Get rid of your VCs. Keep building.

Startups that raise VC money are expected to take off with 3x yearly revenue growth, then sustain at least 2x growth for 5 years. Those who can't reach this "3-3-2-2-2" escape velocity struggle to raise further funding. From their investors' standpoint, these startups have failed. In fact, they no longer warrant any of their attention or capital, which is spent solely on new deals and follow-ons for the 1-in-10 winners that deliver geometric outcomes. Unsurprisingly, this mechanical approach prematurely kills some promising teams and products that would be considered fantastic businesses outside the VC model. We help these founders exit the VC treadmill, and we come build with them at a sustainable pace.

Who is this for?

You should keep reading if you:

  • Are the founder of a VC-backed B2B startup in the SaaS, software, or data space
  • Have raised a Seed or Series A, and have burnt at least half of it
  • Have reached $1M to $3M in ARR, and are growing 20 to 80% y-o-y
  • Would like to reclaim your independence, get off the VC treadmill, and keep building
  • Want to onboard hands-on operators to help transition into a profitable business

Who are we?

We’re experienced startup operators, each specialized on a key area of execution (e.g. engineering, product, GTM, G&A). We've provided advisory-for-equity services to early-stage B2B startups. We’ve observed that many startups don’t fail from a fundamental lack of product-market-fit, but rather due to poor execution from a limited set of common mistakes such as improper pricing and packaging decisions. These mistakes reduce the startup’s velocity below what’s acceptable to VCs, i.e. the "3-3-2-2-2" line. A savvy startup operator can identify such mistakes easily, often within days or weeks of reviewing the company, then fix them.

We buy so-called "distressed VC assets" that have reached early PMF, recap and restructure them through a proven playbook aimed at profitable growth, operate them in a hands-on manner alongside their founder(s), and grow them to $5M-$20M ARR. Once they graduate to "scale-up" status, they operate in a highly liquid M&A market. We then help founders pick between several attractive exit paths, which include selling to strategics and private equity players (partial or total sale), regaining full independence through a leverage management buy-out (LMBO), or possibly joining us for the long-term (GP-led secondary into permanent capital).

What's in it for you?

Not every startup founder is fixated on building a unicorn. This is good news, as less than 1-in-100 eventually reach an IPO. Some founders just like building, and frankly would be satisfied with an 8-figure exit.

If you've reached $1-3M in ARR, you know your sweat equity is worth something. At the same time, there are clearly things you haven't figured out. Maybe it's growing the top-of-funnel, fixing retention, figuring out the right pricing and packaging, building out a sales team, etc.

By working with us, you get:

  • an offramp from the VC road, so that 20-80% y-o-y growth becomes great.
  • experienced operators with the same level of skin in the game as you.
  • a realistic path to an 8-figure exit within 5 years, in a much calmer environment.

What's in it for your VCs?

No offense, but if you meet the criteria above, they probably think of you as a complete write-off. Usually, they'd prefer to keep you on their books so that they keep getting their management fees until you give up. Lucky for you, in the current environment, their LPs are badgering them to return early distributions. In LP linguo, this returned capital is called Distributed to Paid-In, or DPI. According to Carta, "less than 10% of 2021 funds have had any DPI after 3 years." By selling their stake in your company, they get some money back on their investment, which improves their metrics and demonstrates a thoughtful, wholistic approach.

What's in it for us?

We take a majority position in your business. As GPs, we are typically compensated with 20% "carry" of the returns delivered to our LPs. 20% of a majority position is >10%, which means we come to work alongside you with very meaningful skin in the game. If we're right and we help you unblock sustainable growth, then we all profit. If we're wrong, well, we've solved your VCs' liquidity issue at our own expenses, but we can pay ourselves back over time with dividends.

What's the catch?

We're not buying the breakout successes from VC portfolios, since they raise follow-up rounds. In turn, this means we don't have exposure to the long tail of their outcome distribution where potential unicorns live. Our fund's financial model makes up for it in two main ways:

We buy you at a lower valuation

We evaluate startups whose valuation has been set by VCs, based on a target ownership percentage, then acquire them for an ARR multiple that's aligned with what Private Equity markets will pay down the road, based on ARR and EBITDA. The new valuation is typically lower than the total amount raised so far. This means that initial acquisition money goes entirely to preferred stockholders, i.e. we buy out your VCs from your cap table. You and other common stockholders get nothing at this stage except your reclaimed freedom.

We take a majority position and dilute you

If you could raise a follow-up round, maybe even a risky bridge round or down round, you might give away 15-20% of the company's ownership. Instead we're going to require 60-70%, which dilutes you and the team accordingly. We're thoughtful about it and try to preserve your qualified small business stock (QSBS) status, so that when you exit you could exclude up to $10M in federal capital gains. The remaining ~30% ownership compares well to what you'd obtain in a search fund model if you hadn't raised VC money.

With these two prerequisites, we can deliver the returns that our LPs expect by achieving 3-5x growth over 3 to 5 years, with limited risk of losing everything.

What are your alternatives?

There are roughly 4 alternative paths that you should consider:

Shutdown your company and start up again

If you're aiming to build a unicorn, this is likely the best way. Don't waste your time aiming for an 8-figure exit if you require 9 digits and are okay with the 1-in-100 odds. Right now you can likely raise a seed at $4M on $20M post.

Take a gamble on a bridge round or down round

You might have to agree to stringent terms such as high liquidation preferences or warrants. If you think you can unblock 2-3x yearly growth with the new capital, it could be worth it.

Look for growth equity investors or a strategic acquirer

The market for profitable B2B SaaS companies becomes quite liquid once you reach $5M ARR. Between $1M and $5M it can be tricky to find investors. Moreover, they tend to avoid VC-backed startups. Still, this is not unheard of. If you know companies that might acqui-hire you, this is also worth considering.

Leverage our playbook without our capital

While we bring experience and energy, we also leverage a proven playbook focused on achieving quick profitability. For example, we operate a hub in Bangalore to increase engineering velocity in a cost-effective way. You're free to work directly with our studio, which is a separate entity from the fund itself. If you can break even, you get more time to unblock the previous options.

Who else does this?

Not too many people. Experienced startup operators tend to prefer starting their own companies rather than joining others. Growth Equity operators have a proven playbook for scale-ups after $20M ARR, but they stay away from the risky 1-to-20 phase. Most VCs would rather focus on deploying and raising more capital to increase their management fees rather than optimizing individual outcomes. But there are a handful of models you should review, such as:

Come talk to us

If you’re curious, book a call!