Dissecting ProfitWell's Acquisition (with Patrick Campbell)

Transcript: (disclaimer: may contain unintentionally confusing, inaccurate and/or amusing transcription errors)

Ben: Hello Acquired LPs. We are back with repeat guest, Patrick Campbell from ProfitWell. Hello, Patrick.

Patrick: Hey. What's up, guys?

Ben: Thank you for joining us again. I can tell you that I was just looking at the stats in the previous episode that we did with you, which was a masterclass on pricing. When the LP show was purely a private thing that only went to LPs, it was the most listened episode ever. I think it's because of the insane amount of utility that it brings. Pricing strategy is this crazy opaque box where you'd never get it right if you just tried to find it on your own. Thank you for that masterclass.

David: We still get notes from people in that episode.

Patrick: I understand I was the guest, but let me let me put this back to you. You guys do something different. This isn't the compliment I said I was going to say, so I'm going to give you two compliments.

One thing you guys do, especially in that episode, what people don't know is we had a pre-meeting, where we kind of recorded a podcast almost, where you're like, what about this? What about this? You guys translated everything into a really good outline.

I think that's what really made the episode because the value per minute went up without just me talking. What I'm trying to say is the value per minute on this episode will be much, much lower because we didn't do as much prep.

David: But the story will be better.

Patrick: There you go. Yeah, there'll be more salacious details. Not quite Hulu, Joseph Gordon-Levitt level, but on that wavelength, I suppose. But yeah, thanks for having me, guys.

I did want to say my other compliment that I reference. I'm a huge fan, which I'm sure never gets old to hear. The reason I'm a huge fan, you guys are minds. When I mean by minds, there are so many people in this.

David: The way you go with this, we might have to cut it, no?

Patrick. No, this is great. Another way to say it is you guys are academics, professors, et cetera. Some of those have a tinge of negativity. I don't mean that at all. But you guys are obviously operators, executors, those types of things.

There are explorers, and there are people who are kind of more just money-focused and stuff. You guys are genuinely interested in seeking truth or seeking understanding in those types of things, and it's incredibly rare.

Most podcasts are like, let's just hang out. Even the well-produced ones are, yes, the aim is to get money. You guys are like, what is truth? What is education? What does it look like? And then the rest will be figured out. I appreciate that as a listener, so there we go.

David: Thanks, man. That means a lot.

Patrick: Hopefully that's helpful. Hopefully you were having bad days, and I just turned it around. That was my intention there.

Ben: Hopefully, I was having a bad day. Thank you.

Patrick: I want to be the one. I'm making it about me now. That's what [...].

Ben: All right. Speaking of making it about you, you have some news. You had some news about a month ago, but we are having a deep dive here. This is like an original, true-to-form, early-stage Acquired episode. Your company was acquired. Tell us about that.

Patrick: We were. For those who don't know, ProfitWell—we can always get into what we do in a bit—the headline story, we're a bootstrap company out of Boston, Utah, and Rosario. I've been working on it since 2013-ish. We just sold for over $200 million cash and stock deal. Now that I have reached the mountain top, I don't know what to do.

I caught the car, at least all mountain tops, not quite Everest. Now I'm trying to take on the world of payments infrastructure. New world now with Paddle and it's based out of the UK, so exciting stuff.

Ben: First off, congratulations. Second, even though we don't want to recap the whole ProfitWell story, I do want to pull out a few key details, which were, I don't think you were bootstrapped by principle. You were bootstrapped because no one would fund the thing that you were doing, because they thought it was a low margin services business, right?

Patrick: Yeah, it's a little bit of column A, column B. I think the reason we sold was because we were going to raise our first round, and then got into an M&A conversation, and tried to do a parallel path, which is hard mode. I never raised money. I've been involved with the previous company as an analyst, but nothing serious.

In the beginning, it was a pure software product. Whenever I get a chance, I have to point it out. The pricing software was a pure software product. The problem is that pricing suffers from a trust gap, where if I give you the exact data you need and I give you exactly what to do, the smartest people out there, the smartest execs who would jump into any other problem, even if it wasn't in their core competency, freeze up.

When we would get people the data, they would say like, oh, can I just pay you to get the data? I'd be like, cool, we'll do a little bit of that because we can stream that product later. Then all of a sudden, it was, well, can you come talk to us about it? We were like, oh, VCs don't like services, what do we do? Then they're like, we'll pay you a lot of money. I went, okay, because it was really early on.

The way we looked at it was we were going to get paid for customer development. But then all of a sudden, something kind of fun happened where our pricing turned out to be pretty good on our retention on that product because it was basically a subscription tech-enabled service.

Ben: This was Price Intelligently?

Patrick: This was Price Intelligently, which is still around. It's still a product line, a much bigger product line now. But long story short, it wasn't like a consultancy where I interview you guys for 45 minutes, and then I come up with a plan, and I'm kind of copying and pasting some slides from other 10 people. It was like, no, you came to us, we explained, this is how we solve your pricing problem. This is where we start and where we stop. If you're interested, great, let's buy it. If not, it's an annual contract, et cetera. The margin on that business was not SaaS, but it was definitely infrastructure level. It was over 50%.

Ben: And SaaS being defined as 80%–90%?

Patrick: Yeah, it's hard to say because there are some SaaS companies that have 40% margin. To give you context, our retain product, the margin is like 95+%, depending on the month. Long story short, we started having this vision that was wider than just the pricing product. We started to see a vision towards, well, we're cash flowing this much money a month. None of us are taking distributions or paying ourselves that much, which I think was a mistake, in hindsight. Not to take it all, but to take a little bit better of level of living. Long story short—

David: We should get into that in a minute.

Patrick: Yeah, but we kind of went from there. Then all of a sudden, we started building the metrics product, which is subscription financial metrics. You plug it into your billing system—Stripe, Chargebee, Recurly, Paddle's or whatever—and they give you free access to metrics. That started taking off, but it's a terrible business to monetize.

The first VC meeting I had outside of Boston was with Alison Wagonfeld, I think is her last name. She was, I think, quite a VC at Emergence. I think she might have been a partner, but she was there between companies. Now she's running Google Cloud, which is kind of crazy.

She just was like, analytics are terrible businesses. I was like, why? She's like, no one wants to invest in them. She was less dramatic as I'm saying right now. It was eight years ago. I was like, oh, interesting. We started exploring, and then it ended up being free.

That was actually the moment that we should have raised money, right there. When we knew ProfitWell was going to be free, it was a financial analytics product that needed to be accurate, which is the word accuracy there takes the level of difficulty higher.

Ben: Therefore more expensive to build a product that is not monetizing.

Patrick: Totally. We had enough research, traction, and all that kind of stuff. We had term sheets at that point. We had people coming to us. It was a little bit of a frothy time in the 2014–2015 era right there. The little bumps, not like the last couple of years.

We did have interest, but that's when we were not quite principled, but we were like, okay, it's going to take 18 months just to get the accuracy right, unfortunately. As they say, nine women can't make a baby in a month. Almost the margin hurt us because we were like, well, let's just wait until this milestone, and then we get to the milestone, and there'd be enough cash, and we'd hire. We're like, let's get this.

What happened is it all worked out in hindsight, but we kind of stair-stepped rather than taking a big step level. We took small step levels, and we kept going up, but there were a couple points in the history that I think we should have raised money. I didn't know how to raise money. I didn't really know that that was a thing when we started.

David: You just knew how to make money.

Patrick: Yeah. I didn't know how to do that either. In hindsight, it's all great. I worked at Google as an Adwords strategist, which is basically you get paid to look at spreadsheets way more than you should to work at spreadsheets.

Before that, I worked in the US intelligence community in DC. I worked at NSA, which was fantastic from a learning perspective, but none of it was business. I never wanted to go into business. I was not an entrepreneur. I had entrepreneurial things I can look at in the past, but it was just a lot of first principles thinking to figure stuff out going forward.

I think that hurt us, because every single time, it was like, rationalize how we could get there. It would just take some more time. That's the thing. Time and money are fungible, and we didn't really realize that. But yeah, it worked out. Don't worry.

Ben: I'm curious to drill in on a couple of questions about the journey. Were there moments where you sort of looked at a growth opportunity and thought, well, we actually don't have that much capital because we're just going off of the free cash flow that we're generating from the business, or we're reinvesting that in growth, but gosh, we really could invest into this opportunity a lot more if we did have capital. Did you constantly feel constrained at your ability to reinvest in the business?

Patrick: That was the other problem. The other problem being before I explain; let me tag it. What ended up happening is there were too many parallel paths going on. What I mean by that is, we have Price Intelligently. That product starts growing. It's growing really, really well. There are problems every so often. We have these free metrics products. That's scaling really, really well. We have this retain product, which is a pure software product. We have this revenue recognition product, which is a pure software product.

We have a media strategy. We were one of the first (if not the first) B2B companies to do a media strategy with inbound media, I think is the term that's now kind of being normalized, but multiple shows, podcasts, and all this other stuff. All of this stuff going on, it was one in the beginning, but the max team was 85–90 people. Imagine doing all of those things, a freemium strategy, a media strategy, which is not cheap.

What happened is all of this time, we were like, well, we don't know where to spend the money. Then we know where we'd spend the money, but we don't know the return yet. Then we were building all the other functions, inside sales, finance, all these other things.

Inside sales is, there were so many teams that were slowly incrementally getting better. It wasn't like we thought this at the time, but the thesis was, oh, well, the compounding effect will happen. They'll all get over the activation energy and compound, which is true.

It did work. But what happened is then not until the beginning of 2021, did we go, yup, we need to raise money because we have too many $10,000 arguments. We're having five $10,000 arguments, which one, we should be only having 25, 50 maybe $100,000 arguments at our revenue size. Also, all five of these things, we know, should have the investment.

We totally know that we should hire that next person in content. Because we know the ROI, we totally know that we should hire those next three BDRs. We totally know that we should hire this integrations team. But the surface area was so large that it was like oh, crap, they snuck up on us.

That's why I think that if you want to build a big company, which was entirely our focus, and I don't think this is a pejorative term, but people think it is a lifestyle business. It wasn't our intention. You want to get as much revenue for as least amount of work, go for it. That's amazing.

We wanted that path. We then also had the realization probably at the start of 2020. We were like, yeah, there isn't a single company. We had past $10 million in revenue. I can't remember exactly where it was, but it was 2019–2020, let's just say.

There was not a single company that has our sales motion, inside sales, brand, events, et cetera, has gone from $10 million to $100 million without raising money, not a single one. We're like, we're not going to be the first. That's when it started kind of going.

David: You weren't so philosophically committed.

Patrick: Yeah, because it was never FVCs or anything like that. I think that argument is dumb, because I think that argument, the end of it is always, it's a tool. Figure out when to use the tool, like most things.

I was actually reflecting on that, because I now have a couple months that my deal brain is relaxed a little bit. Now it's like, oh, where could we have been better? Where did we go wrong? Those types of things are coming.

David: Your story so reminds me of when Tobi at Shopify decided to go from bootstrapped company to raising money. It's like the same feelings, I think, that he had. He was like, we have all these investment initiatives on the table in front of us, and I'm thinking about which one I pick for this quarter given our cash flow.

I think he ran an experiment. He had five on the table in front of them. He's like, I'm going to see what happens if we just do all five. I'll find the cash for it, and then all five have a huge ROI.

Ben: We shouldn't be prioritizing these all clear the hurdle rate.

Patrick: And that's the thing. Eric Huan, I think we were talking about before the pod, too, one of the most amazing things about their S-1 is that you realized they reinvested money quick. It wasn't like free cash flow, but basically the cash that they made in that previous quarter was added to the expenses almost to the dollar the next quarter. They just were investing so well.

It was one of those things. We got into that motion. But I think what ends up happening is there's this cliche, which is to focus, which is not untrue. But the thing that we don't talk about with some of these cliches, particularly that one is, yeah, you have to focus. But we have a lot of people focusing on a lot of things.

The secret, and this is why planning at companies is so difficult and frameworks break all the time for planning is, yeah, we all need to be going in the general direction. That's where we need to start. We're not going to be going in the exact same direction. The general direction is where we need to go.

Some of us need to be thinking about the next three months. Some of us need to be thinking about the next nine months. Some of us, the next 18 months. And all of that needs funding. That's a big thing that we thought about, at least in hindsight. We actually have a scheduled retrospective on, and I know that sounds terrible, but on where we failed.

The classic like, we failed to be a multibillion dollar company. Where did we fail? I think it's being harsh, but that's kind of how we are. That's a very bootstrapped brain thing to do. But I think the reason we're doing it is because it's like, okay, what would we have done differently? Would that have had a different outcome?

Part of me thinks we should have done all the things I talked about, but also I don't think it would have changed the outcome. The other thing that we faced is that we are a symbiotic company inside an ecosystem. That means we don't make money unless we integrate it with all these other systems.

Someone has to integrate Stripe to get their metrics and or integrate Stripe to get retained. They can hire us for Price Intelligently as well, I guess, without being integrated. But I think the thing that we started realizing was like, where did these companies go? Stripe has analytics. They're not great, but they have a lot of resources. They could start pointing at it if they really wanted to. It's just a matter of probably when.

Ben: When you said, where do these companies go, you mean companies like us who are required to integrate with all these really big fish who all are looking for growth opportunities?

Patrick: Totally. It's a constant. If you look at the ones who were really successful, like Klaviyo is another Boston company that I think was really successful with this as being like, yes, email marketing, they have SMS now, mostly ecommerce, but you're on Shopify, which is the bulk of their customers. It's fantastic, but you can be on other things and work with them.

They have such a function that it almost is not quite an afterthought to integrate with them, but you don't have to necessarily integrate. We have no value if you don't integrate with us. You can use our API, but it's not the cleanest thing. We weren't built as a DevOpsy type product. That was a big thought.

Another thing that people don't really think about is, where do you sell to? The likelihood of an IPO is not high just because of execution risk and all these other things.

Ben: Even past $10 million in revenue?

Patrick: I think so. You're still strategic. I don't know where the actual cut off is. I'm not a PE or investor type, but you have to be big enough for the additive nature of the balance sheet to be worth it, like one of the corporate M&A folks we talked to in this process, because we talked to a bunch of people. We had multiple LOIs, which is very great and everything.

One of the people we talked to is like, you guys are kind of in the middle. If you were $80–$100 million in revenue, it would be really easy for us to argue this to the board because there's this free thing, there's revenue, there's all this other stuff, and it'd be really easy.

If you were a five-person aqua-hire, no brainer, but you're kind of in the middle. When you're in the middle, it's kind of tough, because you're a strategic, but you're an expensive strategic. We also had the benefit of like, we didn't mean to sell.

Ben: When you say strategic, they're not valuing you on the cash flows. They're valuing you on what you bring to their flywheel by integrating the product and the business.

Patrick: It's a little fluffy, because everyone's got their own little framework. It's not as simple as, oh, multiple effects, that type of thing, even though that's what we distill it down and talk about it. But it was, think of coming together at Paddle.

Our stated mission at ProfitWell is, we exist to grow your subscription revenue automatically. You have to do a bunch of work, but automatically. Paddle stated mission is, we exist to run your subscription business automatically. What a lot of people don't know about Paddle is people are like, oh, is it a billing and payments company? Yes, all of the above.

What they do that's different is they automatically take care of taxes. It's not like you have to see the information and then go pay the sales tax. It's just taken care of. It's called a merchant of record. That's the model.

But to my point, it's basically like, those two companies coming together? Like, oh, we bill to run and grow your subscription company automatically. All of a sudden, there's no better word than synergy, unfortunately.

David: It makes sense.

Patrick: Yeah, there's a direct synergy. It's like, okay, great. They believe in the open ecosystem, which is what we believe in. There's all this stuff and it's like, oh, they don't have a strong CPO. We have a really strong CPO. And there's all that stuff that ends up happening.

David: Conversely, maybe this is a bad example. Google's not going to go by you because they need a new business division. The same reason that public investors would invest in you in an IPO because that's not what we're talking about.

Patrick: Yeah. I won't say the name because it might actually violate an NDA, but there was a giant company, honestly, my favorite public company ever. I can't say what it is, but they're not in the subscription space at all.

It was the quickest two phone calls, because the only way this works is if their board, their exec team, there's alignment that they would like to take all the stuff they're doing and get into the subscription space. That's the only way it works. They were like, yeah, we're not really doing that.

Whereas, there's one of them. It was a series of conversations, because they were like, well, we know we're getting in the subscriptions phase, and then it was a matter of when and how. That's a little bit different. Then we were strategic, especially at the price point that we were going after. It's fascinating. Then going through diligence, also there's stuff like, I want to do this three more times. I wanted to do it three more times again just because I know so much.

Ben: Before we get into the deal stuff, there's one thread that you mentioned that I want to pull on a little bit, and then I want to get into this 2021–2022 acquisition. You referenced, we are dependent on all of these other big players in the ecosystem to create value for us. I think a lot of startups end up in this position, where they're trying to figure out, are we a value-add on top of other platforms or are we a meaningful, big product, hopefully a platform ourselves that has lots of integrations but we are not at the mercy of those other integrations?

I'm curious how you think about a company that is sort of constrained to be a few hundred million dollar outcome that is built on top of behemoth platforms, versus someone that becomes a multibillion dollar company on their own that just merely integrates. What are some of the differences?

Patrick: I think if it's merely an integrator, you're probably a dev tool of some kind. I've been thinking about that for just this conversation, that small piece. Our working thesis, we call it a parasite thesis.

Basically, you're a parasite. You're value-add, so you're not a parasite. It's not all one way. I guess it's the symbiotes relationship. I don't know. On my flight from Portugal, I watched the second Venom, which I guess they call symbiotes, the relationship.

Ben: Venom and Carnage?

Patrick: It was that one. It wasn't amazing, but it was a plain movie and it was fine. Anyway, the symbiote strategy is, the end of the symbiote strategy is you compete with the host. That's the end of it.

What happens is there probably are products that are so valuable, that are symbiotes on these different companies. They get so big that the risk of them being shut off by the partner is so low. The partner is never going to catch up because the product goes so deep. I do think retain could have been that, like in the customer success, or the product-lead growth customer success or retention space.

I can't say their name because they're a customer, but if you look at a company, the future of the CRM is going to look very different. This CRM right now is Salesforce. Everyone uses it because they just have all the infrastructure to use it. No one loves using it. No one loves it. Yes, they have so many customers, the NPS is high, but on average, no one loves it.

I think the reason is because of the way that we do this workflow for reps. This AI thing, I know we all roll our eyes at AI sales, there's going to be a bunch of little things that it takes out. In 10 years, when we look at the CRM, it's going to look different. I think HubSpot is an evolution of that, and then I think that there's going to be an evolution further.

If I was running a strategy where I was sitting on top of all the CRMs and giving value, they eventually build it or they eventually buy me, and maybe cut it off for everyone else, and then all of a sudden, I've made those other companies weaker if it's such a good integration. Eventually, you're just shifting the paradigm.

This is kind of what's happening with the acquisition. That's why it's a little bit murky. We didn't fail, obviously. But we also aren't just turning over the keys, because I think we were headed down a path where we were going to have to build subscription billing or payments infrastructure at some point, because all of the problems we started facing as we went deeper was, oh, their API's bad, were going around everything. Oh, the way they structure, the way they charge for someone, that doesn't make any sense, it should be like this. Those were all the questions coming up.

I do think a symbiote strategy, if you have the vision to kill a CRM in foresight or whatever those space is, is really smart. Did we have that foresight where we're like, billing sucks, we're going to go figure out how to fix billing. No, absolutely not.

We had this realization as we were heading. We're like, our path is heading there. We can keep going, and then become a larger strategic and the price goes up. I don't think we were going to go public with the company. The vision was, hey, we're going to be a multi product for growth of subscription businesses. I don't know.

If you look at the public markets, it's a hard thing to sell. Gainsight has one singular focus. I love what Gainsight does, and I think they're a successful company. Vista obviously came in and scooped them up, but why didn't Gainsight go public? Why did Drift get picked up by Vista? There are a lot of these questions.

I think that the reason that they get picked up is probably around that overall category strategy, which we didn't think about in the beginning. Now we're thinking about it as we were going to raise money, obviously.

Ben: To be more specific, you're saying if you're a single product company that is very cash flow–positive, then you're a good PE target. But if you are a multi-product company, then there's reason for public investors to believe that you could continue to run for a long time and buy the stock

Patrick: Multi-product without a core, like Klaviyo. Their core thing is going to be email marketing forever, presumably. They can be multi-products that have six other products that are adding top line revenue. Snowflake, I think, does a really good job at this, but they still have a core product.

I think what ends up happening is we have a little of this, little of that, little of that. That was the other thing we ran into M&A, which was, okay, we really like this free thing that had the pretty exponential graph. Your revenue is doubling on this one. Your revenue is going up 60%–70% on this one.

We don't really want the 60%–70% one. That's PI. We just don't want that. We see the value and we get it, but we don't really want that. We want these other two or three things.

Ben: We want the high growth free and the doubling year over year product.

Patrick: Yeah. It's also like, people look at Price Intelligently as we can get into professional services, how they evolve at SaaS companies. We think of it in such a cost-driven way. It should be a revenue-based way, at least. A long story, but when they look at it, they're like, yeah, we're not going to do that because we're tens of thousands of people. We have that team and it's thousands of people. They're not going to change the philosophy just because an acquisition of that team is 25 people or maybe only 20 people.

There's a lot of little surface area things that you have to think about that I don't think you think about at the beginning, because why would you? You're like, I have an idea, this is bad, I think I can make it good. Then all of a sudden, what ends up happening is you're like, oh, crap, another problem that we had. This is therapy for me, guys. I hope this is interesting.

David: Yeah, I think a lot of business is like yours out there.

Patrick: Yeah, it's like TAM. Revenue of subscription companies, exponential, logos on subscription companies. Even if you go beyond SaaS that include consumer subscriptions, subscription newspapers, subscription everything, 150,000 logos max, and it is not growing. It is pretty flat. In 2019, it went down 3%. It's just weird. It's a weird market.

Ben: So more subscription companies went out of business in 2019 than new ones got started?

Patrick: Or got shut down or something. I think it's taking up more now. 2020–2021, the subscription was looked at as, think of like restaurants started adding subscriptions to take advantage of the advantages of subscription. But it's not going up exponentially, the number of logos.

I think it'll have its moment, but there's a debate. The reason we call our media site and our conference Recur is because I think the subscription, as it's known in the next 5–10 years, is going to change to more recurring revenue. It's not going to quite be AWS where you just pay pure on consumption, you kind of know what your expenses are each month, but it's going to be somewhere in between and eventually get to not quite black mirror where you're paying for each squeeze of toothpaste or whatever. But it'll get more predictable revenue as a company when you look at it rather than like, I have these subscriptions for X dollars a month.

There's a lot of surface area. This is why we had to do media and brand. It wasn't because there's some vanity exercise, it was because if an ecommerce company converted customers at a higher rate just based off Google ads, we would have had the best Google ads in the world or tried to. I think that's the thing that you don't really think about in the beginning, that was a constraint. That's also what drove us to multiproduct.

If I was starting over, I think we'd still do multi-product because I think that's just given the market the best thing to do. But yeah, those are some thoughts.

Ben: I'll let us go back to the story then. 2021 comes around, you're like, all right, the time has finally come, we should start considering raising capital so we can invest in many of these initiatives at once and grow into this opportunity at a faster rate. When did you also start considering the dual track?

Patrick: I have known Christian for a long time. Christian is the CEO of Paddle. He's the founder of Paddle. We're extremely similar, eerily similar. We also kind of look like each other a little bit when we're wearing our glasses. It's a little uncomfortable. We stand the same.

Jenny, my better half, we had dinner and she's like, you guys sit the same. It was weird. Anyways, I've known Christian for a long time. I was asking him for advice. I'm like, hey, this is what we're trying to do. He was like, yeah, but what if we joined forces? What if we bought you? We had the reaction of not how dare you, but like, no, it's our baby. We could never do that.

Ben: When was this timeframe-wise? Because you announced the deal in May of 2022.

Patrick: We had a conversation in January of 2021, where we were talking about, we both appreciate content and events. I was like, all right, man, everything's opening up. It's going to be a while, but that's where the trend is going. Let's hit it hard.

Definitely, their revenues were higher, but we're both at the same mind stage, if that makes sense, of where content and stuff like that's going. It's easy to partner, even though we didn't have an integration, which is kind of funny. We didn't have an integration at all with them.

We were like, let's do a series of events. I'm doing this camper van thing. I don't know if you guys saw that. I built a podcast studio in the back of a camper van, and I was traveling a bunch doing interviews and stuff.

In January 2021, I was like, yeah. I made a joke about like, oh, and if it all goes well, you guys just buy us, because then we'll just run this playbook and it'll be great, because I was talking through ROI and stuff like that with him. Totally off-handed.

I don't know if he remembers that in a conversation because it was such an off-handed comment, but in October–November, I was getting his advice and he's like, well, why don't we just buy you? I think it was a week-and-a-half where we had the whole, could we sell? Would we sell? Because we love what we do.

Ben: Who's your shareholder base? Is it purely founders and employees?

Patrick: Yeah, we don't have any investors or anything like that. We were pretty generous across the board. There was still power law in terms of I have the most and stuff like that. We minted 13 millionaires out of this, I think, 30 over 100,000. I might be low on that number. I think 120-some people got consideration of some kind, which was pretty cool.

David: Zero dollars of outside capital in your business?

Patrick: Yeah, zero outside capital. We had a couple of people where they'd bought some domains, and we gave them some equity. Those are some really good checks that they got for taking a thousand shares for a domain, which is kind of funny.

We had a week and a half of like, could we sell, all that kind of stuff. Where we landed was, well, if they met all of these checkboxes, sure. People sell for a couple of reasons, but the outcomes are either, okay, here are the keys, I'll stick around for a couple of months just to hand stuff off, see you later. Or we're joining and going.

We wanted that option, which is actually harder. It's a lot harder. It means your search base for buyers is smaller. Most PE, they say they want you to stick around, but they know you're going to be gone. It's baked into the calculus that you're probably gone within a year. We went through that.

We didn't think that they would need everything. But then it was kind of what a lot of founders do, which is unfortunate for us, where three weeks in, we were like, oh, we're in a process. We didn't know we were in a process, but we're in a process. Oh, [...]. Let me get the spreadsheet out and come up with everything. Yeah, yeah.

Thankfully, because of the partnerships, we kind of knew everybody. We got some intros. There were some bunch of companies we didn't know the intros of. I think I talked to 10–15 different potential acquirers.

Ben: Did it feel rushed? Did you feel bad going to some people and being like, hey, we might be a week away from a deal. Did people just bow out and say like, oh, I wish we had engaged sooner?

Patrick: There were a couple of those. This is why we had it at one point. But for the past couple of years, we had these M&A slides on our board. We still don't have a board deck, even though we don't really have a formal board.

In our "board deck," we had a couple of slides about M&A. Meaning, these are potential people that could acquire us. These are potential people that we should acquire, that type of thing. Just like classic hygiene, we stopped doing it.

There were a couple of people who were like, oh, damn it. They texted us after the announcement and they were like, oh, why don't you guys talk to us? We were like, oh, my God. It's so obvious, like the most obvious people that we just forgot because we didn't have our stuff together.

I don't think it would have changed the outcome, that type of thing, but it was interesting that that happened. Yeah, 10–15 potential acquirers, none of them in the PE space, and then a long list of growth, equity and stuff like that, because that's kind of our stage. Then I just started running a playbook basically.

We signed the LOI on January 15th. We got our first paper, I think, that week right before Christmas. They started cascading there. Then it was like, oh, crap. I was supposed to take January off because I haven't had a vacation in five years, so that's fun. But yeah, the first paper came then.

David: Instead, you sold the company.

Patrick: Yeah. Sounds like, screw it. Let's go on a long vacation. No.

Ben: I assume you canceled that.

Patrick: Yeah. It's Christmas, so I had to go. I set the expectations for Jenny and her family on where we go in Park City. I was like, originally it was, oh, yeah, I'm going to be taking January off. Christmas, I'm going to winding down just to make sure stuff is handed off. Christmas, I hopefully won't be on my phone like I always am. It was the exact opposite. It was like, I'm not even there.

David: Life works that way.

Patrick: Yeah, that kind of works. But long story short, basically, I would say officially, probably the beginning of November to January 15th was the timeline to get to LOI.

David: You were going through this for the first time, obviously. What did you do to help yourself? Listen to podcasts like this? Did you find mentors?

Patrick: We've never gone through diligence. No one's ever taken us through diligence on anything. It's that bad. We got some good advice five years ago. When you hire an operations person, a senior or whatever, the first thing you should tell them is, prep the company for sale. It doesn't mean you're selling, but that's the forcing function. Prep the company for sale. We're like, okay, cool. We get our operations person, we prep the company for sale. He didn't know how to prep the company for sale.

David: He's like, what does that mean?

Patrick: Yeah, no one knows what that means. What we should have done is we should have gone to our lawyers, whomever, and just said, hey, just send us the last diligence list from an M&A transaction.

Ben: What needs to happen in a data room?

Patrick: We've had customers who were data rooms, but we've never dealt with a data room.

David: Nobody knows what that means, but it's provoking.

Patrick: Totally. What's funny is we're not complete idiots. There were some things that like, oh, thank God, we did that last year. Thank God, we did that two years ago, but then there was a long, long list.

To answer your question, the best advice I would give. First, in making the decision, I talked to 30 founders who had exits just through the network. They had meaningful exits, not like aqua-hires, they had life-changing money. Half of them said, yup, best decision. It was like, would you have made the decision again?

We still had the opportunity to keep going. I was like, would you sell or would you go raise money and keep going? Half of them said, yup, selling is the best decision ever. The other half said, I should not have sold. They all have the money, so take it with a grain of salt.

What was really interesting—this is a side note—of those 15, I think half of them, I don't know the exact number, gave the keys and left. Of those seven or eight, three of them became addicts, like alcohol or drugs, insane. Then the other part of that 7 or 8, and then the other half of those 15 who said don't do it, all of them all expressed, and I think addiction was the void, they lost their purpose.

They just completely lost their purpose, because the seven or eight, they handed over the keys. That's what they were so upset about. They're like, yeah, I can go explore or whatever. But I'm building, building, building, until everything's getting better, and then all of a sudden, just back to zero, which is great. You have more comfort in the bank account and everything.

Out of that 30, I basically chose 3 Sherpas, all who thought a little bit differently. I knew they thought differently, and all had gone through within the past couple of years, something. That's the other thing you won't realize.

For example, I have seen movies that sound like there are performance earnouts that go poorly. Then someone I was talking to that went through a transaction like a year before. They're not a thing really right now. Performance interrupts. Maybe they'll come back, but not right now. Stuff like that.

David: Times change.

Patrick: Yeah. There was a lot of that, like, oh, they just don't do that anymore. Oh, this is the right, 15% escrow is better.

Ben: It has to be the case that you're vesting some Paddle stock now, but it's just that that's not meaningful compared to, let me ask you that question first.

Patrick: Yeah, I can live tomorrow. There are options I'm investing in. I can say that.

Ben: But you're not giving up life-changing money at this point by leaving?

Patrick: It depends how you look at it. The reason I'm still here is because I’m not handing over the keys, because I want to be on those so much potential. In my mind, it would be life-changing money. Life has already changed. It would be like, holy cow, another level. That's how I think about it.

David: You always place it's so close to the vest. But sort of how Warren and Charlie at Berkshire structure. They buy a company, and then the founders—usually the founder’s family—for generations stays involved. It's like, why? There's an incentive structure worked out there that makes a lot more sense than an earnout.

Patrick: Totally, or investing like the comp package that I have. I think it's one of those things where I believe we can 5X–10X from where we are, if not more. We're at $1.4 billion valuation post money.

Ben: This is Paddle, the combined entity?

Patrick: Yeah. It's one of those things that I'm like, okay, well, I have been given this much investing. If I can 5X–10X that, that's a whole nother level. That's the thing that I kind of think about. I had these three folks basically guide me through just little questions, reactive questions, because there are so many emotional trigger points in this whole situation. They think you're really pretty.

Oh, I didn't tell you, guys. We filmed the whole thing. I don't know if you saw this. We just released the documentary this week.

David: What? No. Oh, my God. Okay, we got to link to this.

Ben: You really are a content shop.

Patrick: I know, man. That was the thing. We're always a bootstrapped problem. I think it's great. Every time we go to invest in something, I go, okay, what if that fails, how do we make it less of a failure?

We're going to spend $150,000 to sponsor SaaStr. Like, oh, let's record a bunch of content. If we don't get any money out of it, at least we got content. Dan, our head of the Recur team, was kind of involved once the term sheet was signed because that was another thing.

We brought in our top 8 or 10 people. We were like, we're not making this decision without you. We are going to make the final decision. But if all of you don't want to do it, we're not going to do it. We said 4½ offers because there was someone who was just late. We could wait and we could figure it out. What do you guys think? And we went away.

I think this was the right way to do it. Facu, Peter, and I, we said, here's all the information. Peter is going to stay for only questions, to check for understanding questions. He's not going to say anything else. You guys debate it out amongst yourselves. We're going to come back, and we're going to take the opposite view of anything you say, and go from there. That was another way to kind of do it. It was making sure the entire team.

Anyway, Dan knew about it and I was like, all right, if this all fails, at least we're going to have some great content. I recorded a bunch of my phone calls. In the documentary, there's a scene. This is what I was kind of bringing up. I just got off the phone with their CFO and a bunch of other people, and now we're in diligence.

I'm sitting there and I'm like, okay, well, they just asked for all these questions. I'm like, I don't know if they're asking this because they hate it. I don't know if they're asking because they love it. I don't know if they're asking for it because we mess something up.

There are all those moments when you've never done this before and I've never raised money before, where your mind is just playing mind games with what happened. Why did we have that conversation and diligence? Oh, that lawyer. There were 86 lawyers.

Ben: What? There were 86 lawyers?

Patrick: Here's why. Pretty sizable deal. Not a huge thing. It's a UK entity buying a US company. There is Cepheus stuff. We have so much data.

Ben: For the uninitiated, it is a set of US laws that says that the government has the right to review any transaction, where a US company is being bought by a foreign entity to make sure that we're not giving away very valuable proprietary state information and infrastructure to another.

Patrick: Yeah, and then there were reviews with Cepheus, as well as there's some other regulatory framework we had to look at. Our directors are up. Is anyone Chinese? Anyone Iranian? Anyone Russian, that type of thing?

What got really scary was, not scary in the sense of anyone did anything wrong, but, okay, so we didn't qualify for a Cepheus something or another. We did qualify for the other one, but that one's quick. We just have to let them know something's going on.

There's this other thing where it's like, well, we have 30,000 subscription and SaaS companies on ProfitWell. Technically, we don't store, but we have access to all of their customers' email addresses. They're all US-based, but there's a lot of international. Does that amount of data hit a threshold for this three-month Department of Justice review?

There's just all this stuff that you don't think about, and then we have an Argentina office. The Argentina office, how does that factor into this whole thing? It was not an easy transaction. On top of all this—this is why the documentary is kind of funny—Paddle didn't just have the money in their bank account to pay for this. They had to go raise a round. We had to go raise a round on top of this.

David: Were you involved in raising that round?

Patrick: Partially. I think it's okay that I say this, but the core of the story was we're going to buy ProfitWell. That was a huge part. Besides the term sheet, Christian and Hugo kicked off that next week. They ran it in a very like, we want term sheets by this time, we want this by this. That was very like that style.

I got involved mostly on, here's the story, there are a bunch of questions, obviously, and then there were a couple of, so he's just going to leave? There was a lot of that. Like, let's talk, let's have an hour-long meeting to go through this.

David: Structure and earnout.

Patrick: Yeah, there's a lot of that type of stuff, too. January 15th, that third week of January, the market starts tanking for tech stocks. I don't remember where Russia starts piling up on the side of Ukraine. All this stuff has been happening these past couple of months.

This is not an easy transaction given all the lawyers and all the stuff I just mentioned. The whole time, it kind of got to his end like, well, we cleaned up a lot of the stuff that was broken operationally. But yeah, whatever. We'll go from here.

It was a fascinating crucible to kind of learn in, but I do think that you got to have a couple of people that you go talk to throughout this who have been through it before and who can at least give you a couple of opinions, because there wasn't anything too contentious. We both agreed that once that term sheet signed, that's the price barring, like anything crazy. Even confirmatory diligence, that's all it was. All that kind of stuff.

There's pressure from both sides, like a fuzz with the price a little bit. This was also a really good thing. Christian and I talked before we signed the LOI. I was like, hey, we need a red phone, because the lawyers, the operations people. We just need a red phone. We talked every day, so it didn't really matter.

We just need a phone. We're like, okay, the lawyers are getting weird. What do you want to do? We'll just do this. I think that helps a lot. There were calls. Lawyers hate this. It was smart, I think. There's a reason to hate this because it's not ideal from a legal perspective, probably.

Ben: And a multi-point negotiation can introduce opportunities to blow the deal up if there are people negotiating outside the main point of contact.

Patrick: Totally. What ended up happening is, towards the end when we were trying to get to sign, Christian and I would go on the call with the two opposing lawyer teams.

For those who don't know, you have basically a signed agreement that's 80-some pages long that has all these little carve outs for escrow, indemnity, and all these different things. There were all these bullets to debate. Then there's a disclosure schedule that's another 100 pages long, which is like buying a house. We say that the foundation is this, you're buying it with this, and all these other things.

Ben: And for those uninitiated, schedule doesn't necessarily mean timeline. It means list. It's like, here's all the list of things we wish to disclose or need to disclose about the asset you're buying.

Patrick: Totally. Essentially, what's happening is there were all these things to debate that will likely never happen. But it's important to debate it because it's his famous last words. Big things like how much is in escrow, how much is not. Then smaller things like, well, what if this thing happens and that thing happens? The world is ending and all, just a bunch of other stuff.

On some of those points, the lawyers would debate it for half an hour. When you have that many lawyers on the phone, the cost of the thing, whether it's 25,000 on one end or 25,000 on the other end, has already been spent by the lawyers because of that many people.

Christian and I would be on the phone, and they would debate something for eight minutes. In a really sassy manner in some cases, they would be really boring, and then someone would say something passive-aggressive; it was kind of a fun thing to watch.

Christian and I would be texting and we'd be like, you want to split it? You want to split the baby? He'd be like, yeah. I'd be like, hey, Christian and I are texting, we'll just split. The lawyers hated it. It sped things up so quickly, because all of a sudden, we'd get through 12 things rather than, well, we think this, we think this.

Our lawyer comes back to us, explains what happened in the meeting, then we agree on something that our lawyer then goes to their lawyer. Their lawyer then talks to them in just this circle, which was structured like that for a reason. But if you're trying to get something done and everyone's earnest, it's different.

David: It feels like you're in a situation, too, where you were both incentivized to get the deal done quickly. Whereas, things can really spiral when the time preference of one side does not match the other side. Like, he wanted to go raise the round and get this done, and you wanted to sell the company. You're both motivated to make this happen efficiently.

Patrick: What happens in this stuff, especially if you're not handing over the keys, is you just want to get back to (it's problematic to say) the important stuff, but you're standing still for a couple of months. That's what you're doing with diligence. You're just standing still.

If you're a founder and you're an exec, you're like, why am I standing still? We're already talking about the marketing strategy. We're already talking about this. We're already talking about this. All these stupid lawyers, it's facetious.

Ben: But there are internal investments you're hesitating to make because it would change the position of the company, so you'd have to go and rewrite the deal, because you're like, well, actually, we don't have that in the bank and well, actually, we do have these other materials in contracts we've signed.

David: It's just like buying a house, where you're like, well, I really need to fix this thing around the house, but I'm thinking about moving.

Patrick: If this falls through, there's that stuff, too. Try planning in that environment while not telling the entire team. That was the other thing. Everyone knows something's going on, because my communication has gone to zero. Andy, our operations guy, he's like, please do not ask me for anything. It gets so hard to keep everything. This is why I think that how long diligence is is probably a very big thing to negotiate.

I was talking to a buddy who I just met up with. He moved with me here. He was like, yeah, the PE firm that bought his or merged two companies bought, I don't exactly know the nomenclature they use, their whole thing is we do 10 days. We are 10 days from signing to closing. That's their thing and that's their differentiator.

We were like, okay, it'll take this long, and it ended up taking almost double, because then we had to keep moving dates, because they're going through diligence with KKR and all the other stuff.

Ben: Wait, what's the KKR angle here?

Patrick: KKR is the investor.

Ben: Investor in the combined Paddle-ProfitWell entity?

Patrick: Yes. They were the ones who led the round. Then all the existing investors came in, pro rata, all that kind of fun stuff. What I'm about to say is—you'll laugh at me for this—I didn't know that KKR just doesn't have that money. I didn't know that. I just didn't know that.

I didn't know that when stuff hits the fan, they're just not going to make the call. I didn't know that. I thought that like, well, you committed, here's the phone call I guess. It was like Ukraine and everything like that.

To KKR's credit, Patrick is the partner on Paddle support now. I don't know if he exactly said this like this, but what he basically told us and Christian was like, listen, KKR has been investing for decades. We've seen ups, downs, et cetera. And this was the other thing. We had multiple term sheets on the raise.

Ben: KKR is literally the firm in Barbarians at the Gate.

Patrick: Yeah, see? They've been around forever, so they've seen everything. When they go to their partner meetings to talk about investments, they're not like, oh, my God, what happens in the next three weeks? That's just not how they think of stuff.

We did get a term sheet pulled because it technically wasn't issued yet. I'm not going to say the firm, but this was pretty crappy. We got ghosted after basically negotiating a term sheet, the dinners, and all that kind of stuff. Just ghosted, no responses. It was brutal, because you're sitting there and you're like, okay, well, we have a decision between these three, four, or whatever. Then you're like, I guess it's only three.

The guy didn't even contact Christian for another month or something, which is just so weird. I might not be getting all those facts right, because I wasn't the main point of contact. I don't know.

It was also interesting. We had another firm we'd really, really liked, but they capped the amount that they would give for an acquisition-based raise, because they were basically like, we just saw its principle. Don't do this. We're like, oh, damn. They're like, we still want to be in the round, but then we were like, well, there's not going to be any room, unfortunately.

David: Right. KKR doesn't write small checks.

Patrick: Yeah. We raised 210, I think, and they wanted to throw in, I think it was something over 50 or not. I'm going to get massively in trouble if I'm supposed to not share any of this stuff, but that's fine. You guys got a small audience, right? That's okay.

Ben: Ever shrinking, as we like to say.

Patrick: Yeah, which is good.

David: You're good with this content stuff.

Patrick: Yeah, there was a lot of risk in it going through diligence. I don't know if the risk was truly risk or just perceived risk, but then it doesn't really matter. It affects how you act and how you say it. There were a lot of things where I could not truly feel like I could be fully transparent with the Paddle team, until stuff was signed.

I was transparent in practice. But to the planning thing, Ben, you were mentioning, there was so much like, okay, they want all of this information, and this, and they want us to start doing this work on post deal stuff. We've gotten over the board approval and post diligence. We've gotten over the commitment, but cash isn't in the account.

You're sitting there and you're like, okay, am I just an asshole for not getting going and I'm stalling this? Are they going to think it's weird? There are all these mind games. And then resourcing the team. They were like, well, let's start bringing in so and so and start working on this. I'm like, the money's in the account.

We didn't officially sign the thing yet. It felt so weird to be in that moment. It all worked out and I'm sure I was overthinking it, but you can't not overthink.

Ben: I'm sure you weren't. There were many deals that fell apart.

Patrick: Yeah. It was definitely a fun, hard mode. Hopefully, people listening are getting some factoids. If not, just some salacious stories to tell later.

Ben: The interesting thing is that it worked out. All of these things are things you do you have to think about, and it all worked out. Do you wish that you hadn't negotiated every little fine point of, what if this thing goes wrong? No, you're glad that you actually spent the time to do it right just in case things did go wrong.

Patrick: Yeah, we micromanaged our expenses and all that. I was like, we're fighting for every dollar. We're not going to be Pennywise pound foolish, what other cliche can I throw out there. We're going to make sure that we fully understand because then there are other things.

I didn't know this. Maybe I should have. It's obvious, but fees come out of the deal. You know what I mean? You're negotiating a deal, and then it's like, oh, yeah, but there's going to be this much money that's going to come out of it that you didn't think about. No bankers, which obviously saved us a good amount.

I'm not saying I don't understand the banker part piece. I think I understand the principle, but we didn't need them because we knew everybody, could they have gotten us more money or something, probably. But they would have expanded it to PE and stuff like that, which we just weren't ready for.

It's nothing against PE and a lot of our partners. We want a different style. They wanted to raise and keep going, which might have led us to PE anyway or sell to a strategic. There are accounting fees, there's data room fee. There's all this stuff, and it adds up.

David: To your point about watching the price on all this, if the deal hadn't gone through, all of those costs would have had a meaningful impact on your business.

Patrick: Totally, especially given the bootstrap stuff we talked about the beginning. But even on top of that, okay, now, our lawyers give us a number. I'm like, I have no leverage to negotiate against these fees. Where is my leverage?

I talked to Maryam, the chief counsel at Paddle. I'm like, what do I do? She's like, well, you can't really sell them on the IPO because they know we're not going with them; we're going with our lawyers. Also, she's like, I don't know, here's what I would do.

I loved our main point of contact. We were a large-enough deal that it got interest, but we weren't a large-enough deal to keep the rainmakery relationship got involved, but our day-to-day guy was great. It was one of those things where I just straight up was like, hey, man, you got to give me something.

I was like, I don't want to go back and forth and nitpick about bullshit that like, oh, you guys didn't talk about this or this could have been more efficient. It's not worth it. It wasn't the easiest deal to do. I think it was his first one writing the key chair, basically.

I think he also felt like he could have been more efficient. I'm speaking for him, though I haven't talked to him about it. But he was like, yeah. He got us a break and some things, but it was still pretty expensive. Yeah, it's still pretty expensive.

Ben: You have 80 something lawyers in a room. It's just going to be pretty expensive.

Patrick: Yeah, it was pretty wild. I think I can say the number. It was $1.1 million just on our side. On their side, I'm not going to say it because I think it's fine if I say mine, but it was not less. I'll just say that.

Ben: The reason it would be more, let's just refer to a typical venture financing, where the company counsel is typically more than the investor counsel, is because the company is doing the initial drafting. The company is sort of in the driver's seat, and then everyone else is negotiating from their side, but they're reviewing, commenting, and asking for changes rather than doing all the initial bulk of the work.

Patrick: Yeah, and that was really tough, too. I don't know how interesting this is, but I had never done this. One of the first things I did, Maryam, the chief counsel of Paddle, I sat down with her and I was like, I don't know what good looks like. Was this good at all? She was like, no.

David: We can level set on that.

Patrick: No. I keep joking with her. I was like, you're either in another life leading a cartel or a biker gang. She's just so good. She is one of the best. I haven't met a lot of chief counsels, but in that type of role, she's one of the best I've ever met. I was like, okay, why? She was like, well, there's a lot of stuff we ended up doing that you guys should have done. There's plenty of stuff that you guys should have done earlier.

The other thing that she said was, you want someone who takes control and almost project manages? Because it's like any other thing. Its workflows, expectations, et cetera, and ours was just constantly reactive. I asked, would you hire our main lawyer? She's like, I would, but not for the first couple of lawyers on a chief counsel team. It wasn't anything against him. It’s just that he didn't do that project management part.

Again, it's nothing. I think it was because it was one of the first times. In his defense, it was also like, we didn't know what we're doing, so I didn't know how to project manage him. He was probably project managing me the way he would do it for any other more competent company, but it was interesting. It was really interesting.

That's probably something I would do as well. If you've never gone through this before, talk to a lawyer who has gone through it before and is really good. Maybe you don't hire them, but what should I be doing? What should I be looking out for?

Ben: Before we actually shift to asking you about the deal, what the future looks like together, and your combined company, I am curious. How did you come to a price? If you're willing to share where was ProfitWell (the business) in terms of revenue run rate, all in gross margin and operating margin, as much as you can share on the business would be helpful.

Patrick: I don't want to hide behind. We're a bigger company now, so we can't share. I don't know if I would share even before this. It's just me just trying to be intellectually honest with you guys. There's no exact reason I should have said that, except for that.

What I will say, the price came more from me going to Christian and just being like, this is what gets it done. That's where the price came from. Because we did go back and forth on some numbers, there was like, oh, here's a multiple of this, and a multiple of that, and blah-blah-blah. But what we realized—I think that this is a really hard thing—is it's so fluffy, the framework we would come up with no matter what.

How valuable is a connected ProfitWell account? Just that question. Okay, well, we can put a number on things. What do you think? It's $5. I think it's $2. I think it's $1000. What is it?

If they all convert to use Paddle, it would be worth this much. That's an egregious number. If they don't, what if it's 10% that do it? What if it's 1%? What if it's 100%?

It just gets so fluffy so quickly that we use multiples of our different business lines, but then it's a little bit like talking about the people you dated before you dated your life partner. It also got to the point where it was like, okay, we have these offers. We have some that are worth more. There were two offers actually that you could look at and take an interpretation that they're technically worth more than this offer.

I went to Christian. It's in the documentary. I saved the voice note. It's the actual voice note. I basically said, listen, we got offers from people that are higher. This was before the final offer, but then you offer it? If you get to this number, we're good. We'll stop. Our hurt was with Paddle.

It was hard, because there were a couple of companies and we were like, oh, it would be so cool to work with these people and that type of thing. But the ultimate was with them. I just said, hey, this is what gets it done. He came back, I was like, okay. Then the final price, there were some revisions of it, but that's kind of how we did it.

Ben: I imagine on his side, it was not only thinking about, am I willing to do this as a CEO and is my board willing to do this but do I think a prospective investor would be willing to do this? Or was the prospective investor sort of already lined up and he checked with them before?

Patrick: No, it wasn't the latter part.

Ben: Wow. You had to trust his judgment that he was right on estimating that a future financing partner, KKR, would do the deal.

Patrick: Yeah, it was a mix of things. There was a way you could look at this deal. Obviously, I'm not sharing all of the information. I probably will. When we go public, oh, by the way, this is all the detail, that kind of thing.

There's a way to look at this deal where the multiple looks preposterous. There's a way to look at this deal where the multiple seems reasonable. Just the same numbers depending on who you talk to.

Ben: The fact that both of those are equally true is why the deal got done.

Patrick: Exactly. It's basically where I was going. I don't know every pitch he did, but there were probably people he pitched, where he's like, this is preposterous, and there were probably people who would be like, this is cheap, that type of a thing.

Again, first time doing this. But if I'm doing it again and I'm strategic, that's probably what I'm looking for. I'm looking for the wiggle room. PE firm—again, I'm generalizing, it sounds like I'm picking on them, I'm really not trying to—you probably don't get that wiggle room because it's a numbers game. It's totally a numbers game. They're going to do the calculation as I described, and they're going to go for it.

What Christian is trying to do, and I'm going to speak for him, but I haven't confirmed this, but Christian and now, us, and myself, we're not trying to build like a $2 billion company. We're trying to build like a $10 billion, $30 billion company.

When you start to get into that realm, it's like, okay, does this matter right now? Could he have gotten X for $20 million more? Could I have gotten $20 million more? Probably on both ends, but we're trying to go for the long-term. That's why the value alignment was so important, if that makes sense.

David: To your point about your comp/options, the game you're playing is for Paddle to be a $20 billion company. That's going to be what's most meaningful.

Patrick: The voice note that didn't make it just for time—it wasn't salacious or anything—is what I told him. This was one of the first ones after their initial offers. I was like, listen. This team have been grinding for years. Our core team has been with the company, I think the average tenure is four or five years. They've been with the company for a long time, some of them much longer than others.

They need to feel like, if this goes to zero, they still won. That kind of came into the cash stock split of everything. That was the really big thing that was really important at that stage. I think that that's also what kind of led to the fact that we didn't have to raise money. The fact that we didn't have to do this also really, really helped.

I talked to a founder last week. He's kind of in a bind. Raising money right now is terrible. Even if you have friendlings, he's got six-ish months of runway, which is not terrible. I think it's eight. I was like, I don't think you want to go through a couple of months of getting a deal done, plus a couple of months of diligence with a gun to your head on your runway. That doesn't sound great.

There were some other things I would have done differently probably around setting a term on how you would sell. If we had had that conversation earlier, and then been very thoughtful about the framework, it probably would have helped us. Meaning, these are the circumstances under which we sell and these are realistic circumstances.

We would have that conversation and it'd be like, well, today, I feel like we wouldn't sell for a billion dollars. No one would offer us a billion dollars. Then on a bad day, today, we would sell for $10 million, which is below our revenue. It was just kind of funny.

David: That's the emotional journey of a founder. Every day is like that.

Patrick: Yeah, it's so interesting.

David: You said at the beginning of the conversation, if you had to go back and do it over again, there are several points at which you could have raised venture money. You might have made that decision if you could go back and do it differently.

If you had done that, there's certainly a risk. You would end up in the position like the founder you're just talking to, where shoot now, all of a sudden, you're managing the business in a way that there's a cash out date, and now a gun gets held to your head. Do you think you could have avoided that?

Patrick: I don't know the perfect way. There's only one way, guys, a perfect way to build a company. No. I think the perfect way to build a SaaS company, assuming you—a lot of assumptions—have enough personal runway to take a risk for (let’s say) 6–9 months, which means you probably don't have kids, or a heavy mortgage, or a mortgage at all, and you don't have massive student loans. These are all the caveats here.

David: Or you might be older and you do have those, but you've got it covered.

Patrick: Totally. The perfect way, I think, is to grind in a bootstrap manner for probably a year or two. Product/market fit is such a weird destination. There are theories out there that you cannot get to product/market fit in less than two years.

I actually start to think that those theories are true, no matter the amount of money you have, no matter the amount of resources you have, because there's just so much time that you have to figure out stuff. It's probably less if you get lucky. It's probably that most of you aren't lucky.

If you can get to product/market fit or see it on the horizon without raising money, I think that's ideal. Then as soon as you have that, go for it. Also, this means you're not building nuclear fusion, cars, or other crazy stuff. If you're building a SaaS company, a little friends and family, a small round, and then whenever you're going to product/market fit, assuming you want to be a large company, that's when to go for it.

The reason I say that is we would have had leverage to not have to worry about the gun to our head with money. We would just have to leverage. That's what's interesting. I think that as long as you keep things moving. If we raised in 2021, maybe we wouldn't be able to give up a board seat in this insanity of things.

I also think that founders need to hear. I have never had a real board, so I'm speaking from theory, but not from existence. The investors don't work for you, but you don't work for the investors. You work for the mission. You guys are partners.

Jimmy, the President and COO of Paddle, everyone's an adult, but he's the adults. He was at ServiceNow from 200 people all the way up to 12,000 or something like that. He was there for a long time. He worked directly with Slootman for a while, that kind of stuff. And then Donahue as well was there.

I'm sure this is fine. I hope this is fine. He told me about a board meeting with Frank. It was a bad quarter or something was really bad. He comes to the board meeting. Two slides in, the board's just like, well, what about this? Why isn't this?

He shuts his laptop, turns it off, and he just pauses and goes, I can't remember exactly how he said it, but he pretty much was like, listen, the minute you feel like you do not have confidence in me, you should fire me. Until then, sit down, and listen to what I'm about to say, and then I will ask you for the feedback that I need.

I probably don't have the spine to go that far, and also probably should be nicer because it is a partnership. But that's probably more directionally correct than what a lot of founders do, which is like, oh, it's my boss. You always hear this. Oh, I got a boss, the board's my boss.

Also, technically, that's kind of true as well. I think people need to calibrate a little bit how they use their boards, how they use their investors, and stuff like that.

As soon as I heard that, I was like, okay, yeah. Don't worry, we're not like that with our Paddle board. It's more of just re-contextualizing how you think about those things and how you think about investors. You're partnering, but also, that investor has 50 partnerships, or 10, or 20, or 3 or whatever it is. They're there to help you, but you got to make the call. I think that people, they're scared of that, so they end up steering towards things. It's hard and it's complicated.

Ben: Yeah. Because you are a longtime Acquired listener, a multi-time Acquired guest, and this is kind of a traditional Acquired episode, we kind of have to end with grading.

Patrick: Okay. We didn't even get to some of the things we're going to talk about, which is a good thing here.

Ben: Yeah, I think we'll have a little opportunity after grading. I don't think we talked really enough about the Paddle business for you to give a full answer on this. But at a high level, what makes this look like Paddle got an amazing deal in retrospect and the business that you built together is this insane thing that either of you could have built on your own? What's the failure case? How does it fall apart?

Patrick: What makes it great? What makes it an A+? I touched on it a little bit, but the fundamental thesis of Paddle is we do it for you. That's the fundamental thesis. That was the fundamental thesis for ProfitWell, but we regrow, do it for you. They'll run, do it for you for a subscription business.

Ben: That means that I use them for payments, and then on the back end, they automatically file all my taxes if I were to overly simplify their business.

Patrick: Totally, but it goes further. They handle all your chargebacks for you. You don't have to touch your chargebacks. If they win it, you get all the money back. They don't take a cut, because it all goes through them.

Let's say there's better payment acceptance for checkout.com in Bulgaria than for Stripe. They'll port the payment through checkout.com rather than porting it through Stripe. They handle all the currencies, and it's plug and play. You plug it in, you set it up, it's done.

The tax thing is the big thing we're known for, which is not only do they negotiate with all the tax jurisdictions, they handle all the taxes. There's a fun way to put it, which is pretty much true. Let's say your taxes get messed up in Venezuela, we go to jail. You don't go to jail, we go to jail, because technically, we're the ones that are holding the bag or holding the liability, if that makes sense.

To answer your question, where this is an A+ case is we are betting on the previous couple of years plus the next decade. All software, all needs, for things that are not your customer, not your team, and not your product, those needs go to an automated solution, a truly automated solution like we're talking about, where you plug it in and take care of it.

Retain. Your product person should not be an expert on credit cards. Your product person should not be an expert on cancelation flows. We have more data than anyone else in the world. We should be able to set that up for you. Turn it on, you get a couple of preferences, and go. The same thing with taxes.

David: Focus on what makes your beer taste better and not on what doesn't.

Patrick: Exactly.

David: We say it a million times on Acquired.

Patrick: Totally. That's an assumption. That's a theory. It's really fascinating because everyone thinks we compete with Stripe. We're one of Stripe's largest customers. The way to think about it is Stripe built roads. They built roads, and they are the best road builders and payments in the world. They also have some trucks in terms of their Strike billing product, and then there are other trucks. There are trucks like Chargebee, Recurly, and all of these other folks in this market.

What Paddle is doing is almost like the logistics network. They're the 3PL or whatever. I don't know if the metaphor is going to fall apart right now. What that means is, no, no, no, we know that this particular payment needs this truck and this road, we know that this particular payment needs this truck and this road, so on and so forth.

I think you guys will get this, but it might be too esoteric in a short amount of time. It's kind of what Rippling is doing for the employee record and what Salesforce did for the customer record. We want to do what they did for those with the subscription dollar.

Ben: Dude, I get this 1000%. We have a portfolio company at PSL called Shipium that is like, oh, you're buying from this merchant and you live here? Well, we're going to make sure to use this specific shipper and ship it in this way in this box, because that's the most optimal for this one-to-one pair.

Patrick: Totally, and then there are a bunch of variables there. The idea is you should be able to plug Paddle in. It should take all this cost off your plate. The other thing is funny. I'm pricing, but we didn't get to talk about pricing.

Paddle, when people compared it to Stripe, Stripe's 2.9%, Paddle's 5%. It's just a context problem. We're working on it, don't worry. It's a context problem because everyone thinks, again, we compete with Stripe. We're a huge partner of Stripe.

It's just kind of one of those funny things where it's trying to get people to think about like, no, no, no, there's this world where everything's done for you, you focus on making your beer tastes better, et cetera, and kind of go in from there.

Assuming that those things are correct and people don't want to be in the weeds, that engineers don't want to work on billing, that people don't want to be experts in credit cards, these types of things, which I think is a good assumption, that's why we're focused on it. But there could be a blind spot there.

I think when you're Netflix, Netflix wants control and Netflix wants to know everything. Johnny and Jane startup, they think they want all that control on that. Do we get them early enough before they've already tried to have all this control and out of this overhead? Who knows?

I think the other way this goes really well, and this is the other failure point I would argue as well, is just integration risk. There's just integration risk. I think we're over the honeymoon, and I think that's good. What I mean by that is it's not that it was sad and it's not fulfilling expectations.

The way I described this to someone yesterday who was giving some critical feedback, I was like, listen, everything you're saying is valid, here's the problem. There's a 40% tax on everything right now. It's not because anyone wants there to be a 40% tax, but there are different ways. There are different acronyms. There are different ways of conversing.

Who's going to be in charge of what? We don't know who's going to be charged of that thing. Everyone's talking to both groups, and then all of a sudden, the groups are discovering that they're both talking about it, et cetera. It's not on the big stuff. It's all on the medium to small stuff in that, but that still causes frustration.

There are integration risks. Are we keeping our high performance? The one thing I will say is all the things that I thought were going to be problematic, ego, politics, et cetera, there is zero of those, which is shocking to me. I think it's because they're European. I don't know, but it's shocking to me. Most of the teams are European right now.

All the things I thought there were going to be problems with, massive problems, all kinds of things. Of course, the plan we put in place when we didn't have all this information. Of course, the plan wasn't right because now we have this new information.

There's little stuff that's more mechanical, like expenses. What expense do we use? This is how they do expenses. This is how we do expenses. People are complaining about it, oh, I didn't get reimbursed, and stuff like that.

We have two cultures coming together. We are very direct, very first principle thinking. If you don't have a growth loop figured out before you start to design the event, we're going to say go figure out the growth loops before you even come with the design of the booth or anything like that. It's not that they don't have that, it's just the order of the way they do that is different, or was different.

I think there's stuff like that, like how we communicate to the company. There's a pretty substantial, like that's unfortunate, I'll take a stand a court case that came out recently. How do you communicate to the company? What do you do?

The way ProfitWell would do it would be to make sure everyone feels heard and has empathy, but also, think about the implications of it. If we wouldn't go immediately into Slack and say, okay, this is what the company is doing, we would go, hey, we hear you. We're talking about it. We're trying to figure it out. We'll let you know. I think the instinct was like, we got to text immediately.

I'm probably positioning that a little bit more dramatically than reality. It's really interesting, like two cultures coming together. How you communicate what you communicate is a lot more complicated than I thought it was going to be.

Ben: Is there a certain amount of growth of ProfitWell's businesses baked into the acquisition price, such that if you guys don't continue to grow your core business, it no longer makes sense in retrospect?

Patrick: Unfortunately, or fortunately, depending how you look at it, it would be only a pride thing. Like I said, there's no earnout or anything, but I have a lot of pride with this. This better be the best decision and it should look cheap in 5–10 years. That's the intention.

I think that the risk there is, Facu who's taking the lead on the product, they didn't have a CPO-level leader at Paddle. There are a lot of risks in the product, I would argue. If he ends up leaving, or being upset, or something like that, I do think we'll lose a lot of time and we'll lose a lot of enterprise value of this deal. So we're trying to keep Facu happy, which for those who know Facu, it's not really that easy. There are only three people who are going to get that joke who listen, but that's fine.

Also, part of this is ProfitWell billing, essentially what it is, that particular product is taken up by enough people. What's interesting is in the billing space, Stripe is really good for people. In the beginning, it's so easy, and then see a lot of graduation right around $800,000 ARR or a million ARR, where people try to go to a bunch of other solutions. If they don't start with Paddle when they do that, that probably tanks a good amount of the enterprise value of the deal.

The other thing that we're doing is we're going to continue to build on all of the other integrations. We're going to continue to deepen. We're actually thinking of how we can unbundle some of the billing stuff and take that to Chargebee, for instance.

I was talking to Christian and Germain over there recently. For example, Stripe had a really good partnership with them, but then, naturally, no one was trying to screw anyone over, but they started building Stripe billing. All of a sudden, that starts eating things away. You want to be friends with everyone, but these are the realities of some of the sides of the business.

Stripe bought TaxJar. TaxJar is the only tax provider besides Avalara. There are some things that TaxJar does that Avalara doesn't because they're just focused on different customers. All of a sudden, Stripe tax, Stripe could turn that off for everybody. You got to use Stripe to use Stripe tax.

We're thinking, how do we unbundle part of the tax stuff that we do with Paddle and offer that to Recurly, Chargebee, et cetera? I think that's what makes us the $30–$50 billion company rather than just the $10 billion company. I think that that's a really big thing that our team has a deeper DNA on that we need to kind of figure out.

Those are some things like bull and bear case, A+, F, kind of thing that we kind of think about. I kind of rambled there versus previous guests, so apologies for that for longtime listeners.

Ben: It's a painting in progress.

Patrick: Ben, you're so good with the quips. Painting in progress. You're just so good with this.

David: That's why we keep him around here.

Ben: I think we do have a full episode coming at some point that's like a pricing update. In the meantime, give us a quick what is your view of SaaS pricing given how much tumble and how much change has happened in the market.

Patrick: All the fundamentals stay the same. You just have a new excuse not to do the thing you've been putting off. Sincerely. I've looked enough of the data. There are a couple of minor things that do change, but here are the things that don't. If your NPS is over 20, you can justify a price increase. You can absolutely do that.

Now, don't do that when your CSAT tanks and don't do that when you're getting complaints, because a feature is not working and the app's buggy, but that's a fundamental before this downturn. It's one of those things to think about. But if your NPS is over 20, you have to do it right, you have to do it at the right level. All the other stuff is true, but there's no reason you can't do this.

Here's something to think about. I probably wouldn't do it for the next four weeks, I wouldn't do it until September 1st. Let's just say I wouldn't do till September 1st, because what's happening is you have phase one people who have been through downturns too many times. They know exactly what they're seeing, they're already cut, or they didn't put themselves in a position where they had to cut. But they still went through and looked at their entire expense column and just made sure that like they cut anything that they didn't need, they cut initiatives, et cetera.

If you made it through that phase one, great. Phase one people. Phase two people, all of a sudden, the a16z post come out, the podcast come out, and all this other stuff. They're like, oh, should I cut? Should I cut? All in goes, oh, my God, you got a cut. Then all of a sudden, they cut. This is where we started hearing all of the, oh, layoffs over here, [...] lays off these folks, these folks.

We're kind of towards the end of phase three. What phase three is is like the last holdouts who are finally making decisions, they had their pre-summer board meetings, and the cuts have happened. The team cuts, et cetera, because the next cuts are just going to be the dramatic things, where the founder thought that they could hold out, we could figure it out, and then it doesn't happen. Those will be few and far between, but they'll get covered more in the press.

What's happening is, if you made it through September 1st, you made it. You're a valued product. They have gone through an evaluation once, twice, three times for your business. They've already considered it. What that means is you're valuable. When you're valuable, assuming your NPS is over 20, no big bugs, you can actually raise your prices.

That's the biggest thing. This happened with Covid. Oh, my God, Covid. We can't raise prices. The best companies out there were raising prices by October. Obviously not for the folks who got wiped out. If you're helping schools or something like that, that's not what we're talking about.

I can go forever—you guys know that—but the second thing, if you haven't already, your customer personas, segments, or ICPs, however you want to define in your business, what you should be doing, again, phase one, they already did it, phase two, they've already done it, phase three, that's where we're at. If you're listening and you haven't done phase three, it's totally fine because this is less consequential.

Your top 20% of customers—we don't know who the top 20% are going to be in this market—are going to accelerate. You're going to have a 20% that are just going to get tanked. Then in the middle, everyone's going to be fine and everything's going to stay the same. The same thing happened in Covid.

The reason we talked about so much in Covid is that the top 20 started really went out of control, and the bottom 20% got just crushed, and some of those have not recovered. What you want to do is you want to reevaluate who your segments are. What are those segments you're going after? I don't know the exact segments, but think of what's good in downturns.

Cheap entertainment is typically good in downturns. Movies typically end up going up. I don't know if it's going to happen with how ticket prices are, but during the 20s and et cetera, ticket prices would always be really good.

David: Alcohol.

Patrick: Yeah.

David: The same stuff during the great financial crisis.

Patrick: Totally. Look at your segments. It's going to be different for everybody. That's a big thing. The last thing and I said this, this was the phrase that I latched on to and said as much as possible when Covid was happening, whoever holds on to the most customers at the end of this wins.

What that means is not only retention, so making sure you have cancellation flows for the bottom 20% who were trying to leave. Let's pause them. Let's do this. Let's do all the other stuff. Not for everybody, but for those folks.

The other thing is what HubSpot did, which was brilliant. More community, more free, more events. Those were the three big things that they did. We did a lot of that. We focused a lot on the free product, not because it was the right time to do it or not because like that was the order that we should have done our business in, but because all of a sudden, there was a good month there with data.

We pulled a bunch of data on where the market was going. You could not go on Twitter without seeing us, at least in B2B SaaS. So yeah, whoever holds on to the most customers at the end of this wins. That's the biggest thing I would fixate on.

Ben: Great words to leave us with. Patrick, thank you so much. Congratulations again. Listeners all of you, me, David, we're all grateful that you're sharing your experience. Frankly, a lot of this stuff just never gets shared. It's super, super valuable.

Patrick: I appreciate you guys. Thanks for being the brains. Thanks for being the minds of this community. I like it.

Ben: Awesome. Thank you. We'll talk to you.

David: Thank you, Patrick.