Joe is the founder of an M&A platform Foundy which mainly focuses on the UK market. In this interview, we talked about his journey and the advantages of bootstrapping companies in terms of exit strategies.
As he is in the M&A business, he had a chance to talk with many SaaS companies and acquisition companies. So, be ready to get many valuable suggestions from the interview.
Updates From My Side
This is going to be the last issue of 2023.
Thanks to all of you for being one of my readers.
I have made a list of articles that I liked to read in 2023. If you are curious about it, you can check it from the link here.
Question: A piece of information about your background?
Foundy emerged from building my last SaaS-enabled marketplace, where we experienced firsthand how antiquated the traditional exit and acquisition processes are. This includes engaging with buyers, going through due diligence processes, managing various data rooms, the legal document process where we had to print out numerous documents, scan them back in, and then facilitate the payout to shareholders.
Learning from this firsthand experience and working with investment bankers, who also acknowledged the inefficiencies, led us to build Foundy.
We’ve gained backing from a lot of high-profile investors and are now growing very fast.
When did you start Foundy, by the way?
We went live in July 2022.
In that space, Joe, there are many marketplaces arising. Most people know Acquire and Flippa. Foundy mostly focuses on the European market, right?
By and large, yes. The UK is the third largest market for M&A globally, so it’s our main focus. But there’s also a big opportunity in Europe. Flippa is in Australia, and Acquire is in the U.S. They’re fantastic platforms, but there’s limited presence of M&A platforms in the UK and Europe, so we’re serving a critical need here among startups, SMEs, and buyers.
And you mentioned that right now you have 10,000 subscribers. Are these buyers or sellers, or a mix of both?
The majority are buyers. We have a rapidly growing founder network. Some join for access to our community of like-minded founders, others for educational purposes, as they may not want to exit immediately but might consider it in the next two years. We also have a stringent vetting process to maintain high-quality businesses on our marketplace.
In terms of sellers, how do you find them, or do they find you?
Most of our leads are inbound, mainly through LinkedIn, Google, and some paid ads. We’ve optimized for conversion and reduced customer acquisition costs significantly. About 26% of new users come from word of mouth and referrals, and we anticipate this number will increase with some big announcements we’re planning.
Your platform is open to all types of businesses, like SaaS, e-commerce, and marketplaces, not just one vertical, correct?
Yes, our main focus is on SaaS businesses and other online companies with recurring income. We help them navigate the complex M&A process, prepare all the necessary documents, and streamline due diligence and legalities, culminating in securing the life-changing payout when they sell their company. Our focus is on software businesses due to their scalability and potential profitability.
I’m curious about your opinions on SaaS companies in your marketplace, especially bootstrapped ones. Could you share insights on their ROI, exit multipliers, and acquisition strategies?
There’s significant acquisition appetite for software businesses, especially bootstrapped ones, as they present easier acquisitions from the buyer’s perspective. Bootstrapped companies tend to have more reasonable valuations and can achieve performance levels similar to VC-backed companies, but without inflated valuations. We advise founders to focus on building strategic value, like skilled management teams, patents, strong brands, product-market fit, etc., which often translates into financial performance.
Have you experienced any exits for bootstrapped SaaS companies on your platform?
Yes, that’s our main focus. We’ve facilitated several exits for B2B and B2C bootstrapped companies.
What about the opportunities for bootstrapped companies compared to VC-funded ones in terms of exits?
Bootstrapped companies present unique advantages over VC-funded ones when it comes to exit opportunities. Firstly, bootstrapped companies often have more streamlined decision-making processes, as they typically have fewer stakeholders. This agility allows for quicker negotiations and potentially smoother exit processes. Additionally, bootstrapped companies are often seen as more attractive to acquirers due to their lean operations and efficient use of capital. They demonstrate an ability to grow and scale without relying heavily on external funding, which can be a strong indicator of a robust, sustainable business model.
Furthermore, from a valuation perspective, bootstrapped companies may offer more realistic and grounded valuation expectations. VC-backed companies often come with higher valuation expectations due to previous funding rounds, which can complicate acquisition negotiations. In contrast, bootstrapped companies, having grown organically, can negotiate deals that are more closely aligned with their actual market value and performance metrics. This can lead to more mutually beneficial acquisition terms, ultimately resulting in successful and satisfactory exits for both the selling founders and the acquiring entities.
What’s your view on positioning companies in marketplaces? Is it a viable strategy for bootstrappers?
Positioning companies in marketplaces can be a strategic and effective approach for bootstrappers, particularly in the digital and SaaS spaces. Marketplaces offer a platform for reaching a wider audience, leveraging established traffic, and gaining credibility through association with well-known marketplace brands.
For bootstrapped companies, which often operate with limited marketing budgets and resources, marketplaces – Shopify, ChatGPT or similars – provide a cost-effective channel to access potential customers and validate their products in real market conditions.
However, this strategy comes with considerations.
Dependence on a single marketplace can pose risks, especially if the marketplace’s policies change or if they start offering competing services. Therefore, while leveraging marketplaces for initial growth and customer acquisition, it’s crucial for bootstrapped companies to concurrently develop independent sales channels and customer relationships.
This diversified approach ensures long-term sustainability and reduces vulnerability to external platform changes.
Additionally, building a product specifically for a marketplace should be done with a focus on innovation and differentiation. The product should offer unique value and solve specific problems for users within that marketplace.
It’s also important to stay abreast of trends and adapt quickly to evolving marketplace dynamics. By doing so, bootstrapped companies can effectively use marketplaces as a springboard for growth while laying the foundation for a resilient, standalone business.
If you have any advice for bootstrappers, especially SaaS bootstrappers, what would it be?
For SaaS bootstrappers, resilience, patience, and concentration are crucial. Many founders experience loneliness and struggle to find a community to belong to. My advice is to focus on one or two products initially and conduct thorough market testing. It’s vital to ensure that there’s not just interest in your product but a willingness from users to pay for it.
Building solutions that meet customer needs and optimizing based on feedback is key. While bootstrapping can be slower, it often leads to more sustainable growth compared to raising external capital.
If you reach a point where your business is profitable and you’ve maintained lean operations, then considering venture capital might be a strategic move to accelerate growth. It’s important to remember that even VC-funded companies are now advised to operate with the scrappiness and lean approach of bootstrapped businesses. Focus on organic growth, community building, and education for your users.
Are you planning to develop any community-focused initiatives or resources for bootstrappers under Foundy?
Yes, community building is a significant focus for us. We’re in the process of establishing a community starting directly on our platform, and we’re considering a Slack community with a waiting list. The goal is to create an environment where users can interact, support, and learn from each other, moving beyond the traditional company-to-user communication. We believe in the profound value of community where users can collaborate and find mutual support. This aligns with the philosophy shared by the founder of HubSpot, emphasizing the importance of user-to-user interaction within communities. You’ll see more initiatives from us in this direction, aiming to foster a vibrant, supportive ecosystem for entrepreneurs and bootstrappers.
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