The Investment in SmartMoving: Sustaining a Positive Business Trajectory While Running a Process

The Investment in SmartMoving

Transaction Details

• Company: SmartMoving
• Vertical: Field Services
• Founder: Tobe Thompson
• Transaction Type: Investment
• Investor: Mainsail Partners
• Amount: $41.5 million
• Financial Advisor: Vista Point Advisors

Running a transaction process with multiple buyers represented a full-time job for me as a founder and CEO. Working with an investment bank helped me keep both my business and the process on track during what represented one of the most important events in my career: selling equity in my business.

SmartMoving’s Origin & Growth

Years ago I had a business relationship with a local moving company in town. I was at their office and I noticed their team using some pretty bad software and thought, "Surely there's something better."

I looked into it and there really wasn’t a lot out there. Being in technology, I felt I could do better than that.

Over the next several years, that idea percolated. After a successful exit from a previous role, I was looking to start something else and circled back to the moving software space.

I went to a few moving company conferences just to talk to my target audience and pretty much 100% of the people I talked to said they didn't like their software. That confirmed to me there was a pretty big opportunity.

From there, I convinced one of my top engineers from my previous role to be my co-founder and CTO. He and I started designing SmartMoving in early 2018 and then completed version one by early 2019 and launched the business.

Interestingly, having not been directly involved in the moving sector, we came to the project with a blank slate.

We took our knowledge of technology, talked to literally hundreds of moving companies to find out what their pain points were, and focused on building a highly usable product that our customer could pick up really quick and easy.

All the initial funding to start the business was out of my back pocket. My co-founder and I didn't have a salary, but by the end of 2019 we were profitable and off to the races.

Deciding to Pursue a Transaction

In the early years, we were seeing 100-200% year over year growth. I'd always been told you need to hit the $10M mark before you pop your head up and start looking to do a transaction.

But like a lot of founders in the software space, we started getting emails from private equity firms wanting to connect—even though we weren’t looking for a transaction right now, they still wanted to connect.

We also had some in-person conversations with a few local private equity companies, and others who came into town for lunch or breakfast to chat.

As a founder, I was thinking about the risk-reward curve of selling now versus later. We could continue to build the business up, but in 1-2 years from now, the climate might be totally different and we could end up with the same exit price because the multiples were less.

I think a lot of founders are in the same boat, which is why having outside experts to help you evaluate those scenarios is important, since most founders haven't gone through a transaction with a PE firm or strategic buyer.

Choosing to Work with an Investment Bank

The way I see it, you're at a disadvantage if you try to transact with private equity companies and strategics without the guidance of an advisor.

That’s because PE firms do this for a living. They know what's market, what's not. They know all the ins and outs and all the tricks of the trade. And as a founder looking to potentially have a life-changing event, navigating that by yourself—or just with some local law firm—I think is a terrible idea.

That exit process is critical, especially because most founders have the largest portion of their net worth rolled into their business. So I felt as most people would, that we should hire an expert to help us because this was a large event in my life and in the company's life cycle.

We discovered Vista Point Advisors through a coaching group of SaaS founders that I’m involved in.

Someone else in the group had exited their business and shared their story of how that process had gone.

They’d gone through the entire process with a bank, and they said they wouldn't have changed a thing—that they highly recommended anyone with any significant exit price to do the same.

I didn't really shop around a lot for banks. I looked around a little bit and did some reference checks. Frankly, the recommendation from that founder in my mentoring group was pretty influential in my selection of Vista Point.

So we ran a process through a bank. There were of course obstacles—I haven't talked to anybody where the process was smooth end to end—but we had a good partner to help us navigate the process. Vista Point was an expert on our side.

The Process & Sustaining the Business

Here are some of the main things that I learned or were reinforced to me during the process.

First of all, you need to have a good business and good metrics to have a good chance of the most favorable outcome.

That said, you also need to make sure that you’re getting the right people in the process and support from a bank because each party is going to place demands on you during the process. The amount of time, mental energy, and stress it puts on you personally and your business is, quite frankly, probably underestimated.

Unless you're a large company who has a lot of employees you can delegate to, most of the diligence is going to fall on the founders. Vista Point was absolutely critical in helping us gather that information early on and letting us know the types of things we’d need to put together.

Something else to keep in mind: through all of this, you have to keep the business going forward during the months-long process.

For both strategics and private equity firms, they’ll want updated financials and if you have any sort of dip or downward trend, that's not a good sign.

Making sure you can keep the business going in the right direction while you've added a full-time job of going through a process is a big challenge, especially for a small team that's bootstrapped. Having a bank helps lift some of that burden so you can keep things running.

Another thing that was extremely helpful that Vista Point did was making each party conduct a lot of diligence before agreeing to exclusivity with any one party.

Every one of the companies we were talking to before engaging Vista Point had sent us LOIs with exclusivity out of the gate. Had I not brought on an expert, I wouldn’t have known not to agree to exclusivity so early on.

No investor or strategic wants to spend a lot of time and money through this process and then not close. So we learned from Vista Point that we needed to make each party do a lot of costly diligence so that when we did go exclusive, our chance of closing would be high.

Additionally, having multiple people doing diligence at the same time increased the likelihood that we would end up with a good outcome at the end. We had at least a half dozen offers before we went exclusive—and we had even more parties doing diligence before that.

The Outcome

Ultimately, we chose to close with Mainsail Partners.

We were very pleased with the outcome, both financially and strategically. One of the things that we were looking for specifically in a partner was a team that could augment our knowledge and bring experts to the table, not just money.

A lot of people can write a check, but we wanted to make sure we had the right partner, the right situation going forward. It wasn't just about the money.

Specifically for us, we wanted to partner with a company who had a big operations team. Some of the strategics and PEs we talked to had 2-3 people. Mainsail Partners had 17, which felt like a great match for our goals.

We also wanted to make sure that every day we woke up and were excited to come to work. I didn't want to go from owning the business and working for myself to doing a majority recap where I now have to answer to a board that I hated working with.

Overall, we felt like we got a really good price for the market, and we also felt like we got a really good partner going forward that was going to be involved without being overbearing.

Founder-to-Founder Advice

For founders, I would highlight again that before you even start a transaction, you need to understand what your metrics are and make sure that those are in line with industry norms.

Also get all of your documentation in order. Understand that this is going to be a full-time job for several months, and that you need to be prepared to keep the business running while you're going through this.

As you draw nearer to an exit, pay really close attention to the types of contracts and legal documents that you sign with PE firms or other buyers. Some of those things—like entering exclusivity prematurely—can come back to haunt you and completely derail your transaction.

Last of all, make sure you partner up with someone who will help you navigate the process. I wouldn't do it on my own, and I’d recommend the same to any other founder.

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