2020 has turned in to one of the most unusual years of my life, for both the obvious reasons but also for reasons I definitely wasn’t expecting at the start of the year. After 7 years of work building this little company, Baremetrics has a new home.
I won’t bury the lede here. In our usual transparent fashion, I’ll lay out all the top-level bits everyone’s interested in, then I’ll dive in to how we got here!
The Details
- Purchase Price: $4,000,000 in cash
- What I walk away with: $3,700,000 in cash
- Multiple: ~2.65x ARR
- Buyer: Xenon Partners (tech private equity firm)
- Close Date: November 2020
- Earnout: None!
- Payment Structure: 3 payments (at close, 12 months & 18 months)
Now that we’ve got that out of the way, let’s jump in to full story!
How we got here
A year and a half ago, I started entertaining offers. We had a buyer who, long story short, didn’t work out. That was an incredibly draining six months and I was ready to get back to work.
We kicked off 2020 by hiring three new team members, and then COVID hit. March was rough for us, but then subsequent months were actually some of the best months of growth we’d ever had. However, this rollercoaster reminded me of all the things I don’t love about running a company.
The majority of my time working on Baremetrics has been spent as a “manager” and not a “maker”. But at my core I’m a maker. I’m at my most fulfilled when I’m creating and am generally indifferent on growing or scaling things. Yet, as the CEO, I’m firmly in the role of a manager and do almost zero on the creative “making” side.
Baremetrics has been the most successful project of mine (at least financially) by a long shot, so I justified staying in the manager role because…why not? It was kind of fun seeing something succeed like this, especially after 15+ years building software!
But, again, COVID was a cold reminder of just how stressful that manager role can be, with 10 team members and 1000+ customers depending on me to not run things in to the ground. So, when I got an email from Xenon in April, the timing started to feel right.
Who is Xenon?
Nearly 15 years ago I met Jonathan Siegel. He was building various software companies and I did some design work for him. He went on to sell his companies and started Xenon and we stayed in touch, checking in periodically over the years.
Last fall, after we were ghosted by a buyer, Jonathan and I started chatting about a possible acquistion, but the details of what they could offer at the time didn’t quite make sense. However, this time around, the details did start making sense.
Why sell?
So, why did the details start making sense? Why sell at all? Especially after we’ve had some of our best months of growth ever?
Something I started coming to grips with was not only what fulfills me (making things), but also what I’m actually good at.
Over a decade ago, after selling TheAppleBlog to Gigaom and staying on board for a couple of years to keep growing it, I decided to move on. In an email to the company about why I was leaving, Om Malik referred to me as a “starter” and that term has always really resonated with me. I absolutely love starting things (as is made painfully clear in this list of everything I’ve ever started).
There’s just so much creativity that happens in the early phases of anything, whether that’s software or physical products or art or music. It’s the “anything goes” phase of creating that I get so much energy out of and that I haven’t really had in years.
I also realized that the same people who are good at starting companies aren’t always the same people who are good at growing or managing them. The company itself has so much more potential than I have the ability or interest in offering and on top of that, I just wasn’t enjoying myself anymore.
So, that’s why I sold it.
Sure, I could have dug deep and stuck it out another couple of years and figured out some new ways to grow it and maybe had a larger outcome, but did I really want to have spent 10 years of my life building a business analytics software company? No, not really.
There’s obviously nothing wrong with building a software company, but for me, on a personal level, that interest had run its course. I’m simply ready to do other things.
The offer
Swinging back to those details I mentioned at the beginning, let’s breakdown the offer itself.
$4,000,000 in cash. At the time of the offer, it was roughly 2.65x ARR. In the world of tech startups, that sounds tiny, but the reality is, the vast majority of acquisitions are around that point (or lower). You just don’t read about them because they aren’t as flashy as the 10-100x acquistions.
We’re also a company that has purposefully operated right around breakeven for years. So, unless you’re a “strategic acquistion” that throws acquistion multiples out the window, a slow-growth software company without lots of profits and a product that’s technically quite complex is ultimately just not going to get a huge multiple.
But there are some finer points here that ultimately made me perfectly content with that offer.
No time-based or performance-based earnout
This is so key. Most acquisitions require the founder to stay on board for 2-4 years for an “earnout” and many times it’s tied to performance goals that must be hit to get the full payout. The prospect of sticking around for years to actually get the payout was soul-crushing and I just wasn’t interested.
This was the greatest limiting factor on acquistion price. I could absolutely have negotiated a higher purchase price from a different buyer, but me walking away was a non-starter for many.
Everyone on the team stays…or goes
I didn’t want anyone to lose their job due to the acquistion, but I also didn’t want anyone to be required to stay on. In the same way that I wasn’t required to stick around, the team wasn’t either. Though, at this point, everyone other than me will be staying on (with their same compensation as well).
Fixed outcome
Everyone’s got a price and for me, what I’ve really wanted, was to be able for our family to financialy retire. I’m sure I’ll start something in the future, but what I really wanted was to not need to start something…to, practically speaking, never need to work again.
As part of the structure of the deal, Xenon guaranteed I’d take home $3.7m, regardless of what came up during due diligence. This was important because many times, after months of due diligence, things invariably come up that reduce the purchase price: working capital requirements, unpaid PTO, unrecognized revenue, and a thousand other things. And I wasn’t interested in dealing with that.
I wanted stability and I wanted that $3.7m outcome to hit our family’s financial goals. ✅
Investors are writing off their $800,000 investment
In 2014/2015 we received $800,000 in seed money from two investors: General Catalyst and Bessemer. They’ve been great partners and never put any pressure on me to grow at all cost (as is frequently the stigma investors have). They’ve simply made themselves available to help when needed.
I think we all realized a few years ago that Baremetrics wasn’t going to be a “10x our investment” company for them, especially after we started focusing on profitabiliy over growth. Seven years in business without any major inflection points of growth (just slow and steady), makes for a pretty clear longterm outcome that doesn’t involve a rocketship.
I wanted them to at least get their money back, but ultimately, for the $4m purchase price to work, we’d need to ask them to walk on their investment. Asking them to do that isn’t a great feeling and it certainly wouldn’t have been unreasonable for them to just say, “Sorry, we need our money back.”
But they were incredibly gracious and both agreed to write off their investment. General Catalyst’s (who had the lion’s share of that $800k) response showed just how classy they are: “We recognize the work that’s gone into the past 7 years and it sounds like this is a great landing spot for the team. We’re grateful for the opportunity to have supported you along the way.”
Fast close
After spending months in due diligence with our failed acquisition last year, I had no interest in having another long, drawn-out process. We’re closing six weeks after receiving our LOI.
The future of Baremetrics
I’m not going to spit out the usual platitudes that come with an aquistion and say, “Nothing is changing! Everything will be the same forever!” Because the reality is, the new owners will have different opinions on how to run the business and how to build the product. And that’s a good thing.
What I can say is Baremetrics won’t be immediately integrated in to some other product or shut down. Their goal is take where we’ve been heading and put fuel on the fire. They’ll be putting more resources behind making the product better and focusing in on what Baremetrics is so great at.
What’s next for me
I can’t believe it’s been seven years since I was sitting in my home office one evening, frustrated with trying to calculate SaaS metrics, which resulted in me starting Baremetrics. I’ve thought about Baremetrics literally every single day for seven years. That’s over 2,500 days thinking about this thing…and many sleepless nights on top of it.
I don’t have any specific plans for what I’ll be doing next, other than not doing any kind of software for a while. I’m itching to create more tangible things, especially art and music, so I’ll likely put a lot of effort in to exploring those things more. My brain hasn’t been able to freely explore ideas for quite a few years and so for a while I just want to have no obligations and see what happens.
This is all very bittersweet, in the same way that sending a kid off to college is bittersweet. I’m happy with the outcome, and proud of what’s been accomplished, but it’s also the end of an era for me.
I’m incredibly grateful for the dozens of team members who’ve been a part of the company over the years and the thousands of companies who’ve given Baremetrics a try.
To the thousands of companies who’ve used Baremetrics, thank you for all the feedback you’ve given both with messages and with your wallets. I never imagined so many businesses would have benefited from this!
To the dozens of team members, it’s humbling that you chose to spend any amount of your working hours helping me build this little idea. You could have worked anywhere and you chose Baremetrics. That means the world to me as a founder.
I can’t wait to see how Baremetrics grows in the coming years!
Josh Pigford is the Founder of Baremetrics and a serial maker of things. You can find him at @Shpigford & josh@baremetrics.com, where he will almost certainly probably most likely definitely reply to you.