The Exchanges

Q is maybe the largest buyer in a private kind of B to B SaaS space. You're in the same building. I'm in the frost tower downtown. Someone's listening right now. What makes you, you know, you guys are very different fund sizes, things like that, but what would make you a, where are you two different? What would make Vista better fit for a company versus you and vice versa?

A Sure. Yeah, no, so I, I know the Vista guys well, Brian and Robert. I, I've got tons of respect for them and, and what they do, and they're obviously the world's best. So, uh, you know, I, I, I'm humble enough to say I'm not even in the same sentence as, as what they do. And, uh, and they obviously have to put a lot more capital in play. So, so we go all the way down into the, you know, three to five million dollar range of, of these, uh, SaaS companies. And I think that's a space that they just simply don't play in because they've got to, you know, be looking for a billion dollar or, Several hundred million dollar companies. So, so we're much, much smaller. And I think that also enables a lot of these SaaS founders, again, to kind of fit into our envelope versus say something that, uh, that a larger firm like Vista would go after.

AI assessment note: “we go all the way down into the, you know, three to five million”

Q Yep. And do you, do you look at, I mean, are there any minimums for you in terms of, Hey, we've got to see at least this much go with you over your net churn on a, on a revenue basis, lower than this, any kind of hard metrics like that you need to be above?

A Yeah. You know, we, um, we look for definitely ARR, uh, you know, north of, You know, three million, ideally in the, in the five to ten million. Uh, and then we also look for a, um, uh, gross retention of, of at least 80%, and what that simply tells us is you have something that's sticky, right? And, and all the things that, that we purchase are, are in that B to B space, so we do look for that, that stickiness. Now, it doesn't actually have to be growing at, at some percentage, uh, and also doesn't really have to be profitable, because what we really do is we take that team and we use kind of our horizontal core, uh, You know, uh, competencies to have a shared engineering or share finance and things like that. And that's actually how we're able to run these companies forever in that, you know, many of these SaaS companies, unfortunately, they don't have economies of scale because they're only whatever, two to five million dollars. And therefore, you know, it costs a lot to have the, you know, the help desk software, the Salesforce software, what have you. So by leveraging that across a lot of these, then we can actually run them properly.

AI assessment note: “we look for definitely ARR, uh, you know, north of, You know, three million”

Q You have to kind of tell the founders the story you just told me, which is you've learned so much. Get out of this. Go take a second shot. We'll support you. Walk me through for founders listening right now. That might be great deals for you. What other things would you tell them where it's worth giving up that cashflow for them for the lump sum check from you?

A Sure. Yeah, no, I think that's a, that's a, that's a fair question. And I have this conversation a lot with founders and And basically, I tell them, within that three, that first three years of you starting the company, you kind of know at that point whether or not that hockey stick's going to occur or whether it's not going to occur. You know, everyone talks about, oh, pivot this, pivot that, oh, you know, look at what Slack did. But that's incredibly rare. Kind of back towards that same Cowboy Ventures analysis, 90% of those unicorns never pivoted. Right, and we, we created this, this cute little word, like, called pivot that sounds really awesome, but in reality, back in the day, we would say, okay, that idea sucked, it didn't work, so now I'm gonna go try another one, and, uh, and, and simply, so when I tell founders, I'm like, guys, in the first three years, if, if you are, you know, growing your revenues again, triple, triple, double, double, double, double, triple, however you wanna, uh, you know, it's gotta be triple digit, uh, CAGRs year on year, and if it's not, Then you need to take a good hard look and say, is this company ever really going to have that, that hockey stick? And it could again be a fine company growing at 20 or 30%, but is that your best shot? And do you want to go do that for the next eight years and really have two shots on goal or maybe one shot on…

AI assessment note: “what's the opportunity cost for your next venture?”

Q And walk me through kind of what you're kind of the, you're the SWAT team you've articulated, what it looks like. So there's you, how many other people on the Think Three team?

A Yeah, so, um, I guess I would separate the, the Think Three team into the folks that run the business and the, and the folks that kind of, you know, work with the entrepreneurs early on, because, um, and obviously we've got, we've got a, a funnel of folks that, uh, that work with sales side and investment bankers, look at the, um, uh, the inbound leads coming in, you know, go to the shows like Sastr, which came back from Sastr Europe, for example, right, talking to a bunch of entrepreneurs and things like that, and whether or not it'd be the right fit for a model like this, and whether or not it'd make sense for, for their company. So there's a, Handful of folks on that side of the world that, that kind of evaluate those deals as well as talk to entrepreneurs. Uh, but the bigger team is on the operational side, because again, when we buy these companies, we're not buying it to shine it up, throw some debt on it, and try to go find a buyer. We're buying companies that we feel that we can run for the next decade or two, right? So the first thing that we do is we really look at the core foundation of the product and ensure that we make the right technical decisions on, you know, perhaps even rewriting the underlying software if it was kind of done without The right level of software diligence. We then go to our customers and we really focus on customer success and we apply a custo…

AI assessment note: “Handful of folks on that side of the world... bigger team is on the operational side”