S2E14 – How to get capital as a bootstrapper? With Nathan Latka

Bootstrapping, the art of building a business without external funding, requires resourcefulness and strategic financial management. As a bootstrapper navigating the entrepreneurial landscape, securing capital can be a challenging yet essential aspect of scaling your venture. While traditional funding avenues like venture capital may seem elusive, there are alternative strategies to fuel your startup’s growth. In this insightful episode on the Grow Your B2B SaaS – Podcast, show host Joran hosts a subject matter expert on how to get capital as a bootstrapper. Our guest is Nathan Latka. Nathan is the founder of FounderPath, a platform that helps SaaS companies grow without giving up equity. In addition to that, he has deployed capital to over 200 bootstrap founders out of a $150 million fund. He is the author of the Wall Street Journal bestselling book, “How to Be a Capitalist Without Any Capital.” Lastly, he is a host of ts”The Top Entrepreneurs” podcast, which has over 20 million downloads.

Discussion on Bootstrap Challenges:

• Lack of money is a common challenge for SaaS companies, especially for scaling.
• Focus on how to get capital while remaining bootstrapped and avoiding equity dilution.

Financing Options for SaaS Companies:

• Early-stage companies often raise on a convertible note or a SAFE.
• Non-dilutive options like FounderPath offer receivables-based financing.
• Series A, Series B, and Series C rounds are options for later stages.
• Emphasis on customer profits as the best source of funding.

Dilutive vs. Non-Dilutive Funding:

• Explanation of dilutive funding and its impact on equity ownership.
• Non-dilutive funding involves trading future cash flows for upfront cash without giving up equity.

Nathan’s Mission and Background:

• Nathan’s personal experience with dilutive funding and its impact on his company’s ownership
• Mission to provide alternative funding options for founders.
• Belief in the global potential of building profitable, bootstrapped companies

Common Mistakes in Funding:

• Caution against overemphasizing fundraising as a measure of success.
• Encouragement to focus on acquiring customers and building a great product first.
• Building an audience before launching a software product for a stronger start.

Successful Bootstrappers Traits:

• Successful bootstrappers are sure of themselves, confident, and have conviction.
• Focus on personal happiness and independence rather than seeking validation through equity markets.
• Confidence in understanding customers and building products efficiently.

Non-Dilutive Funding Process:

• Explanation of FounderPath’s non-dilutive funding model.
• Funding based on customer contracts and future cash flows.
• Requirements include a minimum MRR and several months in business.

Simplicity of FounderPath’s Platform:

• FounderPath’s algorithm-driven platform removes the need for extensive negotiations.
• Funding decisions are purely based on numbers, creating an unbiased process.

Emphasis on the silent majority of successful bootstrappers is not widely covered in the media.

A call to understand the trade-offs between VC funding and building profitable, bootstrap companies.

What Makes Successful Bootstrappers Stand Out?

• Nathan emphasizes the importance of customer acquisition cost (CAC) arbitrage for successful bootstrappers.
• Shares an example of Nathan Barry using creative strategies to build domain authority for ConvertKit.
• Discusses the advantage of extreme creativity in gaining CAC arbitrage.

Challenges Faced by Bootstrap Founders and How to Overcome Them

• Highlights the challenge of societal pressure, especially from parents, for young bootstrappers.
• Advises on the risk associated with different bootstrapping strategies and the danger of waiting too long for a higher acquisition offer.

Insider Insights on Selling SaaS with a 10X Multiplier

• Announces a live webinar on selling SaaS with a focus on David from Grasshopper, who sold for $165 million cash.
• Recommends a proactive approach to building a potential buyer list over time for future exits.

The Future of SaaS Financing and Usage-Based Pricing

• Nathan predicts a shift towards a 100% transactional, usage-based SaaS pricing model.
• Discusses how FounderPath aims to assist founders by predicting future usage-based revenue and buying those contracts.

Advice for SaaS Founders at Different Stages

• For those starting out: Start by building an audience, and leveraging platforms like podcasts, LinkedIn, email newsletters, etc.
• For those moving from 10K MRR to 10 million ARR: Focus on acquiring more of the highest-paying customers and adjust top-of-funnel strategies accordingly.
• Encourages founders to prioritize getting a win and compounding wins for long-term success.

Nathan’s Key Learnings Over the Past Decade

• Stresses the importance of compounding time and relationships for long-term success.
• Shares a preference for surrounding oneself with talented, young individuals for the longest compounding potential.

Key Timecodes

• (0:28) Show and guest intro
• (1:28 ) Why you should listen to Nathan Latka
• (1:55) What are the different financing options, a SaaS company would have? 
• (2:58) Dilutive funding vs. non-dilutive funding What’s the difference?
• (3:57)  Why Nathan Latka helps SaaS founders to get non-dilutive funding
• (6:02)  Strategies to self-fund your bootstrap
• (7:09) Common mistakes companies make while trying to fund their business
• (8:59) What has to be in place in order to get non-dilutive funding?
• (11:11) The process of acquiring capital
• (13:09)  What do successful bootstrappers have in common? 
• (16:05) What are successful bootstrappers doing so well?
• (17:48) Challenges bootstrap founders face and how they overcome them.
• (22:20) What to include when sending out your email newsletter
• (19:30)  How to sell your SaaS for a 10 x multiplier
• (23:31) The future of SaaS financing

Transcription

[00:00:00.000] – Intro

Welcome to Growing a B2B SaaS. On this show, you’ll get actionable and usable advice. You’ll hear about all aspects of growing a business to a business software company, customer success, sales, funding, bootstrapping, exits, scaling everything you need to know about growing a startup and you’ll get it from someone who’s going through the same journey. Now your host, Joran Hofman.

[00:00:27.840] – Joran

Welcome back to the Grow Your B2B SaaS Podcast, where we discuss all topics on how to grow your B2B SaaS no matter in which stage you’re in. Not having enough money for your SaaS is really common as you often need money to scale, right? So how do you get capital while still being bootstrap, so not giving up equity. We’re going to discuss this and other bootstrap challenges with Nathan Latka. He’s a founder of FounderPath, a platform dedicated to helping SaaS companies grow without giving up equity. So far, they deployed capital to over 200 bootstrap founders out of their 150 million fund. Over 30,000 software founders bought his Wall Street Journal bestselling book, How to be a Capitalist Without Any Capital. And he’s the host of the top entrepreneur’s podcast with over 20 million downloads. Where he has interviewed 3,000 SaaS founders so far. So he’s got a lot to share. Let’s just dive right in. Welcome to the show, Nathan.

[00:01:21.770] – Nathan

Thanks for having me, Joran. I appreciate it.

[00:01:23.920] – Joran

No worries. I’m going to always ask a really Dutch, blunt question to begin with. Why should people listen to you today?

[00:01:29.920] – Nathan

Generally, because I’ll share data that they haven’t maybe heard of before, I’ll talk from experience. I would also say that’s my bias. I had a software company that I bootstrap two million run rate. I went through a certain experience that biases me one way. I’ll share a lot of good data here. But again, the bias will be it’s all tied directly to real experiences that I’ve had.

[00:01:49.080] – Joran

I really love the data approach you take, even with just a quick chat before the podcast putting the numbers in place. Before we really start talking about numbers, can you quickly explain what are the different financing options a SaaS company would have?

[00:02:03.400] – Nathan

Yeah, so early-stage software companies, typically if you need capital, you’re going to go raise on a convertible note or a safe. That is really a debt instrument that ultimately translates to equity once you do have a real valuation on the business. Once you get past that stage, maybe you’re hitting 500k or a million dollars of revenue. At that point, you can start to look at non-dilutive options like founder pass, right? That’s receivables-based financing. All that means is if you have a million of revenue, we’ll buy 200, 300 grand of your future receivables. That’s non-dilutive capital, right? Then you pay that back over 12-48 months. At that stage, obviously, you can also do Series A, Series B, Series C, et cetera. I think saves convertible notes. There’s a lot of non-dilutive options now today. Those are the major ways to fund the business. But the best of all is obviously customer profits. The customer is paying you and you making a lot of profits.

[00:02:50.500] – Joran

Exactly. That’s what keeps coming back. If you build a good product, people are going to pay for it, and then in your case, actually fund your company based on that. You mentioned the terms dilutive funding versus another load of funding. Can you quickly explain what is the difference for people.

[00:03:04.160] – Nathan

Who don’t know yet? Yeah, most folks, especially with equity markets here in 2023 being compressed, if you’re doing a seed round, you’re raising something like 500K and you’re selling 20-25% to your company besides your co-founder, that first round is the most equity you’ll ever give up. It’s the second biggest moment in your company in terms of preserving your equity. And so that’s a lot of dilution. What I encourage founders to think about, you’re eventually going to sell that company for 4, 5, 6, 10, 60, 100, $500 million. And every point of equity you own will drastically change your lifestyle, your net worth, your family’s lifestyle, et cetera. And so you want to preserve that as much as possible. And so non-dilutive funding is when you don’t give up equity. What you do instead is you’re effectively trading your future cash flows from customer contracts. You’re trading that for upfront cash from FounderPath today.

[00:03:57.450] – Joran

And I think you made it even your mission to help SaaS founders to get non-dilutive funding. Why do you care so much? Why do you made it your mission?

[00:04:05.090] – Nathan

Yeah, I know it’s a good question. So when I was 19 at Virginia Tech studying architecture, I built my first SaaS company called HEO, H-E-Y-O. Com, still live today because the group I sold it to still makes money from it. But bootstrap it. And then I raised $2 million drawn on an 8.5 premillion valuation, so 10.5 post. I sold 18, 19% of my company in that round. Additionally, they made me hire a professional. They called them the Adult Supervision COO because I was so young and in college. This was such a terrible thing. It made me feel like crap. But I did it. That’s another 10% gone. By the time I was said and done, I only owned 38% of the company after that round. I had great investors participating in that round, David Cohan from Techstars, for example. A lot of great people. But the board, three, six months after I did this round, the Series A round, I got a 6.5 million all-cash acquisition offer from my contact. Now, you guys listening, think about it for a second. I just raised at a 10.5 post. I just got an all cash offer for 6.5. Does the board approve that or not?

[00:05:09.040] – Nathan

No, right? Because it’s less than what they just put money in at the valuation. So I started going, Man, why do people raise VC? You lose so much of your optionality. If I said yes to $6.5 million, I was 20 years old, I would have had $2 million in my bank post tax. I love that. So, Joan, that’s why I said, Man, I need to figure out another option for founders. And I’m also just betting on the fact that globally, it’s easier to build a software company today with these no-code tools. This is the future American dream, right? It’s our worldwide dream, really. $5 million profitable, bootstrap company, keep 100 %, pay yourself a million dollars a year. That’s a beautiful life. That’s what we’re trying to do. Help founders do that thousands of times.

[00:05:47.100] – Joran

Yeah, it’s a great mission. We’re bootstrap ourselves still until this moment. We actually use found the Podges to get insights into our metrics, which I would definitely recommend others to do as well.

[00:05:57.130] – Nathan

I think your metrics dashboard is much better than ours just to call a spade, but I appreciate that.

[00:06:02.820] – Joran

For boot service out there, what other options are there for them to really fund their business? Any strategies you can share?

[00:06:09.670] – Nathan

Obviously, again, customer profits is if you’re going to bootstrap, right? So not outside capital or giving them no equity, you’re going to use obviously profits, right? Customer sales. Non-dilutive capital is a good option. I have seen founders using convertible note, but then don’t convert it, right? So most convertible note, typical terms is, it’s a 20 % discount. So if someone gives you a million bucks, they’re going to say, I want a 20 % to the next round when it does convert, then they’re going to maybe charge a 6-8 % interest rate. So if you get a million today and then you wait two years before you convert them, maybe that million, because the 6-8 % rate, maybe that million now is 1.1 million or something. Most founders, they want to convert that. But if you’ve generated profits, you can also just pay it off and keep all that equity so it doesn’t convert. That’s another way to fund it without it. But you want to be really upfront with the angels or whoever you’re raising that from and tell them you might just pay it off because their intention is to back you and eventually convert to equity.

[00:06:58.610] – Joran

Yeah, exactly. You spoke to many SaaS founders, right? On the podcast, but probably also a lot outside of the podcast, you had your own story where you might have done things differently what you know right now. What are the most common mistakes companies make while trying to fund their business?

[00:07:14.570] – Nathan

I think a lot of media, TechCrunch is guilty of this. They tell the story that if you’re going to make it as a founder, it’s actually how much you raise and how big the valuation is. That actually has nothing to do with building a great company. Building a great company is go get a customer first and then go figure out if you want to raise capital. I’ve seen founders spend a year trying to perfect their deck to go sell investors. They could have spent that time building a no-code MVP and landing their first 10 customers, right? That’s what I would say. And if you’re listening right now and you want to have a software company one day, but you don’t know where to start, the best place to start is actually to do what you’re doing, John, is build an audience first, right? Because if you have 10,000 people listening to your podcast every month and then eventually come with a software tool and all your listeners are software founders and you convert 1 % of your audience to $100 a month plan, well, boom, right? There’s your first 10 grand a month in revenue.

[00:08:05.040] – Joran

Exactly. The begin point you mentioned is not just TechCrunch, it’s Crunchbase. But also when going to SaaS events, I think often the second question you get is, Oh, how much funding did you raise? Or are you – How big is your team? Exactly. In the end, maybe the question should be, for everybody going to SaaS, how is your profitability? Or, What is your growth rate? Or, these numbers.

[00:08:25.130] – Nathan

Like that. The smartest, happiest, most successful software founders I meet are the ones that do the most with the least. They’re very efficient and they have great systems. And so a good way to capture that insight in form of a question is to say, What’s your revenue per employee? Anyone generating more than 250 or 300K of revenue per employee in our space, that’s impressive. Most VC-backed SaaS companies generate about $90,000 of revenue per employee, and most bootstrappers are somewhere in the 150,000 revenue per employee range. Anything above that, I’m always really impressed by.

[00:08:59.250] – Joran

When we talk about non-dilutive funding, you mentioned you’re going to fund based on the money you’re going to get from your clients in the future. What has to be in place in order to able to even get non-dilutive funding?

[00:09:10.660] – Nathan

Most providers of non-dilutive capital, they have to see some predictability and history in your cash flows to be able to model what your future cash flows could look like. And so you usually need a minimum of something like $20,000 or $30,000 a month of MRR and at least 6-12 months in business. That would be the earliest stage I would tell people to look at non-dilutive funding.

[00:09:31.230] – Joran

I know you too, of course, based on your numbers, you would also get an interest rate. So the better the growth rate, the better the LTV, the better the terms as well. Is that correct?

[00:09:41.990] – Nathan

Slightly. So my podcast, The Top Entrepreneur, is probably in 2018. Founders, after I stopped recording now when I hit stop, they would always then tell me something that was amazing that they didn’t share live because they didn’t feel comfortable. And they would say things like, The VC just pulled a term sheet on me. We need money. Can you help us go raise debt, Nathan? I kept hearing debt. What I did is I went and I signed retainers with all the big debt providers, Lighter Capital, Tamaya, Espresso, et cetera, Lighter Capital mainly. I matched them with founders. I watched founders then pay back Lighter Capital and these other providers, which are MCAs that’s Merchant Cash Advanced or Factoring, et cetera. But, Joan, what I saw is in a lot of those negotiations, the paperwork to do those deals, the term sheet is 10 pages long and the closing docs are 40 pages long. You’re going to spend a minimum of a month to two months negotiating that, and you’re going to spend a minimum of 20k on your own legal fees, and then also have to cover the other party’s legal fees, which are usually 5-10K.

[00:10:39.010] – Nathan

So when Founderpup developed our paper, the paper we sit on, the contract we sit on, we wanted simplicity. So we don’t charge an interest rate. What we do, it’s called a receivables purchase agreement. We’re purchasing our customer contracts, we call those receivables, and we’re purchasing them at a discount rate. So we charge a discount rate, not an interest rate, and they’re very different. Happy to go deeper if it’s useful.

[00:11:00.530] – Joran

Yeah, I think if you can go a little bit deeper, I don’t know how many people will understand it, but I guess basically you’re funding based on the future income, right? Like based on discount, a little bit more explanation would be nice. Let’s assume I want to get capital in right now. How would that work?

[00:11:14.550] – Nathan

Let’s use a simple example. Let’s say you guys listening right now, anyone in the audience, let’s say that you charge on average $84 a month for your software product, which would be $1,000 for a year. Founderpath will look at that $1,000 for the year and say, Jaron, you’re a great software company. You have high net dollar retention of 110 %. Your gross logo churn annually is only 5 %. You’ve got four months of runway in the bank. You have very little customer concentration risk. We are willing to pay you a 10% discount rate for that $1,000 customer who’s going to pay you $1,000 every year. Then you take $1,000 times that 10% discount rate. We would then wire you, Jaron, if you accept the offer, we would wire you $900 of cash today. That’s a 10 % discount from a thousand. And then you collect the thousand over the year and then send it to FounderPath to buy back that customer contract. That’s how it all works.

[00:12:13.300] – Joran

Makes sense. Then it also makes sense. You need to have a minimum MR. You need to have the numbers in place to actually.

[00:12:18.280] – Nathan

Go from there. I get people sometimes come to me that are pre-revenue and say, Hey, can we use non-dilutive capital? No, because you have no revenue. You have no customer contracts for.

[00:12:24.950] – Joran

Us to buy. Yeah, makes sense. And I guess when all the numbers are in place, I think on the website you save money within 24 hours.

[00:12:31.850] – Nathan

Yes, we’ve done million dollar, two million dollar deals in under 24 hours before.

[00:12:36.390] – Joran

And it’s purely because it’s data-driven. You connect with the tool so you can see exactly what’s going on. Nice.

[00:12:42.290] – Nathan

The nice thing about our platform is it is purely numbers-driven. You don’t have to get on a phone with me and show me how good of a salesperson you are. You don’t have to tell me what your family history is. And if you have entrepreneurs in your family, you don’t have to tell me if you went to Harvard or Stanford. We are just looking at your numbers. It’s pure algorithm-based. You get a deal, you click accept, you get the money. It’s really unbiased, which is nice.

[00:13:03.960] – Joran

Let me zoom out again. You interviewed so many bootstrapers or so many SaaS founders. What have these successful bootstrappers have in common? What have you seen so far?

[00:13:13.800] – Nathan

The most successful bootstrappers are extremely sure of themselves. They’re happy personally, so they don’t seek validation from equity markets. I talk to a lot of founders that they want to go raise VC to make them feel confirmed, Okay, this is the real business. Somebody else told me it’s a real business because they gave me a million dollars. Great, but now you’re working for them, right? Now you only own 40, 30 % of your company after a couple of years of that. So again, the bootstrapper is icy. They have a lot of conviction. They’re not rude or they’re not standoffish. They just have a lot of conviction in how they understand their customers and they will have a lot of confidence to go build that. And so I appreciate that about a lot of the bootstrappers that I work with. By the way, I always say this, this is a massive, silent majority, Jérôme. I mean, for every one founder we read about who raises on TechCrunch, there’s a thousand bootstrappers you’ve never heard of.

[00:14:08.650] – Joran

And I think that’s the point, as you mentioned, people want to be included. If you’re not raising, you’re not on Crunchbase, you’re not have the article on TechCrunch. You won’t have the PR newsletter going out, VC promoting you, things like that. I haven’t been lured into it yet, but it is something you will hear a lot and I.

[00:14:24.520] – Nathan

Think it’s a big challenge. Venture capital dollars are the best marketed money in the world. I’ve never seen anything like it. Let’s please take my dollar and then I’m going to own your business. Now, I will say this, I don’t want to just boo on VC all day long. If you’ve maybe had your first exit for a couple of million bucks and you’re like, You know what? I’m 40, I’m 45, I’m 51. I want to go take a really big swing and it’s going to require a lot of money, and I want to go public or bust and I want that pressure, and I want to be bored, and I want that risk, okay, fine, go to the VC thing. But just understand the odds. One in a thousand in terms of VC investments, go and make a billion, two billion, three billion dollars and return the fund. You’re just playing a lower odds game the second you raise a dollar outside capital. What Founderpud is trying to do is increase the odds drastically that you’re sitting on a $5 or ten million dollar company with a lot of profits that you can have for life and build a great living situation around.

[00:15:22.040] – Nathan

But they’re just two different strategies.

[00:15:24.170] – Commercial Break

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[00:16:04.950] – Joran

When we talk about successful bootstrapers and best practices, what have they been doing? I know you love numbers, so I’m just going to ask, what do they have in common number-wise? What are they doing really well that they’re being so successful?

[00:16:16.960] – Nathan

Okay, number one thing is they have customer acquisition cost arbitrage. Let me give you an example. Nathan Barry with ConvertKit competes in the email marketing space, right? The email list building space. He could either spend a lot of money on Google ads to win the number one spot for the search term email marketing tool, which is expensive, probably five, six, seven, eight bucks a click. That’s one strategy. But no, what he did instead is he used his brain, his creativity to save money and win. What he does now is he hires local photographers off Thumbtack to take pictures of his customers. He then gives those free, high-res images to his customers. They use it on their website. They backlink to ConvertKit. He uses those images on his website promotional materials, and he’s bought his domain authority up on ConvertKit drastically from all the back links from that photo strategy. A VC-backed founder, very rarely, once you raise so much money, it’s very hard to think creatively because your answer to everything is throw money at it.

[00:17:15.080] – Joran

Yeah, and I think you get more creative in that you don’t have a lot of budget to spend. We don’t run paid ads, but if we would run paid ads, we would only run them when there’s a certain event on Facebook, for example, and we target the exact building, for example, where the event is being located in, we just maybe spend like $100, but on a really specific target audience.

[00:17:34.170] – Nathan

Yeah. Cac arbitrage advantage gained by using extreme creativity. If I had to sum up the best bootstrappers that I ever interviewed in terms of revenue, profits, growth, all that. It’s that sentence.

[00:17:47.920] – Joran

As a bootstrap founder, you’re going to run into a lot of challenges. What would you say are the biggest ones? And any advice for people listening to overcome those?

[00:17:56.870] – Nathan

Most bootstrapers, if you’re listening right now and you’re under 25, the biggest thing that you’re going to have to push back against are actually your parents going, Please get a regular job. I don’t know what the hell you’re doing, but is this company going to work? What you’re going to say is I need to go raise VC to show mom and dad at Christmas I raised a million bucks and that’s going to get them off my back. That’s the hardest dynamic in the early days, right? Bootstrappers, once they really start to scale, so once you’re at more than five million of revenue or 10 million of revenue, I think one of the biggest risks… Let me just take a step back. Risk is really hard to quantify here because every bootstrapper is bootstrapping for a different reason. Someone is doing it because they hate working for other people and they love the lifestyle. Somebody else might be doing it to grow and then sell it and keep 100 % of the upside. Different risks are associated with different strategies, for example. Let me give you a strategy and then tell you the risk associated with it.

[00:18:46.460] – Nathan

If you’re building a company and you’re bootstrapping and you want to sell it one day and have no board and have full control and keep 90 %, 100 % for yourself and your employees, the biggest risk to you is that you will keep holding out for a larger and larger offer instead of just creating a quick win, which then compounds over time. The ability to be able to say you sold the company drastically increases your optionality for whatever you do next, and it’s very hard to quantify that optionality. So most people just keep waiting, Oh, you’re only going to pay me a 4x? I’m going to wait for a buyer that’s going to pay a 6x? And then you slog for three more years and then you finally get a 5.3x offer and you’re like, Oh, I should have took the 4X two years ago and gotten some time back. So that’s the biggest risk.

[00:19:24.740] – Joran

That makes sense. You already mentioned 5.5, 3X, and we’re going to talk about multipliers. The topic is how to sell your SaaS for a 10X multiplier. Can you already share some quick insights here?

[00:19:35.230] – Nathan

Yeah, we’re having so much fun. Anyone listening, you can go look on LinkedIn, just search my name and the word like bootstrap or SaaS event. We do this once a month live. It’ll be 1,000 founders live. It’s a ton of fun. And one of the questions, Jaron, the way we come up with these titles is we asked the past webinar last month what they’re curious about. And this was the number one thing from last month. And so what we did, since FounderPath has seen a lot of founders for capital, then go exit, you start to recognize there’s a playbook. What I’ve seen is the playbook is actually not common sense. So what I mean by that is most people when they want to sell their SaaS company, their first question is, What are multiples today? If the only thing that determined your outcome as a founder in terms of your exit value is what are multiples today? None of that gives you credit for you being… You’re just defaulting to what the market multiples say. Why would you ever do that? Sure, it’s a guidepost, but why would you ever do that? It’s silly. And so what we’re teaching, there’s a very specific process that you should follow and a very specific data room structure and very specific copy you should use with potential buyers as you move them from indicative bullet point terms in an email to a real term sheet.

[00:20:43.670] – Nathan

And the term sheet you picked to sign. How do you hold leverage that as you go through DD in the closing docs to make sure it actually closes and you get the cash? And ideally, as much cash upfront, none of this earn out over 100 years BS. You know what I mean? So we’re teaching that process live with real examples. The example that we’ll focus on is David from Grasshopper, who sold for $165 million cash. That’s what we’re focusing on.

[00:21:05.540] – Joran

Yeah. And you are recording the sessions, right? So people can listen to them later on.

[00:21:10.050] – Nathan

We do. But you guys are busy listening. So if you’re not able to make it later tonight, I’ll just give you one quick takeaway. This is something all of you guys should be doing. Over as you’re building your company, you’re just going to get natural inbound from people saying, Would you sell? Now, none of you would just ignore it. You might not even return the email. I would really encourage you to start replying with copy. That sounds something like this. We’re not looking at right now. There’s a lot of upside. I just started growing this thing. However, I have a monthly update email I send to people I want to keep close to the business. Can I add you to that? Send. So what you do is you then start building this list over two, three, four, five years of all these people that have reached out inquiring about buying. You then keep them close. They’re always thinking about you because you’re getting a monthly or quarterly update. So then when you want to sell, you email and you say, We got inbound requests. We’re officially launching our process. In order for you to get access to data room one, you must provide indicative terms no later than October 30th.

[00:22:09.580] – Nathan

These are non-binding bullet points via email.

[00:22:13.020] – Nathan

Boom. Now you have top of funnel and you’ve created a competition. And that’s key in selling your business for the highest multiple.

[00:22:18.610] – Joran

Yeah, you’re basically building your own target audience. And what would you recommend people sending on that newsletter? Because you mentioned Data Room, so you’re not going to probably give them all the data points regarding on the money level. What would you recommend sending in the newsletter?

[00:22:31.750] – Nathan

Hey, folks, last month was great or not. Here are three things that went well. Here are three things that we’re working on, right? So we landed this big customer. I recruited this major salesperson we’re excited about. And month overmonth, revenue growth was 10 % month-over-month. The three things we’re trying to work on, we’re spending too much to get customers. They were trying to drive CAC down under $100. We’re having problems hiring engineers in the US because they’re too expensive. We’re spinning up our outsource development agency, right? The number three. Right? So it’s just very simple. A 3-3 is what I call it. It’s just an excuse to stay top of mind. Yeah.

[00:23:07.760] – Joran

And owning your own list is, of course, really important, as you mentioned. You’re basically just putting them on the list. I just replied so far, we’re not interested. But I guess this is a much better approach.

[00:23:18.850] – Nathan

Yeah, because let’s say you do want to sell in three years. You’re going to search your inbox and go try and remember all those people that reached out over the past four or five years. You might as well start tagging them today, putting them in a Google contact list.

[00:23:29.540] – Joran

Yeah, makes a lot of sense. But when we look at the future, how do you see the future of SaaS financing?

[00:23:36.030] – Nathan

I guess, first off, I think there’s a lot of people in my space that are in it for the wrong reasons. There’s ex-VCs that now do non-dilutive capital or they’re ex-Stanford Harbor guys doing this because they want to be a banker, they want to own a bank, whatever, they want to play the fintech game. So instead of the future of SaaS financing, let me just say what I think the future of SaaS is and then how FounderPath hopes to help those founders. I don’t think actually this monthly flat fee SaaS model we all know today, that’s actually not the future in my opinion. We are going to have a 100 % transactional model. So one customer is not going to pay 83 bucks a month every month. You’re going to charge off some usage metric, and it’s going to be variable. One month a month, be 50, the next month it might be 100, then back down to 25, then up to whatever. You have to be able to project this transactional or this usage-based SaaS fee. I think that’s the future and the way FounderPath is going to help finance that is we will use your historical usage-based revenue per customer to predict what new customers would pay into the future and we’ll buy those contracts just like we’re doing today.

[00:24:37.480] – Joran

Yeah, I think it makes a lot of sense because a lot of SaaS companies are going already PLG. That’s the hot term right now and then people are trying to base their pricing based on usage but still keeping it to the plans. Like even ourselves, we have certain plans. If you have a certain threshold, then you’re going to go to the next plan. But it would make sense to start really charging on usage but then churn will go up as well or at least it will be more volatile, I guess.

[00:25:00.500] – Nathan

To call it like that. It puts the pressure on the founder to build a better product, which is the right place for pressure to exist. Right now, you’ve probably done this. I’ve certainly done it with GitLabka. How many of us have gone into Stripe, exported our customer list, and sorted from who’s paying the most to the least. And you start going name by name. You’re going, Oh, my gosh, that person hasn’t logged on in three months. They’re still paying me a hundred bucks a month. And then we go, Crap. Do we email them and try to re-engage them? No, because then they’ll know they’re paying us and then they’ll cancel. That’s what we all tell our that thing is we should all lean into that, right? And the pricing model that solves that is they’re paying just per usage. You should never feel good about, Oh, they forgot they’re paying us. Let’s keep that MRR thing. You want to lean into that problem.

[00:25:43.740] – Joran

Yeah, I 100% agree. Luckily, I was head of customer success before I started my own startup. We are doing value-based pricing. At least they have a certain MR and they always pay us, I don’t know, 100 times less. They will always get this certain value. But I see this a lot with other SaaS companies. Cool. We’re going to come a bit to the end where we’re going to ask advice per stage. When we talk about bootstrapping and funding your SaaS, what advice would you have somebody to begin with who’s at zero or who’s starting out and growing his SaaS to 10K-10K and we can review.

[00:26:15.970] – Nathan

Him or her, whoever. Start with audience. Don’t think about software. Build an audience first. It’s going to make the software launch way cheaper, way faster, way easier.

[00:26:24.810] – Joran

I guess I already mentioned the podcast here is one example. Any other great examples you can.

[00:26:29.850] – Nathan

Give here? Linkedin content, email newsletter, podcast, YouTube channel, Twitter group, Facebook group, LinkedIn group, write a book, publish a magazine. There’s tons of examples here.

[00:26:44.080] – Joran

Exactly. It all starts with you have to know, of course, who is going to be your ideal customer profile. So who are you actually going to target and then build your audience in there? Building an audience for me personally has already been really nice.

[00:26:55.860] – Nathan

You’re doing a great job.

[00:26:57.080] – Joran

Thank you. If we go one step further. What advice would you give somebody who’s growing past 10K MRR towards 10 million ARR?

[00:27:04.930] – Nathan

If you’re at 10,000 of MRR and you’re trying to decode how to get to 10 million of revenue, download your customer base that’s paying 10 grand, makes up 10 grand of MRR, sort from who’s paying the most to the least, and go figure out. Just only focus on the customer paying you the most money and go think about how do you change all of your top of funnel strategy to just go get more of that highest paying customer? That’s the fastest way to decode how to go from 10K in MRR to 10 million of ARR.

[00:27:30.610] – Joran

Yeah, and then especially with the thing you have in mind, make sure that it’s cost effective. So you keep your customer acquisition cost low, even, or trying to get.

[00:27:39.000] – Nathan

More of those. The best way to grow MRR is to sell the same product to richer people.

[00:27:43.110] – Joran

It’s a good one. I don’t know if it’s going to fit with the future of SaaS, but that is a nice one.

[00:27:47.380] – Nathan

No, if that future of SaaS is usage-based pricing, and let’s say the usage is, I’m making this up, number of rows of code ingested to your database per month. Someone that has a way bigger SaaS company is probably willing to pay more per row of ingested data because they sell more to their customers than someone who’s pre-revenue. So the same still applies. Sell the same product on a usage basis to richer people.

[00:28:12.140] – Joran

Yeah, nice. We’re really coming to the end. I guess any advice or encouragement to SaaS founders who are now on their bootstrapping journey?

[00:28:21.170] – Nathan

My biggest mistake when I was building heyo. Com from when I was 19 years old to 25 years old is I held out too long thinking next month’s gross would be higher. I’ll get a higher acquisition offer next month. And then you blink and you’re 25 years old, or maybe you launched at 30 and you blink and you’re 35. Or you launched at 40, you blink, you’re 45. It’s much more important to get a win and compound wins. You don’t realize the amount of optionality you create by just being able to say you sold a software company. It doesn’t matter if you sold it for 0.5X ARR. Just get it done. Go through the motion, and that creates so much optionality for you, Jron. That would… That’s my biggest advice because that’s my biggest mistake.

[00:29:02.800] – Joran

Okay, nice. Yeah, having that exit is going to learn you a lot for future… Yeah, nice. I’m not going to sell right now, but this is good advice. The final question, what is one thing you wish you knew 10 years ago?

[00:29:15.740] – Nathan

The one thing I wish I knew 10 years ago is the importance of compounding time or just compounding in general. We just gave the example of getting a win under your belt with an exit. What I would also say is I also look at this from just humans I spend my time with. If there’s two people that are very talented and one of them is 50 years old and one of them is 16 years old, I much prefer to spend the time with a 16-year-old because they have 90 years to compound a relationship with them. I’m constantly thinking about how do I surround myself with very young people who are very talented because they have the longest amount of time if we hit it off that we can compound our relationship with. I’m constantly thinking about compounding wins and compounding people who are talented because that’s what’s going to lead to a lot of success long term, for me at least.

[00:29:58.560] – Joran

Yeah, I think that’s really good advice. We’re going to link to the webinar. I think we agreed to add a screenshot to the cap table of Find the Path. If people want to get in contact with you, we’re going to add ways to do so via LinkedIn, but what is the best way? Is that the best way to get in.

[00:30:12.810] – Nathan

Contact with you? Yeah, the best way to reach me, if you’re doing a million dollars of revenue, you’re looking for $300,000 to fund the business but still keep your equity, shoot me an email, Nathan@founderpath. Com, and just put Jaron’s first name in the subject line, say Jaron Podcast, and then I’ll reply to you immediately. I’ll treat you guys extra special. Nice.

[00:30:30.580] – Joran

So if I need you, I’m going to use that tactic now as well. Cheers. Thank you for coming on, Nathan. It was my pleasure.

[00:30:38.290] – Nathan

Thanks for having me, Jaron.

[00:30:39.390] – Outro

You’ve been listening to Growing a B2B SaaS. Yoron has been ahead of customer success before founding his own startup. He’s experiencing the same journey you are. We hope you’ve gotten some actionable advice from the show, and we hope you had fun along the way. We know we did. Make sure to like, rate, and review the podcast in the meantime. To find out more and to hook up with us on our social media sites, go to www. Getreditas. Com. See you next time on Growing a B2B sass. Ungrowing a B2B sass.

Meet the author

Joran Hofman

Back in 2020 I was an affiliate for 80+ SaaS tools and I was generating an average of 30k in organic visits each month with my site. Due to the issues I experienced with the current affiliate management software tools, it never resulted in the passive income I was hoping for. Many clunky affiliate management tools lost me probably more than $20,000+ in affiliate revenue. So I decided to build my own software with a high focus on the affiliates, as in the end, they generate more money for SaaS companies.