XO Capital's Fund Stuff Andrew Pierno

This week on "Fund Stuff," join Andrew Pierno from XO Capital for a deep dive into the intricacies of building, buying, and scaling startups. Flying solo with a cameo from Danny, Andrew turns a monologue into an engaging dialogue, discussing everything from the XO community's dynamics to the nuanced motivations behind selecting a startup idea. They explore the critical junctures where entrepreneurs decide whether to persevere or pivot, offering insights into the delicate balance of commitment and strategic withdrawal.
Amidst tax season's trials, Andrew shares candid thoughts on the bewildering differences between financial and tax accounting, revealing the surprising strategies companies employ to navigate this complex landscape. This episode peels back the layers of startup success, failure, and the gritty realities of entrepreneurship, including the rarely discussed emotional rollercoaster of launching and letting go.
With a sprinkle of humor and a dash of wisdom, "Fund Stuff" is your go-to podcast for real talk on the entrepreneurial journey, from the thrill of the launch to the tough calls that shape the path to success. Whether you're in the trenches of building your first startup or steering a portfolio of companies, tune in for a frank, insightful, and sometimes amusing exploration of what it really takes to make it in the world of startups and acquisitions.

In this week's episode of "Fund Stuff," Andrew from XO Capital shares insights on successfully exiting Sheet.best with nearly a 500% return on investment. Highlighting the strategic shift towards focusing on fewer, larger deals for better management and efficiency, Andrew delves into the challenges and learnings from managing a broad portfolio of companies. The episode also touches on XO Capital's community engagement efforts, including a new initiative to help a small group buy their first SaaS company, reflecting on the potential for more structured support in the future.
The narrative then shifts back to the journey with Sheet.best, acquired in 2021 as XO Capital's second deal. Starting with a modest $800 MRR, strategic use of Google ads and unexpected influencer marketing led to significant growth. Andrew candidly shares the operational ease of managing Sheet.best, emphasizing its low support needs and fascinating use cases due to its horizontal product nature.
Financially, the exit from Sheet.best marks a significant achievement for XO Capital, with a 493.5% ROI and an impressive IRR, underscoring the company's ability to source, grow, and exit successfully. This move aligns with XO Capital's strategy to reallocate resources towards larger, potentially distressed ventures, aiming for impactful investments.
Andrew concludes by inviting listeners to join the XO Capital Discord community for further discussion and hints at the exciting journey ahead for the new owners of Sheet.best. This episode not only celebrates a milestone exit but also sets the stage for XO Capital's refined focus on value creation and community support in the SaaS space.

Andrew from XO Capital discusses common deal structures in business acquisitions, focusing on all-cash offers and escrow use. He highlights the challenges of using escrow.com, especially for software acquisitions, and details the process of asset transfer and payment release in escrow scenarios. Andrew explains their approach to small deals without escrow.com to save fees, based on trust, especially with U.S.-based parties.
He then talks about seller financing, debunking exaggerated claims on social media, and outlining realistic terms like 80-90% cash upfront with 10-20% seller financing over one year, usually interest-free. Andrew also shares his experience with SBA loans for SAS acquisitions, emphasizing the difficulty of securing these loans and the need for a clean P&L and a patient seller.
The podcast covers other deal structures like earn-outs and turnouts, explaining why earn-outs are impractical for small deals and introducing the concept of turnouts, where payment varies based on revenue retention. Equity earning, another structure, is briefly mentioned but not commonly used by XO Capital due to their investment strategy.
Andrew advises keeping deal structures simple to avoid seller confusion and fatigue, and concludes with negotiation tips, emphasizing the importance of understanding the seller’s price range to find a mutual agreement zone.

In our latest episode, Danny steps in for the October 2023 update (a bit overdue, but packed with insights). We discuss hitting our 5% month-over-month growth goal for the first time and review the performance of various companies in our portfolio, with most seeing growth except for Analytics. Danny delves into our plans for November and December, including a Udemy course launch, partnerships with prominent figures in the SEO space, and a growth experiment tracker to monitor our new initiatives. We also discuss our recent Google Search Console integration, product launches across our portfolio, and an increase in new subscribers and accounts for Analytics despite mixed reviews about data quality. The episode also highlights successful growth strategies for Cool DM and a slight uptick in MRR for Sheetbest. Tune in for an in-depth analysis of October’s results, future plans, and interactive content to explore.

"Journey to Success: Tales of Triumph and Challenge"
Dive into the candid chronicles of entrepreneurial grit on "Journey to Success." Hosted by a seasoned entrepreneur with a knack for storytelling, this podcast delves into the highs and lows of building and scaling businesses. From a stark "Failure to Raise" capital to ingeniously creating the "Flip Fund," where business acquisition and swift scaling lead to rapid exits—our host shares it all. With a recent spotlight on the acquisition of Journey.io, a storytelling sales tool with a penchant for scale and customer love, listeners get an insider's view of the strategic decisions that lead to 10x growth. It's an unfiltered look at the tactical journey of fund-raising and business development, flavored with the host's dry wit and smart insights. Join us as we navigate the thrilling path of turning challenges into stepping stones for success.

In today's episode, Andrew from XO Capital dives deep into the ever-evolving investment thesis of the fund, giving listeners an insider's view on how the team approaches deal flow and capital allocation. Andrew starts off with the challenges of traditional venture-backed company building, emphasizing the power law distribution where a very few winners give outsized returns.
The crux of the episode? XO Capital targets what the VC world might deem as 'failures'—companies that couldn't secure the next round of funding but are far from being bad businesses. Andrew argues that these companies often have viable products and reasonable growth rates, making them hidden gems.
Key Takeaways:


Opportunistic Strategy: XO doesn't box itself into a rigid thesis, offering flexibility to spot unconventional winners.


Power Law Reality: Understanding that in the VC game, only a handful of investments bring in big returns.


Relative Failure: What venture capital sees as failure could be an opportunity, especially if the business shows some growth and revenue.


Quality Over Quantity: XO aims to buy the best products in a category, moving away from settling for second or third best.


Operational Realities: Businesses bought must be 'complete'—ready to sell today without requiring significant engineering work.


Channel & Growth: Acquisitions should come with a promising customer acquisition channel and a nominal growth rate.


Initial Customers: Preferably a hundred or more, with no single customer making up more than 20% of the business.


The episode closes with the cheeky remark that founders should meet Paul Graham at the start of their journey and XO Capital at the end. Tune in to get a full grasp of XO Capital's unique angle on investment.