How Growth Stack Inc Operates 4 SaaS Brands with 20,000 Customers (Interview with Kevin Petersen)

Introduction and Background

Nathan Latka

00:00Hello, everyone. My guest today is Kevin Petersen. He was number 13 at a staffing industry startup that grew from 7,000,000 to 65,000,000 during his tenure and went public in 1996. The business still operates today in 26 countries with 4,000,000,000 in market cap. Today, he spent, twenty years consulting before launching Growth Stack Inc, a SaaS portfolio on a path to IPO in the next thirty months. Kevin, you ready to take us to the top?

Kevin Petersen

00:23>> Absolutely. Thank you, Nathan.

What Is Growth Stack Inc

Nathan Latka

00:24You bet. So just to be clear, is growthstackinc.com a SaaS company or you're buying SaaS companies under that label?

Kevin Petersen

00:30>> We're buying SaaS companies under that label. So Growth Stack is the whole co and we're tucking in B2B SaaS.

The Acquisition Playbook and First Deal

Nathan Latka

00:39All right, talk to me about your playbook. Everybody wants to do this, but how do you find a deal? How do you price it? How do convince the founder to sell? Let's start off maybe with your first deal. What's the name of the first company you bought?

Kevin Petersen

00:49>> Oh, wow. Okay, so trip down memory lane here. So seven years ago, I started buying online businesses. It was not specifically SaaS 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.

Nathan Latka

01:17Do you have any tattoos?

Kevin Petersen

01:18>> I don't have any tattoos.

Nathan Latka

01:21I thought it sounded like a founder product match there.

Kevin Petersen

01:24>> Not so much, but I learned a lot from it. So my background is marketing.

01:30>> And so to me, that's, you know, business is, you know, a lot of times what's missing are, you know, marketing fundamentals and traditional sales models. So, you know, to test the waters, I paid $900 for a SaaS blog. I mean, a tattoo blog. And as we mentioned, I don't have any tattoos, but I felt like, you know, I need to understand content marketing if I'm going to go down this path. And again, like my background is

01:58>> marketing, but it was kind of a different beast and 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 development costs And within ninety days- Where'd

Nathan Latka

02:14you find a developer for $300?

Kevin Petersen

02:16>> It was somebody overseas and really all it needed. And this is going to- there are probably a lot of things I'm going say today that are going to date me a little bit. But at the time, you know, it was only seven years ago, but at the time, 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

Nathan Latka

02:39>> to make it mobile friendly. I started writing with content myself.

02:44>> 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, you know, everything. Was, Fast you

03:05forward for me, do you

03:06>> still have the business? Fast forward, yes, I don't. But that business that I spent, you know, invested $1,200 into this business and then within ninety days it was producing $750 a month in profit. And so then I just, I lost my mind really. Started buying businesses What like happened? Actually, so unfortunately that business eventually was penalized by Google. I got the infamous Google letter saying or email saying,

03:36>> we're going to pay anymore. So stopped.

First SaaS Acquisition: Picreel

Nathan Latka

03:43>> SaaS acquisition I bought was a company called Picreel. It's, yeah, p I p as in Peter, I c r e e l. And,

03:57>> you know, it started out, the time that I bought it,

04:01>> it was creating those, you know, quote unquote annoying pop ups. Evolved it to be What year did you buy this? Oh, sorry. That was 2015. It was late twenty fifteen.

04:15How much did you pay for it?

04:17>> That was around a million dollars. It was our first 7 figure acquisition.

04:21That's a big deal. How much revenue was it doing?

04:24>> At the time it was about 3, it was over 300,000.

04:28In ARR.

04:30>> In ARR, yeah. I want to say it was about $360,000, $370,000.

04:34You paid a 3X multiple?

04:36>> Yeah, we did. Where'd you get the money It's

04:38not easy to come by, is that just money?

04:39>> Private investors. So that was the funny thing. So yeah, to take you down the history here. So, you know, I started building these micro portfolios for investors 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 understand what you do. I don't know if I'll ever understand it, but

05:06>> here's $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 I started building portfolios to do just that.

05:20When did you do that, Kevin? When did you raise your first outside capital?

05:24>> Was, so it was in that kind of 2014, 2015 time period.

05:30And how much was the first tranche that you raised?

05:34>> So,

Kevin Petersen

05:38>> 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, 500,000 to 1,500,000.

05:51You had individual investors writing you checks to invest in your fund for a 500,000 to 1,000,000, you kept them in their own portfolios and then use that capital to go buy companies under each of those four blocks.

06:00>> That's exactly right.

06:02Okay, and so if I was the one that wrote you a 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?

06:12>> So depending on the portfolio is between, so let's say 13% on the low end to 22 ish on the high end.

06:18Paid out like quarterly?

06:20>> Quarterly, yeah.

06:22Got it. So if I give you a million bucks, you're basically saying what I would get $36,000 from you every three months?

06:32>> Yeah, at the time I didn't have anyone participating at that level, but effectively, that's what we're paying out in the

Nathan Latka

06:38middle Okay, of so that's how you scale. So let's, this is interesting. You get Picreel done, by the way, how'd you convince that, how'd you find Picreel? Where should people look for deal flow today?

06:47>> So that one I actually got through a broker. Which broker? FE International. Okay.

Kevin Petersen

06:54And 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?

Nathan Latka

07:01>> If I recall correctly, we split the fee. And if I recall correctly, their fees were lower at the time.

07:08Interesting. Okay, so keep going forward to Picreel, what happened next?

Picreel Growth and Lessons Learned

Kevin Petersen

07:11>> Yeah, so what happened was, so we had some really, we realized some very quick gains on Picreel. We had 46% year on year growth first year. And again, like, you know, what I'm seeing in the SaaS space is that 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 this space are, right? So, SaaS founders are very good at identifying a need in

07:36>> the marketplace, building that out, taking a product to market, going through proof of concept, and building a small but loyal customer base. And then, and for the most part, I know that you've had people on your show that are enormously successful in this space and would challenge this. But most of the SaaS founders that I meet with that are selling their businesses are really widget focused and they have no interest in building out like a sales

08:06>> team. And they'll build some marketing funnels, but it's really not their thing, right? Look,

08:12you using this playbook, keep telling the four way via Picreel. So how much revenue did you go Picreel to? I

Picreel Peak Revenue and Exit

Kevin Petersen

08:19>> think the peak revenue was close to 600 ARR.

Nathan Latka

08:24Okay, and what'd you do with it? What year was that? And did you sell it?

Kevin Petersen

08:28>> We did not sell it. And in hindsight, we should have.

Nathan Latka

08:32But you still own it today?

08:32>> Full transparent. No, we just recently exited that position.

08:36Okay. And what did revenue decline to before you sold?

08:39>> It was back down to approximately where we bought it. It was right in that 300 to 350,000 ARR.

08:45And when did you sell it? Just like literally this month?

08:48>> Within the last ninety days.

08:50Oh, wow. Okay. How did you sell it?

Kevin Petersen

08:51>> Did

08:52you use a broker?

08:54>> No, at this point.

Nathan Latka

08:56>> Again, seven years is not a very long time, but in the SaaS world, it's enough time to build a very close, to become part of a very close knit community. What I see is that, people in the SaaS space kind of know each other. People find me pretty easily. I actually started a SaaS mastermind this year, so I'm pretty well networked. And so I get deal flow from every source imaginable. For me to exit a position,

Kevin Petersen

09:26>> it's not, it's actually not hard for me to find a buyer on my own. So what

Nathan Latka

09:31you end selling for?

Kevin Petersen

09:33>> It was, we haven't actually disclosed this and I don't know if

09:36the buyer- Come on, is breaking news, throw it out there, come on.

09:43>> All in it was sub 500.

09:47Okay, so when you look back at that whole deal, you buy it for 3 X 1,000,000, you milk some profits, you grow to some rate. Did you make money on the deal?

09:57>> We did. I mean, ultimately we did. You know, again, in hindsight, it would have been better to sell it at the top of the hockey stick and we didn't.

10:08>> But we, you know, we owned it long enough and it produced enough cash flow long enough that it was certainly a profitable investment.

Portfolio Overview: Four Brands and Revenue

Nathan Latka

10:16Okay, so that now you guys understand exactly how Kevin operates. Now, Kevin, give us the macro story here. How many SaaS companies do you own today and what's total revenue added up across all of them?

Kevin Petersen

10:25>> Yeah, so today we are operating four brands and we're on track for about 1,500,000 ARR this year.

Nathan Latka

10:32Where are you at now monthly?

Kevin Petersen

10:35>> We're just north of a 100,000 MRR.

Nathan Latka

10:41That's great. Is there one brand that makes the majority of that $100,000 or is it pretty evenly distributed?

Long Tail Pro: Biggest Brand

Kevin Petersen

10:46>> Yeah, there is a brand that makes up more than half, which is Long Tail Pro.

10:53Long Tail Pro is the biggest. What does that do? Yeah.

10:56>> Last year was about 600, close to 700,000.

11:01Oh,

11:03sorry.

11:04>> Yeah. So it's one of the longest keyword research tools on the market.

11:09>> It's been around for about ten years, you know, competing with SEMrush and Ahrefs and Ubersuggest. I'm naming my competitors on your podcast.

11:20That's okay. How do you, and so 700 top line last year, what did you do in profits?

11:29>> It was around 200 and change.

11:31What do you do? How do you reinvest profits? Do you take it personally as dividends and invest in real estate or what do do with it?

11:38>> So we have, you know, we've got a pool of investors. So actually, me share another critical piece of the story. So about two and a half years ago, I had an epiphany that the only place I felt comfortable placing investor capital is SaaS. And the reason for that is the recurring revenue component and the stickiness. And to me that equals runway. So what I like about SaaS and what I like about SaaS for my investors is

Nathan Latka

12:04>> 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, we're not beholden to Google and Facebook and Amazon to pay us. So the risk of having our revenue dry up overnight is very, very low. And if there are changes that are, you know, they're effectively threats to the business or new competition in the marketplace, we have time to

12:29>> react to that. So, and then, and really, you know, my, you know, I've got more than twenty years marketing experience and a lot of that was spent B2B marketing. And so to me, B2B SaaS is just, it's the right fit for me. And I understand that space well enough to, you know, fairly represent my investors.

Team Size and Structure

Nathan Latka

12:49So Do you have a team supporting you or is it just- I do have a team.

Kevin Petersen

12:54>> No, I've got about 40 resources in nine countries.

Nathan Latka

12:5940 on the team. How many engineers?

Kevin Petersen

13:02>> So probably 15.

Nathan Latka

13:05Okay. And how do you pay all of them? With just a million of revenue?

Kevin Petersen

13:09>> So it just depends on the situation. So, obviously a lot of overseas engineers are not high cost resources.

13:19How do you find these marketplaces?

13:22>> I do have a CTO on staff.

13:24Oh, full time? Yeah. Is he recruiting directly out of like, universities in India? Or are you using something like, Simform or Coditas or something?

Nathan Latka

13:33>> No, he's from India originally. He's been in The US for about fourteen years or fifteen years now. So he's still, it's very easy for him to draw on resources as needed.

13:45And so how many full time folks like him do you have?

13:49>> About a dozen.

13:50About a dozen. Okay, 12 people. This is great. Are you planning to raise more capital for your fund to go do more deals?

Raising the Next Fund and Investing Thesis

Kevin Petersen

13:55>> Yeah, we're doing that right now. So we are actually, and this is part of, you know, like the Picreel story as an example. We are in the process of turning the portfolio. We are looking at market. 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 we locate, buy, operate and grow B2B SaaS businesses that are

14:21>> producing between 1,500,000 and 7,000,000 EBITDA at time of acquisition. We trade on a multiple of EBITDA and We're looking at the 4.5 to 6.5 range.

Nathan Latka

14:35Would you take that for Long Tail Pro? I did a 250,000 last year. If I offered you 4X EBITDA, would you sell it for 1,000,000 all cash upfront today?

Kevin Petersen

14:44>> It would be, we would be able to have a conversation. Let me just say it Smart that

14:49answer, I almost got you. Could you guys see us listening? I almost got him. That was so perfect, almost. All right, conversation, fair enough. That's The you're

Nathan Latka

14:57>> door would be open, yeah.

14:59Yes. Any specific questions? Like DevOps tools or CRMs or something else?

15:04>> Yeah, so I love FinTech. I'm not seeing a lot of FinTech deals, but I love FinTech. What I really, this is the way I describe this to, well, to anyone who asks really, is what attracts me to a SaaS business today is moat. 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 Picreel as an

15:31>> example, is anytime there's a new model, you know, a new SaaS model that's getting traction in the marketplace, instantly there are cheap knockoffs, right? There are people around the world where their dev 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. And they're happy about it. So, today what I really look for

15:57>> are SaaS businesses that are just, it would be painful for either painful or costly for somebody to try to replicate it.

16:05Kevin, this has been great. We're out of time. Feel rapid fire things real quick. If you're at about a $100,000 a month today in revenue across your full portfolio, where were you exactly a year ago?

16:16>> Actually, it was about the same.

Kevin Petersen

16:17Okay, so you're about flat year over year. Then besides sort of the fund structure, said you're raising right now, if I wanted to invest and give you a million dollars today, what returns are you pitching me?

Nathan Latka

16:28>> 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 SaaS into an opportunity zone and protect cap gains for investors. The other is we are actively pursuing valuation arbitrage. So, we're looking to pay four to six x EBITDA at time of acquisition, roll this up, take it public in either a direct listing or a

16:57>> SPAC and give our investors a path for, you know, that why factor on public market. Yeah.

Customer Count Across All Platforms

Kevin Petersen

17:06How many customers do you have paying across all your four platforms?

17:10>> It's probably 20,000.

Nathan Latka

17:1520,000, okay. So this is a low ARPU sort of play, 20,000 paying $5 a month sort of deal on average?

Pricing and ARPU Discussion

Kevin Petersen

17:23>> More or less. I mean, have pretty standard SaaS pricing where most of our customers are paying in the, let's say, 79 to $299 a month range. And then we've got enterprise customers that pay a thousand or more per month.

Nathan Latka

17:38Well, if you have 20,000 customers paying $79 a month, you're doing way more than 100,000 a month in revenue. You're doing $1,500,000 a month in revenue.

Kevin Petersen

17:45>> Yeah, we do have one. That number is skewed by one of our assets where the average ticket is $11 a month.

Nathan Latka

17:51Yeah, yeah. If you're doing a $100,000 a month in revenue divided by 20,000 customers, the average customer is paying about $5 a month, not $80 a month, right?

Kevin Petersen

18:00>> Yeah, but it just depends on the brand and the service. We have thousands of customers that are paying like $5 a month. And then we also have thousands of customers that are paying significantly more than that. And then, yeah.

Famous Five Rapid Fire

Nathan Latka

18:15Totally understand. Okay, great. Let's wrap up with the famous five. Number one, favorite book.

Kevin Petersen

18:20>> Oh my, oh no. I should have been prepared for the book question and I'm not. There's so many.

Nathan Latka

18:26We'll say none then. Two is there you're following or studying?

Kevin Petersen

18:33>> Again, there are many, but I really appreciate Richard Branson and his story.

Nathan Latka

18:39Number three, what's your favorite online tool for building your business besides any of your own?

Kevin Petersen

18:43>> Oh man, why can't I use my own?

Nathan Latka

18:45On your own.

Kevin Petersen

18:47>> So that's actually a loaded question too, just because I'm I'm kind of I know I'm kind of burnt on the CRMs I have been using.

19:01>> I don't know, I

19:04>> like Drip, I like ConvertKit.

19:05Okay, there you go, Drip. Number four, how many hours of sleep do you

Nathan Latka

19:08get every night?

Kevin Petersen

19:10>> Say that again, sorry.

19:12Sleep, how many hours each night?

19:13>> Oh, I'm pretty good in the, I function really well in the six to seven range.

19:19And what's your situation, married, single kids?

19:22>> Married, kids.

19:23How many kids?

19:24>> Three kids, ages, yeah, 27, 25 and 11.

Nathan Latka

19:29That's great. How old are you?

19:31>> I just turned 53 in February.

19:33Congrats.

Advice for 20-Year-Old Self

Nathan Latka

19:34>> Last question. What's something you wish you knew when you were 20?

Kevin Petersen

19:39>> It's,

19:44>> you know, this is, I'm going to 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 or 50. And you don't know that when you're 20, it just, everything sounds big and scary and you just don't have a full appreciation for how the capital markets work. There you

Nathan Latka

20:08have it, Growth Stack Inc. It's a mini private equity firm in the SaaS space. Their biggest brand is called Long Tail Pro, does about $700,000 a year in revenue, profits a 250,000. Looks to exit companies for sort of like six X plus EBITDA, looks to buy them at two to four X EBITDA, there's arbitrage there. We'll see what happens next. He's raising his next fund to go take on new companies and hopes to maybe SPAC the

20:27whole organization, the whole holding company soon. Kevin, thanks for taking us to the top.

20:32>> Thank you, Nathan.

20:35One 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

21:00Central. Additionally, remember these recorded founder interviews go live. We release them here on YouTube every day at 2PM 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 SaaS world, whether it's an acquisition, a big

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22:11See you.