Growth Stack Inc Revenue & Valuation (2024)

hello everyone my guest today is kevin peterson he was number 13 at a staffing industry startup that grew from 7 million to 65 million during his tenure and went public in 1996. the business still operates say in 26 countries with 4 billion in market cap today uh he spent 20 years consulting before launching growth stack inc a sas portfolio on a path to ipo in the next 30 months kevin you ready to take us to the top absolutely thank you nathan you bet so just to be clear is growth stacking.com a sas company or you're buying sas companies under that label we're buying sas companies under that label so uh growth stack is the whole co and we're we're tucking in uh b2b sas all right talking about your playbook everybody wants to do this but how do you find a deal how do you price it how do you convince the founder to sell let's start off maybe with your first deal what's the name of the first company you bought oh wow okay so trip down memory lane here so um seven years ago i started buying online businesses it was not specifically sas in the beginning i was building micro portfolios for well diversified investors that were you know really unaware that there was even a secondary market for online businesses so oddly the very first online business that i bought was a tattoo blog yeah you have any tattoos i don't have any tattoos i didn't sound like a product or a founder product match there not so much but i learned a lot from it so my background is marketing and uh and so to me that's you know online business is you know a lot of times what's missing are you know marketing fundamentals and traditional sales funds so um so you know to test the waters uh i paid 900 for a sas blog i mean sorry a tattoo blog and uh and as we mentioned i don't have any tattoos but i felt like you know i i need to understand content marketing if i'm going to go down this path and again like my background is marketing but it was kind of a different beast it was kind of new to me and i wanted to see what would happen so i bought this tattoo blog for 900. i hired a developer to improve it i paid about 300 in in development costs and uh within 90 days where did you find a developer for 300 bucks uh it was somebody overseas um and really all it needed and this is this is gonna there are there are probably a lot of things i'm gonna say today they're gonna date me a little bit but at the time you know seven it was only seven years ago but at the time um there were many online businesses that were not mobile friendly you know that sounds absurd today but just seven years ago that was pretty common so i paid somebody 300 bucks to make it mobile friendly i started writing the content myself um and you know based on my marketing background i understood that relevance is everything so i started developing tattoo content around every holiday on the calendar so there was a tattoo blog around halloween you know like the best tattoos for halloween and one for christmas and one for uh you know everything there was uh you know possible word for me do you still have the best yes i don't but that business that i spent you know i invested twelve hundred dollars in this business and then within 90 days it was producing 750 a month in profit and so then i just uh i lost i lost my my mind really i started buying businesses like crazy what happened um actually so unfortunately that business eventually was penalized by google i got the uh the infamous google letter saying or emails saying um you know we're not going to pay you anymore okay sas acquisition your first sas company yes so the first sas acquisition i bought was a company called pick rail um it's uh yeah p-i-p-s and peter i-c-r-e-e-l and uh you know it started out the time that i bought it it was um it was creating uh those you know quote unquote annoying pop-ups um we evolved here to be here to buy this oh sorry that was uh uh 2015. it was late 2015. how much did you pay for it uh that was around a million dollars it was our first seven figure acquisition yeah the big deal how much revenue was it doing uh at the time it was about three it was over three hundred thousand in arr in a r yeah i want to say it was about 360 370. you paid a three x multiple yeah we did where'd you get the money from not easy to come by is that just mine investors yeah so that was the funny thing so yeah to take you down the the history here so you know i started building these micro portfolios for investors and um and people you know what people saw from my early experiences buying online businesses was that i was excited about it and so there were a lot of people i know who were like well you know like i don't i don't understand what you do i don't know if i'll ever understand it but um uh here's you know 50 000 or something right will you place capital for me so that i can participate in this and your energy behind it and get some dividends off of it and so uh so i started building portfolios to do just that when did you do that kevin when did you raise your first outside capital uh it was uh so it's in that kind of 2014-2015 time period and how much was the first tranche that you raised um so uh there was i ended up building four portfolios that ranged in size from you know initially they were micro investments so it ranged in size from like you know half a million to a million and a half so you had individual investors writing you checks to invest in your fund for half a million to a million you kept them in their own portfolios and then you use that capital to go buy companies under each of those four blocks that's exactly right okay and so if i if i was the one that wrote you check as an investor for a million bucks back in 2014 what were you selling me what dividend like what returns would i be getting on my million uh so depending on the portfolio is between so let's say 13 on the low end to 22 ish on high end paid out like quarterly quarterly yeah got it so if i give you a million bucks you're basically saying what i would get 36 000 from you every three months uh yeah at the time i didn't have anyone participating at that level but effectively yeah that's where we're paying out there okay okay so that's how you scale so let's this is interesting you get pick real done by the way how would you convince the how did you find pick brio where should people look for deal flow today so that one i actually got through a broker which broke um uh fe international okay and what happened what happened who by the way they charged 15 fee on the sale did you have to pay that or did the founder have to pay that uh we i if i recall correctly we split the fee and and if i recall correctly their fees were lower at the time interesting okay so what keep going forward to pick real what happened next yeah so what happened was so we had some really we realized some very quick gains on pickerel we had 46 percent uh year on year growth first year um and again like you know what i'm seeing in the sas space is that uh founders tend to be tech savvy but not business savvy and that's not a slight against any founders it's just the way founders in the space are right so uh sas founders are very good at identifying a need in the marketplace um building that out taking a product to market going through proof of concept and building a small but loyal customer base and then uh and for the most part i know that you've you've had people on on your show that are enormously successful in this space and we challenge this but um but most of the sas founders that i meet with that are selling their businesses um are are really widget-focused and they have no interest in building out like a sales team um and and they'll build some marketing funnels but it's really not their thing right so kevin you're using this play but keep telling the story via pick reel so how much revenue did you go quick reel to uh i think the uh peak revenue was uh close to 600 arr okay and and what'd you do with it what year was that and did you sell it we did not sell it and in hindsight we should have you still full transfer no we just recently exited that position okay and why what did revenue decline to before you sold uh it was back down to approximately where we bought it it was right in that 300 to 350 000 and when did you sell it just like literally this month within the last 90 days oh wow okay how did you say did you use a broker no at this point um so you know again seven years is not a very long time but in the sas world it's uh it's enough time to build a very close you know to become part of a very close-knit community um what i see is that you know sas people in the sas space kind of know each other um people find me pretty easily uh i actually started a sas mastermind this year so i'm pretty well networked and so i get deal i get deal flow from every source imaginable and um and for me to exit a position uh it's not it's actually not hard for me to find a buyer on my own so what'd you end up knowing for uh it was uh we haven't actually disclosed this and i don't know if the the buyer come on breaking news throw it out there come on yeah all in it was yeah all in it was sub 500 okay so when you look back at that whole deal you buy it for three x a million you you milk some profits you grow yeah did you make money on the deal we did i mean ultimately we did um you know again in hindsight it would have been better to sell it at the top of the hockey stick uh and we didn't um but uh but we you know we owned it long enough and it produced enough cash flow long enough that it was it was certainly a profitable investment okay so that now you guys understand exactly how kevin operates now kevin give us the macro story here how many sas companies you own today and what's total revenue added up across all of them yeah so today we are operating four brands and uh we're on track for about a million and a half hour this year where are you at now monthly uh we're uh just north of 100 000 okay mri yeah that's right is there one brand that makes the majority of that 100 grand or is it pretty evenly distributed yeah there is a brand that makes up uh more than half which is um long tail pro long tail pro is the biggest what does that do yeah last year was about 600 maybe close to seven hundred thousand six hundred thousand oh sorry yeah so it's one of the longest uh keyword research tools on the market uh um it's been around for about ten years um you know competing with sem rush and hrefs and uh uber suggests i'm naming my competitors on your podcast that's okay how do you how do you and so 700k top line last year what to do in profits uh it was around 200 and change and what do you do how do you reinvest profits you take it personally as dividends and invest in real estate or what do you do with it um so we have you know we've got a pool of investors so actually let me let me share another critical piece of the story so about two and a half years ago um i had an epiphany that the only place i felt comfortable placing investor capital is sas and the reason for that is the recurring revenue component and the stickiness um and to me that equals runway so uh what i like about sas and what i like about sas for my investors is that if there are changes in the marketplace or changes in technology or changes in the competitive landscape we have time to react to that you know it's not you know we're not beholden to google and facebook and amazon to to pay us so the risk of having our revenue dry up overnight is very very low and if there are changes uh that you know they're effectively threats to the business or new competition in the marketplace we have time to react to that um so and then and really you know my you know i've got more than 20 years marketing experience and a lot of that was spent b2b marketing um and so to me b2b sas is just it's the right fit for me and i understand that space well enough to to you know fairly represent my investors right so today do you have a team supporting you or is it just i do have a team no i've got about 40 resources in nine countries 40 on the team how many engineers uh so probably 15 and how do you pay all them with just a million of revenue um so it just depends on the situation um so you know obviously a lot of uh overseas um engineers are are not high cost resources how do you use them as needed any of these marketplaces i do have a seat i do have a cto on staff full-time yeah is he recruiting directly out of like you know uh universities in india are you using something like you know sim form or cody toss or something no he's from india originally he's been in the u.s for about 14 years or 15 years now so uh he's still it's very easy for him to draw on resources as needed and so how many full-time folks like him do you have uh about a dozen about a dozen okay 12 people this is great are you planning to raise more capital for your fun to go do more deals yeah we're doing that right now so we are actually and this is this is part of you know like the pick real story as an example we are in the process of churning the portfolio we are looking at market um what i've heard over the past really in the past six months it feels like everyone's going up market at the same time so our investing thesis today is that uh we locate buy operate and grow b2b sas businesses that are producing between a million and a half and seven million uh ebitda at time of acquisition um we trade on a multiple of ebitda and uh uh we're looking at the four and a half to six and a half range would you take that for long tail pro i did a quarter million last year if i offered you 4x ebitda would you sell it for a million all cash upfront today uh it would be we would be able to have a conversation let me just say it that way smart answer i almost got you could you guys see this little thing i almost got him that was so perfect almost all right conversation fair enough so that's the door will be open yeah the door yes yeah like devops tools or crms or something else yeah so um i love fintech i'm not seeing a lot of fintech deals but i love fintech um what i really this is the way i describe this to uh well to anyone who asks really is uh what attracts me to a sas business today is mo so it has to be a defensible model there has to be something about the model that makes it hard to replicate so one of the challenges that we've seen like using pick rail as an example is anytime there's a new model and you know new sas model that's getting traction in the marketplace instantly there are cheap knock-offs right there there are people around the world where their debt costs are very low they can take something to market very quickly and they can charge 10 of what you charge and get a you know a small subset of the entry level market um and they're happy about it so today what i really look for are sas businesses that are just it would be painful for either painful or costly for somebody to try to replicate it kevin this has been great we're out of time feel rapid fire things real quick if you're out about a hundred thousand dollars a month today in revenue across your full portfolio where were you exactly a year ago uh it was uh actually it was about the same okay so you're about flat year over year and then besides sort of the fun structure you said you're raising right now if i wanted to invest and give you a million dollars today what returns are you pitching me so what we're really looking to do there's really two benefit statements that i can share one is that we are operating in an opportunity zone and we're using that legislation to pull sas into an opportunity zone and protect cap gains for our investors the other is we are actively pursuing valuation arbitrage so we're looking to pay four to six x even at time of acquisition roll this up take it public in either a direct listing or a spec and uh and give our investors a path for uh you know that that uh y factor on the public market yeah how many customers do you have paying across all your four platforms uh it's um probably twenty thousand twenty okay so this is a low r boost sort of play 20 000 playing five bucks a month sort of deal on average uh more or less i mean we're we have pretty standard sas pricing where most of our customers are paying in the let's say 79 to you know 299 a month range and then we've got enterprise customers that pay you know a thousand or more per month well if you have 20 000 customers paying 79 a month you're doing way more than 100 a month in revenue you're doing 1.5 million a month in revenue yeah we do have one that is that number is skewed by one of our assets where the average uh ticket is eleven dollars a month yeah yeah if you're doing a hundred thousand dollars a month in revenue divided by twenty thousand customers the average customer's paying about five bucks a month not eighty bucks a month right yeah but it just depends on the brand and and the service there's we have thousands of customers that are paying like five dollars a month and then we have we also have thousands of customers that are paying significantly more than that so totally understand okay great let's wrap up the famous five number one favorite book oh my oh no i should have been prepared for the book question and i'm not there's so many is there a founder you're following or studying um again there are many but uh i i really appreciate uh richard branson and his story number three what's your favorite online tool for building your business besides any of your own oh man why can't i use my own on your own um so uh that's actually loaded question two just because i'm i'm um pick one kind of by now i'm kind of burnt on the uh the crms i have been using um i don't know i i don't know i like drip i like convertkit okay there you go drip uh number four how many hours of sleep do you get every night say that again sorry can you sleep how many hours each night oh uh i'm pretty good in the i function really well in the six to seven range and what's your situation married single kids married kids how many kids three kids ages uh yeah 27 25 and 11. that's great how old are you i just turned 53 in february congrats last question what's something you wish you knew when you were 20. um it's uh you know this is i'm gonna just repeat an adage that i'm sure a lot of people have heard the hardest thing to do in business is for any business owner ever is to raise a million dollars it's actually easier to raise 10 or 20 50. and you don't know that when you're 20. it's just everything sounds big and scary and you just don't have a full appreciation for um for how capital how the capital markets work right there you have a growth stack inc it's a mini private equity firm in the sas space their biggest brand is called long tail pro does about 700 000 a year in revenue profits a quarter million looks to exit companies for sort of like 6x plus ebitda looks to buy them at two to four x ebitda there's arbitrage there uh we'll see what happens next he's raising his next fun to go take on new companies and hopes to maybe stack the whole organization the whole whole holding company soon kevin thanks for taking us to the top thank you nathan one more thing before you go we have a brand new show every thursday at 1 pm central it's called shark tank for sas 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 1 pm central additionally remember these recorded founder interviews go live we release them here on youtube every day at 2 p.m central to make sure you don't miss any of that make sure you click the subscribe button below here on youtube the big red button and then click the little bell notification to make sure you get notifications when we do go live i wouldn't want you to miss breaking news in the sas world whether it's an acquisition a big fundraise a big sale a big profitability statement or something else i don't want you to miss it additionally if you want to take this conversation deeper and further we have by far the largest private slack community for b2b sas founders you want to get in there we've probably talked about your tool if you're running a company or your firm if you're investing you can go in there and quickly search and see what people are saying sign up for that at nathan lacka dot com forward slash slack in the meantime i'm hanging out with you here on youtube i'll be in the comments for the next 30 minutes feel free to let me know what you thought about this episode if you enjoyed it click the thumbs up we get a lot of haters that are mad at how aggressive i am on these shows but i do it so that we can all learn we have to counter those people we got to push them away click the thumbs up below to counter them and know that i appreciate your guys's support all right i'll be in the comments see ya