Hey Folks - Most of you are likely aware that software and technology investments have represented a disproportionately large share of search fund acquisitions over the past 5-10 years. In Episode 2 of the In The Trenches Podcast, I interview ^Searchfunder member‌, Partner and Co-founder of Radian Capital, a New York-based tech-focused Private Equity firm with ~$500 million of assets under management.


We have a wide ranging discussion that is a must-listen for anybody contemplating investing in, operating, and/or selling a technology company. We combine my experience as a software CEO and Jordan's experience as an experienced software investor to tackle key questions that technology CEOs (both current and aspiring) have likely asked themselves more than a few times.


You can listen in any of the following places (all hyperlinked): Your Browser | Apple | Google | Spotify | Breaker | PocketCasts | RadioPublic


To give you an idea of the type of ground that we cover, below I've pasted a list of all of the questions that were posed, including where you can skip to in the audio if you're only interested in listening to answers to specific questions:


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 Process

(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?