🏴☠️ ⚡️ Issue #20 - Buyer Profiles in Micro SaaS (Operating Concept)
This newsletter is dedicated to Acquiring and Operating Micro SaaS firms. Join us every Saturday morning for acquisition case studies, operational tactics, growth frameworks, and more!
TABLE OF CONTENTS:
Part 1 — 🎯 DEAL TEARDOWN - Seafood Supply Chain SaaS Doing $750k ARR
Part 2 — ⚙️ OPERATING CONCEPT - Buyer / Acquirer Profiles in Micro SaaS
Part 3 — 🛠️ OKR TEARDOWN - Product Release Playbook
Part 4 — 🤔 MUSINGS - TBD
🙏 PRETTY PLEASE ROCK THE SURVEY BELOW 👇
(…so we can fine-tune our efforts accordingly)
⚙️ OPERATING CONCEPT
📺 WATCH:
📻 LISTEN:
RESOURCE / CONCEPT:
Here’s a link to the full table.
Here’s a bulleted version for convenience:
<$250k (🤑)
1.) SIDE HUSTLERS — Professionals seeking supplementary income.
Key Characteristics:
Require businesses that demand limited daily management.
Simple products with product-led onboarding
Quantifiable Factors:
Capital Source: Friends and family / saving.
Operational commitment: Businesses that require less than 20 hours per week.
Minimal support burden: <10 tickets / week
<$500k (💵)
2.) FIRST-TIME ACQUIRERS — Individuals, often with technical/product or GTM background. Transitioning to full-time entrepreneurship through acquisition.
Key Characteristics:
Seeking businesses that align with their skills for hands-on growth.
Reliant on the business for income / quality of life
Prefer businesses with proven, simple operational processes and minimal risk.
Value low complexity and high growth or profit margin potential.
Quantifiable Factors:
Capital Source: friends and family / savings, plus debt (very likely SBA).
Transaction Timeline: Likely 60-90 days to complete acquisition process.
Growth Rate: Seek businesses with a consistent growth rate of ~10%+ YoY.
Customer Base: Ideally less than 1,000 with high retention rates.
$500k-$1M (💵 💵)
3.) PROFESSIONAL PORTFOLIO ACQUIRERS — Teams experienced in acquiring and operating multiple SaaS businesses.
Key Characteristics:
Conduct extensive due diligence focusing on scalability and potential ROI.
Prefer stable businesses with recurring revenues.
Quantifiable Factors:
Capital Source: high net worth investors, plus debt (very likely SBA).
Portfolio Size: Managing between 5-10 similar-sized companies.
Established team: specialists providing ‘shared services’ across the portfolio
EBITDA Margin: Targeting businesses with EBITDA margins between 15-30%.
4.) SERIAL ACQUIRERS — Buy, grow, sell businesses as a career.
Key Characteristics:
Aim for quick scalability and potential for flipping (<2yr hold).
Skilled in identifying underutilized assets and operational efficiency.
Quantifiable Factors:
Capital Source: high net worth investors, plus debt (very likely SBA, perhaps private debt facility).
Turnaround Time: Focus on businesses they can grow and exit within 2-3 years.
Acquisition Frequency: Typically acquire 1 business every 2 years.
5.) NICHE SPECIALISTS — Experts in specific niches.
Key Characteristics:
Look for a perfect alignment with their niche expertise.
Willing to invest more for businesses that exactly fit their niche.
Quantifiable Factors:
Niche Market Size: Focus on niches with a market size of $10M-$50M.
Customer Concentration: Preferably less than 30% for top five clients to mitigate risk.
6.) TECHNOLOGY INTEGRATORS — Enhance existing product suite through technology.
Key Characteristics:
Seek unique tech that complements existing offerings.
Emphasis on seamless technological integration and IP acquisition.
Quantifiable Factors:
Tech Stack Compatibility: High priority on compatibility with existing technologies.
Innovation Rate: Prefer companies with a track record of consistent product innovation.
7.) REGIONAL EXPANDERS — Strengthen position in specific markets.
Key Characteristics:
Focus on enhancing their presence in targeted geographical areas
Leverage local market knowledge for expansion.
Quantifiable Factors:
Regional Revenue Contribution: Aim for 20-40% sales contribution in targeted regions.
Customer Base Expansion: Looking to add 10%+ new customers from the region.
8.) STRATEGIC EXPANSIONISTS — Established businesses/investors for growth.
Key Characteristics:
Prioritize acquisitions that provide strategic value (customers, costs, horizontal integration.
Often integrate acquisitions for operational synergy.
Quantifiable Factors:
Market Share Goals: Specific targets for increased market share post-acquisition.
Revenue Target: Seeking to add 10-20% to their existing revenue through acquisitions.
$1M-$3M (💵 💵 💵)
9.) CORPORATE INTEGRATORS / VERY SMALL FINANCIAL SPONSORS (PE FUNDS) — Dedicated professional or institutional entities seeking substantial acquisitions.
Key Characteristics:
Long-term investment strategies with a focus on strategic / thesis alignment.
Prefer companies with strong leadership and scalable models.
Quantifiable Factors:
Capital Source: established fund / pool of capital, or corporate balance sheet.
Investment Cap: Typically willing to invest $3M-$10M.
ROI: Targeting a return on investment of 20-30% within 5-7 years.
10.) INDUSTRY CONSOLIDATORS — Streamline operations and reduce competition.
Key Characteristics:
Focus on creating efficiencies and achieving market dominance.
Interested in cost reduction and operational streamlining.
Quantifiable Factors:
Cost Reduction Targets: Aim for 10-25% cost reduction post-acquisition.
Consolidation Capacity: Seeking to increase market share by 5-15%
11.) STRATEGIC DIVERSIFIERS — Diversifying product offerings or markets.
Key Characteristics:
Aim to reduce portfolio risks through diversification.
Interested in emerging market trends and innovative business models.
Quantifiable Factors:
Diversification Metrics: Seeking to diversify revenue sources by 15-25%.
Market Trend Alignment: High focus on alignment with emerging market trends.
APPLICATIONS:
As a quick reminder of the foundational substance we covered last issue on The Flavors of a Buyout Investment Thesis, I’ve included a summary of traditional buyer profiles down below.
You’ll notice these profiles aren’t relevant in Micro SaaS. Institutional Private Equity and Strategics don’t play below $5M ARR and Venture Capital won’t touch you unless you’re attacking a $500M+ TAM or showing 100%+ YoY growth. The lack of competition from these players is a huge motivator for Micro SaaS participants, though we still must answer fundamental questions to communicate with investors and inform our acquisition / exit activities:
Which buyer profile am I?
Who’s the ideal buyer profile for the firm I am trying to sell?
Hopefully, the buyer profiles we’ve put together help you understand where you fit in the Micro SaaS universe and how to optimize accordingly…
TRADITIONAL BUYER PROFILES
1.) VENTURE CAPITAL — Investment firms looking for high-growth potential SaaS businesses.
Key Characteristics:
Preferred Deal Size: Medium to Large
Priority: Growth
Operational Efficiency: Moderate importance
Innovation and IP: High value
Value Creation: Scale
2.) PRIVATE EQUITY: Investment firms specializing in mature, steady-income generating SaaS businesses.
Key Characteristics:
Preferred Deal Size: Large (>$5M ARR)
Priority: Profitability
Operational Efficiency: High importance
Value Creation: ROI through scaling or restructuring
Strategic (Corporate Buyer): Large enterprises seeking to expand or complement their existing offerings.
Key Characteristics:
Priorities: Aligns with their core business, Technological Alignment
Customer Base: Broad and diverse
Cultural Fit: Moderate to high importance