Andrew Gazdecki - Buying & Selling $500 Million in Micro Technology Startups

On the Welcome to the top M&A entrepreneurs. Today, my guest is Andrew Gazdecky, who goes by the, to his friends, goes by the name Gas. Welcome. Andrew is the uh CEO. Uh, he launched uh Micro Choir, as you can see in the background. Welcome to the show, Andrew. John, thanks so much for having me. Yeah, it's been a long time coming, man. I'm, I'm excited. Yeah, you've got a, uh, a pretty great launch going, micro choir, and I just wanted to talk to you about the business, why you started it, where did the idea come from, and was, was there, you just noticed a big need out there, or were you just testing the market, so. Yeah, good, good question. I'll give you, um, 22 stories and just, uh, one is more of a thought, not a story. Um, but, so prior to micro choir, I bootstrapped a company called uh Business Apps. It was a drag and drop uh mobile app builder. We grew to about um a little over 10 million in revenue and then sold it to a private equity firm. And the first thing that happened when I sold the company was I had probably like 10 friends, like saying like, can I get an intro to the private equity firm? Like what's due diligence? How did you find the buyer? And that was probably the first click of like, oh, like, OK, you, you're all running startups. Um, I assume your goal one day is to get it acquired, and you don't know the basics of how to find a buyer, how to You know, what is due diligence, what are the legal steps you should take, um, aside from hiring an investment bank essentially. And so, I thought that was fascinating. And then, uh, the second point was, um, as I looked through the market in terms of, you know, putting myself in the buyer's shoes, you know, looking to buy a sass company. I looked at, you know, brokerage websites, I looked at, uh, other marketplaces in the industry. And nothing really felt like it really favored the seller, so to speak. It all felt like it was favoring the buyer, um, and so I felt there was a void in the market that, you know, really empowered founders when they're going up against say like a multi-billion-dollar private equity firm like I did, you know, we can empower them and help them maximize their exit. So, Um, you know, and then the, the 2nd or the 3rd thing, I'm like totally just getting up my numbers wrong here, but, um, the 3rd thing was, um, for my next startup in between business apps and Microchore, I also started a company called Allcoin which was acquired by a strategic buyer. Cause once you go through the process, you kind of learn um how to position a business for sale. Um. And I always wanted to have a company that helped, you know, founders, entrepreneurs, startups. I'm a startup geek. Um, I could meet LeBron James and be like, cool, man, but if I meet like the founder of like a cool startup, I'm like, oh my gosh, he built that, that's so cool. Um, so, yeah, I guess, you know, a part of it was also, um, you know, this is kind of a thesis I always run with, with basically all the businesses I've ever started, but Um, I'm a big believer in, um, trying to spot trends before they're obvious to everybody. So, with business apps as an example, um, it was in 2009, Android hadn't even come out. BlackBerry had apps at the time if you remember that. Um, so we just built an iPhone app builder and then we eventually expanded to Android mobile. Um, but I was in college at the time and so I had unique insights into You know, I think every business is gonna need a mobile, and so I built that business, so, Um, my point is, is I always try, the way I try to phrase it is, I try to look for trends that are gonna become obvious to everyone over time, but are not obvious today. So they're obvious to me. So when I launched Micro choir in 2020 of January. You know, entrepreneurship through acquisition wasn't really as talked about as much. I felt it could be in an emerging sort of category that could be created, but no one was really leading the charge in terms of like standardizing things, making tooling for acquisitions easier, empowering founders, just bringing the whole market together essentially. So I made The, the, the quote, if I ever get a quote, I hope it's this one, make an obvious bet to you today that will become obvious to others over time and that's how you can build, um, some really, really interesting businesses and that's what I did. I didn't, I didn't even think it was gonna work. It was like list your business on a marketplace and buyers will come and will help sell businesses for millions of dollars without investment bankers and um. You know, intermediaries. So the idea at the time and, you know, it being private and Um, you know, asking for data sources to, you know, better verify revenue, basically everything I wanted when I was thinking about selling my first business is what I built in a micro choir, and to me that was super obvious because I was a customer essentially, um, but then to my surprise, um, you know, a lot of people, you know, were interested in acquiring these digital assets, so to speak, or, you know, sales companies, e-commerce companies. And now it feels like everybody's doing it and talking about it, and maybe you have a different vantage point cause you've been, you know, in this market for a while too. Yeah, what, what was the, I, I don't think you're really competing against biz buy sell cause they just do, you know, the seller put something up, they pay $50 they put their ad up there. Uh, what, what about Flippa? What was it different than saying Flippa? Flippa has been around for a long time. Yeah, so I looked a lot at FIA and just read the reviews in terms of, you know, trust and security I thought was an issue, um, lack of customer support. It kind of felt like a marketplace where Everything go, it had kind of like a Craigslist feel for me. I think they're a great business, but it was just too broad. And so when you have a business that's too broad, especially as a marketplace, um, you know, there's a saying when you try to be everything to everybody, you end up being Nothing to anybody. Um, I think I got that quote wrong, but, um, so I felt there needed to be something more specific to startups, specifically SAS, um, with, you know, higher caliber buyers like private equity groups. Uh, family offices, venture-backed, um, companies. Uh, you know, real serious buyers, and I felt that was lacking, and when you list on another marketplace, instead of getting a message from, you know, John 22491 with no image or background or any information about you, every buyer on Microquis ID verified. Um, they have a bio, a picture, their LinkedIn profile is attached. So we put trust and security at the core of the entire marketplace. Cause so many scams can happen when you're selling your business and that's really an entrepreneur's worst nightmare. So, that was, um, and then another part was just the privacy. Um, you know, when you list on some other marketplaces, it's, it's public, you can choose to be private, but on micro, it's completely private. And the reason for that was just a personal experience I had when I told my, uh, you know, 100-person team at Business apps we're being acquired. You get questions ranging from, I remember it like it was yesterday, like I had people were like, am I a millionaire now or a billionaire? And then someone else comes in. Am I getting fired? Like, and, and it's everything in between. So I knew it had to be private and as I was, you know, before I sold the business, I did a lot of due diligence on the buyers, so Long story short, you know, I felt, you know, there was room in the market for, you know, something specific to profitable tech startups, um, with more trust and security and more privacy for the founders and putting the founders first. So that's Essentially how I positioned micro choir. So when everyone was going right, we were essentially going left, if that makes sense. Yeah, no, I think, uh, I think anybody's in the acquisition games, they visit both sites, but see, Flippa is actually kind of changed to your direction cause they verify the buyer now much more than they used to. Yeah, I've noticed your product roadmap is um oddly similar to ours. Yeah, very interesting. Yeah, so you charge the buyer, yeah, we, I've had a subscription. I, I don't think I have one. It was, I had a 12-month subscription, uh, but you charged the buyer, what is it, 299. Uh, we raised it to 390, 390 a year, and then, so I'll explain the business model really quick. So instead of charging the seller a commission, uh, there's no commissions to sell your business on Microchoir. Over time, we're gonna layer on commissions, but to get the flywheel going, um, we've been zero commissions for about 2 years now and we've helped, uh, we've, we've definitely facilitated over half a billion in transactions, but exact number, I don't know off the top of my head. Um, but yeah, we charge the buyer and when you subscribe as a buyer, we will kind of look at your profile. Um, sometimes we'll ask you to add your LinkedIn, you know, verify your ID, um, but yeah, we just charge the buyer and then from there, what you can do is you go and you request access to startups. So you basically see like a blind profile. So it's kind of got like a, it's like a blend between a marketplace and what you would get from an investment bank where We give you kind of a teaser where an example would be a listing on microcar looks like profitable Sa company in the email marketing space making, I don't know, 2 million in trailing 12 months revenue, $500,000 in trailing 12 months profit. Here's some more information about the business and if you want more to know who owns the business, you have questions about growth rates or customer acquisition costs or churn or whatever it may be. You send a request to the seller as a premium buyer after you've subscribed, and then the seller has the ability to approve or deny your request, and essentially what they're doing is giving you access into their data room. What is, what do you guys do? When I first looked on it, uh, a couple of years ago, I would see some kind of app there, small amount of revenue, Sas business, but their multiple was really very high, almost more than, uh, uh, you know, the distance between what I, I valued at and what they valued at. How does, how do you bring that together? Yeah, that's probably the toughest part of the job. Um, so we have some guardrails in place, like we won't list any startup with an asking price over 7X TTM revenue, I think is our, our threshold. There's still some really highly valued startups that are just kind of like a, like a Zillow make me move sort of price, which I don't recommend nor is it effective. Um, but we have put some guardrails in terms of utilizing the data that we have to kind of give a, uh, almost like a data-driven, you know, evaluation based on, on what we see. So, prices can vary, but we have based on, uh, just feedback from our buyers and also our sellers cause as a startup acquisition marketplace, again, we want to help sellers, so. You know, we, at first it was kind of the wild, wild west. It was just me running micro choir for probably literally just me for The first year and a half, and that's customer support, that's product, that's marketing, that's Operate ja janitorial services, everything like, um, you know, so, uh, but now that um I have a team in place, we're able to, you know, kind of curb some of those things, but, um, Uh, yeah, so when the startup comes in, we'll give them, you know, an opinion of value where we think you should price this at, but again, it's kind of like telling someone their child is ugly, so, um, in some cases, we'll let them price, you know, at up to 7 times during 12 months' revenue if they really think they have an opportunity at, um, a potential strategic acquisition compared to a financial acquisition. Do they stay, I mean, if they, they think it's, you know, a 50x, and they could literally stay on the platform forever just fielding these inquiries and going, no, I'll give you 10x, but they keep saying no, do you say, well, yeah, yeah, yeah, we've curbed it a little bit, but surprisingly it depends on the cohort of the business like. So for sub, let's say we're looking at the, we have three different cohorts that we look at. One is um sub 100,000 in TCM revenue. The next one is 100,000 to a million in TTM revenue, and the next one is uh 1 million to 10 million in TTM revenue. We've actually seen 50x multiples. We've actually seen, I think the highest multiple we've seen is like something ridiculous, like 100x, but this was on like a, you know, 100. Uh, you know, revenue business. So the multiples, you know, below 1000 from the data that we've seen just kind of go out the window because you're really not buying, um, it's hard to value a business and based on those financial metrics and really what you're buying is the product, the code base, and the potential upside. And that's where we've seen um some really interesting strategic um buy so we, we've, we've seen it. It's not common. I don't recommend it um yeah, no, I wanna make a point out because I followed Neil Patel and Neil Patel just, you know, 3 or 4 years ago bought Uber Suggest and turned that into a big moneymaker and recently bought Answer the Public. Which was just a website that showed you long tail keywords of something and it wasn't really building revenue. He, he just told the story about, you know, it, it wasn't really making revenue, got a really traffic and we could do this, this and this to it. So yeah, yeah, yeah, Neil's great. He's actually um a small investor in, in Microchoir, um, great guy, and I believe he just acquired something else, but I don't think he's announced it. But um, yeah, I mean if you have situations like that where you have a huge audience and you buy a product and you basically sell that to your audience, I mean that could be a very, very good and lucrative strategy for, you know, acquisitions. So who are these entrepreneurs that, that decides like I'm gonna build this product, it's gonna be a billion-dollar thing, uh, but then it just taps out, you know, it doesn't go as far as it can go. Um, there's a lot of them out there, but I would say, so the majority of buyers, or excuse me, the majority of sellers on my car are actually bootstrap startups. So, and that's by design because my, again, my first business was bootstraps. So when it came time to sell the business, I just, uh, sure, I'll sell it. But when you have any sort of investor involvement, um, you know, the more people involved, you know, the more sort of, you gotta get, you know, maybe one VC partner's approval, and then uh you need to get a VC firm's approval, and then the partner needs to get the other partner's approval, then you have a second VC firm, and then you have some Yahoo angel investors like, Let's use this investment bank I used 10 years ago. They were great. So, uh, my point being is, um, we really don't work with a lot of those types of businesses. A lot. The, the, the main profile of a startup that we work with on micro choirs generally, um, fully bootstrapped, fully owned by the founder, um, ideally profitable. Some are running a break even cause they're pushing for growth. Um, but we don't, we, we don't really bump into, um, too many of the, you know, I raised $10 million and now I'm fire selling my business essentially. Um, I think that'll probably pick up just given some of the, the craziness we saw in the last few years in the venture markets, but that's not the marketplace we wanna be. We don't wanna become the The graveyard marketplace, if you will, um, yeah, we want that's the cigarette butts of the VCs, yeah, yeah, we have a saying internally where we wanna be the marketplace where we help, um, and I'm putting quotes of small but life-changing acquisitions and really remove that stigma of, you know, selling a company for $200,000 half a million dollars, a million dollars is pretty fucking cool. Um, but like in the world of tech, it's not talked about, it's not celebrated. And so that's kind of like what we want to do at Microchoir is really, you know, show entrepreneurs, you know, a more practical and realistic path to creating, uh, wealth, um, if that's what their goal is, so. That's what we do at Microbar. And I, I have a few interesting stories you'd like to hear them, um, along those lines. Yeah, who, who are the buyers that come to it? Do they, uh, as far as, you know, do they say, there's $200,000 cash, or do they negotiate with the seller, like, hey, here's, so if Neil Patel came to me and I owned Nance to the public and it was listed on Micro choir, I'd, I'd say, Neil will either give you $200,000 or I'll give you $100,000 and I'll give you, you know, cash flow out of what I'm gonna do with it. I'd, I'd take the Plan B, because I know what he could do. Who, who, what is that negotiation look like? Do you get involved with them or not get involved with them? Yeah, good question. So we just launched a service called um managed by Microchoir. It's basically our um brokerage service offering where we basically help um starters with over a million in revenue get acquired. And that's more of a, you know, we'll create like a SIM, blind profile, we'll map out all of our, you know, we'll basically build a market in terms of, you know, the most ideal financial buyers, strategic buyers. So that's um a new service that we just added to appease some of the larger startups that, cause when you get to the, you know, seven-figure numbers and eight-figure numbers. A human element is, is generally very helpful. Um, but for, you know, most startups and pretty much all the acquisitions that we do, we aren't involved at all. So, in terms of the negotiations, it's just between the buyer and the seller and we typically see, um, mostly all cash deals. We see a lot of seller financing, but we've also seen uh some crazy structures. We've seen Pretty much every structure you could possibly think of, including the one that you just mentioned where, you know, I just found a co-founder. I, that's 11 of my favorites, um, you know, cause now you get to keep going like, you know, cause the big reason that people will list on Microchoir is, you know, they're either, you know, working on another project, they've taken the business far enough, or, you know, they feel like this is a good time to see a liquidity event and You know, kind of reap the rewards of their, their work, so to speak. So we see the, the full gamut is, is the short answer. Yeah, now you, so you don't really, I mean, I know they have a price listed, but if you don't get involved in it, you don't really know what the, you know, say if it's a $50,000 business, you don't know whether it's $250,000 now or 25,000 later, it's just whatever it was listed for, right, when they sell. For, for some, yes, but when a company gets acquired, what we'll do is we'll reach out with um a survey that uh we'll send swag to them just how do we do, what was the sale price, who is the buyer, but we also have tools on Marketplace where you can build a letter of intent, you can build an asset purchase agreement. So, we've built like this step by step flow, we call it our guided acquisition process. And so from that we gather data of like, OK, this is what the LOI price is at and so that's where we're able to get a lot of our most accurate data in terms of, you know, what buyers are paying, you know, how our evaluation is fluctuating, um, and as just micro choir stays alive, that data just grows and grows and grows and grows. Yeah, so I, I'm just curious back to that VC question. Now, a lot of VCs, they'll have 20 in their portfolio and 18 of them are kinda Dogs, let's say they're just not gonna return money to investors. Have you been contacted by VCs? Say, hey, can you handle this? Help sell it? Yeah, so we have a lot of quasi-like unofficial handshake partnerships with accelerators, VCs, um. You know, any sort of pocket, uh, any sort of organizations with large pockets of, um, startups including, you know, law firms, uh, restructuring companies, um, we've done a big part of our, our deal flow strategy is, is partnerships and so, um, yeah, I mean all the time you see, and sometimes they're great outcomes. Sometimes it's, hey, we raised, you know, 2 or 3 million and then those are really good strategic buys for Um, larger companies that may be looking for an Aqua hire or, um, they have a phenomenal product but they weren't able to get that next round of funding and so they end up seeing a, a, a great outcome, arguably or potentially even better if they had raised more funding. So, um, yeah, I, we do see that quite a bit. Yeah. Where are you going with this? I mean, is it turned, uh, into more than you ever expected in the last, you know, 2 to 3 years and You could see this growing to, I don't know, $50 million 100 million dollars dollar company in revenue, what? What's the opportunity, or are you a startup guy going, OK, I, I, I'm at the end of my road. I wanna go back to the startup, the, and the next project. Yeah, good question. Um, you know, I think, well, to start, investment banking is a $100 billion Tan market, so, and I, I have two thesis that kind of drive me with the business. One is, you know, creating a startup has been democratized in the sense of you don't need to be technical. Um, there's just so much content out on go to market strategies, so it's, it's never been easier to build a startup, especially to, you know, it's not easy, but, you know, it's a lot easier than it was a decade ago in terms of cause we were just guessing like we're just, does this work, and through the last decade, so many entrepreneurs have been successful, um, and it required us so much more money to get an, an app built, you know, 10 years ago. Oh yeah, and then it looked like crap and then it had bugs and just You know, so there's been a lot of standardization in terms of, you know, these are the things you should do to build a startup, and I think a lot of entrepreneurs are going to forego the venture route and realize, you know, What I really want out of a startup is just to not worry about money. I just want to be financially secure and the difference, like you don't need a billion dollars unless you need a private jet or something like that. Like you're perfectly fine with like a couple million dollars and that's, that's truly life-changing. In terms of, you know, how far this business can go, I think You know, I'm an optimist, so I'd say sky is the limit, um, and then in terms of, you know, how far I wanna take it, I want what I really wanna do is help millions of entrepreneurs across the whole globe. Um, we've had acquisitions, um, happening on every continent except Antarctica. Um, I don't, I don't know how big of a startup scene is up there, but it's cold, it's a cold, yeah, yeah, but we're, we're working on that one, Yeah, but the main goal is we want to standardize, streamline, just make acquisitions um as easy as possible at Microcre. So, you know, we wanna create basically tooling so advanced and just so easy to use that even if the deal isn't found on Microquire, you still bring it into Microcar to facilitate the transaction. So, that's kind of the level of what we're thinking is innovating on due diligence products, um, innovating on Legal doc creation, um, you know, finding the best buyer possible. Um, there's so many different steps in an acquisition and each one could be an individual company. And so we're attacking each of these problems pretty aggressively, and it's a lot of fun, so I could see myself definitely running this. This is my 3rd startup, probably my 10th, depending on what you classify as a startup. I've been an entrepreneur my whole life, um, but Um, yeah, I'd, I'd, I'd say, you know, we'll, we'll have to see, but, um, I will say I'm having a blast running it, so, yeah, good, good, good. Do you have seen any stories where somebody's acquired something for, you know, let's say we bought this app, it's running, but the entrepreneurs tapped out. And the buyer turned it into a $10 million.50 million dollars dollar, as an example company. Yeah, I got uh 22 quick stories off the top of my head. Um, one person acquired a company, I can't say their name. But they raised um like a, they, they bought something for that's called like 1000 and then ended up raising 5 million or something like that based on that acquisition. So we'll see where, where that goes. Um, the second one is a company called Median that was acquired for I believe about um 50,000 and it was sold by an individual named Uh, Derek Hamon, who now is, uh, working on a new startup called Workshop, and the story there is, uh, this individual named Spencer bought the company and he's been growing it. And it's kind of like Zoom for your website, like you go on Microchoir as an example and you're like, I don't know how this works, Andrew, and I can log in your computer and, you know, kind of move stuff around and saying like, hey John, click that. I can just log in and Anyways, great product and the founder basically was like, hey, you know, this is a great product, we're probably gonna shut it down, and ended up selling it using those funds to help uh seed their new company, which I believe they just raised 6 million for. So, the seller exits the business, has some, you know, capital to put into their new startup. That new startups doing great. The buyer is now, I believe he's doubled the company already and he's aiming to build it towards Um, 10 million in revenue. He's been really public in terms of like how he talks about it and stuff like that, but Um, that's, that's one of my favorite stories to share in terms of, you know, progress off the top of my head. Andrew, I love it, man. I, I, I wanna thank you. I know this is, uh, uh one of my shorter, but I love what you're doing here and I want you to wish you the best of success in the future. Thanks, John. I really appreciate that. All right, man. Thanks so much for being on the show. I appreciate it. Yeah, thanks for having me, John. Cheers, cheers.