In this episode, Practical Founders Podcast host Greg Head discusses the most important things venture capital investors don’t tell new SaaS startup founders. He emphasizes that VCs invest in very few businesses and are looking for big wins. Greg highlights the importance of understanding the game of venture capital funding and the alternatives available to SaaS founders.

“If you’re thinking about raising VC investment, do your homework so you know what you are signing up for before. VCs are not evil people, and it’s not a bad business model—for them.

“The world has changed for SaaS founders in the last 5-10 years, and it’s still changing. You no longer need VC funding to start most B2B SaaS software companies. It’s 10 times cheaper to create a sellable SaaS product and go to market now. And founders can get higher multiples earlier when they sell their companies. VC funds are also much bigger, so it’s riskier for founders to play that game.

“You just don’t need to make a crazy all-or-nothing bet that your company will create a billion-dollar exit in seven years, which VC investors require to win. The best case scenario for 80 to 90 % of software companies is NOT to raise big institutional venture funding.”

• Greg Head on LinkedIn
• Practical Founders website
• Practical Founders Podcast
• Greg Head’s blog

Tune into the Practical Founders Podcast for weekly in-depth interviews with founders who have built valuable software companies—without big funding.

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Mike Trasatti spent 10 years in the automotive dealer software business before he found an auto dealer in Iowa who had built is own complete software system. They partnered up in 2008, and Mike became the first CEO of the spinout software company, DealerBuilt.

DealerBuilt grew slowly as a bootstrapped startup in a market full of large incumbent competitors. They had a better approach to managing multiple dealers in a group with their dealer management system (DMS). DealerBuilt is powerful software that manages the entire financial operations of an auto dealer in the US.

They grew steadily to 450 dealer customers and 100 employees in 10 years before deciding to partner with ParkerGale, a private equity investor, to help them with their next growth stage in 2019. Mike continued as CEO until 2023, navigating through the COVID years and acquiring several “tuck-in” products to extend the DealerBuilt solution. Mike is now an independent advisor to DealerBuilt and other organizations.

“You’re constantly challenged in the entrepreneurial world. Do you really know what you’re doing? Self-doubt can be tremendously harmful to CEOs. I don’t think you can get into this business without a strong image of yourself and real confidence.

“But you have to balance confidence with humility because you’ll make mistakes. You’re going to have setbacks every week, and some very big ones, too. You can’t lose enthusiasm: You need enough confidence that you’re on the right path and that will carry you more than anything else. Those who don’t lose enthusiasm win.

“When you have both confidence and humility, you won’t be afraid to be around people who are better than you. And you’ll feel comfortable in that space, leading smart people who are championing your journey. They will look at you and think, I want to be there with you to champion this for you. That’s success as a leader.”

• Mike Trasatti on LinkedIn
• DealerBuilt on LinkedIn
• DealerBuilt website
• ParkerGale website – private equity investor in DealerBuilt

Tune into the Practical Founders Podcast for weekly in-depth interviews with founders who have built valuable software companies without big funding. Subscribe to the Practical Founders Podcast using your favorite podcast app.

Brian Abernethy, founder of Utopaya, is an expert in helping SaaS leaders navigate the complicated process of adding payments monetization to their product offerings and business strategies. With a long history in the payments industry, Brian has worked with hundreds of early-stage SaaS leaders and their investors to optimize their payments strategies.

In this expert podcast interview, Brian explains the basics of payments monetization for practical SaaS founders, answering questions like these:

• When should SaaS companies consider monetizing payments and when is it not a good fit?
• What are the first steps to adding a profitable payments offering to your SaaS product?
• What’s happening in the payments industry to make it easier or harder for SaaS companies?
• How do investors value payments offerings in a SaaS business?
• What are the biggest misconceptions and mistakes that SaaS companies make when get started with payments?
• How can SaaS businesses lower their payments bills for the credit card customer they take from their customers?

Quote from Brian Abernethy, principal at Utopaya
“Most software companies are looking to include some type of fintech offering. Payments is typically the first one of those. These software companies want to own not only the bigger portion of revenue, of course, but also mprove the customer experience.

“Recent consolidation in the fintech and payments industry has created new options for SaaS companies to monetize payments. The big payments providers are now much bigger and have moved upmarket, creating a gap. Many new payments players are designed for smaller SaaS companies, with purpose-built platforms, APIs, and more support for integrated software solutions.

“There are more compelling solutions for SaaS companies to launch truly white-labeled, profitable, and easier-to-implement payments solutions. Also, the market data show that it does positively change the customer experience, so these smaller payment companies are winning share at a fast clip.“

• Brian Abernethy on LinkedIn
• Utopaya on LinkedIn
• Utopaya website

Tune into the Practical Founders Podcast for weekly in-depth interviews with founders who have built valuable software companies without big funding. Subscribe to the Practical Founders Podcast using your favorite podcast app.

Adam Haynes is a managing director at GLC Advisors, an M&A advisory firm that helps bootstrapped founders to successfully sell their companies. The software advisor team at GLC has been working with practical software founders for over 15 years and has completed over 100 software transactions.

In this expert interview, Adam shares:

• What has changed in software acquisitions in the last 20 years and recently through 2024
• What are the valuation ranges and factors for practical SaaS companies under $10M revenue
• The 7 key areas that founders should be working on several years before an acquisition
• When should a SaaS founder consider using an M&A advisor

Quote from Adam Haynes, M&A Advisor at GLC Advisors
“When you are selling your company and the buyer is looking at all your challenges and problems, founders should know that deal breakers are very rare. Buyer and seller want to get a deal done, and there are ways to navigate around them.

“You can’t have a software company without tech debt. That’s okay. Nothing’s perfect, but you need to have a remediation plan for it. If you were going to close a couple of big deals during diligence and you don’t, or they get delayed, the valuation may take a hit. Or they might inject some structure like an earn-out if you can get these two deals signed.

“But if you don’t own your IP and don’t own or clearly license all your code, that’s tough to navigate around. Or if you’ve infringed on somebody. That can be a dealbreaker, but it isn’t that common.”

• Adam Haynes on LinkedIn
• GLC Advisors on LinkedIn
• GLC Advisors website
• GLC Software Capital Markets Report – Q1 2024

Tune into the Practical Founders Podcast for weekly in-depth interviews with founders who have built valuable software companies without big funding. Subscribe to the Practical Founders Podcast using your favorite podcast app.

Matt Wolach spent 15 years as a successful SaaS account rep, sales leader, and software founder before becoming a SaaS sales coach for early-stage B2B SaaS companies. He has worked with over 250 SaaS founders and sales leaders worldwide to improve their close rates and create repeatable sales systems quickly.

In this episode, Matt shares:

• How B2B SaaS founders need to learn to sell and understand their own sales processes before hiring salespeople
• Why technical founders can their sales using a helpful mindset of customer problem-solving
• Why he starts by analyzing the sales demo to understand what’s working and what needs to be improved in the sales process
• How successful founders and salespeople show their product less and follow up more than their peers
• Why software buyers are tired of buying software and don’t want to engage with commission-focused salespeople

“The only way a buyer can be excited about your solution is if they are really emotional about their own problem. How can we get them to realize their problem is important and worse than they thought?

“If they’re gonna take action, they’ve gotta be emotional about their problems. They come in thinking, I just got this thing I want to take care of. And they leave saying, Whoa, I had no idea we were in so much trouble. We have to move now.

“We have to make sure that they prioritize the problem we solve instead of not doing anything and moving on to a different problem. When they realize how bad their problem is and feel the emotion, it helps them see they need to prioritize it and take action instead of putting it on the back burner and waiting till later.”

• Matt Wolach on LinkedIn
• Matt Wolach SaaS sales coach website
• Matt Wolach YouTube channel
• Scale Your SaaS podcast

Tune into the Practical Founders Podcast for weekly in-depth interviews with founders who have built valuable software companies without big funding. Subscribe to the Practical Founders Podcast using your favorite podcast app.

Charlie Alsmiller is the founder and CEO of APIWORX, a powerful integration platform for mid-sized ecommerce companies. He is an experienced practical founder who has created and grown several software companies. His first venture was VC-funded and shut down quickly in 2001. His next software ventures were bootstrapped with funding from services revenue and his own savings.

APIWORKS is a powerful integration platform that connects Shopify data to accounting software and other applications. Charlie started the company in 2020, with well over $1M in annual recurring revenues and 30 employees. They are growing faster by focusing on key vendor ecosystems and specific customer problems where they have a unique advantage.

In this episode, Charlie shares:

• What happened when challenges arose in his first company, which was VC-funded
• Why he started a services business to find and fund his next software business
• What happened after his first successful exit that made him start another company
• How he ideated and validated to discover the best startup idea to invest in
• Why they are growing faster every time they niche down on specific vendor ecosystems
• Why startup CEOs should eventually focus on their superpowers and delegate everything else

Quote from Charlie Alsmiller, founder and CEO of APIWORX
“As a startup founder, you need to really know yourself. Know your personality type, know your skills, and know your superpower. Focus on what you do best and where you add the most value.

“I have the superpower of whacking the machete to start new things, clearing the brush away in new markets, and figuring it out. And I’m pretty good at recruiting people who can do the things I don’t do well. Now my team tells me, Charlie, don’t do that, we’ll do it and you go do that thing over there.

As an early-stage founder, you start by taking out the trash, doing software development, doing marketing, and everything else. As soon as you can scrape together the pennies to outsource or hire those other things you’re not good at, you should do it because it allows you to double down and grow faster. That’s the game changer for your growth.“

• Charlie Alsmiller on LinkedIn
• APIWORX on LinkedIn
• APIWORX website

Tune into the Practical Founders Podcast for weekly in-depth interviews with founders who have built valuable software companies without big funding. Subscribe to the Practical Founders Podcast using your favorite podcast app.

David Evans, the managing partner of Sentiero Ventures, a seed fund focused on AI-focused software startups. David discusses the role of AI in software development and the opportunities it presents for practical SaaS startups. He shares his journey with AI and predictive modeling in his previous companies and the key factors he looks for when investing in AI-powered companies.

In this expert podcast interview, David discusses:

• The new questions about revenue models for AI-powered companies
• The challenge of cost in AI and the potential for innovation
• The importance of clean and relevant data to train models and machine learning
• Balancing AI in the go-to-market strategy
• The impact of AI on various industries

Quote from David Evans, Managing Partner of Sentiero Ventures
“The biggest challenges and opportunities we see right now are in the revenue model. The traditional per-user, per-month model in SaaS is becoming increasingly difficult to justify in AI-powered companies because every time I interact with ChatGPT, there is an associated nontrivial cost. When I ask it a question with AI, there is a compute resource of OpenAI or whatever that is being directly accessed.

“This also leads to some opportunities to scale revenue more quickly because you can now charge based on utilization. With the right sort of unit economics, you have the opportunity to scale your revenue more directly with usage and value. Companies will scale their utilization very quickly when they see results. It gets really interesting fast.

“It’s obvious when you start viewing it through the lens of whether I need to run one more campaign. If they are making money, then yes, I’ll pay for the next campaign and the next one. We’re seeing a better scale with utilization-based billing. You have to figure out the unit economics to ensure you’re doing it profitably.”

• David Evans on LinkedIn
• Sentiero Ventures on LinkedIn
• Sentiero Ventures website

Tune into the Practical Founders Podcast for weekly in-depth interviews with founders who have built valuable software companies without big funding. Subscribe to the Practical Founders Podcast using your favorite podcast app.