Discover more from Raj Sheth
Open Sourcing the Decalab journey
Introducing the SaaS Factory
There are funded SaaS companies and bootstrapped SaaS companies. Decalab is an attempt to find a third way.
Last year, we acquired a business that had previously raised $10mm in venture capital and was currently at $500K in annual recurring revenue.
And now, over the next the few posts, I'm going to openly share our attempts to buy company #2.
Before I get into why we are building a "SaaS Factory," a little about me.
My first startup
I started my first business when I was 19 as a student at Babson College. The business was simple — a website that delivered food from restaurants that did not deliver to our suburban campus.
We needed some late-night variety! Fellow students had no options after 8pm outside of ordering Dominos or Chinese. So I partnered up with a couple restaurants, and for every sale generated to their stores, we kept 30% of the invoice. Instead of delivering each order one by one, I got them all done in one run at 10:30pm. Even with a limited model, the demand was high! Unfortunately, it never became DoorDash. (This was 2002.)
After running it for a year and a half, I sold it to a fellow student before graduating. But by then, I had already fallen in love with the internet.
After college, I had my first and last job at EMC Corp, where I worked as a financial analyst for three years. It was great exposure to the workings of a public company, but I lasted there because I was in a rotation program and had three roles for three years. However, I realized that if I didn't leave and start my own company, I was never going to do it. The only way to learn — was by doing.
Learning by doing
Over the next five years, I started two B2C companies in India. A classifieds portal and a direct to consumer jewelry brand. They both failed.
I was excited by the internet, but knew little about building teams, products or business models. My biggest challenge was to build a balanced co-founding team who could bring a product to market — the perfect mix of both engineering and growth talent.
They were also the most painful five years of my life — but the experience was priceless. Things were always tight money wise, so I did some brick and mortar stuff intermittently to pay the bills. Imported truck tires from China and also sold Indian furniture to the middle east. I knew I needed a better plan.
Towards late 2010, I visited Bangalore a couple times. On the second trip, I met my future co-founders for my first foray into SaaS: Recruiterbox. We really got along amazingly well and there was instant comfort from Day 1. They were engineers (backend and frontend — balanced team) and I was the growth guy.
Over nearly seven years, we bootstrapped the company to 3,000 customers, a team of 55 (across Bangalore and the US) and were acquired by a PE Fund in San Francisco, which is where I was based for half of those years.
I learned a lot about SaaS and myself during these years. While I was hungry for success, I cared even more about building a product that wasn't just valuable — but helpful. It wasn't about getting funding just for the sake of funding. The money was investment in our company's mission, just as much as our software.
The “small” idea: Decalab
Without VC funding, the alternative was to repeat the scenic route: creating efficient, profitable and slow-growth SaaS products. However, even if everything went my way — I realized that this journey takes most bootstrapped founders 3.5-4 years just to break the first $1mm in revenue.
As an experiment, I started looking on Crunchbase at all of the healthy Seed and Series A rounds, which never raised a round again and also had a team size of 25 or less in places like San Francisco. There were tons!
It seemed to me that a company commits to doing the $100mm ARR sprint in 7 odd years by taking capital north of $10mm. Fair enough, many bets are worth it. But most of the companies were ones where that equation breaks (statistically speaking). So they raise $10mm, but after 4 years of that round — they are at $2mm in ARR.
This is where the idea for Decalab originated. I knew a lot of these products would make great $10-$25mm ARR businesses in due time with only the revenue invested back into the businesses (especially with a global remote/India team). So why not create a SaaS factory that is focused on cracking the 1-10, and offers founders liquid exits if they no longer wanted to continue their project or were betting on a different product?
We could short-circuit product-market fit, sometimes even the growth flywheel (with evidence from past experiments) and try to solve bottlenecks. We could do 5-10 companies that totalled $100mm in ARR, all from revenue spend. The only starting capital we need was enough to acquire the companies themselves. After that, they had to be self-sufficient.
Remember that Crunchbase filter? I wrote to 119 founders, a friendly founder-to-founder note, asking them if they were considering an exit. Within two days, I had 22 calls scheduled.
Our first acquisition
Through that effort, I found FlyData.com, our first acquisition. It was doing $500K ARR, raised nearly $10mm, and had bet on a few different products. Now 6 years later, they had their one core product with a loyal customer base and very low churn! The low churn is what attracted me to it given my Recruiterbox experience of biting churn on the little guys.
Yet FlyData was neither a $100K ACV (avg contract value) sold through enterprise sales, nor a $100 per month high churn business. It was right in the middle — avg revenue per customer $10-$15K per year and completely self-serve product!
Luckily, the founder in San Francisco was looking to move on. As far as employees, there were only two support engineers on the team in Japan and Philippines. I made it very simple for him and closed the whole deal within 30 days.
I derived the valuation based on these 6 factors:
Revenue growth rate
Annual vs monthly plan mix
Team that will be left behind
Space (Competitive? Commoditized? Declining?)
If you're considering an exit, don't shy away from writing to me and let's brainstorm the best path. Most of the time, if we don't see Decalab adding value to the future of the business, I will simply point you to better options than me.