I sold Baremetrics

I&#x27;ve always loved the transparency and frank writings by Baremetrics.<p>&gt; As part of the structure of the deal, Xenon guaranteed I’d take home $3.7m, regardless of what came up during due diligence<p>Interesting, I wonder how this is structured - surely there are items that can come up during due diligence that are deal-breakers for Xenon, and surely due-diligence is performed before the contract is closed?<p>&gt; But they were incredibly gracious and both agreed to write off their investment. General Catalyst’s (who had the lion’s share of that $800k) response showed just how classy they are: “We recognize the work that’s gone into the past 7 years and it sounds like this is a great landing spot for the team. We’re grateful for the opportunity to have supported you along the way.”<p>I have no idea how they managed to get the investors to walk with nothing, when the founders walked away with so much.

This warmed my heart.<p>&gt;&gt;&gt;General Catalyst’s (who had the lion’s share of that $800k) response showed just how classy they are: “We recognize the work that’s gone into the past 7 years and it sounds like this is a great landing spot for the team. We’re grateful for the opportunity to have supported you along the way.”

&gt; We’re also a company that has purposefully operated right around breakeven for years.<p>And here is the problem. Take VC money and now you are forced to run company at breakeven point.<p>This company would be perfectly fine operating with half the staff and generating for the CEO half a million in profits per year - every year.<p>He could have met his family financial goals long ago and still keep the company.<p>This is what folks at 37signals figured out years ago and good on them. Do not take VC money unless you are already a millionaire and aiming for the moon.

Everyone&#x27;s talking about how the founder got lucky that his investors let go of their $800K liquid preference.<p>My guess is that this wasn&#x27;t all luck.<p>The VC&#x27;s in this case knew how transparent this founder was being in reporting his startup journey. They knew that this decision would get publicity.<p>With this knowledge, the VC firm probably made a calculated decision to forego their liquid pref in return for the good will generated by the founder&#x27;s transparent PR.<p>It&#x27;s cool to see the founder being financially rewarded for his transparency.

Jonathan Siegel is mentioned in the article (his company acquired Baremetrics). I dealt with Jonathan in the past, and I could only say good things about him - not just his business acumen, but his integrity and generosity.<p>Years ago Jonathan was in a position where we needed to buy back his shares in a company in which he invested early. He could have asked for a much higher price, and instead he graciously agreed to a different outcome - he understood the situation and did the right thing.<p>Glad to see that General Catalyst did the same in relation to Baremetrics, writing off their investment. These things don&#x27;t go unnoticed. Sometimes reputation is way more important than a few more bucks for your LPs.

At the time I write this comment, half my screen is full of people calling Josh not so nice things.<p>Folks, this is a founder who&#x27;s openly sharing the kinds of things we usually keep hidden. I doubt there&#x27;s been a startup exit in the last decade where a healthy skeptical HN&#x27;er couldn&#x27;t find some wrongs being done, if the details had been available. It&#x27;s extremely hard to get everything right, from every perspective. The only difference here is that the details are <i>actually</i> available.<p>Please go easy. We want more posts like these, not fewer.

I was incredibly confused to read &quot;<i>Investors are writing off their $800,000 investment</i>&quot;. Sure, $800K isn&#x27;t huge money for a fund, but it still seems... odd... to be so nonchalant about it?<p>Then I checked General Catalyst, they manage multiple funds in the $500M - $1B range[1]. In that context the $800K really is a rounding error, around 0.1% of a single fund&#x27;s size.<p>It never ceases to amaze me how money stops being money past a certain amount (which would be life-changing for most people), and just becomes numbers to move around.<p>[1] <a href="https:&#x2F;&#x2F;www.crunchbase.com&#x2F;organization&#x2F;general-catalyst-partners&#x2F;investor_financials" rel="nofollow">https:&#x2F;&#x2F;www.crunchbase.com&#x2F;organization&#x2F;general-catalyst-par...</a>

I really appreciate the lack of “our incredible journey” platitudes in here.

&gt; <i>But they were incredibly gracious and both agreed to write off their investment.</i><p>So the investors just accepted to lose $800k while the founder was getting $3.7M?<p>Can someone explain the logic here?

So if they sold for $4M, and the investors got $0, and the founder pocketed $3.7M ... where did the other $0.3M go?<p>If it went to the existing employees (they have 7 of them on the About Us page), that&#x27;s ~$42k per employee.

Wow, such a great read. I love people who are so open and honest. btw, how does tax work in the US for acquisitions? is the money he&#x27;s getting is taxed the same as income?

Thanks for actually giving <i>real</i> numbers here. I hate startups that spin fire-sale acquisitions into something more substantial than they are.<p>So I am super happy to see some real transparency with real numbers and a real talk about the earn out.

The part about the investors getting nothing while the founder gets millions is really interesting. How does something like that even happen?

I interviewed for Baremetrics a while ago and a major reason for this was because I am a fan of Josh and its openness culture. Ended up not following through the process as I got a job offer in the mean time.<p>I enjoyed even my first impressions at the interview process and I&#x27;m happy Josh got a nice payout, congrats!<p>I do hope Baremetrics transparency continues in some fomr as its a big inspiration.

Congratulations on the sale and thanks for sharing. Very interesting for someone who&#x27;s probably a few years behind you.

$3.7 million sounds like a lot of money, but he could have earned more than that over 7 years if he just took a mid-level job at a FAMANG company.<p>EDIT: saw that the founder lives in Birmingham, Alabama. So yes, $3.7 million IS a lot of money.

&gt; This (No time-based or performance-based earnout) was the greatest limiting factor on acquistion price.<p>For those who have gone through an acquisition, how much more Josh could have netted if he accepted to stay 2-4 years?

Really cool to see the details of the sale presented in the first paragraph. I wish more companies would be similarly transparent, even for running metrics about ARR etc.

Can someone please explain why the investors were not able to recoup their initial investment of 800K$ when the company sold for 4 million? Thanks in advance.

&gt; also realized that the same people who are good at starting companies aren’t always the same people who are good at growing or managing them. The company itself has so much more potential than I have the ability or interest in offering and on top of that, I just wasn’t enjoying myself anymore.<p>I thought this was a key insight, and I&#x27;m happy the author is frank about it. Some people enjoy building things from scratch, others enjoy taking a good idea and scaling it. IMO, both are hard problems and its good that he bailed before trying to go down that route.

Congrats! Sounds like a good outcome. From what I&#x27;ve read (my understanding may be wrong), using a revenue multiple at all for valuation is surprising for companies A) under $5M total valuation and B) with lower growth rates (looks like Baremetrics grew ~11% in the last 12 months). Can someone who knows better than I weigh in on the valuation math here (in general -- no one knows the exact details of this transaction, obviously). I&#x27;m not questioning it, but I am curious to get perspectives on this real world example.

&gt; No time-based or performance-based earnout... Everyone on the team stays…or goes<p>Curious about this one; are the acquirers not bothered about the possibility of everyone jumping ship? They have a new CEO and generalists on hand to take over the business immediately? And&#x2F;or the business is basically in “runs itself” mode, with most of the work being done on growth opportunities?<p>Normally I think of the golden handcuffs as a necessity to stop the business from imploding and being worth zero, but interested to know why this wouldn’t apply.

Great outcome for both sides.<p>Josh gets the exit he really seems to need for his personal and financial well-being.<p>Xenon gets one heck of a product for honestly quite cheap. Better marketing will actually go a long way here.

kudos for the transparency, a really interesting post

The bit about $3.7M seems really odd - how is that even legal?<p>Conrad Black literally went to jail for selling newspapers and taking a personal commission on the side. [1]<p>When you&#x27;re selling company value, but taking the money yourself in the form of some kind of arbitrary comp, that&#x27;s defrauding investors, it&#x27;s a form of embezzlement.<p>That the investors &#x27;didn&#x27;t care&#x27; is fine, but I don&#x27;t see how it could have been arranged in the first place - the acquirer does not get to decide how much the &#x27;founder&#x27; is going to get.<p>Also - the $800K write off seems odd. A million dollars is not nothing, and there would definitely not have been $800K in lawyers fees, far from it.<p>Something here doesn&#x27;t seem quite right.<p>Also - folks - if he is negotiating comp outside of share value, that&#x27;s not only hosing the investors - but any employee equity as well.<p>A small team where some other guy has 5% of the company, that&#x27;s $150, not a lot, but not nothing. If the package was dealt outside of equity, those equity holders were screwed, if in fact there were other shareholders&#x2F;equity holders.<p>[1] <a href="http:&#x2F;&#x2F;news.bbc.co.uk&#x2F;2&#x2F;hi&#x2F;business&#x2F;6897991.stm" rel="nofollow">http:&#x2F;&#x2F;news.bbc.co.uk&#x2F;2&#x2F;hi&#x2F;business&#x2F;6897991.stm</a>

&gt; &quot;We recognize the work that’s gone into the past 7 years and it sounds like this is a great landing spot for the team. We’re grateful for the opportunity to have supported you along the way.&quot;<p>That is incredible and, as the author says, classy. If I ever find myself actually doing the investment rounds for anything I create or help create, I hope that people like General Catalyst take an interest.

<i>the same people who are good at starting companies aren’t always the same people who are good at growing or managing them</i><p>This is an excellent insight

@shpigford - Are you able to exempt your exit from capital gains under the QSBS tax laws?<p>For those curious, more here: <a href="https:&#x2F;&#x2F;www.brownadvisory.com&#x2F;us&#x2F;qsbs-tax-exemption-valuable-benefit-startup-founders-and-builders" rel="nofollow">https:&#x2F;&#x2F;www.brownadvisory.com&#x2F;us&#x2F;qsbs-tax-exemption-valuable...</a>

I have no knowledge about how to consider the acquisition details, but MAN the energy of this guy. It’s formidable.

All I can is congrats and im jealous. This is the exit ive dreamed about

I&#x27;m really happy for Josh, I loved the blog posts. Always so honest and straight forward. Sadly, many SaaS companies hit a brick wall after initial investments and the first growth streak. Especially, analytics companies.<p>I&#x27;ve worked with a mobile analytics company in the past and it was pretty much the same story. Only, they weren&#x27;t as transparent and couldn&#x27;t walk away with a profitable exit.<p>So this really looks like the best way he could exit without burning himself out.

I support Josh and his healthy approach to showing others what is possible when you share and contribute to the internet.

The numbers work out to 7.5% equity owned by 10 employees. Would that be a typical equity share for a company like this?

Nice outcome. Congratulations!<p>Do anybody know how much Xenon Partners (te same buyer) paid recently for UXPin.com? I think that UXPin is 5-10x times bigger, but saw that their CEO after selling the company instantly joined Google as a senior manager.<p>UXPin had a few investors and 3-4 cofounders. So probably different outcome?

Thanks for sharing this. This has the kind of details that I would have loved to see and almost never gets shared in so public a manner.<p>I respect the soul searching that you went through and the decision that you took.<p>Thanks again. Wish you the very best in whatever you _start_ next.

Interesting &quot;journey&quot;, but as I was reading I can&#x27;t get over how similar this site looks to Stripe&#x27;s old UI. From the color scheme to the icons for each product in the menu bar, it&#x27;s almost a 1:1 copy.

&gt; As part of the structure of the deal, Xenon guaranteed I’d take home $3.7m, regardless of what came up during due diligence.<p>I have never seen this before. Guaranteed outcome regardless of DD. Is this an outlier company?

Congrats Josh :)

Congratulations on reaching an exit and good luck with the next venture!

I applaud the author&#x27;s transparency. Congrats on the deal!

Good for you! I’m happy reading a sort of reasonable-ish success story.<p>4M is a lot, but an amount I can wrap my head around.

Oh I didn&#x27;t connect the dots that this is the &quot;job hopper twitter guy&quot;. As someone who&#x27;s last 4 companies have been acquired - I found him to be extremely frustrating to follow.

Losing so much respect for people, reading some of the comments...

&gt; 2.65x ARR<p>What about gross profit (or more precisely, EBIDTA)?

hey Josh - just want to throw it out there that we love baremetrics.

Did his 10 team members get zero? Is he proud of that?

thanks Josh for sharing this info

Amazing

I know there&#x27;s a trope about the naive founder getting screwed by shifty-eyed VC sharks, but it really sounds like Josh screwed his investors and employees here.<p>&gt; <i>I wanted them to at least get their money back, but ultimately, for the $4m purchase price to work, we’d need to ask them to walk on their [$800,000] investment.</i><p>He clearly didn&#x27;t want it very badly, then. Nearly $3 million wasn&#x27;t enough? That&#x27;s about $420k per year for the time he put in, not counting anything he already took out. Keeping the extra money only increases that to about $530k&#x2F;yr.<p>And it sounds like the early employees get nothing, other than not getting fired immediately.<p>I like the Baremetrics product but man this really leaves a bad taste in my mouth about Josh personally.

Wait, so your investors lose money, your employees (probably just a few) got at most $80k, and you get to retire? I mean, congrats on the hustle, but I wouldn’t waste your time trying to make it look good for everyone else.

Extremely gross that he pocketed $3.7m but asked his investors to walk away from their $800K, because he needed to meet his financial &quot;goals.&quot;<p>This is the flipside of all of the VC deals that completely fuck over the founders.

Wow, that&#x27;s some brazen humble brag from someone who cheerfully announced how his envestors got screwed.

Maybe I&#x27;m hopelessly naive here, but $4M cash @ 2.65 ARR, so ~$1.5M ARR. Isn&#x27;t that a bit low for SaaS at 7 years? Then there is the mention of running at breakeven most of that time. There are solo founder SaaS businesses making more than that with 80%+ margins. As others have mentioned, you&#x27;d be better off working at a FAANG.<p>So, did something go wrong here? What is it about this analytics business that makes it so expensive to operate? Were all the employees necessary? Was the pricing or marketing wrong? Or is this just the reality of most SaaS?<p>I gotta say, this really puts a damper on what I always thought was a fairly lucrative business model, if you could make it past the early bootstrap&#x2F;product-market-fit period.

&gt;What I walk away with: $3,700,000 in cash<p>&gt;practically speaking, never need to work again<p>Yikes, does someone want to tell him?