MicroAngel State of the Fund: May 2021
Closing Deal #2, sunsetting deal flow and preparing transition from Buying to Fixing. Closing MRR: $5k / $15k (33% to goal)
When I launched the fund and was able to quickly secure the Reconcile.ly acquisition, I felt like the hare.
It was a fast, lucky break and I wondered if I had aimed too low with my goals. But I slapped myself, strapped in, and marched on.
As the next three months progressed, I withdrew out of a growing number of deals and began to feel more like the tortoise.
Despite my best efforts, I agonized forward feeling like I wasn’t advancing fast enough to stay on pace with my buying goals.
My approach was methodical and I consistently showed up to put points on the board, follow my process and let the average take over.
Soon, I started to question if my timeline was too arbitrary, and whether I should be buying assets continuously instead.
After all, why only buy for 4 months? Why not buy, fix, grow and sell all at once?
There’s a reason my goal is to stop buying assets as of today which would represent roughly 4 months since the launch of MicroAngel fund I, and the completion of the Buying stage.
While I unfortunately can’t share any details yet, I’m on the verge of announcing MicroAngel’s second acquisition, its largest yet!
Today, I’m going to retrospect on the month of May and spend some time laying the mental groundwork for my transition from Buying to Fixing, which will be a 60-day project, give or take a few.
While I started decreasing some of the off-topic meetings I have been taking over the past few months in the spirit of meeting new people, I still took the time to explore MicroAngel with friends.
Because I’m pretty burnt out from all of life’s curve balls, I’m likely going to be taking a vacation in July, probably right after my move, which means Fixing will bleed over with Improving, which I’m perfectly OK with considering they share DNA.
All things considered, the month of May was my slowest yet, what with a deliberate deceleration in acquisition prospecting following a successful LOI and a marked focus on the due diligence required to close a deal important to me.
This allowed me to focus on a few pressing personal things. Both my parents and my in-laws are also moving (it’s a seller’s market), creating ripple effects like spending much more time together.
I also celebrated 7 years of marriage with my wonderful wife, and with COVID restrictions finally lifting, we hope to properly celebrate with a family trip before the birth of our second child in September.
There’s been so much happening this year. I’m conscious that my life will get turned upside down again soon, but I’m very much looking forward to stabilizing it shortly thereafter, and freezing any large milestones for a little while so I can focus on business.
Having the flexibility to change my schedule at a moment’s notice continues to justify the fund for a third month straight, where the ability to Hold gives just enough space to make room for Life as it unfolds.
I can press on the accelerator whenever life slows down and take meaningful steps towards building the valuation of the business in a matter that is less haphazard or fragmented due to the shuffle of life.
Most of the work I’ve done on Reconcilely since buying it has been opportunistic.
For example, when support queries come in, I try to turn those into 5-star reviews, which is a small investment that is compounding towards a threshold of meaningful organic customer acquisition.
I take them as they happen, but it costs focus. And it does come with its flaws. I need to write so much more.
There is an implicit failure involved in releasing only one article on the newsletter this month, and I own up to it.
It’s one thing to be NDA-bound, it’s another to fail to communicate.
I’ve found myself creating drafts and deleting them for the first time since launching this newsletter. It’s a testament of both the quality of the content I’d want to read (and therefore write) and the weird writing funk I’ve found myself in.
The resistance seems to be coming from a disdain for fluff.
I would rather not write anything than write just to write.
But that’s probably not the right way about it as it’s akin to a race to the bottom. The quality bar will become impossibly high at some inexorable point of no return.
That’s not a fun place to get to, so I’m going to take a page out of @Julian’s book — his wonderful mental model on the Creative Faucet perfectly explains what must happen.
An interesting piece of feedback I received is to spend some time thinking on paper about how the pieces of holding, fixing and growing should come together relative the portfolio pieces.
It’s kind of weird because I tend to plan on various media: my iPad, a whiteboard, on spreadsheets, in Notion, in my head, and so on. It isn’t clear what is relevant if at all until it all comes together.
But I’ll give it a go. I have much more to say when I do different things as I can report to you my perspective on the journey and my interpretation of the results.
I don’t like talking about what I will do as much as it is doesn’t feel nearly as natural as storytelling what has actually happened.
The good news is that my transition to Fixing creates an avalanche of new thoughts, considerations, risks and opportunities to explore together.
In that regard, the transition starts with a mental retrospective of the my first 4 months as a microangel.
Over the next few posts, I’ll explore what kind of process I should expect to have moving forward as I fix the assets in the portfolio.
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)
Why only buy for 4 months? Why not do things as they come?
I decided to organize my work sequentially because of the implied difficulty in running multiple products across several lifecycle branches.
Focus is ethereal and thus elusive.
It’s hard to create it and harder still to maintain it.
I figure the only way to decrease the riskiest component of the fund, which is focus spread across several projects at once, is to decrease the mental load involved in that spread.
Imagine each project as a Git repository, which would represent the different versions/iterations of the project over time.
Progress over the project is often achieved by branching off of it with some new functionality to be merged with the master branch.
It would be really hard to work on branches that do completely different things, all at the same time, and expect the master branch to advance as quickly as if it were progressing as a result of sequential development of large pieces.
Similarly, it would be very challenging at any one moment to be buying, fixing, growing and selling all at the same time.
These activities are main arterials in the fund and pumping blood through all of them at once is inevitably going to create an energy deficit for the simple reason that I’m alone.
That is the number one risk of this model:
You can work on many projects at once alone, but you’ll begin to lose steam quickly if each project is in a completely different lifecycle stage, which will cause you to context switch every time you work on either product.
The idea is to safeguard as much focus as possible, a critical component considering I’m already trading some away by operating multiple businesses at the same time.
An example of doing this is by maintaining a Backlog of items.
Our brains put 2 and 2 together about various things all day long, and you need a place to store out-of-scope to-dos so you can return to them once you are focusing on that class of activities.
By applying my playbook sequentially, I can batch the work that I do and multiply it based on the number of projects I’m working on.
I can focus on the same type of activities and have multiple businesses benefit from whatever activity I’m completing at once.
I don’t necessarily mean specific activities like creating a piece of functionality for both products — though that could happen I suppose — I mean focusing on one category of activity at a time, so that you brain can be honed in on a singular cog in the business at the marketing, sales, growth or product level, and to utilize your warmed up brain thinking about that activity to the benefit of your other products.
Both Reconcile.ly and the soon-to-be-announced second project would benefit from streamlined customer support. Reconcilely is kind of there, but the other product isn’t.
I spend too much time on the support front-line, which should at this point be handed off to a part-time customer success hire.
When responding to customer support, I don’t have time to be creating/updating additional articles, canned responses and so on, but a time must be reserved for that to happen eventually.
This hire can be brought on to work on both projects, which allows each project to benefit from the work the hire does, while benefiting from cost savings without having to hire full time.
There’s a time and place to be thinking about this stuff, and the purpose of sequencing my fund lifecycle is to expressly make time for all classes of activities, leading to a complete playbook.
Both projects need to execute an SEO strategy.
I ought to complete the Ahrefs work for both at the same time, while my brain is attuned to thinking about search optimization.
And I’ll be thinking about search optimization once I transition to Improving. Right now, there are lower hanging fruits I ought to just fix.
Both projects need to test paid media as a user acquisition channel. I ought to batch media and campaign creation and testing budgets and complete the work for both.
And I’ll be thinking about that stuff when I’ve moved on to the Growing stage of the lifecycle. Then I can spend all day thinking about messaging, how to elicit emotional responses, and what my conversion funnel will be from the click onward.
Each thing in its own time.
Otherwise, you have no choice but to boil the ocean.
Inevitably, this asynchronous, dare I say ‘dumb approach’ has many flaws. It sacrifices depth and consistency relative customer demand.
I’m progressing on my schedule and effectively risk ignoring the rest of the world and falling out of market/product sync.
Importantly, it prevents an ability to dive deeper into any one class of activities and effect real changes required to kickoff meaningful growth.
As an example, one of the difficult components of the past 4 months is derived by the very advantage I established: an early acquisition.
While I began collecting MRR early and made a fantastic acquisition, I still had to operate it at the same time as I was actively prospecting and looking to close additional deals.
In that time, I’ve done a bunch of small, ad-hoc maintenance work from app store optimization to setting up knowledge base articles.
Nothing big. Only one-offs. Nothing deliberate. Just opportunistic refactoring, as we call it.
I couldn’t hope to do anything big while I was busy trying to close other deals to stay on pace with my fund lifetime.
Constantly switching from the context of buying to the context of operating. Right after the acquisition, affording myself the luxury of fixing a few things in Reconcilely proved a very dangerous dance with the Dark Side.
Should have resisted that urge, but I fully recognize the implied danger/folly of doing nothing for 3 months post-acquisition, too.
I say this because fixing Reconcilely would represent another lifecycle stage additional to buying that would make it really tricky to focus on the work required to accomplish my Buying goals on-time in the first place.
Mind management is a zero-sum game.
This very result is proof that working on multiple lifecycle stages at once is the actual reason why working on many projects at once is risky. It’s why context switching is even a thing.
The context is the lifecycle stage. Not the fact there are multiple entities to be keeping track of. This is a question of discipline!
The multi-tasking isn’t scoped to the number of tasks, but to the number of lifecycle stages representing each asset and the difficulty implied in managing different tasks across different timelines of progress.
It should be called multi-dimensioning instead.
If, instead, projects all share the same lifecycle stage then you don’t have to context-switch to as much of a degree.
Stages can be arbitrarily decided relative your own playbook, which is intended to increase valuation and collect MRR over time.
The conscious choice to work on one thing (i.e. Buying) at a time creates ripple effects that can make doing that thing (Buying) really hard.
In my case, that was learning to operate and then operate Reconcilely for 3 months while increasing my prospecting to close more deals. Because I managed to acquire something early in the Buying lifecycle, I tied my hands in having to operate it while maintaining (and eventually, accelerating) my prospecting work.
Taming two completely different beasts across two completely different timelines.
It’s like watching Star Trek and Star Wars at the same time.
I started asking myself Why Is Buying Suddenly So Fucking Hard when every metric pointed to solid progress with impending results.
That’s why: I was illegally dipping into Fixing and destroying my Buying momentum in the process.
By allowing myself to syphon creative energy towards Fixing, I unintentionally made working on Buying harder and feel more like work.
I’ve been growing increasingly impatient to actually work on the stuff I bought, so it’s hard to blame myself for that. But it’s a stern warning for anyone walking through the microangel gates.
A lapse or two of discipline, even small ones, can compound over time and rip you from the most important thing you have to be doing at a given point in time. In the case of buying, that’s closing deals and fielding my capital on-time.
In the last few months, I have identified at least 3 strong caveats to the Buying phase that could disqualify individuals from using this model.
Life Context: If you mix in constant context switching due to personal life (i.e. covid scares, moving, young children), the difficulty jumps to near impossible levels.
I probably should have put off the fund by a few months due to my life context, but now that I’m through the buying stage, it feels like it was worth it, though incredibly hard.
I also know that things tend to get harder before they get easier, and that indefinitely putting things off for a perfect context isn’t an option because time and life are accelerating.
Product Lifecycles: If you work on different products at different lifecycle stages (i.e. fixing vs. growing), then you need quadruple the amount of energy to maintain progress
First, you must double the amount of energy due to the context switching itself, and then you must double it again to make sure your own mind stays in sync with two different timelines at every waking moment, prior and after context switching.
In other words, simply having to be aware of 2+ contexts at once is hard, never mind having to context switch altogether. You spend energy on what you are switching to, and more energy still to stay aware of what you’re no longer focused on.
Discipline & Process: I have spent a progressively larger and larger amount of time on lead qualification and as a result of that have increased the rate at which I disqualify leads, and by extension the rate at which I run out of them.
It would be even harder to solve against that issue if I allowed myself to do some small Reconcilely fixes on the side. What might seem benign is actually a mental fracture that clouds the mind, divides focus and creates confusion.
If you don’t have a solid process to force you through the motions and rely solely on grit, you’ll eventually run out of time & motivation. Pivot your approach until you find pay dirt. Then get progressively better at processing it to find gold by showing up every day and taking your shot.
I had some doubts I’d close Buying on-time mostly because I was, in my eyes, at least 2 products short.
I’m fortunate to have met the seller of a fantastic product who has agreed to exit, with a pretty awesome configuration for them and an attractive buying multiple for me. And in doing so, I’ll be reaching Fund I’s goal of $15k in MRR.
Being on time with this number means I’ll guarantee my 0.7x return over the next 2 years, which means I now have over a year and a half to focus fully on bridging an $8k MRR gap between Reconcilely and Product 2 to make a 2x return possible and ring in the tendies.
I noticed a slight deceleration in installs in the first half of the month. There was also a small increase in uninstalls.
It’s about time to be taking a look at some of the main reasons behind churn and improve the onboarding with tutorial videos and email followups.
All systems are green and MRR is up to $5k + $193 of charges, closing the month with revenue up 3.3% to $5,175 from Reconcilely.
Valuation is up 2.7% to nearly $240k on the basis of a 4x ARR multiple for a continued run I’m happy to see.
There was an interesting increase in customer support, mostly corner cases. Looks like PayPal has changed a little bit and I may need to interact with their API to take into account how they batch transactions into payouts (much in the same way Shopify does).
Starting to see where we lose customers, mostly on these corner cases that would be answered with a flexible rules engine.
What’s weird is those churned customers typically want to accomplish incorrect bookkeeping practices through the product.
Wondering how important it is to be empowering best practices vs. giving users a platform to power their accounting whatever way they currently do it.
Due to the nature of the questions, I really want to test a done for you service soon but don’t want to test too many pricing things at once.
I expect to increase the pricing on the one-off charges for new customers instead, that will have a more important impact.
A 5x increase won’t be a big difference for customers (who are billed $3-4-5, but it will be a huge one for Reconcilely).
If we collected $200 this month charging $0.02 and $0.03 at a time, then increasing those overcharges to $0.10 and $0.12 will have a massive impact on the expansion revenue and create a strong upgrade current to counter revenue churn.
I’m starting to work on a small video to introduce Reconcilely. Although, that probably belongs in the Improving stage. I’ll focus on things that must absolutely be fixed first.
The website needs work, we need to show the finalist badge and start ranking as soon as possible. I’m going to do an SEO pass and start attacking anything that can prevent rankings + come up with a plan to increase the number of pages we have and rank for.
I’ve been taking inventory of all the out-of-scope things I’ve marked down since the acquisition (in the spirit of staying focused on buying), as well as going through Intercom to keep track of any feature requests I may have lost in translation.
The big stuff, which I’m quite excited about, is coming soon.
Spent the first time in a long while taking a look at the state of the API and database and I noticed some customer webhooks need resetting now that the oldest Shopify API version is deprecating in July.
All I need to do is change a database entry for every webhook I’ve stored so they get refreshed by the workers.
Should only take a few minutes.
Nearing some onboarding with a potential third cofounder, the result of which is likely to reinvigorate us and unlock our next phase.
Both my cofounder and myself are pretty burnt out and it’s showing: our moonlighting has decreased significantly as we jostle with nightly duties.
Bringing on a founder-level teammate this close to market/product fit is going to be expensive on our equity share, but I’ve been pursuing this option for many months as I scouted various individuals.
My goal is to reduce the incredible load we’ve sustained as lone cofounders and radically reduce the scope of the work so things can be more achievable.
In reducing the scope and increasing the size of the team, I give Batch a better chance to reach market/product fit and kickoff consistent growth. A couple thousand in MRR is nice, but not taking us anywhere right now from a lack of a clear market fit.
At this juncture, we’ve established some new goals to liberate the cofounders. The phases lend themselves to a series of campaigns doing stuff that doesn’t scale to score some points on the board.
Phase 1: 8K MRR (Founder 1 free) — 15 customers
Phase 2: 15K MRR (Founder 2 free) — 30 customers
Phase 3: 25K MRR (Founder 3 free + FTE #1 CSM) — 50 customers
Phase 4: 50K MRR (focused execution for a year) — 100 customers
Methodically, our ARPU allows us to do things that don’t scale up to 25k MRR, at which point we can begin redeploying our full time and some resources to start aggressively driving ARR and building the company.
In other words, I’ve positioned every last pawn on the board towards team liberation, with the goal to create intrinsic motivation that motivates self-starting behaviours and compounding grit.
No change whatsoever here. Still need to open source it.
I put the word out but didn’t get enough of a reaction. Thus, it’ll stay the way that it is for now.
Funds Deployed: $148.5k (29.7% of funds)
Current MRR: $5k (33% to goal)
MRR Growth: +3%
30-day Revenue: $5.17k
Rolling cash-on-cash return: $20.01k (13.54%)
Cumulative ARR growth: +$1.57k (+2.7%)
Cumulative valuation increase: +$6.28k (+2.7%)
Current Total ARR: $59,808
Fund valuation @ 4x: $239,232 (+61% / +0.61x)
4-Month Return (MOIC): 74.44% / 1.74x
Conducted 11 Zoom calls with sellers
Spoke to 7 unique sellers
Signed 7 NDAs
Submitted 3 LOIs so far, 3 accepted
Withdrew from 2 deals in due diligence
Waiting on APA counter-signature for another deal
Current Deal Flow
Open Conversations: 0
LOIs submitted: 0
LOIs accepted: 1
In diligence: 1
APAs signed: 1
Learnings and adjustments
I’m pretty happy with the level of focus I was able to muster in the month as it produced the ultimate goals I was after: a closed deal and reaching my MRR goal.
I’m so happy, relieved and excited to be graduating out of the Buying phase. Let’s goooo!!!!
It took investing nearly full-time for 4 months to understand why so many VCs idolize and sing the praises of entrepreneurs.
They miss the action. Things always look so rosy from the outside.
If entrepreneurship were a drug, which it obviously is, it would be something like adrenaline. It keeps you going, but too much of it can kill you if you’re not careful and healthy about it.
In comparison, investing would be like… sleeping pills?
It’s a removed, slow and steady drip. So slow, you might fall asleep as it sedates you from the realities of entrepreneurship.
It dulls your swords with time as the logic you use to make investing decisions continues to expire.
Given your growing absence from the field and your declining ability to bring insights from it, you lose the ability to see into the future as well.
You trade away your telescope for a microscope. It’s a subscription to a completely different world. Inevitably, being a subscriber for some time begins to morph the way you see the world and its actors.
While I followed my process down to a T, my investing approach began to change with time.
The way I prospected in February, March, April and May were progressively more aggressive and direct.
This could be a factor of my tightening self-imposed timeline?
Regardless of the why, I went through a transformation over the last few months proving the process. And part of me wonders if I would approach it the same way today were I to start over.
The double-edged saving grace was Batch. Despite it pulling me into operations for nearly a month in the middle of the Buying phase, it helped me stay in touch with a seller’s psychology.
I definitely appreciate the art behind investing and don’t believe it can be reduced to science alone.
I can now fully comprehend why some angel investors are more prolific than others in their ability to access and participate in some of the best deals around.
But it also made me appreciate the privilege we have to work on our own products at our own pace as indie hackers.
My own impatience has taught me that.
Having been in the game for awhile, you start to feel a little jaded by the process and different activities that you’ve already done dozens of times.
It’s difficult to reimport the same level of effort into every next project, which is why I believe hiring is still an inevitability even for a lone microangel using the Fund I model.
In a weird way, I’d compare it to a couple having been married for 30 years. They surely love each other, but their love life might feel monotone and devoid of surprise, which is a watered down version of what initially excited them into becoming a couple.
Lasting growth is a factor of layering systems atop each other. Some of those systems inevitably require human touch for success, such as Live Support.
You can see the unavoidable energy/time deficit one will run into by being at the core of every system. You run out of them fast.
If you answer all support, write all the content, do all the sales, design all the things, code all the things, do all the experiments and everything in between, and then persist that across two or more assets, spreading yourself thin is assured.
By batching the work that I do, I can create an abstraction layer above the projects I work on and identify new discoveries that way.
I might tire of creating Facebook ads, but one of my projects might be just exciting enough to provide the creative juice needed to produce great advertising campaigns for a little while, and I ought to take advantage of that creative window to get creative or copy done for my portfolio in one go.
As I begin focusing exclusively on Fixing, rather than operating and buying at the same time, my goal will be to consolidate the ideas I have to immediately fix what I have seen and produce an immediate improvement on the run rate.
I’ll explore the backlog and probably produce a week-by-week plan of what I’m going to fix. Since Fixing is 8 weeks in total, I probably ought to limit myself to a total of 10 initiatives of ~5 days each.
I’m announcing the acquisition of the second + last product in Fund 2 over the next week or two. Still revising the APA with the seller to get to something truly great for both parties.
Future posts will explore strategic thoughts for individual products starting with Reconcilely, and what I’m thinking about for immediate fixes. I expect to involve you in the process as my advisory board!
I know the buying journey was a key factor behind your interest in Microangel, and I think it would be fun to do deal reviews again now that I won’t be NDA-bound. If I see an exciting project pop up, I’ll be sure to write about it.
The magical circumstance behind Acquisition #2 creates a unique opportunity: the MRR goal is attained with a sizeable portion of the funds still available.
It will be exciting to explore what would be best to do between returning all or some of the remaining funds back to the investor (me) versus reinvesting some or all of them into the portfolio and increasing the IRR goal, though that would be moving the goal posts and we don’t want to do that.
Thanks for joining me so far on this adventure and for sticking with me throughout this retrospective on the first fund’s buying journey.
I’ve learned a great deal but, to be honest, I can’t wait to get busy and in the trenches again.
Stay tuned for the next episode soon!1