#11 When & How to Exit with Investment Banker Mark Clare

He’s seeing the slump that we’ve experienced since 2022 start to flip around. SaaS businesses that have >80% gross margins, pathways to profitability, and high growth, in deep verticals are not having trouble raising funds. He outlines some of his tactics for creating competitive tension by pipping bidders against each other (something Kiwi companies commonly fail to do), and while he admits he’s bias, he warns against founders or CEOs DIY-ing a capital raise or acquistion. Check it out 👉

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Skim the show notes from our chat with Mark Clare:

• Capital Availability: New Zealand has sufficient capital for the right type of company, but many companies struggle to understand what VCs and private equity players seek. “We are not short of capital here in New Zealand. The biggest challenge is that a lot of companies don't actually understand what the VCs and private equity players are looking for. We're certainly starting to see both international and domestic capital providers looking again for opportunities and for companies at a greater level than they probably have done over the last 18 months to two years in that capital raising space. High quality companies are finding high quality exits.”
• Key Criteria for B2B SaaS: Investors look for a large total addressable market (preferably vertical), significant revenue scale, strong unit economics, and high growth rates. “If you've got a vertical, large market, you've got a level of revenue scale, and you've got the underlying unit economics, yes, you're compelling. But how big your revenue multiple is [if you’ve earned the right to be valued on a revenue multiple basis] will be driven by how fast you're growing. So if you're growing greater than 100% year on year, you're looking at that 8x to 10x plus ARR type number, but it drops off quite dramatically if you're only growing at 20%, or 25%, then you're far more likely to be down in that 1 to 4 times ARR range.”
• Efficient Growth: Companies are now focusing on efficient growth and cash flow management, with an emphasis on reaching breakeven and demonstrating a path to profitability. “We're seeing a far greater focus on that, getting close to breakeven, that ability to show a path to profitability around it, compared to the days of people being very happy to fund losses and fund growth.”
• Mastering competitive tension during negotiation: New Zealand companies often make the mistake of engaging in one-on-one negotiations with a single interested party instead of creating competitive tension by involving multiple potential buyers. “Often [companies] come to us and go, oh, look, we're having this one -on -one conversation. What leverage can I exert on this party? And you're like, the only leverage is to potentially walk away. But the true leverage is if you've got other parties sitting in there bidding against them, that's when you get the really high quality outcomes. So that's probably the biggest singular mistake that we see from New Zealand companies.”

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Trends we’re noticing: Choosing Your AI Stack

Generative AI is embedding itself in the toolkit for digital marketers. People are using it for copywriting prompts, suggesting search term reports, suggesting code for automations, and eliminating those painful repetitive tasks that distract talented teams from spending more time in strategy and analytics. Next month we’re running an AI Day at Atlas Digital (inspired by JD Trask who shared his AI week learnings on The Raise). We’ll share our experience in the next issue.

We’ve ranked a handful of AI tools for marketers - hit reply and let us know what else you're using.

1. Claude - Projects are where it’s at. Collaborate without losing your personal inputs, for example it learns your tone of voice or the industry specific knowledge you're inputting within that project.
2. Perplexity AI - Their enterprise version has strict data protection settings, although they have been called out for plagiarising content from Forbes and Wired. They’re about to launch paid search, so loop back next month where we’ll be doing a breakdown of what that could mean for the search industry.
3. ChatGPT - Most people have tried ChatGPT. If that’s all you’ve used so far, our advice is to branch out and test other paid LLMs.
4. Gemini - If you’re working in Google Workspace, Gemini is integrated across all of its products. It might save you paying extra for a Grammarly subscription but it’s yet to change the game.

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Tech Spotlight: aglow raises $1.25m

Last month B2B SaaS startup, aglow announced a $1.25m round led by Icehouse Ventures via their Brand Fund, a joint venture with NZ brand development firm Previously Unavailable, with support from Ryan Baker, founder of beauty-tech SaaS platform Timely, and existing investor Peter Haig, cofounder of Tyro.

In her LinkedIn announcement, Co-founder and CRO Jo Blundell (listen to her interview on The Raise) said,

“Here's to more, mostly small and mostly female entrepreneurs, unlocking financial freedom powered by memberships 🥂 cheers to marching on and up! 🚀”

Their service is an excellent example of SaaS responding to the times and unlocking new sources of income for their customers and value for their end-user. We’d love to see more of this across other verticals 🔥

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