The fact this report is being written 5 days into the month of March is a testament to how busy February has been.

Truth be told, I’m reeling.

I finally have an hour to quickly write down some reflections.

Between maintaining and analyzing deal flow, seller hand-off at Reconcile.ly, the launch of the PartnerCRM beta, working on the Batch product and the several calls I took with some of you these last two weeks, things have been exhilarating to say the least.

It’s time to reflect on the last month’s activities and get clarity on the state of the fund, the products in the portfolio, and where we stand relative to the mission.

Every month, I’m going to do my best to compile as much I can about the things that I do for you to digest. That should give us a good basis from which to have a conversation.

Something I realized is that PartnerCRM and Batch would be excellent products in the MicroAngel portfolio and that I’ll be spending most of my free time on them.

That’s why I bought back my time. Since the first fund is a personal fund, I’m going to include them in future reports.

Current fund lifecycle stage:

→ Buying (02/2021 - 05/2021)
Fixing (06/2021 - 07/2021)
Improving (08/2021 - 12/2021)
Growing (01/2022 - 08/2022)
Roll up (09/2022)
Exit (10/2022 - 12/2022)

While I didn’t expect to have deployed all of my funds in February, I’m feeling a little jittery about it.

I’m unlikely to hit my revenue goal in March unless I close all of the other deals I need to.

Thankfully, the deal flow has been superb. I’ve got two deals pending that I’m feeling a little nervous about.

Between the two, I’d be fielding an additional $155k in funds to acquire about $5.25k in MRR. That’s excellent for cashflow.

The problem is that the two products aren’t growing. There’s no net MRR growth and I’d have to actively work to increase the revenue.

Even then, one of the two products is exceedingly simple to the point of having zero additional product potential.

I’m finding that I have to put in some work into new acquisitions anyways, if the 1,000 small things I’ve already done so far for Reconcile.ly are anything to go by.

It’s fine to be putting in some time tinkering to grow the products — I don’t mind working on the portfolio a little more than I should since that’s kind of the point of the cashflow and the reduction in stress.

But there’s still a secondary goal to the fund.

The onus is on me to invest in products today that I can return 2x on in 2 years.

If a product is delivering $3k MRR consistently and you can buy it for $90k or less ($75k in my case), that’s some serious cash-on-cash returns and very respectable cashflow.

However, to return 2x ($150k) on that investment, the product would need to be producing, say, $42k ARR assuming a selling multiple of 3.5x ($150k / $42k), which is only achievable with growth.

Let’s assume you have no growth.

You’d have to make up a ($42k - $36K) $12K ARR gap over the two years.

If there is no net revenue growth, how is this gap being filled?

It’s not, unless I actively influence that outcome. And that’s no longer buy/hold. The product/market-fit rabbit hole is deep af. You will lose yourself in it, and it will consume all of your time.

You can be deliberate about your approach, but you simply do not control the outcomes of your experiments, and have to prepare for the fact Lady Luck might not smile at you.

I already know this. You can’t search for PMF part-time.

That’s the reason I only invest in default-alive products. But now I’m realizing default-alive is not enough if I want to achieve 2x.

They need to be default-growing, with enough projected upside to cover whatever MRR/ARR gap is needed to command the 2x multiple two years later.

Very much on the fence, because despite the fact they are not growing, the support burden is unbelievably low. I’m talking like, 1-2 tickets per month.

But I don’t know if that’s enough peace of mind that I would be willing to sacrifice a 2x return for it. Or specifically, $75k.

I have a signed LOI at $75k for a Micro-SaaS producing $36K ARR and $35K NP, for a really attractive 2.14x buying multiple. But it’s not growing.

I need to consolidate my approach regarding default-alive vs. default-growing and how that’s going to impact the IRR range.

If my model’s IRR output expects that I fill a gap in ARR between the moment of purchase and the moment of exit, then I absolutely need them to be default-growing, otherwise I need a proven one-time playbook I can apply to increase ARR by the required gap in one go.

Like… An AppSumo deal.

Instead, if I can adjust my model so the IRR can be produced in a variety of different ways, then I can give myself the flexibility I need to move into deals like this one where the MRR is decent, the net profit is good but TTM net revenue growth is flat.

Something to consider is that buying a highly profitable, stable SaaS at 2.15x is pretty much a guaranteed 100% return.

How?

If I were to flip the Micro-Saas from one marketplace to the next, I could likely unlock immediate returns from simply selling the product the next month and “exercising my call option”.

I’m not a big fan of this kind of business because it doesn’t create value. Quite the opposite, it dilutes value because it increases the price without a value increase to match.

But the capitalist in me isn’t going to ignore that play for long, and is highly tempted to test it out with the $75k deal. That’s a very playful approach that could yield an asymmetrical result:

Confirm LOI for the product for a low multiple (2.15x)
Approach brokerage with proven PE firm buyers
List the product at a 3.5x asking price, excluding fees
Close at 3.25x through the brokerage, excluding fees
Entry at 2.15x, exit at 3.25x, 0.10x brokerage commission
Walk away with 100% return in 90 days
Don’t touch the product or operate it, ownership transfer only

In that model, you’re taking advantage of arbitrage and taking the responsibility of repackaging the product you’re buying from the initial seller to make the transition easy for the next buyer (that you go seek out through the brokerage).

I’m going to take some time to produce a few more deal reviews, including the open deals I’m currently talking to. Writing those often gives me a new perspective on what to do and why.

I have a bunch of them sitting in my drafts that I’ve started. I’ll try to release more since you seem to love them.

By and large though, taking a decisions on these deals is easy.

If I’m on the fence, the answer is simply no.

Yoda was right. There’s no inbetween.

If your gut says no, say no.

I’ll get to this a little later, but I’ve been flabbergasted by the quality and quantity of the deals I’ve been exposed to.

When I started actively working on finding deals, especially outbound outreach, I made a pact with myself to move quickly and decisively with the funds.

I couldn’t put my finger on whether the deal flow would be good, and beyond that, abundant.

Thankfully, hustling and showing up every day is producing results and I’m confident I’m going to make up for these two deals which are stalled.

I can’t bring myself to sign those APA’s, so I won’t. I want to be investing in products that pass my criteria with a score of at least 85%.

If I had to ballpark, those two deals are probably in the 70% range. They’re good investments, but not great or must-take.

Fund Activity

Funds Deployed: $148.5k (29.7% of funds)
Products: Reconcile.ly
Current MRR: $4.9k (32% to goal)
MRR Growth: 0%
Total Revenue: $5,120

Headlines

Fund Kickoff February 1st, 2021
Conducted 33 Zoom calls with sellers
Spoke to 26 unique sellers
Submitted 12 LOIs, 8 accepted
Disqualified 5 deals in due diligence
Produced 3 APAs, 2 of which are stalled
Closed first acquisition February 28th, 2021 (Reconcile.ly)
Launched MicroAngel newsletter
Started seller hand-off with Reconcile.ly
Initial product marketing experiments

Current Deal Flow

Open Conversations: 18
LOIs submitted: 6
LOIs accepted: 4
In diligence: 4

One of the open conversations I’m having right now is with a startup I’m really, really excited about. It’s a group of guys I immediately connected and identified with, and they gave me the startup bug all over again.

The opportunity to acquire their product would be a game changer for the fund from all perspectives:

It would rip through the MRR requirements like butter
The IRR return would be possible within 12 short months
There is a real potential for a massive outcome

If I can manage to land this deal, I can say with about 80% confidence that I will be holding the product beyond the fund’s lifetime in pursuit of a 10x liquidation event.

That’s a bit of a weird notion to be considering this early on, but it is the type of scenario that, when identified, you pool all of your chips into.

After having been in the game for this long, I’ve built up an internal radar for winning products and concepts. This one is an absolute game-changer with real potential for a mid 7-digit exit.

I told myself I wouldn’t invest more than $500k for the first fund because the idea is to prove out a specific model achieving deliberate returns, in a specific time-frame.

But the way things are going, I may just end up investing more than I expected, and further to that point, spend most of my free time on that product granted the absolute passion I have for the topic and the unbelievable opportunity at hand.

“Be like water” is my mantra, and flexibility is justified provided the total net benefit outweighs that which can be acquired by following the current plan.

For now, I’m competing with 2 very large companies who want to swallow the product. I’m the only one promising them their baby will be safe and taken care of.

That I’ll not only take care of it, but raise it to become the thing they know it has the potential to be.

These types of conversations are incredibly energizing. I spoke to these sellers this morning again and was absolutely pumped for the rest of the day, and that permeated across my work.

I’m excited to see where this particular deal goes, and I’ll know more as of Tuesday. They’re meeting some big names on Monday.

I hope they pick me!

Portfolio Activity

Reconcile.ly

The very first thing I did for Reconcile.ly was to give the Helpdesk some TLC. Updated the header, branded the page, fixed some broken links and updated all of the articles by fixing spelling mistakes and open spaces.

If there’s one place you don’t want to come across as an amateur, it’s when customers are in a bind and looking for information that can solve a problem they’re having (that your product created).

Despite having closed the transaction only a few days ago, I took the time to review hundreds of Intercom conversations to understand where in the lifecycle customers get stuck, if ever.

And I discovered something interesting:

The vast majority of customers who sign up don’t have any issues onboarding at all. The product is extremely straightforward:

Install the app
Connect to Xero
Map which Xero accounts payouts will reconcile to
That’s it!

From there, anytime there’s a payout (Shopify Payments), it will automatically get sent to Xero. Payments through external gateways like Afterpay or PayPal are sent to Xero in real-time too.

I got my development environment set up. It runs pretty neatly and it well-built. I’m not sure about the weird front-end network they use and have literally no idea what the pug templating language is.

Won’t bother touching up any of that since it’s very low ROI stuff.

The first thing I’m going to do in the product is likely perform a Segment integration so I can begin collecting data on how customers use Reconcile.ly.

Next, I’ll probably begin doing some pricing experiments because I’ve realized the cost of ads is going to be an issue if they stay anything close to the current benchmark:

Eyal Toledano @EyalToledano

First install via @Shopify ads came through for @Reconcilely $165 spend 395 impressions 16 clicks (4.1% CTR) @ $10.31 CPC 1 install (6.3% Install Rate) Cost per install: $165 LOL. Okay.

I threw together a super crude Facebook ad campaign aimed at the Oceanic markets, interested in Shopify and Xero.

Since the audience size is in the 500k - 1m sweet spot, I may be able to rely on Facebook as my primary mode of acquisition.

So far, I’m buying clicks for $0.75 which is more than 13x cheaper than what it’s currently costing on Shopify ads.

Here’s the creative I put together in literally 60 seconds:

Something I realized about Shopify’s ads is that the algorithm is not super advanced — my ranking updates instantly based on my bid.

And my listing updates instantly when I modify it, too.

When setting up the first ad, I discovered the suggested bids were ranging between $12.00 - $20.00, which is insane to begin with, but also concerning because the recommended bid for the seller as of last month was only $6.00 - $8.00.

I’m not sure yet if there’s anything fishy going on, but I know there’s no way I’m going to be profitable buying clicks at $12.00 a piece only to charge an average of $17 ARPU. The payback is going to be too extreme and I like my payback on the first month or two.

So I decided to conduct a real-time bidding experiment:

I set my first bid for the main keyword I target to $12.00.

Figured I’d likely secure a first position because the recommended bid is usually higher than the current bid — that’s why it’s recommended to begin with.

Sure enough, after saving my campaign and checking the listings, the app appeared in first position out of a possibility of three.

If bidding the minimum recommended bid results in securing the first position, then I started to wonder how cheaply I might acquire the third position.

On the search results page of the Shopify App Store, the first row of three apps are ads. The first position costs more, but doesn’t necessarily get more clicks or attention.

Maybe by a small margin, but not enough to justify overspending on the bid.

So I set my bid to $6.00 and saved my campaign and… just like that, I appeared in 3rd position. This small exercise saved me 50% on my CPC costs for what is essentially the same level of visibility.

These tiny growth experiments are everywhere waiting to be found and attempted. There are so many small things that can be tried, and I don’t want to overwhelm myself with excitement at all the possibilities.

For that reason, the plan is to build a growth model for Reconcile.ly as soon as the training period and hand-off is complete.

Speaking with a customer yesterday gave me a clear understanding of what the core benefit of the product is and what feature materializes that benefit for customers every day.

Intercom conversations are super rich in customer insight. If you’re a pattern finder like I am, simply soaking up the conversation often leads to new discoveries and ideas.

In realizing the core competency that sets Reconcile.ly apart from its competition, I came up with a new feature.

The idea is to leverage the existing core technology to deliver similar value to a new segment of customers who regularly spend hundreds in bookkeeping every month.

Doing that would expose Reconcile.ly to being added in a high-traffic collection that would effectively secure the linear MRR growth I’m solving for.

Speaking of collections, I’ve noticed that there’s a bookkeeping collection in the Shopify App Store. I’ll need to figure out how to get us in there.

I took some time to adjust the Shopify App Listing itself for some of the important keywords we were failing to rank for.

Made some great strides, securing three Top 3 positions for single-word keywords that are very important to us.

Eyal Toledano @EyalToledano

Late night app store optimization effort for @Reconcilely. I've noticed a few relevant keywords that were losing to competition in the rankings, and the margin of loss was so small. Being in the top 4-5 apps of search results has a big impact.

Eyal Toledano @EyalToledano

I gained significant ranking uplift for three core, high-relevance keywords, which actually subsume the long tail keywords I traded away: Term 1 — Ranked #22 → Ranked #2 Term 2 — Ranked #22 → Ranked #2 Term 3 — Ranked #11 → Ranked #1 Think I made a good trade?

From there, I started to explore and get to know the Admin section used to manage Reconcile.ly users.

It’s a standalone app that exposes some Database queries and tables for me to be able to get customer data easily and process requests.

Something that caught my eye in the back-office is the count of transactions by payment gateway. I found it fascinating to see the number of payment gateways we support and integrate with.

It felt like a wasted opportunity not to mention this on our app listing. Fortunately, there’s a dedicated place to mention integrations such as this one.

The advantage of listing integrations with other apps is that you show up inside of the search results for those apps.

For example, AfterPay is the 5th most popular payment gateway. Reconcile.ly processed 40,274 orders via AfterPay just this month! Why isn’t this information displayed in our listing?

Well, now it is:

As mentioned, this allows us to show up on search results page like Xero, AfterPay and so on:

On the topic of reviews, I started asking happy customers to share their app experience with us on the App Store. I systematically went through every open ticket and if the outcome was positive, I left a closing message (as I closed the ticket) similar to:

Hey, I’m going to close this ticket since it looks like everything is cleared up. While I have you, I’d really appreciate if you shared your experience using Reconcile.ly on the App Store.
It has a huge impact on our ability to grow the business and serve you better.
Thank you so much!

Since most of the app’s users aren’t super technical (sometimes it’s the accountant who has access to the Shopify account), I came up with a way to reduce the friction implied in leaving a review.

To leave a review, a merchant has to visit the app listing page or the reviews page in the app listing page and then click on “Submit a review.”

To cut that last step out, I dug into the markup code of the App Store listing HTML and discovered that I can trigger the review modal by appending #modal-show=ReviewListingModal to the app listing URL and automatically trigger it to open on load. Nice.

I expect to keep improving stuff left-and-right as I see them like this, but my goal is to get a growth roadmap built to get a clear idea of how I’m going to be accomplishing my OKRs at a high level.

With the model, I’ll then write the Segment integration and hook up Mixpanel or Amplitude so I can start benchmarking my efforts against my OKRs and KPIs.

From there, I’ll get started on growth and product experiments.

I need to temper my speed on the operations side.

Despite it being super fun, it eats up a lot of cycles that I need to continue working through my deal flow and ultimately, fielding the rest of my funds.

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Learnings & Adjustments

Okay, I really was not prepared for the sheer volume of deals I’d actually want to make an offer on.

I’m not saying this from the perspective that my investment thesis is so simple that there I have leads coming out of my ass.

I’m drawing the specific competitive advantage that justifies and validates the micro-angel profession:

There are so many great deals, and the rate at which these deals are being listed tells me we are seeing tectonic movements in the greater tech and startup ecosystem.

The very idea of being an indie hacker exists because you either don’t want to or can’t raise funds for your project. You choose, for whatever reason that besets you, to embark on the painful journey on your own.

The vast majority of indie hackers are seriously talented folks.

They are able to build out their stuff because they charge premiums as freelancers. That is proof they are talented.

If they couldn’t secure strong freelance income while they bootstrap, then they’d be forced to 9-5 and moonlighting, which is an even deeper hole to climb out of.

Indie hackers who can embark on the journey and do some willingly want freedom. This is the absolute recurring theme with ever seller I spoke to.

What I found is an international pool of ambitious indie hackers across the spectrum of personal achievement:

Developers having successfully materialized a product, but failed to build a business out of selling it
Developers who build a product with some level of traction and looking for a near 6-digit outcome to move on from the project and reinvest the funds into something else from which to keep growing
Developers who have eventually made the jump to full-time bootstrapping as a result of earning enough income to cover their living costs
Developers who have built strong, profitable businesses and looking to exit to a talented team who can take care of their baby and bring it to the next level

The gamut is wide - I would say maybe 5% of the leads I spoke to were bad. I guess that means I pick well, but honestly, that’s really not the case.

The inventory is just really, really good, and that’s a point of validation for me relative to the fund.

I’m reaching a point where I need to pick between several incredible businesses without enough funds to secure them all.

I couldn’t handle them all either way, but the investor in me is annoyed he can’t take advantage of this abundance.

I appreciate the interest some of you have shown to co-invest, but I’m not ready for that. Fund I’s purpose is to prove this model works. That might happen as early as 6 months from now.

With this overabundance of deals that’s only going to accelerate and the type of individuals who are exiting products at all types of stages, I’m finding that the rules of entrepreneurship as a whole are changing in favor of us smaller guys.

In the past, a bootstrapper would aim for the $10k MRR milestone so they could be in a position to raise capital. They would then embark on a blurry, multi-year odyssey with the ultimate goal of earning an exit event and a life changing amount of money.

By being able to exit their companies so early in the lifecycle, entrepreneurs are giving themselves a new level of liquidity that is radically decreasing the risk of creating a product.

The reason startups have a high failure rate is because they run out of cash. The reason they need cash is to go faster. But then they die because they fail to achieve escape velocity by the time they run out of cash.

With the option of getting out — regardless of the growth rate of the product — the amount of risk involved in creating something from scratch and pursuing your dreams has been reduced to near-zero.

Provided you can successfully materialize a market insight/inefficiency into a product that delivers value, you can, at minimum, sell off the product you’ve built and collect a small 5-digit sum for your time.

There are plenty of micro-angels out there focusing on $10k deals. There are even more deals at that stage because the type of product that is listed for that price is either:

A product that has failed fully to get to market ($0 MRR) but which is technically complete and ready for commercialization
A product that has managed to go to market but not established a flywheel resulting in net MRR growth every month (low/flat MRR)

Obviously, there are many more of those types of businesses than there are businesses that have successfully taken off.

I cannot understate the capital importance of this new reality:

With a number of people exiting small products, you get:

Those same people creating new products with money in their pocket and lived experience which compounds their odds of success, increasing the future total value of the micro-acquisition market
Micro-angels and buyers who succeed in turning around micro-acquisitions into MRR growth successes, also increasing the value of the micro-acquisition market and getting access to funds that they will continue to invest into other acquisitions
Startup composting: The relationships created by this ecosystem is likely to create new co-founding teams made up of like-minded people who now have enough financial freedom to explore more ambitious ideas together

The part that blows my mind is that we have reached a point of near-sustenance and independence at the macro-scale.

The amount of risk that the average indie hacker has to take on to embark on the journey goes way down as the number of micro-angels willing to buy their eventual product — success or not — increases.

That will inevitably lead to more freelancers going indie.

They’ll see a thriving, independent ecosystem of creative technologists that welcomes newbies by its ability to provide liquidity at all stages of the startup lifecycle.

These realizations, along the many things I’ve learned from talking to so many of you, are confirming the suspicions that led me to take on the MicroAngel challenge.

Every day, the movement accelerates.

And there’s benefit for anyone trying to take control over their path without requiring as steep a sacrifice to get started.

In the past, failure rates were high because the odds of reaching a liquidation event like an exit or IPO are quite low — nevermind having to secure this event at an amount your many investors wouldn’t veto, no less.

The lines have been drawn. It’s clear what the differences are between building a tech startup the venture way and the bootstrapped way. It goes beyond capital.

But now there’s an even bigger contrasting element: liquidity.

If you want, you can exit your startup at any stage, whenever you want, and can reliably reach and connect with buyers who can make you an educated offer that you would be happy to take.

You don’t need to aim for an IPO anymore. The only reason you even needed to aim for something like that to achieve a large financial success is because you own a small piece of the equity.

It’s a relief to see the world going in the direction I expected it to. It gives me a lot of confidence that the plans I’m making, though optimistic, have a strong chance of success in a world that looks like the one I’ve described above.

Another, indirectly-related learning has to do with building in public. In the past, I could never consolidate why an individual would put so much effort into self-promotion when that work could go into the product.

As a maker, I do a lot of thinking. That’s an activity.

I will sit down, open my notepad, and think. I take the time to explore thoughts through to the end and make up my mind about stuff, make decisions, and strategize about what’s next.

It’s the act of zooming in and out to get a feel for where on the map you are, and which highway to next use to get to your ultimate destination.

Building in public, I’ve realized, is the simple act of documenting these thoughts in public. It’s less about saying what you’re going to do, and more about what you’re doing.

The act of writing is deeply therapeutic for me as it affords the luxury of commiting thoughts from my mind to the page. That declutters my mind. Like flushing random access memory.

But it wasn’t always like that.

I’ve been a Twitter user for 10 years, and could never be bothered to invest in either building an audience or “connecting with others on social media.”

I had more important shit to do, and it wasn’t going to get done chatting with other people on social media.

The advantage is that I could achieve hyper-focus. Nobody was able to influence me and I made up my own mind the scientific way: I’d come up with hypotheses, try them, and make up my mind for myself.

Obviously, I was wrong.

The disadvantage in this approach is that inevitably, it led to tunnel vision. I developed a fighting style, and my moves became increasingly telegraphed.

As early as 3 weeks ago, I made the call to start sharing more. I started by writing an opinionated piece about how I’m putting my money where my mouth is.

My goal was to find my people.

And I believe we’ve found each other.

It turns out there are many, many other people who believe what I believe and see what I see within the world of startups of bootstrapping.

And I’m excited to continue exploring together.

Until next time!

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MicroAngel State of the Fund: February 2021