From Bootstrapped to Sold: The Journey of Infinite Blue

Frank Schultz, founder of Infinite Blue, recently shared the journey of bootstrapping and selling his business continuity software company on the Built to Sell Radio podcast. Here are the key highlights and lessons from Frank's experience:

The Early Days of Infinite Blue

Infinite Blue started in 2013 as a company called BC in the Cloud, focused on business continuity, disaster recovery, crisis management, and mass notification software. Frank and his co-founder bootstrapped the business, investing under $200,000 initially.

The company signed its first customer in January 2014 and was profitable every quarter from the second quarter onward. They grew organically, hiring contractors initially before bringing on full-time employees in September 2014.

Partnership Challenges

Frank and his co-founder faced challenges in their partnership early on:

• Differences in work styles and vision emerged within 6 months
• They were tied together by an ongoing lawsuit with a former employer
• Tension grew as Frank built a team around him while his partner worked remotely
• Attempts to buy each other out were unsuccessful due to valuation disagreements

Key Lesson: Have a Clear Partnership Agreement

Frank advises having mechanisms in place to resolve deadlocks or allow for clean exits in partnership agreements. Being 50/50 partners without these provisions caused significant issues.

Growth and Evolution

Despite the partnership challenges, Infinite Blue continued to grow:

• Reached about $4-5 million in annual recurring revenue by 2018
• Focused on serving Fortune 1000 companies, especially in finance and retail
• Built a strong company culture and emphasis on customer relationships
• Achieved 97% customer retention and 107-111% net dollar retention

Bringing in Outside Investment

In 2019, Frank brought in outside investment to buy out his co-founder:

• Foundry Capital invested, taking about 43% ownership
• The deal valued the company at $10-12 million
• Frank maintained majority control through the operating agreement
• He took some money off the table in a secondary transaction

Key Lesson: Consider Taking Some Chips Off the Table

Frank was initially reluctant but glad he took some liquidity for himself and his family when bringing in investors. It provided some financial security.

Scaling Challenges

As the company grew, Frank faced new challenges:

• Hired experienced executives to help scale, but faced culture clashes
• Stepped back from day-to-day operations to focus on thought leadership
• Nearly ran out of cash in 2022 due to overspending and missed targets
• Had to raise additional capital and restructure the leadership team

Key Lesson: Be Cautious When Hiring Experienced Executives

Frank advises ensuring new hires have experience at your current stage, not just at larger companies. The mismatch caused issues for Infinite Blue.

The Decision to Sell

Several factors led Frank to pursue a sale in 2023:

• Feeling burnt out and less passionate about the day-to-day
• Concerns about maintaining control as investors pushed for more growth
• A desire to return to earlier stage companies and new challenges
• Reaching a valuation that triggered a forced sale clause with investors

The Sale Process

Frank engaged an investment bank to run a formal sale process:

• Prepared marketing materials and financials
• Conducted 32 pitch meetings over two weeks
• Received 11 initial offers
• Narrowed down to 3 final bidders

Ultimately, Infinite Blue was acquired by Thoma Bravo and merged with Everbridge in a deal that closed in July 2023. The final valuation was in the 8-9x revenue range.

Key Lessons from the Sale Process:

• Having strong retention metrics and growth was very attractive to buyers
• Different revenue streams (SaaS vs services) were valued differently
• Some potential buyers may use the process to gain competitive intelligence
• Having a strong banker who knows the landscape is very valuable

Life After the Exit

Frank negotiated a clean break with no earnout, officially leaving the company in September 2023. He's now exploring new ventures:

• Mentoring early-stage startups
• Launching a venture studio/accelerator called United Effects Ventures
• Focusing on helping companies in the Northeast US achieve product-market fit

Key Takeaways for Entrepreneurs

1. Have clear partnership agreements with deadlock/exit provisions
2. Be cautious about taking on outside investment and losing control
3. Ensure new executive hires match your company's current stage
4. Consider taking some liquidity when possible for personal security
5. Strong customer retention and growth metrics are critical for a successful exit
6. Have a plan for life after an exit - the emotional impact can be significant

Frank's journey with Infinite Blue showcases both the challenges and rewards of bootstrapping and scaling a SaaS business. His experiences offer valuable lessons for entrepreneurs at all stages of the startup lifecycle.

Article created from: https://www.youtube.com/watch?v=_bPUk0g1g_w