October 17, 2023: The importance of being yourself
Leveraging distribution for capital, don't be someone you're not, another job you might like, and more reads for the week
Quick Take: Leveraging distribution for capital
What’s the news?
Vendasta continues to leverage its distribution advantage to raise capital and grow.
Who is Vendasta?
Vendasta is a Saskatoon-based company that empowers partners to resell its products to small and medium-sized businesses (SMBs). They provide SAAS products that customers can embed and re-sale to SMB customers. With a run rate of $100m and over 200,000 SMBs using its platform, Vendasta has carved out a significant niche in the tech industry.
The Recent Equity Raise
Last week, Vendasta announced that it had raised $20m in equity from Foundry and converted a $52.5m debenture into equity. This move is particularly interesting for several reasons:
The nature of the debenture is unclear. If it was originally debt, its conversion into equity outside of a bankruptcy re-organization is highly unusual. Regardless, this move is extremely beneficial for Vendasta as it de-leverages its balance sheet and allows it to continue its growth via acquisition.
Vendasta is based in Saskatoon, a location not typically associated with tech hubs. Despite a market slowdown that has seen funding gravitate towards major cities, Vendasta's funding seems to buck this trend.
Foundry's relationship with Vendasta is noteworthy. Vendasta previously acquired two of Foundry's portfolio companies, which likely played a role in Foundry's decision to invest.
Vendasta's Business Model
Vendasta's business model is unique and effective. They help other businesses improve the monetization of their SMB customers. This represents a win for Vendasta, the customer who embeds the services, and the end SMB who gets access to a new product.
SMBs have historically been a difficult industry to serve due to poor unit economics driven by high churn, lower prices, and high customer acquisition costs. Vendasta's model addresses these challenges by incentivizing companies serving SMBs to improve economics by embedding their products. Companies that build good products but lack distribution make great acquisition targets for Vendasta.
The Success of Vendasta's Strategy
Vendasta's strategy appears to be working. They are in a position to grow via acquisition and have an annual recurring revenue (ARR) of $500 per SMB.
Key Takeaways for Tech Founders
Vendasta's story offers two key takeaways for tech founders:
Growth via acquisition is a viable strategy if you have distribution, a clean balance sheet, and the ability to acquire product companies relatively cheaply. As the growth stage funding slowdown continues, more growth stage companies may adopt this approach to consolidate an industry and win.
Raising unit economics, scalability, and growth are now equally important to scaling start-ups as opposed to just growth. Scale enables companies to survive and thrive.
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