SaaS Interviews with CEOs, Startups, Founders
Details behind David Hauser Selling Grasshopper for $176m and how he acquires companies today
15 Oct 2022
Chapter 1: What insights did David Hauser share about selling Grasshopper for $176 million?
Hey folks, hope your Q3 and Q4 is off to a good start. We just wrapped up Founder 500 in Austin, Texas. Hundreds of bootstrap founders showed up. It was an amazing time. I loved meeting so many of you.
This interview today is a recording from that session, which you're gonna love because now we have visuals, we have the founder teaching, and I made every single speaker include their revenue graphs and real artifacts in their presentations. Without further ado, let's jump in.
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Please help me in welcoming David Hauser from Grasshopper to the stage. David, welcome. All right, guys. So it's the end of the day. So if you could just help me do something real quick. Everyone stand up. Yeah, get a little bit of movement real quick. But we're going to do something to make everyone outside really jealous because there's a few people outside that aren't in here.
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Chapter 2: How did David Hauser bootstrap Grasshopper to $30 million in revenue?
So we're just going to play a real quick game. We're all going to sit down. I'm going to come back up on stage, and we're going to give a standing ovation. We're going to make as much noise as we possibly can so everyone outside is super jealous that they're not in here. Okay? So we're going to try this. Ready?
Ready?
And here we go. All right. Perfect, perfect. Thanks, guys. I just had a bet with someone that I couldn't get a standing ovation, so I appreciate it. No, but in all seriousness, it's nice to move around a little bit. So I have about 18 minutes here. I'm going to keep this as casual as possible, but walk through a little bit about how we think about M&A.
Obviously, we've gone through a few transactions. For those that don't know Grasshopper, press the button. We did build Grasshopper, bootstrapped it 100%, built it from $0 to $30 million a year in revenue before we sold it, and ultimately sold it to Citrix for $175 million in total. I'll talk a little bit about how we use debt as well.
Also built Chargify, sold that company twice, most recently to Battery Ventures. And I've also raised capital as well. So happy to talk about that. Most recently raising $42 million for Vanilla from Insight Partners and Venrock. I also make a lot of investments, not just buy companies. So talk a little bit about our revenue growth here. We were very lucky in our first year.
We broke a million and a half dollars right away. And then you can kind of see that revenue trajectory and how it changed in those later years. We sold it over here in the 14, 15 period. And we got really lucky. Happy to talk about kind of some of the team changes that happened here.
I was talking to some people a few minutes ago about how at kind of about $10 million we went from a lot of doers on the team to a lot of thinkers, right? So from one to $10 million in revenue, you can have a lot of doers on the team. which means, hey, do this, come back, do this, come back.
To get from 10 to 20, you need a lot of thinkers, which is people that come to you and say, David, here's what I'm gonna do and here's why I'm gonna do it and I'll come back to you when it's done, right? So those were those changes that happened there. Also, the biggest changes that really happened through these periods, paid advertising.
Each of these periods, we found a new marketing channel and put more and more money into it. Plain and simple. Right. Like people want to stand up here and give you complex things. We paid more marketing dollars. We grew more profitably continuously. Right. And the later years we spent twelve and a half million dollars on radio. Right. So those take a lot of tests to get there.
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Chapter 3: What strategies did David Hauser use to leverage debt in business growth?
Unless you're doing hundreds of millions of dollars, the size doesn't matter as long as it's big enough, right? And I think for the most part, we're all working on things that are big enough. What I want to know is, is it growing stable or contracting? It's really hard to operate in a market that's contracting, right?
No matter the size, there's just a downward pressure continuously if it's contracting. So this makes it less valuable and unfortunately is less controllable. These other things you can start to work on, addressable market, not as much. Existing channels, we can skip over that because that's kind of really direct to consumer.
ROAS, this is one of our most important metrics because we are a very market-driven company and we care about how much money can we spend to generate new customers. This matters. more than anything else, right? Assuming that we have enough EBITDA and enough revenue, ROAS matters. And it's only on new customers. So stop kidding yourself and dividing over other things.
It's really actual new customers. The last one I'll talk about is growth potential here, which is down here, As the acquirer, how can I grow the business? Does it fit with my expertise? Do I have to do more marketing? Do I have to grow a bigger sales team? Do I have to go to Amazon? Whatever the things are, how can I grow this company?
So Nathan asked that I actually rate, take some companies here and kind of go through it. But you can kind of see how this falls out at the bottom, right? And one of the key things here is we won't necessarily just buy the company that's at the 35 or the 36, right? Company one or three. Those are going to be our highest potential ones to look at. It's not automatic, right? So maybe I'd buy three.
Like I said, it's on the USB drive. So that's a little bit about the template. If anyone wants that template or the SAS one or the original one that we stole from Stanford, happy to send it to you or send you the link. It's super helpful.
But I would suggest thinking about all of these categories for how you can make your business most valuable for yourself and then how we, on the other side of it, think about these things. So a few of the stuff that's not on the matrix necessarily, but I did want to talk about from an M&A standpoint. First, like I mentioned at Grasshopper, we got out of the business. We had a management team.
This was tremendously valuable to the acquirer for so many reasons. First, the transition was easy. They actually paid more because they didn't have to find expensive positions for me and my co-founder to be in and stupid titles, right? So they paid more cash upfront to not deal with that. And I think this is true of most acquirers. Like if you're working in the business, it's a big concern.
Build a strong and independent team. And that means people that can operate without your oversight, right? So you can provide high level strategic direction, but they can operate the business without your insight. Or you being there, right? Document all your systems and processes because it goes into the next point, which is you should be actively building what is like a data room.
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Chapter 4: What marketing channels did David Hauser explore for revenue growth?
We closed the deal in May. Six weeks later, after we closed that deal, an activist investor told Citrix they had to sell off all of their SaaS business. So we were weeks away from the deal not going through, right? Not because of something we did, not because of something Citrix did, an external factor, right? So timing just matters.
Sometimes people call it luck, sometimes whatever, but it's timing. And then every conversation is go, no-go. Meaning when you get on the call with that acquirer, They are seconds away from saying yes or no. Every time. Right? And you just have to understand that and know no deal is complete until the paperwork is signed. Yeah, well, that's even better, money in the bank.
So that was a good learning. So I have a few minutes left. Hopefully I've covered some of these topics. I'll happily answer any quick questions that people have because I want to make sure that people leave with the things that they want to talk about answered. And then if we have any time left, I'll leave you with a few quick takeaways.
If nothing else in this presentation was useful, you can at least take away that.
Hi, thank you. Excellent presentation. I was very curious about the early days of your radio spend and how did you get to 12 and maybe what insights you had that allowed you to get to that high a number monthly. And I'm sure what worked at 12 probably didn't work at one or two a month.
Yeah. Yeah, so we discovered radio advertising because we were very early with Sirius XM, so satellite radio as an advertiser. So we kind of discovered that with a $50,000 spend, and we ramped that up to call it kind of $200,000 a month or so and understood the metrics and how it worked. But what we learned very quickly is terrestrial radio, standard radio, is very, very different.
All the metrics are different. How you buy it's different. There's a path that is known. Like people who do this, they just know how this works. You have to spend roughly a million dollars in a market before you can go to nationwide. And the minimum for nationwide is 12 million.
And then there's a process for three weeks on, two weeks off, all of these different things that happen through the process. But the most important thing to understand is the way radio advertising works and why it's successful is because of the long tail. So when you run ads, when you stop running ads,
For three to six weeks after you stop running ads, you still get orders in the DMAs that you're testing, right? That's how the CPAs work. Because if you look at it on a pure CPA basis, you're like, I'll never do this, right? That's how this works. And you have to do it in this process. Most people who fail at this skip the testing thing. And they're like, I ran Austin and it didn't work.
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