Rob Walling is no stranger to many of the listeners of this show.
Rob is the host of a brilliant podcast called Startups for the Rest of Us, where he has shared stories of entrepreneurial ingenuity and struggle, and many concepts that we have discussed on this show have origins on that podcast.
He is also the co-founder of a conference called MicroConf, which is a community and conference for bootstrap SaaS founders.
Rob joins us this week to discuss some high-level concepts like the emotional challenges of entrepreneurship, to finer details like finding the right pricing models, and how they decided on the right deal terms for TinySeed companies.
See the full transcript below
Listen to this week’s show and learn:
- Why fast-growing startups are rarely profitable. (5:09)
- What Rob believes are the three most important contributing factors to a successful startup. (25:17)
- How the financial structure of funds and accelerators are laid out. (35:07)
- Why Rob believes pricing is the number one lever you can pull in your business. (49:35)
- What’s in store for the future of TinySeed. (58:49)
Mentioned in the episode:
Before the Exit – Our New Book
Partner With Us
The Dynamite Circle
Tropical MBA on YouTube
Startups for the Rest of Us
Enjoyed this podcast? Check out these:
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Dan & Ian
Rob: Stuff would just come up where I was like, ‘I think we could literally be out of business overnight’. There were just a handful of moments, in the three and a half years that we ran it before we sold it, where I thought this thing might be done.
Dan: I gotta be honest with you. Sometimes these introductions are hard to do. It’s like, there’s so much that happened in today’s conversation. How do I sum it up? I’m gonna take a stab at it right here.
Today’s show is about answering the question: how does one build a high growth, highly profitable business that also serves your lifestyle? And then what are some of the emotional challenges that we’re faced with once we take on that goal?
Now today’s guest is someone who has been pursuing that goal and sharing his journey for over a decade through his podcast ‘Startups For the Rest of Us’, where so many useful and sticky concepts have been originated, for example, the ‘stair step approach’ to entrepreneurship, and he’s also catalogued so many successes and failures that we can all learn from.
It’s worth mentioning also, he’s the co-founder of ‘Microconf’, which is a community and conference for bootstrapped SaaS founders. He is, of course, Rob Walling.
As many of you know, Rob had an amazing exit with his last startup ‘Drip’ a while back. And his new baby is the SaaS fund and accelerator designed for early stage SaaS startups called ‘Tiny Seed’. And in fact, they’re raising a second fund right now. So if you’re looking to do something interesting with your portfolio and invest in a whole crew of exciting early stage set SaaS startups, check out ‘Tiny Seed’ dot com slash invest.
Now, I’ve been reaching out to Rob a lot this year. Just for advice. I’m going through a lot of entrepreneurial challenges myself. He’s someone I look to as a sane and experienced voice.
We dig into everything from high level stuff like the emotional challenges and grind of entrepreneurship to details like finding the right pricing models, and even finding the right deal terms for ‘Tiny Seed’ companies, which was a big challenge for Rob even though he spent a large part of his life focused on building software companies.
What a pleasure to speak with Rob today. His thoughtful, sane answers to what are ultimately extremely challenging situations and questions always inspire me. I hope they do for you too. So enough of the preamble, let’s get into it.
Dan: We’re here to talk about ‘Tiny Seed’, but I was wondering if you could give us some context with your last startup, ‘Drip’. Let us know the overview of the story there.
Rob: Sure, so ‘Drip’ is an email service provider. So it competed with ‘MailChimp’ and you know ‘Aweber’ at one point. And we eventually added automations to it as that whole landscape shifted, and so we became a competitor with ‘Infusionsoft’ and ‘Marketo’. And over the course of … it was from about 2013 to 2015. We got a lot of traction in that kind of entrepreneurial space and then started in the maybe the blogger and the internet marketing space. And we got enough traction that we started getting acquisition offers, and we had bootstrapped the business to, you know, seven figures in annual revenue.
And so, during this time, my co-founder and I started thinking like, should we raise a small angel round because we were profitable. We were growing, but cash was an issue for us, you know. And so we started thinking about angel. But as these acquisition offers start coming in, or inquiries start coming in, you have conversations and it’s like, ‘Wait a minute, I can sell this for enough money that I don’t have to work again’, that starts to become appealing at a certain point. And while that wasn’t really on my radar before, then we eventually decided to sell it in 2016. It was acquired by ‘LeadPages’. I’m sure some folks in your audience may know. And then ‘LeadPages’ essentially became ‘Drip’. That’s the business now all the funding and stuff goes into ‘Drip’, and they sold ‘LeadPages’ off that actual product to private equity a few months ago.
Dan: And so it’s fair to say a life changing exit. When you’re at a seven figure clip, what were the cash concerns?
Rob: Yeah, it’s fascinating man. Because when I was doing small Software as a Service apps in that 10,20,30K a month range, I always imagined when I got to 100 k a month or 200K a month that there would just be cash everywhere, you know that it would just be pouring out of the walls. And it was the opposite.
But the reason it was, is that it was a fast growing business. And this is what I realized: that fast growing startups are rarely profitable. And that’s why the whole venture capital industry really exists is that growth takes money, it takes people and when you’re adding 5% 10% 20% of revenue every month, you need more developers, you need more support, your server bill goes up. I mean, it became a non-trivial amount of money each month, we were paying debt to Amazon Web Services.
And so that really was it. I mean, the biggest cost was people. We could have hampered growth, just eased off a little bit, grown slower and taken money out of the business, that would have been a totally viable thing and it’s something, if that’s your jam, then you should do it. But for me, I had never written a rocket ship quite like that. And I wanted to see where we could take it. And so we’d grow five or 10k of MRR and a month, monthly recurring revenue. And it’s like, we need another developer because there are 300, 400 different email service providers, and there was so much competition, that we needed to move faster just to keep up. That became the treadmill of you know, we ran profitable, or like slightly profitable or breakeven, you know, so we’d become profitable and then and then wouldn’t be a month or two later.
And that was a thing and we could have run that. Could we have grown that to a $5-10 million business maybe more? Absolutely. At a certain point, it just, you know, it became ‘Hey, there. I’m expecting a recession soon’, which didn’t happen till years later. There’s a lot of competition. There’s all these factors that come into play: how long does this business last and how long am I willing to pedal to the metal, which is really what I was doing at the time, 2015 was a very hard year for me just in terms of burnout and all that.
And you start to ask yourself, you know, what would it feel like to sell this business? Is that a good thing? And I think it’s a different process for everyone. And actually, you know, I love your and Ian’s book ‘Before the Exit’, which I’ve read a couple times, because of the thought experiments in there. Well, I sold my company before I read it. After you know, after I sold, you launched the book, and I read it and I thought, ‘Man, this would have been helpful for me. I’ve never had a day where I regretted selling ‘Drip’, literally not one. But I think that that the lessons in your book can certainly help founders who are thinking about it,
Dan: My book never achieved product market fit. It only resonates with people who’ve already sold, like you have to be through it to get a sense for the importance of it. But you know, it’s interesting with ‘Drip’, I kind of had the story in my mind that you’d chosen this niche and this business, because like it was sort of backfilling the story, like, ‘Rob was going for this big exit, he was looking to change his life. And he chose right and well done’. But I recently listened back to some episodes and realised that wasn’t what you necessarily set out to do.
Rob: No, originally, so I had a SaaS app just prior to that called ‘Hittail’, it’s a long tail SEO keyword tool. And that was doing between about 20 let’s say about 25 grand a month in revenue, and almost all that was profit. It was like me and one contractor, so it was like 80 or 90% net margin. And that was fun, but it was boring and I tried to grow it and couldn’t and it plateaued and you know, it was great, but I said ‘Hey, I have all this cash coming in’. And I don’t need certainly didn’t need that much to live. What else should I do with it? So I’m stacking it in his bank account, you know, and we think similarly about this. It’s like, ‘I could invest in the stock market or I could invest in myself’. You know, and that became: “I’m going to Angel invest in myself, I’m going to self fund in the next lifestyle business”, though, that was the goal was just to build something, I wanted to do something that was like five or 10 times bigger.
So I did want to get to, you know, 100K, 300K a month for the experience and maybe prove to myself I could do it. But I didn’t go into it thinking, ‘I’m gonna build and sell’. I really did think, ‘Let’s build this great business. Let’s make it profitable. Let’s have fun while doing it’.
There was some of that there was also a lot of, there’s a lot of grind to it. You know, and I, as much as I’m an operator, I definitely enjoy talking about running businesses. I think that actually running them, you know, day to day. I love being at that, that higher level, where almost in retrospect, you know, you think back what could I have done differently, but it’s like, if I’d hired an operating officer of some kind to handle the day to day. I still wanted to be in product and I wanted to be CEO in the visionary with my co founder. But I was just doing all the nuts and bolts, you know, and it became a recipe for burnout.
Dan: Was there a moment when there was a fork in the road when you were like, ‘Hey, this isn’t what I set out to do, but I’m gonna take this ride’. Was there an indication or do you just find yourself on the roller coaster?
Rob: There was a point where it was still looking to be a really nice kind of smaller, slow growing lifestyle business. And I don’t say that pejoratively, ‘lifestyle businesses’ are amazing, right throws off cash sportswear lifestyle. But what we realised is we had people using it and they were saying ‘Look’, knowledgeable entrepreneurs using the product saying ‘Infusionsoft is automation, right?’ It’s email plus ability to add tags and do all this automation stuff. And they’re 300 a month and up and it’s like two grand to get started. No one else has automation’. It was Ontraport they were 300 a month and up and Marketo Part and these things were two grand a month and up. They’re like – you are now close enough to features comparable to ‘MailChimp’ or ‘Aweber’, or whatever. If you add an automation, you can either raise prices or you can split this gap and you can be this innovative solution that’s in between a ‘MailChimp’ and Infusionsoft and Derek and I resisted that for months.
Dan: And Derek’s your co-founder.
Rob: Derek’s my co-founder. Yeah. And I told him, ‘I don’t want to do that. I don’t want to get into that space. Do you realise what that will require of us?’ We will have to build fast, we will have to do enterprise sales, but it’s just gonna have to get
Dan: A bell in your office. Right?
Rob: That’s right. Oh, ding, ding, ding. It’s all the things, we got to raise prices, it’s a playbook. It’s a SaaS playbook. But I was like, I didn’t really set out to do that. And then, after literally a month or two of just mulling it over and thinking, I said, ‘Derek, I think I think we need to do this man. I think there’s a lot of opportunity here’. And that was the moment where I was like, Okay, now was 2014. So it’s about, you know, a year, year and a half before really the acquisition offers started coming in. But once we started building automations, that was the roller, it was the rocket ship roller coaster where we weren’t getting off
Dan: I’m curious about the sources of entrepreneurial stress for you, and that we want to talk about ‘Tiny Seed’ and the idea that so many of us, at the end of the day, would choose to do a podcast or to be a professor at a university or to choose to be an investor or run a fund, in part because it gets us away from this source of stress we feel as entrepreneurs. What is that stress? How would you describe it?
Rob: So for me, especially during ‘Drip’, one piece of it was – I was taking on every task that had to be done that wasn’t done by a developer or like a salesperson or support. I was just this big bucket of tasks. And I didn’t like it, I was capable. But you do that for a long time and you don’t like your job. So that was stressful to me. The lack of funding, I really wished we’d had some money, more than just what I was putting into it from the Hittail revenue.
I hadn’t run a business before where having more money would have alleviated stress and helped us grow faster. In prior businesses, I’d say, ‘Why would I raise funding? How would I grow this faster with $100,000, $300,000?’ The moment we started on the rocket ship, I was ‘Like, man, I could really use half a million bucks right now, because I could hire two people, I could pay the AWS bill and not have to shut servers down on the weekends. I could just feel better’.
And the third one was a big one for me. And it’s this existential dilemma of – I have an asset that is worth millions and millions of dollars, and I can’t get any cash out of it. And I’m way over exposed to this single point of failure, completely under-diversified and, you know, by the time we were approaching selling I had sold all my other products. The only thing I had was, you know, ‘Start-ups For the Rest of Us’, the podcast, and ‘Microconf’.
But I had sold ‘Hittail’, I had sold five other apps. I was 15 years of entrepreneurial career, every chip was in ‘Drip’. And I would wake up every morning thinking, ‘Oh, God, is this the day that the Russian spammers’ which happened? Sunday night, Russian spammers at two in the morning, our time starts spamming through our system, our IPS get blacklisted. And suddenly none of our emails are being delivered.
And I thought, ‘Well, I guess we’ve had a good run’. And kind of like, ‘I don’t know what to do here’. And of course, we fixed that. But you know, then a month later, the server goes down and we’re down for this and that and emails. And stuff would just come up where I was like, ‘I think we could literally be out of business overnight’. There were just a handful of moments in the three and a half years that we ran it before we sold it where I thought, ‘This thing might be done. I think we’ve had a good run’, and I am too much of a stress bucket, too. To be able to deal with that anxiety, you know,
Dan: How much of it is appropriate?
Rob: Man, at the time, it felt so real. And in retrospect, so much of it, I think was in my head, especially the existential piece. Whether there was a recession, whether our servers did go down, all the stuff that happened, we just figured it out. Like, we’re entrepreneurs, right? Like, that’s what we do. We solve hard problems with creative solutions that, when they happen, you think, ‘I’m never going to be able to solve this’, that’s my first reaction. And then I step back and say, ‘Well, that’s not gonna solve it. So let’s get in front of a whiteboard. And you do and you figure it out’. And it may not be optimal. And you may not keep growing as fast, or you may not whatever, but the odds of a SaaS app that’s doing millions of dollars in revenue suddenly going literally to zero, are very, very small. And yet, those are the things I was thinking about. So to your point, I think I was a lot ‘in my head’. I regret that actually. Because I had a tough year in 2015. It was tough on me. It was tough on my family, because I didn’t work that much, that many hours. But mentally, I was always thinking and worried. And that takes a toll on you.
Dan: Yeah, I can absolutely relate to that. How important is fun to the process?.
Rob: It’s super important. And in fact, the first year of ‘Drip’ was just Derek and I, he was writing the code. I was doing pre sales and getting marketing stuff ready. And it was a blast. And he would come over to my house in Fresno, California had this koi pond and we’d sit out by it and he would code and I’d write marketing. You know, it’s the dream, right? Two dudes laptop like looking at some koi. It’s like: this is business like pinch ourselves. Like we’re building a company here.
And then in the next year there were some ups and downs where it’s like, ‘Oh, we didn’t find product market fit’, and we launched but it was like we couldn’t get traction and that was it. There were hard couple months, but then we got it with automations. And so there were ups and downs there. Overall, like, I think fun is super important, man, at least for me, if you’re gonna do this, if you’re gonna play long ball, you know, to use your term, like if you’re playing long ball, you have to enjoy what you’re doing if you’re going to build this, from like launch to exit was three and a half years I believe, which is short, right? But even that that’s a lot of your life.
Dan: It’s A lot of your life
Rob: Yep. It’s a lot of years to where you can run yourself down.
Dan: And you’ve had an opportunity by running a fund and I’m gonna ask you in a minute about what that is exactly, because I don’t fully understand these things until you explain them to me. But the question is – you had a life changing outcome. I don’t know if we can, how we might say the level of your exit, if you want to share that, in any approximation, would be cool.
But I guess the question is, if you were to run it back, like multiple times for people in that position on, say, the final step of the stair, now you’re on the next stair step, I guess, which is the podium.
Rob: Whole other blog post.
Dan: What are the chances that the life changing exit comes from that sort of genesis story versus what are the other outcomes that have high probabilities?
Rob: That’s actually a super interesting question, I think to your first part, how big was the exit? Obviously, I can’t talk about numbers due to NDA and stuff. I will say that I differentiate between the term ‘life changing’ and, like ‘sunset money’ or FSU money, right? Like life changing, I had a conversation with a podcast interviewer the other day, and he said, You know, when you have 10 grand in the bank, a quarter million dollars is life changing. That’s a life changing amount of money. And he’s right, he’s right. So I sold ‘Hittail’, just about a year and a half before ‘Drip’. And it was in that you know, that, I’ll say low to mid six figure range for that. That was absolutely life changing to me at the time. I had this huge wave of relief of like, ‘I can take years off, you know, and I can fund my own next business my own my own’, versus the term people typically use FSU money, but I just I don’t know why that always just rubbed me the wrong way, it sounds negative. So I’ve always said like sunset money, right?
I have enough money that I can ride off into the sunset, meaning I never have to work again. And that’s some of it, I was the sunset money. That’s what I needed. And that’s actually, when we started talking about the possibility of selling. One thing I said to myself is, ‘I will not sell this unless it’s for that much money’. You know, it’s this specific amount that I had in mind based on my current assets. And I’m a pretty good investor and all this stuff. Like, I know that I can live forever on that. And that’s what I needed to do it.
Dan: This is a lesson I pulled from Jason Cohen. I feel like that is perhaps the single most important thing to consider when selling your business.
Rob: Yeah, and you put that in your book, I remember. I think it’s super important because it’s all hard. But the really, really hard part is getting from zero to some income, zero to 10K, zero to 50k as much as 50K to you know, 500K feels hard. It’s so much more predictable, there’s so many more levers you can pull. And so getting that initial start is brutal.
I think back to the original question of like, ‘Alright, so there’s someone on the stair step and they’re at two, you know, when they’re trying to get to the point where they have this life changing exit’. I think the interesting thing about that as a thought experiment is – I don’t know what the percent is, but what I do know is when I acquired ‘Hittail’, for like, 30,000 bucks, and it was doing about 1500 a month, and I didn’t know I thought I might be able to make it a seven figure business, I just didn’t know, you know. SEO is big, forget I could do it. I cranked on it and I could never get it above about 30 is where it plateaued.
That but that, in theory, could have been my life changing exit, it would have been, you know, four or five years earlier, but it wasn’t. But what it did was it gave me a lot more experience. It gave me more funding that I then used to fund ‘Drip’ So even though it was a SaaS app, it was just another step on the stairs. And then starting ‘Drip’, you know, ‘Drip’ maybe wouldn’t have been life changing for me, there’s a possibility right that we just never would have done it. But then I would have probably used it to parlay into the next one. And eventually, I think I think what happened, you know,
That’s the thing is, I don’t think any individual effort, we can say, ‘Oh, it’s 10% or 20%’. Over the long haul over 10 years or 15 years, I think your chances are really, really high, especially if you start small and you build up and you build the skills and you build the audience and you get some of your own funding and own revenue. And you have the ambition. I mean, there’s that too, right? Some people just don’t care and they don’t necessarily want to go through the pain of building a large business like that. But, all those things in place, it’s kind of hard to imagine that you couldn’t achieve that after how many times at bat did I have, you know, depends on how you count but literally somewhere between 10 and 15 software products I’ve owned, run, bought sold you know, all that stuff so I’m I built myself some I bought and you have that many at bats one of them is I think bound to catch eventually if you’re working hard at it.
Dan: Right like the stair step might not have not always be ascendant, but it’s something about the fact that there’s multiple stairs is an important part of it as well. You don’t really get that same opportunity in a career.
Rob: Yeah, exactly.
Dan: So I think people can hear your hard working, intelligence, experience, but I heard something in there. I heard a facial expression come through the audio. I heard some swag. I heard that you have a kind of a bravado or like a competitive streak, or a self confidence, maybe even some form of arrogance. ‘Like I’m the guy that can do this’. Is that true? Is that like something that you feel when you’re building product or building a business?
Rob: That’s funny that you point that out. You know, no one I don’t think anyone has ever said that I have bravado. I mean, I was like a super nerdy kid growing up and like, frankly a little bit lower self confidence than I probably should have had this one of the reasons a lot of my early efforts were like, these really small things because I was scared of making people mad. I was just scared about everything, man, you know, I just wasn’t raised with the confidence that I think I wished I’d had.
And it took me until my 30s to find what you hear now. You know, I feel like my 20s were almost wasted. Not just not knowing who I was, and not knowing what I wanted and almost hiding my entrepreneurship, or like my entrepreneurial dreams. I had an INC magazine one time at work, I worked at an electrical contractor. And like some people started ragging on me, like, you know, the typical stuff, right? The ‘Oh, you think you’re gonna be an entrepreneur, how you think you’re gonna raise your ..’ you know, and it impacted me tremendously, way more than it should have. I shouldn’t care but those people thought, but I did. And so I kind of hid that from the world for a long time.
And then it was in my 30s that I started developing … I started doing it and it was working. And then I built the confidence that you’re saying, you know, that you’re hearing right now, of like, ‘Oh, I can make this work’. Because before I just didn’t know and it took years and years and years. I’m so jealous when I’ll meet someone at MicroConf or frankly, you know, last DC event I was at and you get these 24/25 year old kids who have the confidence that I do now.
And I’m so envious because I feel like I lost a decade of my entrepreneurial career just putzing around trying to figure out how to do it and how to be confident. And I don’t think confidence trumps everything I really don’t and I think but I think it’s the ability to just believe in yourself that you can do it and to truly believe that and once I realised that, that I could kind of do anything I set my mind to within reason, that was a mindset shift for me that has then lasted. And after that I started doing really hard and I would say more interesting things because I just took bigger risks. Because I said, ‘I think I can pull these off now’.
Dan: There’s a kind of a confidence that sometimes leads to conceptual risks, like you’re willing to cross that barrier of what you’re ‘supposed to do’ to like what you could do. You know, those things, like you see a product or an idea out in the space, and you’re like, ‘I could do that thing that only exists in my mind right now’. Like, I can’t find a book that says I should do it, or even somebody else.
And I wonder if you see any correlation with that kind of confidence. And it can come from a lot of places, right? It could come from like, arrogant, competitive, sort of confidence or you see it with it could come from a nerdy, intelligent, kind of … there’s so many different places confidence can come from, I think, but I’m wondering if you see that kind of confidence in the successful founders that you mentor, is that a component? That you’re looking at the founder themselves and saying, like, is this person someone who makes it happen?
Rob: It depends because I’ve seen people with that confidence who don’t have the work ethic, and they don’t have the skill to pull it off. So they’re overconfident in their abilities. And you almost have to suss that out in a founder, if you’re gonna try it, you know, if you’re gonna fund them or be involved at all. So I don’t think confidence alone is a signal. I think I have this trifecta of hard work, luck and skill that I think are huge contributors. Perhaps, I think the most powerful contributors to success building a startup is that you got to have the work ethic to put in the time. And I never almost never worked more than 40 hours a week. So what I don’t mean is working 90 hour weeks. What I mean is being super focused, showing up every day and getting the right work done and focusing on the right things.
So like there’s hard work, there’s a little bit of luck or a lot of luck depending on whose story it is. And then skill, which is like that experience you build up over time, that you really don’t have early on. Now add confidence. I mean, I hadn’t even considered confidence in that, you know, that list, but if you have hard work, a little bit of luck and skill and add confidence to that you then yes, that is an amazing combination to have in a startup founder.
I will say this though, we have funded with ‘Tiny Seed’, which we’ll talk about a little later. We have funded several founders who I would say are not, they’re not calling their shot, you know, like Babe Ruth and pointing to the homerun pit, like, they are a little bit like, ‘I don’t know what I’m doing’. I don’t know what the number maybe 20 or 30% of the companies we found him are people who have who put in the hard work, and they’ve gotten a little lucky and they have the skill, but they’re still not confident and actually that’s one reason they’re coming to us is they’re like, ‘I feel like I’m in over my head. Can you guys give us advice? We need mentorship, we need this and that’. So there’s a balance there. I don’t think it’s an all or nothing thing. You know, I think you can be successful with either. To be honest, as long as you get the right guidance if you don’t have that, that internal confidence.
Dan: What is the difference between a fund and accelerator?
Rob: A fund is typically, like a venture fund, you’ll hear like Andreessen Horowitz or whatever. They go raise buckets of money. And they then talk to a bunch of entrepreneurs who are trying to raise funding for their startups. And then they write a check. And they aren’t typically on the board, and they give advice, but that’s the extent of it. Like they might see that company or talk to that founder once a month on a phone call, or maybe it’s once a quarter as they get further on. So there’s some support.
But there is definitely less support in a fund than there is in an accelerator. Okay, so the first accelerator was started by Paul Graham. It’s called ‘Y Combinator.’ And in fact, when he started it, I don’t think anyone knew … he called it like ‘Startup School’ or something like that. And he positioned it as a like almost a grad school thing where they invested $6,000 per founder for 7% of the company, it was tremendous low.
Dan: It was very academic.
Rob: It was because he had gotten like, I think, two PhDs. And so he was just in grad school for years and years after he sold his startup. So he modelled it after that. And later on, people started calling accelerators. But basically an accelerator is a fund. And then, there’s a batch of founders that you’re in, and there’s mentors that you’re meeting with on a regular basis. They’re typically the general partners, that’s me and my co founder Einar, we were like giving advice and kind of really coaching people on a weekly or monthly basis, you know, talking to them looking at their metrics, like more, much more involved.
And then there’s the batch aspect of it where YC and most of the accelerators are three months. ‘Tiny Seed’ is a year long. And we do that because SaaS just takes so long, you know, to get going. But you’re in a batch with, whatever 10 other 20 other founders, and you know that that’s, it’s a whole different experience, right? Because you have that communal experience, if you’re in person meeting, or if you’re like … Tiny Seed is a remote accelerator, so we have Slack channels, and then we have calls where people hang out. But basically an accelerator is … it can be earlier stage than most venture funds. But there’s a lot more, you know, resources, handholding, mentorship, advice and involvement.
Dan: And that essentially allows you to get into earlier stage startups. Is that fair to say?
Rob: So ‘Tiny Seed’, our sweet spot investing is between, let’s say, two Ks of monthly revenue and up into, I mean 40/50K of monthly revenue is kind of an outlier, but that’s where we sit. Most venture funds don’t come down that low, but they do have these micro VC funds now. Because that early stage, it’s important if you get in there, you know, folks can then do follow on rounds. So there are venture funds that invest then there are also just a lot of private angel investors that do it. I think that’s the other avenue. You know, when you’re that early, it’s the private thing. But yeah, the accelerator I mean, I’ll put it this way: I think the advantage of the accelerator model over just taking an angel check, because you could probably go to an angel investor to get a higher valuation. I shouldn’t say probably you absolutely can go to a group of angel investors and get a higher valuation than ‘Y Combinator’ or ‘Tiny Seed’ will give you.
But you won’t get any of the other stuff you know you don’t get from the batch, the community, the mentorship, the network, you know, my network is Tiny Seed’s network, right? So when someone needs an intro to ‘name the person’ in SaaS, like I know that person you know, and that’s an advantage that you know that all accelerators, or the good ones, the main brand ones, I think bring over just the just the funding that you would get from an angel.
Dan: So it sounds like your sweet spot is, you know, say me and a partner have a little product we’re selling 5000 bucks a month. It’s we’re on the ride of that ride of our lives. We’re excited about it. Holy shit, what do I do? I need some support here, basically. But the question is, okay, I’m only making $5,000 a month. How do you determine what that company is worth? How do VCs do it? How does ‘Tiny Seed’ do it?
Rob: Yeah, so interesting. The thing with accelerators since they do a big batch is the format has been fixed that, in general, you make the same offer to all the companies. And I know that that sounds weird, like, ‘Wait, you’re making two K versus 20K, you get the same offer’. But in accelerator land, that’s generally how it works. And so Y Combinator’s deal today, I believe, I don’t remember what their deal is. I’ll tell you what ‘Tiny Seed’s deal is today because I know it. It’s 120,000 for the first founder, and then 60,000 per additional founder.
We do have a little bit of leeway that we take between 10 and 12% other companies. So you’ll notice we do take more than ‘Y Combinator’, ‘Y Combinator’ and ‘TechStars’, they take in the 6, 7, 8 percent range. But they also bet on unicorns and if you take their money, you are on the VC track. And that’s the difference right is we say, ‘Hey, you want to grow a business slowly. You want to take out dividends, you want to make it profitable, like you want to or you want to raise VC, you can do any of these things and we’ll back you.’
Venture capitalists value it differently. With them, it really is a market approach, right? If you’re a super hot startup, then it becomes a bidding war. And some of these valuations get ridiculous when someone’s hot, and it’s a second time founder. And people think the idea is good, and they’re literally doing 10K a month. And they’ll get a $20 million valuation because Andreessen Horowitz really wants to get in and that valuation is just insane, right?
I mean, it should be a couple million bucks, tops. And even these valuations are way out of whack with acquisition valuations. If you actually tried to sell that startup, doing 5K a month, you know, it depends on profit, right? But you get 100K Max, right? But funding is different, venture funding is betting on the future, not on the current value. And that’s what accelerators do, too, we are in the venture world.
Dan: You’re basically saying like, ‘Look, you’ve got product market fit, you are in second gear, and here’s what all the gears ahead of you look like and we’re gonna help you get there. And so it’s not really a question of mathematics. It’s more of a question of how much did these founders need to succeed essentially.
Rob: That’s exactly it.
Dan: So, I understand the accelerator part. On the fun side, what do you need in order to have success? Because, you know, the model of a fund that I understand is you take a 20% cut of all of the returns that you generate as the fund manager. And then the 2% is the management fee that you use to send faxes around to all your limited partners and stuff like that?
Rob: Admin assistant to read your email to you.
Dan: Cuban cigars or whatever. One of the things I did Rob, when I was looking into funds and stuff is I started, like doing the math on this, and it just sounds so sexy like, ‘Oh, this is the greatest business model in the world’. And then I realised, ‘Wow, like you really have to have some successful companies come through ‘Tiny Seed’ in order to make any money’. I’m curious about when you started looking at the math. How did you determine that this might actually work out?
Rob: Venture is such an interesting model, because I believe it’s 70% maybe 80% of venture funds, don’t make money, or maybe it doesn’t provide a return better than the S&P. So it really is this 80/20 game.
And so actually to correct one thing you said 20% of all the profits. Yeah, I guess once the fund is paid back. So if you have a $5 million fund, then yeah, the companies either have to throw off dividends or have exits that put 5 million back to the partners you know, the investors for you take any money out and then it’s the profit. Yeah, you took 20% of that. And typically that 2% management fee. From what I understand, I guess if you have a massive fund, this isn’t the case but when you have, especially even you know, you think of a $20 million, $50 million fund 2% on that is about enough to get an office in the Silicon Valley and hire a couple of people and that’s it.
So most funds run at breakeven on that management fee. So like our first fund is four and a half million, we’ve fully invested that. Two percent only 90 grand a year. I mean, that doesn’t even pay a fraction of what I was making in my last year at my last job, much less my co-founder and, you know, programme manager who’s running ‘Tiny Seed’.
So as an accelerator, we made a little bit of adjustments to that model in which we, you know, take more management fees upfront, and then kind of decrease them over time, so that it’s the same amount over the course of several years. But to your real question, how do you even know if this gonna work? What we did, we did a tonne of modelling. So Einar Vollset is my co founder, and he has a PhD in computer science. He taught at Cornell and he’s got a data scientist focus.
So you can imagine the spreadsheets that he was writing to model this and that’s what it is – it’s looking at his, we got historical anonymized data for a bunch of SaaS apps. I looked at all my investments that I’ve done to date, my angel investments. We modelled out a bunch of terms, because that was the other thing, it depends on what you invest at, right? If you invest at a $10 million valuation on all these companies versus a $1 million valuation, that changes a huge amount, you know, and if they can buy back equity versus not, there’s all these things that you can tweak.
And so we were trying to find terms that made the model work, but that also, were fair to the founders. And eventually we landed on just straight equity because it’s just so simple and proven. But, that’s how we did it. I’ll tell you what, it’s easy to find terms that favour the investors too much, and that only desperate founders will take. And it’s easy to find terms that favour the founders too much. And then it’s not a sustainable fund because you won’t get investors to put money in. Just like with building a product, it’s how do you find product market fit two sided marketplace? You know, how do you find pricing? How do you find terms that work for both parties?
Dan: Well, it sounds like you’ve come to a kind of simplicity on the fun side with a more traditional setup that’s built to be sustainable for your investors. And then on the accelerator side, you’re trying to provide enough value to the founders with the group with .. I’m going to get into pricing a little bit here in a minute … but with the sorts of networking and information that you’re providing them that it can be a win win on both sides. Whereas I’m seeing a lot of Kumbaya stuff come out that I’m running numbers on. And I’m saying, ‘Well, there’s got to be another story here that I don’t know about’. If everybody just like, starts a nice little business, it’s in your fund. Your fund is f-ed, basically.
Rob: Yep. You won’t raise fund, either. That’s right. I think the Kumbaya as you’re calling it is good marketing. I do believe that at ‘Tiny Seed’, we’re founder aligned. I do think we are trying to think differently than a lot of normal VCs, we are allowing weaving Tiny Seed we’re allowing, you know, LLCs and C corps and in any state, right when you get venture capital, you have to convert to a Delaware C Corp end of story. Yeah. And we think there should be more, you know, all that. So, there are ways to be, you know, founder friendly, but you’re right, you take it too far, you only raise that one fund, you invest it, and then it’s done. And what, what good is that? It is like building a product or I’m going to build this cat furniture and I’m going to sell it below cost, man, your customers love it. And then you go out of business six months later, you know, and that’s the trade off that I’m not sure people realise when they hear about, you know, how to construct an accelerator or a venture fund.
Dan: It seems like you guys have really emerged as sort of the place to go in this space, especially in your second round of applications, based on what I’ve been seeing in the marketplace. What have you guys done that’s managed to separate you from the other funds in the sort of like early SaaS product market fit space?
Rob: That’s a really good, really good way to think about it. And it has been deliberate in essence, right? We’ve doubled down on SaaS specifically. And so I don’t know of another, you know, non VC like founder friendly fund, founder first fund, whatever you want to couch us at that is focused on SaaS, and has like the mentor list, right? That’s a big thing. I mean, you look at Jason Fried and DHH. You look at Rand Fishkin from ‘Moz’ and Hiten Shah, you know, just the the laundry list of like, SaaS mentors and that, of course, comes from doing what you and Ian have been doing for more than a decade, which is just being out there, having a podcast, having a conference and just knowing, you know, knowing the people that they want to, they want to help out.
So it’s the mentor list. It’s the positioning of, ‘Hey, we are the place for SaaS’. In addition, man, like we’ve tried to keep our terms really simple and really understandable. And if you read them, it says, ‘We’re gonna give you this much money for this much equity. If you want to take out dividends, then, you know, we agree on a salary cap basically, because, you know, if you have someone paying themself half a million dollars a year, then not taking dividends out. That’s not fair. Right? So we agree on a salary cap of a software engineer in your city, and that’s your cap on anything you take over that is a dividend’. And that’s it. It’s like four lines.
Whereas a lot of the other innovative models when you read through them, it’s like massive ‘if then else’ statements and if this happens, then this happens and that, but if you do this before you sell and then you can buy back and then you … this and that. And frankly, we have had founders, multiple founders sign up with tiny seed who got offers from other non, you know, the other alt VC, alternative VC, who said they just couldn’t get comfortable with the terms because they really didn’t understand them. And so I think that’s another way where certain people really want to be able to buy back equity and other people really want just simple, straightforward terms. And that’s, you know, that’s another differentiator in essence.
Dan: It does seem like a lot of the Kumbaya models that are coming out – are modelling rather than funds acknowledging the realities of high growth companies just saying, ‘No, let’s be business partners and best friends. And we’ll, we’ll run this company forever into the sunset’, and maybe a more traditional model acknowledges reality that like, ‘Hey, we’re going to run this business for two and a half years and if it doesn’t work out, we’re going to start another one. We’re gonna go to a marketplace online, sell the thing, and we’re gonna start with a better idea or you know’.
Rob: And be done. Yeah, I think there is a real danger with .. danger is not the right word. But there’s always when there’s a shift like this, you know, because really, it’s just been, it was venture capital for decades and decades, and then angel investors and accelerators became a thing like 2005 to 2010. And now there’s this shift to the ‘Tiny Seeds’, and you know, the other folks in the space. And there’s always a bit of tumult when that happens, right? Because as people are just trying to figure out, how should we do this? And, you know, what are the best terms and early VC terms in the 90s were really awful. And they played all kinds of tricks, and they put all kinds of stuff in the terms. I don’t know if early angels were like that or not, because I wasn’t around that space then. But, again, I don’t think most people are doing it on purpose. But I do think that we need to be aware of what is marketing and what is reality.
Dan: I think some of our audience would be surprised at how multiples are determined in the selling of SaaS companies. I one time met a guy who .. really cool guy, sold his business for a lot of money, big boat money, young guy and, and I dug in a little bit more, we got along and I was surprised to find out about the size of his business in terms of annual revenue. And I thought, ‘Wow, they’ve surely paid a lot of money for that business’. So can you give me a sense for how companies value SaaS companies differently than, say, an e commerce company or services business?
Rob: The interesting thing with SaaS and we’re talking acquisition multiples, this is where someone writes you a check, you take the money and then you walk away or maybe you have an earn out, but like money goes in your pocket, right? It’s not fundraising anymore.
There’s big money and small money, right? The big money comes typically when a strategic investor wants to buy you, so it’s someone Like ‘MailChimp’ wants to buy this email programme that’s going to plug into something else or ‘LeadPages’ wants to buy email software that’s gonna latch in.Or even, like ‘Salesforce’ wants to buy an accompanying sales tool like that’s when the value is highest.
And those are almost without exception, it’s just a multiple of your top line revenue. And it’s typically forward looking revenue. So literally, if you, let’s say you’re at 80K one month and 90K the next and 100K in January, you would take 100K, and you’re just expecting you’re going to continue to grow because that’s kind of how SaaS works. And you multiply it by 12. So you don’t look back, you look forward. So you have 1.2 million, then you just multiply .. it doesn’t matter if you’re profitable. They just multiply that by something and that number depends on how fast you’re growing and where you are.
Once you get above about a million in ARR, you should be able to get at least two to three times, you should be able to get to 3 million for it, if you’re going super fast. I have heard of more than one, right around 1 million to one and a half million dollar arr, our business selling for five or 6 million. So you’re just starting to talk four times multiple. When you get up to, you know, the 10-20 million range. You’re, you’re certainly, I wouldn’t take less than four and I’d be looking for five, six, probably reasonable multiple.
Dan: Of revenue.
Rob: It’s insane, it’s crazy.
Dan: This blows my mind because, again, when you go to the traditional M+A space, you’re looking at, oh, ‘Man, I gotta back my personal expenses out of this business to make it look more profitable. I’m getting three years of my salary forwarded to me basically’. Well, the question follows. ‘Why shouldn’t everybody just start a SaaS business?’
Rob: A lot of people are. That is one of the reasons that SaaS, it’s so attractive, right? It’s this recurring revenue that if you can build it into a lifestyle it’s really solid, because sales don’t drop 80%. When the recession hits, they just slowly slowly decline. But the other reason is, obviously, these sales multiples. I think it’s hard to start a SaaS business. It’s quite expensive and it’s quite competitive these days. You can still bootstrap one. But if you’re not a software developer, it’s pretty damn hard to bootstrap one. There are avenues I could talk about, like no code and this and that there are ways to build an MVP, but the odds are stacked against you at that point, if you don’t have a developer co-founder.
Dan: I would say from my experience, one of the hard routes about going like no code, or if you’re kind of like doing it on the back end with spreadsheets and ‘Zapier’ and all that kind of stuff, it’s hard to know when to pull the trigger and that trigger is a big trigger anyway. ‘Cool, I’m selling 5-10 thousand dollars worth a month worth this thing. The products are gonna cost 150 grand to build’, and that’s not even, you know, the end game.
Rob: That’s the hard part. If you need to hire developers to build a SaaS app and to do it well, there’s a lot more money involved than I think most people realise. And that is why a lot of the SaaS apps you’ll see typically have one, not all the time, I mean maybe it’s 80%, if I were to guess 85% are have a at least one developer, co founder who is writing the code because then it’s free, quote, unquote, it’s there nights and weekends, which has its own its own struggles, but at least then you can spend six months or a year and get it out the door without dropping 10, 20, 30 K,
Dan: Right. I mean, a lot of people will ask the question over the years, it’s, you know, ‘How do I find a technical co-founder because I want to sell my business for seven times revenue?’ And I mean, the answer might be to ‘stair step’ yourself into a profitable business that can afford to purchase tools?
Rob: That’s what I would do today, I would do that or I would start a productized service, or I would consider buying a business. There are so many more options today than existed five or 10 years ago, you know, concepts like stair stepping and no code. But also, like I said, productized consulting and you know, there’s a bunch of different ways to get there.
Dan: And, if you can cashflow it, then you can prove to a technical person that their time won’t be wasted essentially, and that you have interesting problems worth working on.
Rob: Yes, or you have you build a customer base slash audience and you find out, ‘Oh, they really need this thing that no one else sees, because I have first hand exposure to them’, you can validate the idea. Going to a technical co founder and saying, ‘Hey, come be part of this and spend six months here nights and weekends writing this code’. If I were them, you should say, ‘What have you done to validate this? What are you bringing to the table?’ Because just adding the idea is nothing, right? It’s like, well, ‘I’m a salesperson, and I have 20 contacts in this space’, or ‘I’m a really good growth marketer, and here’s examples of me driving 10,000 uniques a month to another app’, or whatever, you know, you have to bring something tangible because this person is bringing years of development experience.
Dan: Right, if you’re if your pitch to a developer is still, ‘It’s like this product mixed with this product’, then forget it.
Rob: It’s tough. Yeah, you just can’t.
Dan: Rob, I’m gonna throw a sports radio gag at you. It’s like, you know, someone’s coming on your show, someone important Rob Walling is coming on the show. So you go talk about him behind his back to all the other people that mutually know him and say, ‘Hey, Rob’s coming on the show, what should I ask him about? Dig up dirt on them. And so the dirt on you is this. ‘This guy, you got to ask him about pricing, he feels that, you know, pricing is where all the action is’. I’m curious if you could pull back the curtain a little bit on that and talk about why this is such an important concept for founders to understand.
Rob: Well, yeah, I mean, we go through, like five or six things that are just critical, critical pieces of knowledge. It’s like pricing, sales, just how to do sales, how to think about sales, lead generation, hiring, funnels, all that stuff. But pricing is the number one lever of any business right and especially with the SaaS App..
Rob: Well because, what do I have to do, there’s only three ways to make more money from your business. One is to drive more leads, it’s to drive more customers. The second is to charge those customers more for the same thing. And the third is to provide add ons that you are also selling like a company complimentary things or in SaaS often, oftentimes its expansion revenue, right, where you get more subscribers in ‘MailChimp’ or ‘Drip’ and suddenly you’re paying them more. So those are the three ways.
The ‘finding new customers’, as you know, it’s time consuming, it takes a tonne of work, it’s expensive. The adding things on is fine. But if you have to build new things to add on, or if people aren’t automatically going up, it’s just a tonne of work. Whereas changing your pricing with a SaaS app means going on to your pricing page, changing that one to two and then going into Stripe and changing the one to two. I’m exaggerating, more than that. But literally if you can do that, I mean one of my first businesses was charging $98 a month for a piece of software as one time downloadable. So 98 bucks. I wasn’t making enough money from it. So from one month to the next I just tripled the pricing to $295, sold the same amount, sold the same number of copies. So the business tripled. No one complained. No one noticed, it was underpriced software.
That’s the kind of stuff we see, not just in ‘Tiny Seed’ but like one example in batch one, we had founders coming in and they were struggling to grow. They had a really good tool. And they were charging, I think their lowest end was $29 or $39 a month and we’re like, ‘Look, you’re doing enterprise sales and you’re selling into, you know, like the more the Architect/Interior Design Space, these firms are willing to pay way more than that, like you’re under priced’. So they were nervous about it. But they doubled their price, minimum to $79 and then moved everything else up. No change in volume. So suddenly their growth is doubling.
Well, they still were too low price. So we said, ‘You know, we think you should double it again. You can always roll it back’. So they doubled again to I think was $149, no change in volume. So then they went up again to, I forget if it’s $200 or$ 249 now, but they started seeing a decrease at that point. So they did see that elasticity, you know, is not forever. But think of doubling or tripling your growth by just changing a number in a spreadsheet, in essence. There’s no bigger level lever than that. I’ve hired amazing employees, amazing team members that do great things. I’ve built great funnels, we’ve done great sales, but like all of that takes more work. And I’m not saying pricing is simple, because it’s always, ‘Oh, am I gonna raise it too high makes me really nervous and what is the right price’. All that’s complicated, but just it has a lever. It’s the number one way to, you know, to be able to grow your business faster.
Dan: Well it also seems like in software sales, it is a unique lever. And perhaps that’s part of the reason why these businesses are so valuable, and then because they can be acquired by adjacent organisations that can then change their lever, because they have that feature set.
Rob: Yeah, I would agree with that, software is much less commoditized then perhaps a lot of physical products where it really is you’re on Amazon and you’re just kind of cost comparing based on reviews and such. And cost is a real factor, especially with consumers, I think is the other thing, right? A lot of the software that we deal with almost exclusively is sold to businesses, and businesses shop on value rather than just price whereas consumers tend to just look at price and be like, ‘Oh my gosh, $20 a month for podcast recording software. I would never pay that.’ whereas a business comes to squad cast ‘SquadCast’ dot FM, it’s one of our you know, one of our batch two investments. And right away we were like, ‘Guys, we know that you’ve heard the feedback, you’re too expensive. That’s because the fly fishing podcast said you were too expensive. But when Rob Walling comes with ‘Startups For the Rest of Us’, or Dan comes with ‘TropicalMBA’ like 50 bucks a month, I would absolutely pay that for high quality, it’s amazing quality, double ender recording all this and that it is just worth that to me. For me it’s somewhere between 50 and 100’. And then there’s, you know Gimlet media or NPR? Well, if they use ‘SquadCast’, they shouldn’t be paying two or three times what you or I would pay, they should be paying thousands and thousands a month, right? There’s just different value there. And that’s where I’m not saying you should never do b2c, right, the consumer stuff, but in software, definitely. You know, businesses are less price sensitive, and they just tend to be in general, better markets.
Dan: One of the interesting things about tweaking pricing and I had a kind of a strategy training session with a team member this morning. And I was finding myself pulling out all these stories about times I changed the price and my assumptions were challenged. And the thing I thought was going to sell it people didn’t even notice but they bought it for another reason.
Some of the most intellectually interesting moments in my life revolve around pricing. Actually, I’m curious. Did you have any moments like that with ‘Tiny Seed’? Like when you started out? You thought a lot about the terms you were stepping into a lot of uncertainty? What are some of the things you worried about that didn’t turn out to be a problem at all? Or on the other hand, did you find ways to deliver value that, you know, you undervalued yourself?
Rob: I love that you’ve equated founder terms to pricing, because that’s exactly how we were thinking about it is – you’re basically going to an end customer and saying, ‘How does this sound for this product?’ We’re going to give you a mentorship and that, but you have to give this up, you’re not paying us money, but you are paying us in equities. The analogy is perfect. And that’s how we thought about it. That was perhaps the most stressful part of starting ‘Tiny Seed’ for me was, we would come up with terms. We looked at them, we said, ‘These are great, the fund will be great’.
And then I would go talk to founders, and I’d do a Skype call and just get like, ‘Nope, why would I do that?’ And it felt terrible to me, I don’t like rejection anyways, I’m a terrible salesperson. But I was just devastated. I remember at one point talking to my wife, Sherry and saying, ‘I just don’t know if we like iterate, iterate, iterate, I kept talking’. And nothing was working. Nothing felt right. I wasn’t proud of anything, you know, that I was bringing to them because they were complex and whatever. And every time I’d get on these calls, I was sweating. And I was like, ‘Oh my gosh, this isn’t gonna work’. And eventually, of course, we found one that worked and that resonated and I shouldn’t doubt so much as founders. We should believe that we can do it but ..
Dan: What was it that you didn’t know?
Rob: I would just get questions about specific terms and why they were there. And I, they had questions that I don’t know, it was hard to answer the questions, but it was also like, some of the questions were just like, ‘Well, they would like, why can’t I give up less equity’? And it’s like, ‘Well, then the models don’t work. Like then the fund doesn’t break even or make any money’. But that’s not the right answer, right. They don’t care, as a founder, so you have to have a better reason than that. And that it was it was questions like that, where it was just kind of agonising to work through and yeah, that was probably the most stressful time.
Dan: It seems like the more complex terms, they’re almost structured, more like loans in a way where you think the founders like in a spreadsheet like thinking about running this business at 1.5 million dollars a year in revenue, which is how the investor needs to think in order to make their models work. But as a founder, I’m kind of thinking like, ‘I got a dream here, I got five grand a month, I’m broke. You tell me I get to squat up with Rob for giving up this equity, that doesn’t mean a whole lot to me right now because it’s all this big risk anyway’. And so it’s like tapping into that emotion of like, ‘I’m ready to do something, I need help. And all I got to give up is something that doesn’t quite exist yet’. Whereas it’s almost like when you get more detailed about it, then you really dig into these realities that are irrealities, that aren’t quite important to you at that moment. Does that make sense? It’s fairly complex.
Rob: It is the loan thing. There are certain people, certain bootstrappers who really don’t want to give up equity. And if they do, they want to be able to get it back at like a predetermined price. And I’ve always viewed that as like a loan, as you said, and it’s less about me being in your corner, are we going to be in the same corner for the long haul because we’re in business together? Or do you really just want some financing that you can kind of pay back at whatever APR it is? And then I keep typically even the loan ones they keep a kicker, right? They keep 1, 2, 3, 4% they do keep a small amount of equity, but it’s less and that was one reason that we decided not to go with that, it didn’t feel right.
You know, if we had raised funding with ‘Drip’, I would have raised equity funding because equity, it just makes sense to me. It’s simple. And everybody knows what they’re getting without after X amount of years, you’re automatically paying off top line revenue back to you almost like a royalty back to pay this loan off and stuff. Again, I’m not saying that’s bad and that is a good fit for founders because obviously people are taking that but I think the founders who jive with ‘Tiny Seed’ think more like I would have.
I think one thing I’ll mention is, you know, we’ve invested in 23 companies from our first fund of ‘Tiny Seed’. And we’re now in the process of raising fund two, so fund one was about four and a half million, and fund two should be many times that and we’re already on pace. I think we raised, you know, four and a half million fund one took like, four months, five months. And I think we raised that in like two weeks, this time, just with momentum and doing it the second time.
So we’re set to really outpace it, but we’ve had a lot of interest in investing. And if you’re an accredited investor, and you’re listening to this, this is a way to get into early stage b2b SaaS, you know, across a broad swath of companies. I mean, I’m imagining our fund will invest in literally, this fund two will invest in hundreds of early stage b2b SaaS companies. So Tiny Seed.com slash invest. If you’re interested in finding out more about what that might look like.
Dan: Tell me what’s the emotional value you provide to LPs? You said you raised this money very quickly. What’s driving those investors?
Rob: A lot of investors are A) really interested in getting into early stage SaaS. And it’s kind of hard to do. But B) they want something like this to exist that is this non venture track. Like we don’t need you to become ‘Uber’ or ‘Facebook’ or ‘Dropbox’. You can literally build a $10, $20, $30 million business. And that’s what most businesses are, these real businesses, selling real products to real customers. And many of our LPs just want that to exist in the world and want to be part of it and believe so strongly that they’ve seen these companies firsthand in your community and mine, that become these massively profitable things at smaller scale without going the venture track that there is absolutely an emotional piece to that. We also have to kind of have the numbers, you know, that makes sense. Otherwise, people would throw it in an index fund, but it has been a trip to see the different motivations.
Dan: It’s cool. You know, a lot of people that get into it for access to information and community, a lot of people are status, because they want to be around people who are doing badass things.
Rob: That those have been reasons as well.
Dan: That’s cool. Well, Rob, thanks for coming by the show. We hope to have you back soon.
Rob: Absolutely man. My pleasure. Thanks, Dan.
Dan: Shout out to Rob for sharing so openly. You know, this conversation just could have easily run twice as long if Rob wouldn’t have had a meeting at the end of this interview, so enjoyable. I got to mention if you want to be a part of the next ‘Tiny Seed’ fund, check it out over at Tiny Seed dot com slash invest.
I think it’s so interesting when when you see a lot of these experienced entrepreneurs that have had incredible exits, they turn around and offer the funding model that they wish they would have had the opportunity to have access to while they were growing what ultimately was a life changing exit for them. And that’s what happened in the case with Rob and ‘Drip’ and now with ‘Tiny Seed’. Again, thanks to Rob for stopping by the show. I hope you could tell how delighted I was to be a part of this conversation, and thanks, of course to ‘Smash Digital’ for sponsoring the show. That’s it for this week. We’ll be back next Thursday morning, as is per usual. Thanks for listening. We’ll see you next week.