Starting a SaaS company is a challenging and exciting journey that requires a significant amount of time, effort, and resources. While the ultimate goal of most SaaS entrepreneurs is to build a successful and profitable business, one of the most critical decisions that must be made is when to sell the company. Whether it’s a merger, acquisition, or an initial public offering, knowing the right time to sell can mean the difference between a successful exit and missed opportunities. In this interview, we will be speaking with Akeel Jabber about his insights on when the best time is to sell a SaaS company and what factors should be considered when making this critical decision.
[00:00:00] – Peter
Hey. So we’re live – I’d like to say hi to Akeel Jabber, founder of HoriZen Capital and also the host of the SaaS District podcast. Hi, Akeel, welcome to the chat. Can you tell us a little bit about yourself, who you are and what you do?
[00:00:20] – Akeel
Yeah, for sure. Thanks for having me today, Peter. I appreciate it. So, yeah, quick background. I’m actually a petroleum engineer turned entrepreneur currently running Horizon Capital and also, like you mentioned, SaaS District. I worked in the white collar industry for several years and then made that full time leap, I think almost seven years ago now, to entrepreneurship. But I always knew I was going to be an entrepreneur, even in school and university. Actually built my first startup was actually a recruitment firm, hiring for tech talents and startups around the world in university.
And that’s where I learned a lot of the mistakes, all those rookie mistakes everybody makes in their first business, spending way too much time setting up a logo, all these things that just don’t matter, right? Yeah, but that was years ago. Glad I got past that. But my passion is all around building companies, investing in companies. So I bought some real estate in Canada. Then I bought a gym, so we have a gym still there running in Canada. And then I started buying online businesses. So that’s how I first started. I learned about digital and online businesses. I think I bought my first online business from Empire Flippers, so maybe you guys know about them.
[00:01:18] – Akeel
It was an affiliate marketing company. I think it was less than $50,000. But ever since then I was hooked. And that’s where I learned all about some just through competence and learning and failure, right? CRO, SEO, hiring writers, affiliate marketing, email marketing, all that fun stuff. And that’s when I quit my job, then started building, buying some companies. And I actually joined a firm at the time called Wired Investors. So they were doing kind of the same thing.
What I wanted to do, they were doing buying companies like seven figure acquisitions and applying their playbook to grow it. And that’s where I got to learn. I took on the role of being CEO of a company at the time called $99 Social, and within five months I invested in that company as well. I was able to double the earnings of that company and from there I moved into the Group, CEO of all the SaaS companies. And two years ago, that’s when I left the group and we decided to focus on launching Horizon Capital and where we only focus on SaaS company. So b to BSAs is all we do at Horizon Capital.
[00:02:13] – Peter
Awesome. Great. Now you’ve got a really good business background. It seems like you’re a bit of a guru with buying and building companies too, so I love that. I can see how this led you to forming Horizon. Can you tell us a bit about the kind of business you do there. How do you partner with SaaS companies at Horizon Capital?
[00:02:36] – Akeel
So why don’t we start on maybe the opposite side of the spectrum? If you’re a SaaS company, you’re going like 70%, 100% year over year, and you have investors knocking on your door to invest in you. We’re probably not the right fit of investor, right? Go to VC, work with them. You’re probably better off working with them. You’re doing a great job, so kudos to you. So, on the other hand, we partner with founders in maybe two different areas, which is like, okay, you’ve built a great product, you’ve been very focused, you’ve done a good job, and maybe you’ve grown to x percentage or revenues and you’ve hit the limit.
So maybe somewhat flat line. You’re just not growing as fast as you’d like. So what are your options at that point, right? So you can keep doing it the way you’re doing it right now, or try to learn it and try to figure it out. So that’s one option. Second option is you go and hire maybe a CMO full time, part time, whatever. But for a top notch CMO, you’re looking at 350K year, maybe for like an A player, or maybe at the minimum, maybe like one hundred and fifty K a year, right?
[00:03:35] – Akeel
Other options people do is like, okay, let’s find an agency. They go to an agency, hey, help us with our growth. We don’t know what we’re doing, but what you see is why we’re like, they’re great, they’re I’m not seeing anything bad about agencies, and I’ve run agencies in the past, but they don’t have skin in the game typically, and they’re not tied to the results. How many people, maybe a quick show of hands or show in the comments have been burned by an agency in the past?
You paid the retainer, whatever amount per month and months go by. Six months, eight months. You’re like, hey, I’m not seeing any results, right? So that’s where we come in. So look at us as kind of like a fractional CMO and also CFO, but we have skin in the game. So we’re investing all of our fees or retainers or whatever fees you would anyways back into it, investing some capital in it, and then we’ll first help unlock, let’s figure out what the potentials of this business. Input are kind of proven playbook. Let’s apply it that could be within our market or even go into go to market in other countries.
[00:04:30] – Akeel
And then we might tell you at that point, look, let’s focus on growing 30, 40% 1st this year. Let’s make this company more investable. Let’s design a plan to get their work together for six months. And then it’s a lot easier to go have that conversation with any investor, right? So let’s figure that out. And then when they’re at the right stage and right time, and if they’re even ready to raise, then we’ll go out to market together, whether with our investors or us investing or going to VCs as well, and then we’ll split that upside together.
[00:04:58] – Peter
I see. Yeah. That kind of answers my next question as well, which is like, what you look for in a partner, which I think is really nice, and it sounds like, are you investing in that early stage that seed around? And then you might be involved in the growth later towards Series A, Series B, and this kind of stage.
[00:05:21] – Akeel
That’S a typical route people take that’s the VC route, and that’s probably when you’re growing a lot quicker. Right. So if you’re going VC route, we’re not going to work in that game. We’re more like growth equity. So you’re growing maybe 20, 30% year over year. So VCs won’t even look at a business like that. If you’re growing kind of nice and you’re mostly bootstrapped, you probably haven’t raised. So we’re kind of playing in that game where we’re working more bootstrapped entrepreneurs.
[00:05:45] – Peter
And you’re looking to get them to that point where they have that growth, then so their growth has increased to the point where they do start becoming interesting to the VCs.
[00:05:56] – Akeel
VCs are even an exit. Right. So a lot of people say, Look, I’m thinking of selling my company, but you can get a valuation today. You can sell it, but here’s what you’re going to get. Most of them might get disappointed because you’re just not going, let’s talk about selling this business in a year. And we know what buyers are looking for because we’re doing it ourselves.
And we have a big network of buyers in the space, strategic buyers, et cetera. We know what they’re looking for. So let’s kind of reverse engineer, let’s work together for a year and then let’s get you there, and then we’ll go out to market and sell it. Now, you get five times what you’re looking for today, what you got to get today. Right?
[00:06:28] – Peter
That’s great. That’s really great. So you’ve seen that process a number of times and it sounds like you’re very much familiar with the sale side of the business, the kind of M and A or selling process. When is the right time for a founder to sell their Sat business? And what kind of valuation can they expect? I know you mentioned increasing that valuation. When is the best time for them to sell and get the best valuation? And what kind of multiples do you usually look for?
[00:07:04] – Akeel
All right, let’s start with the valuation. Maybe I’ll send you a quick send the chat. So have a link on our website that talks about valuation. So if people want to cheque that out, that’s kind of first thing. Maybe a question for you, Peter. When would you sell your company? Right. If I came to you and said, hey, Peter, do you want to sell today? It’ll probably catch your interest, right. If I came to, you said, hey, do you want to sell? If It’s a Life changing amount and maybe a higher number than you had in mind, you’d probably be curious, right?
But most people are running their business. They’re just operating. They’re trying to grow. They’re Trying to Figure out they’re in the day to day. It’s not top of mind of thinking to sell their business, right? But if somebody approaches them and we come to them and say, hey, do you want to sell? At least we’ll Start having that conversation. But, you know, I guess question to you. Would you would you want to sell your business? Like, just, you know yes.
[00:07:53] – Peter
I feel personally not not ready, so and I Also had this kind of philosophy of Building a long term Business that could potentially Sell, but I Would Enjoy Working In it. So I Think in three to five years, I would start to consider Something.
[00:08:15] – Akeel
That’S One way. So another time people Are Looking to sell is usually there’s Something Wrong with the business, right? It’s like flatline. It’s like a hidden big risk that’s declining and the market is changing. And they see it’s like, hey, it’s time to pull out. There’s not much we can do here. That’s one way, right? You probably feel like, hey, nobody’s investing in this market anymore. Let’s get out. Let’s try to cash out while we can. Another area we see.
So this could be something like you in a few years, which is like, you built a great product, but you’ve been running this for, like, 56789 years. But you’re just like I’m burnt out. I’m tired of doing is day in, day out. I want to move on. I’ve built a good business, but I was like, I’m ready to sell, and I think it’s a good time. And my first time. This will change my life. And I can now free up a lot of my time and go travel for a bit and then come back and build something else. The other part is product led. So those are people. For example, one company we just invested in called Get Shoutout Out so people can check that.
[00:09:06] – Akeel
These are three engineers, right? They went to school together, university, and they built SaaS companies and they built this great product, but they have, like, zero almost marketing skills. They don’t know. Go to market. They don’t know how to build this. They’ve grown organically. So they’ll come to us and be like, hey, let’s just invest in us. Help us grow. And together we’ll share the upside because we complement each other. And then the last one is generally like a serial entrepreneur, right? He wants to move on. He’s working on multiple businesses. He built one. It’s growing, and he just wants to sell it. Cash out, work on something else. And he just likes to work on that cycle. So those are kind of the different angles that we see how people want to sell their business.
[00:09:42] – Peter
Yeah, I like that because you’re talking about the motives of the individual, right? The founder of where you are in your life, how you feel about your business, how you’re feeling about the progress you made and what the stage you are. But then there’s also that practical side of where the business is, what’s happening with the product, what’s the potential, and where it is at that given moment in time that sounds makes common sense as well. But I’m sure that once you get into these conversations, there’s a lot of nuance and detail in what the valuations could be and how long would you wait to see if you can get a better valuation or if the opportunity is on the growth or decline.
[00:10:28] – Akeel
Maybe I’ll just add to that. In terms of the valuation, I think, Mr. Park, but the biggest factor of variables that play into valuation right now is going to be your growth. So how fast are you growing, percentage-wise? And then the other bigger factors are like your net retention rate, your churn rate, and how fast are you growing? Valuations rounds are different, like I said than VCs. It’s based on historical and not on future. So that’s how we’re investing. And then the biggest thing is going to be your arr growth versus EBITDA. Some people know SDE or EBITDA, which a lot of companies are based on.
With SaaS, it’s different. And one thing we don’t look at is VCs are happy with companies that are burning capital, like they’re losing money every month, that they’re okay with that. We look for companies that only break even or at least cash flow positive. And in terms of at this range, what we’re seeing, like, if you’re under 5 million in arr and growing at this steady kind of growth, you’re looking at anywhere between two X to two four X. In terms of arr multiple, once you cross that 5 million mark, you’re probably getting four to eight somewhere in that range.
[00:11:30] – Akeel
And then if you’re growing 100% year over year, VCs are paying 810 twelve X. So it’s a different game.
[00:11:37] – Peter
Yeah. I see. Okay. It’s good to know a little bit about the variables and the factors that influence that. I love this article you shared about how to value your SaaS business. So I’m going to share this in the comments in the chat for this slide. And then I wanted to move on to your podcast because I’ve been a listener and I came onto the podcast with you last week, really enjoyed that. And I just think you’re doing a great job with the people that you’re talking to on the topic. So can you tell us about the SAS District podcast, how you started it, and what your kind of focus and vision for that is?
[00:12:15] – Akeel
Yes, this was kind of part of our initial 2020 marketing plan to help us build relationships right I mean, we’re in the game of relationships. I mean, that’s how we wanted to build this business. And talking to founders, and it’s obviously part of content marketing strategy. So we started in, I think, March 2020, but that’s what we do. We interview top marketers leaders, investors, founders, anybody in the space who have expertise in building or growing a SaaS company. Part of it is out of curiosity, we want to learn and share that, and there’s a lot of people who are facing that problem.
We’ve had prolific guests like Rand Fishkin, Neil Patel, Patrick Campbell. Some big players in the game. So that’s been great. And we ask questions based on their expertise. What I’m curious about at the time, so if you’re an HR platform, SAS, maybe, I’m curious about hiring decisions, making better hiring decisions. And that’s what I’m going to learn from. If it’s an investor, maybe a VC, and this is where I learn. Right, so VCs, how are they valuing companies? What are they looking for? What are red flags, all these things.
[00:13:13] – Akeel
Okay, that’s a way for me to learn, and I’m sure there’s a lot of people have the same questions as well.
[00:13:18] – Peter
Great, I love it. Yeah. So for people in the group looking for a good SAS podcast, really highly recommend the SAS district. Like Akiel said, there’s been some really great guests on there, really great topics. If you’re looking for specific information on the topic, I’m sure you’ll find it there. And then for anybody interested in questions around investment, or they think they’re at the right stage where it might be good to have a conversation with you, or they’re thinking of selling these kind of conversations, how can they connect with you? Ikea, what would you recommend?
[00:13:51] – Akeel
Yeah, so I think the best way to go to our website, Horizoncapital.com, and then right on the top there’s a button that says, sell my business. You don’t need to sell your business, but that link will take you to a form and we’ll give you a free evaluation. So maybe you’re just even thinking about it. You’re curious. You’re planning to maybe, one year down the line, fill out the form and then one of our advisers were expressing the space, will analyse your business for free, look at how to structure your business, give you maybe some suggestions on what to work on, and then we can help you from there. So, yeah, feel free to go to the website Horizoncapital.com and we’ll help you out.
[00:14:25] – Peter
Horizoncapital.com, I’ll put the link in for that as well, so people can go and visit and learn more about you. That I’ll also put the link for the fastest pod cost. And Ikea, it’s been great chatting with you. Thanks for joining us and so glad you’re a member of the group and glad that we could share some of what you’re doing with the other members.
[00:14:46] – Akeel
Thank you, Peter, much appreciate it. I appreciate it, happy holidays everybody!
[00:14:50] – Peter
Thanks. And you too. See?
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