Episode 776 | How Bootstrapping Led to a Life-Changing $90M SaaS Exit

Rob Walling:
Welcome back to Startups For the Rest Of Us. I’m your host, Rob Walling, and in this episode I talk with Kevin Wagstaff about how he and his brother co-founded a SaaS company and sold just under half of the company at a $90 million valuation. Yeah, bootstrapped it to a $90 million partial exit and then sold another swath of the company a year later. It’s a pretty incredible story. Kevin is a longtime listener of the podcast, a MicroConf attendee, and you’ll actually hear in the episode how he met the potential acquirer in the men’s room at in Denver 2023. It’s a pretty incredible story, and what’s interesting is this podcast and MicroConf have now been around so long that you are now hearing of folks who are the second or the third generation of founders, even like Reuben, probably the fourth generation of founders that have come up listening to this podcast and reading the books and going to MicroConf and being part of this community.
And few things bring me more satisfaction and happiness in life than hearing these stories and hearing these stories directly from the founders told straight from the heart like Kevin does in today’s episode. It really is an incredible story of how they bootstrapped and exited this company. And at the end, I ask for your questions to bring Kevin back on the show. So as you’re listening, if you have questions for Kevin about anything about how they grew the business, why they sold, how they sold, just anything that you hear, jot it down, send it to Questions at startup For the Rest Of Us dot com or at mention me at Rob Walling on X Twitter and I’ll bring Kevin back on. He said he’d be game to answer some listener questions before we get into this episode. If you haven’t checked out the SaaS launchpad, now is the time.
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Kevin Wagstaff, thanks for joining me on the show. It’s an honor to be here, man. I’ve heard your voice for a long time, other side of the AirPods, so to speak. So you and your brother built an absolutely incredible business called Spector, and your H one is all in one home inspection software, the trusted solution for home inspection, report writing and business management tools. You started it in looks like 2017 and you sold it. You can tell the listeners how much you sold it for. I’m just going to say for a cajillion dollars in, what was it, 2024.

Kevin Wagstaff:
2023 was the first sell, and we sold a minority stake to a great private equity partner, Radian Capital for valuation at 90 million. So we sold just under half the company at that time for 90, and then we sold a little bit more in 24 at a little higher valuation. One 10.

Rob Walling:
Yeah. So you and your brother still owned the majority of the company and each walked away with, if I’m doing loose math, was 20 20 million, 23 million, somewhere in that range. Unbelievable. So I guess my first question is I want to hear the story of it, why it worked as fast as it did. The acquisition process is a, that’s three podcast. That’s a whole miniseries. I could do a TinySeed tails miniseries just based on what you put there, but the real question I want to ask is do you remember that moment when the money came through finally, and I assume you went from being well off, you were running a successful SaaS company, so it wasn’t like you were scraping by, but suddenly it was like, oh, I never have to work again and my kids probably never have to work generational wealth. I’ll say that’s tremendous. What was that like for you?

Kevin Wagstaff:
I was sitting in this office and the process was a grind, and so it was definitely like a refresh. Refresh. Is this really real? And the bankers told us it’s never real until the digits are in the account and just refreshed and hugged. My wife felt like crying, but I think oddly I had to go to Costco or something later in that afternoon, and so anti climatically, I took out the trash and then went to Costco or something. That’s all I remember.

Rob Walling:
I love this because I tell the story of signing our final asset purchase agreement, our a PA with drip and the money coming through, and I was at a cello camp with my kid and the teacher was pissed. I was like, I had to go sign on my iPhone. And I’m like, step out and you’re supposed to, it’s Suzuki method, you’re supposed to be in there. And so I’m like, oh, I’m sorry, I got to go and I’m signing this thing. And it’s just like, it’s just normal life. You’re just rich. Now you do. You take out the trash and then the plumbing breaks and you call the plumber just like you did yesterday. You just don’t necessarily worry that it costs $300. That’s

Kevin Wagstaff:
Exactly in our heads though. We’re on a yacht popping a ball of champagne and there’s people everywhere and everyone’s putting you up on their shoulders, and in reality it’s just like, well, and here we

Rob Walling:
Go. Did you call your brother? I mean, you and your brother started this company. Did you call him and just say, bro, we did it.

Kevin Wagstaff:
Yeah, yeah. I think we maybe met up the next day and hugged and just let our shoulders down to say, part of the goal was to have generational wealth and money forever and a few money. And you’re right, we paid ourselves well because we had good margins along the way as a lot of bootstrappers can do. But it is a different level when it’s like, okay, true optionality and post economic or whatever you want to call it.

Rob Walling:
Yep. Yeah, that amount of cash in the bank is different than, oh, I made even half a million dollars last year or a million dollars last year. That is really cool. But there’s, I’m not throwing any shade at, but it is different than seeing a 23 million balance in your bank account. It is different. Remind me of what your revenue was forward looking a RR when you sold that first 49%.

Kevin Wagstaff:
Yeah, I think we were about, we’re going to be on a $12 million run rate around the diligence time. It was about midyear 2023. And so yeah, the multiples were kind of around that six, seven ish range.

Rob Walling:
And selling in 2023 was as it was recovering. If folks remember big boom in 2021, tons of deals going m and a deals especially. And then 22 was the bust, and then 23, it was like middling. I remember because a and r, you’ve talked to a R from TinySeed, he runs Discretion Capital, which is the sell side m and a advisory for SaaS. And 2023 was like touch and go, touch and go. So you sold in the middle of that and got a good multiple.

Kevin Wagstaff:
It felt chunky and lumpy in there though for sure, because running a process during the biggest interest rate hiking cycle in history maybe was not good for our blood pressure, our hair lines, but it was brutal.

Rob Walling:
Yeah, bet you did it. So we’re going to talk through this episode. I want to find out why you sold a minority share instead of just selling it all. The process itself is filled with so many ups and downs. I don’t know that we can cover ’em in a single episode. And one kind of twist to tease is you actually met someone, so Radian ultimately acquired the company and you met someone from there at MicroConf in Denver in the men’s room of all places.

Kevin Wagstaff:
This is why this is so special for me meeting you and talking to you is that our journey began with you with startups For the Rest Of Us. We were OGs, man a decade ago listening. We started from the beginning and then meeting someone at your conference. So you’re a special person in this journey,

Rob Walling:
Dude, that’s awesome. Well, I look forward to having an old fashioned with you at some point here soon.

Kevin Wagstaff:
Yeah, my treat.

Rob Walling:
So talk to me about then, let’s roll it back to 2017. You made some notes for me, which are really helpful to kind of give me your January, 2017, I had $9,000 in my bank account, $30,000 in wife student loans. There’s $10,000 loan from parents and a second mortgage to move into the new house. That gives you people an idea. It’s like you’re doing okay, you’re doing solidly there, but you’re kind of just living a life and you get this idea. How did it come about? I know that in 2017 there was already SaaS for home inspectors. So what was the thinking there of there needs to be another one and how are you different?

Kevin Wagstaff:
Great question. So about a year and a half prior, a good friend of my brother and I, his dad is a home inspector, and he came to us with an idea and said, Hey guys, the leader in this space I think is a little weak. There’s not an impressive SaaS player. And he said, I’d love for you two to come on board. This idea have to basically improve upon it. And so we liked the idea of niche. We didn’t like the idea of big fundraising, very capital intensive businesses. We kind of came from the school of lean startup and 37 signals type mentality. And so we took a look at some of the competition and we said, man, maybe SaaS forgot about this niche, this industry, because there wasn’t the sexy player. When you look at their homepage and you’re like, ah, next idea, someone already dominated this. There were still downloadable DVDs and mail it out to you players that were on the first page of Google, some very old looking ones. So we said, huh, okay, we think we’re going to compete here. So the idea found us, the other two founders dropped out a year later. So by launch it was just me and Mike with this kind of baby and idea. And 2016 was basically customer interviews, building MVP, helping customers basically with their marketing and SEO to kind of as a hook to get them interested in the software.

Rob Walling:
And did the other founders who left, did they have equity? Did you buy them out?

Kevin Wagstaff:
That was pre-launch and so they signed away any rights. So and this is such a good lesson, not on one side or the other, they had good paying jobs. They were probably making a hundred, 150 K at a tech company. I don’t think they wanted to go all in on something. They wanted to part-time it. And then once Mike and I really started putting in long hours and being on Slack all day, they were like, you guys are ready to do this at a level we’re not ready to commit to because we wanted to be all in. We knew customers would feel it if we were kind of moonlighting part-time, not around half the day. So we went all in on it.

Rob Walling:
And so it’s your brother Mike, and what are your backgrounds? Are the two of you developers?

Kevin Wagstaff:
He was a business major, but a computer science minor. And then I was a finance major, did real estate for five years and then kind of self-taught front end code, but then had more of an SEO marketing background. So little bit of a jack of all trades.

Rob Walling:
So your front end and was he the backend?

Kevin Wagstaff:
Yeah, he was everything. He was full stack. I was not at a level where I was writing production code. I was building websites for home inspectors. So more of on the marketing side.

Rob Walling:
Interesting. Ooh, so you have a marketing sales co-founder, you have your engineering. Yeah, that’s one of my favorite. And with TinySeed, that’s one of our favorite combos.
I think the only way it could get better is if one of you had been a home inspector. You know what I mean? If you have subject matter expertise. So this is interesting because I want to get to your growth in a second. The growth is stunning for this space. And I told you offline, if someone told me they were going to start a home inspection SaaS in 2017 or today or whatever, in no reality would I guess that it would grow this quickly. Actually, I’m going to go run through it right here. So end of 2018, you’re at $103,000 of MRR. So 1.2 million, forward looking end of 2019 doubled to 200,000, end of 2020 330,000, end of 2021, 600,000. In MRR you almost doubled again. And that’s 7.2 million. I mean, this is crazy. In 2022, you’re at 700,000 and of 2023, almost 800 KMRR.
Just to set that stage, I mean it is very fast for you to get there in this space. I guess what happened, how did you pull this up? Because if you were to tell me I’m going to start an ESP because I know the ESP space and you can go really fast. We saw it with, I mean I saw it with Drip, we saw it with ConvertKit, we saw it with beehive and substack. So there are spaces where if it’s a big market, you can get traction really quickly. Home inspection software is not one that I would expect to be that, but obviously you proved it. So what did you guys do? Right?

Kevin Wagstaff:
I think we came with a fresh angle at the time because if you know home inspectors, their typical process was they show up, they have a point and shoot camera like a cannon, and then they go home and build the report and send it to you. That was the way it was done for the most part up until about 2015. So we just believed in mobile first, which is so funny to say that in 2025 mobile first it was like, okay, they should be doing most of this on the app. So there was a little bit of innovation there of like, Hey, 90% of your inspection should be done on your phone and you might even be able to publish this in the driveway standing there with the buyer. We just, efficiency, that’s the way it should be. Home inspectors are about 10 years behind everything else, kind of like real estate, certain markets, technologically speaking, they’re behind.
So I think that was one big pillar was we innovated on the process and the workflow to say mobile first, the app is going to be way better than anything in this industry. Second, we knew these were not the most tech savvy customers, so we basically lived for customer service on Intercom. We lived on there. We would chat with ’em all day. We would have very unprofitable customers for the first year or two because the word of mouth was such a big deal in that industry. So I think the word of mouth you mix in our SEO presence was good in year one and two. And then the innovation on the app and the word of mouth really spread like wildfire because it is a herd mentality of like, Hey, have you seen this new software? It does X, Y, Z, low cost of acquisition when they’re just telling each other.

Rob Walling:
That’s the thing is typically this type of, I call it customer pain versus competitor pain competitors starting an email service provider, there’s 500 of them, so have fun, good luck. But customer pain is, well, there’s no good. It’s what you found, which is like there is no good competition here. We’re going to clean up with some good UX and customer service. But finding the customers is usually expensive and supporting them is usually expensive. It is realtors, construction, whatever. It’s less technical for auto mechanics and such like that. So it’s interesting for me to hear that your cost of acquisition was so low because you truly figured out word of mouth is what it sounds like. Is that right?

Kevin Wagstaff:
Nailed word of mouth really leaned into YouTube videos early on of just every single thing in the workflow that you could come across. I’m going to do a demo, I’m going to do little videos, we’re going to have playlists, we’re going to link it everywhere to try to help self-serve take off earlier. But the conferences and the reputation in the industry really floated us and carry, and the wave just kept going and going from that.

Rob Walling:
And here’s the thing, man. Most companies that I see, whether TinySeed, MicroConf, outside of that, most companies kind of in our mostly bootstrap B2B SaaS space, if they grow this quickly and get as big as you did, they’re high priced. They’re selling big ticket $25,000 a year, $50,000 a year end up and not all, but just as 80 20 maybe. And as I look at your pricing, which I’m sure has changed over the years, but just your pricing today is monthly. It’s 99 bucks a month, annual, it’s a thousand bucks a year. And then you have website plus SEO, which is like 1700. Your jumpstart package bundle is just over 2000. These are not high ticket, these are not high price points. And in fact, they actually restrict what you can afford to do. Trying to run Google ads I’d imagine is tough at a thousand. And so you do really need, you can do content, you can do SEO, you can do obviously word of mouth because it’s free and virality. There’s a handful, five, six, maybe seven marketing approaches that you can afford to do at that type of annual contract value. But it sounds like that wasn’t really as much of a damper as one might think.

Kevin Wagstaff:
Yeah, shockingly the high volume, high velocity kind of approach worked and compounded. It’s a high churn industry too, and that’s very scary. And I think that’s what scared some of the potential buyers was how do you handle this kind of churn if half your user base could go out of business in the next year, but a lot of inspectors sustain and do enough business to be part-time or seasonal. So we get a lot of boomerangs and And there’s about 30 to 40,000 home inspectors in the US and Canada. That’s kind of the estimate. So that was our TM we were dealing with. But then payments, that’s like the hidden multiplier. So they process the payments through our white labeled stripe

Rob Walling:
And you get a cut percent on that. Yeah, yeah. This is something I really want listeners if they haven’t heard this before. This was something I had heard of before TinySeed, I knew it existed. I saw it with Shopify and I saw it with other folks. And we have, let’s see, we back 204 companies through TinySeed, and I’m guessing there’s like maybe 20 or 30 that do this where they have, they take a cut of GMV in US essence, gross merchant volume, and sometimes that cut is 1% and sometimes it’s up to, I don’t know, six, 7% In certain instances, those numbers add up and they snowball the further you get in. And so it sounds like this is exactly what happened with you.

Kevin Wagstaff:
That was a big part of the snowball. First it was 1% of revenue, then five, then 10, then 15. The more you process, the better deals you get with payment providers. And then we work with our inspectors to have their ticket price go up by adding more services. So you start to think about your customers making more money, and then the snowball just gets bigger and bigger. So I didn’t understand the power of payments before, and then it’s like, wow, what businesses can you process payments for people?

Rob Walling:
And we had, well, Iran from Gym Desk, a TinySeed company, he came on the podcast, I dunno, in the last six months, and he exited, I forget what the published number is. I think it was 32.5 million for a majority stake. But he still, we all have a tiny seat, has a second bite at the Apple and so does he. And one part of Jim desk is payments. It is, and it’s Jim Jims that our subscription, and I forget what they take, but he happened to have a very low churn business that also had payments. So it was a similar thing and the multiple was really high. So we’ve talked about your growth and how you got this word of mouth in the early days it was customer service. How did you initially, let’s say the first six to 12, maybe 18 months, you have a cold start problem where it’s like one person in the industry. You’ve built some software mobile first. I get it, but how do you get that momentum? I mean, at the end of 2017, your first year really in business, you’re almost at 20 KMRR already people listening, there’s a lot of people here who would kill for that. Did you feel like getting there was like, oh, this was easier than we thought? Or was it like, oh my god, Mike and I were grinding nonstop to get there. What was that like?

Kevin Wagstaff:
The grind resonates, so it was constantly calling, emailing, asking any inspector that would even answer anything, any email or call to tell me what he hated about his software. So that was my role. We did connect with the biggest trade organization in our industry, so where everyone registers to get their continuing ed, it happens to be in Boulder and we’re in Denver. And so we drove up there, shook hands and said, we’ll mop your floors, we’ll do whatever. How can we be helpful to your home inspectors was the ask, where do you have gaps? What can we do to help? And then we went to their first little trade show up there and set up our little desk that looked dinky and the tablecloth was wrinkled and we were embarrassed and we were like, no one’s going to take us serious. We’re just two kids that don’t belong in this industry.
Posture syndrome like crazy. And it was tough because they were like, oh, you guys will be gone in a year. What’s different about you? Like, oh, new software, I’m good. I love what I got. You just hear that all the time. And they really don’t. That’s what I learned was they don’t want to be sold to. So at every conference we went to, they said, no, I’m good. Love my software. I was like, no, you can’t love all of it. Is there a part of it you don’t like? So trade shows getting buddied up with the biggest trade organization and then just every day anyone that even would do a trial, it was like, call, text, email, want to do a demo, want to do a third demo, six in the morning on Sunday. Cool. Our pride was answering the email within one minute. So when they would email and ask a question, Mike and I were racing to see who could answer it because we just wanted them to know that we’re going to help you figure this out. Wow. Talk about things that don’t scale. You know what I mean? That was our mantra that we live by. It was like, this doesn’t scale, but we’re going all in on this and we didn’t see our wives for a year or two, and that’s how there were sacrifices there of sitting in that office 12 hours a day.

Rob Walling:
And that’s got to be what I mean, there’s a lot of, you doubled several times as I was saying when I read it out, but getting to 18 KMRR almost 20 by the end of the first year is like, that’s crazy. The one that I think that surprises me the most is one year later you’re over a hundred thousand MRR you, five x in a year. Was it

Kevin Wagstaff:
The same story? There was two big occurrences that happened. So we also went and found all the Facebook groups where home inspectors hung out and mingled. There was these small Facebook groups and we were like, okay, how do we get in there to be helpful? So we would just try to add ourselves to them. We would ask an inspector that we knew to add us and let us in there just to listen and we wouldn’t even post because they hate vendors in these Facebook groups. And we tried to find the influential inspectors in there and really poke on that. And so one very influential inspector that everyone looked up to, killed myself to get a demo with him and he was like, I’ll meet with you, but it’s 6:00 AM on Sunday. That’s the only time I got. My kids are busy. My kids keep me busy.
I got inspections all week. And I was like, this is a test, man. I was like, let’s do it 6:00 AM Sunday. So I set my alarm, got up at 4:00 AM prepared. He ended up loving the software. He went and told his Facebook group of 200 inspectors that the next biggest thing is out there. You guys should check out Spec Tora. So that was one kind of push when we were like, wow, these guys listen to each other. Then the second we did a stupid grandfather pricing for life sale. I saw that. I saw that in

Rob Walling:
Your notes. I was like, it just goes to show you you can make mistakes and still survive. Was it a one-time thing then a one-time payment or just grandfather their pricing for life,

Kevin Wagstaff:
Grandfather pricing for life. If you do an annual deal, so you do an annual, you’ll never have a price increase for the rest of your existence. And turns out when we went to sell every private equity’s, like Why’d you do that?

Rob Walling:
Yeah,

Kevin Wagstaff:
It’s not great. You’re like, sorry, I was

Rob Walling:
Done. But it was only a hundred customers or something.

Kevin Wagstaff:
Yeah,

Rob Walling:
So it was a small number.

Kevin Wagstaff:
We knew we would have to raise prices over time as every good SaaS should, but those were kind of the two watershed moments where it was just big sale. And then we did another one on Black Friday and people do respond to these kind of FOMO sales, I think. Did you raise any funding or have any outside investors, or was it just you and Mike? Me and Mike, we started, we put in $2,500 each for the domain name and the AWS instance to stand that up and got calling from

Rob Walling:
That. That’s it. Yeah. Wow.

Kevin Wagstaff:
We did have about, yeah, like I said, I think we had maybe 10 or 20 grand in the bank each. So we had some runway and we told ourselves, Hey, first year we’re not going to pay ourselves.

Rob Walling:
And so the two of you then, it wasn’t nights and weekends, did you guys quit the day job right away?

Kevin Wagstaff:
We burned the boats to a degree because yeah, that’s a big deal. We both said we could go back to freelancing in 2018 if we go a year and we we’re just struggling and chugging along, we can pick up freelance stuff on the side. And I think we were still winding down some of the freelance stuff in those first couple months, but then once that first a hundred customers hit, we were like, we’re burning the boats.

Rob Walling:
That makes sense. As I hear more of your story, the little elements I got to know about the Facebook groups for example, or the 6:00 AM Sunday call ride is the first time I’m hearing it. As you talk about the Facebook group stuff, it makes me think, yeah, that’s totally, that’s how I used to think with Drip, right? Or that’s how I think too. And sometimes I’ll tell that to founders, they’ll ask me for advice whether on this podcast or whether privately, I’m like, well, are the Facebook groups for the thing? And there’s always a question of like, well, how does that work? How do I get in it? How do I not sell? How do I this or that? And it’s almost like a resistance to just doing it. And I remember again, back in my day of going on Reddit and responding to things and being a little salesy, a little tiny bit, but not so much.
And this works if you just do it. And I guess that’s what I kind of want a listener to hear is you thought about it, you kind of had a playbook in your mind it sounds like. And as the new thing came up, it’s like, oh, there’s Facebook groups. We have to be there and we’re going to put in the time and we’re going to put in the effort and we’re going to do this. Well, and it sounds like that was a piece of this puzzle. It was no one thing, but it was a lot of hard work. It was maybe a little luck, I guess, and a load of skill and willingness to just do a lot of things that resonate with you.

Kevin Wagstaff:
It does. And I could tell your approach was similar was like you just go in there and be helpful. And so what that required was thinking, where are home inspectors weak? What’s something they don’t do well? And it was like market their business. And so I going to make sure I learned everything I could about SEO and setting up a website and Google my business. And when someone had a question in those forums or Facebook groups, I would just chime in and answer and not say a thing about Spector. I almost anti sold. And I wanted them to be like, who’s this guy? He’s not an inspector. And then my signature, they would see a link to Spector. So I get clickthroughs from that.

Rob Walling:
That makes sense. And something I want to call out too is some founders, especially online or I have the SaaS launchpad course and folks will say, well, I can’t imagine building anything if I’m not customer number zero or number one, if I’m not building it for myself, it’s eating my own dog food. I couldn’t do this. Right. But you weren’t a home inspector and neither was your brother. It sounds like you had a friend, I forget if it was a relative or a friend.

Kevin Wagstaff:
Yeah, a friend’s dad was the home inspector. I was a realtor for five years. So I received home inspection reports and that maybe was a wedge, was my wedge. I said, Hey guys, I got these reports and I hated them. They were 90 page PDFs. Our new version of the report is it’s modular pictures blow up, there’s video. So that helped a little, but my magic line was like, Hey man, I’m not a home inspector. That’s why we’re going to listen to you tell us and we’ll listen. So our calling card was like, it’s an advantage that we’re not a home inspector. We don’t think we know better than you.

Rob Walling:
So I want to transition us into talking about the acquisition. Obviously a big piece of this story, I want to call it out though, if you’re listening to this, the acquisition is, it’s a capstone on a story, but there’s 5, 6, 7 years of you guys grinding and growing this. That’s the real story. I’ll say. There is no acquisition without all of that. And so it sounds like you had almost an acquihire offer in 2017 where Porch, I don’t even know who that is. Are they private equity? Are they a competitor?

Kevin Wagstaff:
No, they’re now an insurance company, but they were kind of like a home services marketplace. If you think of an Angie’s List or home advisor, they started off as that. Got it. They got public via spac. And so they just took the approach of buy up anything in the home services.

Rob Walling:
And so they offered you stock and a little bit of six of cash low six figures, and we call that an acquihire and TinySeed companies get this more often than I would care to admit. And usually it’s just a big fricking waste of time. They’re like, Hey, we want to acquire you. And you’re like, great, we’re really early. And they’re like, great, we’re going to give you some stock in our private company. I guess. I dunno if they were public at that point, but it’s like this really isn’t, probably isn’t worth it. Did you guys even entertain that or you like No,

Kevin Wagstaff:
We got a little scared because the CEO told us he’d basically make a free version of what we did. He’d spin it up and crush us. And so it was more like we’re going to get squashed the little cockroach we are at the time. We thought about it for a hot second, but then we just doubled down on what we believed and saw was like, no, people are liking this. People like what we’re doing. So we said, no, let’s compete. But we were scared for a second there, which is

Rob Walling:
Totally, yeah, it’s totally

Kevin Wagstaff:
Natural. Big money comes into every space, it’s going to scare.

Rob Walling:
Yeah. And so then in 2020, it sounds like front door made a $12 million offer. Was that mostly cash and was that serious enough that you guys considered taking that?

Kevin Wagstaff:
Yeah, that one we thought about because that was covid. So there’s opportunistic buyers coming out and we thought, okay, they do warranties, they’re adjacent to us, but we just saw our growth and we were like, no man, we’re still growing. If someone will pay this now, keep executing, keep our heads down. We’re in the zone working our asses off. It’ll get better. We’ll keep winning. So said no to that.

Rob Walling:
That’s big man, because if you two could have walked away with 6 million cash each, that is in most cities, this never have to work again, money, retirement money, it really is. You don’t need, a lot of people say 10 20. It’s like, nah, you can do it less than that. And so you must’ve really had the confidence that you could keep executing

Kevin Wagstaff:
And it felt opportunistic given the environment. They didn’t budge at all. We showed ’em our kind of amateur projections to say, Hey, we think two years from now, this is the a RR we’ll be at. And they may have not believed it, and maybe they didn’t have a reason to. I don’t know if we believed it, but we created a spreadsheet that we’re going to make. We’re going to grow and get there. And so we ended up not doing it. I’m

Rob Walling:
Glad we didn’t. And then in middle, it was June of 2022, you met with what a Bay area private equity company and they want to make an offer without running a process. I want to call this out because this is really common. Running a process is basically having an M and a advisor who goes and gets in touch with a hundred, 200 strategics and private equity and does kind of an auction where it’s like, Hey, this is for sale and you’ve got all sign lois, and you got to make offers and you got to make offers first. I guess they send in lois and most buyers, if they approach you, they want to try to get you to where you don’t do that because then they might get outbid. So then they try to, oh no, don’t run a, I mean NR deals with this all the time. So I want to call this out and I want you to explain, add on to what I’ve just said of why did they tell you not to run a process and then you decided to run one anyway. So talk me through that experience.

Kevin Wagstaff:
Yes. So we read forums, talked to other founders and found that we were kind of on that border of hire banker. Don’t hire a banker because smaller deals, it’s just probably not worth it. They may not even work with you if it’s in the low single digits, but every PE we talk to, they don’t like processes because it’s competition and it pushes the price up and then they have to compete and fall in line with everyone else. So they want to build these relationships with you early. Most of your listeners are probably getting these emails and calls because it’s an associate saying, Hey, want to get you to like us? So then when you’re ready to do a deal, it’s just, I’m not saying they all will chisel you down on price or try to give you poor multiples, but no competition usually brings a price down.
So we met with Hula and Loki, some bankers of New York. One works out of San Francisco, and we really liked what they had to say. They were very honest with us. They told us a competitive process will really show us the quality of buyers that are out there because there’s some private equities that are not interested in helping you run a great business for your customers. They’re just not. They want to roll up companies. They want to Frankenstein together something bigger to sell to the next private equity. So they helped us. It was like a master’s degree in private equity that they helped us through and we learned so much from the bankers. And so personally, I’m glad we did it, and I was happy to give the couple percent of the overall deal value to them because they showed us the game, they introduced us to people and they taught us what a business packaging it up nicely looks like with the right deck, the right selling points. What future vision are you selling to the buyer? It can’t just be, look what we did. It’s like what are they buying?

Rob Walling:
Yeah, where are you headed? No, that’s really good. I mean, Sherry and I, as you wrote a book Exit strategy and has published it in the last few months, and that is something I’m really bullish on hiring a good banker. And of course I’m with Einar Vollset who runs Discretion Capital and I refer a ton of people over there because some people don’t want to pay the, I don’t know, three, five, 6%, whatever the percentage of purchase prices is. And I’m always like, oh no, don’t DY your own legal, don’t DIY, your own tattoos. Don’t DIY, your own LASIK eye surgery and don’t DY your own acquisition. This is the biggest transaction of your entire life. Very likely,

Kevin Wagstaff:
Yes.

Rob Walling:
Why be cheap? You don’t want to pay someone half a million dollars. When I say half a million or six, even if it’s a million, it’s like, oh, that’s a lot of money. But if you’re paying them a million, you’re making so much more than that.

Kevin Wagstaff:
Yes, I respected it after going through it. I thought me and Mike thought the same way. We were like, oh, we could just represent ourselves and just do this. There’s so much inside baseball to this that you learn along the process, and I respect it so much more now of how to position a business for a buyer.

Rob Walling:
And you said you wanted to shout out a compliment to a private equity firm because there’s a lot of private equity that’s shifty, and there’s some that are good and there’s some that are great, but in particular, I think it was

Kevin Wagstaff:
Main sale, main sale partners. They just came across as so authentic and down to earth and not private equity in the sense of the sharp elbows talking a different language. We started talking to them in 2019. I started doing calls well before we were ready to even think we were a viable business to buy because I wanted to learn from them and ask. And that would be my advice to any entrepreneurs is when you’re talking to private equity, don’t be shy to ask them like, Hey, what would make this business worth six x seven X? What are you looking for? What’s appealing to you? And make them tell you. But anyway, main sell was very high integrity, very transparent. It never felt like they were trying to get a deal or get one over on us. I wanted them to be the highest bidder at the end of the process. They weren’t, but gladly worked with them and may work with them in the future. We’ll

Rob Walling:
See. And then the Bay Area private equity firm I mentioned earlier who tried to convince you not to run a process. Turns out they were one of the higher, highest bidders in the process, which is interesting. Right. I know you had a higher bid, but they dropped out to environment. I guess before I want to talk through how that went down. It sounds like it was tricky. You and your brother only sold 49% of the company with that first swing, and then you sold another, as you said, another small chunk of it, A year later. Yeah, a year later. Why? Why not just sell the whole thing all at once?

Kevin Wagstaff:
Yeah, we thought about it because obviously the dollars go up the more you sell, and we just thought there was still more to accomplish. We had projects, we had our go to market getting revamped. We had a few kind of new products we were rolling out, so we just thought there were things on the horizon that were going to increase the stock value in the next year. And so we said, no, we want to maintain control. And the second reason was we want to make sure to still be doing right by our customers because we have such an involved customer base. They know so much about our business and the product, and they’re so into it and so loyal that we wanted to make sure everything was above board and that customers were still being taken care of. And so that was a good kind of a glide path for working with the pe, I think was saying like, we’ll sell you a minority stake. Of course, we want all your resources and your help and your guidance because some of these firms, they’ve seen hundreds of businesses like Spector, as much as we think we’re all special. We were like, oh, wow, you have seen this story before. Help us. And so that was the initial rationale was we have more to accomplish. And then we’ll do the second bite later.

Rob Walling:
So this Bay Area private equity firm, you signed with them and it was at an 80 million enterprise value flashback, 30 minutes. We said you sold for 90 million. So this is not the one that goes through this wasn’t the winners. And so you sign an LOI in early December of 2022. So then due diligence over the holidays, which is a fucking nightmare. Regrets. These are life regrets when you do that stuff. I know you did not take a day off the entire Christmas New Year’s cycle.

Kevin Wagstaff:
Yeah, there’s never a good time to just get put through the ringer of just being told Your kids are ugly. Your mom’s ugly. Your dad’s ugly. You’re ugly. It’s abusive. It’s just abusive.

Rob Walling:
Yeah. Everyone I talk to who does any type of deal, whether it’s 80, 90 million or whether it’s like five or 10 million, they’re just like, due diligence is one of the worst experiences of my life. It

Kevin Wagstaff:
Points out everything you failed to document since the beginning.

Rob Walling:
Yeah, it’s terrible. And so they flew out and met you in Denver January 10th, and I like this. This is eloquently put, you said, we got appetizers and drinks. They said all the right things, excited to partner, love the business, et cetera, et cetera. Eight days later, the day before close and we’re going to receive a wire for $29 million. They send all caps, the retrade offer. Do you want to tell listeners what a retrade is?

Kevin Wagstaff:
Yes. A retrade is a company gives you basically an offer, offer sheet and says, Hey, pending due diligence, this is the price. These are the terms, this is the amount of money you’re going to get. You send wire instructions. And then they do their due diligence and afterwards they say, Hey, things we found are causing us to believe your business is worth less than it was when we made this offer. And when you put it that way, you’re like, okay, that’s not the most unreasonable thing to say that happens. Things can be worth less just like a home. You find something on the inspection. But there are private equity firms that will tell you, we pride ourselves on not re-trading. We do our work upfront with the price is the price. And this was one of those firms that said, we don’t retrade. We’re founder friendly. Those guys, they’re CHUs. The guys that Retrade are chumps. The reality is is they take your business and there’s a lead partner and they have an investment committee that they take it back to, which is all the other partners in the fund. They beat it up and say, this business ain’t worth that. We’re not doing that. So it has to go through and approvals. Once you learn that, you start to realize, okay, the guy we were working with believed in us and thought that was the right price. His partners at the firm vetoed it.

Rob Walling:
Wow. They added an earn out. They added terms that were just like, did they reduce the offer? Did they just add terms that were so onerous? You and Mike were like, no,

Kevin Wagstaff:
It effectively reduced the price, I think by about five, but it was by 10 million. So I think it ended up being an effective kind of 70 million valuation when you factor in the earnout and a call option, which is they wanted to reserve the right to buy more of the company at a fixed price, no matter how much, no matter how value we added. So they have a lot of tricks and a lot of deal mechanics that they can put in and it’s savvy. But when you don’t know about ’em, you read ’em. And that’s where a banker comes in and you’re like, Hey, decode this for me. What does this mean? So we did a lot of scenario planning on spreadsheets to say, Hey, if the business grows to here, how does this deal look bad for us? And we beat that up one night, almost all night with our banker on a Zoom. So they left us at the altar, gave us that deal, and we said, no, that’s ridiculous. And this was in the height of the poor news cycle after rates went up from zero to five and a half percent. So nobody knew what was going on.

Rob Walling:
And then you said No. And they came back, they said, we’ll do the original deal. Unbelievable. And then you’re like, wow, do I really want to be in? Because you’re kind of in business with these people because you and your brother are still going to own almost

Kevin Wagstaff:
50% of the company. They’re your board. They become your partners when they fly out, you’re eating together, you’re laughing, you’re getting to know each other’s families. It becomes very intimate. And they said, no, no, no, we’ll do the original deal. And we were like, you know what? We’re good.

Rob Walling:
Yeah.

Kevin Wagstaff:
So you walked away from, yeah, we don’t like how it felt. And our bankers handle it with grace. A good banker will say like, Hey, I’m working for you. And we know bankers get paid when the deal closes, but they said, you know what? It’s your decision. And if this doesn’t feel right, you’re going to be married to these people for a couple years.

Rob Walling:
You got to feel right about it. And so let’s flash forward three, four months. And this is the part that, so I want to tell listeners, I had no idea any of this had happened. You and I had never met, I didn’t know your name. I didn’t know the name of Spector. And I get from Arvid call has a, it’s Google alerts for podcasts. It’s called Pod scan. And I got a Google alert either from my name or from MicroConf that you had mentioned me or MicroConf in another show, and it was John Warlow built to sell. John and I are buddies. I just went down to his event a couple months ago and I’m like, wait, what? And I’m reading this. I’m like, oh, someone sold their company. And they’re mentioning, that’s kind of cool. And then I’m like, does that say 90 million? And I was like, I need to listen to this now to make sure the transcript is good. And then I’m like, how have I never met this guy? So I believe that’s when I reached out. I was like, dude, you need to tell me this story of what happened in the men’s room, Microcom, Denver, anybody who it was a couple of years ago is this freak fluke accident. It sounds like you met someone from Radian and Radian is a private equity firm who eventually bought your first swath for 90

Kevin Wagstaff:
Eventually. Yeah. Bought the company. So yeah, I’m in the men’s room and it’s just me and this other blonde-haired kid in there using the bathroom. And we just start chatting like, Hey, how’s conference going? And get to know each other. And then he’s like, oh yeah, Spector. We were in the process when you guys ran it last year. Love the business. We just didn’t think we could pay the price that you guys were looking for at the time. Would you be open to meeting with our partner Chris again? He’ll be in their trick is always like, oh, he’ll be in town. They’re always in town. They’re always in town. That’s a good hack. If you want to meet someone, it’s just be in town and buy him coffee. And he just seemed like he had done so much work on the industry and the business and the kid was Sharp Barack, he’s a great associate.
I think he might be higher now at Radian, but he really impressed me when he talked about the business. He was in it with me and I was like, wow, that’s cool. I’ll meet with this guy, but he has to come to the Starbucks next to my house near my house to make it. Because I told him, dude, we have P Ts D right now. I was like, we’re a little dated. Like, ah, totally. He were like, we’re not taking money. We’re like, we’re probably never taking money after a bad relationship. I’m never dating again. That kind of thing. So I honestly told him, we don’t want a deal. We don’t want to work with anyone. We’re pissed off and we’re just going to execute. We’re just going to take it out on the marketplace. Our competitors that I think worked in our favor, at the end of the day, if you don’t need them, they have capital that they need to deploy. Maybe that worked in our favor a little of saying like, no, we’re hungry for this deal.

Rob Walling:
And the interesting thing is, you didn’t run a process this time. It sounds like you did just have one buyer and yet you got this great deal. So April you meet Rock, and then by June was that two months you have the final term sheet and then two months later you closed

Kevin Wagstaff:
And you get the, it went fast, man. It was speed dating because Chris Livingston came out. He’s no longer at rating. He actually went to Vista, but he came out and was so down to earth, relatable, all the things just like meeting you. It’s just like it clicks and you’re like, man, I forgot you were a private equity guy there for a second. This is great. And he said, we could get close to your price. We wanted a hundred million valuation. We thought the growth prospects and the future vision and add-on products warranted it. Were we a little delusional, but you have to be right. You have to believe in where you’re going. We believed in it. What I loved about them was they were a newer, younger, private equity firm that wanted to prove themselves. And when they are that way, they’re going to show up and be invested in your business succeeding because their name and reputation relies on it.
The bigger the fun. Sometimes they just start playing the game of asset management and they don’t really care if you don’t make it. They just need a couple companies to make it. Loved what he said. My brother flew out to their CEO summit. I was on vacation, I was overseas. He went to New York to meet their partners and he had very vulnerable, intimate conversations with them and that helped sell him because we both working with real humans that have vulnerabilities and talk to you and listen and all the normal good things in life, not just spreadsheets and numbers. So that was a rare thing in the private equity world to say like, oh, you guys are humans that care about other humans and you’re good at your job, so we think we want to do this. And so we didn’t end up having to do a process at the end of the day and met Radian and then had a deal done. They moved fast, which I loved.

Rob Walling:
And it sounds like it worked out. Radiant’s doing a good job running the company. You hired a CEO. That’s that. We’ve smash cut to 2024 and you and your brother have since stepped away from the business. Well earned by the way. And radiant. The company’s still growing and everything. I mean, you still own a chunk of it, right?

Kevin Wagstaff:
Yeah. Collectively, I still own about 29, 30% between Mike and I, but they have been a great partner. Learning about board meetings and how they’re run at different sizes and stages has been very enlightening. And then you start to see what deep expertise in go to market product payments looks like when you meet some of these, because a lot of these funds have operators. They have an operating team that actually will get into the business with you and help. So we’ve had radiant folks fly out, work with our team in person to solve certain issues that you’re dealing with, and then you get access and insight into a couple dozen other companies, probably similar to TinySeed. It’s like the collective wisdom of a group of companies. Pretty powerful because we feel like we’re out in the wild alone all these years. And then you’re like, there’s other businesses like mine.

Rob Walling:
Yeah, yeah, exactly. Yeah, because man, running a SaaS company, even with a co-founder is just lonely. So lonely seems lonely. Yeah. It’s a big deal. Well, man, thanks so much for coming on the show. You’ve shared a ton of knowledge today. I know there’s still more of your story to tell, but you’re giving back to founders today by being on the show. You’re also now a TinySeed mentor, which is a big deal. I love it. This is the full circle thing I have to talk about with MicroConf and TinySeed in the podcast is it’s like if you get in the ecosystem and you do have success, try to give back to the other founders, and you’re doing a great job of that, so I really appreciate it.

Kevin Wagstaff:
Well, thank you. It’s just getting started. There was a decompression period that was needed. I asked you about that, about the couple months, three, six months of doing nothing or chasing interest, but then there comes a time where you want to see other people get their win and you’ve given so much to the community, so I was just trying to keep paying it forward.

Rob Walling:
For sure. If folks want to keep up with you, you are Kevin Wag staff and the number three on X Twitter where you tweet. I see you tweeting about SaaS and the NBA. I’m like, wow, I haven’t heard so much about the N because I don’t really watch basketball anymore. I’m like, oh man, this guy’s really into the NB. You’re like a R is with the San Francisco Giants.

Kevin Wagstaff:
You’re just in it. It’s funny. Yeah. Grew up playing, played in college, played a year professional overseas in the Philippines, and then stopped and went to work, and then I was suddenly finding this passion again for This is your jam.

Rob Walling:
Yeah. Well, I tell you what, if someone’s listening to this and they have questions for you about anything about growing, building acquisitions, if they either tweet me or you or they send ’em into questions at startups For the Rest Of Us, if we get enough, would you be willing to come back on the show and just do a q and a kind of Kevin Wagstaff q and a exclusive?

Kevin Wagstaff:
100%.

Rob Walling:
Yeah, that’d be super fun. I think there’s so

Kevin Wagstaff:
Much value in the nuance and details too. I think it spurs so much, and so happy to be an open book about it because it’s probably what you would’ve wanted. It’s what I would’ve wanted early on.

Rob Walling:
Awesome. So that’s a call to action. If you’re listening to this and you’re thinking, and again, anything about his journey, not just the acquisition, but working with the brother as a co-founder, all the growth upfront entering this industry, how the growth effect, just whatever. Anything that I didn’t ask that you’re thinking now, you can email questions at startups For the Rest Of Us dot com or at mention, either of us on Twitter, at Rob Walling, or at Kevin Wagstaff. Three. Thanks again, man for coming on the show.

Kevin Wagstaff:
Awesome, man. It’s an honor. Appreciate you and everything you’ve done for the community, so it’s awesome to be here. Thanks.

Rob Walling:
Thanks again to Kevin for taking time to appear on this podcast and to give back to the Bootstrapper community. As a reminder, if you have any questions for Kevin about his journey or his expertise, please send those into questions at startups For the Rest Of Us dot com and thank you for listening this week and every week. This is Rob Walling signing off from episode 776.