Episode 776 | How Bootstrapping Led to a Life-Changing $90M SaaS Exit
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Welcome back to Startups for the Rest of Us. I'm your host, Rob Walling. And in this episode, I talk with Kevin Wagstaff about how he and his brother co-founded a SaaS company. And

and sold just under half of the company at a $90 million valuation. Yeah, bootstrapped it to a $90 million partial exit, and then sold another swath of the company a year later. It's a pretty incredible story. Kevin is a longtime listener of the podcast, A Micro Confidential, and you'll actually hear in the episode how he met the potential acquirer in the men's room,

at MicroConf in Denver, 2023. It's a pretty incredible story. And what's interesting is this podcast and MicroConf have now been around so long that you are now hearing of folks who are the second or the third generation of founders, even like Ruben, probably the fourth generation of founders that have come up

listening to this podcast and reading the books and going to microcomps and being part of this community. And few things bring me more satisfaction and happiness in life than hearing these stories and hearing these stories directly from the founders told straight from the heart like Kevin does in today's episode. It really is an incredible story of how they bootstrapped and exited this company. And at the end,

I ask for your questions to bring Kevin back on the show. So as you're listening, if you have questions for Kevin about anything, about how they grew the business, why they sold, how they sold, just anything that you hear, jot it down, send it to questions at startuptotherestofus.com or at mentionme at Rob Walling on ex-Twitter, and I'll bring Kevin back on. He said he'd be game to answer some listener questions. Before we get into this episode, if you haven't checked out the SaaS Launchpad app,

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We can workshop your SaaS idea, tackle challenges, or map out your next move together. If you want to kick the tires first, you can get a free sample lesson at saaslaunchpad.co. It's a 28-minute video on the DNA of a great SaaS idea. And as a bonus, if you watch the video before June 1, you'll be entered to win a full copy of the course completely free. Since you're listening to this podcast, enter the promo code LAUNCH

at checkout. You'll find all the details and the free sample at saslaunchpad.co. And with that, let's dive into how Kevin Wagstaff bootstrapped his SaaS to a $90 million exit. Kevin Wagstaff, thanks for joining me on the show. It's an honor to be here, man. I've heard your voice for a long time.

Other side of the AirPods, so to speak. So you and your brother built an absolutely incredible business called Spectora. And your H1 is all-in-one home inspection software, the trusted solution for home inspection report writing and business management tools. You started it in, looks like, 2017, and you sold it. You can tell the listeners how much you sold it for. I'm just going to say for a kajillion dollars. Ha ha ha!

in, what was it? Was it 2024?

2023 was the first sell and we sold a minority stake to a great private equity partner, Radian Capital, for a valuation at $90 million. So we sold just under half the company at that time for $90. And then we sold a little bit more in 2024, met a little higher valuation, $110. Yeah, so you and your brother still owned the majority of the company and each walked away with, if I'm doing loose math, was $20 million, $23 million, somewhere in that range. Unbelievable. Yeah.

So I guess my first question is, because we're going to go, I want to hear the story of it, why it worked as fast as it did. The acquisition process is a, that's three podcasts. That's a whole mini series. I could do a Tiny Seed Tales mini series just based on what you put there. But the real question I want to ask is,

Do you remember that moment when the money came through finally and you I assume you went from being well off you were running a successful SaaS company so it wasn't like you were scraping by but suddenly it was like oh I never have to work again and my kids probably never have to work like generational wealth I'll say that's tremendous what was that like for you?

I remember I was sitting in this office and the process was a grind. And so it was definitely like a refresh, refresh. Is this really real? And the bankers told us it's never real until the digits are in the account. And just refreshed and hugged my wife. Felt like crying. But I think oddly, I had to go to like Costco or something like, you know, later in that afternoon. And so anticlimactically, I took out the trash and then went to Costco or something.

That's all I remember. I love this because I tell the story of signing our final asset purchase agreement, our APA with Drip and the money coming through. And I was at a cello camp with my kid and the teacher was pissed because I had to go sign on my iPhone. And I like step out and you're supposed to, it's Suzuki method, you're supposed to be in there. And so I'm like, oh, I'm sorry, I gotta go. And I'm signing this thing. And it's just like, it's just normal life.

life. You're just rich now. You do. You take out the trash and then the plumbing breaks and you call the plumber just like you did yesterday. You just don't necessarily worry that it costs $300. Exactly. In our heads though, we're on a yacht popping a bottle of champagne and there's people everywhere and everyone's like putting you up on their shoulders when in reality it's just like, well. And here we go. Did you call your brother? I mean, you and your brother started this company. Like, did you call him and just say, bro, we did it? Yeah. Yeah.

Yeah, yeah. I think we maybe met up the next day and hugged and kind of like just let our shoulders down to say like part of the goal was to have generational wealth and money forever and a few money. And you're right, we paid ourselves well because we had good margins along the way as a lot of bootstrappers can do. But it is a different level when it's like, okay, true optionality and post-economic or whatever you want to call it. Yep, yeah, that amount of cash in the bank is different than...

oh, I made even half a million dollars last year or a million dollars last year. That is really cool, but there's, I'm not throwing any shade at that, but it is different than seeing a $23 million balance in your bank account. It is different. Remind me of what your revenue was, like forward-looking ARR when you sold that first 49%. Yeah, I think we were about 12, we're going to be on a $12 million run rate around the diligence time because it was about mid-year 2023-2024.

And so, yeah, the multiples were kind of around that six, seven-ish,

Yep. And selling in 2023 was as it was recovering. If folks remember, big boom in 2021, tons of deals going, M&A deals especially. And then 22 was the bust. And then 23, it was like middling. I remember because A&R, you know, you've talked to A&R from Tiny Seed. He runs Discretion Capital, which is the sell side M&A advisory for SaaS. And 2023 was like touch and go, touch and go. So you sold in the middle of that and got a good multiple.

It felt chunky and lumpy in there, though, for sure, because running a process during the biggest interest rate hiking cycle in history, maybe, was not good for our blood pressure or our hairlines, but it was brutal. Yeah, but you did it. So we're going to talk through this episode. I want to find out why you sold a minority share instead of just selling it all. The process itself is filled with...

so many ups and downs. I don't know that we can cover them in a single episode. And one kind of twist to tease is you actually met someone, so Radian ultimately acquired the company, and you met someone from there at MicroConf in Denver, in the men's room of all places. This is why this is so special for me meeting you and talking to you, is that our journey began with you, with startups for the rest of us. We were OGs, man, like a decade ago. We started from the beginning. Wow.

And then meeting someone at your conference. So you're a special person in this journey. Dude, that's awesome. Well, I look forward to having an old-fashioned with you at some point here soon. Yeah, my treat. My treat. So talk to me about, and let's roll it back to 2017, right? You made some notes for me, which are really helpful to kind of give me your like,

January 2017, I had $9,000 in my bank account, $30,000 in wife student loans, $10,000 loan from parents and a second mortgage to move into the new house. That gives people an idea. It's like, you're doing okay. You're doing so solidly there, but you're kind of just living a life. And you get this idea. How did it come about? I know that in 2017, there was already SaaS. Yeah.

for home inspectors. So what was the thinking there of like, there needs to be another one and how are you different? Great question. So about a year and a half prior, a good friend of my brother and I, his dad is a home inspector and he came to us with an idea and said, hey guys, the leader in this space, I think is a little weak. There's not an impressive SaaS player. And he said, I'd love for you two to come on board this idea. I have to

to basically improve upon it. And so we liked the idea of niche. We didn't like the idea of big fundraising, very capital intensive businesses. We kind of came from the school of kind of like lean startup and 37 signals type mentality. And so we took a look at some of the competition and we said, man, maybe SaaS forgot about this niche, this industry, because

there wasn't the sexy player, you know, when you look at their homepage and you're like, ah, next idea. Someone already dominated this. There were still downloadable DVDs and mail it out to you players that were on the first page of Google, some very old looking ones. So we said, huh, okay, we think we're going to compete here. So the idea found us, the other two founders dropped out a year later. So by launch, it was just me and Mike with this kind of like baby and idea.

And 2016 was basically customer interviews, building MVP, helping customers basically with their marketing and SEO as a hook to get them interested in the software. And did the other founders who left, did they have equity? Did you buy them out? That was pre-launch. And so they signed away any rights. And this is such a good lesson, not necessarily

on one side or the other, they had good paying jobs. They were probably making 100, 150K at a tech company. I don't think they wanted to go all in on something. They kind of wanted to part-time it. And then once Mike and I really started putting in long hours and being on Slack all day, they were like, you guys are ready to do this at a level we're not ready to commit to.

Because we wanted to be all in. We knew customers would feel it if we were kind of moonlighting, part-timing, not around half the day. So we went all in on it. And so it's your brother, Mike. And what are your backgrounds? Are the two of you developers? He was a business major, but a computer science minor. And then I was a finance major, did real estate for five years, and then kind of self-taught front-end code, but then had more of an SEO marketing background. So a little bit of a jack-of-all-trades.

So your front end, and was he the back end? Yeah, he was everything. He was full stack because I was not at a level where I was writing production code. I was building websites for home inspectors, so more of on the marketing side. Interesting. So you have a marketing sales co-founder, you have your engineering co-founder. Yeah, that's one of my favorite. And with TinySeed, that's one of our favorite combos. I think the only way it could get better is if one of you had been a home inspector.

You know what I mean? You have subject matter expertise. So this is interesting because I want to get to your growth in a second because the growth is stunning for this space. And I told you offline, if someone told me they were going to start a home inspection SaaS in 2017 or today or whatever...

In no reality would I guess that it would grow this quickly. Actually, I'm going to go run through it right here. So end of 2018, you're at $103,000 of MRR. So 1.2 million forward looking. End of 2019, doubled to $200,000. End of 2020, $330,000. End of 2021, $330,000.

600,000 in MRR. You almost doubled again. And that's 6, that's 7.2 million. I mean, this is like crazy in 2022, you're at 700,000 and the 2023, almost 800K MRR. Just to set that stage. I mean, that is very fast for you to get there in this space. I guess what happened?

Like, how did you, how did you pull this up? Because if you were to tell me I'm going to start like an ESP, because I know the ESP space and you can go really fast, right? We saw it with, I mean, I saw it with Drip. We saw it with ConvertKit, right? We saw it with Beehive and Substack. So there are spaces where you can, if it's a big market, you can get traction really quickly. Home inspection software is not one that I would expect to be that, but obviously you proved it. So what did you guys do right? Yeah.

I think we came with a fresh angle at the time because if you've no home inspectors, their typical process was they show up, they have a point and shoot camera, like a Canon, and then they go home and build the report and send it to you. That was the way it was done for the most part up until about 2015.

And so we just believed in kind of like mobile first, which is so funny to say that in 2025, like mobile first is like, okay, they should be doing most of this on the app. So there was a little bit of innovation there of like, hey, 90% of your inspection should be done on your phone. And you might even be able to publish this in the driveway standing there with the buyer because we just...

efficiency. That's the way it should be. Home inspectors are about 10 years behind everything else, kind of like, you know, real estate, certain markets, technologically speaking, they're behind. So I think that was one big pillar was we innovated on the process and the workflow to say, mobile first, the app is going to be way better than anything in this industry. Second, we knew these were not the most tech savvy customers. So we

lived and we basically lived for customer service on intercom we lived on there we would chat with them all day

we would have very unprofitable customers for the first year or two because the word of mouth was such a big deal in that industry. So I think the word of mouth, you mix in our SEO presence was good kind of in year one and two, and then the innovation on the app. And the word of mouth really spread like wildfire because it is a herd kind of mentality of like, hey, have you seen this new software? It does XYZ, low cost of acquisition when they're just telling each other.

That's the thing, right, is typically this type of...

I call it customer pain versus competitor pain. Competitors, like starting an email service provider, there's 500 of them, so have fun, good luck. But customer pain is what you found, which is like, there is no good competition here. We're going to clean up with some good UX and customer service, but finding the customers is usually expensive and supporting them is usually expensive because it is realtors, construction, whatever. It's less technical for auto mechanics and such like that.

So it's interesting for me to hear that your cost of acquisition was so low because you truly figured out word of mouth is what it sounds like. Is that right? Nailed word of mouth, really leaned into YouTube videos early on of just like every single thing in the workflow that you could come across. I'm going to do a demo. I'm going to do little videos. We're going to have playlists. We're going to link it everywhere. Try to help self-serve take off earlier.

But the conferences and the reputation in the industry really floated us and the wave just kept going and going from there.

Yeah. And here's the thing, man, most companies that I see, whether TinySeed, MicroConf or outside of that, most companies kind of in our mostly bootstrap B2B SaaS space, if they grow this quickly and get as big as you did, they're high priced. They're selling big ticket $25,000 a year, $50,000 a year and up. Not all, but just as a, you know, 80-20 maybe.

And as I look at your pricing, which I'm sure has changed over the years, but just your pricing today is monthly, it's 99 bucks a month. Annual, it's 1000 bucks a year. And then you have website plus SEO, which is like 1700. Your jumpstart package bundle is just over 2000. These are not high ticket, like these are not high price points. And in fact, they actually restrict what you can afford to do, right? Trying to run Google ads, I'd imagine is tough.

at a thousand. And so you do really need, you can do content, you can do SEO, you can do obviously word of mouth because it's free and viral. You know, there's a handful, five, six, maybe seven marketing approaches that you can afford to do with that type of annual contract value. But it sounds like that wasn't really as much of a damper as one might think. Yeah, shockingly, the high volume, high velocity kind of approach worked and compounded.

It's a high churn industry too. And that's what's very scary. And I think that's what scared some of the potential buyers was how do you handle that kind of churn if half your user base could go out of business in the next year? But a lot of inspectors sustain and do enough business to be part-time or seasonal. So we get a lot of boomerangs. And yeah, and there's about 30 to 40,000 home inspectors in the US and Canada. That's kind of the estimate. So that was our team we were dealing with.

But then payments, that's like the hidden multiplier. So they process the payments through our white-labeled stripe. And you get a couple percent on that. Yeah, yeah, yeah. This is something I really want listeners, if they haven't heard this before, this was something I had...

heard of before TinySeed. I knew it existed, right? Because I saw it with Shopify and I saw it with other folks. And we have, let's see, we backed 204 companies through TinySeed. And I'm guessing there's like maybe 20 or 30 that do this, you know, where they have, they take a cut of GMV in essence, gross merchant volume. And sometimes that cut is 1%. And sometimes it's up to, I don't know, 6, 7% in certain instances. Those numbers add up and they snowball the further you get in. And so it sounds like this is exactly what happened with you. Yeah.

That was a big part of the snowball. First, it was 1% of revenue, then 5%, then 10%, then 15%. The more you process, the better deals you get with payment providers. And then we work with our inspectors to have their ticket price go up by adding more services. So you start to think about your customers making more money and then the snowball just gets bigger and bigger. So I didn't understand the power of payments before. And then it's like, wow, what businesses can you process payments for people? Yep, and we had...

Well, Iran from Gym Desk, a tiny seed company, he came on the podcast, I don't know, in the last six months. And,

And he exited, I forget what the published number is, I think it was 32.5 million for like a majority stake, but he still, we all have a, Sine Seed has a second bite at the apple and so does he. And one part of Jim Desk is payments. It is. And it's Jim, you know, it's Jim's that are subscription and, you know, I forget what they take, but he happened to have a very low churn business that also had payments. So it was a similar thing. Yeah. And the multiple was really high. So.

So we've talked about your growth and how you kind of sparked, you got this word of mouth in the early days it was customer service. How did you initially, like let's say the first six to 12, maybe 18 months, you're trying to, you have a cold start problem where it's like you know one person in the industry, you build some software and mobile first, I get it. But like how do you get that momentum? I mean at the end of 2017, it was your first year really in business, right?

You're almost at 20K MRR already. There's a lot of people here who would kill for that. Did you feel like getting there was like, oh, this was easier than we thought? Or was it like, oh my God, Mike and I were grinding nonstop to get there. What was that like?

The f***ing grind resonates. So it was constantly calling, emailing, asking any inspector that would even answer anything, any email or call to tell me what he hated about his software. So that was kind of my role. We did connect with the biggest trade organization in our industry. So where everyone registers to get their continuing ed, it happens to be in Boulder and we're in Denver. And so we drove up there, shook hands and said,

We'll mop your floors. We'll do whatever. How can we be helpful to your home inspectors was like the ask. Where do you have gaps? What can we do to help?

And then we went to their first little trade show up there and set up our little desk that looked dinky and the tablecloth was wrinkled and we were embarrassed. And we were like, no one's going to take us serious. We're just two kids that don't belong in this industry. Imposter syndrome like crazy. And it was tough because they were like, oh, you guys will be gone in a year. What's different about you? Like, oh, new software? I'm good. I love what I got. You just hear that all the time. And

They really don't. That's what I learned was like, they don't want to be sold to. So at every conference we went to, they said, no, I'm good. Love my software. I was like, no, you can't love all of it. Is there a part of it you don't like? So yeah.

Trade shows, getting buddied up with the biggest trade organization. And then just every day, anyone that even like would do a trial, it was like call, text, email. Want to do a demo? Want to do a third demo? Six in the morning on Sunday? Cool. Like we were, our pride was answering the email within one minute. So when they would email and ask a question, Mike and I were like racing to see who could like answer it because we just wanted them to know that like, we're going to help you figure this out.

talk about things that don't scale. You know what I mean? That was our mantra that we live by. Like this doesn't scale, but like we're going all in on this and,

We didn't see our wives for, you know, a year or two. And that's how there were sacrifices there of like sitting in that office 12 hours a day. And that's got to be what, I mean, there's a lot of, you know, you doubled several times, as I was saying when I read it out. But getting to 18K MRR almost 20 by the end of the first year is like, that's crazy. The one I think that surprises me the most is one year later, you're over 100,000 MRR, like you 5X'd in a year. Yeah.

Was it the same story? There were two big occurrences that happened. We also went and found all the Facebook groups where home inspectors hung out and mingled. There was these small Facebook groups and we were like, okay, how do we get in there to be helpful? So we would just try to add ourselves to them. We would ask an inspector that we knew to add us and let us in there just to listen. And we wouldn't even post because they hate vendors in these Facebook groups. And we tried to find the influential inspectors in there and really...

like poke on that and so one very influential inspector that everyone kind of looked up to

I killed myself to get a demo with him. And he was like, I'll meet with you, but it's 6 a.m. on Sunday. That's the only time I got because my kids are busy. My kids keep me busy. I got inspections all week. And I was like, this is a test, man. I was like, let's do it. 6 a.m. Sunday. So I set my alarm, got up at 4 a.m., prepared. He ended up loving the software. He went and told his Facebook group of 200 inspectors that the next biggest thing is out there. You guys should check out Spectora. So that was one big kind of push when we were like, wow, these guys listen to each other.

Then the second we did a stupid grandfather pricing for life sale. I saw that. I saw that in your notes. I was like, oh, it just goes to show you can make mistakes and still survive, you know? So was it a one-time thing then, like a one-time payment or just grandfathered their pricing for life? Grandfathered pricing for life if you do an annual deal. So you do an annual, you will never have a price increase for the rest of your existence. And it turned

Turns out when we went to sell, every private equity was like, why'd you do that? Yeah, it's not great. But it was only 100 customers or something? Yeah, so it was a small number. We knew we would have to raise prices over time, as every good SaaS should. But those were kind of the two watershed moments where it was just like big sale. And then we did another one on Black Friday and people do respond to these kind of FOMO sales, I think so.

Did you raise any funding or have any outside investors or was it just you and Mike? Me and Mike, we started, we put in $2,500 each for the domain name and the AWS instance to stand that up and got home from that. That's it. Yeah, wow. We did have about, yeah, like I said, I think we had like maybe 10 or 20 grand in the bank each. So we had some runway and we told ourselves, hey, first year,

We're not going to pay ourselves. And so the two of you then, it wasn't nights and weekends. Did you guys quit the day job right away? We burned the boats to a degree because we both said we could go back to freelancing in 2018. If we go a year and we're just struggling and chugging along, we can pick up freelance stuff on the side.

And I think we were still winding down some of the freelance stuff in those first couple months. But then once that first hundred customers hit, we were like, we're burning the boats. Yeah, that makes sense. As I hear more of your story, the little elements, like I didn't know about the Facebook groups, for example, or the 6 a.m. Sunday call, right? This is the first time I'm hearing it. As you talk about the Facebook group stuff, it makes me think, yeah, that's totally what I, that's how I used to think with Drip, right? Or that's how I think too, right?

And sometimes I'll tell that to founders. They'll ask me for advice, whether on this podcast or whether privately, you know, I'm like, well, are there Facebook groups or the thing? And there's always a question of like, well, how does that work? How do I get in it? How do I not sell? How do I this or that? And it's almost like a resistance to just doing it. And I remember again, back in my day of like going on Reddit and responding to things and not, and being a little salesy, a little tiny bit, but not, not so much. And the shit

works. If you just, if you just do it. And I guess that's what I kind of want a listener to hear is like, you thought about it. You kind of had a playbook in your mind, it sounds like. And as the new thing came up, it's like, oh, there's Facebook groups. We have to be there and we're going to put in the time and we're going to put in the effort and we're going to do this well. Right. And that, it sounds like that was a piece of this puzzle. It was no one thing, but it was a lot of hard work.

it was maybe a little luck, I guess, and a shitload of skill and willingness to just do a lot of things. Does that resonate with you? It does. And I could tell your approach was similar, where it's like you just go in there and be helpful. And so what that required was thinking about

where are home inspectors weak? What's something they don't do well? And it was like market their business. And so I'm going to make sure I learn everything I could about SEO and setting up a website and Google my business. And when someone had a question in those forums or Facebook groups, I would just chime in and answer and not say a thing about Spectora. I almost anti-sold. And I wanted them to be like, who's this guy? He's not an inspector. And then my signature, they would see a link to Spectora. So I'd get click-throughs from that. That makes sense. And...

I want to call out too is some founders, especially online or like I have the SaaS Launchpad course and folks will say, well, I can't imagine building anything if I'm not customer number zero or number one. Like if

Like if I'm not building it for myself, it's eating my own dog food. I couldn't do this, right? But you weren't a home inspector and neither was your brother. It sounds like you had a friend. Is that, I forget if it was a relative or a friend. Yeah, a friend's dad was the home inspector. I was a realtor for five years. So I received home inspection reports

And that maybe was my wedge because I said, hey guys, I got these reports and I hated them because they were 90 page PDFs. Our new version of the report is web-based, it's modular, pictures blow up, there's video. So that helped a little, but my magic line was like, hey man, I'm not a home inspector. That's why we're going to listen to you. You know, like tell us and we'll listen. So we really, our calling card was like, it's an advantage that we're not a home inspector because we don't think we know better than you.

So I want to transition us into talking about the acquisition because that's obviously a big piece of this story. I want to call it out, though, if you're listening to this, the acquisition is...

It's a capstone on a story, but there's five, six, seven years of you guys grinding and growing this. That's the real story. I'll say like there is no acquisition without all of that. And so it sounds like you had an almost an acqui-hire offer in 2017 where Porch, I don't even know who that is. Are they private equity? Are they a competitor? Yeah.

No, they're now an insurance company, but they were kind of like a home services marketplace. If you think of like an Angie's List or HomeAdvisor, they started off as that. Got it. They got public via SPAC. And so they kind of just took the approach of buy up anything in the home services.

And so they offered you like stock and a little bit of six figures. Did you, and we call that an acqui-hire. I'm trying to see companies get this more often than I would care to admit. And usually it's just a big frigging waste of time. They're like, hey, we want to acquire you. And you're like, great, we're really early. And they're like, great, we're going to give you some stock in our private company. I guess if they, I don't know if they were, you know, public at that point, but it's like, this really isn't, probably isn't worth it. Did you guys even entertain that? Or were you like, no?

now? We got a little scared because the CEO told us he would basically make a free version of what we did. He'd spin it up and crush us. And so it was more like we're going to get squashed like the little cockroach we are at the time. So we thought about it for a hot second, but then we just doubled down on what we believed and saw was like, no, people are liking this. People like what we're doing. So we said, no, let's compete. We were scared for a second there. Yeah.

Which is totally, yeah, it's totally natural. Big money comes into every space. It's going to scare bootstrappers, you know. Yep. And so then in 2020, it sounds like Front Door made a $12 million offer. Was that mostly cash? And was that serious enough that you guys considered taking that? Yeah, that one we thought about because that was...

you know, COVID. So there's opportunistic buyers coming out and we thought, okay, like they do warranties, they're adjacent to us, but we just saw our growth and we were like, no man, we're still growing. Like if someone will pay this now, keep executing, like keep our heads down. Like we're in the zone working our asses off. Like it'll get better. We'll keep winning. So said no to that.

That's big, man, because if you two could have walked away with six million cash each, that is, in most cities, that's, that's, you just never have to work again money. Retirement money. It really is. You don't need it. A lot of people say 10, 20. It's like, nah, you can do it on less than that.

And so you must have really had the confidence that you could keep executing. Yeah, and it felt opportunistic given the environment. They didn't budge at all. We showed them our kind of amateur projections to say, hey, we think two years from now, this is the AR we'll be at. And they may have not believed it and maybe they'd have a reason to. I don't know if we believed it, but we created a spreadsheet and said we're going to grow and get there. And so we ended up not doing it. I'm glad we didn't.

And then in middle, it was June of 2022, you met with a Bay Area private equity company. And that...

And they want to make an offer without running a process. I want to call this out because this is really common. Running a process is basically having an M&A advisor who goes and gets in touch with 100, 200 strategics and private equity and does kind of an auction where it's like, hey, this is for sale and you've got to all sign LOIs and you've got to make offers and you've got to make offers first, I guess. They send in LOIs.

And most buyers, if they approach you, they want to try to get you to where you don't do that because then they might get outbid, right? So then they try to, oh no, don't run a process. I mean, A&R deals with this all the time. So I want to call this out and I want you to explain, add on to what I've just said of like, why did they tell you not to run a process and then you decided to run one anyway? So talk me through that experience.

Yes. So we read forums, talked to other founders and found that we were kind of on that border of like hire banker, don't hire banker because smaller deals, it's just probably not worth it. They may not even work with you if it's in the low single digits. But-

Every PE we talk to, they don't like processes because it's competition and it pushes the price up and then they have to kind of compete and fall in line with everyone else. So they want to build these relationships with you early. Most of your listeners are probably getting these emails and calls because it's an associate saying, hey,

want to get you to like us. So then when you're ready to do a deal, it's just a one-to-one. You know, I'm not saying they all will chisel you down on price or try to give you poor multiples, but no competition usually brings a price down. So we met with Hula and Loki, some bankers of New York. One works out of San Francisco. And we really liked what they had to say. They were very honest with us. They told us a competitive process.

will really show us the quality of buyers that are out there because there's some private equities that are not interested in helping you run a great business for your customers. They're just not. They want to roll up companies. They want to Frankenstein together something bigger to sell to the next private equity.

So they helped us. It was like a master's degree in private equity that they helped us through. And we learned so much from the bankers. And so personally, I'm glad we did it. And I was happy to give the couple percent of the overall deal value to them because they showed us the game. They introduced us to people. And they taught us what a business packaging it up nicely looks like with the right deck, the right selling points.

Like what future vision are you selling to the buyer? It can't just be, look what we did. It's like, what are they buying?

Yeah. Where are you headed? No, that's really good. I mean, Sherry and I, as you know, wrote a book, Exist Strategy, and it's published in the last few months. And that is something I'm really bullish on hiring a good banker, you know? And of course, I'm co-founder with A&R Volstead, who runs Discretion Capital, and I refer a ton of people over there. Because some people don't want to pay the, I don't know, 3%, 5%, 6%, you know, whatever the percentage of purchase price is. And I'm always like, oh, no, I'll

Don't DIY your own legal. Don't DIY your own tattoos. Don't DIY your own LASIK eye surgery. And don't f***ing

DIY your own acquisition. This is the biggest transaction of your entire life, very likely. Yes. Why be cheap? Because you don't want to pay someone half a million dollars. Like when I say half a million or six, even if it's a million, it's like, oh, that's a lot of money. But if you're paying them a million, like you're making so much more than that, you know? Yes. I respected it after going through it because I thought me and Mike thought the same way. We were like, oh, we can just represent ourselves and just do this.

There's so much inside baseball to this that you learn along the process. And I respect it so much more now of like how to position a business for a buyer. And you said you wanted to shout out a compliment to a private equity firm because there's a lot of private equity that's,

And there's some that are good and there's some that are great, right? But in particular, I think it was... Main sale. Main sale. Main sale partners. They just came across as so authentic and down to earth and not like private equity in the sense of like the sharp elbows, talking a different language. We started talking to them in 2019. I started doing calls like well before we were ready to...

to even think we were a viable business to buy because i wanted to learn from them and ask and i that that would be my advice to any entrepreneurs is like when you're talking to private equity like don't be shy to ask them like hey what would make this business worth 6x 7x like what are you looking for what's appealing to you and like make them tell you but

But anyway, MainSell was very high integrity, very transparent. It never felt like they were trying to like get a deal or get one over on us. I wanted them to be the highest bidder at the end of the process. They weren't, but gladly worked with them and may work with them in the future. We'll see.

And then the Bay Area private equity firm I mentioned earlier who tried to convince you not to run a process, turns out they were one of the highest bidders in the process, which is interesting, right? I know you had a higher bid but they dropped out due to environment. I want to kind of talk through how that went down because it sounds like it was tricky.

You and your brother only sold 49% of the company with that first swing. And then you sold another, as you said, you know, another small chunk a year later. Why that? Why not just sell the whole thing all at once?

Yeah, we thought about it because obviously the dollars go up the more you sell. And we just thought there was still more to accomplish. We had projects, we had our go-to-market getting revamped. We had a few kind of new products we were rolling out. So we just thought there were things on the horizon that were going to increase the stock value in the next year. And so we said, no, we want to maintain control. And the second reason was we want to make sure to still be doing right by our customers because we have such an involved customer base. Like

They know so much about kind of our business and the product and they're so into it and so loyal that we wanted to make sure everything was above board and that customers were still being taken care of. And so that was a good kind of a glide path for working with the PE, I think was saying like,

We'll sell you a minority stake. Of course, we want all your resources and your help and your guidance because some of these firms, they've seen hundreds of businesses like Spectora. As much as we think we're all special, we're like, oh, wow, you have seen this story before. Like, help us. And so that was the initial rationale was like, we have more to accomplish. And then we'll do the second bite later.

So this Bay Area private equity firm, you signed with them and it was at an 80 million enterprise value. Flashback 30 minutes, we said you sold for 90 million. So this is not the one that goes through. This was the winner. Yeah. And so you signed an LOI in early December of 2022. So then due diligence over the holidays, which is a f***ing

nightmare regrets. These are life regrets when you do that stuff because I know you did not take a day off the entire Christmas, New Year's cycle. Yeah, there's never a good time to just get put through the ringer of just being told your kids are ugly, your mom's ugly, your dad's ugly, you're ugly. It's abusive.

It's just abusive, yeah. Everyone I talk to who does any type of deal, whether it's 80, 90 million or whether it's like 5 or 10 million, they're just like, dude, this is one of the worst experiences of my life. It points out everything you failed to document since the beginning. Yeah.

Yeah, it's terrible. And so they flew out and met you in Denver, January 10th. And I like this, this is eloquently put. You said they got appetizers and drinks. They said all the right things, excited to partner, love the business, et cetera, et cetera. Eight days later, they're like,

The day before close and we're going to receive a wire for $29 million. They send, all caps, the retrade offer. Do you want to tell listeners what a retrade is? Yes, a retrade is a company gives you basically an offer, an offer sheet and says, hey, pending due diligence, this is the price, these are the terms, this is the amount of money you're going to get. You send wire instructions and then retrade.

They do their due diligence and afterwards they say, hey, things we found are causing us to believe your business is worth less than it was when we made this offer. And when you put it that way, you're like, okay, that's not the most unreasonable thing to say. That happens, right? Things can be worth less just like a home. You find something on the inspection. But there are private equity firms that will tell you we pride ourselves on not retrading. We do our work upfront. We

with the price is the price. And this was one of those firms that said, we don't retrade, we're founder friendly. Like those guys, they're chumps. You know, the guys that retrade are chumps.

The reality is, is they take your business and there's like a lead partner and they have an investment committee that they take it back to, which is all the other partners in the fund. They beat it up and say, this business ain't worth that. We're not doing that. So it has to go through an approvals. And so once you learn that, you start to realize, okay, the guy we were working with believed in us and thought that was the right price. His partners at the firm vetoed it. Wow.

So they added an earn out, they added terms that were just like... Did they reduce the offer or did they just add terms that were so onerous that you and Mike were like, no? It effectively reduced the price, I think, by about $10 million. So I think it ended up being an effective kind of $70 million valuation when you factor in the earn out and a call option, which is they wanted to reserve the right to buy more of the company at a fixed price, no matter how much value we added. So...

They have a lot of tricks and you know, a lot of deal mechanics that they can put in and it's savvy. But when you don't know about them, you read them and that's where a banker comes in and you're like, hey, decode this for me. What does this mean? So we did a lot of scenario planning on spreadsheets to say, hey, if the business grows to here, how does this deal look bad for us? And we beat that up one night, almost all night with our banker on a Zoom. So

They, you know, left us at the altar, gave us that deal. And we said, no, that's ridiculous. And this was in the height of the poor news cycle after rates went up from zero to five and a half percent. So nobody knew what was going on.

Yeah. And then you said no, and they came back with, they said, we'll do the original deal. Unbelievable. Unbelievable. And then you're like, wow, do I really want to be in, because you're kind of in business with these people because you and your brother are still going to own almost 50% of the company. They're your board. They become your partners. They, you know, when they fly out, you're eating together, you're laughing, you're talking, you're getting to know each other's families. Like it becomes very intimate. Yeah. And they said, no, no, no, we'll do the original deal. And we were like, you know what? We're good. Yeah.

Yeah. So you walked away from it. Yeah. We don't like how it felt. Yeah. And our bankers handle it with grace. Like a good banker will say like, hey, I'm working for you. We know bankers get paid when the deal closes. But they said, you know what? It's your decision and if this doesn't feel right, you're going to be married to these people for a couple years. Yeah.

Yeah, you got to feel right about it. And so let's flash forward three, four months. And this is the part that so I want to tell listeners, I had no idea any of this had happened. You and I had never met. I didn't know your name. I didn't know the name of Spectora. And I get from Arvid. Arvid Call has a it's like Google Alerts for podcasts, right? It's called PodScan.

And I got a Google alert, either from my name or from MicroConf, that you had mentioned me or MicroConf in another show. And it was John Warlow's Bill to Sell. John and I are buddies. I just went down to his event a couple months ago. And I'm like, wait, what? And I'm reading this. I'm like, oh, someone sold their company. And they mentioned him. That's kind of cool. And then I'm like, does that say $90 million? And I was like, I need to listen to this now to make sure the transcript is good. And then I'm like, how have I never?

never met this guy. So I believe that's when I reached out. I was like, dude, you need to tell me this story of what happened. Because you're in the men's room, MicroConf Denver, anybody who's, you know, it was a couple of years ago. Is this freak fluke accident? Because it sounds like you met someone from Radian and Radian is a private equity firm who eventually bought, you know, bought your first swath for 90. Eventually, yeah, bought the company. So

Yeah, I'm in the men's room and it's just me and this other, you know, blonde haired kid in there using the bathroom and we just start chatting kind of like, hey, how's conference going, you know, and get to know each other. And then he's like, oh, yeah, Spectora. Like we were in the process when you guys ran it last year. Love the business.

we just didn't think we could pay the price that you guys were looking for at the time. Would you be open to meeting with our partner, Chris again? Like he'll, he'll be in, you know, their, their trick is always like, Oh, he'll be in town. They're always in town. That's a good hack. If you want to meet someone, it's like, just be in town and buy him coffee.

And he just seemed like he had done so much work on the industry and the business. And like the kid was sharp. Barack, he's a great associate. I think he might be higher now at Radian. But he really impressed me when he talked about the business like he was in it with me. And I was like...

Wow, that's cool. Like I'll meet with this guy, but he has to come to the Starbucks next to my house, like near my house to make it. Because I told him, dude, we have PTSD right now. I was like, we're a little dated. Yeah, totally. We're not taking money. We're like, we'll probably never take money. Like after that relationship, like I'm never dating again, that kind of thing. So yeah.

I honestly told him, we don't want a deal. We don't want to work with anyone. We're pissed off and we're just going to execute. We're just going to take it out on the marketplace. Our competitors. That, I think, worked in our favor at the end of the day because if you don't need them, they have capital that they need to deploy. Maybe.

Maybe that worked in our favor a little of saying, no, we're hungry for this deal. And the interesting thing is you didn't run a process this time. It sounds like you did just have one buyer and yet you got this great deal. So April you meet Brock and then by June, it was at two months, you have the final term sheet. And then two months later you closed. It went fast, man. It was speed dating because Chris Livingston came out. He's no longer at rating. He actually...

went to Vista, but he came out and was so down to earth, relatable, like all the thing, you know, just like, you know, meeting you, like, it's just like it clicks. And you're like, man, I forgot you were a private equity guy there for a second. This is great. And he said, we could get close to your price because we wanted $100 million valuation. We thought the growth prospects and the future vision and add on products warranted it. Were we a little delusional? Yeah, but you have to be right. You have to believe in where you're going. We believed in it. We

What I loved about them was they were a newer, younger private equity firm that wanted to prove themselves. And when they are that way, they're going to show up and be invested in your business succeeding because their name and reputation relies on it. The bigger the fund, sometimes they just start playing the game of asset management and they don't really care if you don't make it because they just need a couple companies to make it.

So I loved what he said. My brother flew out to their CEO summit. I was on vacation. I was overseas. He went to New York to meet their partners. And he had very vulnerable, intimate conversations with them. And that helped sell him because we both like working with real humans that have vulnerabilities and talk to you and listen and all the normal good things in life, not just spreadsheets and numbers. So that's...

That was a rare thing in the private equity world to say like, oh, you guys are humans that care about other humans and you're good at your job. So we think we want to do this. And so we didn't end up having to do a process

at the end of the day and met Radian and then had a deal done, they moved fast, which I loved. And it sounds like it worked out. Radian's doing a good job running the company because you hired a CEO. That's that we've smashed cut to 2024 and you and your brother have since stepped away from the business. Well earned, by the way.

And Radiant, the company's still growing and everything. I mean, because you still own a chunk of it, right? Yeah, still own, collectively I still own about 29, 30% between Mike and I, but they have been a great partner. Learning about board meetings and how they are run at different sizes and stages has been very enlightening. And then you start to see what deep expertise in like go-to-market product payments looks like when you meet some of these people

Because a lot of these funds have operators. They have an operating team that actually will get into the business with you and help. So we've had Radian folks fly out, work with our team in person to solve certain issues that they're dealing with. And then you get access and insight into a couple dozen other companies, probably similar to TinySea. It's like the collective wisdom of a group of companies. Pretty powerful. We feel like we're out in the wild alone all these years, right? And then you're like, there's other businesses like mine.

Yeah, exactly. Yeah, because man, running a SaaS company, even with a co-founder is just lonely. So lonely. Yeah, it's a big deal. Well, man, thanks so much for coming on the show. You've shared a ton of knowledge today. I know there's still more of your story to tell, but you're giving back to founders today by being on the show. You're also now a TinySeed mentor, which is a big deal. I love it. This is the full circle thing I often talk about with MicroConf and TinySeed and the podcast is it's like,

If you get in the ecosystem and you do have success, try to give back to the other founders. You're doing a great job at that. I really appreciate it. Thank you. It's just getting started. There was a decompression period that was needed. I asked you about that, about the couple months, three, six months of decompression.

doing nothing or feeling, you know, chasing interest. But then there comes a time where you want to see other people get their win. And, you know, you've given so much to the community. So it's just trying to like pay, keep paying it forward, you know? For sure. If folks want to keep up with you, you are Kevin Wagstaff and the number three on X Twitter.

where you tweet, I see you tweeting about SAS and the NBA. I'm like, wow, I haven't heard so much about the NBA because I don't really watch basketball anymore. I'm like, oh man, this guy's really into the NBA. You're like A&R is with the San Francisco Giants. You're just in it. It's funny. Yeah, grew up playing, played in college, played a year professional overseas in the Philippines and then, you know, stopped and went to work. And then I was like suddenly finding this passion again for basketball. This is your jam. Yeah.

Well, I tell you what, if someone's listening to this and they have questions for you about anything, about growing, building acquisitions, if they either tweet me or you, or they send them into questions at startups for the rest of us, if we get enough, would you be willing to come back on the show and just do a Q and a kind of

Kevin Wagstaff Q&A exclusive? 100%, yeah. That'd be super fun. I think there's so much value in the nuance and details too because I think it spurs so much and so happy to be an open book about it because...

it's probably what you would have wanted. It's what I would have wanted early on. Awesome. So that's a call to action. If you're listening to this and you're thinking, you know, and again, anything about his journey, not just the acquisition, but working with the brother as a co-founder, all the growth upfront, entering this industry, how they grow, just whatever, anything that I didn't ask that you're thinking now, you can email questions at startupsfortherestofus.com or at mention either of us on Twitter at Rob Walling or at Kevin Wagstaff3. Thanks again, man, for coming on the show.

Awesome, man. It's an honor. Appreciate you and everything you've done for the community. So it's awesome to be here. Thanks. Thanks again to Kevin for taking time to appear on this podcast and to give back to the Bootstrapper community. As a reminder, if you have any questions for Kevin about his journey or his expertise, please send those in to questions at startupsfortherestofus.com. And thank you for listening this week and every week. This is Rob Walling signing off from episode 776.