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Mar 9, 2018 · 20m · top-founders

958 When Founders Died, He Acquired $50m+ SaaS Company That Helps You Hire Smarter

Mike Zani · 10m spoken Nathan Latka · 7m spoken
0:00 / 0:00

gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions

In this episode of The Top Entrepreneurs, host Nathan Latka interviews Mike Zani, CEO of The Predictive Index, who details how he utilized a search fund model to acquire a legacy $50 million psychometrics business and scale it into a $70 million recurring revenue SaaS platform through operational rigor and product modernization.

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 39.2% of the talking time here. How this is scored →

Nathan as informed peer 5.0 Guest teaching 3.6 Guest disagreement 2.0 Nathan pushing back 3.7
05100:0010:0020:000:49–4:44 · Nathan as informed peer 3/10 Transitioning from Olympic Sailing Coach to Entrepreneurship Nathan asks about Mike's transition from Olympic coach to CEO and probes about who had to be fired, which Mike politely deflects before explaining the psychometric assessment space.4:44–6:57 · Nathan as informed peer 6/10 SaaS Pricing Model and Scaling Revenue to $70 Million Nathan actively calculates run rates, clarifies whether client numbers represent distinct logos versus seats, and corrects his revenue trajectory numbers with Mike.6:58–10:00 · Nathan as informed peer 5/10 The Unique Acquisition Story of The Predictive Index Nathan repeatedly attempts to pin down the acquisition price and valuation multiple, while Mike explains the estate trust situation but firmly declines to reveal the purchase price.10:00–12:38 · Nathan as informed peer 4/10 Search Fund Origins and Earning Sweat Equity Mike explains how traditional search funds operate with high net worth individuals funding the search phase to earn sweat equity rather than standard PE carry.12:41–15:53 · Nathan as informed peer 6/10 Search Fund Financing Mechanics and Profit Sharing Structure Nathan maps out search fund payout splits and waterfalls, and Mike clarifies the nuance between operational profit distribution and capital return waterfalls upon liquidity.15:53–18:36 · Nathan as informed peer 7/10 Operator Mentality Versus Dealmaker Culture Nathan labels Mike a deal junkie, which Mike explicitly rejects to define himself as an operator. Nathan then drills down into CAC payback dynamics and upfront cash collection.18:36–20:05 · Nathan as informed peer 4/10 The Famous Five Rapid-Fire Questions Standard rapid-fire Famous Five wrap-up where Nathan runs through routine questions and summarizes company performance metrics concisely.0:49–4:44 · Guest teaching 4/10 Transitioning from Olympic Sailing Coach to Entrepreneurship Nathan asks about Mike's transition from Olympic coach to CEO and probes about who had to be fired, which Mike politely deflects before explaining the psychometric assessment space.4:44–6:57 · Guest teaching 2/10 SaaS Pricing Model and Scaling Revenue to $70 Million Nathan actively calculates run rates, clarifies whether client numbers represent distinct logos versus seats, and corrects his revenue trajectory numbers with Mike.6:58–10:00 · Guest teaching 4/10 The Unique Acquisition Story of The Predictive Index Nathan repeatedly attempts to pin down the acquisition price and valuation multiple, while Mike explains the estate trust situation but firmly declines to reveal the purchase price.10:00–12:38 · Guest teaching 5/10 Search Fund Origins and Earning Sweat Equity Mike explains how traditional search funds operate with high net worth individuals funding the search phase to earn sweat equity rather than standard PE carry.12:41–15:53 · Guest teaching 6/10 Search Fund Financing Mechanics and Profit Sharing Structure Nathan maps out search fund payout splits and waterfalls, and Mike clarifies the nuance between operational profit distribution and capital return waterfalls upon liquidity.15:53–18:36 · Guest teaching 3/10 Operator Mentality Versus Dealmaker Culture Nathan labels Mike a deal junkie, which Mike explicitly rejects to define himself as an operator. Nathan then drills down into CAC payback dynamics and upfront cash collection.18:36–20:05 · Guest teaching 1/10 The Famous Five Rapid-Fire Questions Standard rapid-fire Famous Five wrap-up where Nathan runs through routine questions and summarizes company performance metrics concisely.0:49–4:44 · Guest disagreement 2/10 Transitioning from Olympic Sailing Coach to Entrepreneurship Nathan asks about Mike's transition from Olympic coach to CEO and probes about who had to be fired, which Mike politely deflects before explaining the psychometric assessment space.4:44–6:57 · Guest disagreement 1/10 SaaS Pricing Model and Scaling Revenue to $70 Million Nathan actively calculates run rates, clarifies whether client numbers represent distinct logos versus seats, and corrects his revenue trajectory numbers with Mike.6:58–10:00 · Guest disagreement 3/10 The Unique Acquisition Story of The Predictive Index Nathan repeatedly attempts to pin down the acquisition price and valuation multiple, while Mike explains the estate trust situation but firmly declines to reveal the purchase price.10:00–12:38 · Guest disagreement 1/10 Search Fund Origins and Earning Sweat Equity Mike explains how traditional search funds operate with high net worth individuals funding the search phase to earn sweat equity rather than standard PE carry.12:41–15:53 · Guest disagreement 2/10 Search Fund Financing Mechanics and Profit Sharing Structure Nathan maps out search fund payout splits and waterfalls, and Mike clarifies the nuance between operational profit distribution and capital return waterfalls upon liquidity.15:53–18:36 · Guest disagreement 5/10 Operator Mentality Versus Dealmaker Culture Nathan labels Mike a deal junkie, which Mike explicitly rejects to define himself as an operator. Nathan then drills down into CAC payback dynamics and upfront cash collection.18:36–20:05 · Guest disagreement 0/10 The Famous Five Rapid-Fire Questions Standard rapid-fire Famous Five wrap-up where Nathan runs through routine questions and summarizes company performance metrics concisely.0:49–4:44 · Nathan pushing back 3/10 Transitioning from Olympic Sailing Coach to Entrepreneurship Nathan asks about Mike's transition from Olympic coach to CEO and probes about who had to be fired, which Mike politely deflects before explaining the psychometric assessment space.4:44–6:57 · Nathan pushing back 4/10 SaaS Pricing Model and Scaling Revenue to $70 Million Nathan actively calculates run rates, clarifies whether client numbers represent distinct logos versus seats, and corrects his revenue trajectory numbers with Mike.6:58–10:00 · Nathan pushing back 6/10 The Unique Acquisition Story of The Predictive Index Nathan repeatedly attempts to pin down the acquisition price and valuation multiple, while Mike explains the estate trust situation but firmly declines to reveal the purchase price.10:00–12:38 · Nathan pushing back 3/10 Search Fund Origins and Earning Sweat Equity Mike explains how traditional search funds operate with high net worth individuals funding the search phase to earn sweat equity rather than standard PE carry.12:41–15:53 · Nathan pushing back 4/10 Search Fund Financing Mechanics and Profit Sharing Structure Nathan maps out search fund payout splits and waterfalls, and Mike clarifies the nuance between operational profit distribution and capital return waterfalls upon liquidity.15:53–18:36 · Nathan pushing back 5/10 Operator Mentality Versus Dealmaker Culture Nathan labels Mike a deal junkie, which Mike explicitly rejects to define himself as an operator. Nathan then drills down into CAC payback dynamics and upfront cash collection.18:36–20:05 · Nathan pushing back 1/10 The Famous Five Rapid-Fire Questions Standard rapid-fire Famous Five wrap-up where Nathan runs through routine questions and summarizes company performance metrics concisely.

speaking balance: gold is Nathan, purple is the guest (3 minute bins)

0:00 · Nathan 46.7% · guest 53.3%0:00 · Nathan 46.7% · guest 53.3%3:00 · Nathan 15.6% · guest 84.4%3:00 · Nathan 15.6% · guest 84.4%6:00 · Nathan 33.9% · guest 66.1%6:00 · Nathan 33.9% · guest 66.1%9:00 · Nathan 27.6% · guest 72.4%9:00 · Nathan 27.6% · guest 72.4%12:00 · Nathan 48.4% · guest 51.6%12:00 · Nathan 48.4% · guest 51.6%15:00 · Nathan 44.6% · guest 55.4%15:00 · Nathan 44.6% · guest 55.4%18:00 · Nathan 59% · guest 41%18:00 · Nathan 59% · guest 41%
Sharpest disagreement ▶ 16:25 Rejecting dealmaker characterization

Mike directly refutes Nathan's assumption that he is a deal junkie, clarifying that he only does transactions out of necessity because he is genuinely an operator at heart.

 Hardest push from Nathan ▶ 9:06 Pressing on valuation multiple floor

Nathan refuses to let the acquisition price stay vague, pressing Mike on whether it was a 409A valuation and trying to establish at least a 1x revenue bottom.

 Biggest teaching moment ▶ 15:06 Correcting profit vs cash-on-cash return

Mike educates Nathan on private equity and search fund waterfalls, correcting his assumption about annual profit distribution versus returning initial equity first upon exit.

 Nathan holds their own ▶ 17:39 Synthesizing CAC cash flow recovery

Nathan displays sharp financial mastery by instantly calculating the exact upfront cash collection and remaining capital payback timeline based on Mike's CAC and billing terms.
the scores for every segment, with the reasoning behind each
ChapterTopicNathan as informed peerGuest teachingGuest disagreementNathan pushing backWhy
Transitioning from Olympic Sailing Coach to Entrepreneurship 3423 Nathan asks about Mike's transition from Olympic coach to CEO and probes about who had to be fired, which Mike politely deflects before explaining the psychometric assessment space.
SaaS Pricing Model and Scaling Revenue to $70 Million 6214 Nathan actively calculates run rates, clarifies whether client numbers represent distinct logos versus seats, and corrects his revenue trajectory numbers with Mike.
The Unique Acquisition Story of The Predictive Index 5436 Nathan repeatedly attempts to pin down the acquisition price and valuation multiple, while Mike explains the estate trust situation but firmly declines to reveal the purchase price.
Search Fund Origins and Earning Sweat Equity 4513 Mike explains how traditional search funds operate with high net worth individuals funding the search phase to earn sweat equity rather than standard PE carry.
Search Fund Financing Mechanics and Profit Sharing Structure 6624 Nathan maps out search fund payout splits and waterfalls, and Mike clarifies the nuance between operational profit distribution and capital return waterfalls upon liquidity.
Operator Mentality Versus Dealmaker Culture 7355 Nathan labels Mike a deal junkie, which Mike explicitly rejects to define himself as an operator. Nathan then drills down into CAC payback dynamics and upfront cash collection.
The Famous Five Rapid-Fire Questions 4101 Standard rapid-fire Famous Five wrap-up where Nathan runs through routine questions and summarizes company performance metrics concisely.

Statements from this episode (15)

Disclosure
Mike Zani and partner have acquired four existing companies
“My business partner and I have purchased and taken over four sort of used companies”
Mike Zani Mar 9, 2018 ▶ 2:16
Assertion Not checkable as stated
Only 4 of 45 Ledco employees remained after Zani's acquisition
“We had 45 people, and only four of those people made it, and we actually used the Predictive Index as a client to help us reshape our human capital strategy.”
Mike Zani Mar 9, 2018 ▶ 3:16
Assertion Not checkable as stated
Predictive Index average ACV is $12,000
“Yeah, our average ACV is 12,000.”
Mike Zani Mar 9, 2018 ▶ 5:38
Assertion Not checkable as stated
The Predictive Index has 6,100 corporate clients
“That's, you know, our average client, we have 6100 clients.”
Mike Zani Mar 9, 2018 ▶ 5:44
Assertion Not checkable as stated
Predictive Index generated $50M in revenue when Zani acquired it in 2014
“We are, we're doing when we bought the company in 14, we were doing fifty million in revenue.”
Mike Zani Mar 9, 2018 ▶ 6:13
Assertion Not checkable as stated
Predictive Index is forecasted to close 2017 at $70M revenue
“And we've grown the company to seventy million when we're closing out, forecasted to close out on 17.”
Mike Zani Mar 9, 2018 ▶ 6:20
Assertion Not checkable as stated
Predictive Index accelerated from 8% to 34% growth post-acquisition
“It was growing at about eight percent for the last 10 years before we bought it, and we've retooled the company, and this last year will be 34% growth.”
Mike Zani Mar 9, 2018 ▶ 6:36
Disclosure
Zani: Predictive Index has self-funded through cash flow since November 2014
“And the only capital that we've brought on was acquisition capital. Since November, 2014, we've self-funded everything through cash flow.”
Mike Zani Mar 9, 2018 ▶ 9:24
Disclosure
Zani: PI acquisition was backed by original 2004 search fund investors
“Daniel, Daniel and I put put some in, but we've used our investors in the search fund that we've, that got us going in, in 2004. And we've gone back to them through every subsequent deal and just sort of passed the hat.”
Mike Zani Mar 9, 2018 ▶ 9:36
Disclosure
Zani put zero personal equity into his first search fund deal
“And in our first opportunity, we didn't put any equity in. We just earned sweat equity. But we did well with the first company and we've taken some of our proceeds and bought other companies and we've been able to put more and more equity into our subsequent i…”
Mike Zani Mar 9, 2018 ▶ 11:24
Disclosure
Zani details search fund carry hurdle: 20% under 30% IRR, 30% over
“Typically we structure it as a profits interest. So what we do is we get everyone their initial capital back. And then we share, you know, a percentage of the proceeds and you hit on it. If we are under a 30% IRR, we get 20% of the proceeds. And if we're over …”
Mike Zani Mar 9, 2018 ▶ 14:44
Disclosure
Zani reinvests all company cash flow into growth over regular payouts
“We've done that just because in most of the companies that we've had, we have wanted to take all of our cashflow to invest in growth.”
Mike Zani Mar 9, 2018 ▶ 15:41
Assertion Not checkable as stated
Zani: Predictive Index CAC payback period is roughly 16 months
“I think it's about we're probably at about 16 months payback.”
Mike Zani Mar 9, 2018 ▶ 17:33
Assertion Supported
Zani: Predictive Index sells only upfront annual subscriptions
“Only annual.”
Mike Zani Mar 9, 2018 ▶ 17:55
Assertion Not checkable as stated
Zani: Predictive Index reaches 98% revenue retention, sub-90% logo retention
“On, on revenue, it's closer to 98. On, on logo, it's just under 90.”
Mike Zani Mar 9, 2018 ▶ 18:13
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