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59 Comments

Josh Pigford sold Baremetrics

  1. 16

    Love the openess of it @Shpigford ❤️

    The Details
    Purchase Price: $4,000,000 in cash
    What I walk away with: $3,700,000 in cash
    Multiple: ~2.65x ARR
    Buyer: Xenon Partners (tech private equity firm)
    Close Date: November 2020
    Earnout: None!
    Payment Structure: 3 payments (at close, 12 months & 18 months)

    1. 6

      Congratulations to Josh, very happy for his success.

      But I'm sorry, the ARR multiple seems low to me.

      For something like Baremetrics, I'd expect a lot more.

      Still a tidy sum to retire on though!

      Edit: I read further that it's mainly because he didn't want to stay on to earn out his acquisition fees over 2-4 years.

      I'm especially intrigued by his seed investors, who said:

      I think we all realized a few years ago that Baremetrics wasn’t going to be a “10x our investment” company for them, especially after we started focusing on profitability over growth.

      Are you kidding me?

      In our world, Josh's Baremetrics is a humongous success. Like what kind of returns did these investors really expect? If you want yuge returns, go speculate on Wall St Bets or the cryptocurrency alt coin markets, there you go!

      But they were incredibly gracious and both agreed to write off their investment.

      Wow, damn. I never knew this was a thing. Why wouldn't they just salvage whatever they invested? I'm sure it has a positive ROI. $800k investment with a $4m purchase price?

      Now I think they're saints.

      1. 2

        But I'm sorry, the ARR multiple seems low to me.
        For something like Baremetrics, I'd expect a lot more.

        The fascinating thing about your initial reaction—that the sale price was below your expectations for such a visible brand among SaaS businesses—is that several other people had the same initial reaction, including @RichAwo who replied to you, and of course several HN commenters that @stevenkkim characterized as being too cynical. The only difference from the HN sentiment is that your final reaction expresses a positive sentiment.

        I found out about the sale via HN but I didn’t have the same initial reaction perhaps because I’m a bit more familiar with @Shpigford’s journey with Baremetrics and knew to read his announcement till the end because he’s been trying to sell the company for a while but only now did he find success.

        The fact that HN and IH crowds read the same article and experienced the same initial sentiments, but the final sentiments expressed are different is really just telling us how the two crowds skew: HN skews towards SV-groupthink of sky-high total comp versus IH which skews towards solopreneur-groupthink of living modestly off a lifestyle-business.

      2. 1

        But I'm sorry, the ARR multiple seems low to me.

        I don't have any data but I think I remember Rob Walling on a podcast saying that small saas businesses usually sell for 2-3x revenue, so this doesn't seem out of line to me.

        Valuation (and therefore revenue multiple) is also a factor of profitability and growth rate, and I believe Baremetrics was barely profitable (perhaps on purpose as Josh mentions) and the growth rate is low (~10% YoY) which is not bad but certainly not commanding of a high revenue multiple.

        Like what kind of returns did these investors really expect?

        Most VCs are looking for billion-dollar exits. Bessemer and General Catalyst's funds are both around $2 billion, so even if they owned 100% of Baremetrics, a $4 million exit is just a rounding error to them.

        1. 1

          Rob did another podcast with a Saas M&A expert who suggested Rob's mental model was outdated and the multiples are higher these days. At Baremetric's size it's probably reasonable to use a revenue multiple rather than an earnings multiple, and and this guy suggests a 3.5-4x revenue multiple at that level of maturity if it meets the rule of 40.

          Revenue multiple discussion starts at ~18:00 https://www.startupsfortherestofus.com/episodes/episode-513-saas-valuations-dos-and-donts-when-selling-a-saas

    2. 2

      Was typing this but common sense told me to scroll down first lol!

      Loved it!

  2. 11

    It's very interesting that the VC firms were willing to write off their $800k investment. I think normally VC investment has a liquidation preference that must be paid off first. I wonder how Josh managed to negotiate investment terms without one.

    1. 7

      I just read the comments on Hacker News, and Josh says that the investment vehicle was a SAFE. Still, really nice for the VCs to agree to cancel their investment.

      Also, wow, HN is a really mean and cynical place!

      1. 2

        I think this also was a big factor in the VCs' willingness to cancel their investment:

        I think we all realized a few years ago that Baremetrics wasn’t going to be a “10x our investment” company for them, especially after we started focusing on profitabiliy over growth. Seven years in business without any major inflection points of growth (just slow and steady), makes for a pretty clear longterm outcome that doesn’t involve a rocketship.

        Sounds like they just chalked it up as a "loss" (in the traditional VC sense).

        1. 3

          Yeah, I think they probably could have legally blocked the sale, but realized that doing so would gain very little economically and instead create a tremendous loss of goodwill and reputation.

      2. 0

        Also, wow, HN is a really mean and cynical place!

        I think it's because, as smart as PG is, he's too condescending about marketing. I think he fell victim to what the father of UX, Don Norman, calls the engineer's fallacy ''We have to design for the way people really behave, not as engineers or economists would prefer them to behave.''

        We would prefer that people were rational, empathetic, and always have good faith arguments. But that's not the real world. You have to work to accomplish that and create an environment that nudges behavior in that direction.

        CA managed to foster such a community.

        1. 3

          I agree, it takes deliberate thought and effort to create a positive culture like here on IH.

          1. 2

            I think that there’s a much simpler explanation at work here: the two communities exist on two extremes of a spectrum.

            The group sentiments you are seeing is really just a reflection of each group’s makeup.

        2. 2

          They've done quite a bit to try to encourage thoughtful discussion. They just have a lot of gravity pushing against them.

          They have site mechanics that try to penalize controversial threads, and they have multiple moderators who enforce the site guidelines in a visible and hands-on manner. Unfortunately, they can't control who wants to visit the site, and with its increase in popularity over the years, it's seen a huge increase in the absolute number of people posting baseless, needlessly assertive, or mean messages. I don't know why it ended up that way, but having VC and tech as its feeders didn't help.

          1. 1

            Yeah, that's all very valid. Building a community is incredibly challenging.

            Still think the main cause of that "gravity" is that it's designed by an engineer for engineers. And then... as it turns out... engineers are people too. But by then you're trying to fix a broken arm with bandages. It should be designed into the DNA of the product from the start.

            I personally think that, just as there are negative consequences to looking down on engineers, there also are negative consequences to being condescending about marketing and understanding human behavior. But unfortunately, the latter is still in vogue now.

  3. 5

    I think this is great, and very well earned, but I am a little confused by the idea of not paying out your investors after successfully exiting. Was the exit only possible because his number was so high he wouldn't have hit his number if it were reduced by 800k? You're saying you can't be financially secure with 2.9 million in the bank? I know personal finance is personal, but that is a significant chunk of change for most people.

    I invest in real estate on the side. I simply cannot imagine making almost 4 million dollars on a property, and asking my hypothetical investors who put up 800k to simply just "write it off" because I didn't get a high enough sales price. Yes, they are different industries, and VC is VC. But somewhere someone earned that money that was invested, and it was an investment, not charity.

    Again, this doesn't take away from the great success this is, and what a testament to his hard work it is, but it simply doesn't register how it is okay for investors to not make a profit when you do.

    1. 4

      Totally understand the confusion around this. Remember, I've had a relationship with these VCs for nearly 7 years. They've seen our ups and downs. They're aware we've never been a growth machine. They're aware we had a deal fall through last year. They're aware the current economic landscape is very touchy. They're aware I'd have passed on the deal if the outcome was $1m less and also aware the deal wouldn't happen if the price had to be increased to $5m.

      Their motivations are not purely financial. As others have said, VCs are selling reputation. They want/need founders who believe in them as well and want to work with them.

      They get to write off their $800k, which gives a nice tax break and they get massive positive reputation karma and publicity from the startup community.

      To be clear, I didn't force them to do it. I simply asked and they said yes. They could have just as easily said no and that'd have been the end of it. They're big boys and girls that know how to weigh pros and cons for themselves. :)

    2. 2

      It’s really fascinating that even though @Shpigford has been incredibly transparent about his journey with Baremetrics, major decisions are sometimes misunderstood when they are announced.

      The decision to not pay out his investors in the event of a sale was not reached weeks ago or months ago, it was years in the making. Josh set the expectations of his investors ~4 years ago when he chose to de-prioritize growing at all costs. He publicized the decision when he penned this article that they will no longer pursue a hockey-stick growth the way you’d expect of a venture-funded startup.

      Once his investors agreed to the decision that was publicized in that February 2017 article, Baremetrics effectively became a lifestyle business.

    3. 1

      Yeah, that part confused me too. I would have insisted to repay them back just for the trust and their financial support.

      But, I guess the investors marked their investment as a loss years ago after realizing that the business wasn't growing as fast as they wanted. On papers changing that loss into something else would be an accounting and a legal mess, and for such a little return it might not be worth it.

    4. 1

      I'm guessing he didn't ask them to "write it off", he shared the purchase price and his intentions. And the VCs told him "might as well write it off" since it is so little return to them and they still have to pay legal fee and such. This quite makes sense.

  4. 4

    TLDR:
    sold for 4mil.
    founder doesnt need to stay on.
    2.65x ARR. but they were basically breakeven.
    the vcs that backed them for 800k walked away without taking anything so the founder could exit.
    7 years to get here.

    congrats!

    1. 2

      7 years to get here.

  5. 2

    Payment Structure: 3 payments (at close, 12 months & 18 months)

    So, how does 3 payments work? Hypothetically, if they fails to make 2nd or 3rd payment. Does the seller gets the business back and buyer loses all the money?

  6. 2

    Very interesting read. I'm really happy for Josh, it seems like he got what he wanted out of this deal.

  7. 2

    Would be very interesting to listen to an Indie Hacker podcast with Josh as the guest.

  8. 2

    Congrats @Shpigford, this is awesome to see!

  9. 1

    Congrats! Very inspiring @Shpigford

  10. 1

    Really awesome to be so open to share these things. You know the internet will beat you up in every little thing and challenge your decision. Congrats @Shpigford

  11. 1

    Interesting read! Many thanks for the transparency and congratulations for the exit.

    Totally understand the decision and makes a lot of sense to me.

  12. 1

    Legend @Shpigford 👏Respect !!!! All the best for the next... 👍

  13. 1

    "Payment Structure: 3 payments (at close, 12 months & 18 months)"

    Does this mean the $4m is split into 3 payments which are received at the above increments? What's the purpose of that? and is the seller protected (what if the buyers don't honour this or go bust?)?

    1. 1

      That's correct. $2m - $1m - $1m. It's just a negotiation point for the buyer and is extremely common in acquisitions.

    2. 1

      Income tax reasons maybe

  14. 1

    Crazy!!! I saw this. Congrats to the team and HIM. Huge accomplishment.

  15. 1

    Congrats @Shpigford

    It's almost a year since I read your I almost sold for 5m post

  16. 1

    Congratz to @Shpigford, but why for $4m while you got some $5m offers already a Year ago. (Source: https://www.indiehackers.com/post/i-almost-sold-baremetrics-for-5m-e5e4c0ccc5).

    1. 1

      Because I had an offer for $4m this time, not $5m. :) The world has changed drastically in the past year.

    2. 1

      He wanted to sell for $5m, but the buyer never closed the deal.

  17. 1

    Congratulations! Great to see this. Inspiring :)

  18. 1

    congrats @Shpigford and thanks for sharing the details, really appreciate the openness!

    1. 1

      Thanks for reading! 👍

  19. 1

    Congrats @Shpigford! Looking forward to your next amazing product.

  20. 1

    Wow. Didn't expect that!

  21. 1

    Huge congrats to @Shpigford. I love the candor and overall lack of chest beating. A celebrated product got a good deal. That's the dream.

  22. 1

    so cool. good luck to @Shpigford and his new quest!

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