Where Micro-SaaS, Investing & Bootstrapping Converge

I'm designing a new entrepreneurship playbook that looks and smells a lot like real estate development

Welcome to Micro Angel! 👋

I’m Eyal, an independent product maker. I spent the last 10 years of my career building and growing B2C and B2B startups, too often for others.

I’m a bootstrapper at heart and obsessed with the 0 to 1 phase of building something from scratch.

But bootstrapping rhymes with time and pain and patience, things you and I are already short on.

If you’ve already built something from scratch and sold it, you’re likely hard-wired to want to do it again. But that is pretty hardcore. Building something totally new is super hard and jarring.

But it’s no longer the only way.

It’s possible to keep working on the 0 to 1 process of building micro-SaaS products without all of the pain associated with starting from scratch. You can skip right to the fun part.

With as little as $5,000, you could land yourself a starter Micro-SaaS that is beyond launch and ready for iteration.

You can just jump right in and do your thing.

There is a shift in the world of (micro) entrepreneurship. The scales are tipping in favour of the small guys. And the even smaller ones still.

My interest in micro-SaaS products, bootstrapping and investing converges at a place that looks a lot like angel investing with a dose of influence from the real estate development world.

The progress of Andrew Gazdecki from MicroAcquire has paved the way for an entirely new career archetype I will describe as the micro angel.

A micro angel is just an individual with a bias for investing in products that they will independently grow and operate.

The term ‘micro’ probably gives a hint to the size of the transactions. They’re smaller than small. They’re micro. But they don’t have to be.

Beyond buying and working on a single Micro-SaaS, the future also holds a lot of promise for investing at a portfolio scale:

  • microacquire simplifies both sourcing and selling assets

  • products can be acquired for relatively low multiples in cases where revenue is flat or founder interest to sell is high

  • products are default-alive1 which means buy-and-hold nearly guarantees a higher valuation 24 months later

  • products are extremely simple by nature, and thus low maintenance → less reliance on active management

  • products are high-margin and cashflow positive → provide immediate return on investment over fund’s lifetime, and any exit at maturity becomes pure bonus that exponentiates IRR

  • personal cashflow liberates the micro angel to choose between buy-and-hold (4 hour workweek, bank revenue) or buy-and-grow (actively work on the portfolio, cashflow pays self)

There are two approaches:

1) The Operator approach buys and grows: you buy products with the intent to actively work on them and grow ARR over the lifetime of the investment. This assumes you’re buying back most of your time through portfolio cashflow, reinvesting it into growing ARR and driving your return through that ARR multiple; or

2) The Investor approach buys and holds: you buy products with the intent to passively maintain them, collect cashflows and recollect your original investment when you exit the investment. Your return is manifested in the cashflows you perceive, and any additional capital-gain when you exit is a pure bonus. You’re free to work on something else with your time (i.e. big startup idea).

There are probably more approaches and hybrids. It’s an exciting world to explore.

I’m inspired by the work of Andrew Wilkinson and team at Tiny Capital (disclosure: I hold $WE stock). Their value prop has made it possible for founders clearing $500K-$5M/year to exit cleanly, quickly and painlessly.

In an indirectly related world, I also regularly follow what Nick Huber does with his approach to real estate investing. Nick specializes in self-storage for many of the same reasons I want to specialize in micro-SaaS products. They run themselves, are high margin, and command excellent cash-on-cash returns.

There’s a big opportunity for micro angels to build micro-SaaS portfolios producing ARR in the $50k-$500k/year range. These products fall way out of the range of the VC and PE firm world, and they also fall out of the scope of Tiny Capital and other similar funds.

But they’re perfect for micro angels.

This year, I’m going to invest $500k of my own money to build the first micro-angel portfolio of its kind.

My goal is to source and acquire products and grow the portfolio valuation so I can return at least 2x on my investment, 2 years later. While collecting the free cashflows in the meanwhile.

I’m going to share every little detail from designing the fund’s purpose and vision to sourcing, negotiating and closing deals. I expect to release monthly portfolio reports and share all of the revenue details along the way.

In the meantime, tell your friends!

1

‘Default alive vs. default dead’ is a term I picked up a few years ago while reading PG essays, where he describes startups as ‘default-dead' if they have a bunch of churn/burn without the growth to match. In my case, ‘default alive’ simply means that I’m observing positive MRR growth every month, however minute that might be.