Startup Acquisition Stories w/ Sujan Patel – Managing Director at Ramp Ventures

This is a mini-series within SaaS Acquisitions Stories where we profile the top Private Equity firms and firms acquiring online businesses at scale.

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Transcription:

Andrew:

All right. I am here with the man, the legend, Sujan Patel. He is the managing partner at Ramp Ventures. Thanks so much for joining me on this podcast. 

Sujan:

Yeah. Thanks for having me. 

Andrew:

So, Sujan, you got so much going on. I don’t know how you do it. You’re the co-founder of Mailshake. You’ve Acquired multiple companies. Do you wanna maybe kick it off by just giving listeners some background on yourself and Ramp Ventures and Mailshake?

Sujan:

For sure. Today, Ramp Ventures has four main properties with a couple of other acquisitions and companies inside of those properties. We’ve got Mailshake, VoilaNorbert, Right Inbox and Shift. In the last eight years I’ve Acquired 13 businesses and sold five or six. I forget the exact number. Things are moving fast every day. We’ve got about 75 employees around the world between those four organizations. 

Each company is run independently and a little bit different than some other firms out there. We don’t have a CEO for each company. My partner and I are kind of the co-CEOs or CEO and COO. I’m more of the vision and customer acquisition, whether it be sales, marketing, or customer success, and my partner is more of the ops and finance. He helps make sure the businesses are financially viable and helps make sure we have all the resources needed to get there. 

Andrew:

Yes, that’s cool. I think of the difference between a CEO and COO is that the CEO looks outward and the COO looks inward. 

Sujan:

I think in some cases we’re both the CEO and some cases we’re both the COO. We kind of share these roles, but he and I have different brings. He has an analytical and financial brain, where I’ve got a more creative one. We’ve been doing this since 2015. So I would say before, you know, micro PE purchases were cool. 

Before Acquire existed, our life was a lot harder. Now, we just sit back and wait for your emails to kick in. We e don’t just deploy capital, we are the operators. I like being in that seat. I’m not a professional investor. I do some angel investing, but like I love operating businesses. It’s fun to see how the sauce is made and making the sauce is the fun part.  

Andrew:

You’re an OG in terms of acquisitions, I guess. With Ramp Ventures, do you look for the perfect startup that you want to Acquire or what sort of criteria do you look at? Is it B2B only? Is it SaaS only? 

Sujan:

I’d say our core focus is B2B SaaS. That’s the only thing we do. I don’t have an exclusion list. We know what we’re good at and we stick to that. Our sub-requirement is, in a perfect world, we’re looking at one to 5 million ARR companies that are in B2B SaaS. For everything else, we’ll look at the details unless they sell to eCommerce. So no Shopify or WordPress for the most part. 

Those businesses have slightly different economics and business models and valuations, and we just don’t play in that space. The other exception is if they’re strategic to any of our four properties, and we’ve bought probably one or two companies at each of those four properties. We typically do that, you know, we’re looking at one right now. We’re doing those small tuck-in acquisitions all the time where revenue is not the most important factor. It might be a strategic feature of functionality. 

Andrew:

I like that. That’s a big advantage for you because you have so many successful companies serving a similar customer. So you can buy products and grow through acquisition essentially. 

Sujan:

Yeah, exactly. So, you know, that’s not my favorite way to grow. The finance guys would call it inorganic growth. Like buying your revenue. But I do think that ends up working out. We bought a company last year that had been out for maybe six months. Didn’t really have a big track record. If it hadn’t been a strategic acquisition for Mailshake, it would’ve been to small. But it was something that we’re building. It was a build versus buy decision. We’ll always buy versus build because it gives us speed and then, you know, we can update, but anyways, we literally gave it away for free to Mailshake customers. 

We updated the product, but we did no marketing. We just kept it as is, and we tripled revenue from it. My favorite type of acquisitions are the ones that one plus one equals five, right?

Andrew: 

Yeah.

Sujan:

Yeah, exactly. We’ve got a good company. If your functionality’s great, we make sure there are always improvements and stuff. And then those two companies together are just worth more than they are apart and they help feed each other. 

Andre

Yeah. I like how you’re able to add growth to the companies that you Acquired just through your existing properties. That’s badass. If you had to give two top tips for founders looking to sell their business within the next year or two, what would they be?

Sujan:

Number one is to have a real realistic expectation of what your company is worth. Spend a lot of time to figure out what your actual company’s worth because it will avoid a lot of wasted time. It’ll avoid a lot of emotional distress. If I think my company’s worth 20 million dollars but buyers think it’s worth 5 million, I’m 15 million in the hole emotionally. I’m just not getting get it. 

Andrew:

Welcome to my world, man. 

Sujan:

Yeah, right. 

Andrew: 

You see companies raising at huge valuations, and with acquisitions, you’re paying for current execution when investing is paying for future potential execution. So totally agree with you on that. I’d say that’s probably the number one reason. A lot of companies don’t sell on Acquire because they’re overpriced and it stops the conversation from starting because the gap is too big to close.

Sujan:

That was my first piece of advice. I have a one-B on that, right? The one B is don’t look at funded companies to evaluate your company. Look for a private equity deal to evaluate your company. VC funding multiples are very different to exit multiples. They’ve always been different. 

The second thing on this particular topic is your company’s not a scale when you’re on Acquire. Your company’s not at scale unless you’re at $10 million in revenue. I hate to break it to everybody here, but that’s the case. There is no changing that fact. So when you’re sub-10 million, your evaluation is inherently different. It definitely doesn’t follow public markets. It doesn’t follow VC valuations, and it doesn’t follow exit valuations. 

Even the companies that are raising money now wouldn’t get the same valuation they raised for unless it was someone’s strategic decision to buy it. There’s a decrease in valuation there. But the number two thing is, when you decide to sell, take the next 30 days to get everything in order to make your company sellable. What does that mean? Ensure you have an answer for all the questions you’re gonna get asked. What questions will you get asked? Well, I think Acquire has a good guide on that. Also spend some time getting a clean P&L if you have add-backs.

If your numbers don’t look good, that’s okay. Now, you know what you need to fix. Most buyers are looking at trailing 12 months with the last financial year or calendar year. And so let’s say you invested a lot in R&D, but you don’t really need to continue investing in R&D for the business to be what it is. You might wanna sell later on, because is this R&A an add-back or a true cost? 

An add-back would be things that you would add the cost right back into the P&L as it’s not a cost because it’s not gonna be ongoing. So having clean books I’d say is pretty easy to do, but I rarely see it. I look at about 70 to 80 deals a month. I can tell within two minutes who spent some time doing the right things and who didn’t. And I’m not even a finance guy. 

Andrew:

I think another benefit of that is that it shows that you’re committed to selling your company as well. You’ve put time into this. I’m not just starting it up with a crazy valuation. Just connecting metrics can go such a long way to give buyers visibility into the financial health of your company. I agree with you entirely on that. What has been your favorite acquisition? 

Sujan:

I think my favorite one was VoilaNorbert. 

Andrew:

I knew you were gonna say that one. It’s such a good product. 

Sujan:

Yeah. It was a fun one. I think when we bought it, the business was probably doing eight to 10K MRR. I just loved it because I could see so many marketing and sales levers. All I have to do is some conversion optimization and a little bit better marketing and boom get more money instantly I think. We tripled revenue in the first year with basic conversion rate optimization – just changing button size, color, updating headline copy, and simplifying the sign-up and onboarding flow. 

So user activation was a huge factor that helped get more people through the door using it. That was the biggest hurdle. My business partner and I got a crash course in the back-end infrastructure of our business. At the time we bought it, it was kind of a rocket ship. And because we optimized the flow so that more people would go in and use it, the thing on the back end was about to break. It was breaking every day. 

Andrew:

Quick question. For people who don’t know, what does VoilaNorbert do? 

Sujan:

VoilaNorbert is an email finding tool and email verification. So if you’ve got a name and company, you can find an email address. Or if you do email marketing or something like that, you can run your emails through there to make sure that they’re still valid. You can get rid of the people who sign up with fake email or people who have switched jobs and the email no longer exists, both of which can affect deliverability most commonly used by sales and recruiting firms. Say you’re headhunting and you’ve got the people you wanna go after, and you’re just looking for the email address. That’s the most common use case. But yeah, it was a fun project in hindsight.

Andrew:

That’s some complex software. It’s a fantastic product. Moving on to the next question: What’s the one trend you’re excited about for 2022?

Sujan:

I think just back-to-reality numbers and not necessarily just value. For the last year or so, everything has been soaring high, and we’ll find out if that’s sustainable over the next 12 to 18 months. 

Andrew:

It’s probably not.

Sujan:

You mean it’s not gonna be sustainable?

Andrew:

Well, markets are cyclical. They go up and they go down. I’ve seen a lot of acquisitions where I was surprised at the purchase price. Or, startups raising at a billion-dollar valuation with 10 million in revenue or something like that. Maybe that’s a new normal. I don’t know. 

Sujan:

Yeah. I have a little bit of a pessimistic view on that because if you look at the numbers, the number of VC deals that go public or get sold to PEs, they don’t make it to the top and they don’t fail. They just don’t become the market leader even though they raised market leader prices. They end up as a founder and operate that business. You end up not getting a whole lot for it. And so I think the VC game is great. 

If you think you can win an industry, it’s great. If you’re top three, it’s bad for everyone else who doesn’t become a top-three contender in that space. I do think the market will normalize this year. It’s already had a bit of a correction. And I think when I say normalize, I think it’s been pretty stable. Buyers like myself have had a formula for how much we evaluate a company but the discrepancy between the founder and the buyers is very high. It’ll have to go in the middle now or come back down a little bit more.

Andrew:

That would help my life a lot. 

Sujan:

Yeah.

Andrew:

I’d love to ask, before we end this podcast, what’s your favorite car, man? 

Sujan:

Yeah. Favorite car? I mean, favorite car I’ve owned or favorite car? Just in general? 

Andrew:

Both. I need both.

Sujan:

The favorite car I’ve owned is McLaren 600 LT. It’s a beast of a car. It feels like you’re driving a race car.

Andrew:

What’s the top speed?

Sujan:

Probably 190 or something like that? On track.

Andrew:

On track. Okay, good. 

Sujan:

I do mostly track or back-road stuff. My favorite car out there is the Ferrari 458. It’s the last non-turbo Ferrari. 

Andrew:

Nice. So you, you, you’re a naturally aspirated fan. 

Sujan:

I like all types of cars. The McLaren had a turbo, but there’s a little bit of lag. I think the perfect mix would be turbo and electric because the electric portion would instantly spill the turbo, removing the lag. I think BMW and a few other manufacturers have done a little bit of that, that I think that’s the future of these before all the electric cars fully take over a hundred percent of new car production. We’re gonna see this turbo-electric era, like a turbo gas engine plus a small electric motor. That’s gonna have the best of all worlds. That’s my prediction for the car world. 

Andrew:

Yeah. I recently drove a BMW. It doesn’t make any sound, but it has like a speaker in the car. 

Sujan:

Yeah. 

Andrew:

Like a fake engine sound, like, what the heck? 

Sujan:

All BMW M cars have that. It’s really weird. 

Andrew:

I thought it was, yeah. Sometimes we go to rent a car and that’s–

Sujan:

The best bank for your buck? That’s such an underrated thing.

Andrew:

I’ll throw out a tip for people like me: a fun way to catch up with friends is to pick them up at the airport. You’re in the car together so you have to talk to each other. We’ll rent cars and then just go drive them somewhere. We split the cost. So you can rent a Ferrari for 300 bucks and it’s 150 each. We rented an R8 and it was the fastest car I’ve ever driven. Yours might be your McLaren. That’s insane. 

Sujan:

I drove a Formula Two car. 

Andrew:

Oh!

Sujan:

It’s scary fast. I can’t describe it fully, but when you watch F1, the race car drivers are lying down. Yeah. They’re practically lying down with their knees bent up. You can’t drive a car lying down. It’s just so weird of an experience. And so by default, everything feels a thousand times faster and scarier. You feel everything in a lot of different parts of your body, let’s put it that way. 

Andrew:

Me and a buddy rented an Audi R8 and it was an older one. It felt like driving around with a guy who doesn’t know how to drive manual and you’re really jerky.

Sujan:

Oh yeah. The old single-clutch ones. 

Andrew:

God. Yeah. Good looking car. We probably rented it because of Iron Man. We also stopped by the Tesla dealership and test drove one of their cars. That was the fastest car I’ve ever experienced in my life. I like engines. I like exhaust and stuff like that. Have you driven a Tesla before? 

Sujan:

Yeah, I had a couple. They were really fast. I haven’t driven the newest version of it. 

Andrew:

We straightaway switched to ludicrous mode and it was so fast. I had to step outta the car. I almost threw up. 

Sujan: 

It’s fast. 

Andrew:

Yeah. I was not expecting that. 

Sujan:

The part about electric cars is that they’re instant power. It doesn’t linearly accelerate like a gas car. 

Andrew: 

It was like a roller coaster.

Sujan:

Yeah. 

Andrew:

It does feel like a rollercoaster, but okay, second question. Who’s one of your favorite entrepreneurs?

Sujan:

I know it’s a little cliche, but I like Musk. 

Andrew: 

He came out big this weekend. Did you see that? 

Sujan:

Yeah. It’s like, who cares about Mars? Help me with my problem right now. Boom done. What’s next. 

Andrew:

They’re like, ‘Hey, can you help us out in Ukraine? We need internet via your satellites.’ And he’s like, ‘Done!.’

Sujan: 

Three hours later. I ship you a bunch of hardware and it’ll get there. 

Andrew:

Cool. He’s a badass. All right. Final question. What’s the best book you’ve read in the past year?

Sujan: 

I don’t know. I’ve read too many books in the last 12 months. 

Andrew:

Just a favorite book in general works too.

Sujan:

A good book for Acquire customers is Build, Sell, Retire. Great book. You know what I might be thinking of Finish Big. That’s probably what I’m thinking about. It’s a great book on examples of other companies that sold. It’s not just like the financial gain but the emotional thing.

I had a friend sell her company about two years ago for 50 million and you’re like, ‘Oh my God, that’s crazy, that’s awesome.’ What do you do next? Exactly. That was the problem. How do you do it bigger next time? And two, what do you actually do next? The answer is not just sit on a beach forever. Right. As entrepreneurs, you can only do that for so long. 

Andrew:

Yeah. I went through something like that when I sold my first company, Bizness Apps. My transition was 90 days and then I was out. No emails or anything. It’s one of those things where you gotta go through it to understand it, but then you learn more about yourself because you just realize you like building and then you go back to building. So yeah, having a plan in place. What do you do next? The beach thing kind of gets old – at least for me. This has been great Sujan: and I really appreciate your time. Thanks for sharing all this. If people have a business and wanna get ahold of you, what’s the best way?

Sujan:

The best place is my website, Sujan:patel.com. I share a lot of helpful articles there. So if you’re hiring or like growing your business too, there’s a bunch of stuff on how to hire folks and scale up.

Andrew: 

Right on. Well, Sujan:, you’re a badass. Appreciate your time. And really enjoyed this podcast, man. 

Sujan: 

Yeah. Thanks for having me.