Startup Acquisition Stories w/ David Horne & Marty Balkema

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David Horne-

Marty Balkema-

Transcription-

Andrew Gazdecki:
All right. I’m super excited to be here with David Horne and Marty Balkemi from Calm Capital.

Marty Balkema:
Balkema, yep.

Andrew Gazdecki:
Balkema. I tried doing that live on air.

Marty Balkema:
That’s good.

Andrew Gazdecki:
Some podcasts I go on and I sit, they’ll ask my last name up front and I’ll say, “Nope, you got to do it live.” So I kind of shoot myself in the foot there, but thanks so much for joining me on this podcast. I appreciate the time.

David Horne:
Yeah. Thanks for having us.

Marty Balkema:
Yeah, appreciate it.

Andrew Gazdecki:
With that being said, Calm Capital, definitely heard a lot of great things about you guys’ firm, but for those listening, do you want to give just a brief overview of what you guys do, just brief two-minute pitch?

Marty Balkema:
Yeah, sure. You want me to go, David?

David Horne:
Yeah, go for it.

Marty Balkema:
All right. Yeah. So David and I have been close friends for over 20 years. So we’ve talked a lot about doing something like this for a long time. And we started Calm Capital in the beginning of 2020. And David’s background is he had founded a marketing and design agency and I had co-founded a custom software dev shop. And then we also kind of together co-founded a subscription-based software support business and a small FinTech company in the payments world. And we just saw an opportunity to kind of use our backgrounds to really I guess almost play a different game versus founding companies and growing them ourselves and operating the businesses. So we started a holding company essentially, and we kind of grandfathered in the things that we had already started to where Calm Capital held the interest, holds the interest of those.

Marty Balkema:
And then since then in the last two years, we funded a Shopify app business. We bought a WordPress theme business. We bought a content UI design subscription business. And then last year, we bought a SaaS company that helps audio creators market their content. So it’s been a fun past couple of years for sure.

Andrew Gazdecki:
That’s a pretty diverse portfolio. I like it. So when you guys think about acquiring startups, what do you guys look at? What is an ideal acquisition target for Calm Capital?

David Horne:
Yeah. I think we first start with, is it a good business? And we kind of have this underlying thing, good businesses rarely go out of business. Great companies sometimes go out of business, but good businesses rarely go out of business. So profitable, cash flowing, pretty easy to manage, has some kind of trajectory versus going backwards. So that’s kind of where we start. And then looking at the people aspect of it, we also don’t necessarily want to be operators. So if the selling founders are kind of leaving, we start recruiting a CEO or a manager from day one. They’re usually involved in due diligence with us. So it’s a good fit. Or there’s a team in place that maybe there’s someone there that can kind of get promoted into that manager level, or in some cases, we’re finding where the founders just want to put some money in the bank, but they still want to keep working on the business. And in that case, we’re fine with them sticking around.

Andrew Gazdecki:
Nice. So in terms of… Let’s make up a perfect acquisition target for you guys. So what would it be? Would it be, let’s say, a million in profit SaaS company in MarTech? If you had to just make up a company in terms of size, what does it do, you can have some fun with this. I see you got… it looks like a DJ set in the back. Maybe it’s like software for DJs or something like that, but what’s… if something came across your desk today, you guys would get really excited about it. Would it be the profitability, the size, the market? That’s a hard question.

Marty Balkema:
Yeah. I don’t know as though… I mean, we could try to answer that with a type of business or an industry, but think more than likely, it’s a lot better to… Yeah. I mean, a million in profit. We definitely learned a lot. We’ve had a progression of the business size businesses we’ve bought so far. Right? And we are starting to learn that the same amount of work that it takes to find and Acquire and finance Wavve, the last business, we probably could have done that same amount of work and bought something that was two or three times as big. And I think the biggest thing is the free cashflow and it comes with a team, even if it doesn’t come necessarily with the founder if the founder’s the CEO or whatever, I think we can hire for that.

Marty Balkema:
But the big thing is it’s got to be generating free cashflow from month one. And I think David and I had a good conversation yesterday, but it’s a business that is in whatever industry or space or market that it plays, I think our ideal business, we’re learning, is it needs to be an essential business like the operating system, not an add-on, if you will. So not a business that people can choose to use or not as a SaaS tool, but a business that everybody in that industry needs. I would say the other thing is we’re really learning that we want to find businesses that have a finite market, right? We know exactly who the customers are. And then we can continue to try to capture more market share. And then from that platform, move potentially into other markets.

Andrew Gazdecki:
Nice. Would you guys say you’re pretty agnostic in terms of the type of startups that you’re looking to Acquire? So it doesn’t matter if it’s MarTech. I know some firms focus on just dev tools or some firms focus on Shopify SaaS apps, some on e-commerce. So you guys just kind of doesn’t matter, cashflow is kind of king?

David Horne:
Yeah. I think with our kind of background on the consulting and services side, we’ve been involved in helping so many different types of businesses, we feel like we have a little bit of approach or a playbook that’ll work regardless of the industry. Really just kind of… I mean, we kind of talk about the 3Ps, so like patient, purposeful, profitable. So patient as in doesn’t have to double every year to keep up or whatever. We can have a long term view business that’s going to be around for a long time. Profitable as Marty kind of just talked about. Purposeful being like solves a good problem for that industry. So yeah, a little more agnostic on the industry side and more kind of around the type of business so that we can kind of take our talents and abilities and lead it.

Andrew Gazdecki:
Nice. I like that. So with all the businesses and all the startups that you talk to, there’s a lot of founders that are probably listening and going to be looking to sell their business in the next year. If you had to give just three pieces of advice to people looking to sell their business maybe directly to Calm Capital, what would that be like? How can they increase their chances of being Acquired?

Marty Balkema:
Yeah, that’s a good question. I mean, I would say number one for their own sanity and enjoyment, they should look for people that have good alignment with. So some of those early conversations that they’re having with potential Acquirers, does it kind of feel right? Is it a partnering-like conversation? I think that that’s really important. We certainly take that approach where there’s lots of businesses to buy. There’s lots of deals to be had. And even if the numbers are great, it’s going to be typically a pretty long process from day one to close, and then potentially beyond that if there’s some kind of an earn-out situation, right? So I think that’s number one, to just want to have good alignment, have somebody acquiring… hopefully somebody acquiring your business that cares about the business and being a good steward of it beyond the transaction and caring about your people and your customers and your users, et cetera. So I think that’s number one.

Marty Balkema:
I mean, I think other advice as far as getting ready is just getting… I mean, I’m sure that everyone says this, but we are going to ask for all the same typical data. Right? So getting really organized, I think, is super important. If you’ve got three years worth of metrics and numbers and having the customer data really well organized, I think, is super important to us. We want to know a lot about, how did these customers get Acquired? We want to know how long they’ve been there. We want to know about the expansion. We want to know if there’s any segmentation or cohorts or anything like that. Basically, how do they come to be a customer and what’s working and not working to continue to get customers?

Marty Balkema:
I think also from our perspective too, those are the two big things, is we want to know that when you flip this switch and it’s now our business, are customers going to keep coming in the door just like they were before and will current customers be supported? So having a really good ongoing support solution beyond acquisition at minimum, and having a customer acquisition strategy and operation that doesn’t stop right after acquisition. I mean, some of this is common sense, but actually being able to show that as a buyer… I’m sorry, as a seller, I think is really important. And then obviously documentation and all of that. I mean, all of this stuff adds more value overall in our minds because, again, we are looking in a decentralized approach. We’re looking for somewhat of a turnkey situation where it keeps going and can keep growing month over month after the transaction.

Andrew Gazdecki:
Yeah. I mean, this is great advice. I mean, I think a lot of sellers just sometimes underestimate just how impactful or just how much they can increase their odds of being Acquired by just preparing a little bit in advance, just putting together a P&L, connecting financial metrics or sharing them, having a list of common questions that you guys are going to ask like that, I think, shows a lot of seriousness on the seller side, and then also makes just much easier for a buyer like you guys who are probably looking at multiple businesses at one time. And if you have to go and get that information, it just makes that whole process harder for both parties. So that’s great advice.

Marty Balkema:
Yeah. I’ll just say real quick to add onto that real quick is one of the things David challenged… bossed me to this past year was to say, “We need to act like the sellers at all times.” Maybe quarterly, update all that information you just said about each of our businesses so that we are continually prepared in advance if an opportunity arises for us to become a seller and not just a buyer. Right? And so we’re going through that right now where we’re preparing to sell a couple of our smaller businesses, and now we’re on the other side of it. And we know what we like as a buyer. Right? And so I think that that’s just good discipline for business even if you’re not ready to sell right now.

David Horne:
Or if you ever sell, yeah.

Marty Balkema:
If you ever sell, but if you’re constantly preparing it, it’ll be a more valuable business even if it’s years from now before you sell.

Andrew Gazdecki:
I love that of a… Because you never know. Someone could just reach out like a strategic buyer or a private equity firm like yourself and just being like, “Hey, there’s kind of everything ready to go.” Obviously with NDA signed and good call with you. There’s some alignment in terms of there’s an opportunity, there’s interest. But yeah, just preparing in advance, it sounds like such basic advice, but it just goes over the heads of so many founders that I work with. So it’s good to just keep reiterating that. The more you prepare… It’s kind of like anything in life. The more you prepare, the better the outcome’s going to be.

David Horne:
Just 30 more seconds on that, I would say even beyond all that is knowing what you want if you were to sell because I think that… as we’ve talked to more businesses, I’ll be like, “Okay, what do you want? What’s your asking price? What’s the perfect scenario for you if you were to sell this?” And a lot of times, they don’t have an answer. And sometimes, it’s, “I want a lot of cash,” and sometimes, it’s a different situation. So kind of knowing what you really want, I think, will help that alignment and making something happen faster.

Andrew Gazdecki:
Yeah. That’s really good advice because then you can make it happen. As entrepreneurs, there’s always kind of this weird dance of like, “We’re for sale, but not really, but maybe if you give us a lot of money.” But I think the more upfront and transparent you can be like, “Hey, we’re looking to sell the business for these reasons, this is kind of our ideal outcome,” I think just being direct with that is… again, just kind of streamlines everything for both parties. Moving on to my next question, a favorite acquisition. I know you guys have done a few, but do you have a story of like maybe one business that you bought that you don’t have to say the name, you can give as much detail or as little detail as you’d like, but just favorite acquisition story from Calm Capital?

David Horne:
Marty, why don’t you talk about them with just the most recent? I mean, I think that’s-

Marty Balkema:
Yeah, I’ll talk about Wavve. So our most recent was a year ago this month. And without getting into all the details of it, Wavve is… We’re really excited about Wavve and where Wavve’s going. We’ve got a great CEO there that we hired during the acquisition process and brought him on board. And I think the fun part of the story was kind of how we found Wavve. So what your company does, Acquire, is super useful. But I think you might have just been getting off the ground at that time, late 2020, but we were basically… We paid a college intern to give us a target list and we gave some criteria, of course, and he worked up a spreadsheet and a model and basically a scoring mechanism.

Marty Balkema:
We came up with 50 targets and they were ranked and we started… and then we kind of dispositioned each of them to say like, how are we get in contact with these folks? And long story short is we reached out to maybe the top 10 and one of those was Wavve, which we found on IndyHackers. And they had been telling their stories for a couple of years on IndyHackers. And we basically just cold-reached, outreached, and just said, “Hey.” David actually did this and he just said, “Hey, seems to like we have a lot in common. We’d love to talk.” But we wouldn’t necessarily say, is your business for sale? Right? And then we jumped on a call and little did we know they had already been having a few conversations with other folks like ourselves. And long story short is that was a really fun process. It was three founders and really great guys. We negotiated the entire deal directly with them over Slack. So after the first call, we started a Slack channel, the shared Slack channel and we started… I mean, I don’t know, probably, David, from what? Thanksgiving to the end of March is when we closed? So we’re not even six months and we kept the transaction costs really low. And I don’t know, we probably had four or five Zoom calls during that time.

Andrew Gazdecki:
Nice. And what does Wavve do for people listening?

Marty Balkema:
Yeah. So Wavve currently is a tool that helps audio creators. So mostly podcasters create digital shorts and short videos to post on social and promote their audio. So musicians, public speakers, podcasters, et cetera. Our roadmap is pretty ambitious going forward with some of the technology that we’re bringing on. Wavve then Acquired another company recently where we were just acquiring the technology that helps with transcription. And we’re going to be doing some neat things around episode transcription and archiving and things like that.

Andrew Gazdecki:
Nice. I’ll put that in the show notes for anyone that might be interested in checking that out. That sounds awesome. Congrats.

David Horne:
Thanks.

Marty Balkema:
Yeah. Thanks.

Andrew Gazdecki:
Moving on to really my final question is we’ve had… 2021 was a pretty crazy year for just acquisitions, M&A in general. Any predictions for the upcoming year, what you expect to see? I know this is kind of another sort of crystal ball questions, but any comments on that? Maybe goals for Calm Capital? Maybe overall industry trends that you think we’ll start seeing?

David Horne:
Yeah. I’m not super trendy. I mean, I don’t see the deal flow slowing down. If anything, I think it’s increasing. I think we’ll see more, continue to see more people looking to sell. I also think, and especially with some of the relationships you all have built at Acquire, there’s a lot more funding options available than before. People, I think, that are on the buy side are catching up to the sell side knowing that, “Oh.” Before we bought our first business, it’s like, “How do you fund some of these if you don’t have an exit that gives you cash or cashflow?” I mean, we were fortunately in cash flowing businesses that we were able to leverage or whatever, but I think seeing more competition on the buy side, I think, is something I’m seeing. I mean, you see way more than we do. So we should be asking you this question versus you asking us.

Andrew Gazdecki:
I’m happy to answer it if you’d like.

David Horne:
Yeah, yeah. School us, man.

Andrew Gazdecki:
I think we’re going to see two things. Number one is I think we’re going to see a lot more just general private equity activity specifically from first time buyers. Just hearing about the success of basically entrepreneurship through acquisition is really becoming a trend that people are really opening up to way more than say two years ago. When I sold business apps four years ago, the number of private equity firms was minimal. And now it’s like you can’t go a day without hearing a new firm popping up or something like that. And I’ll bet some are legit and some are not. But yeah, I think just more optionality for founders so it’s just good for everybody. There’s more deal flow for buyers. There’s more optionality for founders.

Andrew Gazdecki:
So I think just in general, the market’s just going to keep increasing just because of the awareness that… I remember when I was, again, running my first startup, you would think of the acquisitions only being done by Google and Apple and you’d think of getting Acquired as this moment. I always joke around where… And this is true. I actually would think like one day, a company would come and be like, “You just got Acquired with a big check,” and they’re like, “You won,” and not understanding the process. So I think just the more that founders are educated on acquisitions and what they need to do to prepare, listening to podcasts like this and learning about firms like you guys, I think, it’s just good for the overall startup ecosystem. So I’m biased, but I’m bullish.

David Horne:
And I would say from our position, we really appreciate the work that you’ve done, your team has done around bringing more awareness to this so that more people do know because we think on both sides. Marty and I were like, “Hey.” Not that our startup days were over, but we’ve been married for a while. We have kids that are at ages where they need more time from us. And we had spent our entire careers helping other businesses grow. So the idea of going zero to one for something just wasn’t as appealing.

Andrew Gazdecki:
Zero to one, you’re eating glass, which-

David Horne:
Yeah. So we’re like, “Maybe we can do one to whatever and the people that love doing zero to one keep doing zero to one and we’ll be there on the other side of that.”

Andrew Gazdecki:
Yeah. That’s probably my favorite part about Acquire is it’s really a transfer a lot of the times between builders and scalers where builders get to build a company, get it to a point where maybe it’s as far as they could take it on their own, or maybe they’ve lost interest and they pass it over to a firm like you guys where you breathe in new energy and you really bring more support to the existing customers and keep that business going. So it’s win-win on both sides.

David Horne:
Absolutely, and the customer wins the most. Right? Because one, they had a problem, someone that started something solve their problem. And then hopefully companies like ours and there’s a lot of good firms out there that are buying the companies and keeping that going where there’s… We always joke like you see these businesses that are so impressive. They’ve been around for 70, 80 years in offline type businesses, but the SaaS and internet type businesses, there’s no precedent. It hasn’t been around that long, but there will be a time where you can look at a SaaS company and be like, “That’s a 100-year-old SaaS business and it’s going to take a bunch of different people to keep that going and hopefully continue to add value to the community it serves.” So we’re happy to be playing in the space a little bit.

Andrew Gazdecki:
I love that. Well, that’s all I got. So thanks so much for joining me on this podcast. I think this is super useful for both buyers and sellers. And with that said, if people want to get ahold of you guys at Calm Capital, where’s the best place to get ahold of you guys.

David Horne:
Yeah. We have calmcapital.com is probably the best website. We’re not super active on social media, but we’re around. You can find me at David Horne and Marty Balkema online also, but Calm Capital’s probably the first… calmcapital.com is the first place.

Andrew Gazdecki:
Right on. I’ll put that in the show notes, but Marty and David, thanks so much for joining me on this podcast. I really appreciate it.

David Horne:
Yeah. Thanks, Andrew.

Andrew Gazdecki:
Yeah. Thanks, Andrew.

David Horne:
Keep up the good work. Thank you.

Marty Balkema:
Yeah, keep up the good work. We enjoy all of what you’re doing. Appreciate you.

Andrew Gazdecki:
Appreciate you guys. All right. Cheers.

Marty Balkema:
All right.