How SaaS Group Reached $60M ARR Buying 20 SaaS Companies With Debt, Cash and Equity

Guys, Tim Schumacher with SaaS Group did his first deal six years ago in 2018. Used a 100% of his own cash to buy Deploy Bot and a second acquisition. Now uses debt financing and also just did a $25,000,000 equity round earlier this year, which he sold single digit percent of the parent company SaaS Group. Again, all the companies that he's purchased, 20 so far today, do $60,000,000 of ARR and sell up to over 300 people. He's

empowering those leaders to build those businesses. The cash flow flows back up to the parent company. That's how they do new deals. Some folks, if you wanna learn about the companies they buy, you can go listen to our episodes with Dash This or User Snap or check out some of those companies that you might use in your own business like Rewardful for your affiliates. Hey, folks. My guest today is Tim Schumacher. He's a German investor and entrepreneur with a focus on SaaS, ad tech, and more recently, climate tech. He founded and led multiple companies like sito.com, ecosia.org, ao... How do you say that, Tim? Eyo? Eyeio..com? Io. Io.

But people always ask that io.

Io.com.

Play on i/oinputoutput. So... Yeah.

Oh, got it. Got it. Io.com. Worldfund.vc. And, also, I imagine the way most of you guys know him is SAS Group. They're buying up SAS companies, 1 to $10,000,000 in revenue. We're gonna jump into all of today. Tim, you ready to take us to top?

Yeah. I am. Thanks for having me.

You bet. Let's put SaaS Group in perspective. I just want a timeline to start, and then we'll dive into sort of what you're doing actively today. When did you guys close your first deal? What year?

First deal was six years ago, 2018. It was deploybot.com.

Deploybot.com. Okay. And one of the questions, one of the questions that I always get... You know, there's founders that exit. They go, what am I gonna do with my life? And a lot of them wanna go into the sort of, like, venture studio. Maybe they wanna launch their own search fund. They... Or they wanna do sort of what you're doing. Take me back to the day you signed the DocuSign for Deploy Bot. Did you already have the money lined up? Or you're like, okay. Gotta get the contract signed, then go raise the money. I gotta make all these pieces fall in place. What were you thinking?

No. I had the money lined up. I had two exits before. C.com, we exited. Io, which is the company behind the world's largest ad blockers, ad blocker and ad blocker plus. That's how we know... No one knows io, but everybody knows ad blocker and Adblock Plus. That one had a lot of dividend exits, and so that's... That was the money I took for. And I was like, hey. I'm actually not not the best person from zero

to one, so starting a business, MVP, all of that. They're much better people than me, but I'm pretty good from one to 10, so scaling a business. And that was the original idea from SaaS Group. And so, yeah, had the money lined up, and, it's actually been been like this for the day. Like, we never we never start... We never buy a business where we don't have the funds. That would be a search fund or be something where people have to go out to get funding, but we always have the money ready in the bank.

So, Tim, reading between the lines there, you mentioned the dividends from your prior companies. Did you use a 100% of your own capital for Deploy Bot in 2018?

Yeah. The initial two acquisitions were 100% my own cash, and then we actually started to tap into financing sources, but it was always super important for us to have the financing lined up before the deal, because you don't wanna have a deal jeopardize, or the financing jeopardize a deal. It just makes you look like a fool.

A 100%. Yeah. I mean, you're obviously in a great position. You've had operational success that translated into cash success. You're reinvesting that cash in your first deal. Your first deal is a 100% yourself. Walk me through what I mean when you say you lined up financing sources in 2020.

So SaaS Group basically has two sources or three sources of financing now. First one was debt. We actually struck some favorable deals with debt providers who've basically given us a card launch or a line of credit, to to tap into, acquisitions as long as they're in a certain area, so SaaS and some certain metrics, then then we basically just need to issue a capital call. So they don't need to be approved. That's number one. Number two

is operating cash flow. SaaS group is very profitable. We strive to run profitable businesses. We love the bootstrapping DNA, being super frugal, being profitable but still growing a little bit. That's kind of what most companies are like at SaaS Group. There is a cash inflow that piles up. We use that for other acquisition. And then last but not least, we did do an equity round earlier this year, where we got a bunch of, external funding. That

was actually first first external equity round we did, and that, of course, also helps strengthen the balance sheet.

Mhmm. What was that round size?

That was about 25,000,000.

And and and and why go that route? You're obviously individually wealthy yourself. Were these, like, really strategic people that you wanted aligned with SaaS Group, or why do the deal?

Yeah. Yeah. Exactly that. So we, I, I can't name them, but they're, a bunch of super successful entrepreneurs who are really... They're all in the SaaS field. They're super smart people. Also, I always love people... Partner... Partnering with people who are a few years advanced. So for example, there's one guy who does a roll up not in a competing space, but software. And he's just kind of this three, four years ahead of us, in terms of...

With 300 people, he's like a thousand people. Revenue is also threefold. It's like he he went through all the stuff we we we still have to go through. That's the type of people we really wanna align ourselves with. And and... Yeah. So it was a small dilution, but just getting great people on board has always helped.

Mhmm. What is small

keeps you on your toes. It it also always keeps you on your toes, I think. So, in in single single digit percentage.

Okay. And and... Oh, people might be hearing you say, okay. We sold single digit percentage for 25,000,000, but they might be thinking of what? He's got 20 companies. Can you explain sort of GP, LP structure, like, that works? You basically... You sold the GP state, it sounds like.

Yeah. No. We're not a fund. We're not a fund. We're a company. Our our big our big role model is Constellation Software in in Canada, public company. We're just a company like any other company in Evergreen. Yes, we we have a few small investors, but first and foremost, yeah, we're just kind of a a going concern. Also, we don't flip our companies. I think it's really important. If someone sells a business to SaaS Group, we intend

to run this business indefinitely. We wanna preserve the legacy of the founder. We wanna preserve the name, preserve what made the company strong. Sure, we're going to improve on a lot of things where we think there's some holes to fill, but we really cherish those individual small companies which are filling a niche which most SaaS founders provide, and we don't intend to sell the company. So also there is no fund lifetime of, hey, within seven to

ten years we have to sell the companies again, those sorts of things. We're just happy keeping the companies.

Mark Leonard is also one of my heroes, and his letters are legendary. Wish he did more interviews, but we only have the letters for now. At least there's twenty years of them, so we have a lot of letters to read. True. But when you... Just to repeat all that back to you, you effectively have, like, SaaS Group Inc. It started off with a 100% of your own money for the first two acquisitions. You then got a

line of... Basically, a credit line against that, and then you brought in $25,000,000. It it sounds like this was actually sort of a bunch of LPs that you respect sort of a party round you put together. This wasn't some big fund that by themselves stroked a $25,000,000 check.

I know. There was there was one lead, but Okay. There were mainly a lot of individuals.

Okay. And then you mentioned the last source of financing, is... Yeah. You mentioned the last source of founding... Funding, which is the best source of funding, is obviously your own profits. You mentioned the company's profitable. You recently mentioned on another episode, you had about 20 businesses doing about 60,000,000, six year of ARR, 300 people total. Are those all accurate?

Yeah. That's still accurate.

And so in 2023, you mentioned profitability. How much sort of operating cash flow flowed back up to SaaS group, the parent code from all the companies? Or a percentage, I think, the number.

Yeah. It's it's complicated because, like, it's... Obviously, there are... Some of that is always trapped trapped in subsidiaries and everything, but we we we always strive for profit margin somewhere 20 to 30%.

20 to 30%. Do you... When you're looking at deals to go buy, do you also wanna see 30% profitability from any founders listening to you that might wanna sell to SaaS Group?

No. We we wanna... That's a great question, but it's... We wanna see the potential to get there, but it doesn't have to be there on day one. So we've bought some super profitable business, some businesses where there's basically just one founder doing all the work with a 95% profit margin, we've seen those. But we've also seen insanely unprofitable businesses, two even which we bought out of bankruptcy, which we then restructured and obviously everything in between.

But... Yeah. No. As as long as there's a decent ARR and it's a great product, I think by now we can we can live with anything.

Mhmm. Which two did you buy out bankruptcy, and how does that work?

Cross Talon out of French bankruptcy and Zenloop out of German bankruptcy. And, well, it's... It usually works if there's an administrator in in The US. It's chapter 11 in Germany, France, other European countries have similar types. And then there's an administrator and that person is charged for selling off the assets. And then you just negotiate it with that person, not with the Founder. It's obviously a very different style, a lot more formalities, but

it's great because you know you preserve a company, preserve a team, it has its own challenges but it's a worthwhile exercise and in both cases it worked really well. We have in in one case, the Founder still operating it across the law. In the other case, we found a new management. And and in both cases, the companies are super strong now. They're profitable. They're growing again. And they're building on the product. And they they just they

just were mismanaged before and they were they were overspending.

In January 2020... Yeah. In January 2023, the CEO of Zenloop when when being quoted about the liquidation process said, quote, we were not able to get the required approval in a short amount of time. Unfortunately, that can happen with a large group of more than 40 more than 40 shareholders. So when you... A couple quick questions here. I know Dirk leads your originations, but do you have any databases you look for to get notified when things go into bankruptcy like this, or is it really just you and Dirk picking up the phones, calling people?

Yeah. We're not we're not sophisticated yet when it comes to monitoring bankruptcy. Also, have to, like, we have to admit bankruptcies are pretty rare in SaaS because, if you manage the SaaS well, it's almost impossible to get it into bankruptcy. Usually only happens if there's a VC pouring in too much money, founders go crazy, the the the environment tanks. That's exactly what happened in those two cases. And, yeah, the founder said that he couldn't secure the

funding, but also fact is he just spent a little too much. And so, that is essentially what then happens. But other than that, it's it's very rare to see SaaS companies go bankrupt. Different to ecommerce companies, for example. It's much easier to get an ecommerce company bankrupt than a a SaaS company.

Hey, folks. If we haven't met yet, my name is Nathan Latka. I launched and sold my first software company back in 2015 and went on to write a book about it, which you guys made a Wall Street Journal bestseller purchasing over 30,000 copies. Thank you so much for that. After the book, I launched this show and one... Went on to create founderpath.com. I raised a large fund to do non dilutive deals with b to b software

founders. So far, we've invested in over 400 software founders totaling a $150,000,000. Here in 2024, we're doing three to four new deals per week. So if you're looking for capital and don't wanna give up equity, go sign up at founderpath.com for free to get your offer. Alright. Let's jump into the interview. So Zen Loop, just say on that for the sake of an example, I think, education for the audience. You know, not to put in €4,800,000

in 2019. Signal has put in 6.1 in 2020, so about 10,000,000 raise of that company. Just to be clear, when you go in... This is going through bankruptcy. All the equity gets wiped out. Right?

Yeah. And they only got a dime of the dollar.

Yeah. Yeah. Yeah. So they don't... Like, SaaS Group now owns Zenloop. But if you look at Zenloop's sort of subsidiary cap table, it says a 100% owned by SaaS Group. You don't have all the old people still having a small slug on there or something, do you?

Yeah. Yeah. Pretty much.

Okay. Okay. Alright. So that's the bankruptcy route. Others... Other deals you've done, some of them actually, you know, we've had on the show. So I remember we had dashed this on back in 2022, 2023. Those phones Okay.

Were Cool.

Yeah. They were really proud of the fact that their paid marketing was working. They were spending about $50,000 a month on paid. What did you see when you looked at that business, and why'd you end up doing the deal?

Well, it's a great business. First of all, we like online marketing as a category. We we know it well. We're all in the space, and we we love to be comfortable with our own category. We love the Founder team, or the the team that runs it is actually not the original Founder, anymore, but Antoine, CEO, his team. They're great. Really, really doing well. They also have a a nice product, low churn, really serving a nice niche

with with agencies. But, you know, and that... That's a great example where where SaaS group was adding a lot of value. Yeah. They were doing a lot of paid marketing, but also, we could add a ton of value when we came in. One of the first things were we slashed their Google paid accounts in half. So we basically slashed their budget in in half, but we doubled the output. So essentially, we've forex the lead gen just

on that Google Google paid account, and and that's exactly some of those those value adds we bring at SaaS, but we have some super specialized, super smart people for different disciplines, in this case, pay per click, And we were able to help and make a strong business. We love Dash. This is a strong business, but we make it make it even stronger.

Mhmm. Yeah. They said when they came on, again, was 01/26/2022, that they were spending $440 on CAC to get a customer that would pay on average a $135 a month. So they had about a five month payback. And you're saying one of the values you brought is Yeah. You saw opportunity to basically make those economics, you know, a 100% better, cut the cost in half.

Yeah. Now it's two and a half months payback. Yeah.

That's great. They had 2,600 customers. You mentioned churn, though. I mean, they did tell me, I remember reviewing the notes, they said they had 36% gross annual logo churn. I mean, most... I would imagine most people listening are going, man, if I've got churn at 36%, no acquirer is gonna wanna wanna buy me.

Well, it all... I mean, all of that gets factored into the price, but we've seen businesses with more churn than that. It it also depends a lot on kinda the nature of the business. And there are some businesses which just by design have more churn because they're more seasonal, or agencies go out of business and stuff. Sure. It's not ideal, and and that gets factors into the price, but this is still growing, and, it's a it's a great business. So then there's no reason to do something, even if there's some churn to not Yeah.

You're... You guys are not scared of churn. I mean, is consistent in your portfolio. Florian came on the show at user snap back in 04/22/2018, and they were also seeing about 26% gross annual churn. So you guys clearly have no problem with churn, especially if you see room to improve.

Yeah. Yeah. Yeah. No churn can be improved. And in some cases, also basically, I mean, that logo churn is one thing, but then the question is what's the what's the dollar churn and and especially with smart upselling, you can actually... Yeah.

Yeah. Let's sort of more... Let's sort of morph before our last five minutes. We've talked about sort of what you look for, how your... Where your funding sources are. We've talked a little bit about the deal, but let's talk about one, what the deal typically looks like in terms of cash upfront versus earn out. Do you have a typical structure you use? And then also what your playbook looks like post acquisition, what do those things look like?

Yeah. Sure. So great question. It really depends on the founder. I mean, it depends. And I wanna... First and foremost, I wanna know the real reason on why a founder is selling. So is is he burned out? Is there a founder conflict? Is it just to take some chips off the table? Does he or she wanna continue? All those sorts of things, the real kind of life reason behind it. And that then actually governs the earnout.

And we had we had deals where it's basically, here are the keys. We're out in four weeks. We literally had that. But we also had cases

where was that valuation? Was that like a one x?

No. No. No. It wasn't wasn't that bad. It was in this case, for example, there was low logo churn. It was a low complexity software. We just put some other guy on this continued in maintenance mode before we we let the grow... The product grow again. So that's doable, but we also have Founders who are still with us three three years after the deal and anything in between. And then, of course, the... If if the Founders

wanna commit to this and they they also wanna commit to their business plan, then an earn out is really great because it shares risk. We can pay more. But it's also kind of this put your money where your mouth is towards the founders, and it's it's it's generally the more attractive deal because we're... It puts us on the same page. But we can also do all cash deals. It really depends on a lot of factors. No

deal is really unique. There's other components like seller financing. So for example, it could be guaranteed payment, but it comes next year or two years after. And for us, of course, we're saving on interest rates so so we can pay a little bit more. So every deal has lots of components, different complexities, and sure we we have different building blocks, but we can we can work with all of that. It's important that the founder is happy with it at the end of the day, and that's that's what we're trying to strive for.

When you look at the deals you've done over the past, call it, twelve to eighteen months, I mean, is it fair to say that most evaluations you're looking at, if you just look at the all cash portion upfront is typically between sort of the two and four x? Or, I mean, others like, you know, the bigger players, obviously, like Vistas of the world. I mean, they they overspend on a bunch of deals, and then they hope they can make it work, and they're spending, you know, eight, nine x, you know, ARR sometimes.

Yeah. Eight or nine x is very rare. I think we did this one on a very small deal which had strategic importance, and was growing very fast. But usually, yeah, two two to four is pretty accurate. Mhmm. There's some a little lower than that. There's some a little higher, but majority is really at the two to four.

Yep. And do you ever buy... Let's say you're buying Nathan Latka Inc. You buy the company and I say, but I love Nathan Latka Inc, Tim, but I also wanna work with you. How about you guys just buy 40% and I keep 60%? Would you do that... A deal like that or do you always want majority?

We don't. We we always do a 100%. So we are we are not... That's the core difference. Like, if you would get... Go to a private equity company, they would take a significant minority or a majority, and then they would flip the company three years later after they've done, hopefully, some improvements. And their money comes from from the improvements plus the the leverage of the deal structure. In our case because we want to operate it forever

there's no there's no resell to sell so it doesn't make sense to to only do a a portion So we always buy a 100%. There are some structures where we can keep an upside for the founder, but that's then done through a bonus or an out structure and not through a a $40.60 share or something like that. We can't do that.

So that's how you do the deal, you close the deal and then obviously you wanna grow the business. Which of your companies have grown the fastest after you acquired it in terms of revenue?

So Scraper API has been great. The scraping service, it's a really great product. Rewardful.com is great. It's a it's a super simple affiliate program management tool for for companies operating on Stripe and Paddle. So, yeah, rewardful probably is the the fastest growing ever. Prerender is great. It's a prerendering software. A bunch of them have really kind of grown four or five x since we've acquired them in the last three years

or something. So we've also had some which are flat. I think that's the nature of the game. It always depends on kind of... You you you also get what you pay for. If we're buying a flat business is, like, usually, yeah, we can improve it a little bit, but we also know magicians, but then that's reflected in the price. But we always try our best, I think, with every company.

You mentioned on another show the fastest growing company went from 2,000,000 to 10,000,000 after you bought it. Was that rewardful?

No. It really was one of the other two. Rewardful isn't at Okay. Isn't at 10. I'm very impressed how you you have all your numbers in there. I like It's really impressive. You know, you you interview them all, but then you put the strings together. It's like that's... It's amazing, Nathan.

Alright. Thanks, Tim. I appreciate that. No. The data is, I think, valuable to the audience, and I appreciate you being open and transparent. So I guess as we as we move towards sort of wrapping up, you know, today when you're doing deals, let's say it's a $10,000,000 deal. What are you typically... I mean, using the debt line that you have raised, I mean, you typically putting in, like, fifty fifty your own equity plus debt, or what ratios can can you do with that line?

We have no ratios. We basically... We just... Whatever we have cash on the balance sheet, we use it. So we... We're doing at the moment because we have tons of cash, we're just doing every deals, doing deals all 100% debt. So we're not we're not... Because we're not putting things into SPVs or special purpose vehicle, we're not a PE company. We're really just always always investing from our own balance sheet and in some cases it's equity

and in some cases it's debt. But we always

on balance sheet. Mhmm.

Tim, that's useful. That's useful information. Before... Guys, if you wanna check out SaaS, you can go to saas.group. But, Tim, before we wrap up with the famous five, anywhere else, people can find you online if they wanna connect?

Yeah. SaaS group is a good start. My email as well, tim at saas group, super easy. LinkedIn, of course. And, yeah, that's pretty much it.

Is Tim on that note? Let's wrap up famous five, rapid fire. Number one favorite business book.

I'm reading Humanocracy at the moment. I wouldn't say it's favorite yet, but I'm halfway through, and it really reminds me of the structures we're using at SaaS Group about a a non bureaucratic autonomous way of... For large companies to run. So I think it's gonna be one of my favorites.

Number two, besides a portfolio company, is there a CEO you're following or studying today?

I think you mentioned the one Mark Mark Glennett. I think it's it's one for SaaS Group, which I'm really following.

Number three, besides your own portfolio company, what's an online tool that you spend just a lot of money on every month?

An online tool we spend a lot of money on.

Let me see.

Well, I mean, the usual hosting suspects, Gmail... The whole the whole Google Suite. I mean, we run on Google and and that it's costing more and more, but it's... Let's admit it. It's also a great tool.

So Yep. Number four, how many hours of sleep do you get every night?

I sleep eight to nine hours. I need a lot of sleep, and I think healthy and good sleep is really important to be productive the rest of the day.

Certainly agree. And what's your situation to married single kids?

Yeah. I have a family.

Married. Okay. How many kids you got running around? Are they young or they... You're an empty nester?

I have... No. I have two kids, two sons running around.

That's great. And how old are you?

They are 11 and 16.

Oh.

Yeah, Tim. Your age.

Me. I have to get to me. I'm I'm 47.

I know. I I ask I ask aggressive questions, but I think that's a step too far asking your kids' ages, you know, but you're 47.

I'm 47.

Alright. Last question.

And and I have an unstable network connection as what Zoom is telling here. So I I should get upgraded to to some, I don't know, some fiber or something.

No. You're you're good. Last question here. Something you wish you knew back when you were 20 years old.

20 years old.

That's that's a good question. I think I should've I should've spent one one more year partying at university. I was finished too quick, started my whole first company too quick. And so in retrospect, maybe just adding one more year just for fun would not have been a bad thing.

Guys, Tim Schumacher with SaaS Group did his first deal six years ago in 2018. Used a 100% of his own cash to buy Deploy Bot and a second acquisition. Now uses debt financing and also just did a $25,000,000 equity round earlier this year, which he sold single digit percent of the parent company SaaS Group. Again, all the companies that he's purchased, 20 so far today, do $60,000,000 of ARR and some up to over 300 people. He's

empowering those leaders to build those businesses. The cash flow flows back up to the parent company. That's how they do new deals. Some folks, if you wanna learn about the companies they buy, can go listen to our episodes with Dash This or User Snap or check out some of those companies that you might use in your own business like Rewardful for your affiliates. Tim, thanks for taking us to the top.

Thank you for having me.