The Anatomy of a Startup Acquisition with Cacheflow's Sarika Garg | E2028

26:18So, you know, from your perspective, started the company, wanted to go public, how hard was it to say yes to an exit that was much earlier than you had planned throughout the life of the business? You know, these things are always bittersweet, right? You always start with the big dream. But having said that, I am thrilled and I know my co-founder is thrilled and the entire team is thrilled because we see this not as closing doors, but we see this as having a bigger platform to take the same vision we have and to get there faster, actually. So there's definitely a lot of excitement here and the HubSpot team is totally amazing.

27:00There's more, but once you take on venture capital, you have friends in the car with you. You're not just driving alone. Were your backers as enthusiastic about selling now versus staying later? Because if they bought in in the seed round, they were mentally prepared for a 10, 12-year journey to an IPO. You know, this is a very short time to exit. You know, most companies are in this for 10 years, maybe 15. And so our investors were extremely supportive. Interesting. And it actually surprised me. They were, you know, whether that's Glenn or Crystal or Pelion Ventures, Chad, they were all in it.

27:37They helped us think through it. They helped us make the right decisions and really thankful for them. And they still are, by the way, right? I'm trying to figure out why they would be so well, VCs need some exits, everyone needs to show some some, you know, DPI instead of just TVPI. But I mean, I don't know, I think I would I would struggle to let one of my fast growing investments that looked like it had tons of breakout momentum to exit this early, because I don't know, I'm greedy, I think, Sarika, like, I feel like you had like, like a heater. And so to me, it's always almost surprising that founders who are like ready to go the distance end up taking an earlier exit.

28:14but i guess with culture with product with goals and with a pile of money it adds up to enough to get you to change your direction okay that helps yeah and i think i i do think first of all this is a question for the investors but i definitely think they were very focused on doing the right thing for cash flow the team the vision and and that's that's how they approached it right okay Well, I mean, that's literally being founder friendly when the rubber meets the road. So points to them for that. Now, one thing that comes up a lot when I talk to other founders or their VCs, when they think about the market for M &A or even going public to some degree is there's an overhang of regulatory risk.

28:57There's been more strident antitrust activity. People love to blame Lena Kahn over the FTC for crushing the exit market. But yet here is the exact type of deal that I think people want to see more of. And so I'm curious, did antitrust concerns ever come up in the buildup to the deal or the deals agreement with HubSpot? So I can't speak for the HubSpot side of things. We are a smaller startup. I think the antitrust conversations happen for much, much larger deals as far as I understand. So that was never a concern for me personally. Well, then it sounds like people, if you do want to sell your company, you can as long as it's not the size of Figma.

29:33Seems like some people are blaming Lena Kahn for their own, you know, maybe the blame is not always landing on the exact right place. That's what I'm thinking. As a founder, there are some crucial questions you got to ask yourself. Do you know how your hiring plan impacts your burn rate? Do you know how much cash your startup has right now? Are you living in spreadsheet chaos? Well, if you want to have the answer to every investor question before they ask it, you need to check out Runway. This product is extraordinary. They've completely changed the way startups handle their finances. By the way, what an incredible name on Runway.com.

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30:44Come on. If you want a personalized demo, very simple, and it's going to blow your mind, by the it runway.com slash twist and sign up to get three months free right now. That's kind of a special offer. So let's take advantage of it. runway.com slash twist. Let's talk about the Nathan features fund. So back when you raised one of your early rounds, I wrote at the time that you had emphasized the importance of having a diverse cap table. And you had said that there's a very slim percentage of US venture partners that are South Asian women. And so you wanted to get them some allocation in the deal to help change that.

31:18So I'm curious, did the early exit kind of fulfill your goals of basically cutting the Nathree Futures Fund into the cash flow journey? Yes, 100%. And, you know, I've been talking to Maitali, who is a CEO of the Nathree Futures Fund, and she's very excited. This is a great exit for all the women, the 400 women who are invested in that fund for sure 400 women that's how much do i think actually let me correct myself i think it might be 125 or something like that still and then i don't know if you can actually share this because it's not it's not your concern but like do we know how much capital is in that that collection that 125 people like that they've if they committed to it or is it more like a angel network they've committed to it uh i don't know the exact fund size okay that's a really cool way to put together a fund, I think.

32:10I think it's cool to see. And then did they participate in the seed plus round as well? They did not. No. Okay. So they were in the first round. Yes. Still though, that's fast. I mean, no one else is getting exits. So three and a half years is about as fast as you might be able to possibly hope for. I dig that. And then I guess, you know, for founders who are going through the sale process, is there anything that you've learned in the kind of like once you've agreed on the transaction and now you're going through all the closing stuff anything there you can break out as a lesson for other founders who might find themselves in the same spot i think the only thing i can say is we didn't try to posture we didn't try to do anything unnatural we tried to be who we are we we were very transparent i think they were too as well and and that uh was the way it worked and it's it's been good to stay that way we've gone through this entire thing with very open communications.

33:04And I'm excited to do that versus feeling like we're being, you know, it's in any way uncomfortable, right? Sure. And then on the preparation side, you know, when companies are gearing up to go public, they intend to hire a CFO, begin to kind of create internal gap financials, and really lock down their financial life. Earlier stage startups, definitely a little bit more loosey-goosey on the accounting side because they're small. How prepped was cash flow to share P &L statements and kind of like all the traditional accounting documents? Did you guys have that stuff already prepared? Or did you have to catch up when you had to start the negotiations?

33:45We had everything prepared. And partly because we know we are going to go through fundraising. We actually have a part time CFO, who we started working with in Jan, and he's been fantastic. So we were actually almost like series C prepared, I would say, with all the statements. We have budgets. We had a three or five year plan, actually. So we were quite prepared when this came up. It wasn't in any way a rush. Would you recommend that other pre-series A companies take a similar approach to their accounting and their bookkeeping as you guys did? Um, so my big learning was get your part-time CFO early.

34:28Okay. Uh, just getting a bookkeeper to start with, they will always mess up your books. So, uh, so when our part-time CFO came in, he, it was very easy. I didn't spend time on it. He did. My time is better spent on sales, on product building and the team and hiring. Right. So, uh, so it wasn't as if I was spending my time. I don't, I would not recommend doing that right at the, at the stage, uh, but get somebody who you can trust. Okay. Is there anything else that you did on the preparation side that made the sale either possible or easier, just again, for other founders who might be listening in about how they might sell their business?

35:03You know, we are relatively organized because, maybe because Brian and I have done this for so long. So, you know, the books were clean, the decks were there, you know, everything was organized quite well. So, you know, and we put in the right tools right from the beginning, right? So that was some, maybe an investment we did where we said, Let's actually have things as organized as we can have right from the beginning. So and that actually paid off. Tell me more about the tools you mentioned. I'm curious what falls into that bucket for a seed stage startup. So, you know, when I say tools, you know, just very simple things like have Google folders and have things organized.

35:40We use ClickUp for for, you know, managing even our code and bugs. We have Zendesk for tickets, basically organized in terms of having some tools for every function. Our HubSpot is very clean, which is what we use for marketing and sales. So those are the things that actually helped us just say, oh, let's just pull a report and we're done. So essentially, the lessons here are be organized, get the appropriate help you need early, and be prepared for opportunity to arrive because you actually don't know when someone's corp dev department will reach out. So it's better to have all of your ducks in a row.

36:15I mean, that seems like pretty obvious advice, but I'm curious what percentage of founders, you know, in the chaos of building a company. I'm not trying to be unkind here, but I wonder how many don't have those things sorted out to the degree that cash flow did. And if that's harming their ability to exit early, I mean, I think the answer to that is probably yes, but I'm not sure about the ratio, if that makes sense. Yes. So, you know, Alex, being a founder is is one of the toughest jobs in the sense you have to prioritize your time so, so, you know, carefully. And so I think every founder has to make the choice of what does the company need.

36:51And I do think it's a very personal choice based on your company, where you are, the market, and so on. I actually always prioritized go-to-market and product personally. And I'm glad I did that because that helped us to find that product-market fit. Helped us to actually hiring as well, maybe. I personally spend a lot of time trying to find the right people. I still think that that was the right prioritization. And it doesn't take a lot to be organized if you do it early. If you try to do it afterwards, it's messy, right? We have the concept of technical debt that we're all familiar with, that we all understand.

37:30I wonder if we should have a similar one for organizational debt. All of your documents are a mess. You have weird accounting or whatever it is. But I feel like we spend so much time thinking about how clean code is, but much less on how efficient internal operations are. You guys got a lot done with 30 people. I bet you, you would have had to have 50 if you were less organized internally to get the same amount of work done. Yeah. Well, you know, this is what SaaS software is solving for all the time. Let's get the inefficiencies out of the system. All right. Now, one last question about HubSpot, and then I want to talk about the market.

38:03I was going back through the release from HubSpot, and I believe you guys are going to be joining the commerce hub portion of HubSpot. and I'm not going to lie, I was actually not familiar with that. So, Sadaka, can you just tell people what part of HubSpot you're going to plug into? So, HubSpot is organized into hubs. They have something called the Commerce Hub, which they went to market with in 2023. It has payments and some billing capabilities, and we are going to plug in and integrate with the Commerce Hub. So, basically, CPQ, billing payments all goes together hand in hand, right? And that's what we're going to build together.

38:42And then that'll, I presume, is a smaller part of the company, given that it's 2023, and then they'll roll that out to the existing customer base. Hence your point earlier about reach and the ability to hit more customers more quickly. Okay. Huh. How many of the 300 ,000 HubSpot customers do you think are going to be cashflow customers in like two years? Or using cashflow technology, I should say. We hope a lot of them. And of course, as founders, We are very aggressive and we want to have all of them is the goal. We're going to have you back on in 12 months to see how this is going. And I'm going to hold you to that.

39:13And it better be about 299 ,000 that have made the jump when we get there. Okay. So the other thing I want to talk to you about is the market itself, because your company working in B2B software sales, I presume had reasonable insight into the state of things. And what I've seen from a lot of companies is, you know, compressing net dollar retention rates, slower growth rates, a lot more cash efficiency, but definitely a different era of software growth. And I'm curious from building cash flow, if you've seen changes in buyer behavior, and then if so, where are we today in terms of buyer sentiment for SaaS?

39:56130 products per company already sounds like a lot. The thing that's shifted from 2021 is we used to buy software for everything. And now I think companies divide software into nice to have and must have. And if you're a software founder, you have to make sure you're a must have product. Otherwise, I don't know, change your product, change your go to market. And honestly, that's sort of what we found out, right? When you're selling to a 20 people company, a CPQ is a nice to have product. Oh, I see. sell to 100 people company, they have a massive problem that they absolutely need you to solve. That, I think, is a shift that's happened, that people are buying must-have products only, and there's a lot of scrutiny, right?

40:41So we definitely geared ourselves to value sell and make sure, we always assume that the CFO is going to be involved, that the head of sales is going to be involved. RevOps is going to be involved. So we actually crafted the deals with that in mind. And that really led to us finding that repeatability. And this is probably true in some form for every SaaS company right now. Well, no, I think it's absolutely right. People were talking about everyone trying to essentially downsize their overall SaaS footprint. The thing that's hard to tell from where I'm sitting is how much of that was talk versus how much of that was real.

41:20And I'm always struggling to figure out if slowing software growth is predicated more on existing customers decreasing their commits, or just a struggle to kind of land new accounts. So from the cash flow customer base, what did you guys see in terms of shifts in buying behavior? Has it been people trying to like, like buy less or just fewer new accounts at the customers who use cash flow? We definitely saw people who were buying who were using like old technology, old CPQ, 15, 20-year-old CPQ technology coming to us and saying, give us something modern because it's actually cheaper, faster, easier, all of those.

41:57So we saw that sort of replacement cycle happening. And of course, companies who were growing, who were saying, hey, we need tools to become more efficient. So I think it's a combination. I definitely think CFOs did go through and say, hey, let's actually see if we can find better products, which are less expensive. And I think one of the things that I definitely see, you know, if I look at the more older products in the space, the legacy products, the one thing that they come with is not only just a higher price tag, it's just higher consulting dollars. So they're usually toolboxes, which you need to then hire contractors to configure it for you.

42:40And that was a large part of why customers would come to us is they're like, oh, you guys are no code. it's basically a configuration and we can go. And in fact, we can make changes. And guess what? I'm going to change my pricing every quarter. So now I can do that on cashflow versus having to do a$80 ,000 project to just change my pricing. What? Yes. Oh, yes. It's pretty insane what it takes to change pricing in one of the legacy products in our space. So I used to work at Crunchbase. I got to sit into a bunch of cool stuff there. I got to be in some of the pricing and packaging meetings. So I've seen how one company once in the SaaS space thought about that.

43:19So very limited experience, but I have been in the room a single time. $80 ,000 to change pricing. I mean, we were just doing the intellectual work of deciding what to do. We didn't have to get someone's permission. Why would it cost 80K? I'm blown away by that number. One is deciding what to do. So what I'm quoting to you is a company that was 800 in employees, where it actually took them$80 ,000 in consulting hours to put in that pricing. So I'm not counting actually all the meetings you were in where you were trying to decide what's the best pricing model, right? This is actually the implementation of that best pricing model into your system.

43:56That feels like you're being held hostage to run your own business. We like to change our pricing. No, please$80 ,000. I mean, what the hell? Now, honestly, Seneca, I was very impressed at how fast your company was growing. But now that I've learned about the competition. Why weren't you growing 700 % a year? Yes. And this is the thing about startups. You go slow and then you see the scale and it surprises you when that happens too, because enough people have found out about you, enough word of mouth has happened. And so this is kind of the startup life, right? Yeah. Yeah. Yeah. Yeah. And then one last question about the market.

44:32I know we've talked about, you know, must need to have, nice to have, and all that. Were your customers at cash flow seeing, you know, shorter quote to sales close times or any other kind of like metrics that impact SaaS performance? Were those getting better across your customer base? Or were they getting worse as we think about the overall health of selling SaaS more generally? We saw it actually, you know, our sales cycles did lengthen slightly in the last three quarters. But But in general, we saw it being quite steady, honestly, the code to cash. Of course, with our product, we could increase it slightly.

45:10The thing that surprised me that customers were excited about when they would implement cash flow is they couldn't see what was happening on the other side. So they could track when customers were looking at the code. And that actually helped them to get decisions made faster. So I know you're asking me the general question. I think everybody saw a slight decrease because more people got involved on the other side. And that's why maybe our software became more important because you could see who was on the other side and who was looking and you could, you know, nudge and answer questions and so on.

45:48Right. So it was not only a better organizational structure, it was also a demystification, if you will, of the other side of it. This makes so much sense to me. I mean, I'm sure you saw that the big case with realtors and how their market got kind of opened up and to me it just seems like the more information people have the more clear things are everyone can make better decisions everything can go faster it just eliminates friction and wasted time and that's a promise of technology isn't that what we're supposed to be getting out of this stuff it's it's the way of the world it's going to happen right regardless of whether we are here or not this will this is bound to happen right and then i have i have one last question for you and this is slightly a bratty question, but how long are you going to stay at HubSpot before you break off and become a full-time angel investor?

46:38I hope to stay there for a very long time. Like I said, the vision is very aligned. Love the team, love Yamini, love everybody there. So let's talk in a few years. In my notes, I had this question way earlier on, but I'm going to throw it in now just because you reminded me of it. Cashflow in office, remote, hybrid, what was your approach to building? We started during COVID. So we were totally remote. My co-founder lives in North Carolina. I live in Silicon Valley. So we started a remote company and we said, let's go find the best talent wherever they are. And that really worked for us. And we have people in different states, in Canada, but we've tried to keep it within the US time zone.

47:21And that's been very successful for us. Ah, so essentially from the Pacific coast to the East coast, up and down, but not too far north, east and west. I know my compass. I took orienteering in Boy Scouts. I'm not stupid. Can you tell that I have Friday brain? It's been a hell of a week. Well, Sarka, thank you so much for coming on. I really appreciate it. Congrats on the sale. I will be looking at every single SEC filing from HubSpot just in case one of them gives me any information on the total value. But congratulations, and we'll have you back on the show in a bit to see how it's going. Thank you so much.

47:56Okay, I host every six months or so, a workshop called Angel University. And this is where I teach people how to become professional angel investors. And the next time I'm teaching the course is on November 6. And I teach it with my pal, Mike Savino. He's a partner here at launch, one of my best friends. And it's based on my book, but everything I've learned since then. Obviously, you know, I've invested in over 400 startups. And if you've met me for more than five minutes, you know that Uber, Robinhood, Calm are amongst the ones that I've hit that have gone supernova. In fact, Uber is considered the greatest investment over the last decade or two in Silicon Valley.

48:33Robinhood, you know, doing fantastic as well. And Calm, not yet public, but another great company. in this course, I teach you the fundamentals, my personal philosophy, and then I compare and contrast it to what other people say. And the most important thing is how do you source and decide which companies to invest in? And then how to evaluate those companies? I have a criteria, I have 13 reasons to invest in a company and about 30 reasons to not invest in them. We call those pink or red flags, pink flag, and it's something you can clean up. Maybe the cap table's a little messy. You know, red flag could be, you know, a patent lawsuit that you don't think they could ever get out from under.

49:08And when we talk about those criteria for when you're picking a company, we'll also go into adding value as an investor in startup and then portfolio construction scenarios. Like how many investments do you need to have a chance at hitting an outlier? If you haven't read the power law, you don't know what the power law is, the Pareto principle, go ahead and look it up. We talk about securing pro rata, very important, getting investor updates, what information rights are, and just so much more. We had 1 ,200 individuals join us for this workshop last year. We did four of them, so 300 people at each.

49:40Many of these accredited investors have also joined my angel investing syndicate, which is thesyndicate.com, and you get to see our deal flow. The workshop is open to all investors, whether you're retail or accredited, and all the proceeds of this go to charity. You can see a full list of the donations we've given at angel.university slash charity. You can sign up at angel.university. So whether you're an accredited investor or non-accredited, or you're just interested in learning, visit angel.university to learn more and register. Again, the next class is November 6th. I'm going to be moving to twice a year for this because my schedule is very busy.

50:14So if you don't get in on November 6th, you're going to have to wait six months, clear your schedule, unless it's something really important for your family. You can take a couple hours and learn about how I make decisions and our team make decisions on which of these early startups to invest in. It's not like investing in public companies where you can see how many subscribers Netflix has, or how many Uber rides were taken, or how many DoorDash deliveries occurred last quarter versus a year ago. No, this is a whole different set of criteria when you're dealing with a company in years one or two, or even in year zero.

50:46So I hope you come. It's for a good cause. Again, angel.university slash charity to see where all the proceeds go. I'm very proud of the work we've done, Mike and I and the team over the last, I don't know, six or seven years of doing this. We've inspired people to find this new career. People say it's changed their lives and they love being an angel investor. A lot of times it's young people who sold their company or it's young people who are professionals making a little bit of money. They're making 200 grand or 300 grand working at Google or something. And they just want to learn how to do this.

51:15And then all of a sudden it becomes a path to becoming a venture capitalist. Because think about that. If you have no venture capital experience, and then you go apply to be a venture capitalist, and then I apply, and I've made 15 angel investments, and two of them have done well, and the founders speak highly of me, who's the venture capitalist going to hire the person who took the initiative to make 15 bets, or the person who just wants to be given a chance, right, you're gonna pick the person with more real world experience. And then, you know, a lot of people who are retired and post money, they're 50, 60, 70 years old, and they're sitting there at home on a mountain of cash and they want to do something fun.

51:49We know it's a lot of fun to hang out with people who want to change the world. They're called entrepreneurs and they're lunatics in the best sense of the word. They have crazy dreams, crazy ideas. And when you're an investor, an angel investor, you get to spend time with them, but you don't have to drag yourself to an office. You don't have to put in 60 hours a week. You can put in five hours a week. You can put in 50 hours a week or anything in between being an angel investor. You make your own schedule. You meet the most interesting people in the world. Sometimes you hit a big winner. Sometimes you'll lose.

52:16And that makes it just so exciting. And so I think it's a better pursuit than going to Vegas and playing blackjack or betting on sports. I love the idea of betting on startups because you get all these non-financial rewards that come with it, which is you get to see where the world's headed. You get to see and you get to hang out with inspiring people and see their plans to change the world. It's just an awesome, fun career and pursuit hobby, however you want to look at it. I hope you come. Angel.University. Thank you.