How Brightpearl Grew from $8M to $30M ARR Before a $360M Acquisition by Sage (Interview with CEO Derek O'Carroll)

Introduction and Derek's Brightpearl Journey

Nathan Latka

00:00Hey, folks. My guest today is a familiar face. He's been on it many times. Derek O'Carroll is the CEO of Austin based retail back office software provider called Brightpearl. Derek's remarkable six year turnout of Brightpearl is now complete. He turned it from a loss making business valued at just 8,000,000 into a 360,000,000 acquisition by software giant Sage, which many of you guys know. He did it, in his words, by taking staff to the valley of death

00:21and upping the charges of some low paying clients from $6 a month to a $140,000 a month. We love net dollar retention. Derek, ready to take us to the top?

Derek O'Carroll

00:29>> Absolutely, Nathan. Looking forward to it.

State of the Business When Derek Joined in 2016

Nathan Latka

00:32Alright. So give context again real quick. What year did you join Brightpearl?

Derek O'Carroll

00:35>> I joined 2016 in April.

Nathan Latka

00:38Okay. And you were you guys were doing 8,000,000 in rev run rate at that point?

Derek O'Carroll

00:42>> We were 8,000,000 quickly on our way to 6, if that gives you good more context.

Nathan Latka

00:47Yep. That does. Yeah. He he was able it's a shrinking business. Put it that way.

Derek O'Carroll

00:51>> It was the shrinking business. Yeah. Great product pointed in the wrong direction, but a shrinking business.

Revenue Trajectory: 2019 to 2021

Nathan Latka

00:56Yep. Now then you, I believe again, you've been on a few times, but my data shows in 2019, you guys broke 12,000,000 revenue. So you've had the ship turned around less than twenty four months later. Back to a growth story.

Derek O'Carroll

01:06>> Correct. Yeah. We we ended 2019 at 12.8, then the next year, 2020, we went to 18,000,000, so that was about 39, 38% growth. And then in '21, just gone, we got to 30,000,000, which was 63% growth year over year. That's been the trajectory. It's fair to point out, though, as you said, we've been bought by Sage, but that deal closed, it was signed in December, closed in January. But just before that, I closed an acquisition of

Inventory Planner Acquisition Details

Derek O'Carroll

01:31>> my own. I bought a company called Inventory Planner that closed in August.

Nathan Latka

01:36Wait, what was it called?

Derek O'Carroll

01:37>> Inventory planner, it's an inventory planning module, very successful on Shopify, over 2,000 customers, but great product points in the wrong direction, so I wanted to roll that into the momentum we had in go to market. So we got to 30,000,000 in 2021, but obviously that was combined, right? So organically, Brightpearl got to 25.5, and then the 4.5 came from the acquisition that we made. So the group got to 30,000,000 at the end, which was which was

02:09>> key. Now we were obviously a very successful partner of inventory planner at that at that time or by the end.

Nathan Latka

02:14What multiple did you pay for Brightpearl back in, what I guess it was, November?

Derek O'Carroll

02:19>> Pay for Brightpearl or you Oh, sorry.

Nathan Latka

02:21Sorry. For inventory planner.

Acquisition Multiple and Deal Structure

Derek O'Carroll

02:23>> You can do a lot of these calls. That business is growing at 70%. When we sent in the LOI, the letter of intent, we obviously had them growing at 70%. They were on revenue at 2.4. They ended the year at four, four point five, so they beat their plans. The multiple that we paid because they were prescale was around about 3.1 times, 3.1 revenue because they were subscale, and they were a technology only team. Great guys,

02:55>> great team, but really couldn't answer the question, how do I get to 10,000,000? How do I get it to 50,000,000? And that's where we came in, so it was a better together story and a a good deal for us all. Now at that time, we didn't know that we were gonna be acquired very quickly thereafter. That's that's a different story, but we were very much focused on growth and getting the business to a 100,000,000. That's why

03:15>> it was a good deal for us.

Nathan Latka

03:16And we'll jump into the stage, Julian, in a second. So you paid about 3 to 4x multiple for this business. What that means? We paid like 10,000,000, something like that? You can do the math.

Derek O'Carroll

03:25>> Yeah. Just over that with but it was typical deal structure, cash and then business of that size. We needed to make sure that certain security and technical remediation would be able to be in place so that it could scale if people left the business, so they were in there. So it was a deal where it was cash and then remediation, you complete that, you get the rest of the cash. But yeah, three times revenue is what

03:46>> we paid just over.

Nathan Latka

03:47So, I mean, look, some people split cash plus earn out in all kinds of different ways. What was it like 30%, 50% cash upfront? The rest was remedial?

Derek O'Carroll

03:55>> No. It was seventythirty because the remediation list was very small. It was a known it's a pretty tight, well written code base. So, seventythirty. And in a deal like that, we want them to be successful as well, strengthen the partnership, and we already had that sort of built with the relationship that we had today.

Nathan Latka

04:17Oh, what's going on there, YouTube? Good to see you guys. Now imagine this. You love watching these interviews with SaaS founders, but imagine if we took all of the valuation data out from over 2,807 interviews I've done manually, saves you a lot of time. Well, we've done this. We've built it into the beautiful interface inside of Founderpath. Check this out. I'll show you how you can access this in a second. But you log in, you connect

04:41your Stripe account, you see your valuation real time. You can see what it changed over the past eighty eight days and even set goals for valuation this year. Now the secret evaluation is there's many different ways to value a SaaS business. So the reason you're gonna see three or four different valuations inside of your Founderpath dashboard, this is all free by the way, is because depending on who's doing the buying of your SaaS company, you're gonna

05:05get a different valuation. A VC is gonna pay a different valuation. Private equity firm is different. If you're gonna do a minority sale, that's different. And if you sell the whole business, that's a different valuation. You can see all those when I hover over here. Right? So the teal is what a VC would pay. Yellow is what private equity and red is if you sold the whole thing outright. Now what's cool about this is this is

05:27not built off random data. Again, you guys hear these interviews on YouTube. All these datas are built from real time valuation data points founder share with us on the show. So traction 1,200,000 seed round 3.7 raise. They sold 22% of their business. Go in here and filter by the event. Maybe you only wanna see companies that have sold the whole business. Well, here are a bunch that have been acquired the valuation and the multiple. Maybe you're

05:53going out right now and you're raising your seed round. We'll go in here and look at all this recent seed deals that went down, what they raised, what valuation they raised at and what percent that they sold. There's never been a larger dataset of SaaS valuations than what you can get now inside of Founderpath. And we're thrilled to bring it to you. All right. We're gonna go back to the YouTube video here in a second, but

06:15if you wanna check this tool out, if you wanna jump in and sign up, you can check it out for free to get your valuation at this link, this link, founderpath.com/products/valuations. Or if you go to founderpath.com and hover over products, click on get your valuation here, and go ahead and sign up to give it a whirl. Again, all that valuation data live right inside the platform. I hope to see you there. Alright. Let's jump back into

Early Fundraising and the Down Round

Nathan Latka

06:41the interview. Now now prior to that, just because this will be important for the Sage deal, you guys, even before you came in, the company had raised, I think a total of 40,000,000. You then raised 15 pretty quickly, right? 15,000,000 when you joined?

Derek O'Carroll

06:55>> Yeah.

06:57>> I think I raised 15,000,000 in the first two years, and then we used that to sort of right size the ship. But at the point of me joining, we did do a down round, like in terms of a revalue of Brightpearl, we had to. And the primary driver of that was to ensure that we could top up the option pool for the employees and make sure that they all came along for the ride and every share

07:20>> was equal.

Nathan Latka

07:21Yep. Was 4,000,000, was 4,000,000 out of 8,000,000 free money, right?

Derek O'Carroll

07:26>> Pretty much, yeah. That was the first round. You're looking at the notes, yeah. That was an internal round and everyone had to That's always a difficult thing to do with venture capitalists, essentially a down round. But we did that, they were very supportive. Then we returned the business to growth, green scores on the board with the SaaS metrics that you're very familiar with. Then we did 15,000,000, we brought in some secondary funds, crowd called Scipio, great

The $15M Round in 2018 and Scipio and Verdane

Derek O'Carroll

07:51>> bunch of guys out of Germany, and Verdane, which was another secondary fund. And then on top of that, we brought in a strategic investor, which was called Sage. And altogether, we raised 30,000,000 about fourteen months ago with those guys. And then we used that money to further accelerate the business, to buy Inventory Planner, and then through a couple of factors outside of our control, we got to a point where Sage made an offer for the business in

08:20>> late last year, which we accepted.

Nathan Latka

08:21Let me break that down really quick. The the 15,000,000 you did in 2018, once the scoreboard was green again, your turnaround was just starting to take off. Right? You could tell a good story.

Derek O'Carroll

08:29>> That

Nathan Latka

08:2915,000,000 round was at what valuation? Do you remember?

Derek O'Carroll

08:32>> I don't remember that.

Nathan Latka

08:33Okay. Then the more recent one you just broke down, you raised about $30,000,000 to $34,000,000 total. What portion of that was secondary?

Derek O'Carroll

08:42>> No. So so they were secondary funds.

Nathan Latka

08:46Oh, no secondary,

The $30M Round and Sage as Strategic Investor

Derek O'Carroll

08:47>> all the money went on balance Yeah, all the money went on the balance sheet. They were just secondary funds because one of my original investors before I joined, they wrapped up their funds, they had to close their funds, so they sold out to a secondary, that was, they sold out to Verdane. Great bunch of guys. Timing wasn't right for them. They sold out to Eden. So it was all money onto

09:07>> the balance sheet, but they are secondary fund specialists typically. They like to buy in at that point.

Valuation at the $30M Round

Nathan Latka

09:14And that valuation was what? Like, $140,000,000 pre, $150,000,000, something like that?

Derek O'Carroll

09:18>> Yeah. A little bit lower. It was around about $130,000,000. Yeah.

Nathan Latka

09:23Pretty interesting. Okay. Cool. Was by the way, I mean, was that a fair valuation back then when you did it? Did you feel good about it?

Derek O'Carroll

09:28>> We did actually because of the terms, it was a flat cap table, nothing onerous in the terms, which is obviously very valuable. And I could see that all the employees would do very well once we had an exit. So since I joined Brightpearl, all been about cleaning up the cap table and making sure that everyone has a good exit, shareholders and employees, and that's what was pretty dear to me. So we got that done.

Nathan Latka

09:56Let's loop in the Sage sort of thread here now. So of the $30,000,000 round, how much was Sage's money?

Derek O'Carroll

10:03>> They were in for about, from memory, about $17,000,000.

Nathan Latka

10:07Okay. So call it a little more than half. That total round at a $130,000,000 pre money valuation means you sold about 18%. So Sage bought about 10% of the business then in that deal.

Derek O'Carroll

10:16>> Yeah. Just over. It's 10.8 or 10.9 from memory, but

Employee and Founder Ownership

Nathan Latka

10:20Interesting. Okay. And and I guess just for everyone listening right now who just like, when Derek keeps talking about making sure employees get all this important to understand, how much at that point after that round you just closed about twelve, twenty four months ago, how much did you plus employees, people still building the business, own the biz altogether?

Derek O'Carroll

10:38>> It was just over 16%. Just over. Like, clean. Look.

Nathan Latka

10:44I wanna I mean, look. The end story here was great, but, guys, I mean, this is crazy to me that Derek is putting his heart and soul into this. His employees have been there since 2010. But this is before Derek came in, because they had raised, what was this 40,000,000 in capital before he joined, just the dilution is so freaking high. Then you have to do a down round to break the ship, then the series C,

11:03which was great strategically, but again, down to 16%. But then things change a little bit. So you had no idea the Sage deal was happening. Tell me how it happened. Did they reach out to you? You reach out to them? What happened?

How the Sage Acquisition Came About

Derek O'Carroll

11:13>> So when we raised the 30,000,000, the headline was, Guys, we're raising this money to grow the business obviously, but we do run the risk of winning the battle, losing the war, and there was a lot of money coming into our market. We had always had a plan in early twenty twenty two, we'd go to market and raise $100,000,000 to $120,000,000. That was very clear to the board, so it was this two stage process. 30 in, get a product

11:37>> out to market with Sage, and then do the 120, early twenty twenty two. What happened was one of our competitors in The UK market went to market looking for funds and they ended up doing a transaction, a majority transaction with a bunch of private equity firms, but it became competitive. So there was four private equity firms bidding on the competitor around about July 2021. We're oblivious to this, we're off executing, but obviously they go out and

12:06>> interview all the customers who buy a solution like ours, and those customers and partners validated Brightpearl's solution fit as a leader in the market. Of the four private equity, only one won the deal, obviously, and that meant three private equity firms were there with all their theses. They'd spent probably $250,000 to $400,000 to research the market. The thesis was good, they were ready to go. They approached us and said, Hey, we are very interested in this space.

12:35>> We believe it's got a lot of potential. And they started making proactive offers to us. And we obviously had to take that on board, so we formed a subcommittee with the help of our chairman who was excellent, a guy called Morris Helfgott. Couldn't have done it without him. And then basically we still had the bank, the corporate bank that we'd used, a guy called Rory O'Sullivan over at Page Mill and his colleague, Michal, and they were

13:01>> still on board from the 30,000,000. So they were there because we always said we were going to raise 120. So when the inbounds came in, we were able to keep our integrity, direct the inbounds to the bank, And then that's how things accelerated very quickly. And the reason why Sage bought us at the end of the day is they compete with NetSuite, so do we, but it's no secret that if you go to their website, you

Why Sage Acquired Brightpearl

Derek O'Carroll

13:23>> don't see a sector specific solution for retail, but obviously we are a sector specific solution for retail. So it was very much a logical marriage. They plugged us into Sage Intacct as the new retail and e commerce group, so they didn't want it to go elsewhere. And yeah, so a little bit of luck in there in terms of timing as we were obviously executing, putting scores on the board, but you always need a bit of luck,

13:49>> Nathan.

Nathan Latka

13:50I'd rather be lucky than smart. We'll put it that way. Right? Now, just to summarize. To sum this up, I mean, this is a great sort of story about value creation. Right? Because you did value creation here a bunch of different ways. The first one was you buy $4,000,000 of ARR for a 3x multiple, and then effectively you, less than a year later, get an 11x multiple on your sale. Right? So there's arbitrage there on the

Final Enterprise Value and Sage's Stake

Nathan Latka

14:11acquisition you did. But the second part is, is you grew organically from 18,000,000 to 25,000,000 in Brightpearl sort of central domain company. Right? And so the valuation they paid on this deal, I think was what was it? $340,000,000 total?

Derek O'Carroll

14:23>> $360,000,000 enterprise value and then some separate retention stuff on top. But enterprise value in terms of equity was $360,000,000, which everyone was very happy with.

Nathan Latka

14:32That's great. Yeah. And so and so basically, Sage needed to pony up money to buy about 80% that

Derek O'Carroll

14:37>> they didn't own of Brightpearl. 83% Okay. From from memory on the cap table. So $299,000,000, I think they paid up to complete the deal.

Nathan Latka

14:47Yep. 299 million euros, about $266,000,000.

Derek O'Carroll

14:51>> No. Dollars. No. I'm talking about $299 million.

Nathan Latka

14:54That report okay. It. Dollars. Dollars. You're right. You're right. Sorry. I I read that research wrong. 299 it's about, call it, $300,000,000, right, to buy that. Now where did they get the other we just talked about how they got a 10% stake the last round. Where did they get the other 7%? Was that way back before you joined?

Derek O'Carroll

15:10>> No. So they only bought in 10%. Maybe I got the math there wrong. They only bought when we did the 30,000,000 round, they bought in just over 11 percent.

15:19>> They got about 11% of the business at that stage. Maybe my numbers are so yeah. So they did they were in a ballpark.

Nathan Latka

15:26The public reporting said that Sage I mean, Sage's own reporting said that they bought the other 83% they didn't own, which mean they owned 17% already. I'm just trying to add that up.

Derek O'Carroll

15:38>> Yeah. No. You're correct, and I'm wrong. Apologies. You're correct. Yeah.

Nathan Latka

15:41So they bought more than in the series seed. They bought 17.

Derek O'Carroll

15:44>> They bought 17% if that's what their report says. Well Yeah.

Nathan Latka

15:48That's what their report says. What I'm trying to get to is you didn't have a relationship with They weren't on the cap table before that last round, that 30,000,000 round. Right?

Derek O'Carroll

15:55>> No, they weren't. They weren't.

Nathan Latka

15:57Did you bring them in?

Derek O'Carroll

15:59>> Yeah. We did. We formed relationships with them through a number of channels and they approached us from a corp dev perspective. So it was a very logical agreement because I wanted to raise money to build a better accounting solution within Brightpearl, specifically designed for retail. But when I looked at it, the cost of doing that and having a clear idea of what the strategy was to win in a highly commoditized market didn't really make sense. For

16:30>> me it was like, well, why should we build this? Let's go and partner for it and get distribution on the back end as well. And that was the logic, and that's why we approached the Sage team.

What Derek Is Doing Now Inside Sage

Nathan Latka

16:40So what are you doing now?

Derek O'Carroll

16:42>> Well, I'm

16:46>> to Sage and we get access to distribution, and that's the key thing. You know, you've got a small company that's 30,000,000 growing, we make decisions fast and we make them based on data and people's instincts, and then you're plugging that into a larger organization. And I've been through a number of, back in the days when I worked at a company called Symantec, I was to sort of land and expand for their acquisitions. So we did about

17:09>> seven acquisitions into the big mothership. And we know the challenges that arise is all about relevance. How do you get a $30,000,000 machine relevant to a business that turns over 2,300,000,000? You know what I mean? That's really what we're all focused on is helping the team create that land and expand pad within the big company. And then obviously get access to distribution and accelerate back up to sixty, seventy, 80% growth because obviously market penetration is still

17:37>> under 4% for our type of solution when we look at the people we can sell to. So that's what I'm going to be doing, and I'm very much focused on that. And I think there's a huge amount of potential to bring the solution to customers and give the employees the career development that they really did earn. So I'm going nowhere, I'm very focused, and it's been a ride. Thanks for following us.

Rapid Fire: Books, Sleep, and Lessons Learned

Nathan Latka

17:57I love that. All right guys, that note, let's wrap up here with Derek. Derek, number one, favorite business book?

Derek O'Carroll

18:03>> Business book, sorry, not reading one at the moment, I would recommend Breathe by James Nestor, The New Science of a lost art. Really cool book for making decisions in a busy world.

Nathan Latka

18:13Number two, is there a CEO you're following or studying?

Derek O'Carroll

18:17>> Well, Frank Slootman, definitely. He's amazing in terms of what he's doing. And he's also sort of similar age to my stuff, you know. That's it.

Nathan Latka

18:25It's it's amazing when he's done with Snowflake. You guys are very similar, actually. It's amazing when he's done with Snowflake.

Derek O'Carroll

18:30>> Number

18:31>> three Oh, my job. He's amazing.

Nathan Latka

18:33Right? I mean, number three. Favorite online tool, Derek, for building Brightpearl?

Derek O'Carroll

18:39>> Well, I've I've only started using it, but I'm really impressed with Microsoft Teams. It's amazing what they've done. You know, large corporate, they've innovated that product, and it's really, really good. So yeah.

Nathan Latka

18:50Number four. How many hours of sleep are you getting these days?

Derek O'Carroll

18:54>> Same as last year and the year before, eight to nine. I sleep well.

Nathan Latka

18:57That's good. He sleep and now he's in the French Riviera enjoying a little bit of a retreat off of off the back

Derek O'Carroll

19:02>> of the I'm not I'm not I'm not in the Riviera. Come on. Don't set me up like that.

Nathan Latka

19:05Okay. Okay.

Derek O'Carroll

19:06>> I'm in the Louvrein. It's much more civilized down here. You know? Much more civilized. Alright.

Nathan Latka

19:11And did you celebrate a birthday since we last spoke? You're 53 now?

Derek O'Carroll

19:15>> Yeah. Jeepers. Yeah. Going on. 54 in June this year, but, you know, still still acting like a thirty year old.

Nathan Latka

19:21That's great.

19:22Still two kids?

Derek O'Carroll

19:23>> Still two kids. Still married. Kept that together. That's always important to do this journey and keep keep together at home.

19:29>> That's very important.

Nathan Latka

19:30Last question, Derek. Something you wish knew when you were 20.

Derek O'Carroll

19:35>> Oh god. I don't party so much in my twenties. I partied too much in my twenties. I should have been I should have been head down working. Yeah. I'm sorry I didn't didn't think about that question.

Nathan Latka

19:47But No. I think that's a

Derek O'Carroll

19:48>> great answer That's my answer.

Nathan Latka

19:49I just Guys, happy Get stuck in. Life's short.

19:52Derek joined Brightpearl in 2016. They'd already raised about $40,000,000, but they were going down. Right? They were 8,000,000 in revenue going down to 6. He came in, turned it around, raised a down round, had to right the ship, raised 4,000,000 on eight back in 2016 to get it going again, broke 12,000,000 in revenue the year after that, raised a $15,000,000 round to keep growing. Fast forward up into 2021, they were breaking about $30,000,000 in revenue on

20:12the back of a $4,000,000 ARR acquisition they did. And then right on the back of that, I called a month later, Sage came in and bought it for a total enterprise value of $360,000,000. Cash component of that was 300,000,000 because Sage already owned about 17%. Now he's happily building Brightpearl inside of Sage. We'll see what happens next. Derek, thanks for taking us to the top.

Derek O'Carroll

20:30>> Cheers.

Nathan Latka

20:33One more thing before you go. We have a brand new show every Thursday at 1PM central. It's called Shark Tank for SaaS. We call it deal or bust. One founder comes on, three hungry buyers. They try and do a deal live and the founder shares back end dashboards, their expenses, their revenue, ARPU CAC, LTV, you name it, they share it and the buyers try and make a deal live. It is fun to watch every Thursday 1PM

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