Startup Acquisitions Stories w/ Colin Keeley – Founder at Verne (Acquire’d 2x)

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Transcription –

Andrew:
All right. Today, I’m joined with Colin Keeley, the founder of Verne. Colin, how you doing today?

Colin:
Excellent. Thanks for having me.

Andrew:
So for those that haven’t heard of Verne, I’ve been watching you for quite a bit and big fan of all your work and what you’re doing, but what is Verne? Give maybe a quick intro on that for people.

Colin:
Yeah. We just buy and grow niche software companies. So it’s me on the business, marketing, finance side, and then Brent Sanders on the tech and product side.

Andrew:
Nice. I love your deep dives into, I highly recommend anyone listening… Because you also have a course as well, too, right? Called Indie PE?

Colin:
Indie PE. Yeah. So teaching people that how to buy small businesses. I’m best known for these operating manuals, as you kind of alluded to. I’ve done a number of them. Mark Leonard, Andrew Wilkinson, Robert F. Smith, a bunch of them.

Andrew:
They’re well done and I’ve read a few of them. So definitely check those out. How did you get into all this? Not lot of people just stumble into buying companies and then doing deep dives on the biggest private equity firms in the world.

Colin:
Sure. So background, I went to business school and I was a little aware that you could buy a company, but I always thought it was like, you could buy a box making company in Idaho. And so was I was like, all right, not for me. Check that box. Going to go do venture capital. So background was a founder of a bunch of startups, mostly failures, some small successes, software marketing agency, TV and movie recommendations. Had a sharing economy startup that raised some money, flamed out. Through that process, met a VC, didn’t like the business, but liked me well enough. So I hopped on over there. And we were generally leading series A deals, but we were also a startup studio.

Colin:
So once to twice a year, we’d spin up new companies. And that’s just a really hard process. Even if you have money and have done it before. And so everyone does it kind of differently. And through that, I just kind of became a student of the different approaches and stumbled on Andrew Wilkinson, who started doing a bunch of podcasts. And I was like, oh, he just buys product market fit and grows companies with best practices. That sounds awesome. And his lifestyle of not running them sounds really appealing to me. So that was kind of how I heard about it. Wrote an operating manual on him, met him, hung out with him, grabbed dinner. And then someone mentioned Acquire and just when you guys were starting. And so that’s how we found the first one and did our first deal there.

Andrew:
Nice. Well, let’s talk about that. If you’re comfortable, what was the company that you Acquired off MicroAquire? Or Acquired off Acquire?

Colin:
Acquired. Blink Sale is the name of it. So it’s like a B2B payments invoicing for freelancers. I think it was the second Ruby on Rails app ever. So quite an old storied company.

Andrew:
Nice. And when did that start up?

Colin:
Sorry, what’d you say?

Andrew:
What did Blink Sale do?

Colin:
Oh, it’s invoicing for freelancers and small teams.

Andrew:
Very nice. How was the process with that? I don’t want to get too nosy, but are you comfortable with sharing size and maybe the structure of how you Acquired that?

Colin:
Yeah, it was six figures. I don’t know if I could, I don’t think I could say exact numbers, but in the six figures. Is owned by this guy, Brandon was a serial founder and had done acquisitions before. So we couldn’t have possibly bought from a better person because he kind of walked us through the first acquisition. So it was really valuable. As far as the structure, it was just me and my partner, Brent Sanders owned money, and then we had seller side financing in there.

Andrew:
Nice. I remember when that one went up, Blink Sale, I actually remember specifically how much interest that specific startup got. I think there was 60, 70 people reaching out. So I guess my next question is, what is your kind of approach with founders? When you see something maybe on Acquire, how do you make yourself stand out and give sellers confidence that you’re a serious buyer?

Colin:
I have a body of work on the internet, so I say, Hey, here’s our website. Here’s some deals we’ve done in the past. We probably should throw up more testimonials to be like, these aren’t just crazy guys on a software marketplace. They’re real people that haven’t screwed up over a number of years. But yeah, just meeting with them, being pretty open that we’re also founders and not wall street suits or something has gone pretty well. How we won that deal, I didn’t know it was competitive. You told me after the fact that that was the case. But Brandon and I had similar companies that had flamed out and I think we kind of bonded over that. He listened to our podcast. He read my articles and just kind of went off to the races from there.

Andrew:
Nice. So you got that under your belt. And then before we started recording, you said you’re working on another acquisition. Are you comfortable speaking to that on a high level?

Colin:
Yes, we’ve done, we’ve closed another one back in December that was a database backups. We’re not talking about the name of that one. It’s a little more private. But we’re working on another one that’s on Acquire. I don’t know when this is going to air, but I imagine it would be closed by the time that’s done. I wish I could talk about it more. It’s a really fun one, but maybe in the future I’ll come back.

Andrew:
We’ll have to bring you back on because I want to know. But I guess I got to get a little info out of that one. I won’t ask what it does. That might be a giveaway. But is it bigger than Blink Sales? Smaller?

Colin:
Yeah, bigger. I guess we probably quickly realize if you’re doing something that’s 200,000 or 2 million or 400,000 and 4 million, it’s roughly the same amount of work. So leaning more towards these single digit ARR companies, but yeah, bigger. Every deal since has been a little bigger.

Andrew:
Nice. And how do you value these companies? Do you have evaluation model that you follow or do you work with the founder on that? How do you get to an agreed price when you Acquire companies?

Colin:
Yeah. You look at multiples. So you guys put out a really nice multiple report that’s kind of helpful to educate founders. But I’d say price and terms are two different things. So sometimes founders have a certain price in their mind and we could move terms up and down to arrive at that price. But yeah, seller discretionary earnings is typically how we value it. And then we say we often pay one to four times ARR, but that’s obviously quite a range.

Andrew:
Nice. Yeah. I like that part you said about terms because you can have a better offer. I recently… By the time this airs, we bought a Shopify app as a group, me and some buddies, and we resold it on Acquire. We had an offer at a much higher price, but the seller financing and all that stuff over 12 months and I ended up taking the all cash offer just because I don’t have to chase someone down for 12 months. So leveraging terms can sometimes be just as powerful as the purchase price. So I like how you get creative with the terms.

Colin:
Yeah. I like the problem solving of it. I try really hard to understand what is most important to the founder. And obviously I know what’s most important to us and you try to craft a deal that works for everyone.

Andrew:
Nice. So let’s say you’re on Acquire, you’re looking around. Describe to me what the perfect fit for Verne would be? Or maybe just founders listening and they’re looking to sell their business, what would be a bullseye for Verne?

Colin:
Bullseye would probably be a few million in ARR, growing, profitable, low churn. I mean a perfect company almost, Hey, it doesn’t exist, or else we couldn’t afford it. But that’s what we ask for.

Andrew:
Any specific verticals or are you agnostic to any type of software? Just mostly revenue focused?

Colin:
Yeah. A niche vertical, great. I mean, I don’t know. We’re very much in the constellation playbook of marina software, lefthanded dentist, anything like that where it’s not super competitive is great. But yeah, there’s a saying that all software tastes like chicken. So fundamentally what we’re doing is all pretty similar in our end. The end customer is just different.

Andrew:
That’s a good quote. That’s Vista Equity, right? I get it right.

Colin:
Yeah. Robert F. Smith.

Andrew:
So you do deep dives on other private equity playbooks. What would be one of your favorite? I’m not going to ask you your favorite, but just so you’re not picking favorite of the PE giants, but who do you think has the most interesting playbook that you like to learn from the most?

Colin:
I would say most people in our space will look up to Mark Leonard, Constellation Software. They’ve done 500 plus deals. So they’re like the originals, they probably doing it the best. We just got beat out in a couple deals by them recently, which is kind of cool. It’s losing basketball to Michael Jordan or something.

Andrew:
That is cool.

Colin:
But yeah, that’s probably who I look up to the most. Andrew Wilkinson’s awesome. He’s a little earlier. I think he’s 50 companies now. On the other side, those are the good guys. And then I saw you guys were bought by ESW so I think Joel Lamont is an interesting case study of a more different approach where it’s a more hardcore, more automate everything, rip up people and do assembly line style.

Andrew:
ESW Capital. We had a good outcome with them, but they definitely run a different playbook instead of build and grow. But yeah, those deep dives that you do, I definitely recommend, again. When I read that one, I was like, yep, that that’s pretty accurate. In terms of where you want to take Verne, how far are you trying to go with this? Are you trying to build the next consolation software, the next tiny capital? Where would you love to be in five years?

Colin:
I got my beard coming in, so in 10 years it’ll be the Mark Leonard with the beard down to the waist like Gandolf. But yeah, I don’t know. We’re just going to keep doing it, scaling it up. I think it’s pretty clear we need more money to compete with some of these bigger deals. I think founders really like us, but there’s a limit to that. We found out the limit is millions of dollars that Constellation can offer and we cannot. So just keep scaling it up. Number of deals and then probably growing up a little bit as far as size of deals.

Andrew:
Nice. And then, you talked to a lot of, so now moving over to just some advice that I’m sure would be super helpful for founders. When they start a conversation with you, what are some, just a few tips you would give founders looking to sell their business?

Colin:
I would say whether they plan to sell or not, these tips probably apply, but just be super honest. If there’s any hint of deception or you’re hiding something from me. I just said this before, but you can’t do a good deal with the bad person. It’s just like, we’re hands off.

Andrew:
That’s a Warren Buffet quote.

Colin:
Yeah. And then evaluation, having a realistic evaluation is super helpful. I just, I’ve mostly given up on trying to convince people. You could throw them the Acquire reports and be like, well, this is what things are transacting at. But if people think their business is worth 10, 20 times they are, it’s just maybe they’ll boomerang back in the future, but probably not.

Andrew:
Yeah, just try doing that at Acquire scale. It is the hardest, hardest part of our job. And just a footnote for listeners is we do the same thing. We share the multiples report. We share everything we possibly can because when you price yourself too high, people think it’s ludicrous and you don’t get a deal done.

Colin:
Yeah. It’s tough.

Andrew:
And it’s kind of telling, Hey, your child’s not as good looking as you think or whatever the phrase is. So yeah, that part’s tough. It definitely can really spark interest of buyers quickly or just completely… Because the gap is so big. And with buyers like you looking at many deals, it is just not worth the time to try and talk sense into them.

Colin:
Yeah. I just say whether it’s a negotiation tactic and they’re actually open to a reasonable deal or if they’re just unrealistic and you’re wasting your time. But my other, the biggest one is just be organized. Whether you’re looking to sell or not. Know your KPIs, have orderly financials. I think that’s just super beneficial for running a company and knowing what matters. And then when you look to sell, it’s way easier as well.

Andrew:
Nice. And then in terms on the buy side, if someone wanted to get into acquisitions or listen to this podcast, what’s some advice you’d give them in terms of how to get started, where to learn? I know you have a course.

Colin:
Yeah. Yeah. The course is good. IndiePe.com. We have a podcast where we talk about our learnings kind of live. Although we don’t talk about live deals, only after the fact. I never want to spike a deal because of something I said. That’s good. There’s a lot of other good podcasts out there. A bigger advice is I think people fall into this trap of wanting to measure twice and cut once and then they just measure forever and they never end up buying anything and they’re always learning about buying something. So my real advice is not by the course or anything, but just take concrete steps, go talk to sellers. Go talk with brokers. Get on Acquire and cold email businesses they actually is actually making progress towards buying something.

Andrew:
Yeah. I always say just when people ask me, because we have a ton of resources on Acquire, shameless plug, everything from due diligence, legal to closing. Literally you could probably learn how to buy a hundred million company from resources. But I always just say, just go to Acquire and buy something for 5k, go through the full motions, the steps, take it seriously. And then you’ll have a startup. Figure out what is your playbook? What do you do? Are you a whole person? Are you a reduced staff, cut costs type person? Are you able to grow? Whatever. You just, you can just learn so much with just that 5k just by going through the motions. Experience is one hell of a teacher I guess is kind of the point I’m trying to make.

Colin:
Start small, make small mistakes. The other advice I give people is everyone’s software is the greatest business model ever. I want to buy a software company. It’s like, if you’ve never managed developers before, you’re going to blow a lot of money trying to wrangle them in and build stuff. So content sites or something like that, I think is a little easier. A small content site to start.

Andrew:
Nice. Yeah. I would agree with that too. Content sites, super, super easy to transfer. Another question I’d love to just get your take on just because just your curiosity and just your learnings and the acquisition space. So this is a left field question, but what’s maybe two of your favorite acquisitions? It could be Salesforce Acquired Slack or really interesting ones. I can tell you mine.

Colin:
Okay. Go with yours to start.

Andrew:
Well aside from my company. But no, I am just kidding. I would say in terms of just what the fuck was Mark Cuban’s company, how he sold that and then was actually shorting all the internet companies. That’s how he became a billionaire. He sold it and then he sold all… He knew it was a bubble and then, I don’t know the full details, but that’s how we essentially became a multi billionaire. And then he bought the Mavericks and made some good investments. And then in terms of the best bang for the buck acquisition, I think then it has to go to YouTube or Instagram. So that would probably be my two.

Colin:
Yeah. I mean obvious ones to me are just as soon as something gets bought, it becomes significantly more valuable for the parent company. So the obvious one would be Facebook and Instagram, made no money before and now it’s like it is Facebook effectively. I’m sure there’s a bunch more like that. But we’re doing no gotcha questions. And here you are with a gotcha question.

Andrew:
That’s not gotcha question. Just any acquisition from any company, which one do you think is interesting, fascinating, or just a good combo or just makes kind of sense?

Colin:
I’m just going to stick with the Facebook Instagram one. I don’t have a great answer right now.

Andrew:
I’ll tell you a funny story about Instagram. So I had a small angle investor in Business App and the first employee at Instagram worked at his company. So he did a reference call with Kevin Systrom and Kevin was like, “Hey, we have this photo sharing app. We’re raising a 250K seed. Would you like to invest?” And I’ve seen the email, I’ve seen it. I’ve seen Kevin Systrom emailing this guy. And if you put up 50K, it would’ve been worth, I don’t know, a lot. But anyways, in terms of where this market is kind of going, as we were recording today, the broad markets are kind of trying to figure out, are we going into a recession? Are we in a recession? Where do you think just acquisitions in general are going to be headed over the next year?

Colin:
I looked at this once back when I was at VC and there’s a pretty significant delay between the public markets and the private markets. It’s like 18 months before things really start to turn just because there’s a lot of dry power out there. But I wouldn’t say we’ve seen multiple changes that much. What’s exciting to us is more of these companies that is more of these compound, these venture orphans. I’ve seen a few come up on Acquire. I think we’re going to see more of those pop up.

Andrew:
I’m seeing a ton, man. And it’s sometimes, we welcome them because we’d love to see them see a soft landing rather than go out of business entirely. But yeah, it’s common.

Colin:
Yeah. I mean it’s coming whether you like it or not, whether it’s good or not. I think you’re going to see a lot more bootstrap founders, which make for great financial exits for the founders, which is great. So, excited to see more of that. These venture orphans are fun, but it’s tough to get a great outcome for everyone involved. Often some people are going to be disappointed.

Andrew:
Yeah, I would agree with that. I always say if you want to create well bootstrap, if you want to change market, raise venture, because your odds are, I mean MicroAcqiure is venture backed. I know my odds, I got a 1% lottery ticket. But by bootstrapped it, that analogy I always use is, you’re kind of at the black jack table with chips and you can cash them in. But then as soon as you raise capital, you got to make it lot more chips before you can do anything. So I think a lot of startups over the past year just raised too high of evaluation. They’re never going to be able to grow into it. Founders already kind of know it. And then I think over the next six months, it’s going to be really interesting to see how they kind of think through that decision process. Do you want to stick into this for a decade or just kind of wave the white flag? I’m not really sure.

Colin:
We’ve been talking with some of these founders and it’s like, the fear is that they’re just zombie companies. The founders are never going to run around the preference stack or the evaluation and they’re just wasting another three years of their life trying. It’s like they’re better off just exiting. Hopefully the VCs forgive some and the founders walk away with some money and take another bat, go do something else. Pick a different market.

Andrew:
Yeah, no. I think we’re going to see some interesting acquisitions. I think both in good scenarios where they go to a soft landing in this growth at all cost company is restructured to more sustainable profitable growth. So that is a net net for customers I think. Here’s a question. If you could only look at one stat, when you’re looking at one piece of data, we could be churn. I’m sure your answer is going to be churn. But if you just look at one metric when you’re looking to Acquire a company, what would it be?

Colin:
Everyone’s going to say churn. So I’m not going to say that. I would say pricing power. Not that we do it, but I think if you could double prices and see very low churn, I think that’s a meaningful measure of how much value you are actually creating for your customer.

Andrew:
Yeah. Did you happen any catch Bare Metrics doubling their pricing?

Colin:
Yes. Yeah. I saw the Xenon guys did that.

Andrew:
Yeah. That was fascinating because for those saying Bare Metrics is a SaaS analytics tool and they have something called I believe open metrics or something like that. So you can see how much money in real time Bare Metrics is making. And when they double pricing, you could literally see just in one day they just doubled their revenue of their entire business. It was fascinating. It was like, get your popcorn. What’s going to happen here.

Colin:
I wouldn’t have thought that they could have pulled that off because it was profited well, and there was a million competitors in that space, but clearly, I mean, they must have had big customers and very sticky and it worked for them.

Andrew:
Yeah, absolutely. Well, Colin, this has been a ton of fun. Definitely rooting for you and hoping you close another deal or two or maybe 10 on Acquire. But if people want to learn more about you, Verne, where’s the best place to find you?

Colin:
Yeah. Colinkelley.com Colin Kelley on Twitter. My DMS are open. Happy to answer questions if anyone reaches out.

Andrew:
Right on. Hey, thanks for joining the pod, man. I appreciate it.

Colin:
Yeah. Great to see you again. I’ll talk to you later.

Andrew:
All right. See you, Colin.