Fund Stuff is a pod about all about micro private equity. We buy and operate tiny saas companies at XO.Capital. Follow along as we continue to buy, grow, and sell sass companies!
This week on "Fund Stuff," join Andrew Pierno from XO Capital for a deep dive into the intricacies of building, buying, and scaling startups. Flying solo with a cameo from Danny, Andrew turns a monologue into an engaging dialogue, discussing everything from the XO community's dynamics to the nuanced motivations behind selecting a startup idea. They explore the critical junctures where entrepreneurs decide whether to persevere or pivot, offering insights into the delicate balance of commitment and strategic withdrawal.
Amidst tax season's trials, Andrew shares candid thoughts on the bewildering differences between financial and tax accounting, revealing the surprising strategies companies employ to navigate this complex landscape. This episode peels back the layers of startup success, failure, and the gritty realities of entrepreneurship, including the rarely discussed emotional rollercoaster of launching and letting go.
With a sprinkle of humor and a dash of wisdom, "Fund Stuff" is your go-to podcast for real talk on the entrepreneurial journey, from the thrill of the launch to the tough calls that shape the path to success. Whether you're in the trenches of building your first startup or steering a portfolio of companies, tune in for a frank, insightful, and sometimes amusing exploration of what it really takes to make it in the world of startups and acquisitions.
10 Feb 2024
38 - 493.5% ROI - Exiting Sheet.Best
In this week's episode of "Fund Stuff," Andrew from XO Capital shares insights on successfully exiting Sheet.best with nearly a 500% return on investment. Highlighting the strategic shift towards focusing on fewer, larger deals for better management and efficiency, Andrew delves into the challenges and learnings from managing a broad portfolio of companies. The episode also touches on XO Capital's community engagement efforts, including a new initiative to help a small group buy their first SaaS company, reflecting on the potential for more structured support in the future.
The narrative then shifts back to the journey with Sheet.best, acquired in 2021 as XO Capital's second deal. Starting with a modest $800 MRR, strategic use of Google ads and unexpected influencer marketing led to significant growth. Andrew candidly shares the operational ease of managing Sheet.best, emphasizing its low support needs and fascinating use cases due to its horizontal product nature.
Financially, the exit from Sheet.best marks a significant achievement for XO Capital, with a 493.5% ROI and an impressive IRR, underscoring the company's ability to source, grow, and exit successfully. This move aligns with XO Capital's strategy to reallocate resources towards larger, potentially distressed ventures, aiming for impactful investments.
Andrew concludes by inviting listeners to join the XO Capital Discord community for further discussion and hints at the exciting journey ahead for the new owners of Sheet.best. This episode not only celebrates a milestone exit but also sets the stage for XO Capital's refined focus on value creation and community support in the SaaS space.
5 Feb 2024
37 - Deal Structures
Andrew from XO Capital discusses common deal structures in business acquisitions, focusing on all-cash offers and escrow use. He highlights the challenges of using escrow.com, especially for software acquisitions, and details the process of asset transfer and payment release in escrow scenarios. Andrew explains their approach to small deals without escrow.com to save fees, based on trust, especially with U.S.-based parties.
He then talks about seller financing, debunking exaggerated claims on social media, and outlining realistic terms like 80-90% cash upfront with 10-20% seller financing over one year, usually interest-free. Andrew also shares his experience with SBA loans for SAS acquisitions, emphasizing the difficulty of securing these loans and the need for a clean P&L and a patient seller.
The podcast covers other deal structures like earn-outs and turnouts, explaining why earn-outs are impractical for small deals and introducing the concept of turnouts, where payment varies based on revenue retention. Equity earning, another structure, is briefly mentioned but not commonly used by XO Capital due to their investment strategy.
Andrew advises keeping deal structures simple to avoid seller confusion and fatigue, and concludes with negotiation tips, emphasizing the importance of understanding the seller’s price range to find a mutual agreement zone.
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