Challenge:
Identifying and securing profitable online business acquisitions to deploy the target 80% of the funds raised for WebStreet’s Fund 7 within a 90-day acquisition period while ensuring due diligence and favorable deal structures to protect investor interests.
Solution:
The acquisition of two promising SaaS businesses, leveraging the expertise of seasoned portfolio managers, and structuring deals to mitigate risks and align seller incentives with performance outcomes.
Outcome:
- SaaS Business 1:
- Annual Recurring Revenue (ARR): +$1 million
- +7,000 paying customers
- Profit margins: +50%
- Seller Discretionary Earnings: + $600,000 annually
- Deal structure: 2x ARR upfront and performance based earnout
- SaaS Business 2:
- Annual Recurring Revenue (ARR): +$600,000
- 70 enterprise clients
- Profit margins: 70%
- Seller Discretionary Earnings: +$400,000 annually
- Deal structure: 1.5x ARR upfront and revenue share
Introduction
This report covers the progress made in the second month of the 90-day acquisition period. The focus is on deploying 65% of the funds raised across two SaaS businesses. These deals are currently under Letters of Intent (LOI) and undergoing exclusive due diligence.
SaaS Business 1 is an e-commerce reviews management tool, while SaaS Business 2 is a white-label appointment scheduling API tool.
WebStreet’s strategic approach in Fund 7 is centered on identifying and securing profitable online business acquisitions that align with the expertise of Fund 7’s seasoned portfolio managers.
This ensures that investor interests are protected through well-structured deals that mitigate risks and align seller incentives with performance outcomes. The acquisitions detailed in this report reflect this approach, intending to enhance the value of the acquired businesses and deliver substantial returns to investors.
Deal 1: E-Commerce Reviews SaaS
Business Overview
SaaS Business 1 is an e-commerce review SaaS. Its primary function is to assist merchants in collecting, displaying, and verifying customer reviews on their e-commerce stores. This capability enhances the credibility of merchants’ offerings and improves the overall customer experience.
Key Revenue Channels
SaaS Business 1‘s revenue is primarily generated through its presence on major e-commerce platforms:
- Shopify: One of the leading platforms for e-commerce merchants.
- Wix: Another significant platform, contributing to the revenue stream.
- Early Results on Other Platforms: Promising early mover results on BigCommerce and BigCartel, indicating potential for future growth.
Manager Information
Ryan Kulp manages the SaaS portfolio that includes SaaS Business 1. He has a proven track record in managing similar acquisitions. From 2016 to 2022, he successfully grew an acquisition in a related space by increasing its revenue tenfold and achieving an exit at thirteen times the original acquisition price.
Past Success
Ryan’s previous success in growing similar businesses is a strong indicator of his ability to manage and expand SaaS Business 1. His strategy involved developing new integrations and leveraging them for marketing collaborations, which are key growth opportunities present in this acquisition as well.
Growth Opportunities
The growth opportunities for SaaS Business 1 are significant, given its strong performance and potential for expansion through:
- New Integrations: Developing new integrations with other e-commerce platforms.
- Marketing Collaborations: Utilizing integrations for strategic marketing partnerships.
Financial Details
SaaS Business 1 demonstrates strong financial performance:
- Annual Recurring Revenue (ARR): Over $1 million.
- Paying Customers: Over 7,000, with a total of 40,000 users including those on freemium plans.
- Profit Margins: Over 50%.
- Seller Discretionary Earnings: Over $600,000 annually.
Deal Structure
The acquisition deal for SaaS Business 1 is structured to align the interests of both WebStreet and the seller while also protecting investor interests:
- Upfront Payment: 2x ARR
- Performance Based Earnout and Share of Increased Exit Value: With a total valuation cap of 3.5x ARR
This deal structure ties almost half of the total seller compensation to the business’s performance and eventual exit, thereby aligning the seller’s incentives with the growth and success of SaaS Business 1.
Due Diligence
Currently, Ryan Kulp, his team, and the WebStreet team are performing due diligence on SaaS Business 1. This process includes:
- Verification of Financials: Ensuring the accuracy and reliability of financial statements.
- Codebase Evaluation: Reviewing the technical aspects of the platform.
- Customer Data Assessment: Verifying the customer data to ensure consistency and accuracy.
- Operational Review: Examining the operational processes and systems in place.
If the due diligence process goes well, the deal is expected to close in the coming weeks at which point investors will receive a more detailed update.
Deal 2: A SaaS White Label Appointment Scheduling API Tool
SaaS Business 2 is a white-label appointment scheduling API tool designed for large enterprises in various industries, including medical, real estate, and legal. This platform enables organizations to integrate appointment scheduling capabilities directly into their existing systems, providing a seamless experience for end-users.
Clients
SaaS Business 2 serves a diverse range of enterprise clients, including:
- Well Pharmacies (UK)
- Dell Computers
These clients reflect the platform’s versatility and ability to accommodate high-demand, complex scheduling needs.
Financial Details
SaaS Business 2 demonstrates robust financial health and strong profitability:
- Annual Recurring Revenue (ARR): Over $600,000.
- Enterprise Clients: Over 70.
- Profit Margins: Close to 70%.
- Seller Discretionary Earnings: $430,000 annually.
Deal Structure
The acquisition deal for SaaS Business 2 is strategically structured to minimize risk and maximize potential returns:
- Upfront Payment: 1.5x ARR
- Revenue Share of Large Clients
This deal structure effectively limits downside risk by tying a significant portion of the seller’s compensation to the performance of the largest clients, thereby aligning their incentives with the ongoing success of the business.
Strategy
The XO Capital team, known for their expertise in marketing and conversion improvements, will manage SaaS Business 2. Their strategy focuses on leveraging the platform’s strong technical foundation and low churn rate to drive growth through enhanced marketing efforts and conversion rate optimization.
- Technical Backbone: SaaS Business 2 boasts a robust technical infrastructure that supports its high profitability and low churn rate.
- Sticky Product: The platform’s minimal churn rate highlights its value to enterprise clients and its ability to maintain long-term customer relationships.
- Inbound Leads: A steady stream of inbound leads provides a solid foundation for future growth, which the XO Capital team plans to capitalize on through targeted marketing and conversion strategies.
Due Diligence
Currently, the XO Capital team and WebStreet are conducting due diligence on SaaS Business 2. This process includes:
- Financial Verification: Ensuring the accuracy of the reported financials.
- Technical Assessment: Reviewing the technical infrastructure and codebase.
- Customer Data Evaluation: Confirming the integrity and reliability of customer data.
- Operational Review: Assessing the operational procedures and systems in place.
The due diligence process is ongoing, and the team is focused on ensuring that all aspects of the business are thoroughly vetted before finalizing the acquisition. Further updates will be provided to investors once the due diligence is complete and the deal is officially closed.
Other Upcoming Deals
WebStreet’s acquisition pipeline continues to show strong potential, with numerous opportunities under evaluation. Over the past month, the team has:
- Evaluated Over 100 Potential Targets: Conducted a thorough review process to identify businesses that meet WebStreet’s investment criteria.
- Organized Buyer-Seller Calls: Doubled the number of calls to facilitate better communication and understanding of potential deals.
- Finalized Offers: Worked on finalizing an offer for potential acquisitions under Mohit Tater’s portfolio.
In addition to the SaaS acquisitions detailed above, WebStreet is actively evaluating opportunities in other sectors to diversify its investment portfolio further. Specifically, the team is focused on agency and content businesses for the third fund managed by repeat Portfolio Manager Mohit Tater. These sectors present unique growth opportunities and align with WebStreet’s overall strategy of investing in scalable and profitable online businesses.
Investors in the currently open Fund 8 will also receive updates on the acquisition pipeline for that fund. The early indications are positive, with a strong start to the acquisition process. The WebStreet team is committed to maintaining transparency and providing regular updates to ensure investors are well-informed about the progress and opportunities within Fund 8.
Conclusion
The WebStreet team remains focused on executing its strategic acquisition plan, leveraging its expertise and thorough due diligence processes to secure high-potential investments. The ongoing efforts to evaluate and acquire profitable online businesses, coupled with the strong pipeline and proactive management approach, position WebStreet to deliver substantial returns to its investors. Further updates will be provided as new acquisitions are finalized and integrated into the portfolio.
