SaaS Interviews with CEOs, Startups, Founders
He'd Sell Keyword Research SaaS $750k ARR For $1.5m, $250k in Profits
18 Jul 2021
Chapter 1: What inspired Kevin Petersen to start buying online businesses?
So oddly, the very first online business that I bought was a tattoo blog. Yeah. You have any tattoos? I don't have any tattoos. That doesn't sound like a founder product match there. Not so much, but I learned a lot from it. You are listening to Conversations with Nathan Latka, where I sit down and interview the top SaaS founders, like Eric Wan from Zoom.
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My guest today is Kevin Peterson. He was number 13 at a staffing industry startup that grew from $7 million to $65 million during his tenure and went public in 1996. The business still operates today in 26 countries with $4 billion in market cap. Today, he spent 20 years consulting before launching GrowthStack Inc., a SaaS portfolio on a path to IPO in the next 30 months.
Kevin, you ready to take us to the top? Absolutely. Thank you, Nathan. You bet. So just to be clear, is growthstackinc.com a SaaS company or you're buying SaaS companies under that label? We're buying SaaS companies under that label. So GrowthStack is the whole co and we're tucking in B2B SaaS. All right. Talk to me about your playbook. Everybody wants to do this, but how do you find a deal?
How do you price it? How do you convince the founder to sell? Let's start off maybe with your first deal. What's the name of the first company you bought? Oh, wow. Okay. So trip down memory lane here. So seven years ago, I started buying online businesses. It was not specifically SaaS in the beginning.
I was building micro portfolios for well-diversified investors that were really unaware that there was even a secondary market for online businesses. So oddly, the very first online business that I bought was a tattoo blog. Yeah. You have any tattoos? I don't have any tattoos. That doesn't sound like a founder product match there. Not so much, but I learned a lot from it.
So my background is marketing. And so to me, that's, you know, online business is, you know, a lot of times what's missing are, you know, marketing fundamentals and traditional sales models. So, you know, to test the waters, I paid $900 for a SaaS blog. I mean, sorry, a tattoo blog.
And as we mentioned, I don't have any tattoos, but I felt like, you know, I need to understand content marketing if I'm going to go down this path. And again, like my background is marketing, but it was kind of a different beast and it was kind of new to me. And I wanted to see what would happen. So I bought this tattoo blog for $900. I hired a developer to improve it.
I paid about $300 in development costs. And within 90 days- Where'd you find a developer for 300 bucks? It was somebody overseas and really all it needed. And this is going to, there are probably a lot of things I'm going to say today that are going to date me a little bit.
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Chapter 2: How did Kevin transition from a tattoo blog to SaaS acquisitions?
I want to say it was about 360, 370. You paid a 3x multiple. Yeah, we did. Where'd you get the money from? It's not easy to come by. Is that just money? Private investors. Yeah, so that was the funny thing. So yeah, to take you down the history here. So I started building these micro portfolios for investors. And what people saw from my early experiences buying online businesses was,
was that I was excited about it. And so there were a lot of people I know who were like, well, you know, like, I don't understand what you do. I don't know if I'll ever understand it, but here's, you know, $50,000 or something, right? Will you place capital for me so that I can participate in this and your energy behind it and get some dividends off of it?
And so I started building portfolios to do just that. When did you do that, Kevin? When did you raise your first outside capital? It was, so it was in that kind of 2014, 2015 time period. And how much was the first tranche that you raised? So there was, I ended up building four portfolios that ranged in size from, you know, initially they were micro investments.
So it ranged in size from like, you know, half a million to a million and a half. You had individual investors writing you checks to invest in your fund for half a million to a million. You kept them in their own portfolios and then use that capital to go buy companies under each of those four blocks. That's exactly right. Okay.
And so if I was the one that wrote you a check as an investor for a million bucks back in 2014, what were you selling me? What dividend, like what returns would I be getting on my million? So depending on the portfolio is between, so let's say 13% on the low end to 22-ish on the high end. Paid out like quarterly? Quarterly, yeah. Got it.
So if I give you a million bucks, you're basically saying what? I would get $36,000 from you every three months? Uh, yeah, I, at the time I didn't have anyone participating at that level, but effectively, yeah, that's what we're paying out. Okay. Okay. So that's how you scale. So let's, this is interesting. You get pick real done, by the way, how would you convince them? How'd you find pick real?
Where should people look for deal flow today? So that one, I actually got through a broker. Which broker? Um, uh, FE international. Okay. And what happened? What happened? Who, by the way, they charged 15% fee on the sale. Did you have to pay that? Or did the founder have to pay that?
Uh, we, I, if I recall correctly, we split the fee and, and if I recall correctly, their fees were lower at the time. Interesting. Okay. So what, keep going forward to pick real. What happened next? Yeah. So what happened was, so we had some really, we realized some very quick gains on pick really at 46%. Uh, year on year growth first year. Um,
And again, like, you know, what I'm seeing in the SaaS space is that founders tend to be tech savvy, but not business savvy. And that's not a slight against any founders. It's just the way founders in this space are. Right.
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Chapter 3: What were the challenges Kevin faced with his first SaaS acquisition?
What I've heard over the past, really in the past six months, it feels like everyone's going out market at the same time. So our investing thesis today is that we locate, buy, operate, and grow B2B SaaS businesses that are producing between $1.5 million and $7 million EBITDA at time of acquisition. We trade on a multiple of EBITDA, and weā¦
Uh, we're looking at the four and a half to six and a half range. Would you take that for long tail pro? I did a quarter million last year. If I offered you four X EBITDA, would you sell it for a million all cash up front today? Uh, it would be, we would be able to have a conversation. Let me just say it that way. Smart answer. I almost got you. Could you guys see us listening? I almost got him.
That was so perfect. Almost. All right. Conversation. Fair enough. The door will be open. Yeah. Yes. Any specific, like DevOps tools or CRMs or something else? Yeah, so I love FinTech. I'm not seeing a lot of FinTech deals, but I love FinTech. What I really, this is the way I describe this to, well, to anyone who asks really, is what attracts me to a SaaS business today is mode.
So it has to be a defensible model. There has to be something about the model that makes it hard to replicate. So one of the challenges that we've seen, like using PickRail as an example, is anytime there's a new model, a new SaaS model that's getting traction in the marketplace, instantly there are cheap knockoffs, right? There are people around the world where their dev costs are very low.
They can take something to market very quickly and they can charge 10% of what you charge and get a small subset of the entry level market. And they're happy about it. So today, what I really look for are SaaS businesses that are just, it would be painful for, either painful or costly for somebody to try to replicate it. Kevin, this has been great. We're out of time.
Feel rapid fire things real quick. If you're at about $100,000 a month today in revenue across your full portfolio, where were you exactly a year ago? Uh, it was actually, it was about the same. Okay. So you're about flat year over year. And then besides sort of the fund structure, you said you're raising right now.
If I wanted to invest and give you a million dollars today, what returns are you pitching me? So what we're really looking to do, there's really two benefit statements that I can share. One is that we are operating in an opportunity zone and we're using that legislation to pull SaaS into an opportunity zone and protect cap gains for our investors.
The other is we are actively pursuing valuation arbitrage. So we're looking to pay four to six X EBITDA at time of acquisition, roll this up, take it public in either a direct listing or a SPAC. and give our investors a path for that Y factor on the public market. How many customers do you have paying across all your four platforms? It's probably 20,000.
Okay, so this is a low ARPU sort of play, 20,000 playing five bucks a month sort of deal on average. More or less. We have pretty standard SaaS pricing where most of our customers are paying in the, let's say, $79 to $299 a month range. Then we've got enterprise customers that pay $1,000 or more per month.
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Chapter 4: How did Kevin finance his first SaaS acquisition?
That number is skewed by one of our assets where the average ticket is $11 a month. Yeah, yeah. If you're doing $100,000 a month in revenue divided by 20,000 customers, the average customer is paying about $5 a month, not $80 a month, right? Yeah, but it just depends on the brand and the service. We have thousands of customers that are paying like $5 a month.
And then we also have thousands of customers that are paying significantly more than that. And then, yeah. Totally understand. Okay, great. Let's wrap up with the famous five. Number one, favorite book. Oh my, oh no. I should have been prepared for the book question and I'm not. There's so many. We'll say none then. Number two. Okay, let's say none.
Is there a founder you're following or studying? Again, there are many, but I really appreciate Richard Branson and his story. Number three, what's your favorite online tool for building your business besides any of your own? Oh man. Why can't I use my own? Your own.
Um, so, uh, that's actually a loaded question too, just because I'm, I'm, um, I'm kind of, I know I'm kind of burnt on the, uh, the CRMs I have been using. Um, I don't know. I, I don't know. I like drip. I like convert kit. Okay. There you go. Drip. Uh, number four, how many hours of sleep do you get every night? Say that again, sorry. Sleep. How many hours each night? Oh, I'm pretty good.
I function really well in the six to seven range. And what's your situation? Married, single kids? Married, kids. How many kids? Three kids. Ages, yeah, 27, 25, and 11. That's great. How old are you? I just turned 53 in February. Congrats. Last question. What's something you wish you knew when you were 20? Okay.
It's, you know, this is I'm going to just repeat an adage that I'm sure a lot of people have heard. The hardest thing to do in business is for any business owner ever is to raise a million dollars. It's actually easier to raise 10 or 20 or 50. And you don't know that when you're 20. It's just everything sounds big and scary and you just don't have a full appreciation for it.
um for how capital how the capital markets work right there you have a growth stack inc it's a mini private equity firm in the sas space their biggest brand is called long tail pro does about 700 000 a year in revenue profits a quarter million looks to exit companies for sort of like 6x plus ebitda looks to buy them at 2 to 4x ebitda there's arbitrage there uh we'll see what happens next he's raising his next fund to go take on new companies and hopes to maybe stack the whole organization the whole whole holding company soon kevin thanks for taking us to the top
Thank you, Nathan.
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