A Simplified Structure
Thanks so much for those of you who helped me workshop this new model over the past few weeks, I really appreciated the honest feedback and the tough questions. Once again, this post is not a solicitation of investment, but a dialog about our fundraising process and experience. For those interested in investment opportunities please reach out to me at andrew at xo.capital.
After a ton of pushback the past few weeks on our fundless sponsor model, we've decided to combine all our acquisitions into a single c-corp and go raise $1M into a single entity. That way all investors get the same shares as we have and get exposure to our entire portfolio.
The fundless sponsor thing is really common in real estate. I think i know why it doesn't work for us. It's because we're also operating the companies, not just putting up the cash for them. In real estate you typically partner with an operator who does the day-to-day. That type of thing doesn't (yet!) exist in tech other than of course staffing up a company using its own cashflow. Because we're buying things that are tiny, we can't really do that either... anyways everything is an experiment and it was a resounding failure! Onward!
The good news is that despite pitching a bad model, a number of people were very interested in getting exposure to our entire portfolio. Bless them, I would be too!
What This Changes
In an ideal world we'd continue bootstrapping and never raise any money. We'd roll excess cash into new acquisitions or growth and put up more cash for acquisitions when needed. This would be great if all 3 of us were filthy rich (or even just regular rich), but we're not! The reality of our own personal financial situations shouldn't limit XO's potential, which is why we've deciding to raise.
This raise will be a small $1M and will allow us to position ourselves as the acquirer of choice for bootstrapped SaaS businesses doing sub $10k MRR.
We have several great deals on the table that we just don't have the cash to do right now. I think XO could grow tremendously fast if we injected a little capital at this point. We've proved the model, we've built the team, now it's time to scale up.
The difficulty will then lie in deploying that capital quickly and efficiently. $1M may sound like a lot, but when you're talking about buying cashflow, it's actually only going to buy us an additional ~$300k of ARR. We'll still have to be patient and make sure we're buying great businesses at great prices.
We're doing legal stuff to get everything into the new entity, but I'd imagine we'll start the raise in April and see how it goes from there! If you'd like to check out our deck feel free to ping me at andrew at xoxo.capital!