Business

#22: Building Wealth with Software - Bart Macdonald

Josh Gonsalves
11.2.2020
1 HR 27 MIN
Listen to Mind Meld on your favorite podcast app

Episode Description

Josh is joined by Bart Macdonald, the managing partner of Bloom Venture Partners to talk about building wealth by building and selling software companies as well as through acquisition entrepreneurship.

Bart Macdonald buys, builds & invests in amazing SaaS companies. As managing partner of Bloom Venture Partners, Bart has been operating, investing in and acquiring software companies for more than a decade, and still believes we're in the earliest stage of SaaS (software as a service).

Connect with Bart:

https://twitter.com/BartMacdonald

https://www.linkedin.com/in/bartmacdonald/

Learn more about Bloom: http://www.bloomvp.com/

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Show Notes & Links

  • Bart is originally from Sydney Australia
  • Bart's parents are both entrepreneurs which helped him early on to discover that he wanted to be an entrepreneur from a young age.
  • Bart' went into a graduate program in one of the world's largest mining companies.
  • Bart views business like the olympics. You should be practicing and studying your craft at least 6 days per week to be the best you can on and off the court, like an athlete.
  • Bart found out early on that he didn't belong in a large enterprise and his passion lied in building businesses from the ground up.
  • Bart's first start-up was a marketplace for students to share notes and sell textbooks. He was able to have an exit and sell the company.
  • Bart had the opportunity to work at General Assembly when the company first started.
  • Bart moved to the Bay Area in San Francisco in 2016 to get familiar with the software ecosystem.
  • Bart started a successful HR software company called Sapling
  • Lately Bart has been interested in building wealth through directly investing in software companies, instead of building new companies himself from scratch.
  • Bart got started in Angel investing, then found that his experience building B2B SaaS companies.
  • Bart: "It's never been easier to build a SaaS platform, but it's never been harder to get true scale."
  • Bart says that a lot of software founders have been able to build a successful businesses, but hit a ceiling with what they can achieve. When they want to go off and do their next venture, because their company is comparatively small, there haven't been any opportunities for them to sell a part or the whole business for liquidity and exit the company. Bart now sees a big opportunity to acquire small-cap, privately held software businesses.
  • Bloom Venture Partners has three pillars: Bloom Studios, which is an in-house agency that helps software companies with product design, development and growth marketing, Bloom Capital, which invests in early stage software companies for minority shares, and Bloom Equity, which buys majority or 100% of software companies.
  • Bloom Equity gives founders who have bootstrapped or raised venture capital funds, but haven't been able to get the 10X growth that most venture capital firms look for, the opportunity exit the company and move on to their next project.
  • Josh and Bart were connected through Bart's partner Jay Vasantharaj
  • Listen to the Mind Meld episode with Jay Vasantharaj here.
  • Bloom Venture Partners has built three stages of businesses under the Bloom "umbrella": Stage one being a service business, stage two being scalable software business, and stage three being an acquisition business.
  • Bart went through a couple years of regret, where he wished he learned computer science and coding much earlier on, but then he realized that instead of trying to correct your weaknesses (turn your 2/4 into 3/4) it's better to work on your strengths and turn them from 3.5/4 into 4/4.
  • Bart found that his entrepreneurial superpower was in the early stage company building and the go-to-market and leadership skills.
  • Bart: It's not a question of "do I hop on the rocket ship? it's, hop on and don't even care what seat you're on, because it's an exponential learning opportunity."
  • Bart views SaaS (software as a service) as one of the most pure business models.
  • When Bart first started Sapling after leaving General Assembly, he wasn't known in the industry and he had to reinvent himself.
  • When it came to raising the first round of funding for Sapling, Bart and his co-founder were raising small $5,000 cheques from former colleagues, bosses, friends and family. Basically anyone who was willing to place a bet on them.
  • In the startup world, there is a pendulum of full-time operators or full-time capital allocators (investors) but Bart wanted to be somewhere in between the two.
  • When Bart stepped down from his role at Sapling, he felt like he wasn't prepared for the identity crisis that came with leaving a company that you put so much energy and time into.
  • Most founders end up building themselves a job rather than an asset that builds wealth for them.
  • Bart believes we're still very early (in the first innings) of SaaS
  • Sometimes it's better to leave or sell a small business that has plateaued so you can go back up to the plate and take more swings to create multiple assets that can create wealth for yourself.
  • Article by Jason Lemkin (SaaStr) on Selling your business at local maximum.
  • After selling a business, most founders end up walking away with a lot less money than they might have originally expected.
  • Instead of trying to raise venture financing, founders need to be aware that there are other, less dilutive types of funding that are more in line with the founders' goals.
  • Bottom's-up software sales where you let anyone sign up for a free trial of the product instead of requesting a demo to be able to show them how it works rather than just tell them how it could work for them.
  • Low-code and no-code tools will allow for more software entrepreneurs to be able to go-to-market much sooner and with less technical knowledge.
  • Bart believes the second inning of SaaS will be more bootstrapped companies that are able to build products with low-code and no-code tools.
  • The things Bart thinks about when looking to acquire or invest in a company: The market, the product, the team, and business metrics.
  • When it comes to product, Bart is asking "What is the defensible moat of this business over time?" Do they have network effects or key distribution partners?
  • Bart says that because the barrier to entry for no-code solutions is so low, it can be both a pro and a con. It's a pro because they can get to market quicker, but at the same time, it might be easy for competitors to copy and steal market share.
  • Bart's advice is that if you're a non-technical founder or businessperson, you're better off partnering with (not outsourcing) someone who is more technical that can help deliver on your product vision.
  • if Bart were to start his career over today, he's spend less time worrying about what he didn't have (technical skills) and focus more on his strengths and finding someone to compliment his own skills.
  • Bart loves the idea of acquisition entrepreneurship, where instead of taking a business from 0-10, you find someone who built a business from 0-1, then coming in and taking it from 2-10.
  • Zero to One book by Peter Theil
  • We go through three trimesters of growth as an entrepreneur: Learning, earning, then returning.
  • The Kickass Entrepreneur's Guide to Investing: Three Simple Steps to Build Massive Wealth book by Jeff Wiener (view on Amazon)
  • Bart advises diversifying your investments through multiple asset classes rather than putting all of your wealth into one asset class like public stocks.
  • The entire Bloom team met over Twitter
  • Bart is investing in "alternative" asset classes like crowd-sourced real estate funds.
  • Bart is looking for public stocks that have seen benefits from the COVID-19 lockdown (Zoom, Peloton, Amazon) and is looking for more stocks that could continue to rise post-COVID.
  • After the panic of COVID-19 lockdowns in March 2020, lots of companies have put work-from-home practices in place so if there is another market crash it's likely that the market would recover much sooner this time around.
  • Bart doesn't believe that remote work will be the default for businesses in the future, but thinks some kind of hybrid model where there is a physical office available and employees can choose to work from home or a cafe for a few days per week.
  • Bloom Capitcal has three areas of interest: Work tech, financial tech, and medical tech.
  • "we've basically been thrust 5-10 years into the future of how organizations and teams work and collaborate."
  • Bart has spent a lot of time looking into tele-health solutions for both humans and pets.
  • 80% of Bloom's focus is on B2B enterprise applications.
  • Bart says building consumer products / apps is much harder than enterprise products and it's like trying to capture lightning in a bottle.
  • There is almost a replicatable playbook on building B2B products and guage demand, bring the product to market, then effectively and profitably acquire customers and scale. There is no playbook like this for consumer products and apps.
  • "Great entrepreneurs can spot an opportuntity and are risk-averse. They reduce the risk involved and increase their odds for success."
  • It's very hard to de-risk consumer applications.
  • You can shorten the learning curve (to anything) by building an amazing network of people around you.
  • Andrew Gazdecki (Twitter Profile)
  • MicroAcquire.com - a marketplace for buying and selling small software companies
  • Jason Lemkin (Twitter Profile) - founder of SaaStr
  • Reach out to Bart on Twitter @BartMacdonald
  • Learn more about Bloom Venture Partners

Thanks for coming this far! if you're reading this, it is no accident. The universe brought you to this corner of the internet for a reason, and you're on the right track. I already know that you're an amazing person and I can't wait to connect with you!

— Josh

Episode Transcript

Josh Gonsalves
Mind Meld Podcast Host

Hi, I'm Josh Gonsalves, the host and producer of Mind Meld. I'm also a Canadian Academy Award-nominated director and Co-founder of Contraverse, an immersive media company. I'm a multi-media experience designer living and working in Toronto, operating at the intersection of design and exponential technologies to develop solutions that change the world for the better.

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