Ep 290: $7M to $60M Saas Acquisition & Growth Strategy with Alex Prokofjev

There is so much money to be made in acquiring online businesses, Ecom, aggregating, Holdcos, SaaS, all of it. Hello, my name's Jarrett Krause. I'm the host of the Buying Online Businesses podcast and today I'm speaking with Alex Prokhojev, who has a 15-year career in investment banking and corporate developments, both as an advisor and a principal.

Originating and executing several hundred transactions spending AI, capital raising and strategic partnerships. Now, Alex, who was the CFO of Three Colts, helped them build that out from 7 million to 60 million revenue per year. Now he's the co-founder of Roll Up Europe with his brother and doing some amazing things in the AI space.

Now, in this podcast episode, prepare to get firehosed with an amazing amount of information around how to raise capital, build a holding company, what it looks like, acquiring multiple businesses throughout multiple years and…

What that looks like—there's so much value in this. We also talk about Alex's journey and how he moved out of software itself, SaaS acquirers, and has moved into helping people build out holdcos and what he's doing with his brother with Roll Up Europe. Now there's so much value in this podcast episode. We do talk about acquiring businesses. If you haven't got my due diligence framework, make sure you do go away and get that at buyingonlinebusinesses .com. Forge that's free resources. It's free, of course. It takes a lot of buying a business.

Let's dive in. Do you have a website you might want to sell either now or in the future? We have a hungry list of cashed-up and trained-up buyers that want to buy your content website. If you have a site making over $300 per month and want to sell it, head to buying online businesses .co forward slash sell your business, or email us at info at buying online businesses .com because we will likely have a buyer. Details are in the description.

Welcome to the Buying Online Businesses podcast. Thanks for coming on.

Thank you for inviting me, Jared.

So you mentioned that you kind of fell into this acquiring online businesses and tech assets as in SaaS. I'd love for the audience to know a little bit more about how and why you fell into this sort of space, I guess the AI space and why you love it so much.

Yeah, sure. I have to take you back about three years ago. My background is in investing banking. So I've done about 14 years in investing banking, working in London. I'm originally from this small country of Latvia. After investing in banking, I moved into corporate development. So I worked for a very big bank in Switzerland.

And after that big bank, I went to work for a tech company as the head of corporate development. And whilst all three experiences ultimately helped me do what I wanted, I felt pretty unfulfilled in each one of them. And the reason being that when you're working with very large banks, it's extremely hierarchical. And in Europe in particular, it's getting really crowded. So it's very difficult to stand out if you're on the sell side because there's literally dozens of banks chasing very few mandates.

Whereas in the tech company, I faced a slightly different challenge; a very successful business raised a ton of money, including from US VCs, but it's not a business that has grown historically inorganically, right? It's a business where the finance function and the corporate development function were very much viewed as a sort of back office if you want, right? And I just didn't feel like it was fulfilling enough for me.

So I was facing this conundrum and three years ago, I had a very fateful sit-down, very fateful coffee with my brother. His name is Pavel. He had been in the role of space for a few years before that.

And when I told them about my challenges, when I told them about what I was looking for, Pavel immediately jumped on it and said, Listen, you got to join one of those software serial acquisitions because, on the one hand, they buy tech businesses. So that's what you want to be. You know, it's very agile. It's very flexible. It's very inclusive.

But on the other hand, you are doing lots of deals and your AI skills, Alex, are very central to the success of those businesses. So that was the start of it. Pavel then introduced me to a couple of CEOs who were looking for heads of &M's and CFOs for their businesses and I joined a small e-commerce SaaS aggregator called Freecults at the start of 2022.

Yeah, cool. So that's what I was going to ask you, Freecults. So this isn't something you didn't go and acquire Freecults. You joined them as a CFO, right? So what is Freecults and how did you come on board with those guys?

I mean, you just did, like, how did that come into fruition? Yeah, sure. So Freecoats, in very simple terms, is an aggregator of e-commerce sales businesses with a focus on the Amazon ecosystem. So it's what I would call a platform play: Zendesk platform place, Atlassian platform place, Salesforce platform place. So Freecoats main mission is to acquire businesses that service e-commerce merchants on Amazon. Well, it was the mission two years ago now that he's moved on to become a much broader business in the sense that Freecold seeks to assemble a suite of tools that enable merchants to sell on all kinds of marketplaces.

So Yota, the founder of the business, had raised the initial capital and had made the first couple of deals when I came on board, but it was very clear to him that he needed somebody to make the AI machine more efficient so that it could end up handling 10 to 15 deals a year. Another dimension I brought on board was that the company had raised a significant amount of debt and it happens when you raise debt. There's a lot of governance, and there's a lot of reporting that you expected to actually produce.

And when you buy those small online businesses, one of the challenges that aggregators and enrollment founders hit pretty quickly is that the disclosure of those businesses is not good, right? So on the one hand, you're buying a business that has been bootstrapped, which is maybe doing a couple of million. It's all striped. It's some very basic kind of quick book.

Nobody does any accrual accounting and everyone's okay because what matters at the end of the day is the cash flow, right? No cash flow to the business' debt. However, when you aggregate those businesses and you start raising institutional capital, your private debt or your bank debt, people start asking you for monthly reporting, people start asking you for covenant testing, and people start asking you for adjective financials.

And if you're not able to bridge the difference between the two, well, either you lose your aggregator or you have to contend with much higher costs of debt because you are perceived to be a risky borrower. So my responsibility of three quotes mostly revolved around those two topics in businesses: finding businesses, buying businesses, and ultimately building up the finance function so we could see key KPIs in real time. Yeah. Awesome. And what do you mean when you said you'd lose your aggregator? What do you mean by that?

you can, if you don't have this reporting. what tends to happen is that you need to give, so when you're raising debts, when you don't have a lot of track records, you typically have to give the lender a lien or the collateral for the loan is essentially the entire business, whatever you've bought, right? Plus any sort of new intellectual property you've built at the HQ.

So what tends to happen is if people default on their loans, whether it's an actual default where people are not able to make the payments or there's some sort of violation that they made. There is a short period, which is called the cure period, in which you're allowed to make up for the admission, the mistake or the shortfall in payments. And if you're not able to cure within that payment, essentially the lender moves on to repossess the business, sell off the business, and make itself whole on the loan.

And you, as the shareholder, or your shareholders, essentially take whatever's left of the business. And Amazon FBA money, which is now past its peak, I think is a great example where aggregators bought a lot of e-commerce brands very, very quickly.

But oftentimes the brands that they bought did not have recurrent revenues and were not able to demonstrate some sort of uptick in revenue. And those aggregators failed to make payments on time and they ultimately lost it. Yeah. Pretty common, actually, wasn't it?

Through COVID, the COVID era, I guess, where there were a lot of aggregators, Amazon FBA aggregators buying so many of those businesses, getting a bunch of debt and then getting smoked for, I guess, a multitude of those reasons, right? Is that what you saw?

It's hard to name my single reason. You haven't been doing it since I guess 20. So you started with three Colts; what two years ago? A bit more than two years ago. Yeah. Okay. Yeah. Cool. I want to learn a lot more about three Colts. So you came in, you've gone in and they must've had a bunch of already running great running e-commerce brands, I guess.

And maybe a few from Amazon, maybe a few from different sales distribution and Matt, were they, it's a seven million valuation or revenue when you joined and you have helped grow since then. are some of the, yeah, I've got a lot of questions.

How many businesses did they have when you first joined? How many businesses do they have now? What are some of the things you've done along the way to get to the increase in revenue? And what is that increase in revenue since you joined? Yeah, sure. So I think one very quick disclaimer: I don't work there anymore. So I'm a shareholder of three calls. I left the business last October to pursue my various entrepreneurial ventures.

But I can obviously speak to the time that I was there; obviously, as the CFO, I was very close to the numbers on a daily basis. So when I joined the business in early 2022, took his credits, the founder, the majority shareholder of the business, had raised the first batch of financing debt and equity had also executed on the first two deals and he built up a pretty good pipeline.

And when you consider that this was essentially the sort of work of a single person, albeit with some advisors, it's incredibly impressive, which is something that I think a lot of aggregate founders should pay attention to.

Because there is this new tendency right now as capital becomes more available for holding companies and sort of buy and build types of structures, people tend to bulk up on headcount early on. So it's not uncommon to see businesses that maybe have been operating for about a year or maybe 18 months and they've raised, you know, 10, 20, 30 million equity, or, you know, an equivalent amount of debt. And all of a sudden you see an AI team of eight people; of 10 people, you see a lot of people HQ.

And I think that's wrong because ultimately you should always start with a very clear investment basis. You should always start with a very clear pipeline. And I think, okay, sure. When you buy those businesses and maybe there is a succession and we need to replace sort of CEOs or the GMs of those businesses, you should bring more people on board.

But in order to develop a compelling investment basis, in order to go and reach out to those business founders and ultimately execute those deals, you do not need a lot of people. This is absolutely core to understand.

And that's exactly where Freecodes was at the start of 22 when I joined. Yora had worked at Amazon, so he had a very clear thesis. He saw all of those third party app developers getting access to Amazon's API. At the time when he started this, there were just over 2000 businesses that had Amazon's API, effectively the addressable market of potential acquisition targets. When I left the business, I thought that number had grown to almost 3000 businesses.

And so with the first two deals done with the financing, my objectives were twofold. On the one hand, the number of situations lives. So somebody needed to come in and get those deals to closing to complete due diligence, to complete the negotiation of binding agreements and ultimately just to make sure that those deals are integrated.

The second challenge that we had was that the company, as an acquirer, constantly needed more financing. so creating good-quality investor materials and creating sort of a good-quality pipeline of investors and just continuously having those conversations was very, very important.

The other thing that a lot of aggregator founders maybe don't fully understand is that it's not like one shot, one opportunity, right? So if you are in the market constantly acquiring businesses, you're probably going to need to raise financing every six months. Ideally that so you don't actually dilute yourself, but very often 99.9% of all equity and debt providers you speak to on day one will tell you, I'm not going to give you any money because either they don't believe the idea because if they had, if they believe the idea, if they had heard about the idea, probably somebody else was doing that.

Or they just wanted to see a bit more track records. So the challenge for me as the CFO was that I had a hit list of about 300 equity providers. And I knew from day one that only a handful—maybe five or six out of 300—would be genuinely excited about the idea. With the rest of them, it was this: okay, we've got to work with these guys on a quarterly basis.

We've got to show them what we've bought. We've got to show them the kind of platform and the platform value added. And I think setting up that cadence and having that kind of pipeline of investors was very important. Over the ensuing 18 months, we grew the business from about 7 million revenues when I joined to about 60. When I left last autumn, this was the outcome of, I think, 16 or 17 acquisitions. The business has gone further now. I think the number of closed deals that FreeCodes has is about 20. Yeah, and highly profitable business too.

Yeah, cool. Congrats. That's amazing.

You definitely got to work and achieved an amazing result there. So you said you were roughly raising around every six months now and keeping that cadence going, showing proof to investors. How much typically were you raising and where were you finding the funds from? it, like you said, you did mention investors before, but were you going to any banks? You using any other lenders, different types of lenders?

I should probably frame this by first asking what type of businesses you were acquiring through that phase as well, because that's going to help determine what collateral there is available for the lenders. Sorry, there's a lot of questions in there. First, start with what sort of acquisitions you did make in that sort of time period.

Yeah. So very good questions, all very technical ones. So, I mean, I should say that the initial mandate, the initial thesis behind Freequals, was very much focused on SaaS. There are a lot of Shopify SaaS aggregators.

As far as I'm concerned in the Amazon space, when we started out, when I was at Trigos, there were only two businesses. It was Aspen, who was a Canadian, essentially called the CAT, which determined that the competition and the multiples of pay for the business were nowhere near what people were paying for Shopify businesses. And so essentially buying small businesses, typically focused on SMBs and solopreneurs.

Examples of businesses would be a lot of dropshipping tools. So tools to get you started as a dropshipper or arbitrage seller, tools to help you find attractive pairs—which marketplaces do you want to kind of arbitrage? The second category would be SaaS businesses that help you manage your inventory.

So again, that's a pretty big challenge for a lot of Amazon sellers as well as Shopify sellers. know, what's the optimal level of inventory? When do you buy? Again, the reason why those tools exist is because Amazon's own tech stack and Amazon's in-house tools are pretty rudimentary and Amazon has no incentives for whatever reason to basically improve that. But as a quid pro quo, Amazon has developed a pretty decent API for those developers to come and essentially fill the gaps.

It's not just Amazon that has this approach. you look out and if you look at your compatriots at Atlassian, they've done exactly the same thing, but also the scale is vastly different. Right? If you think about the Atlassian SaaS marketplace, it's producing revenues of about one and a half billion US dollars right now on an annual basis across six, seven thousand apps.

Of course, the kind of Amazon opportunity is a lot smaller. It was mostly SaaS businesses. In the process, we also looked at a whole bunch of product-type service businesses. There are a lot of agencies out there that sell themselves.

Everyone's trying to find the kind of philosophical stone where people have an agency, an SEO agency, and they get paid as a SaaS business as opposed to on a performance-based basis. I've not seen a single agency that would have been able to actually crack that, right? People come to agencies because they expect some ROI. And I think eliminating the ROI has been very, very difficult. We also got into profit recovery, which by now is a very significant part of free calls. So profit recovery for Amazon.

Vendors and Amazon sellers. ultimately, you know, we also looked at Shopify, eBay, and other ecosystems, but ultimately, whenever we really developed the conviction that those ecosystems were as easy to understand as easy to operate for us from the acquisition point of view, right?

But I think when you do buy those businesses, when you see, where do organically I expand into? It's very natural that if you have a bunch of e-commerce sellers, and they're on Amazon, chances are they're also on other marketplaces like Shein, Spotify, eBay, and others. Right.

Thank you. And so with those types of acquisitions, what size acquisition were you doing roughly each time? Was it all similar or was it very varied? And then how were you acquiring that finance and from where? So you won't be surprised to hear that any sort of buy set interest heavily correlates with size.

And so if you're looking to buy any online digital business, whether it's a YouTube channel or a SaaS or like a vertical market software business, the bigger the business, the more people want to look at it.

Because everybody has to hit their quarter. Everybody needs to build up the pipeline. And the kind of one lesson that I want to share is that people vastly underestimate the amount of competition and the amount of buy-side interest for anything these days, right? Because information flow is very transparent. Everyone's using some sort of private company intelligence tool like SourceCrab.

Everyone's using email outreach; getting hold of an initial pipeline and reaching onto that pipeline and proving out the kind of interest and finding out some financials has become very, very easy and very, very cheap.

So for us, we typically focused on the businesses with between one and 10 million in revenues. I would even say probably the kind of lower bound for free quotes now is a bit higher than that because if you have a business that's doing less than $2 million in revenues, it's less than half a million dollars in profits.

If there is a succession situation, you need to bring in somebody to replace the founder. You want to have a very strong general manager and a very strong product manager. And I think.

There are a lot of people that come from big companies that find this very rewarding, but obviously if the business is very small and ultimately not very profitable, it's just not that interesting for them. Whereas if you look on the higher end, if you look at businesses that are doing more than $10 million in revenue, all of a sudden, all kinds of private equity-backed players want to look at it.

And so for me, the kind of sweet spot would be between two and 10 million. In terms of how you structure those deals, essentially you have two options. You can either buy the assets or buy the shares.

The advantage of the share purchase agreement is that you essentially take over the entire business and all of its assets. In most jurisdictions, including US, Australia, UK, and others, a share purchase is typically more tax advantageous for the business founders because they only need to pay the capital gains tax.

However, the other option on which we heavily relied was the asset purchase agreement. So essentially, you identify which assets you want to pull out and the company essentially remains an empty shell and the founders typically would actually retain that.

The advantage of that structure to you as a buyer is pretty obvious. You don't assume a lot of the risks. If there is some sort of litigation against the business or if there is a tax problem, you do not inherit that. That remains with the founders. The disadvantage of that, of course, is that it's taxed double from the founder's point of view.

So the founder has to pay a lot more tax and therefore many founders are just instinctively not interested in the Nasdaq deal. Absolutely. Yeah. And so it makes sense as three cults scale and grow; why wouldn't they just increase that bottom from two million to eventually get up to five million?

I do understand keeping under that 10 million range where you have fewer eyeballs on those deals and they'll probably sell less fast because of that. there's that; I guess there's that sweet spot, but as it evolves, it might even change to a different range and have different capabilities to more quickly acquire those types of assets versus having a bunch of small businesses within that structure that are not really helping this, allowing it to get that scale that it wants if it wants to continue to grow, right?

I don't think it's a question necessarily only for free calls. I think it's a question for most software aggregators, whether it's free calls or sharp circles or stay tuned or sure swift to size groups. I think the answer to that is twofold. I think a lot of those targets struggle to grow beyond two to five million revenue levels.

Because it seems that there was a natural inflection point where if you grow a new business from zero to call it 2 million ARR, typically you're too small for anybody to notice you or to copy that. Whereas if you're hitting a co

uple million ARR in any type of kind of vertical niche, you start being noticed, right? Either because you pop up in the marketplace, let's say you're in Wix Marketplace, or Shopify marketplace, people all of a sudden start seeing that you've got a lot of downloads, a lot of followers, a lot of reviews.

And I know probably three or four, basically SaaS clone factories based all over the world, which monitor and they try to copy that business. So that's pretty interesting. Right. So, I think beyond that level, there's just a natural inflection where, all of a sudden, you thought it was just you and then there's five other businesses and then the market itself maybe is not growing a lot.

So you're naturally capped. So the natural supply of those businesses in that sub-5 million revenue range is just very large because they never graduate onto the next bracket because it's very difficult. Also, a lot of the founders that I've spoken to view it as a lifestyle business. And if you look at the unit economics of those businesses, I'll say if you're doing a five-million-dollar business, maybe you're riding at a 60 % profit margin.

I mean, if you're in a tax advantage jurisdiction or you've got some other losses, you can offset it. You're looking at $3 million after tax cash flow. Like, do you really need more than 3 million? If you don't live a fancy lifestyle, probably not. The other reason is that I think it's just about the deal flow, right?

I think as long as people are able to find an up-deal flow and that kind of smaller range, there's not a lot of competition and you can keep your multiples low, most people will pay anywhere between five and eight times EB dollar cash flow for those types of assets.

Why wouldn't you buy them? Everybody wants to buy bigger assets. Everybody wants to hit the million ARR faster because there's this kind of perception. That's when the multiple arbitrage will really switch on. But the truth is, if you want to bet on 10, 15, or 20 million ARR businesses, you're facing off against mid-market private equity. And I can tell you they will be able to outbid you most of the time. Yeah.

That's a really good point. Even we find that the case for a lot of my audience where they're buying under the typically under the $1 million range. And then you've got somebody that's in this different range in that range where you're at one to 10 mil. The bargaining power is just far, far better. So talking about money again, financing. Do you have the capability to raise financing through SBA, other lenders or mostly just through investors?

Yeah, we've written extensively in our blog, my brother and I, about the different structures. I would say there's so many structures available. It's really entirely down to you as the founder to decide whatever suits you. But I would say how FreeCodes was structured and how a lot of other lenders were structured is how other aggregators were structured.

We had financing essentially come in at the hold call level, both debt and equity. And then we would parcel it out down to new acquisitions. So for every new acquisition, we would set up an SPV and then that SPV would be funded with shareholder equity and debt. So that's how it was done.

So was the acquisition, which was not raised on a deal-by-deal basis. Although, of course, every time we had to go and draw down the debt, we would have to go to the lender, and we'd ask, we would tell the lender, Hey, this is the deal. Here's some information. Please give us some money.

What's really important if you follow that type of approach, because I can't think of a single aggregator or let's say if people have a hundred million dollar facility, the lender just writes like a blank check.

So what's very, very important is that you have your due diligence materials. You have your red flag reports; you have your investment memos very nicely written down. That's the very first thing that I did. said, Listen, it's not just enough for us to do due diligence and for people to get comfortable individually. All of those notes need to be aggregated in a crisp 10- to 15-page memo that we can pull out and show to the lenders.

I think so kind of one idea is where you go out to your equity bankers and first you need to raise some equity for a business. And I think I've seen people doing the self-segregation game. First time they raise anywhere between $5 and $30 million in equity.

And that, of course, depends on the strength of your bargaining power. So if you have a very compelling investment thesis, you're able to raise more at a higher valuation. If you don't have a very compelling thesis, you're able to raise less.

And what I've seen typically people raise the least people have raised would be 2 million or maybe 10 million pre-money valuation. the most I've seen for some hyped-up ideas like Shopify app rollups a couple of years ago, people have raised something like 10 million on 20 or 25 million pre-money.

This is, we're talking about US dollars. Once you've got that equity in place, it becomes very easy for you to go and talk to the lenders. And the lenders will typically size their debt facility in relation to your pipeline, but also in relation to your equity.

Again, the debt markets are always changing, but if you have a compelling thesis and you have strong investors, then you're able to raise in committed debt up to two times your equity. So if you raise 10 million equity, Lander will happily give you a 20 million debt facility, which you draw down on deals as you go along.

There is a very interesting kind of dynamic here where, on the one hand, you don't want to get a dominant shareholder. So you want to raise multiple wealthy individuals, multiple family offices.

So none of those have bargaining power when it comes down to equity, right? So everybody has some rights, but ultimately you, as the founder, want to be calling the shots, right? You don't want to depend on all these people to vet every single one of your deals.

On the other hand, when you talk to lenders, the dynamic is inverted because lenders want to see a brand name backing you. Lenders want to see a dip-pocketed investor that maybe has written a $5 million check out of the $10 million raise. If something happens to you that they can pull out another 5 million or 10 million, the company will not go under.

How I've seen people try to solve this conundrum is to go out to a bunch of very experienced, very wealthy ex-private equity people who write significant equity checks. So let's say if you can get five of those and they each write like a $2 million ticket, then you go to the lender and those private equity individuals probably will have relationships with the lender and you convince them, okay, it's not quite the private equity firm, but these people will not let the business fail.

Yeah. I love that strategy. Thank you so much for sharing. And so where have you gone now? Since three cults, you're working with your brother now, is that correct? And you're your own whole building out your own whole code? that right? Those two and then a few things also in between.

Yeah. So as I was working through three cults, I constantly had all these questions around how different things work. know, how do you erase debt? How do you erase equity? know which investors are good. And what I realized is that on the one hand, there were lots of people grappling with the same types of questions, but on the other hand, there wasn't like a media outlet to actually talk about that.

Right. So there are a lot of resources for people to get into the SMB acquisition game, especially in America, buying like HVAC businesses and then how do you get your SBA financing?

But when you are an aggregator, like there's no way you can go to, you go to all these conferences and all; they all tend to lionize and celebrate marketing people, engineering people. Nobody wants to celebrate the AI people.

So Pavel and I last May created Roll Up Europe, which has now become essentially the go-to resource for serial acquirers, primarily founders and operators, which teaches you, okay, like, how do you build a hold company? Where do you raise the financing? What are the challenges you face?

This morning we had an article about com structures of Constellation software. So we're doing this together with Pavel. We position this as the saster of the hold space. So we work in conferences; we work in various podcasts. The second thing I'm doing, as you said rightly, is building a hold co.

So I'm actually sitting right now in Estonia, where my wife's from, working on the Baltic, a whole code of B2B services and niche manufacturing businesses. So very far from digital, but very good supply of businesses at the succession phase.

And obviously the fact that the region right now is experiencing a bit of a lullet investor sentiment for various reasons is also helpful. And the first thing I'm doing is just experimenting with a whole bunch of different things. I'm helping some budding aggregators raise capital; I'm helping a few businesses.

With the strategies to really getting heavily engaged with the community. I love that. Congrats. Firstly, again, why manufacturing businesses and more sort of like brick and mortar type, type businesses over EECOM or SAS for your rollup? Is it access to financing or is it something else completely or you just wanted fresh air?

Yeah. Well, it's not something that I just came up sitting on the sofa. This was actually the outcome of a six-month search process. So, which resulted in the short term, a big disappointment to me, but I think in the medium term, it's actually given me a lot more ideas.

So I left three goals, partly because I saw the power of focusing on a single ecosystem. And I was very convinced when I left that business last autumn that I'd be able to build my own platform and play in no time. You were very cocky. was very confident. I knew that there had to be something out there.

So I looked at over 60 ecosystems, 60 app marketplaces—everything from, you know, Atlassian to Zendesk—and in between screened 180,000 apps and started just making calls.

So my initial idea was to exactly create a SaaS platform play like FreeCodes, but in another ecosystem. And my learnings were twofold. I think there are a lot of businesses that are available out there the people want to transact at very good multiples. But ultimately most of those businesses tend to fall into the high churn category—know, website builders, e-commerce, a lot of CRM.

And so you look at those businesses, you say, okay, turns already very high. They are very vulnerable to artificial intelligence. They're very vulnerable to platform risk. And my experience from working for an e-commerce or segregator and also looking at other e-commerce or segregators was that you can buy those businesses can probably debt finance most of that.

You don't need that much equity, but ultimately raising institutional capital against a strategy like that. If you don't have a very strong industry angle, if you don't have a very strong platform play, it's going to be very difficult. I'm not going to make the same mistake again.

So I kind of parked that idea. The second learning was that if you look at the more enterprise- grade businesses, if you look at anything that is Salesforce related, ServiceNow related or Atlassian related, those underlying ecosystems are massive, right? There's thousands and thousands of apps and most of those apps are very, very profitable.

And most of those apps are still growing at 20 to 30 % per year, like Atlassian itself. And so then I started going to conferences, I started talking to developers and I started, and for me, the main thing was to understand distribution. I'm obsessed with distribution. I'm not really a product guy. I'm not really somebody who has a lot of engineering insight, but I'm very obsessed with: if you have a product that's not that unique, how do you sell it? Right?

So how can you explain that Atlassian alone has several dozen timesheets and they are all profitable? How can it be that if you open up the Atlassian marketplace, there's like 30 timesheets each having between $2 and $20 million in revenues? They are all profitable. It makes no sense.

Well, it does actually, because when you look at the distribution structure, when you look at how those timesheets are distributed, you realize that they all have slightly different purposes, right? They all tend to be maybe more focused on, like geography. So there's one guy who's selling timesheets into New Zealand companies, right?

So there's somebody who works with railway companies across Europe. And that's when you realize that in those large enterprise ecosystems, it's essentially friendship, albeit with a lot of tension between the three main players. So the software under itself.

Let's say Atlas, then you've got your system integrators. So the companies that essentially implement and maintain Atlassian also ultimately market those apps and ultimately have app developers. sometimes system integrators own some apps, but it's very unlikely that the app developers become system integrators.

So, I think figuring out how do you distribute those apps? I understood that, listen, you can probably buy a nice Atlassian or Salesforce and business, and you can probably improve some of the outbound, but ultimately the biggest driver of growth. Is the relationship with the partners? If you can have enough of those elite partners to push through Europe, you're going to be successful. But then I looked at that. I look at just how complex that game is. And I guess I just didn't have enough delusion that I'd be able to figure this out. So I pivoted a bit to work with the business. So I now work with the founders that are in those ecosystems that have insight into building specific rollups.

But I myself focused on something that's a bit more defensible. That's kind of one big learning, right? So six months, several hundred calls, lots of frustration, lots of people saying, no, several hundred pages worth of notes. And I think the second learning was that, listen, I work with a lot of private equity firms and family offices that are coming into Europe specifically trying to buy vertical market software. So again, very different from Atlassian, very different from Salesforce, basically buying standalone solutions that target a very specific time. And I can tell you.

The competition for those types of businesses right now is very intense. So if you don't have a very specific thesis, let's say you're trying to aggregate Spanish vertical market software in the ERP space or whatever it is, you're going to find it very difficult to originate deals.

You're going to find it very difficult to be successful because, unlike those newer ecosystems, the Salesforce and the Atlassian of the world, a lot of vertical market software businesses tend to be very old. We're talking about 20, 30 plus your old businesses.

And so a business owner is going to be a little bit older. And if you don't speak the local language, if you just send them an email, you're not going to get an answer. Absolutely. Especially a business that's old as well. How quickly technology has changed, what it's built on. That's it.

The development is ongoing, just the compounding effect of difficulty. The difficulty only compounds, right? Yeah. Okay, cool. I love that. And so what's your goal with this rollup?

Do you have a goal or is it just that you want to build this into a lifestyle business for you and your brother as well? I think if I wanted a lifestyle business, I would have just stuck with Roll Up Europe because then I can just publish blog posts by subscription. don't think Holko is a lifestyle business. look, I'm a Holko enthusiast. I'm a big convert to value investing.

It's almost like a religious moment that I had three years ago where I finally saw an industry where welcome, but I can also add something to it, right? You're buying cashflow businesses; you're buying real businesses; you're not betting on something that maybe it may not happen in a decade.

So I want to live and breathe this ecosystem right now for me. I'm from the Baltics, right? I was born in Lithuania. I grew up in Latin. My wife's a stoney. I understand the cultural background in this region. I think there is a massive succession opportunity here, like in Germany, but what I like in Germany is just me right now. It's just me and my investors and my, and my operators. So, and I want to enable that succession. want to enable the next cohort of managers, of CEOs to take over these businesses and to make them better.

So that's my mission number one. My mission number two is grander in some ways, which is in Europe in particular; we've had mislocation of capital and mislocation of talent. I feel like too many people and too much pension money is going into venture, which is investing into DAWD companies.

And too many people follow this kind of path where they do really well at university, get into private equity or get into ventures, but they end up doing the same thing. They all end up chasing the same assets. And the problem in Europe is, know, growth is not returning anytime soon.

So why not take all of those people? Why not take all this capital and relocate it to Holocaust, know, SMEs where there is going to be always growth, but those companies are just not efficient? So I want to relocate as much of that resource from unproductive to productive industries.

And if my blog and my initiatives help that, I'll be very happy. love that goal. Absolutely. Thank you so much for coming on Alex and having a chat and just sharing everything you've shared You're definitely putting out some great work out there and really helping people and industries.

And I appreciate it. And I'm sure everybody else does as well. Where can we send people to go find out more about you? Listen, if you just go to Roll Up Europe or if you just send me an email on alex.rollupeurope.com or connect with me on Twitter or LinkedIn and just tell me what the idea is, if I can help you or if you want to help me raise some money, let's connect.

I always monitor my emails. I try to answer as much of those as possible. Just one thing I ask you not to do is just don't just wrongly criticize the content, saying this is stupid, because I get some of that hate mail as well. And it's very difficult for me to respond to something that says you are wrong.

If you tell me exactly what we're wrong, maybe we can create an interview like that or a joint article out of it. Just let's just be a bit more constructive because a lot of people come into this space and I welcome discussion. I just don't like people who just tell me Alex and Pile don't know what they're doing.

Yeah, that's a part of the game of being accountable in the world and putting your neck out there; there's definitely discrimination against your method. And just because the Alex method might not be for you doesn't mean you discriminate against mine as well. So I'm definitely on that, Alex. You can always move on and to be honest, your energy, time and attention shouldn't go into that. It should go into something that's a bit more constructive for you anyway.

So yeah, thank you so much, Alex. Really appreciate the time.

Okay. Thank you, Jared.