SaaS Interviews with CEOs, Startups, Founders
Lessons From $1bn in Exits: Behind The Scenes of the ThriveCart Exit
03 Jul 2023
Chapter 1: What insights can we gain from ThriveCart's exit?
I'm very excited to share this recording with you guys, which happened at our conference, sasopen.com, with over 100 speakers, all founders of B2B SaaS companies. We have a very high bar for what speakers share on stage, so you're going to enjoy this episode where we dive deep into revenue graphs, real tactics, and real growth metrics.
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Hey everyone, thanks so much. So firstly, I'm Thomas. I'm the founder and CEO of Effie International. We are an M&A firm that works with business owners of software, e-commerce, digital media-based businesses. Like James mentioned, over the last 13 years we've been in business now. We've represented over 1,200 founders. We've completed over a billion dollars in transactions.
And Nathan invited me today to come and talk about a transaction we worked on recently. So never seen before, going behind the scenes of a real deal that I can talk about that closed a couple of months ago. So over the next 20 minutes, I'm going to talk about three main things. So firstly, Thrivecart was the business we represented. They sold for eight figures.
I'm going to go through some of the things that went into that. I'm going to talk about why the deal happened. Many of you in the room, if you're founders, you're all going to be at completely different stages of your business. Maybe you're literally just starting out your idea phase. Maybe you've already had multiple exits. Or maybe you've thought about selling one day in the future.
So I'm going to talk a little bit about the motivations of Josh, who is the founder here, and the things he thought about throughout the sale. And then I'm going to talk a little bit about art of the deal. So how does M&A really happen? What kind of things go into it? What do you need to be thinking about as a founder if you're going to run a successful M&A process?
So firstly, we'll give you an idea of perspective of size for a business like Thrivecart that sold. So they started out in around 2016, bootstrap company, no outside funding. The founder did not have any entrepreneurial background. He came from a family that had no money. He had no experience in the space at all. Launched in 2016.
As you can see from the revenue chart, he grew pretty steadily and consistently. It was by no means a rocket ship. Business was growing every year. He got to the stage where it started to slow down a little bit. So he got to the stage for him. He wanted to know what was next. And he had a small team. So even at exit, he only had a team of four people. Very small team.
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Chapter 2: What motivated the founder of ThriveCart to sell?
Some people just want to buy distressed businesses. But ultimately, it was objectively good. most buyers, when they're looking at acquiring a company, want some sort of synergies with either their personal experience, their existing portfolio, or something they've done before.
People very rarely buy, or private equity firms, private companies very rarely buy businesses that they know absolutely nothing about, have no personal interest in, and don't really understand. So a lot of the positive feedback we got was that there were synergies with what that particular buyer was already doing.
And again, to my point around you survey 100 buyers, some are going to hate it, some are going to love it. In this case, the ones who liked it understood the space, the ones who didn't, did not. So the key really, one of the lessons is speak to a lot of buyers. Don't just speak to three people, get three bits of negative feedback and stop because you're not going to have a successful process.
This was a business, so Thrivecart is a platform where you can sell digital products online. A big part of the business is monetizing the GMVs, the gross merchandise volume. That is essentially the volume of payments going through the platform. Thrivecart, at time of exit, actually had over a billion dollars a year in GMV. And for perspective...
If you look at Stripe, who's just raised a down round at $50 billion valuation, to be a top 100 partner of Stripe, the number 100 process is about a billion a year. So from the perspective, they're about a top 100 Stripe partner. Pretty big business in their ecosystem, a lot of GMV. So a lot of buyers liked that, particularly those that had fintech or payment experience. It was a lot of volume.
And ultimately with this business, there was a lot of unexplored opportunity. A lot of founders do a great job building their business, but they do a terrible job negotiating. Often the easiest way to grow and improve your business is just to negotiate better terms with existing vendors, suppliers. Not necessarily team, but anyone you work with, you can negotiate better terms.
And in this case, if we skip ahead six months and now the deal is closed and completed, my understanding is the buyer's about tripled revenue of the business by renegotiating a partnership agreement with Stripe. So that's what they saw in the business. You could have 100 negatives, but they knew they could pretty much triple the business, and that's what they've done.
But some buyers would look at that and say, that's a bad thing. I don't know anything about Stripe. I don't know anything about payment processing. Why would I buy this business? Some of the negative feedback we got... is I had an entirely international team. We're obviously all in the US.
Like James mentioned, I'm originally from the UK, hence the English accent, but I moved here to build a business. 80% of acquirers we work with are US-based, so the vast majority of private equity are in the US. The vast majority of large strategic buyers are in the US. Definitely does not mean it's impossible to sell your business outside of
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Chapter 3: How did ThriveCart achieve significant revenue growth?
It was a lifetime license. And most people would think that's not a very good business, not a very good idea. But because they were monetizing the GMV on the back end, It was actually quite a good business because they were essentially funding their marketing with one-time sales and then monetizing the back end.
But most people on stage would say, you have to be recurring SaaS if you're not, you don't have a good business. But in his case, it was fine. Some buyers didn't like it. Some hated it. Some thought it was a good idea. And ultimately with this business, it needed a CEO. The founder was great, but he couldn't really grow it any further, needed to hire some more people.
So definitely something that people think about. Lots of doomsday information out there at the moment about M&A. If you look at Wall Street year on year, as in 2021 to 2022, down 38% total deal volume. Lots of banks making layoffs, lots of challenges in the market. If you're doing deals above 250 million, which is a lot of Wall Street, that's what they're seeing at FE International.
We saw 51% growth last year in total deal volume. So deals below 250 million are still happening all the time. If you build a good profitable business like Josh did, you can sell it in any market. And my firm belief, 13 years into a business and probably in the next 13 years, that will still always exist.
There's never going to be a world where there is not a pool of buyers out there that wants to buy profitable businesses. Go through section two. First thing he did, this is a picture outside our office. So we don't have the entire building just yet. We just have one floor. But that's Rockefeller Plaza. So if you guys have seen the big tree, we're just in midtown Manhattan.
We had a conversation with Josh about five years ago. So well before he even thought about selling. Many of you in the room have probably already spoken to my team in the past. We don't pin you into a corner and say you have to sell now. You sell whenever you're ready. There's no right or wrong time. It's the right time for you personally. And no one should ever tell you otherwise.
There's not a correct number. It's not 10 million, 50 million, 100 million. You should all have your own number, which is personal. You should discuss it with kind of close family members. It shouldn't be something you get told from stage what you have to sell for. This is a scan of the final letter of intent.
So I can't go through all of the legals, but everything has all of this boring legal stuff on a page. But I want to be very clear that with every deal, you have to hire attorneys. You have to go through a legal process. But ultimately, deals get agreed outside of all of this stuff.
If you're relying on attorneys to negotiate your deal and all you're doing is sending back paperwork back and forth with legal wording that a lot of you wouldn't understand, it's always going to be difficult to get a deal done. So this is an example of what happened in this transaction.
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