Investing Scale And Getting Investment To Scale

Why does Balio love small, bootstrapped SaaS companies?

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If you are a software founder, I am sure you also have received various email inbounds from prospective investors asking to connect and requesting information. In fact, maybe you have even received one from Balio. 

As boot-strapped founders, having been one myself, we get on these phone calls and tell our story with excitement. We share how we worked day and night to continuously improve the product, keep our customers happy and scale our business. We share our vision for the future; we know what the opportunity ahead of us is. We bootstrapped our business or only had limited investment. We know that with the right backing and investor, only the sky is the limit. 

So we get on these calls and try to spec out the right partners. We get asked plenty of questions, but we actually enjoy answering them, or at least most of them. At some point, usually in the first call, the question “what’s your ARR” comes, or at least a variation of that. We share it. Then we hear, either immediately or towards the end of the call something along the lines of “your business is currently too small for our investment mandate, lets reconnect in 6 months”. Then, after these 6 months, we either get some automated emails from them, which are looking fairly clever these days and are hard to detect, or they forget about us, because they know it will take a long time until we reach the scale for us to be a fit for their mandate. And another 30 minutes have gone wasted.

Now, we know that we can get to the scale that these folks are looking for, but it requires investment into the company. It’s not that easy to just bootstrap a $5MM ARR company in our sleep. But in order to get investment or being acquired, we are being told that we need to be at least $5MM in ARR, or some other arbitrary amount. 

So how are we supposed to get investment into the company if we need scale to get investment, and investment to get scale? It’s a continuous cycle.

For the few of us who were able to, somehow, get out of this cycle and reach the magic number mentioned by these prospective investors: we get back in touch with them, and then they find another reason not to do the transaction. And this time we wasted more than just 30 minutes.

This is an institutional problem with standard private equity. For these large funds, for which many of the Balio folks used to work for in their past life’s, there is limited downside in hiring an army of scouts to speak to 1000s of companies, so that a handful of transactions can be completed.

Our core belief is that standard private equity has not done SME bootstrapped software companies justice, myself included when I was one. Our mission is to work with companies that we believe in to break out of the “investment for scale and scale for investment” cycle. To get scale, you need to invest into the company, it’s not rocket science.