Dissecting ProfitWell's Acquisition (with Patrick Campbell)
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Hello, Acquired LPs, and welcome to the first episode of this season of the LP Show. David, this was the first time we've ever done this sort of thing, I think, on an episode? Yeah, real time. Yeah, so for everyone who doesn't know, ProfitWell was acquired for over $200 million a couple months ago, maybe by the time this is coming out, maybe a month ago before recording. And Patrick

just came on and shared basically everything with us. The whole process, negotiations back and forth, how long it took, legal fees, everything you could possibly want actually dissecting an acquisition that just happened to the person we were interviewing. It doesn't get more acquired than this.

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Now, without further ado, this is not investment advice, and you should do your own research before making any investments. All right, on to the episode. We are back with repeat guest Patrick Campbell from ProfitWell. Hello, Patrick. Hey, what's up, guys? Thank you for joining us again. I can tell you that I was just looking at the stats in the previous episode that we did with you, which was a masterclass on pricing. And I was just looking at the stats in the previous episode that we did with you, which

When the LP show was purely a private thing that only went to LPs, it was the most listened episode ever. And I think it's because the insane amount of utility that it brings. Pricing strategy is this crazy opaque box where you'd never guess it right if you just tried to find it on your own. So thank you for that masterclass. We still get notes from people. That's awesome. Well, I understand I was the guest, but let me put this back to you.

One thing you guys do, and especially in that episode, what people don't know is we had a pre-meeting where like we kind of recorded a podcast almost where you're like, what about this? What about this? So you guys translated everything into a really good outline. And I think that's what really made the episode because it was, you know, the value per minute went up.

without just me talking, right? What I'm trying to say is the value per minute on this episode will be much, much lower because we didn't do as much prep. Yeah. But the story will be better. There you go. Yeah. There'll be more salacious details, not quite Hulu, Joseph Gordon-Levitt level, but like on that wavelength, I suppose. But yeah, thanks for having me guys. I did want to say I'm a huge fan. And the reason I'm a huge fan is

You guys are minds. And what I mean by minds, there's so many people. Yeah, no, this is great. I might have to cut that. No, there's, there's so many. Another way to say it is like, you guys are academics, professors, et cetera. And like some of those have like a tinge of negativity. I don't mean that at all, but you guys are obviously operators, executors, those types of things. But like there are explorers and there are, you know, people who are kind of like

more just like money focus and stuff. You guys are genuinely interested in like seeking truth or seeking understanding and those types of things. And it's incredibly rare. So I appreciate that as a listener. So there we go. Thanks, man. That means a lot. All right. Well, you have some news. This is like an original true to form early stage acquired episode. Your company was acquired. Tell us about that.

Yeah.

Cash in stock deal. Now I reached to the mountaintop. I don't know what to do. I caught the car, at least a mountaintop, not quite Everest. And now I'm like, you know, trying to go take on the world of payments infrastructure. So new world now with Paddle, who's based out of the UK. So exciting stuff.

Well, first off, congratulations. Second, even though we don't want to recap the whole ProfitWell story, I do want to pull out a few key details, which were, I don't think you were like bootstrapped by principle, right? You were bootstrapped because no one would fund the thing that you were doing because they thought it was a low margin services business, right? Yeah.

Yeah, it's a little bit of column A, column B. I think the reason we sold was because we were going to raise our first round and then got into an M&A conversation and tried to do a parallel path, which is like hard mode, especially when you've never – like I never raise money. And I've been involved with a previous company like as an analyst, but nothing serious. In the beginning, it was a pure software product. Whenever I get a chance, I have to point it out. The pricing software was a pure software product.

The problem is, is that pricing suffers from a trust gap where if I give you the exact data you need and I give you exactly what to do, the smartest people out there, the smartest execs who would jump into any other problem, even if it wasn't in their core competency, they freeze up.

And so when we would get people the data, they would say like, oh, can I just pay you to get the data? And I'd be like, cool, we'll do a little bit of that because we can streamline that product later. And then all of a sudden it was, well, can you like come talk to us about it? And we were like, oh, VCs don't like services. Like, you know, what do we do? And then they're like, we'll pay you a lot of money.

And I went, okay, right? You know, because it was really early on. And so the way we looked at it was we were going to get paid for customer development, but then all of a sudden something kind of fun happened where our pricing turned out to be pretty good and our retention on that product, because it was basically a subscription tech enabled service. Yeah.

This was price intelligently?

And so the margin on that business was not SaaS, but it was definitely like infrastructure level. Like it was over 50%. And SaaS being defined as like 80 to 90%?

Yeah, it's hard to say, right? Because there's some SaaS companies that have like 40% margin. To give you context, like our retained product, the margin is like 95% plus, depending on the month. And so long story short, we started having this vision that was wider than just the pricing product. And we started to see like a vision towards, well, we're cash flowing this much money a month. None of us are taking distributions or paying ourselves that much, which I think was a mistake in hindsight, not to take it all, but to take a little bit better level of living.

And long story short, we started building the Metrix product, which is subscription financial metrics. You plug it into your billing system, Stripe, Chargebee, Recurly, Paddles, or whatever, and they give you free access to Metrix. That started taking off, but it's a terrible business to monetize. The first VC meeting I had outside of Boston was with Allison Wagenfeld, I think is her last name. She wasn't, I think, quite a VC at Emergence. I think she might have been a partner, but she was there between companies, and now she's running Google Cloud, which is kind of crazy.

But she just was like, analytics are terrible businesses. And I was like, why? She's like, no one wants to invest in them. And she was less dramatic as I'm saying right now. It was like eight years ago. And I was like, oh, interesting. So we started exploring and that ended up being free. That was actually the moment that we should have raised money right there. When we knew ProfitWell was going to be free, it was a financial analytics product that needed to be accurate, which is like the word accuracy there takes the level of difficulty a

higher, therefore more expensive to build the product. That is not monetizing. Totally. And we had enough research and traction and all that kind of stuff. We had term sheets at that point. We had people coming to us and it was a little bit of a frothy time in the 2014, 2015 era right there. Little bumps, not like the last couple of years. But

And so we did have like interest, but that's when we were not quite principled, but we were like, okay, it's going to take 18 months just to get the accuracy right. Unfortunately, as they say, like nine women can't make a baby in a month. Right. And so it was one of those things where we were like, well, let's, let's like, you know, and almost the margin like hurt us because we were like, well,

Let's just wait until this milestone. And then we'd get to the milestone and there'd be enough cash and we'd hire and we're like, let's get this. And so what happened is we kind of – and it all worked out in hindsight, right? But like we kind of stair-stepped rather than like taking a big step level. So we took small step levels and we kept going up. But there was a couple points in the history that I think we should have raised money. But I didn't know –

how to raise money. And I didn't really know that that was a thing when we started. You just knew how to make money. Yeah. Well, I mean, I didn't know how to do that either. Like, I mean, it all in hindsight, it's all great. But like, I worked at Google as like an AdWords, like strategist, you know, which is basically you get paid to look at spreadsheets way more than you should to work at spreadsheets. And then before that, I worked in the US intelligence community in DC, I worked at NSA, which was was fantastic. And

from a learning perspective, but none of it was business. Like I never wanted to go into business. I was not an entrepreneur. Like I had entrepreneurial things I can look at in the past, but it was just a lot of like first principles thinking to figure stuff out going forward. And I think that hurt us because every single time

It was like rationalize how we could get there and it would just take some more time, right? And that's the thing, like time and money are fungible and we didn't really realize that. But yeah, it worked out, don't worry. Were there moments where you sort of looked at a growth opportunity and thought, we actually don't have that much capital because we're just going off of the free cash flow that we're generating from the business and we're reinvesting that in growth. But like, gosh, we really could...

invest into this opportunity a lot more if we did have capital. Did you constantly feel constrained at your ability to reinvest in the business? That was the other problem. There were too many parallel paths going on.

And what I mean by that is, so we have price intelligently, right? And that product starts growing. It's growing really, really well. We have this free metrics product, right? That's scaling, you know, really, really well. We have this retain product, which is like a pure software, you know, product. We have this revenue recognition product, which is a pure software product, right? And

And then we have a media strategy. We were one of the first, if not the first B2B companies to do a media strategy with inbound media, I think is the term that's now kind of being normalized, but like, you know, multiple shows and podcasts and all this other stuff, right? We had, you know, all of this stuff going on.

A team of like, it was one in the beginning, but the max team was 85, 90 people. And so imagine like doing all of those things and like a freemium strategy, a media strategy, which, you know, is not cheap. And so what happened is, is all of this time we were like, well,

we don't know where to spend the money, right? And then we were like, well, we know where we'd spend the money, but we don't know the return yet. And then we were building all the other functions, right? Inside sales, finance, all these other things. So inside sales, like there were so many teams that were slowly incrementally getting better. And the thesis was in hindsight, and it wasn't like we thought this at the time, but the thesis was, oh, well, the compounding effect will happen. They'll all like get over that activation energy and like compound, which is true. Like it did work, but

What happened is then not until, I don't know, like the beginning of 2021, did we go, yep, we need to raise money because we have too many $10,000 arguments. We're having five $10,000 arguments, which one...

We should be only having 25, 50, maybe a hundred thousand dollar arguments at our, at our revenue size. But also all five of these things we know should, should have the investment. Like we totally know that we should hire that next person in content because we know the ROI. We totally know that we should hire those next 3d BDRs. We totally know that we should hire this integrations team, but the surface area was so large that it was like, Oh crap, this snuck up on us.

And that's why I think that like, if you want to build a big company, which was entirely our focus, right? We never wanted to be, I don't think this is a pejorative term, but people think it is like a lifestyle business. That wasn't our intention. You want to get as much revenue for as least amount of work, like go for it. That's amazing, right? But we wanted like that path. And it's like, we then also had the realization probably in start of 2020, we had passed 10 million in revenue.

And we went, there's not a single company that has our sales motion inside sales, brand events, et cetera, has gone from 10 million to a hundred million without raising money. Not a single one. And we're like, we're not going to be the first. Right. And so that's when it started. Like you weren't so philosophically committed. Yeah. Like, cause it was never like FVCs or anything like that. I think like that argument's dumb because I think that argument is just like the

The end of it is always, it's a tool. Figure out when to use the tool, right? Like most things. And so Eric Yuan, I think we were talking about before the pod too, like one of the most amazing things about their S1 is that you realized they reinvested money quick. Basically the cash that they made in that previous quarter, that was added to the expenses almost to the dollar the next quarter, right? Like they just were investing so well. We got into that motion, but we actually have a scheduled retrospective on

And I know this sounds terrible, but on where we failed and, you know, the classic, like we failed to be a, you know, multi-billion dollar company, right? Like what, where did we fail? And, and I think it's being harsh, but like, that's, that's kind of how we are. That's a very bootstrap brain thing to do. But the other thing that we faced is that we are a symbiotic like company inside an ecosystem, right?

And that means like, we don't make money unless we integrate with all these other systems, right? Like someone has to integrate Stripe to get their metrics and or integrate Stripe to get retain. And they could hire us, you know, for price intelligently as well, I guess, without being integrated. But I think the thing that we started realizing was like, where did these companies go?

They end up getting crushed by, oh, like Stripe has analytics. They're not great, but they have a lot of resources. They could start pointing at it, right? If they really wanted to. And it's just a matter of probably when. When you said, where do these companies go? You mean companies like us who are required to integrate with all these really big fish who all are looking for growth opportunities? Yes.

Totally. It's a constant. And if you look at the ones who were really successful, like Klaviyo is another Boston company that I think was really successful at this as being like a- Email marketing? Yes. Email marketing. They have SMS now, mostly e-commerce. But they weren't like, you're on Shopify, which is the bulk of their customers. Fantastic. But you can be on other things and work with them, right? And so they have such a function. We have no value if you don't integrate with us. That was a big thought.

Another thing that people don't really think about is like, where do you sell to? The likelihood of an IPO is not high, like just because execution risk, all these other things, even past 10 million in revenue, you're saying, you know. I think so. You're still a strategic, right? Like you're a strategic until, and I don't know where the actual cutoff is, and I'm not, you know, a PE or investor type of thing.

You have to be big enough for the balance sheet, like additive nature of the balance sheet to be worth it, right? Like one of the corporate M&A folks we talked to in this process, because we talked to a bunch of people, we had multiple LOIs, which is very great and everything. But one of the people we talked to is like, you guys are kind of in the middle. If you were 80 to $100 million in revenue, it would be really easy for us to argue this to the board because there's this free thing, there's revenue, there's all this other stuff, it'd be really easy. Right.

Yeah.

Because we also had the benefit of like, we didn't need to sell. And when you say strategic, they're not valuing you on the cash flows. They're valuing you on what you bring to their flywheel by integrating the product and the business. It's a little fluffy because everyone's got their own little framework. It's not as simple as like, oh, multiple of X, that type of thing, even though that's what we distill it down to talk about it. But it was, think of

coming together with Paddle. Like our stated mission at ProfitWell is we exist to grow your subscription revenue automatically. Like not like you have to do a bunch of work, but automatically, right? Paddle's stated mission is we exist to run your subscription business automatically.

right? Which means like what a lot of people don't know about paddle is like, people are like, Oh, are you, is it a billing and payments companies? Like it's yes. All of the above what they do. That's different is like, they automatically take care of taxes. So it's not like you have to see the information and then go pay the sales tax. It's just taken care of. Like it's called a merchant of record. That's the model. So, but to my point,

It's basically like those two companies come together, like, oh, we build to run and grow your subscription company automatically, right? Like it's all of a sudden, it's like, there's no better word than synergy, unfortunately. It makes sense. Yeah, there's a direct synergy and it's like, okay, great. And they believe in the open ecosystem, which is what we believe in an open ecosystem. Like there's all this stuff and it's like, oh, they don't have like a strong CPO. We have a really strong CPO. They don't have like, you know, and there's all that stuff that ends up happening. Conversely, like maybe this is a bad example.

Google's not going to go buy you because they need a new business division of profit. The same reason that public investors would invest in you in an IPO, because that's not what we're talking about here. I won't say the name because it might actually violate an NDA, but there was a giant company. Honestly, my favorite public company ever. I can't say what it is, but they're not in the subscription space at all. So the only way this works, it was like the quickest two phone calls, because the only way this works is if

their board, their exec team, there's alignment that they would like to take all the stuff they're doing and get into the subscription space. Right. That's the only way it works. Right. And they were like, yeah, we're not really doing that. Whereas there's one of them who, who it was a serious number of conversations because they were like, well,

We know we're getting into the subscription space. And then it was a matter of when and how. And that's a little bit different. And then we were strategic, especially at the price point that we were going after. So yeah, it's fascinating. And then going through diligence and all this other stuff, I want to do this three more times. I wanted to do it three more times again, just because I know so much more. Before we get into the deal stuff, there's one thread that you mentioned that I want to pull on a little bit. And then I want to get into this 2021 to 2022 acquisition. You referenced...

We are dependent on all of these other big players in the ecosystem to create value for us. And I think a lot of startups end up in this position where they're trying to figure out, are we a value add on top of other platforms? Or are we a meaningful, big product, hopefully platform ourselves that has lots of integrations, but we are not at the mercy of those other integrations? And I'm curious how you think about that.

company that's sort of constrained to be a few hundred million dollar outcome that is built on top of behemoth platforms versus someone that becomes a multi-billion dollar company on their own that just merely integrates like what's what are some of the differences I think if it's a merely an integrator you're probably a dev tool of some kind and I've been thinking about that for like just this conversation that that small piece because our working thesis is

I called it a symbiotic. We call it a parasite thesis. Basically, you're a parasite. You're value-add, so you're not a parasite. It's not all one way. I just, I guess it's a symbiote. The end of the symbiote strategy is you compete with the host. So what happens is, is like, there probably are products that are so valuable that you

that are symbiotes on these different companies that like they get so big that the risk of them being shut off by the partner is so low and the partner is never going to catch up because the product goes so deep. I think we were headed down a path where we were going to have to build like subscription billing or like payments infrastructure at some point because like,

All of the problems we started facing as we went deeper was, oh, their API is bad. We're going around everything. Oh, the way they structure, the way they charge for someone, that doesn't make any sense. It should be like this. Were we like, billing sucks. We're going to go figure out how to fix billing. No, absolutely not. We had this realization as we were heading, we're like, our path is heading there.

We can keep going, you know, and then become a larger strategic and the price goes up. I don't think we were going to go public with the company. The vision was, hey, we're going to be multi-product for growth of subscription businesses. I don't know. You look at the public markets.

It's a hard thing to sell, right? You look at, you know, Gainsight has one singular focus and I love what Gainsight does. And I think they're a successful company. Vista obviously came in and scooped them up, but like, why didn't Gainsight go public? Why did Drift get picked up by Vista? Like there's a lot of these questions, right? And I think that the reason that they get picked up is probably around that overall category strategy, which we didn't think about in the beginning. And now we, you know, we're thinking about as we were going to raise money, obviously. Yeah.

And to be more specific, you're saying if you're a single product company that is very cash flow positive, then you're a good PE target. But if you are a multi-product company, then there's reason for public investors to believe that you could continue to run for a long time and buy the stock. Multi-product without a core...

And Klaviyo, their core thing is going to be email marketing forever, right? Well, presumably. They can be multi-product, have six other products that are adding top line revenue. Like Snowflake, I think, does a really good job at this, right? But they still have a core product. But I think what ends up happening is we have a little of this, a little of that, a little of that. That was the other thing we ran into M&A, right? Which was...

okay, we really like this free thing. That's the thing, you know, that had the pretty exponential graph. Your revenue is doubling on this one. Your revenue is, you know, going up 60, 70% on this one. We don't really want the 60, 70% one. You know, that's PI. Like we just don't want that. We see the value and we get it, but we don't really want that. We want these other two or three things. We want the high growth free and the doubling year over year product. Yeah. Well, it's also like people look at price intelligently as

we can get into professional services how they evolve at sas companies we think of it in such a cost-driven way like it should be a revenue-based way at least long story but they look at it they're like yeah we're not going to do that because we're tens of thousands of people and we have that team and it's thousands of people like they're not going to change the philosophy just because of an acquisition of you know that team is like 20 25 people or it might be only 20 people but like

There's a lot of little surface area things that you have to think about that I don't think you think about in the beginning, because why would you? You're like, I have an idea. This is bad. I think I can make it good, right? And then all of a sudden what ends up happening is you're like, oh crap. Like another problem that we had, this is therapy for me guys. So I hope this is interesting. Yeah. I think there are a lot of businesses like yours out there. Yeah. It's like TAM.

Revenue of subscription companies, exponential. Logos of subscription companies, even if you go beyond SaaS and include consumer subscriptions, subscription newspapers, subscription everything, 150,000 logos max, and it is not growing. It is pretty flat. 2019, it went down 3%. It's just weird, right? It's a weird market. And I think it's-

Or got shut down or something, right? I think it's taking up now more like 2020, 2021. Like the subscription was looked at as think of like restaurants started adding subscriptions to kind of get some, you know, take advantage of the advantages of subscription. But it's not going up exponentially, the number of logos. I think it'll have its moment. But there's a debate. This is a side comment of like,

The reason we call our media site and our conference Recur is because I think the subscription, as it's known in the next five to 10 years, is going to change to more recurring revenue.

It's not going to quite be AWS where you just pay pure-end consumption. You kind of know what your expenses are each month, but it's going to be somewhere in between and eventually get to not quite Black Mirror where you're paying for each squeeze of toothpaste or whatever, but it'll get more predictable revenue as a company when you look at it rather than like, I have these subscriptions for X dollars a month. But there's a lot of surface area. I think that the TAM was also...

this is why we had to do media and brand wasn't because like there's some vanity exercise. It was because like, if I could, you know, like an e-commerce company convert customers at a higher rate, just based off Google ads, we would have had the best Google ads in the world or tried to. Right. And so I think that's, that's the thing that you don't really think about in the beginning. That was a constraint. And that's also what drove us to multi-product. Now, if I was starting over, I think we'd still do multi-product. Cause I think that's just given the market, the best thing to do, but yeah, those are, those are some thoughts.

I'll let us go back to the story then. So 2021 comes around, you're like, all right, the time has finally come. We should start considering raising capital so we can invest in many of these initiatives at once and grow into this opportunity at a faster rate. When did you also start considering the dual track? I've known Christian for a long time. Christian's the CEO of Paddle. He's the founder of Paddle. We're

extremely similar, like eerily similar. We also kind of look like each other a little bit when we're wearing our glasses. Like it's, it's a little uncomfortable. Like we stand the same Jenny, my better half, we had dinner and she's like, you guys like sit the same. It was weird anyways. So I've known Christian for a long time. And then I was asking him for advice on like, Hey, like, you know, this is what we're trying to do. And he was like, yeah, but what if we like joined forces? Right? Like, what if we bought you?

And we had the reaction of not how dare you, but like, no, it's our baby. Like we could never do that. When was this timeframe wise? Because you announced the deal in May of 2022. So we had a conversation January of 2021 where we were talking about, we both appreciate content and events. And I was like, all right, man, everything's opening up COVID. Like it's going to be a while, but like that's where the trend is going. Let's

Let's hit it hard. They're definitely, their revenues was, was higher, but we're both like kind of at the same mind stage, if that makes sense of like where like content and stuff like that's going. So we were like, so it's easy to like partner because we're, even though we didn't have an integration, which is kind of funny, right? We didn't have an integration at all with them, but we were like, let's do, let's do the series of events. Like I'm doing this camper van thing. I don't know if you guys saw that. I built a podcast studio in the back of a camper van and I was traveling a bunch doing like interviews and stuff.

In January, 2021, I was like, yeah. And I made a joke about like, oh, and if it all goes well, you guys just buy us, right? You know, cause then we'll just run this playbook and it'll be great. Cause I was talking through ROI, stuff like that with him. Totally offhanded. Well, October, November,

And I don't know if he remembers that in that conversation because it was such an offhanded comment. But in October, November, I was getting his advice and he's like, well, why don't we just buy you? Right. And then we went through the whole it was only two weeks, but not even two weeks. I think it was like a week and a half where we had the whole like, could we sell? Would we sell? Right. Because we love what we do. And who's your shareholder base? Is it purely founders and employees? Yeah, we don't have any investors or anything like that.

We were pretty generous with across the board. You know, it was still like power law in terms of like, you know, I have the most and stuff like that. But like, you know, we minted 13 millionaires out of this, I think 30 over 100K. I might be low on that number. And like, I think like 120 some people got consideration of some kind, which is pretty cool.

Zero dollars of outside capital. Zero outside capital. Yeah, zero outside capital. We had a couple of people where we bought some domains and we gave them some equities. So those are some really good checks that they got for taking 1,000 shares for a domain, which is kind of funny. We had a week and a half of could we sell, all that kind of stuff. And where we landed was, well, if they meet all of these checkboxes, sure.

People sell for a couple of reasons, but the outcomes are either, okay, here are the keys. I'll stick around for a couple months just to like hand stuff off. See you later. Right. Or we are joining and going and we wanted that option, which is actually harder.

It's a lot harder. It means your search space for buyers is smaller. Most PE, like they, they say they want you to stick around, but most of you don't actually like, they know you're going to be gone. Like it's baked into the calculus that you're probably gone within a year. We went through that and then we, we didn't, you know, we didn't think that they would meet everything, but then it was kind of like what a lot of founders do, which is unfortunate for us where,

And three weeks in, we were like, oh, we're in a process. We didn't know we were in a process, but we're in a process. Oh, shit. Let me get the spreadsheet out and like come up with everything. Yeah, yeah. And so thankfully, because of the partnerships, we kind of knew everybody. We got some intros. There were some bunch of companies we didn't know the intros of. I think I talked to...

10 to 15 different potential acquirers. Did it feel rushed? Did you feel bad going to some people and being like, hey, we might be like a week away from a deal. And then did people just bow out and say like, I wish we had engaged sooner? There were a couple of those. And there were a couple of those. This is why we had it at one point. But for the past couple of years, we had this M&A slides in our board. We still do have a board deck, even though we don't really have like a formal, didn't have a formal board. But in our board deck, quote unquote, we had...

a couple of slides about M&A, meaning like these are potential people that could acquire us. These are potential people that we should acquire, like that type of thing, just like a classic, just hygiene. We stopped doing it. And there were a couple of people where we were like, oh, damn it. Like they texted us after the announcement and they were like, oh, why didn't you guys talk to us? And we were like, oh my God, that's it. Like, and so obvious, like the most obvious people that we just forgot because we weren't, we didn't have our stuff together. I don't think it would have changed the outcome, that type of thing. But it was, it was interesting that that happened. Yeah.

Yeah. 10 to 15 acquirers, potential acquirers, none of them like in the PE space. And then a long list of like growth equity and stuff like that. Cause that's kind of our stage. And then just started running a playbook basically. And so we signed the terms or the LOI January 15th. We got first paper right before Christmas. Like I think that week right before Christmas. And then we, they started cascading there. And then it was like,

oh crap. And I was supposed to take January off because I haven't had a vacation in like five years. So that's fun. But yeah, the first paper came then. Instead you sold the company. Yeah, yeah, yeah. So I was like, screw it. Let's go on a long vacation. No. I assume you canceled that. Yeah, yeah, yeah. I did. Christmas and stuff. I had to go. So I set the expectations with like Jenny and like her family where we go in Park City. And I was like,

originally it was, oh yeah, I'm going to be taking January off. So like Christmas, I'm going to start winding down, just like make sure stuff's handed off. So like Christmas, I like, I hopefully won't be on my phone. Like I always am. Right. And like, it was the exact opposite. It was like, it was like very, you know, I'm not even there. Yeah. It's kind of works, but long story short, it was basically, I would say officially probably beginning of November to January 15th was, was kind of the timeline to get to LOI.

You know, you were going through this for the first time, obviously. What did you do to help yourself? Listen to podcasts like this? Like, you know, did you find mentors? We've never gone through diligence. No one's ever taken us through diligence on anything.

It's that bad. Like it's that bad, right? And we got some good advice five years ago around when you hire an operations person or like a senior or whatever, the first thing you should tell them is prep the company for sale, right? It doesn't mean you're selling, but that's the forcing function. Prep the company for sale. And we're like, okay, cool. So we get our operations person. We say, prep the company for sale. He didn't know how to prep the company for sale. Yeah, no one knows what that means. And like what we should have done is we should have gone to our lawyers, whomever, and just said, hey-

Just send us the last diligence list from an M&A transaction. What needs to happen in a data room? Yeah, we've had customers who are data rooms, but we've never dealt with a data room, right? Nobody knows what that means, but it's provocative. Yeah, totally. Well, and so what's funny is like, we're not complete idiots. So there were some things that like, oh, thank God we did that last year. Thank God we did that two years ago. But then there was a long, long list. But to answer your question, the best advice I would give...

First, in making the decision, I talked to 30 founders who had exits just through the network. And they had meaningful exits, not like acquirers. They had life-changing money, right? And half of them said, yep, best decision. And it was like, would you have made the decision again, right? Because we still had the opportunity to keep going. I was like, would you sell or would you go raise money and keep going? Half of them said, yep, sell. It was the best decision ever. The other half said, I should not have sold. They all have the money. So take it with a grain of salt, right? Right.

But what was really interesting, and this is a side note, of those 15, I think half of them, I don't know the exact number, half of them like gave the keys and left. And of those, let's say seven or eight, three of them became addicts, like alcohol or drugs. Insane.

And then the other part of that seven or eight, and then the other half of those 15 who said, don't do it, all of them, they all expressed, and I think addiction was the void. They lost their purpose. They just completely lost their purpose because the seven or eight, they handed over the keys. And that's what they were so upset about. They're like, yeah, I can go explore whatever, but like I'm building, building, building and everything's getting better. And then all of a sudden just back to zero, right? Which is great. You have more comfort in the bank account and everything. But

But out of that 30, I basically chose three Sherpas, all who thought a little bit differently. I knew they thought differently and all had gone through within the past couple of years something. That's the other thing you won't realize is like, for example, I have seen movies. It sounds like there's earnouts, like performance earnouts that go poorly. And then someone I was talking to that went through a transaction like a year before was like, yeah, earnouts, they're not a thing really right now. Like performance earnouts, maybe they come back, but not right now, right? Like stuff like that. Times change. Yeah.

Yeah, and so there was a lot of that, like, oh, they just don't do that anymore. Oh, this is the right 15% escrow is better. It has to be the case that you're vesting some paddle stock now, but it's just that that's not meaningful compared to... Well, let me ask you that question first. Yeah. Yeah.

I can leave tomorrow. There are options I invest in. I can say that. But you're not giving up life-changing money at this point by leaving. It depends how you look at it. The reason I'm still here is because, meaning not handing over the keys because I want to be here and there's so much potential. In my mind, it would be life-changing money. Life has already changed, right? It would be like, holy cow, another level, right? That's how I think about it. He always plays it so close to the vest, but sort of like how...

Warren and Charlie at Berkshire Structure, they buy a company, right? And then the founders and usually the founders family for generations stays involved. Like why? There's an incentive structure worked out there that makes a lot more sense than an earn out. Totally. I'm investing like the comp package that I have, right? And so I think it's one of those things where

I believe we can 5 to 10x from where we are, right? If not more. Like we're at 1.4 billion valuation post money. This is paddle, the combined entity. Yeah, yeah, yeah. Totally. And so, yeah. So it's one of those things that I'm like, okay, well, I have been given this much, this much investing.

If I can five to 10 X that that's, that's a whole nother level. Right. And so that's, that's the thing that I kind of think about, but I had these three folks basically guide me through just little questions, reactive questions. Oh, they're asked because there's so many emotional trigger points in this whole situation. They think you're really pretty.

Oh, I didn't tell you guys. We filmed the whole thing. I don't know if you saw this. We just released the documentary this week. What? No. Oh my God. Okay. We got a link to this. Oh, you really are a content shop.

I know, man. Well, so that was the thing. I was like, so we're always a bootstrapped problem. I think it's great is every time we go to invest something, I go, okay, what if that fails? How do we make it less of a failure? So we're going to go spend $150,000 to sponsor Sastr. Like, oh, let's record a bunch of content. If we don't get any money out of it, at least we got content. And it was like, Dan, our head of the Recur team, he was kind of involved once the term sheet was signed because that was another thing. We

We brought in like our top eight or 10 people and we were like, we're not making a decision without you. We are going to make the final decision, but if all of you don't want to do it, we're not going to do it. And we showed them, we said four and a half offers because like there was someone who was just late and like we could wait and we could figure it out. What do you guys think? Right. And we went away and I think this is the right way to do it. Fakou, Peter and I, we said, here's all the information.

Peter's going to stay for only questions, like check for understanding questions. He's not going to like say anything else. You guys debate it out amongst yourselves. And then we're going to come back and we're going to take the opposite view of anything you say and like go from there. So that was another way to kind of do it was like,

making sure the entire team, but anyways, Dan, he knew about it. And I was like, all right, if this all fails, at least we're going to have some great content. So I recorded a bunch of my phone calls. Like in the documentary, there's a scene where I'm in, this is what I was kind of bringing up is like, I just get off the phone with their CFO and a bunch of other people. And now we're in diligence. And I'm like, I'm sitting there and I'm like,

Okay. Well, they just asked for all these questions and I'm like, I don't know if they're asking this because they hate it. I don't know if they're asking it because they love it. I don't know if they're asking it because we messed something up. Like, it's just like, there's all those moments when you've never done this before. And I've never raised money. I think before where you're like, your, your mind is just playing mind games with like what happened, right? Like, why did we have that conversation and diligence? Oh, that lawyer, there were 86 lawyers there.

What? There were 86 lawyers? So here's why. One, pretty sizable deal, right? Not a huge thing. It's a UK entity buying a US company. Their CFIA stuff, we have so much data. Which for the uninitiated is the CFIA.

set of U.S. laws that says that the government has the right to review any transaction where a U.S. company is being bought by a foreign entity to make sure that we're not giving away very valuable proprietary state information and infrastructure to another. Yeah, so, and...

Then there was reviews with CFIUS as well as there was some other regulatory framework we had to look at. Are directors on up? Is anyone Chinese? Anyone Iranian? Anyone Russian? That type of a thing. Then what got really scary was – not scary in the sense of anyone did anything wrong, but okay.

Okay, so we didn't qualify for a CFIUS like something or another, but we did qualify for the other one, but that one's quick. We just had to let them know something's going on. Then there's this other thing where it's like, well, we have 30,000 subscription and SaaS companies on ProfitWell. And technically we don't store, but we have access to all of their customers' email addresses.

And they're all US-based, but there's a lot of international, right? Does that amount of data hit a threshold for this three-month Department of Justice review? So there's just like all this stuff that you don't think about. And then we have an Argentina office. So the Argentina office, how does that factor into this whole thing? So it was not an easy transaction. And then on top of all this, and this is why the documentary is kind of funny.

panel didn't just have the money in their bank account to pay for this. They had to go raise a round. We had to go raise a round on top of this. Were you involved in that raising that round? Like were you partially the core of the story? I think it's okay that I say this, but the core of the story was we're going to buy profitable, right? Like that was a huge part. Like beside the term sheet, Christian and Hugo kicked off that next week. They ran it in a very like, we want term sheets by this time. We want this by this. Like that was a very like that style.

And then like I got involved mostly on like, here's the story. There were a bunch of questions, obviously. And then there were a couple of like, was he just going to leave? There was a lot of that. Like, let's talk, let's have an hour long meeting to like go through this. Let's structure an earn out. Yeah. Well, there's a lot of that type of stuff, right? Too. Right. And so January 15th,

That third week of January, the market starts tanking for tech stocks. I don't remember where Russia starts piling up on the side of Ukraine. All this stuff is happening these past couple of months. And this is not an easy transaction given all the lawyers and all the stuff I just mentioned. So the whole time we're like –

it kind of got to a Zen like, well, we cleaned up a lot of the stuff that was broken operationally, but whatever, we'll go from here. So it was a fascinating crucible to kind of learn in. But I do think that

it, you got to have a couple of people that you go talk to throughout this who have been through it before and who can at least give you a couple of opinions. Because there wasn't anything too contentious. We both agreed that once that term sheet's signed, that's the price barring anything crazy, even confirmatory diligence, that's all it was, all that kind of stuff. There's pressure from both sides to fuss with the price a little bit. And this was also a really good thing.

Christian and I talked before we signed the LOI and I was like, Hey, like we need a red phone because the lawyers, the operations people, everything's going to start. We just need a red phone. And we just, we talked every day, so it didn't really matter, but we just need a phone that we're like, okay,

okay, the lawyers are getting weird. What do you want to do? Like, we'll just do this, right? And so I think that helped a lot. Like there were calls, lawyers hate this. It was smart. I think there's a reason they hate this because it's not ideal from a legal perspective, probably. But as we got closer, and a multi point negotiation can introduce opportunities to blow the deal up if there's people negotiating, you know, outside the main point of contact.

Totally. So what ended up happening is towards the end, when we were trying to get to sign, Christian and I would go on the call with the two opposing lawyer teams. What would happen is, for those who don't know,

You have a basically a signed agreement that's like 80 some pages long that has all these little carve outs for escrow and indemnity and all these different things. So there's all these bullets to debate. And then there's a disclosure schedule that's like another hundred pages long, which is like, it's like buying a house. This, we say that the foundation is this, you're buying it with this, all those other things. Right.

And for the uninitiated, schedule doesn't necessarily mean like timeline, it means like list. So it's like, here's all the things that the list of things we wish to disclose or need to disclose about the asset you're buying. Totally, totally. And so essentially what's happening is, is there's all these things to debate that will likely never happen, right? But it's important to debate it because it's famous last words, right? Yeah.

Big things like how much is an escrow, how much is not. And then smaller things like, well, what if this thing happens and that thing happens? Like the world is ending and all, like just a bunch of other stuff, right? Well, on some of those points, the lawyers would debate it for a half hour. And when you have that many lawyers on the phone-

The cost of the thing, whether it's 25,000 on one end or 25,000 on the end has already been spent by the lawyers, right? Because of like that many people. So Christian, I would be on the phone and like they would debate something for eight minutes in a really sassy manner. In some cases, like they would be really boring. And then someone would say something passive aggressive. It was kind of a fun thing to watch.

And then Christian and I would be texting. We'd be like, you want to just split it? You want to split the baby? He'd be like, yeah. I'd be like, hey, Christian and I are texting. We'll just split the baby. The lawyers hated it. But it just sped things up so quickly because all of a sudden we'd get through 12 things rather than...

well, we think this, we think this. Our lawyer comes back to us, explains what happened in the meeting. Then we agree on something that our lawyer then goes to their lawyer, their lawyer then goes, talks to them. And like just this circle, which it's structured like that for a reason. But if you're trying to get something done and everyone's earnest, it's different. It feels like you're in a situation too, where you were both incentivized to get the deal done quickly. Whereas like things can really spiral when

One, the time preference of one side does not match the other side. Like he wanted to go raise the round, right? And like get this done and you wanted to sell the company. I'd like, so you were both motivated to make this happen efficiently. What happens in this stuff, especially if you're not handing over the keys is like, you just want to get back to it's problematic to say important stuff, but you just want to like, you're standing still for a couple of months. That's what you're doing with diligence and stuff. You're just standing still.

And if you're a founder and you're an exec, you're like, this is why am I standing still? Like we were already talking about the marketing strategy. We're already talking about this. We're already talking about this and all these stupid lawyers, right? And facetious, but. But there's internal investments you're hesitating to make because it would change the

position of the company so you'd have to go and rewrite the deal because you're like well actually we don't have that in the bank and well actually we do have these other material it's just like buying a house where you're like well you know I really need to like fix this thing around the house but I'm thinking about moving like you know so like

Well, if this falls through and then like, there's that stuff too. Like try planning in that environment while not telling the entire team, right? Like that was the other thing, right? Like everyone knows something's going on because my communication has gone to zero. Andy, our operations guy, he's like, please do not ask me for anything, right? And it gets so hard to keep everything, right? But-

This is why I think that how long diligence is, is probably a very big thing to negotiate. Like there's a second old buddy who I just met up with. He moved with me here and he was like, yeah, he's the PE firm that bought his or merged two companies bought. I don't exactly know the nomenclature they use. Their whole thing is we do 10 days. We are 10 days from signing to close. That's their thing. Right. And that's their differentiator. We were like,

okay, it'll take this long. And it ended up taking almost double because then we had to keep moving dates because the way that KKR, like they're going through diligence with KKR, all the other stuff. And so then- Wait, what's the KKR angle here? KKR is the investor. Investor in the combined paddle profit well entity. Yes. Yeah. They were the ones who led the round and then all the existing investors came in, Prerata, all that kind of fun stuff. But what I was about to say is

You guys, you'll laugh at me for this. I didn't know that like KKR just doesn't have that money. Like I didn't know that. I just didn't know that. Right. And I didn't know that like when stuff hits the fan, they're, they're just not going to make the call. Like, I didn't know that. I thought that like, well, you committed, like, here's the phone call, like, I guess. And then, so it was like Ukraine, everything like that. And to KKR's credit, like,

I don't know if Patrick, Patrick is the partner on Paddle's board now. I don't know if he exactly said this like this, but what he basically told us and Christian was like, listen, KKR has been investing for decades. We've seen ups, downs, et cetera. And this was the other thing. We had multiple term sheets on the raise. KKR is literally the firm in Barbarians at the Gate.

Yeah. See, they've been around forever. Right. And so they've seen everything. So when they go to their like, you know, partner meetings to like talk about investments, they're not like, oh my God, what happens in the next three weeks? They're like, that's just not how they think of stuff. We did get a term sheet pulled because like it technically wasn't issued yet. I'm not going to say the firm, but this was pretty crappy. Like we got ghosted after like basically negotiating a term sheet, the dinners, all that kind of stuff, just ghosted.

no responses. It was brutal because you're sitting there and you're like, okay, well we have a decision between these three or four or whatever. And then you're like, I guess it's only three. Right. And then like the, the guy didn't even like contact Christian for, I don't know, like another month or something, which is like, it's just, it's like so weird. Right.

And I might not be getting all those facts right because I wasn't the main point of contact. But I don't know. It was also interesting. We had another firm we really, really liked, but they capped the amount that they would give for an acquisition-based raise because they were basically like, well, we just as a principal don't do this. And we're like, oh, damn. They're like, we still want to be in the round. But then we were like, well, there's not going to be any room, unfortunately. Right.

Right. KKR doesn't write small checks. Yeah, yeah, yeah, yeah. But also like, yeah, and we weren't, you know, we raised 210, I think, and they wanted to throw in, it was over, I think it was 50, something over 50 or not. So I'm going to get massively in trouble if I'm supposed to not share any of this stuff, but that's fine. You guys got a small audience, right? Like that's okay. No, I'm just kidding. Yeah, yeah, nobody listens. It's like, you're good with this content stuff. Yeah, yeah, yeah, yeah. There was a lot of risk in it, like going throughout diligence. And

I don't know. I don't know if the risk was truly risk or just perceived risk, but then it doesn't really matter. It affects how you act and how you say it. There was a lot of things where I could not truly feel like I could be fully transparent with the paddle team until stuff was signed. Now, I was transparent in practice, right? But to the planning thing, Ben, you were mentioning, there was so much like

okay, they want all of this information and this, and they want us to start doing this work on like

post deal stuff. Right. And we've gotten over the board approval, post diligence, we've gotten over the commitment, but like cash isn't in the account. And then you're sitting there and you're like, okay, am I just an asshole for like not getting going? And I'm stalling this, like, are they going to think it's weird? And then all of a sudden pulled like, you know, there's all this like mind games. Right. And then resourcing the team. Right. They were like, well, let's start bringing in so-and-so and like start working on this. And I'm like, the money's on the account. Right.

And it's also like, we didn't officially sign like the thing yet. Right. And so I, it felt so weird to be in that moment and you know, it all worked out and I'm sure I was overthinking it, but like, you can't not. I'm sure you weren't. There are many deals that fall apart. Yeah. Yeah. So it was definitely a fun, hard mode and hopefully people listening are getting some, getting some, some factoids, if not just some salacious stories to tell later. Yeah.

The interesting thing is that it worked out. Like all of these things are things you do have to think about and it all worked out. Do you wish that you hadn't negotiated every little fine point of what if this thing goes wrong? No, you're glad that you actually spent the time to do it right just in case things did go wrong. Yeah. We micromanaged our...

And all that. I was like, we're fighting for every dollar. Now, we're not going to fight. We're not going to be penny wise, pound foolish. What other cliche can I throw out there? We're going to make sure that we fully understand. Because then there's other things, right? So I didn't know this. Maybe I should have.

And it's like obvious, but fees come out of the deal. Like, you know what I mean? So you're negotiating like a deal and then it's like, oh yeah, but there's going to be this much money that's going to come out of it that you didn't think about. Right. No bankers, which obviously saved us a good amount. The bankers thing, I

I'm not saying I don't understand the banker part piece. I think I understand in principle, but we didn't need them because we knew everybody. Could they have gotten us more money or something? Probably. But they would have expanded it to like PE and stuff like that, which we just weren't ready for. And it's nothing against PE that a lot of our partners, it was just like,

We want a different style. Like we either wanted to raise and keep going, which might've led us to PE anyways, or like sell to strategic, you know, there's accountant fees. There's like data room fee. There's like all this stuff. And it adds up to your point about watching the price on all this. If the deal hadn't gone through, uh,

All of those costs would have had a meaningful impact on your business. Totally. Especially given the bootstrap stuff we talked about in the beginning. But even on top of that, right? Okay. So now our lawyers, they give us a number and I'm like, I have no leverage to negotiate against these fees. Where is my leverage? I talked to Miriam, the chief counsel at Paddle. I'm like, what do I do?

She's like, well, you can't really sell them on the IPO because they know we're not going with them. We're going with our lawyers. Right. But also she's like, I don't know. Like, here's what I would do. I loved our guy, like our main point of contact. I think we got we were a large enough deal that it got, you know, interest, but we weren't a large enough deal to keep like the rainmaker relationship guy involved. But our day to day guy was great. Right.

And so it was one of those things where I just like straight up was like, hey man, you gotta give me something.

And I was like, I don't want to like go back and forth and like nitpick about bullshit that like, like, oh, you guys didn't talk about this or this could have been more efficient. It's not worth it. It wasn't the easiest deal to do. I think it was his first one writing like the key chair basically. And so I think he was like, also felt like he could have been more efficient. I'm speaking for him though. I haven't talked to him about it, but he was like, yeah. And he got us a, you know, a break on some things, but it was still pretty expensive. Yeah. It was still pretty expensive.

Well, when you have whatever, 80 something lawyers in a room, like it's just going to be pretty expensive. Yeah. Yeah. It was pretty wild. I think I can say the number. It was 1.1 million just on our side.

On their side, I think it was... I'm not going to say it because I think it's fine if I say mine, but it was not less. I'll just say that. And the reason it would be more, because let's just refer to a typical venture financing where the company council is typically more than the investor council, is because the company's doing the initial drafting and the company's sort of in the driver's seat and then everyone else is negotiating from their side, but they're...

They're reviewing and commenting and asking for changes rather than doing all the initial bulk of the work. Well, yeah. And that was really tough too, because I don't know how interesting this is, but I had never done this. One of the first things I did, Miriam, the chief counsel at Paddle, is I sat down with her and I was like, I don't know what good looks like.

Was this good at all? She was like, no. I was like, great. What could like... We can level set on that. No, no, no. She's like, I keep joke with her. I was like, you're either in another life leading a cartel or a biker gang. Like she's just so good. Like she is...

one of the best I haven't met a lot of like counts chief councils but like that type of role like she's one of the best I've ever met I was like okay why she was like well like there's a lot of stuff we ended up doing that you guys should have done there's plenty of stuff that you guys should have done like earlier but the other thing that she kind of said was like you want someone who like

takes control and almost project manages because it's like any other thing, like it's workflows, expectations, et cetera. And ours was just constantly reactive. And she was like, I asked like, would you hire our main lawyer? She's like, I would, but not for like the first couple lawyers on like a chief counsel team. And it wasn't anything against him. It just was like, he didn't do that project management part. And again, it's nothing. I think it was because it was one of the first time in his defense. It was also like,

We didn't know what we were doing. So I didn't know how to project manage him. He was probably project managing me the way he would do it for any other like more competent company. But it was interesting. It was really interesting. So that's probably something I would do as well as like, if you've never gone through this before, talk to a lawyer who has gone through it before and is really good. Maybe you don't hire them, but like, what should I be doing? What should I be looking out for?

Before we actually shift to like asking you about the deal and what the future looks like together and you know, your combined company, I am curious, how did you come to a price? And if you're willing to share, where was ProfitWell the business in terms of revenue run rate, all in gross margin and operating margin, as much as you can share on the business would be helpful.

I don't want to hide behind like we're a bigger company now, so we can't share. I don't know if I would share even before this. Just me just trying to be intellectually honest with you guys. There was no exact reason I should have said that, but except for that. But what I will say, the price came more from me going to Christian and just being like, this is what gets it done.

That's where the price came from. Now, because we did go back and forth on some numbers, like there was like, oh, here's a multiple of this and a multiple of that and blah, blah, blah. Like, but what we realized, and I think that this is a really hard thing is we just kind of realized that like, it's so fluffy, the framework we would come up with no matter what. Right. So how valuable is a connected ProfitWell account?

Just that question, right? Okay, well, we can like put a number on things. Well, you think it's $5. I think it's $2. I think it's $1,000, right? Like, what is that, right? Well, if they all convert to use paddle, they would be worth this much, right? Well, that's an egregious number. Well, if they don't, like, what if it's 10% that do it? What if it's 1%? What if it's 100%, right? So it just gets so fluffy so quickly that we use...

Right.

And so I went to Christian, it's in the documentary. I saved the voice note. It's the actual voice note. And I said, I basically said, listen, we got offers from people that are higher. And this was before the final offer. But like, then the offer, like, if you get it to this number, we're good. We will stop. Our heart was with paddle from like, it was hard because there were a couple of companies we were like,

oh, it would be so cool to work with these people and that type of thing. But the ultimate was with them. And so we just kind of, I just kind of said like, hey, this is what gets it done. And he came back. I was like, okay. And then the final price, there was, you know, some revisions of it. But like, yeah, that's kind of how we did it. I imagine on his side, it was not only like thinking about

Am I willing to do this as a CEO and is my board willing to do this? But do I think a prospective investor would be willing to do this? Or was the prospective investor sort of already lined up and that he checked with them before? No, it wasn't the latter part. Wow. So you had to trust his judgment that he was right on estimating that a future financing partner, KKR, would do this. Yeah. It was a mix of things.

There's a way you could look at this deal. And obviously I'm not sharing all the information. I probably will. Like when we go public, oh, by the way, this is all the detail, you know, that kind of thing. Right. There's a way to look at this deal where the multiple looks preposterous. There's a way to look at this deal where the multiple seems reasonable. Right. Like just the same numbers, like depending on who you talk to, especially like, and the fact that both of those are equally true is why the deal got done. Exactly. Right. And so it's basically where I was going. And I think that

There are probably, and I don't know every pitch he did, but there's probably people he pitched who was like, this is preposterous. And there's probably people who'd be like, this is cheap. You know, that type of a thing, right? When I talk about strategics, that's kind of, if again, first time doing this, but if I'm doing it again and I'm a strategic, that's probably what I'm looking for. I'm looking for the wiggle room, right? PE firm, again, I'm generalizing. It sounds like I'm picking on them. I'm really not trying to. You probably don't get that wiggle room.

Because it's a numbers game. It's a totally a numbers game. And like, they're going to do the like calculation as I described, and they're going to go for it, right? Like what Christian is trying to do, and I'm going to speak for him, but I haven't like confirmed this, but like Christian and now us and myself are trying to do, we're not trying to build like a $2 billion company. We're trying to build like a $10 billion, $30 billion company, right? And so when you start to get into that realm, it's like,

okay, is this, does this matter right now? Could he have gotten X for 20 million more? Could I have gotten for 20 million more? Like probably on both ends, but we're trying to go for the longterm. And that's where the value alignment was so important. If that makes sense. It's kind of to your point about like your comp slash, you know, options and like the game you're playing is for paddle to be a $20 billion company. Yeah. And that's,

that's going to be what's most meaningful. The voice note that didn't make it just for time. It wasn't like salacious or anything is what I told him is I was like, and this was like one of the first ones after their initial offers. I was like, listen, like this team, like they've been grinding for like, you know, years and our core team has been with the company for, I think the average tenure is like four or five years. And so like, they've been with the company for a long time. Some of them much longer than others. And like, they need to feel like if this goes to zero, like,

They still won. And that kind of came into like the cash stock split of everything. That was the really big thing that was really important at that stage. And I think that that's also what kind of led to the fact that we didn't have to raise money. The fact that we didn't have to do this also really, really helped. We didn't have like, oh, like I'm talking to, I talked to a founder last week.

He's kind of in a bind. Raising money right now is terrible, right? Even if you have friendlies, he's got six-ish months of runway, which is not terrible. I think it's like eight. I was like, I don't think you want to go through a couple months of getting a deal done plus a couple of months of diligence with a gun to your head on your runway. That doesn't sound great, right? And so there's some things, the other things I would have done differently probably around like

I think setting a term on how you would sell, like if we had had that conversation earlier and then being very thoughtful about like the framework, it probably would have helped us. Meaning like these are the circumstances under which we sell and these are realistic circumstances because we would have that conversation and it'd be like,

Well, today I feel like we wouldn't sell for a billion dollars. No one would offer us a billion dollars. And then like a bad day, today we would sell for 10 million, right? Which is below our revenue, right? And so it's like, it was just kind of funny. Well, that's the emotional journey of a founder, right? Exactly. Every day is like that. Yeah, yeah, yeah, yeah. So it's interesting. Yeah. You know, you said at the beginning of the conversation, you know, if you had to go back and do it over again, there are several points at which you

Could have raised venture money and you might have made that decision if you could go back and do it differently. Do you think there's a way that you could like if you had done that, there's certainly risk you would end up in the position like the founder you were just talking to where like, shoot, now all of a sudden you're managing the business in a way that there's a cash out date and now a gun gets held to your head. Do you think you could have avoided that?

I don't know. The perfect way. There's only one way, guys. Perfect way to build a company, right? No. I think the perfect way to build a SaaS company, assuming you...

A lot of assumptions. You have enough personal runway to take a risk for, let's say, six to nine months, which means you probably don't have kids or a heavy mortgage or a mortgage at all. And you don't have massive student loans. So these are all the caveats here. Or you might be older and you do have those, but you've got it covered. Totally, totally, totally. The perfect way, I think, is to grind in a bootstrap manner for probably a year or two.

Like, can you get to product market fit is such a weird destination. There's theories out there that you cannot get to product market fit in less than two years. I actually start to think that those theories are true, no matter the amount of money you have, no matter the amount of resources you have, because there's just so much time that you have to figure out stuff.

It's probably less if you get lucky. It's probably more if you aren't lucky. And so I think that if you can get to product market fit or see it in the horizon without raising money, I think that's ideal. And then as soon as you have that, go for it. Now, also, this means you're not building nuclear fusion or cars or other crazy stuff. But like,

If you're building a SaaS company, a little friends and family, a small round, and then like whenever you're going to product market fit, assuming you want to be a large company, that's when to go for it. And the reason I say that is we would have had leverage to not have to worry about the gun to our head with money. Like we would just have to leverage, right? And that's what's interesting, right? Like I think that as long as you keep things moving, like

you know, if we raised in 2021, like, you know, we wouldn't, maybe we wouldn't even have given up a board seat, you know, like, you know, like in this, in the insanity of things. Right. I also think that founders need to hear, and I have never had like a real board. And so I'm speaking from like theory, but not for, from existence. Like the investors don't work for you, but you don't work for the investors, right? Like you work for the mission. You guys are partners.

So Jimmy, the president and COO of Paddle, he's like, everyone's an adult, but he's the adult. He was at service now from 200 people all the way up to 12,000 or something like that. He was there for a long time. He worked directly with Slootman for a while, all that kind of stuff.

And then Donahue as well was there. And I'm sure this is fine. I hope this is fine. But he told me about a board meeting with Frank where Frank, like it was a bad quarter or something was really bad. Comes into the board meeting, the board, like, you know, like two slides in the board, just like, well, what about this? Why isn't this? He shuts his laptop, turns off the, it just like pauses and goes, I can't remember exactly how he said it, but he pretty much was like,

listen, the minute you feel like you do not have confidence in me, you should fire me. Until then, sit down and listen to what I'm about to say. And then I will ask you for the feedback that I need. And I was like, probably don't have the spine to go that far. But, and also probably should be nicer because it is a partnership. But that's like probably more directionally correct than what a lot of founders do, which is like, oh, it's my boss. You know, you always hear this. Oh, I got a boss. The board's my boss. And it's like,

Also, like technically that's kind of true as well, right? I think people need to calibrate a little bit how they use their boards, how they use their investors and stuff like that. And as soon as I heard that, I was like, okay, yeah. Like, and don't worry, we're not like that with our paddle board. It's more of just like, you know, recontextualizing like how you think about those things and how you think about investors, like you're partnering, but also that investor has 50 partnerships or 10 or 20 or three or whatever it is.

And so they're there to help you, but you got to make the call. And I think that people like they're scared of that. And so they, you know, end up steering towards things and it's hard. It's complicated. Yeah.

Yeah. Well, because you are a long-time acquired listener, a multi-time acquired guest, and this is kind of a traditional acquired episode, we kind of have to end with grading. Okay. We didn't even get to some of the things we were going to talk about, which hopefully is a good thing here. Yeah, I think we'll have a little opportunity after grading. So I don't think we talked really enough about the paddle business for you to give a full answer on this, but at a high level, what makes this look like

Paddle got an amazing deal in retrospect and the business that you build together is this insane thing that you couldn't have built. Either of you could have built on your own. What's the failure case? How does it fall apart? Yeah. So what makes it great? What makes it an A plus? So one, I touched on it a little bit, but the fundamental thesis of Paddle

is we do it for you. That's the fundamental thesis, right? And that was the fundamental thesis for Profiwell, right? But we were grow, do it for you. They're run, do it for you for a subscription business, right?

And that means that I use them for payments. And then on the back end, they automatically file all my taxes. That's like the, if I were to overly simplify their business. Totally. But it goes further, right? They handle all your chargebacks for you. You don't have to touch your chargebacks, right? You know, and if they win it, you get all the money back. They don't take a cut, right? Because it all goes through them, right? They handle things like...

Let's say there's better payment acceptance for checkout.com in Bulgaria than for Stripe. They'll port the payment through checkout.com rather than porting it through Stripe, right? They handle all the currencies, right? And it's plug and play, right? You plug it in, you set it up, it's done. The tax thing is like the big thing they're known for, which we're known for, which is like, not only do they negotiate with all of the tax jurisdictions, they handle all the taxes. And the way that like is a fun way to put it, which is pretty much true is, let's say your taxes get messed up in Venezuela, right?

We go to jail. You don't go to jail. We go to jail because technically we're the ones that are holding the bag or holding the liability, if that makes sense. So to answer your question, where this is an A-plus case is we are betting on the next decade or the previous couple of years plus the next decade.

All software, all needs for things that are not your customer, not your team, and not your product, those needs go to an automated solution, a truly automated solution like we're talking about where you plug it in and take care of it.

retain. Your product person should not be an expert on credit cards. Your product person should not be an expert on cancellation flows. We have more data than anyone else in the world. We should be able to set that up for you. Turn it on. You get a couple of preferences and go. Same thing with taxes. Focus on what makes your beer taste better and not on what doesn't. Exactly. Exactly. Exactly. A million times on a quiet. Totally. That's an assumption, right? Like that's a theory, right? And if you think about

And it's really fascinating because everyone thinks we compete with Stripe. We're one of Stripe's largest customers. What the difference is, the way to think about it is Stripe built roads. They built roads and they are the best road builders in billing and payments, I should say, in the world. They also have trucks. They also have some trucks in terms of their Stripe billing product, right? And then there's other trucks, right? There's trucks like Chargebee and Recurly and all these other folks in this market that

What Paddle's doing is almost like the logistics network, right? Like they're the 3PL or whatever. I don't know if the metaphor is going to fall apart right now. And what that means is like, no, no, no. We know that this particular payment needs this truck and this road. We know that this particular payment needs this truck and this road, so on and so forth. And I think you guys will get this, but it might be too esoteric in a short amount of time. It's kind of like what Rippling is doing for

the employee record and what Salesforce did for the customer record. We want to do what they did for those with the subscription dollar. Dude, I get this a thousand percent. We have a portfolio company at PSL called Shippium that is like, oh, you're buying from this merchant and you live here. Well, we're going to make sure to use this specific shipper and ship it in this way in this box because that's the most optimal for this one-to-one pair.

Totally. Right. And then there's a bunch of variables there. Like, right. So the idea is you should be able to plug paddle in and it should take all this cost off your plate. And that's the other thing that's funny. Right. And I'm pricing guy. We didn't get to talk about pricing. Right. But like,

Paddle that like when people compare it to Stripe, they're like Stripe's 2.9%, Paddle's 5%. And it's like, it's just a context problem. We're working on it. Don't worry. But it's a context problem because like everyone thinks we, again, we compete with Stripe and it's like Stripe, we're a huge partner to Stripe, right? And so it's just kind of one of those funny things where it's like trying to get people to think about like, no, no, no, no, no. There's this world where everything's done for you. You focus on making your beer taste better, et cetera, and kind of going from there. And so assuming that those things are correct and people don't want to be like,

in the weeds, that engineers don't want to work on billing, that people don't want to be experts in credit cards, these types of things, which I think is a good assumption, right? That's why we're focused on it. But there could be a blind spot there, right? I think when you're Netflix, Netflix wants control and Netflix wants to know everything. Johnny and Jane Startup,

They think they want all that control on that, right? So like, do we get them early enough, you know, before they've already like tried to have all this control and out of this overhead? Who knows, right? I think the other way this goes really well, and this is the other failure point I would argue as well, is the just integration risk. There's just integration risk, right? I think we're over the honeymoon and I think that's good, right? And what I mean by that is like,

There's a lot of stuff that like, it's not that it was said and it's not fulfilling the expectation, but there's just the way I described it to someone yesterday who was, you know, giving some critical feedback. I was like, listen, everything you're saying is valid. Here's the problem. There's a 40% tax on everything right now.

And it's not because anyone wants there to be a 40% tax, but there's different ways. There's different acronyms. There's different ways of conversing. Who's going to be in charge of what? We don't know who's going to be in charge of what of that thing. So everyone's talking to both groups. And then all of a sudden the groups are discovering that they're both like talking about it, et cetera. And it's not on the big stuff. It's all on the medium to small stuff. And in that, but that still causes frustration, right? So there's integration risk. Like, are we keeping our high performers, right? The one thing I will say is all the things that I thought

were going to be problematic, ego, politics, et cetera, there is zero of those, which is shocking to me. I think it's because they're European. I don't know, but like shocking to me, most of the team's European right now. All the things I thought there weren't going to be problems with, massive problems, like all kinds of things, just like expect it. And I think it's because it's like, of course, the plan we put in place when we didn't have all this information, of course, the plan wasn't right because now we have this new information. So I think it's like,

I mean, there's little stuff like that's more mechanical, like expenses, right? Like what expense suite do we use? This is how they do expenses. This is how we do expenses, right? There's a lot of people are complaining about, I didn't get reimbursed, you know, stuff like that. I think the more substantive ones are around like, we have two cultures coming together and like,

We are very direct, very first principle thinking. Like if you don't have a growth loop figured out before you start to design the event, we're going to say, go, you know, go figure out the growth hoops before you even come with like the design of the booth or anything like that. Right. It's not that they don't have that. It's just the order of the way they do that is different or was different. Right. And so I think there's stuff like that, like how we communicate to the company. Right. There's, you know, a pretty substantial like

Yeah, that's unfortunate. I'm going to, I'll take a stand. A court case that came out recently, right? How do you communicate to the company? What do you do, right? And the way ProfitWell would do it would be-

one, make sure everyone feels heard and have empathy, but also think about the implications of it. Like if, if we wouldn't go to immediately into Slack and say, okay, this is what the company's doing. We would go, Hey, we hear you. We're talking about it. We're trying to figure it out. Let you know. I think the instinct was like, we gotta, we gotta text immediately. I'm,

Probably positioning that a little bit more dramatically than reality, but it's really interesting. Two cultures coming together, how you communicate what you communicate, it's a lot more complicated than I thought it was going to be. Is there a certain amount of growth of ProfitWells businesses baked into the acquisition price such that if you guys don't continue to grow your core business, it no longer makes sense in retrospect?

Yeah. And unfortunately, or fortunately, depending on how you look at it, it would be only a pride thing. Like there isn't, like I said, there's no earn out or anything, but I have a lot of pride with this. Like,

Like this, this better be the best decision and it should look cheap in five, 10 years. Right? Like that's, that's the intention. I think that the risk there is FACU is taking the lead on product. Like they didn't have like a, you know, a CPO level leader at paddle. There's a lot of risk in product. I would argue like if he, if he ends up leaving or being upset or something like that, like I do think like we lose a lot of time and we lose a lot of enterprise value of this deal to

So we're trying to keep Fakou happy, which for those who know Fakou, it's not really that easy. There's only like three people who are going to get that joke who listen, but that's fine. Also, part of this is...

Profit well billing, essentially what it is, like that particular product is taken up by enough people. And what's interesting is in the billing space, Stripe is really good for people in the beginning. It's so easy. And then we see a lot of graduation right around like 800K ARR, a million ARR.

where people like try to go to a bunch of other solutions. And so it's like, well, if they don't go to paddle when they do that, or don't start with paddle, like that, that probably tanks a good amount of the enterprise value of the deal. I think if we don't,

play the open open game so the other thing that we're doing is like we're going to continue to build on all of the other integrations we're going to continue to deepen we're actually thinking of how we can unbundle some of the billing stuff and take that to like charge me for instance like i was talking to christian germain over there recently and like for example like

Stripe had a really good partnership with them, but then naturally, and I don't think no one was trying to screw anyone over, but they started building Stripe billing. And so all of a sudden, that starts eating things away. And you want to be friends with everyone, but these are the realities of some of the sides of the business. And then Stripe bought TaxJar. And TaxJar is the only tax provider besides Avalara. And there's some things that TaxJar does that Avalara doesn't because they're just focused on different customers.

So all of a sudden it's like Stripe tax. Well, Stripe could turn that off for everybody. You got to use Stripe to use Stripe tax, right? And so we're thinking like, how do we unbundle like part of the tax stuff that we do with, you know, with Paddle and offer that to Recurly and Chargebee, et cetera. And I think that's what makes us the 30 to $50 billion company rather than just the $10 billion company. So I think that that's a really big thing that our team has deeper DNA on that we need to kind of figure out. So-

Yeah. Those are some things like bull and bear case, A plus F kind of thing that we kind of think about. I kind of rambled there versus previous guests. So apologies for that for longtime listeners. Yeah. It's a painting in progress. Ben, you're so good with the quips. Painting in progress. You're just so good with this.

We've gone full NPR. That's why we keep them around here. I think we do have a full episode coming at some point that's like a pricing update. In the meantime, give us a quick, like, what is your view of SaaS pricing given how much tumult and how much change has happened in the market? Yeah. All the fundamentals stay the same. You just have a new excuse not to do the thing you've been putting off. Sincerely, I've looked at enough of the data. There are a couple of minor things that do change.

But here are the things that don't. One, if your NPS is over 20, you can justify a price increase. You can absolutely do that. Now, don't do that when you're CSAT tanks and don't do that when you're getting complaints because a feature's not working and the app's buggy. But that's a fundamental from before this downturn. It's one of those things to think about. But if your NPS is over 20, now you have to do it right. You have to do it at the right level. All the other stuff is true, but there's no reason you can't do this. And here's something to think about. I probably wouldn't do it for the next...

four weeks. I wouldn't do it until let's put a date on it. September 1st. Let's just say I wouldn't do it to September is because what's happening is you have phase one people who have been through downturns too many times. They know exactly what they're seeing. They already cut, or they didn't put themselves in a position where they had to cut, but they still went through and looked at their entire expense column and just made sure that like they cut anything that, you know, they didn't need, they cut initiatives, et cetera. Right? So if you made it through that phase one, great phase one, people phase two people,

All of a sudden, the A16Z posts come out, the podcasts come out, all these other stuff. They're like, oh, should I cut? Should I cut? All in goes, oh my God, you got to cut, right? So then all of a sudden they cut, right? And this is where we started hearing all of the like, oh, layoffs over here. Cameo lays off these folks, these folks. We're kind of towards the end of phase three, right? And what phase three is, is like the last holdouts who are finally making decisions. They had their pre-summer board meetings and like,

The cuts have happened. The team cuts, et cetera, because the next cuts, they're just going to be the dramatic things where like the founder thought that they could hold out, that we could figure it out and then it doesn't happen. And those will be few and far between, but they'll get covered more in the press.

So what's happening is if you made it through, let's say September 1st, you made it, you were a valued product. They have gone through an evaluation once, twice, three times for your business. They've already considered it. So what that means is you're valuable. And when you're valuable, assuming your NPS is over 20, no big bugs, you can actually raise your prices. And so that's the biggest thing is like this happened with COVID.

Oh my God, COVID, you can't raise prices. The best companies out there were raising prices by October. Obviously not for the folks who got wiped out. And if you're helping schools or something like that, that's not what we're talking about. Second thing, and I can go forever, you guys know that. But the second thing,

If you haven't already, your customer personas or segments or ICPs, however you want to define it in your business, what you should be doing, again, phase one, they already did it. Phase two, they've already done it. Phase three, that's where we're at. So if you're listening to this, you haven't done it. Phase three, it's totally fine because this is less consequential. Your top 20% of customers, and we don't know who the top 20% are going to be in this market,

And they're going to accelerate. You're going to have a 20% that are just going to get tanked. And then the middle, everyone's going to kind of be fine and everything's going to kind of stay the same. Same thing happened in COVID. The reason we talked about so much in COVID is the top 20% really went out of control and the bottom 20% got just crushed, right? And some of those have not recovered. So what you want to do is you want to reevaluate who your segments are, right?

What are those segments you're going after? People who, you know, like, like, I don't know the exact segments, but like, think of what's good and downturns. Cheap entertainment is typically good and downturns, right? Like movies typically end up going up. I don't know if it's going to happen with her ticket prices are, but during like the twenties and et cetera, this is like ticket prices would always be really good, right? Alcohol. Yeah. Just think about, yeah, right. Like,

Same stuff during the great financial crisis. Yeah, totally. So whatever, you know, look at your segments. It's going to be different for everybody. That's a big thing. The last thing I said this, this was the phrase that I latched on to and, you know, said as much as possible when COVID was happening. Whoever holds on to the most customers at the end of this wins.

And what that means is not only retention, so making sure you have cancellation flows for those people who are trying, the bottom 20% trying to leave, let's pause them. Let's do this. Let's do all the other stuff, right? Not for everybody, but for those folks. The other thing is what HubSpot did, which was brilliant, more community, more free, more events, right?

Those are the three big things that they did. We did a lot of that, right? We focused a lot on the free product, not because it was the right time to do it or not because like that was the order that we should have done our business in, but because all of a sudden, like, you know, there was a good month there with like data. We pulled a bunch of data like on where the market was going. Like you could not go on Twitter without seeing us at least in B2B SaaS, right? So yeah, whoever holds on to the most customers at the end of this wins. That's the biggest thing I would fixate on.

Great, great words to leave us with. Patrick, thank you so much. Congratulations again. And listeners, all of you, me, David, we're all, Patrick, grateful that you're sharing your experience because frankly, a lot of this stuff just never gets shared. It's super, super valuable. Appreciate you guys. Thanks for being the brains. Thanks for being the minds of this community. I like it. Awesome. Thank you. We'll talk to you. Thank you, Patrick.