Dec 14, 2023 · 22m · top-founders
Masters of Debt: How I bought a $5m SaaS Company Using Debt, Grew to $20m, Then Flipped for a Huge Gain
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this interview with Nathan Latka, SaaS investor and operator Brad Miller details his playbook for acquiring discounted software businesses using debt, converting perpetual licenses into recurring subscription revenue, and avoiding the operational pitfalls of traditional private equity.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Nathan holds 33.6% of the talking time here. How this is scored →
Nathan as informed peer 5.2 Guest teaching 2.6 Guest disagreement 1.8 Nathan pushing back 2.2
speaking balance: gold is Nathan, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 20:34 Miller on PE firms admitting failure
Miller humorously and forcefully dismisses the idea of PE firms admitting error, stating they would rather burn in hell than admit they made a mistake.
Hardest push from Nathan ▶ 15:55 Latka demanding specific covenant gotchasLatka interrupts generalities to force Miller to name exact terms and gotchas founders should negotiate out of bank credit agreements.
Biggest teaching moment ▶ 14:58 SVB requiring losses over profits for debtMiller illustrates the absurd reality of venture banking underwriting, explaining how SVB refused debt to a profitable firm because it lacked VC sponsor backing.
Nathan holds their own ▶ 17:00 Latka breaking down FCCR and mezzanine pricingLatka immediately identifies the fixed charge coverage ratio formula from Miller's description and drills into true all-in mezzanine costs including PIK and warrants.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Nathan as informed peer | Guest teaching | Guest disagreement | Nathan pushing back | Why |
|---|---|---|---|---|---|---|
| Introducing Brad Miller and Post-Exit Company Decline | 5 | 2 | 2 | 2 | Latka frames Miller's acquisition strategy clearly for the live audience and prompts him on the post-acquisition decline under private equity. Miller explains how TZP's consultants disrupted a working model by bloating headcount and outsourcing core PPC marketing. | |
| Unit Economics and Cash Flow Dividend Playbook | 6 | 3 | 1 | 2 | Latka translates Miller's story into actionable tactics for finding sub-1x multiple targets and utilizing VC tax write-downs. Miller breaks down converting perpetual licenses to recurring subscriptions to instantly turn a cash-losing asset profitable. | |
| Scaling a Chicago Proptech Business with Secondary Liquidity | 4 | 2 | 1 | 2 | Miller outlines acquiring 51% of a bootstrapped Chicago proptech firm for $3M, giving the founder personal liquidity while scaling ARR from $3M to $7M. Latka clarifies deal terms and valuation multiples. | |
| Transitioning Legacy Perpetual Licenses to Recurring Subscriptions | 7 | 4 | 3 | 4 | Latka presses Miller on specific debt covenant pitfalls, prompting Miller to highlight fixed charge coverage ratio traps during dividend recaps. Miller also mocks venture debt banks like Silicon Valley Bank for requiring VC-backed burn over profitable cash flow. | |
| Debt Impact on M&A Exits and Bank Underwriting | 4 | 2 | 2 | 1 | Latka moderates audience Q&A covering private equity psychology and initial leverage structures. Miller quips about PE arrogance and explains why he avoids running a multi-acquisition conglomerate like Constellation Software. |
Statements from this episode (18)
Miller's Acquired SaaS Shrank From $20M to $12M Under PE Ownership
“The company two years later is half its size. It was at the time when I sold it doing twenty million in, in revenue and six in profit, and I believe it's like 12 and Two. Something along those lines.”
Miller: TZP Group Acquired His SaaS Business
“It was a New York-based private equity fund called TZP.”
Miller: Ad Returns Dropped 50% After TZP Outsourced PPC
“And so their returns on the advertising Went from what they were to half of what they used to be.”
Miller: SaaS acquisitions should break even immediately on customer acquisition
“It's a reasonable question, but we looked at it as we wanted, we had an immediate sale, and if we could make it, if we spent a dollar, can make a dollar, then we knew that all renewals were profit after that. So we didn't have to invest any money. If we could …”
Miller: Converting SaaS Perpetual Model to Renewals Boosted Revenue 40% Overnight
“So the first thing we did is we turned it into a, you know, we made it a renewal, a subscription model, and the revenue increased 40% overnight.”
Subscription Shift Swung Miller's SaaS From -$1M to +$1M Profit
“And the business was losing money day one, but because of the renewals within a year, it went from losing a million to making a million literally overnight just by that one element.”
Latka: Neglected Chrome Extensions with 500K Downloads Can Be Bought Cheaply
“They'll see that a Chrome extension has 500,000 downloads, but there's a thing that says when the developers push the last update. If it's more than a year ago, it's probably sitting there doing nothing. You buy that for cheap. It's a 500,000 email list.”
Miller: Bought $3M ARR Proptech Startup at $6M Valuation in Mid-2021
“It was doing about three million. I bought it at a six million pre, you know, pre-money value.”
Bootstrapped Proptech Beat Chicago Rivals Who Raised $80M in Venture Capital
“Had a hundred buildings in Chicago, and all the other competitors had raised 20 to eighty million dollars, and they were all based in Chicago, too, but he had the number one market share, and I'm like, how, how is that possible that in their backyard, you're k…”
Miller: Grew $3M Majority Proptech Buyout to $7M in Revenue
“So I bought 51% for three million. And now the business is doing seven million.”
SVB Refused to Lend to Miller Because He Lacked VC Backers
“They were one of our banks, but they never lent us money. We flowed all our credit cards through them. And, ah, they would come to us all the time and ask if we wanted to borrow money from them. We'd say, sure. And, you know, we were the only company they had …”
Miller: Traditional Bank Debt Typically Sized at Two to Three Times EBITDA
“The basic bank debt was very plain vanilla. There were no warrants. It was purely a multiple of EBITDA, typically. Two to three times depending.”
Miller: Mezzanine Debt Requires 10% to 12% Coupon Plus Equity Kickers
“That was typically 10 to 12% coupon with a pick, so with a kicker, which could either be in the form of a pick, an accreting pick, or it could be in the form of warrants.”
Brad Miller: Outstanding debt did not affect SaaS company exit
“It did not at all. They just viewed it as an enterprise value and, you know, whether they wrote the check to me or the bank didn't matter to them.”
Bank Denied Miller a $10M Loan but Happily Approved His Acquirer
“When I went and asked them for ten million, they laughed at me, but when the new buyer, they, but they could get comfortable with five or six, but when the new buyer came in and said, we want ten million, they had no problem”