishing off 2019 and catching a little bit of downtime. I know I probably got even more than I normally would with Christmas on a Wednesday, New Year's Day on a Wednesday. It was a nice slow two weeks for me. How about you, Darren?
01:06 DS: Super slow. I touched in a little bit here and there, but I mostly took like a full solid two weeks off over Christmas up until January 2nd, so that was nice. Good little break, spent some time with family, get my mind off work for a while.
01:19 AW: It's one of those great... Like you can count on being able to recharge at the end of the year, because everyone wants to do the same thing.
01:27 DS: Yeah.
[chuckle]
01:28 AW: So, email is quiet, phone is quiet, text is quiet.
01:32 DS: Wonderful.
01:33 AW: I still look forward to it in the last couple of days where it's just like you gotta start getting your mind back in the game and ready to roll, and launch the new year off to a fast start.
01:42 DS: Yeah, it took me about a week to ramp up, too. I felt like my first week back, I was a bit sluggish, not firing on all cylinders, but I don't know, back in it now, got lots to do, I'm trying to time block and plan my week, and plan my day, and really get as much done as possible. So, I'm feeling productive now.
02:00 AW: You're ready to be the most efficient you for 2020.
02:02 DS: Exactly.
02:02 AW: Alright, so as we had teased at in our last episode to close out the year, the big news on my side of things is we announced, I think the public announcement was November 14th from our press release, but as of November 1st, 2019 GatherUp was acquired.
02:22 DS: It's huge.
02:23 AW: Yeah, big news. The finish line you're gunning for, and, yeah, a million different thoughts. And as you and I talked about how best to talk about this, and share things, and just try to put as much out there, I really felt like at least two, and I think we've arrived at now, we're probably gonna do three episodes on this, because there is so much ground to cover.
02:49 DS: For sure.
02:50 AW: So, and looking at this today, we wanna focus on kind of the why, and almost some of this is pre-sale, and then early once you get an offer, and things like that. And the second episode, we will look at what are all those pieces of that 90-day or 120-day window, whatever the deal timeline looks like, and how all that works out and what to expect, at least what I saw in our scenario and things like that. And then doing the third part on post-transaction, 'cause when everything closes, and especially in our case where I stayed on as CEO, one of our other founders, Mike Blumenthal stayed on, and then basically our entire staff stayed on. You just have a ton of logistics work around press releases and customer communication, and internal things, and employees, and so many other things that that post-sale transition, if you are staying on with whose ever purchased you, boys, it's its own episode. There is a laundry list of things. So...
03:57 DS: Yeah, I'm really interested in that process, like all the different moving parts, and how you have to answer to different people now, and how do your meetings go, and how often do you talk to them, and what kind of say do they have. So I'm looking forward to discussing that in part three.
04:09 AW: So before we get all the way to that, we have to get a part one done first. And maybe one of the first things that I can probably offer up that a lot of people have asked me is just like, "Were you guys always looking to sell?" And the answer from that is, yes, that was always part of starting a SaaS company, we were both doing something that we loved, but we also wanted to get it to a certain point and really looked at a sale, at a successful acquisition as being what we wanted to achieve. A time where we could take money off the table and also look at the company having its next phase with some different parameters on it.
So, that's one thing I've been asked in general a lot and the answer is absolutely. It wasn't like, "Oh, yeah, we didn't know this was possible," or, "never thought about it." Like we definitely had talks over the years on: Are we tracking the right way? Are we valuable? Who might buy us? All of those kind of things with it.
05:15 DS: Yeah, that's interesting, 'cause like, I mean, my company was never sort of... That wasn't a thought when I started my company, it's kind of just evolved into a company that is a potential acquisition target for some of these companies. And so, I'm looking at it now more thinking about that as a potential exit and thinking about all the things I would need to have in place for that if I did decide to sell, but it's not necessarily the end goal for me. Like I will continue to grow the company, but let's say the company is doing $50 million a year in revenue, and I'm happy, and things are going well, and I have good leadership that's running things, it's like, "Well, maybe I don't sell," right? So, it's one of the things that I kind of bat back and forth, I keep looking at it from multiple perspectives, and I guess we'll see as we grow.
06:00 AW: We had a plan B, like that that we brought to the table that we're like, "Listen, if we reach this level of revenue and this level of profit margin, then maybe our best move at that stage is profit-sharing and spreading that success around, and using that to build a very sustainable long term." So it wasn't always, it wasn't sell or bust, but that definitely was the leading one, especially from the early days, that was the big motivator, the carrot that was out there for us.
06:00 DS: Yeah. Like how often were people approaching you and saying, "Hey, would you like... We're interested in your company, can we have some talks about potential acquisition?" Was this happening on like a monthly basis for you, once a quarter kind of thing, every week? I don't know.
06:00 AW: Somewhere probably between weekly and monthly. And it's one of those where it just kinda maybe about two years ago now is where it first started to pop up. I think we had reached some amount of maturity. We were there for a couple of years. Some of the work we're doing was a little bit more visible. And keep in mind, it was... You start getting this interaction from a few different things. Some might be potential acquirers. Some are investors with different capital type programs from venture capital and things like that, but the way I look at it is, it's outside parties being interested in taking part in your growth, whether they end up owning all of your growth or they wanna give you some money and get a percentage to help fuel it or provide some services, whatever that might be. But it definitely, a couple of years ago, it definitely escalated.
07:45 DS: Sure, and did you have a process in place where... How to handle these leads coming in, did you have a spec sheet that you would just give them and be like, "Alright, here's some details." 'Cause I've found... I gotten into the conversation a couple of times, they could be a real time suck. And so, did you make... Did you have a specific point around how you would handle these so that they didn't end up taking so much time? 'Cause you can go down a rabbit hole with them and then it doesn't turn into anything.
08:10 AW: Yeah, we really didn't have a hard and fast rule on it. And for a while, it was Don Campbell and Mike Blumenthal, two of the three original founders. They handled the majority of those calls. I can't speak to how that looked for them or what that was like. As I transitioned in and started being more at the forefront of some of those, and then somewhat all through me. A lot of times I was really looking at, who is it that's making the reach out? It's usually not too hard to figure out, "Is this their business development rep? Is this someone low-ranking a very form-templated email, look into their company, what else is in their portfolio? How much can you learn about them online?" things like that, because you definitely can't take every call or meeting that's out there. I think you'd be so distracted that it just wouldn't be healthy.
But I do think it's really important to build some framework, make some determinations, and take some of them. Because there's so many aspects to those conversations and you learn a lot by what do they ask you? What are they looking for? If it's somebody that's done these acquisitions, what's important to them? Why are they interested in you? Just kind of all of those pieces. So I just really consider it to be good practice. And to your question, you need to be smart about it, but just like anything, if you're gonna be decent at it, you definitely should take as many practice shots.
09:38 DS: Did you consider taking funding at all? Any leads that came in, you'd be like, they are trying to offer you some kind of funding. Did you ever consider that or you mostly just shot those conversations down?
09:47 AW: Yeah, as a team, as a cohesive unit, the four of us that were the main shareholders, the answer to that was no. I think at different times there definitely was a person who... Or two, within the four of us that would say, "We should consider this" and things like that, and then we would just end up in conversations of like, "Okay, if we did, what would we do with that?" Right? Like, what's our plan, that money is the obstacle right now, that's holding us back.
And I never felt, just because at the stage of the company, we were still really honing in on our fit and our value and our messaging and so many other things, I never once felt confident that like, "Oh, money is the problem right now. And if we just had more of that, we could take this... We could take a million-dollar investment and turn it into $5 million of run rate in two years." So, from that side, yes, the conversation popped up, but it really didn't go anywhere fast.
10:44 DS: Yeah, I always feel the same way. It's like, extra money would allow me to hire a few more developers and maybe develop a bit faster, but it's not worth trading any equity for, that's generally how I end up, every time I think about it and consider it, I'm like, "Yeah no, I don't need to."
11:00 AW: Yeah, it's important to understand the math on all that for you, too. It's like "Okay, for where we are and we're this, and if we got an offer and it's this multiple and it looks like this, here's what we would get out of it, and if we took funding and here's how the cap table changed and our ownership, well now to get that same number, we would need this. What's the likelihood and what's the time to get us there, and what actually does that give us?" So, there's a lot of different things but I can say even for myself, it was just operating from a position of debt where you were gonna take money and have a burn rate, that your sales weren't gonna match. And yeah, I get that's the way of the software world, and everything else, but it just wasn't a scenario I was most comfortable in, I'm more interested in bootstrapping and self-funding.
11:48 DS: I was wondering like... Okay, so you had all these different suitors coming in, different people and so, how did you arrive at deciding that the company that ended up acquiring GatherUp, that this is the one you wanted to work with?
12:02 AW: Yeah, so early on, it was probably about two years ago, when we got our first bonafide offer, where actually written down, "Here's an offer, here's what we're thinking" and that first offer had three different components to it. Part of the offer was cash, part of the offer was seller financing. So we'd be paid once we went into that company and then that company was acquired and then another portion was stock within that company. So as it grew and then as it achieved an exit, then we'd be paid off. And while that offer wasn't the best obviously, we didn't go with that offer. What it did make us do is kinda put some exercises in place to start talking about what does an offer look like, that we would say yes to?
12:52 AW: So, when we received that offer, we took it very seriously, we had conversations and then what I did is just built a spreadsheet kinda pertaining to these three columns, but really more important, I looked at it like, "Alright, what do each of our four main shareholders, what do we want right now in cash and what do we wanna basically get chips to bet on the future of the next company? And so within that, each person got to kind of fill out what that looked like for them, and it really... It allowed us to have a very good numerical conversation and in that case, the easy takeaway was from what that offer was, we needed...
13:34 AW: And an offer twice as high, like, otherwise how it factored out, we weren't gonna be able to say yes to it. And then, it also started outlining what was worth more to people based on their engagement, their career arc, things like that. Did they want more right now, or did they wanna be able to have chips to bet on something else on a future endeavor with the company that would acquire us?
13:58 DS: I think that's really smart. Did you find a framework or read some blog posts on people, other founders that had kind of done a similar process? Or did you just kind of come up with that on your own? Or were you like, "We're gonna sell. These are the factors that we need to think about," and you just sort of put it together?
14:14 AW: I don't think it was a truly unique idea. I think, I had probably came across it because once that happens, yeah, you go into Google search overdrive on acquisitions, and you're trying to... Even though I was already listening to podcasts about it and things like that, I tried to find like every last piece. And so, I don't... I can't state directly, like, "Here's where I found it or whatever else," but it definitely wasn't an original idea.
But however I took it in, it easily made me realize like, "We each need to understand each other's expectations. And then we need to see cumulatively, how do those add up to something that we would all say yes to or have a no-brainer." And it really was, it was a great exercise just to be able to see everybody's exact thoughts numerically, which is so important in an offer like that.
15:06 DS: It is kind of amazing. I don't know how many times I've heard about companies totally falling apart because founders, partners, they have a falling out. They stopped stop getting along, they have different visions, but GatherUp has always felt from the outside looking in, so solid. The four of you guys have always been so... You just worked so well together, it always seemed to me. And these kinds of exercises, when I hear about them, you're like, "Okay, let's get everyone's thoughts on this. And let's collaborate on it." It just feels like you have a really great thing there.
15:38 AW: I think we were always have been pretty solid at communication. I mean, in all honesty, we definitely had things like any family would, you have things to get sorted out and squabbles or irritants, and things like that. And we even had some transitions, right? Because we did have... Don as a main founder kind of rolled off when I took over as CEO. And I think, his desire to be in the day-to-day and exactly what his role looked like had kind of changed in his mind and needed something different. And so, we definitely had those ebbs and flows. But yeah, absolutely we all valued communication, and all very respectful of each other with how they viewed it or where they were looking at it. And at the end of the day, even if you didn't agree, you would be like, "All right, well, I know how they feel or I know how they look at it. So we're gonna keep that in mind or respect that it's just different than ourselves, but keep plugging ahead on what our mission is."
16:34 DS: Yeah, well, so, what's the name of the company that bought you again?
16:40 AW: Alpine Software Group. So it's kind of a... Yeah, so it's kind of a few levels down. It's a private equity firm. At the top is Alpine investors. Then they have an arm that's called Alpine Software Group that has purchased over 20 software companies in the last handful of years. And then, inside of that, we're now nested in a group called ASG MarTech, so they own seven other marketing technologies. They've acquired a number within the reputation space, they own one of our competitors, as well, Grade.us, and that really, that gave us a lot of comfort when we got into that. And I guess, one thing before we get too far forward, I wanna point out, obviously two years ago, those offers that we got that offer, we drummed up another one at the time, which was even like less and a total waste of time from what it was, the way they structured it.
17:37 AW: And it made it really easy for us to say no to those offers, even though the one, the one definitely was intriguing even though the numbers didn't work, there were future possibilities with it, they were very intriguing. So it was a very polite, like, "Let's stay in touch. Do whatever else. That's just not the right fit. We're gonna keep going on on where we're at." But in saying no to that, and putting our heads back down, it definitely made us think past even where we figured out some of the numerical things. It really allowed us to have a lot of conversations too on what we were looking for in an acquirer. So when we got, when these conversations started happening with Alpine Software Group, we really kind of already had defined what are the important core factors to us that these are the high level checkmarks that have to be checked off for us to wanna do a deal.
18:31 DS: Right. Yeah, that's smart. I know I'll have to think about that when it, if it ever gets that way to me, or for me and my company. Like, "What are the things that I'm really looking for in whoever is gonna acquire Whitespark?"
18:42 AW: Yeah, 'cause it's far more like it... Yes, obviously to get an exit and to take money off the table, that is absolutely something that you want. But that's the money's not all of it. It's not everything.
18:54 DS: Totally, yeah. I'm very interested in, what will my life look like in one, two, five years after selling? Because I'm really happy with my life now, right? So will that make my life better? Or will it make my life worse? And what about the lives of my employees? Right? So those are the things that I'm really focused on when it comes to thinking about what it would take for me to sell.
19:16 AW: Yeah. And when we arrived at kind of three main pillars. One is someone that would help us grow faster than what we've been growing on our own. And we've had great steady growth year over year. It's what made us attractive for an acquisition and everything else. But we would have to look at them and feel like, "Yeah, that here's why we feel they would based on process, knowledge, experience, the combination of those things and everything else. So that was one. The second was just as you alluded to, is like, "Who is gonna give our team a future?" Right? Both individually and as a whole. Because we are all, we're very lockstep in, right?
20:00 AW: When you build a bootstrap business, and especially your early employees, there's so much hustle that goes into things and you're just scrapping away all the time and you get a very tight unit, you're very dependent on each other, you've shared a lot of ups and downs, all of those things, like you care about them deeply and to be able to be like, "Oh sweet, we'll get this win. And there's four of us, or six of us that are celebrating...
20:20 DS: Yeah, it's all right.
20:21 AW: While there's another 10, 15 or 20 that are now in a really tough spot, that wouldn't have been a win, that wouldn't have sat well with us personally.
20:31 DS: Everybody needs to celebrate.
20:33 AW: Yup. And then, the last piece is finding a partner that was still going to champion and go along with what our vision is. We felt really strong about that and both Mike Blumenthal and I knew we were likely gonna stay on board and continue on, so we wanted to be able to... Because we love the product, we love what we're doing, we love working together, and so we wanted the opportunity to be able to continue that and not have that come to a halt, that this transitions and now they're like, "Nope, we're gonna do something different," whether it's branding name, focus, folding it into something else, or all of those pieces, we wanted to protect that and make sure that the product had a future and the vision had a future as well, so those were like our main three things. And obviously to do this, our acquire, all of these boxes were checked off course.
21:23 DS: Did you have... Did you have like a three times, eight times the valuation evaluation number, or you just you had to know that the number was worth it?
21:31 AW: Yeah, it wasn't... It wasn't so much the multiplier, but from going back through that exercise, we definitely had... We definitely knew a number that then it was it's just like, "Okay, if it's structured this way and it hits this number, it'll definitely be in play." And even with Alpine software group, we had had a number, I think we had had three or four conversations over maybe a year's time, where they would just check in with us see how we're doing and we would talk and see how they were are seeing the market and things like that. And it was after the third or fourth call as that came to an end, where they just said, "Okay, We're serious, we would like to make a move with you and here's the things we would need to be able to turn around and make a pretty quick verbal offer to see if this is a conversation worth taking somewhere."
22:22 DS: Yeah, and was it... Did it feel low-balled or was there a bit of back and forth negotiation?
22:25 AW: Yeah, it definitely wasn't low-balled. They made an offer that absolutely grabbed our attention. Our final ended up a little bit higher than where that initial conversation was just from when we went, looked and felt about the value and our future and where we are were positioned in our market and things like that, but it was... They were extremely, extremely fair negotiators. You hear... You definitely prepare yourself for a lot of things in this because you hear negotiation nightmares and clawbacks and how things are treated and what the deal deals is anchored on. And I really felt like these they represented themselves as caring about the founders and really just being focused on the deal and the outcome being successful. And I can say, hands-down, Alpine ASG did just a great job of that. I never felt like, "Oh, they're sticking it to us, or they're digging their heels in or whatever else." It was very solid from that standpoint.
23:26 DS: You have had mentioned something that's interesting to me. You said it was a series of conversations over a period of a year, and I'm curious to hear your tips. How do you manage those from the initial conversation? If you are a company that wants to sell, how do you handle each one of those conversations? What are some things like, to not do, you don't wanna turn them off? How do you keep them interested enough, even if it's not the time to sell?
23:52 AW: Yeah, for me it was, it was just being genuine to what we were doing. I was insanely confident in what we were doing and where we are were going and pumped about it. It was like, "I'm living and breathing the brand and evangelizing it, and I feel like we have all these things going for us," so when we'd have these conversations, those are the things that I'm pointing out. And I think in a roundabout way, I really wasn't trying to position it, but I would think that the confidence, the things we were harping having, some of the areas that we were telling them the ballparks were in numerically and things like that, that's what they... That's what made them more Interested. It's like dating someone, developing a relationship, anything else, the more you hear the kind of things that you're attracted to or intrigue you and you have that, the better off it can be. So, yeah, to me, it was like just being genuine, and I wasn't trying to have the conversation to sell the business either. I was having the conversation like, "Oh, you're interested in how we run and what our future looks like, and what we're excited about? Sweet, yeah, let's spend 20-30 minutes and talk about that. I'm totally happy to share that," without, "I need there to be an outcome of this conversation." Like, "You're gonna make me an offer or you're gonna buy us or any of those kind of things."
25:09 DS: Did you ever feel guarded with information sharing, knowing specifically that they already own a competitor? Wasn't that like numbers and processes and all the that stuff?
25:19 AW: Yes, yes.
25:20 DS: 'Cause this is what they wanna know. "We're not gonna be interested in buying your businesses unless we know what your growth rate is, your numbers are," so did you not feel nervous about sharing that?
25:27 AW: Yes. So I guess, it kind of went... I don't believe in the Colonel Sanders recipe that you need it guarded and in the vault, and only one person knows how to make it that way. I believe in like, "You do you. Be confident in the path that you're going." GatherUp has a ton of competitors. Some of those competitors have taken funding that was nearly 10X our revenue and that was their funding for them to start off with.
25:55 DS: Yeah exactly.
25:56 AW: So when you have those things, I felt more like be proud of what we've built. Embrace it. Don't try to be something you're not, because eventually, when you get, when you get to an offer anyway, you're gonna need to hand over P&Ls, and whatever else. They're gonna see your numbers really exactly and they're gonna see what's beautiful about you, and they're gonna see your warts or scars or any of those other things in your financial trends. But the one thing that was a little tricky trickier about it was the fact that they already owned a competitor of ours, so that did make me a little bit more guarded in some ways.
26:32 AW: But it also, what the other... It made it easier because we were able to dig in and see like, "All right, well, let's talk to a how that since you own them. What has growth been like? How has this gone? Those kind of things. And what they were able to do with our competitor gave us a lot of confidence. Like, "Wow, they know our business really well, they understand what our value is, they've had great success with how they've grown that. So, that feels like a really good fit." That checked off our first pillar of, will we grow faster with these guys than on our own?
27:01 DS: I was just wondering what the typical advice is. Do you share your numbers on the first call or do you wait for date number three?
27:11 AW: Yeah, and I don't know if I have an... I mean, I don't know if I would right away, but man, it just... I was going off gut with so many of these, but I definitely... I'm not one of those that is worried that, "Boy, if they know this about us," Like, "Now we're just gonna be in a horrible spot if they know our revenue or our churn or any of these things." Like, "Now our success is gonna go away," because I've never felt like any of our success has anything to do with who our competitors are, anyway. We're trying to do what we do best.
27:42 DS: Yep. That's a good way of looking at it.
27:44 AW: So, I... Yeah. I can definitely see why you can feel that way. But at some point, if somebody's serious you gotta have some substance to the conversation and it has to involve numbers, so I would be prepared for that. And if anything, you should know those numbers, right? If they ask you things like that, you should... There's a set of numbers you should absolutely know and be able to put in front of them or ballpark or say, "Yep, we're above this." So, you don't have to give the exacts exact to the dollar amount but you can easily say, like, "Hey, here's where we are right now. We're in this range."
28:16 DS: Sure. "This is our revenue, this is our rough profitability, this is our churn." Yeah.
28:20 AW: Yeah.
28:21 DS: Yeah, all right, cool. What else?
28:25 AW: Boy, there's so much...
28:27 DS: I know.
28:27 AW: That you have to take in. On the prep side, some of the things that make your life a lot easier is just, and you kind of weigh this out, 'cause you don't wanna do too many things only for the purpose of possibly selling, but you do have to look at and say, "Do we have the right processes? Do we have the right accounting practices? Is our tech squared away, legal documents, right?" All of these different things that when you are, if you get an offer, if you get a letter of intent, and then you kinda go into this discovery, negotiation phase to get to a purchase agreement, you wanna have your house in order. And the good news is we were kind of already on that path. I would say the timing of our offer, we were committed to being heads down for at least another year or two. We still had another financial goal line that we wanted to cross and then we said, "All right, when we get to this number, then we'll be a little bit more periscope up and we might even be seeking or trying to drum up offers or interest instead of them coming inbound."
29:34 AW: So, when they kinda jumped into this, it did throw us off guard a little bit, but it was like, "All right, this is a real conversation, we've had a bunch of talks, and if we hand over these things, they're gonna give us a verbal offer that's a real number within days." So, it jump-started some of the things where we would have had to have even more things buttoned up, but to cut, and this is something that we can talk about in the next one, I feel like our company ended up being very polished, very buttoned up, the evaluation... There is was no surprises, really, within our process. We had a little bit of a document on the legal company formation side, a little blip, but our tech scans were they... We were told that was some of the cleanest that they've run across in their 20 acquisitions. We have a lot of very mature processes. We were a very well-oiled machine that had done a lot of things right early, because we are were wired to care about quality and process and we are were building for a longer haul. So, we had instituted those things more for the success of the company, less for being acquired. But man, did those come in handy when you really get into the fire of the middle ground of sorting out the position the company is in financially.
30:52 DS: Yeah, did you have to hand all those things over in advance of the offer? Like, "Here's our full tech stack, here's our processes, here's all our accounting, here's our legal documents." Did you have to hand that over before you got the offer? 'Cause that feels, particularly, if you're giving that information to someone that owns your competitor.
31:12 AW: Yep. Yeah, not in full, but I mean, we did have three or four things we needed to hand over, and one was our last year-and-a-half of our P&L. So, that's definitely very telling to see what your top line and the margin you're pulling down and everything else, but you get it, especially when you're talking about the kind of dollars that you're talking about. No one is going to make an offer without seeing something, right? It can't be totally based on vapor. Now, that said, not a lot as far as a few just real broad questions on tech stack, but nothing really digging into things like that. So, it really was just like three or four documents, items, and two or three of them really had to just deal with our P&L, our numbers a couple of different ways, things that we were are able to easily pull together in like a day, a day-and-a-half, and lob over to get the process started.
32:10 DS: And then after that, was it, "Okay, cool, here's an offer pending an evaluation of your tech stack?" Was there anything pending in the offer?
32:17 AW: What basically takes place after you have a verbal... Then we went and met in person, shared a little bit more, they had questions, and they were very much like, "Share as much or as little as you want, but the more you share, the more concrete this is going to be." And we were very, very open within all of it that. I mean, transparency is kind of key to how we operate. So, that meeting wasn't very hard for us and after that, it is was then getting to the first formal piece and that's a letter of intent. So, the LOI is more of a smaller, kind of a precedes the purchase agreement and gives a high-level framework on dollar mount, or how it's arrived at, or what the multiple is, what are the inclusions, the process it's gonna go through, the timing, all of those pieces. And once you kinda get that squared away, that's kind of like the high-level rules of engagement that any big pieces you kinda want highlighted there. Then, once you sign that, then that's when you go into like, "Okay, now we're gonna embed this so we can do tech scans on your software, we wanna interview some of your customers...
33:24 AW: We wanna see the financials 12 different ways. We want every piece of legal documentation. So you basically create this data room and you are sending, dozens if not hundreds of documents, anything legal you've ever done, NDAs, employee agreements, all those things, are all going into specific folders located in there for their team, and their lawyers and attorneys to be going through and doing checklists and see, "Are there any flags? Does this check-out? What's the impact? All of that."
33:53 DS: Wow. What is the a tech scan? What do they do on your software? I'm curious about this, like, I wonder if my software would hold up to this tech scan.
34:00 AW: Yeah, so a lot of it has to do with just looking at like, "Is this originally created code? Is this a lot of, piecemeal of other like open source solutions? Are you operating a number of things that you do or don't have licenses for or that you need licenses for?" So just yeah, a number of things with that where they are really trying to assess like, "Are there... What vulnerabilities do we have?" Not so much like a stress testing, or things like that, but just like, "What are the surprises? Has the team actually created this? Or is it a version of something that... Maybe they don't own certain pieces of it? And there is...
34:42 DS: Yep. That make sense.
34:43 AW: Yep, there's gonna be a cost to that and those kind of things. So it definitely...
34:45 DS: Yeah, I get that.
34:47 AW: Yeah, it definitely felt intimidating, but then, when you kind of hear how well you did after it, then you're both prideful and like, "Okay, yeah, that that wasn't as bad as we thought it was gonna be," but you definitely see the reasons why for it.
35:00 DS: Yep. So they just had sent developers into your repository, and then did they dig through the code inside?
35:04 AW: No, so very much automated, so it's embedding things right into your production environment that start going through and doing scans. They've built proprietary software, they hire an outside vendor to do this audit.
35:18 DS: Interesting.
35:19 AW: So you put all that stuff in yep, and it goes through everything and then they come back and, just like a security scan. It's like, "All right, here's... We had no high-level items that were offended any of the things. There here was is a couple of mediums. Here there is was a couple smalls, really and... " With some of them, it's just like, "Okay, we found these things. Do you actually have licenses for these?"
35:39 DS: Right, like libraries or something, right? Yeah.
35:42 AW: Yup. Exactly. And then, this it is just showing like, "Yep, we have those licenses. We're good to go." Most of the small things just don't even matter. Any piece of software is gonna have these low level items that are out there.
35:52 DS: Right, interesting. How long did it take from the LOI to closing everything up?
35:56 AW: Yeah, I wanna say it was right around four months for us. I think, the... Yeah, the original... Oh boy, I should rephrase... Maybe it wasn't even that long. I wanna say we were shooting for closer to 45 to 60 days, and maybe it stretched as far as 90. But I should have really looked that up before we talked to have the exact, but it was... We were aiming for a pretty tight turn. And yeah, once we got into it, you could kind of see a few things where were maybe it would maybe it wouldn't. But yeah, when we get into some of the process stuff, that's where I can kind of unlock how to view some of those things. I guess as a teaser, the easiest way I explain it is, it's like sprinting through a dark all black tunnel. And at the same time, you're thinking in your head like, "Boy, I hope a shovel doesn't hit me in the face right now." Because you just, I had never been through an acquisition. I had no idea, "What is a big deal? What's a showstopper? What's not?" You feel this intense pressure that everything matters.
36:58 AW: And that's probably one of the hardest things is just the emotional drain that it puts on you during that time because you you want it to succeed, right? You're in that process to win out, and you become very invested and it's very emotional and very stressful and it's interesting.
37:16 DS: How many hours did you personally put in, and how many hours did other members of your team have to put in? I'm just... What is the time investment to go from a letter of intent, to close? It sounded like you had to do a lot of stuff to make this happen.
37:28 AW: Yeah, I wouldn't have it articulated for hours but I would definitely frame it up as it became somewhere between a second part-time to full-time job. Part-time in hours for the things you need to do, tracking down documentation, having meetings, having calls with your legal representation, partner call calls. So much communication, so many things to decide on, paperwork to review, all of those kind of things. And that was definitely like a part-time job on top of running the company. But then, just even like, I just had no mental space. It was like this was, it consumed my mind. I was checked-out at home, and thankfully, like, my wife was great about it. She got it. She was super supportive. She didn't make it any harder on me for me to be so mentally unavailable, but it does consume you. So I would will just say, yeah, I would plan on it being another full-time job on top of your full-time job of you're trying to run the company, be successful, hit numbers and hit goals because you feel like if we don't keep that progress up in this small window we're trying to close, then they're gonna say like, "All right, we don't wanna do the deal."
38:40 DS: Yeah, exactly.
38:42 AW: Yeah, it's like, do this amazing thing and also do this other amazing thing of getting the company sold, it's very intense.
38:47 DS: Yeah, it's that's kind of expected you're gonna be putting in a lot of hours over those three, four months it takes to close the deal. It makes sense.
38:54 AW: Yes. And just being as... Especially if your significant other, anything else, communicate to him or her like, "This is what to expect, this will take a lot out of me." But at the same time, try to find where you can carve out some time to still be human and a decent parent and a good spouse or friend or partner. I just think that's really important. I definitely could have done a better job of on it. And when I look back, I was like, argh, I would probably didn't need to be so consumed.
39:23 DS: Sure. It's pretty hard not to be when you're in that position though, 'cause it... There's a lot on the line. This is high stakes at this point.
39:23 AW: Yeah, that it definitely. And it's high stakes for yourself and your family and it's also high stakes for your partners and your employees. It's like you feel the weight of not wanting to disappoint or have something fall apart with everyone. And then you're like, you've got our CFO, like, man, I feel like, task wise, her list was five times heavier than mine.
39:23 DS: Right. She has gotta gather all the docs and yeah.
39:23 AW: Yep. All the docs, answering endless questions as they review financials. I mean, numbers of calls. We had one to two meetings in person where we were flying out there. And yeah, she, Barb, was amazing. Our CFO, she just did such, such a great job and... Yeah. I would... I would have... Wouldn't know what to do without everything that she did. I can't imagine if I didn't have that position in the company or I had to do all of that, it would have been crippling. I couldn't have run the company.
40:23 DS: I don't have a CFO. I'm gonna have... So I basically I cannot sell until I get a CFO.
[laughter]
40:28 AW: Well, either that or you're gonna need someone to run the company while you're doing all of these things.
40:33 DS: Yeah, totally. Yeah.
40:33 AW: But yeah, the preparation of having everything, just having so many things in place and documented... Documentation galore, and having easy access and having it well organized is just so important.
40:45 DS: Sure, what do you mean by that? What are the things that need to be documented?
40:49 AW: Yeah, so it can be everything from the original corporate structure, any of your tax filings, if you've brought on shareholders, any adjustments in the cap tables and pieces like that, 'cause I talk about every last agreement. What do your contracts look like? Are they iron-clad, what NDAs, what partner agreements, employee contracts, reimbursements, expenses... It's just this endless, anything you basically do, if you have a paper trail and you have good documentation and clarity and the order it that took place in and everything else, it's gonna make your life a lot easier than when you're trying to give verbal explanations to numbers or what something is or why it exists, especially if it's anything of value to them because they wanna retain that value. So if you had have an agreement with someone and it's just a handshake agreement, that could affect your value because you don't actually have it in writing, in a legal agreement with them that thing.
41:44 DS: Yeah, they're looking for liabilities too. If we you don't have certain things in place, then that of a concern, right?
41:49 AW: Yep, absolutely.
41:50 DS: Yeah. It makes sense.
41:52 AW: All right, so here we are. We're already 45 minutes in, we could can probably do another 45 on this but...
41:58 DS: Easy.
42:00 AW: Yeah, I think to wrap it up, the high level things I hit on: One, have thoughts around this not just day dreams of things selling but think about the structure, what it would look like, take some of these calls and practice especially when you get your first couple, like pay attention to, what are they asking, what's important to them? And it's okay to even ask them early too, like, "What do you care about? What do you wanna see? What type of growth are you looking for? What's most important to you?" Interview them on the other side. Don't feel like it's all on you, and that's really helpful. The second, if you have partners, get yourselves on the same page so that... You're gonna need to spend your energy focus on communications with someone who's interested instead of internally squabbling or figuring it out or going in a 100 different directions.
42:46 AW: And then, the last one, just as we were talking about, have your stuff in order. Until this process, I definitely looked at a lot of things of... All kinds of pieces of paperwork, legal documents, whatever else is nice to have. And after this, I'm like, "Now, I get it." If you're never gonna sell your company or you don't need to prove any of those things, yeah, maybe then you're back to and nice to have, not a big deal. But if you're gonna change hands and of possession, having documentation and paper on all of those things is so important and especially if you don't want something like that to ding the value that you're looking for out of your...
43:20 DS: Yeah, it that makes great sense. I think, a lot of start-up founders, they get, we they were are up and running but they're not buttoning up all of the legal stuff, I know that we've been in that position for sure at Whitespark 15 years in, I'm much better at it now, but it's interesting to think about that if you're like, you wanna sell your company you've gotta have all of that stuff in place. You better do it right.
43:40 AW: Yeah, 'cause they're buying all 15 years of it.
43:42 DS: That's right. Exactly.
[chuckle]
43:45 AW: So all right man, well, awesome. I'll start getting some notes together on the next episode. We'll get this one posted hopefully we can find a quick turn to get into part two and start getting to some of the... More of the blocking and tackling and what took place inner in our process and things like that.
44:03 DS: Yeah. It sounds awesome and hey, huge congratulations again to you and everyone else at GatherUp. Man, this is great, great news for everyone there, and I'm glad to hear that it went so well and I'm excited to hear more about it.
44:14 AW: Thanks, totally appreciate your support, and you've done it in more ways than one. You've verbally supported us, you have socially supported us, you have financially supported us in being a customer so when we have thanked our customers, you're right in there with that and yeah, you can't do without them it's a team effort, that's for sure.
44:32 DS: Yep, all right, well, until next time then.
44:34 AW: All right, we will talk soon. Thanks everyone for listening and we'll see you on the next episode of the SaaS Venture. Take care.
44:42 DS: Bye, everyone.
[music]
[ INTRO music]
00:09 Aaron Weiche: Episode 16: Selling GatherUp - Part 1, The Why.
00:16 INTRO: Welcome to the SaaS Venture podcast, sharing the adventure of leading and growing a bootstrap SaaS company. Hear the experiences, challenges, wins, and losses shared in each episode. From Aaron Weiche of GatherUp and Darren Shaw of Whitespark. Let's go.
00:41 AW: Welcome to the SaaS Venture, I'm Aaron.
00:44 Darren Shaw: And I'm Darren.
00:45 AW: And we are back in the year of 2020 after finishing off 2019 and catching a little bit of downtime. I know I probably got even more than I normally would with Christmas on a Wednesday, New Year's Day on a Wednesday. It was a nice slow two weeks for me. How about you, Darren?
01:06 DS: Super slow. I touched in a little bit here and there, but I mostly took like a full solid two weeks off over Christmas up until January 2nd, so that was nice. Good little break, spent some time with family, get my mind off work for a while.
01:19 AW: It's one of those great... Like you can count on being able to recharge at the end of the year, because everyone wants to do the same thing.
01:27 DS: Yeah.
[chuckle]
01:28 AW: So, email is quiet, phone is quiet, text is quiet.
01:32 DS: Wonderful.
01:33 AW: I still look forward to it in the last couple of days where it's just like you gotta start getting your mind back in the game and ready to roll, and launch the new year off to a fast start.
01:42 DS: Yeah, it took me about a week to ramp up, too. I felt like my first week back, I was a bit sluggish, not firing on all cylinders, but I don't know, back in it now, got lots to do, I'm trying to time block and plan my week, and plan my day, and really get as much done as possible. So, I'm feeling productive now.
02:00 AW: You're ready to be the most efficient you for 2020.
02:02 DS: Exactly.
02:02 AW: Alright, so as we had teased at in our last episode to close out the year, the big news on my side of things is we announced, I think the public announcement was November 14th from our press release, but as of November 1st, 2019 GatherUp was acquired.
02:22 DS: It's huge.
02:23 AW: Yeah, big news. The finish line you're gunning for, and, yeah, a million different thoughts. And as you and I talked about how best to talk about this, and share things, and just try to put as much out there, I really felt like at least two, and I think we've arrived at now, we're probably gonna do three episodes on this, because there is so much ground to cover.
02:49 DS: For sure.
02:50 AW: So, and looking at this today, we wanna focus on kind of the why, and almost some of this is pre-sale, and then early once you get an offer, and things like that. And the second episode, we will look at what are all those pieces of that 90-day or 120-day window, whatever the deal timeline looks like, and how all that works out and what to expect, at least what I saw in our scenario and things like that. And then doing the third part on post-transaction, 'cause when everything closes, and especially in our case where I stayed on as CEO, one of our other founders, Mike Blumenthal stayed on, and then basically our entire staff stayed on. You just have a ton of logistics work around press releases and customer communication, and internal things, and employees, and so many other things that that post-sale transition, if you are staying on with whose ever purchased you, boys, it's its own episode. There is a laundry list of things. So...
03:57 DS: Yeah, I'm really interested in that process, like all the different moving parts, and how you have to answer to different people now, and how do your meetings go, and how often do you talk to them, and what kind of say do they have. So I'm looking forward to discussing that in part three.
04:09 AW: So before we get all the way to that, we have to get a part one done first. And maybe one of the first things that I can probably offer up that a lot of people have asked me is just like, "Were you guys always looking to sell?" And the answer from that is, yes, that was always part of starting a SaaS company, we were both doing something that we loved, but we also wanted to get it to a certain point and really looked at a sale, at a successful acquisition as being what we wanted to achieve. A time where we could take money off the table and also look at the company having its next phase with some different parameters on it.
So, that's one thing I've been asked in general a lot and the answer is absolutely. It wasn't like, "Oh, yeah, we didn't know this was possible," or, "never thought about it." Like we definitely had talks over the years on: Are we tracking the right way? Are we valuable? Who might buy us? All of those kind of things with it.
05:15 DS: Yeah, that's interesting, 'cause like, I mean, my company was never sort of... That wasn't a thought when I started my company, it's kind of just evolved into a company that is a potential acquisition target for some of these companies. And so, I'm looking at it now more thinking about that as a potential exit and thinking about all the things I would need to have in place for that if I did decide to sell, but it's not necessarily the end goal for me. Like I will continue to grow the company, but let's say the company is doing $50 million a year in revenue, and I'm happy, and things are going well, and I have good leadership that's running things, it's like, "Well, maybe I don't sell," right? So, it's one of the things that I kind of bat back and forth, I keep looking at it from multiple perspectives, and I guess we'll see as we grow.
06:00 AW: We had a plan B, like that that we brought to the table that we're like, "Listen, if we reach this level of revenue and this level of profit margin, then maybe our best move at that stage is profit-sharing and spreading that success around, and using that to build a very sustainable long term." So it wasn't always, it wasn't sell or bust, but that definitely was the leading one, especially from the early days, that was the big motivator, the carrot that was out there for us.
06:00 DS: Yeah. Like how often were people approaching you and saying, "Hey, would you like... We're interested in your company, can we have some talks about potential acquisition?" Was this happening on like a monthly basis for you, once a quarter kind of thing, every week? I don't know.
06:00 AW: Somewhere probably between weekly and monthly. And it's one of those where it just kinda maybe about two years ago now is where it first started to pop up. I think we had reached some amount of maturity. We were there for a couple of years. Some of the work we're doing was a little bit more visible. And keep in mind, it was... You start getting this interaction from a few different things. Some might be potential acquirers. Some are investors with different capital type programs from venture capital and things like that, but the way I look at it is, it's outside parties being interested in taking part in your growth, whether they end up owning all of your growth or they wanna give you some money and get a percentage to help fuel it or provide some services, whatever that might be. But it definitely, a couple of years ago, it definitely escalated.
07:45 DS: Sure, and did you have a process in place where... How to handle these leads coming in, did you have a spec sheet that you would just give them and be like, "Alright, here's some details." 'Cause I've found... I gotten into the conversation a couple of times, they could be a real time suck. And so, did you make... Did you have a specific point around how you would handle these so that they didn't end up taking so much time? 'Cause you can go down a rabbit hole with them and then it doesn't turn into anything.
08:10 AW: Yeah, we really didn't have a hard and fast rule on it. And for a while, it was Don Campbell and Mike Blumenthal, two of the three original founders. They handled the majority of those calls. I can't speak to how that looked for them or what that was like. As I transitioned in and started being more at the forefront of some of those, and then somewhat all through me. A lot of times I was really looking at, who is it that's making the reach out? It's usually not too hard to figure out, "Is this their business development rep? Is this someone low-ranking a very form-templated email, look into their company, what else is in their portfolio? How much can you learn about them online?" things like that, because you definitely can't take every call or meeting that's out there. I think you'd be so distracted that it just wouldn't be healthy.
But I do think it's really important to build some framework, make some determinations, and take some of them. Because there's so many aspects to those conversations and you learn a lot by what do they ask you? What are they looking for? If it's somebody that's done these acquisitions, what's important to them? Why are they interested in you? Just kind of all of those pieces. So I just really consider it to be good practice. And to your question, you need to be smart about it, but just like anything, if you're gonna be decent at it, you definitely should take as many practice shots.
09:38 DS: Did you consider taking funding at all? Any leads that came in, you'd be like, they are trying to offer you some kind of funding. Did you ever consider that or you mostly just shot those conversations down?
09:47 AW: Yeah, as a team, as a cohesive unit, the four of us that were the main shareholders, the answer to that was no. I think at different times there definitely was a person who... Or two, within the four of us that would say, "We should consider this" and things like that, and then we would just end up in conversations of like, "Okay, if we did, what would we do with that?" Right? Like, what's our plan, that money is the obstacle right now, that's holding us back.
And I never felt, just because at the stage of the company, we were still really honing in on our fit and our value and our messaging and so many other things, I never once felt confident that like, "Oh, money is the problem right now. And if we just had more of that, we could take this... We could take a million-dollar investment and turn it into $5 million of run rate in two years." So, from that side, yes, the conversation popped up, but it really didn't go anywhere fast.
10:44 DS: Yeah, I always feel the same way. It's like, extra money would allow me to hire a few more developers and maybe develop a bit faster, but it's not worth trading any equity for, that's generally how I end up, every time I think about it and consider it, I'm like, "Yeah no, I don't need to."
11:00 AW: Yeah, it's important to understand the math on all that for you, too. It's like "Okay, for where we are and we're this, and if we got an offer and it's this multiple and it looks like this, here's what we would get out of it, and if we took funding and here's how the cap table changed and our ownership, well now to get that same number, we would need this. What's the likelihood and what's the time to get us there, and what actually does that give us?" So, there's a lot of different things but I can say even for myself, it was just operating from a position of debt where you were gonna take money and have a burn rate, that your sales weren't gonna match. And yeah, I get that's the way of the software world, and everything else, but it just wasn't a scenario I was most comfortable in, I'm more interested in bootstrapping and self-funding.
11:48 DS: I was wondering like... Okay, so you had all these different suitors coming in, different people and so, how did you arrive at deciding that the company that ended up acquiring GatherUp, that this is the one you wanted to work with?
12:02 AW: Yeah, so early on, it was probably about two years ago, when we got our first bonafide offer, where actually written down, "Here's an offer, here's what we're thinking" and that first offer had three different components to it. Part of the offer was cash, part of the offer was seller financing. So we'd be paid once we went into that company and then that company was acquired and then another portion was stock within that company. So as it grew and then as it achieved an exit, then we'd be paid off. And while that offer wasn't the best obviously, we didn't go with that offer. What it did make us do is kinda put some exercises in place to start talking about what does an offer look like, that we would say yes to?
12:52 AW: So, when we received that offer, we took it very seriously, we had conversations and then what I did is just built a spreadsheet kinda pertaining to these three columns, but really more important, I looked at it like, "Alright, what do each of our four main shareholders, what do we want right now in cash and what do we wanna basically get chips to bet on the future of the next company? And so within that, each person got to kind of fill out what that looked like for them, and it really... It allowed us to have a very good numerical conversation and in that case, the easy takeaway was from what that offer was, we needed...
13:34 AW: And an offer twice as high, like, otherwise how it factored out, we weren't gonna be able to say yes to it. And then, it also started outlining what was worth more to people based on their engagement, their career arc, things like that. Did they want more right now, or did they wanna be able to have chips to bet on something else on a future endeavor with the company that would acquire us?
13:58 DS: I think that's really smart. Did you find a framework or read some blog posts on people, other founders that had kind of done a similar process? Or did you just kind of come up with that on your own? Or were you like, "We're gonna sell. These are the factors that we need to think about," and you just sort of put it together?
14:14 AW: I don't think it was a truly unique idea. I think, I had probably came across it because once that happens, yeah, you go into Google search overdrive on acquisitions, and you're trying to... Even though I was already listening to podcasts about it and things like that, I tried to find like every last piece. And so, I don't... I can't state directly, like, "Here's where I found it or whatever else," but it definitely wasn't an original idea.
But however I took it in, it easily made me realize like, "We each need to understand each other's expectations. And then we need to see cumulatively, how do those add up to something that we would all say yes to or have a no-brainer." And it really was, it was a great exercise just to be able to see everybody's exact thoughts numerically, which is so important in an offer like that.
15:06 DS: It is kind of amazing. I don't know how many times I've heard about companies totally falling apart because founders, partners, they have a falling out. They stopped stop getting along, they have different visions, but GatherUp has always felt from the outside looking in, so solid. The four of you guys have always been so... You just worked so well together, it always seemed to me. And these kinds of exercises, when I hear about them, you're like, "Okay, let's get everyone's thoughts on this. And let's collaborate on it." It just feels like you have a really great thing there.
15:38 AW: I think we were always have been pretty solid at communication. I mean, in all honesty, we definitely had things like any family would, you have things to get sorted out and squabbles or irritants, and things like that. And we even had some transitions, right? Because we did have... Don as a main founder kind of rolled off when I took over as CEO. And I think, his desire to be in the day-to-day and exactly what his role looked like had kind of changed in his mind and needed something different. And so, we definitely had those ebbs and flows. But yeah, absolutely we all valued communication, and all very respectful of each other with how they viewed it or where they were looking at it. And at the end of the day, even if you didn't agree, you would be like, "All right, well, I know how they feel or I know how they look at it. So we're gonna keep that in mind or respect that it's just different than ourselves, but keep plugging ahead on what our mission is."
16:34 DS: Yeah, well, so, what's the name of the company that bought you again?
16:40 AW: Alpine Software Group. So it's kind of a... Yeah, so it's kind of a few levels down. It's a private equity firm. At the top is Alpine investors. Then they have an arm that's called Alpine Software Group that has purchased over 20 software companies in the last handful of years. And then, inside of that, we're now nested in a group called ASG MarTech, so they own seven other marketing technologies. They've acquired a number within the reputation space, they own one of our competitors, as well, Grade.us, and that really, that gave us a lot of comfort when we got into that. And I guess, one thing before we get too far forward, I wanna point out, obviously two years ago, those offers that we got that offer, we drummed up another one at the time, which was even like less and a total waste of time from what it was, the way they structured it.
17:37 AW: And it made it really easy for us to say no to those offers, even though the one, the one definitely was intriguing even though the numbers didn't work, there were future possibilities with it, they were very intriguing. So it was a very polite, like, "Let's stay in touch. Do whatever else. That's just not the right fit. We're gonna keep going on on where we're at." But in saying no to that, and putting our heads back down, it definitely made us think past even where we figured out some of the numerical things. It really allowed us to have a lot of conversations too on what we were looking for in an acquirer. So when we got, when these conversations started happening with Alpine Software Group, we really kind of already had defined what are the important core factors to us that these are the high level checkmarks that have to be checked off for us to wanna do a deal.
18:31 DS: Right. Yeah, that's smart. I know I'll have to think about that when it, if it ever gets that way to me, or for me and my company. Like, "What are the things that I'm really looking for in whoever is gonna acquire Whitespark?"
18:42 AW: Yeah, 'cause it's far more like it... Yes, obviously to get an exit and to take money off the table, that is absolutely something that you want. But that's the money's not all of it. It's not everything.
18:54 DS: Totally, yeah. I'm very interested in, what will my life look like in one, two, five years after selling? Because I'm really happy with my life now, right? So will that make my life better? Or will it make my life worse? And what about the lives of my employees? Right? So those are the things that I'm really focused on when it comes to thinking about what it would take for me to sell.
19:16 AW: Yeah. And when we arrived at kind of three main pillars. One is someone that would help us grow faster than what we've been growing on our own. And we've had great steady growth year over year. It's what made us attractive for an acquisition and everything else. But we would have to look at them and feel like, "Yeah, that here's why we feel they would based on process, knowledge, experience, the combination of those things and everything else. So that was one. The second was just as you alluded to, is like, "Who is gonna give our team a future?" Right? Both individually and as a whole. Because we are all, we're very lockstep in, right?
20:00 AW: When you build a bootstrap business, and especially your early employees, there's so much hustle that goes into things and you're just scrapping away all the time and you get a very tight unit, you're very dependent on each other, you've shared a lot of ups and downs, all of those things, like you care about them deeply and to be able to be like, "Oh sweet, we'll get this win. And there's four of us, or six of us that are celebrating...
20:20 DS: Yeah, it's all right.
20:21 AW: While there's another 10, 15 or 20 that are now in a really tough spot, that wouldn't have been a win, that wouldn't have sat well with us personally.
20:31 DS: Everybody needs to celebrate.
20:33 AW: Yup. And then, the last piece is finding a partner that was still going to champion and go along with what our vision is. We felt really strong about that and both Mike Blumenthal and I knew we were likely gonna stay on board and continue on, so we wanted to be able to... Because we love the product, we love what we're doing, we love working together, and so we wanted the opportunity to be able to continue that and not have that come to a halt, that this transitions and now they're like, "Nope, we're gonna do something different," whether it's branding name, focus, folding it into something else, or all of those pieces, we wanted to protect that and make sure that the product had a future and the vision had a future as well, so those were like our main three things. And obviously to do this, our acquire, all of these boxes were checked off course.
21:23 DS: Did you have... Did you have like a three times, eight times the valuation evaluation number, or you just you had to know that the number was worth it?
21:31 AW: Yeah, it wasn't... It wasn't so much the multiplier, but from going back through that exercise, we definitely had... We definitely knew a number that then it was it's just like, "Okay, if it's structured this way and it hits this number, it'll definitely be in play." And even with Alpine software group, we had had a number, I think we had had three or four conversations over maybe a year's time, where they would just check in with us see how we're doing and we would talk and see how they were are seeing the market and things like that. And it was after the third or fourth call as that came to an end, where they just said, "Okay, We're serious, we would like to make a move with you and here's the things we would need to be able to turn around and make a pretty quick verbal offer to see if this is a conversation worth taking somewhere."
22:22 DS: Yeah, and was it... Did it feel low-balled or was there a bit of back and forth negotiation?
22:25 AW: Yeah, it definitely wasn't low-balled. They made an offer that absolutely grabbed our attention. Our final ended up a little bit higher than where that initial conversation was just from when we went, looked and felt about the value and our future and where we are were positioned in our market and things like that, but it was... They were extremely, extremely fair negotiators. You hear... You definitely prepare yourself for a lot of things in this because you hear negotiation nightmares and clawbacks and how things are treated and what the deal deals is anchored on. And I really felt like these they represented themselves as caring about the founders and really just being focused on the deal and the outcome being successful. And I can say, hands-down, Alpine ASG did just a great job of that. I never felt like, "Oh, they're sticking it to us, or they're digging their heels in or whatever else." It was very solid from that standpoint.
23:26 DS: You have had mentioned something that's interesting to me. You said it was a series of conversations over a period of a year, and I'm curious to hear your tips. How do you manage those from the initial conversation? If you are a company that wants to sell, how do you handle each one of those conversations? What are some things like, to not do, you don't wanna turn them off? How do you keep them interested enough, even if it's not the time to sell?
23:52 AW: Yeah, for me it was, it was just being genuine to what we were doing. I was insanely confident in what we were doing and where we are were going and pumped about it. It was like, "I'm living and breathing the brand and evangelizing it, and I feel like we have all these things going for us," so when we'd have these conversations, those are the things that I'm pointing out. And I think in a roundabout way, I really wasn't trying to position it, but I would think that the confidence, the things we were harping having, some of the areas that we were telling them the ballparks were in numerically and things like that, that's what they... That's what made them more Interested. It's like dating someone, developing a relationship, anything else, the more you hear the kind of things that you're attracted to or intrigue you and you have that, the better off it can be. So, yeah, to me, it was like just being genuine, and I wasn't trying to have the conversation to sell the business either. I was having the conversation like, "Oh, you're interested in how we run and what our future looks like, and what we're excited about? Sweet, yeah, let's spend 20-30 minutes and talk about that. I'm totally happy to share that," without, "I need there to be an outcome of this conversation." Like, "You're gonna make me an offer or you're gonna buy us or any of those kind of things."
25:09 DS: Did you ever feel guarded with information sharing, knowing specifically that they already own a competitor? Wasn't that like numbers and processes and all the that stuff?
25:19 AW: Yes, yes.
25:20 DS: 'Cause this is what they wanna know. "We're not gonna be interested in buying your businesses unless we know what your growth rate is, your numbers are," so did you not feel nervous about sharing that?
25:27 AW: Yes. So I guess, it kind of went... I don't believe in the Colonel Sanders recipe that you need it guarded and in the vault, and only one person knows how to make it that way. I believe in like, "You do you. Be confident in the path that you're going." GatherUp has a ton of competitors. Some of those competitors have taken funding that was nearly 10X our revenue and that was their funding for them to start off with.
25:55 DS: Yeah exactly.
25:56 AW: So when you have those things, I felt more like be proud of what we've built. Embrace it. Don't try to be something you're not, because eventually, when you get, when you get to an offer anyway, you're gonna need to hand over P&Ls, and whatever else. They're gonna see your numbers really exactly and they're gonna see what's beautiful about you, and they're gonna see your warts or scars or any of those other things in your financial trends. But the one thing that was a little tricky trickier about it was the fact that they already owned a competitor of ours, so that did make me a little bit more guarded in some ways.
26:32 AW: But it also, what the other... It made it easier because we were able to dig in and see like, "All right, well, let's talk to a how that since you own them. What has growth been like? How has this gone? Those kind of things. And what they were able to do with our competitor gave us a lot of confidence. Like, "Wow, they know our business really well, they understand what our value is, they've had great success with how they've grown that. So, that feels like a really good fit." That checked off our first pillar of, will we grow faster with these guys than on our own?
27:01 DS: I was just wondering what the typical advice is. Do you share your numbers on the first call or do you wait for date number three?
27:11 AW: Yeah, and I don't know if I have an... I mean, I don't know if I would right away, but man, it just... I was going off gut with so many of these, but I definitely... I'm not one of those that is worried that, "Boy, if they know this about us," Like, "Now we're just gonna be in a horrible spot if they know our revenue or our churn or any of these things." Like, "Now our success is gonna go away," because I've never felt like any of our success has anything to do with who our competitors are, anyway. We're trying to do what we do best.
27:42 DS: Yep. That's a good way of looking at it.
27:44 AW: So, I... Yeah. I can definitely see why you can feel that way. But at some point, if somebody's serious you gotta have some substance to the conversation and it has to involve numbers, so I would be prepared for that. And if anything, you should know those numbers, right? If they ask you things like that, you should... There's a set of numbers you should absolutely know and be able to put in front of them or ballpark or say, "Yep, we're above this." So, you don't have to give the exacts exact to the dollar amount but you can easily say, like, "Hey, here's where we are right now. We're in this range."
28:16 DS: Sure. "This is our revenue, this is our rough profitability, this is our churn." Yeah.
28:20 AW: Yeah.
28:21 DS: Yeah, all right, cool. What else?
28:25 AW: Boy, there's so much...
28:27 DS: I know.
28:27 AW: That you have to take in. On the prep side, some of the things that make your life a lot easier is just, and you kind of weigh this out, 'cause you don't wanna do too many things only for the purpose of possibly selling, but you do have to look at and say, "Do we have the right processes? Do we have the right accounting practices? Is our tech squared away, legal documents, right?" All of these different things that when you are, if you get an offer, if you get a letter of intent, and then you kinda go into this discovery, negotiation phase to get to a purchase agreement, you wanna have your house in order. And the good news is we were kind of already on that path. I would say the timing of our offer, we were committed to being heads down for at least another year or two. We still had another financial goal line that we wanted to cross and then we said, "All right, when we get to this number, then we'll be a little bit more periscope up and we might even be seeking or trying to drum up offers or interest instead of them coming inbound."
29:34 AW: So, when they kinda jumped into this, it did throw us off guard a little bit, but it was like, "All right, this is a real conversation, we've had a bunch of talks, and if we hand over these things, they're gonna give us a verbal offer that's a real number within days." So, it jump-started some of the things where we would have had to have even more things buttoned up, but to cut, and this is something that we can talk about in the next one, I feel like our company ended up being very polished, very buttoned up, the evaluation... There is was no surprises, really, within our process. We had a little bit of a document on the legal company formation side, a little blip, but our tech scans were they... We were told that was some of the cleanest that they've run across in their 20 acquisitions. We have a lot of very mature processes. We were a very well-oiled machine that had done a lot of things right early, because we are were wired to care about quality and process and we are were building for a longer haul. So, we had instituted those things more for the success of the company, less for being acquired. But man, did those come in handy when you really get into the fire of the middle ground of sorting out the position the company is in financially.
30:52 DS: Yeah, did you have to hand all those things over in advance of the offer? Like, "Here's our full tech stack, here's our processes, here's all our accounting, here's our legal documents." Did you have to hand that over before you got the offer? 'Cause that feels, particularly, if you're giving that information to someone that owns your competitor.
31:12 AW: Yep. Yeah, not in full, but I mean, we did have three or four things we needed to hand over, and one was our last year-and-a-half of our P&L. So, that's definitely very telling to see what your top line and the margin you're pulling down and everything else, but you get it, especially when you're talking about the kind of dollars that you're talking about. No one is going to make an offer without seeing something, right? It can't be totally based on vapor. Now, that said, not a lot as far as a few just real broad questions on tech stack, but nothing really digging into things like that. So, it really was just like three or four documents, items, and two or three of them really had to just deal with our P&L, our numbers a couple of different ways, things that we were are able to easily pull together in like a day, a day-and-a-half, and lob over to get the process started.
32:10 DS: And then after that, was it, "Okay, cool, here's an offer pending an evaluation of your tech stack?" Was there anything pending in the offer?
32:17 AW: What basically takes place after you have a verbal... Then we went and met in person, shared a little bit more, they had questions, and they were very much like, "Share as much or as little as you want, but the more you share, the more concrete this is going to be." And we were very, very open within all of it that. I mean, transparency is kind of key to how we operate. So, that meeting wasn't very hard for us and after that, it is was then getting to the first formal piece and that's a letter of intent. So, the LOI is more of a smaller, kind of a precedes the purchase agreement and gives a high-level framework on dollar mount, or how it's arrived at, or what the multiple is, what are the inclusions, the process it's gonna go through, the timing, all of those pieces. And once you kinda get that squared away, that's kind of like the high-level rules of engagement that any big pieces you kinda want highlighted there. Then, once you sign that, then that's when you go into like, "Okay, now we're gonna embed this so we can do tech scans on your software, we wanna interview some of your customers...
33:24 AW: We wanna see the financials 12 different ways. We want every piece of legal documentation. So you basically create this data room and you are sending, dozens if not hundreds of documents, anything legal you've ever done, NDAs, employee agreements, all those things, are all going into specific folders located in there for their team, and their lawyers and attorneys to be going through and doing checklists and see, "Are there any flags? Does this check-out? What's the impact? All of that."
33:53 DS: Wow. What is the a tech scan? What do they do on your software? I'm curious about this, like, I wonder if my software would hold up to this tech scan.
34:00 AW: Yeah, so a lot of it has to do with just looking at like, "Is this originally created code? Is this a lot of, piecemeal of other like open source solutions? Are you operating a number of things that you do or don't have licenses for or that you need licenses for?" So just yeah, a number of things with that where they are really trying to assess like, "Are there... What vulnerabilities do we have?" Not so much like a stress testing, or things like that, but just like, "What are the surprises? Has the team actually created this? Or is it a version of something that... Maybe they don't own certain pieces of it? And there is...
34:42 DS: Yep. That make sense.
34:43 AW: Yep, there's gonna be a cost to that and those kind of things. So it definitely...
34:45 DS: Yeah, I get that.
34:47 AW: Yeah, it definitely felt intimidating, but then, when you kind of hear how well you did after it, then you're both prideful and like, "Okay, yeah, that that wasn't as bad as we thought it was gonna be," but you definitely see the reasons why for it.
35:00 DS: Yep. So they just had sent developers into your repository, and then did they dig through the code inside?
35:04 AW: No, so very much automated, so it's embedding things right into your production environment that start going through and doing scans. They've built proprietary software, they hire an outside vendor to do this audit.
35:18 DS: Interesting.
35:19 AW: So you put all that stuff in yep, and it goes through everything and then they come back and, just like a security scan. It's like, "All right, here's... We had no high-level items that were offended any of the things. There here was is a couple of mediums. Here there is was a couple smalls, really and... " With some of them, it's just like, "Okay, we found these things. Do you actually have licenses for these?"
35:39 DS: Right, like libraries or something, right? Yeah.
35:42 AW: Yup. Exactly. And then, this it is just showing like, "Yep, we have those licenses. We're good to go." Most of the small things just don't even matter. Any piece of software is gonna have these low level items that are out there.
35:52 DS: Right, interesting. How long did it take from the LOI to closing everything up?
35:56 AW: Yeah, I wanna say it was right around four months for us. I think, the... Yeah, the original... Oh boy, I should rephrase... Maybe it wasn't even that long. I wanna say we were shooting for closer to 45 to 60 days, and maybe it stretched as far as 90. But I should have really looked that up before we talked to have the exact, but it was... We were aiming for a pretty tight turn. And yeah, once we got into it, you could kind of see a few things where were maybe it would maybe it wouldn't. But yeah, when we get into some of the process stuff, that's where I can kind of unlock how to view some of those things. I guess as a teaser, the easiest way I explain it is, it's like sprinting through a dark all black tunnel. And at the same time, you're thinking in your head like, "Boy, I hope a shovel doesn't hit me in the face right now." Because you just, I had never been through an acquisition. I had no idea, "What is a big deal? What's a showstopper? What's not?" You feel this intense pressure that everything matters.
36:58 AW: And that's probably one of the hardest things is just the emotional drain that it puts on you during that time because you you want it to succeed, right? You're in that process to win out, and you become very invested and it's very emotional and very stressful and it's interesting.
37:16 DS: How many hours did you personally put in, and how many hours did other members of your team have to put in? I'm just... What is the time investment to go from a letter of intent, to close? It sounded like you had to do a lot of stuff to make this happen.
37:28 AW: Yeah, I wouldn't have it articulated for hours but I would definitely frame it up as it became somewhere between a second part-time to full-time job. Part-time in hours for the things you need to do, tracking down documentation, having meetings, having calls with your legal representation, partner call calls. So much communication, so many things to decide on, paperwork to review, all of those kind of things. And that was definitely like a part-time job on top of running the company. But then, just even like, I just had no mental space. It was like this was, it consumed my mind. I was checked-out at home, and thankfully, like, my wife was great about it. She got it. She was super supportive. She didn't make it any harder on me for me to be so mentally unavailable, but it does consume you. So I would will just say, yeah, I would plan on it being another full-time job on top of your full-time job of you're trying to run the company, be successful, hit numbers and hit goals because you feel like if we don't keep that progress up in this small window we're trying to close, then they're gonna say like, "All right, we don't wanna do the deal."
38:40 DS: Yeah, exactly.
38:42 AW: Yeah, it's like, do this amazing thing and also do this other amazing thing of getting the company sold, it's very intense.
38:47 DS: Yeah, it's that's kind of expected you're gonna be putting in a lot of hours over those three, four months it takes to close the deal. It makes sense.
38:54 AW: Yes. And just being as... Especially if your significant other, anything else, communicate to him or her like, "This is what to expect, this will take a lot out of me." But at the same time, try to find where you can carve out some time to still be human and a decent parent and a good spouse or friend or partner. I just think that's really important. I definitely could have done a better job of on it. And when I look back, I was like, argh, I would probably didn't need to be so consumed.
39:23 DS: Sure. It's pretty hard not to be when you're in that position though, 'cause it... There's a lot on the line. This is high stakes at this point.
39:23 AW: Yeah, that it definitely. And it's high stakes for yourself and your family and it's also high stakes for your partners and your employees. It's like you feel the weight of not wanting to disappoint or have something fall apart with everyone. And then you're like, you've got our CFO, like, man, I feel like, task wise, her list was five times heavier than mine.
39:23 DS: Right. She has gotta gather all the docs and yeah.
39:23 AW: Yep. All the docs, answering endless questions as they review financials. I mean, numbers of calls. We had one to two meetings in person where we were flying out there. And yeah, she, Barb, was amazing. Our CFO, she just did such, such a great job and... Yeah. I would... I would have... Wouldn't know what to do without everything that she did. I can't imagine if I didn't have that position in the company or I had to do all of that, it would have been crippling. I couldn't have run the company.
40:23 DS: I don't have a CFO. I'm gonna have... So I basically I cannot sell until I get a CFO.
[laughter]
40:28 AW: Well, either that or you're gonna need someone to run the company while you're doing all of these things.
40:33 DS: Yeah, totally. Yeah.
40:33 AW: But yeah, the preparation of having everything, just having so many things in place and documented... Documentation galore, and having easy access and having it well organized is just so important.
40:45 DS: Sure, what do you mean by that? What are the things that need to be documented?
40:49 AW: Yeah, so it can be everything from the original corporate structure, any of your tax filings, if you've brought on shareholders, any adjustments in the cap tables and pieces like that, 'cause I talk about every last agreement. What do your contracts look like? Are they iron-clad, what NDAs, what partner agreements, employee contracts, reimbursements, expenses... It's just this endless, anything you basically do, if you have a paper trail and you have good documentation and clarity and the order it that took place in and everything else, it's gonna make your life a lot easier than when you're trying to give verbal explanations to numbers or what something is or why it exists, especially if it's anything of value to them because they wanna retain that value. So if you had have an agreement with someone and it's just a handshake agreement, that could affect your value because you don't actually have it in writing, in a legal agreement with them that thing.
41:44 DS: Yeah, they're looking for liabilities too. If we you don't have certain things in place, then that of a concern, right?
41:49 AW: Yep, absolutely.
41:50 DS: Yeah. It makes sense.
41:52 AW: All right, so here we are. We're already 45 minutes in, we could can probably do another 45 on this but...
41:58 DS: Easy.
42:00 AW: Yeah, I think to wrap it up, the high level things I hit on: One, have thoughts around this not just day dreams of things selling but think about the structure, what it would look like, take some of these calls and practice especially when you get your first couple, like pay attention to, what are they asking, what's important to them? And it's okay to even ask them early too, like, "What do you care about? What do you wanna see? What type of growth are you looking for? What's most important to you?" Interview them on the other side. Don't feel like it's all on you, and that's really helpful. The second, if you have partners, get yourselves on the same page so that... You're gonna need to spend your energy focus on communications with someone who's interested instead of internally squabbling or figuring it out or going in a 100 different directions.
42:46 AW: And then, the last one, just as we were talking about, have your stuff in order. Until this process, I definitely looked at a lot of things of... All kinds of pieces of paperwork, legal documents, whatever else is nice to have. And after this, I'm like, "Now, I get it." If you're never gonna sell your company or you don't need to prove any of those things, yeah, maybe then you're back to and nice to have, not a big deal. But if you're gonna change hands and of possession, having documentation and paper on all of those things is so important and especially if you don't want something like that to ding the value that you're looking for out of your...
43:20 DS: Yeah, it that makes great sense. I think, a lot of start-up founders, they get, we they were are up and running but they're not buttoning up all of the legal stuff, I know that we've been in that position for sure at Whitespark 15 years in, I'm much better at it now, but it's interesting to think about that if you're like, you wanna sell your company you've gotta have all of that stuff in place. You better do it right.
43:40 AW: Yeah, 'cause they're buying all 15 years of it.
43:42 DS: That's right. Exactly.
[chuckle]
43:45 AW: So all right man, well, awesome. I'll start getting some notes together on the next episode. We'll get this one posted hopefully we can find a quick turn to get into part two and start getting to some of the... More of the blocking and tackling and what took place inner in our process and things like that.
44:03 DS: Yeah. It sounds awesome and hey, huge congratulations again to you and everyone else at GatherUp. Man, this is great, great news for everyone there, and I'm glad to hear that it went so well and I'm excited to hear more about it.
44:14 AW: Thanks, totally appreciate your support, and you've done it in more ways than one. You've verbally supported us, you have socially supported us, you have financially supported us in being a customer so when we have thanked our customers, you're right in there with that and yeah, you can't do without them it's a team effort, that's for sure.
44:32 DS: Yep, all right, well, until next time then.
44:34 AW: All right, we will talk soon. Thanks everyone for listening and we'll see you on the next episode of the SaaS Venture. Take care.
44:42 DS: Bye, everyone.
[music]
Creators & Guests
Host
Aaron Weiche
I'm the Co-founder and CEO of Leadferno, a business messaging app. Leadferno creates delightful connections at speed through SMS and messaging platforms centralized in one app to close more leads faster. I designed my first website in 1998 and never looked back. I have co-founded and been in executive roles in multiple digital marketing agencies and SaaS companies. I speak frequenty at conferences of all types on digital marketing, customer experience, mobile and local SEO. I'm part of Local University and a founding board member of MnSearch. Outside of work I'm a sports fan, love Nebraska college football, Minnesota Twins baseball, snowboarding, boating, BBQ and anything with my 4 kids and amazing wife. I live to the west of Minneapolis, Minnesota.
Host
Darren Shaw
I'm the founder and president of Whitespark, a local search company with software and services that help businesses improve their rankings in Google. I started developing websites back in 1996 during my first year of university. I failed plenty of courses because I was skipping class to work on my HTML, CSS, and Javascript projects in the lab. Fortunately, people wanted to pay me to build websites, and in 2005 I started Whitespark as a web design and development company. In 2010 we stopped doing web development projects so we could focus on local search, and we launched our first SaaS software, the Local Citation Finder. We now offer multiple SaaS applications and services. When I'm not speaking at conferences, researching the latest in local search, or designing the next best local search application, I like to spend time travelling, skiiing, and dining with my wife and daughter in Edmonton, Alberta, Canada.
What is The SaaS Venture?
A podcast sharing the adventure of starting, growing, and running a bootstrapped SaaS company. Aaron Weiche is the founder of Leadferno, a conversion platform powered by SMS to help business capture more leads and close them faster. Each episode shares the journey of the software start-ups wins, losses, and experiences in marketing, sales, product, customers, metrics, and more.