The Private Equity Perspective on Acquiring, Operating and Selling Software Companies

My Guest

Jordan Bettman is a Partner and Co-founder of Radian Capital, a New York-based Private Equity firm focused on B2B software and technology-enabled services businesses. Radian has ~$500 million of assets under management, and is now investing out of their second fund of ~$315 million.

Prior to co-founding Radian, Jordan was a Partner at Bain Capital Ventures for nearly a decade, where he focused largely on financial services and back-office technology investments. Prior to his time at Bain Capital Ventures, Jordan was a Management Consultant at Bain & Company.

Jordan currently serves on the Board of Directors of 5 private technology businesses, and through Radian has made direct investments (both majority and minority) in dozens more.

Jordan received his MBA from Harvard Business School and his B.S. from Cornell University.

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The Private Equity Perspective on Acquiring, Operating, and Selling Software Companies In The Trenches

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Specific Questions of Interest

Evaluating Software Companies

  • (4:25) Has the Rule of 40 been a good predictor of the ultimate return of your investments?
  • (8:35) Between revenue growth & EBITDA margin, do you value one metric over the other?
  • (11:15) What do you say to a CEO who wants to sell but hasn’t hit Rule of 40 operations?  
  • (14:20) If you had to make an investment based on <10 metrics, what would those be?
  • (19:45) How do you value the following revenue streams? i) Recurring/Subscription; ii) Transactional; iii) Re-occurring; iv) Service
  • (29:00) Other than scaling sales & marketing based on strong unit economics, what are good uses of growth equity versus bad uses of growth equity?

Evaluating Potential Acquirors

  • (34:45) On what bases should CEOs differentiate between potential financial buyers?

The Macro Environment

  • (40:15) What are the potential downsides to a CEO of raising capital in a sellers’ market?  

Ongoing Company Operations Under a PE Parent

  • (47:55) Which operational areas tend to represent the largest opportunities for improvement post acquisition?
  • (55:40) What’s it like for a CEO to work under a PE parent? What aspects of the job change?
  • (59:35) How much day-to-day control do CEOs have under a PE parent? Which decisions stay with the CEO and which go to the Board?

The Acquisition

  • (1:03:40) What are the most common reasons why deals don’t close after an LOI is signed?
  • (1:08:25) What are buyers looking for when they ask CEOs why they’re planning to sell? What differentiates a “good” answer from a “bad” one?

Expectations of CEO After a Sale

  • (1:13:00) How do buyers think about CEOs who want to sell 100% of their shares and forfeit their operational role post-acquisition? Is this sentiment, in and of itself, a red flag?
  • (1:17:30) What would you say to a CEO who doesn’t want to roll equity because she doesn’t want a minority position in an illiquid private company where she’s no longer in control?
  • (1:21:00) If a CEO is looking for a full exit (100% sale and no operational role post-close) in 2-3 years, what should she start putting into place from now?

General

  • (1:24:04) If you could scream something from the proverbial mountaintops, and every SMB CEO was listening, what would you say?

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