Mar 5, 2021Liked by Eyal Toledano

Hi Eyal, So much great information here. Thanks so much. I'm curious about the operations of the SaaS businesses you're buying. The way this post is worded it seems like you were in the trenches working the Shopify/FB ads and customer support. That makes perfect sense in the early days. But how sustainable is that given your intended trajectory with more acquisitions? Do you plan to build a team for each micro-SaaS or one team to manage them all? On a similar note, how do you separate these businesses out financially/legally? Are they all under the same parent or separate entities? Perhaps you could write out a separate post that touches on the answers to my questions. Thanks again, Alex

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Thanks Alex, glad it was thought provoking!

I have a post in draft that explores this. I just had a call with someone who asked me the same exact questions, so it's worth writing about for everyone's benefit.

So I don't leave you high and dry, here's a TLDR:


Shopify/FB Ads + support is early day stuff. The goal is to learn the product, the value prop, what customer care about, and how to answer/eventually automate the support requests that will still end up coming in.

As an example, I got 4 requests to "reset all payouts" for customers. The seller used to do this with a postgresql query direct to the production DB, which is super hardcore. I wrote a tiny function to expose that same query in the admin section, so now I can reset any user's payouts with one click, regardless of where I am.

It makes no sense to have a dependency like live DB queries for support, so my intention is to fix these things so I don't have to do anything much later.

The paid ads stuff is obvious: once figured out, I just buy + refresh ads.

I do not intend to build a team for each micro-SaaS.

The reason I can continue to buy them is because the nature of the products are extremely simple by design, and mature enough that the feature set is not going to change much for the foreseeable future (2 years) minus bugs here and there.

For those reason, I don't need to hire a team.

That is actually what I plan to do for Fund II: a small, permanent in-house operations team that has skin in the fund (equity, carry) and actually operates + grows the portfolio.

I'd venture to that model because I'd be raising an LP fund of, say, $10m to scale the model I'd have proven at the $500k scale, alone.

RE: Legal: Yeah, roll-up into one single entity. The goal at liquidation is selling off the whole portfolio at once in a clean transaction.

IDK how it works in the US (maybe I should bring on a first guest on the newsletter?).

I'm in Canada, so I have a few things to consider related to that:

1. I don't want to double-pay taxes from business tax to then personal income tax.

2. Though it exposes me to liability, I buy these personally up front

3. I roll them up into an LLC equivalent, which is basically a small business corporation wholly owned by an individual

4. In Canada, the federal government offers a lifetime capital gains exemption of about $880k. Provided you are disposing of small business corporation shares after owning them for at least 2 years, you can use the exemption and pay no capital gains. Also, if you were to roll up the gains at the time of exit into a trust, your exemption is tripled up to ~$2.4m.

I'm not a tax advisor at all. And I'm gonna make mistakes, but for now, that's the plan. I'm gonna write it out in more details so tax specialists can correct me :-)

Will explore more in a separate post. Thanks Alex for the inspo

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Hi Eyal, Thanks for the thorough reply. That's helpful. In my experience, at least in the ecom world, the "simple by design" never actually works out to be the case. There are just always things popping up that take up time. But maybe SaaS is different. I will know in a few weeks when we launch! Thanks for the great content. Alex

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I get that. In the ~week since the acquisition, I'd say 90% of the work I put into Reconcilely was "optional." The rest was answering customers on Intercom here and there, which I can conceivably automate once I have the portfolio running (i.e. one support person across the portfolio) so I don't even have to show up

How much I can hold vs. grow is really a factor of whether I'm reaching my net MRR growth every month.

It looks like the majority of the growth for the product came from paid ads, and those ads were off for nearly a month during the acquisition --- leading to mostly flat MRR growth in February

A few nights ago, I managed to get some app store optimization wins and now install growth is back. We'll just have to wait and see, but by and large, there's a lot less showing up needed. It's pretty optional!

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