An Interview with Digital Wildcatters
ScaleView Partners co-founders, Gabe Wilcox and Jay Snodgrass recently sat down with Digital Wildcatters Jake Corley and Collin McLelland on their Oil and Gas Startups podcast. Gabe and Jay share stories from their founder journey at MineralSoft, the oil and gas software company that they co-founded, scaled, and eventually sold to Enverus. Get an inside look at the M&A process from a founder’s point of view and learn why their experience selling MineralSoft ultimately inspired them to form ScaleView Partners where they help other founders achieve exceptional outcomes when selling their business. Read on or watch the podcast below.
Interested in a specific story from Scaleview Founders? Skip right to it:
Jake Corley: Today we’ve got Gabe Wilcox and Jay Snodgrass with ScaleView Partners. Formerly, I think you both were formerly of Mineralsoft, correct?
Jay Snodgrass and Gabe Wilcox: Yeah, both co-founders.
Collin McLelland: So, okay, let’s get some context to this conversation so both co-founders of Mineralsoft Mineralsoft you guys sold to Enverus or DrillingInfo at the time. What was that like 2018 end of 2018?
GW: Yeah, it was. We barely sold to DrillingInfo and then it became Enverus shortly.
JC: I think you guys were like one of the first acquisitions whenever we started doing this in the podcast scene. You said it was 2018?
CM: Yeah, I remember. Look, I had the date right and everything. I remember because we had started the podcast in October 2018. I remember specifically that y’all’s acquisition and starting the podcast kind of coincided and timing to some degree. So, we have a lot to talk about today, but let’s start off with–what is ScaleView? Give us the high level overview of what that is and then we’re gonna rewind it back to MineralSoft.
How did you go from MineralSoft to ScaleView? And why choose investment banking?
GW: ScaleView Partners helps founders of tech companies sell their company or raise growth capital. We’re an investment bank. Investment banks mean a lot of things. Typically a lot of services involved when you think about a big Wall Street Bank. We do something really, really specific which is just working with founder-led tech companies companies who look like MineralSoft, frankly, in energy and beyond when they’re looking to sell the business or bring in an investor to get perhaps a little bit of founder liquidity, some growth capital to ramp the business. We’ll help advise on that process and get to a good outcome for founders.
CM: So that’s pretty interesting because you guys walked the walk and talked the talk. You built a tech company and then successfully sold it.
JC: But you guys are founders. That’s like its own category.
GW: We think so. There’s a little bit of that branding probably in the market already, but we don’t think there’s a whole lot of substance to it in the market in a lot of cases and that’s what I think we’re bringing. You don’t you don’t see that many people who start a company go through the journey of selling the company and then come back and want to do banking. A lot of people may want to be VCs and do that sort of thing, but for us, we both started our careers on the finance side before we did the software company, so we were sort of on that side of the fence, worked with entrepreneurs all day, and eventually thought “we got it.” I, personally, looked up and thought I haven’t worked at a “real company” in my whole career. I’ve been an investment bank, I’ve been at a private equity firm.
CM: I think you guys went down the right path because usually the the pipeline is you sell a company and then if you want to get into finance you become VC or angel industrial rolling funds popping up but we don’t have to get into this but I don’t think VC’s a great model.
JC: Let’s get into it.
CM: I mean 60% of VC firms don’t return capital to LPs right and then if you look at it from the VC perspective it’s not like private equity where you’re building up these massive funds and become profit centers to take two and twenty, so even if you’re fortunate–some of the biggest climate tech funds are 700 million dollars that pills in comparison to private equity, right? I was always interested in the banking side because I’m like “oh, this is cool. You just do all the M&A capital raises things of that nature and then you take a couple points or whatever that may be and you can start to get to larger numbers that way.
JC: How did you guys think about that? You see it all the time that founders exit and then they just go and become VCs. Was it just something that you guys were familiar with coming from the banking side or was that you just favor the model?
GW: I’ll go first and then let Jay weigh in, but for me it’s an attempt and an honest evaluation of what I’m good at and what I’m not as good at. I think I’m an okay investor. I won’t show you my trading accounts, but I’m an okay investor. I do think I’m a pretty good deal guy. I like deals. We were able to have a really good outcome with our company and it was fun. It’s just you have to try to do the work that you enjoy and that you’re good at and that’s kind of self-assessment.
The second one would be there’s a lot of capital out there, right? Things are changing day to day, but even with the public market volatility, there’s a ton of capital out there. I’m not going to knock on all my friends who are raising funds. It’s a very good business to be in, and it’s fun if you’re good at it. It’s an incredibly good business, again, it’s super high leverage, but there’s a lot of capital.
I don’t know if the world needed another fund to go chase the latest deal but based on our experience in Mineralsoft, selling it, and again I did this at the beginning of my career. I sort of realized after running Mineralsoft that I didn’t know anything about running a company. I was just doing the finance thing, and so I know a little bit more now.
But having sold the thing myself like there’s real value to a good advisor to help walk you through that and help you get to a good outcome. It is just a you know for me and for jay, unless it’s sort of your third or fourth exit, it’s just a monumentally important transaction to you financially. It’s your baby you’ve sort of bled into this company for years and so that sale is a really big deal on the financial side and on the personal side. I just really appreciate the value of somebody who can maximize your chance for a win. You don’t necessarily get that many at bat to do it right, so that’s what drew me to this.
JS: The other cool thing about being on the M&A side in particular, nevermind being on the investment side versus advisory side, but even with an advisory, being in M&A is awesome because if we do our job right, like every time our clients they’re almost always first-time founders. The nature of M&A is like they’re coming into like immense wealth for the first time in their life like 50 or 100 million dollars. They had nothing, they have a rented apartment and then they have you know college debt and bills and all of a sudden now they’ve got you know significant tens of millions of dollars in their bank account. We get to do that a dozen times plus, maybe two dozen times a year when we’re at peak.
On the venture side or on the private equity side, outside like last year or wild with exits, but typically you have two or three exits a year of your entire portfolio. It’s taken years and years. That’s a cool feeling too because you’ve been with them for a long time, but we need to vicariously relive our fun moments of when we sold the company.
JC: That’s gratifying. Are you guys focused on certain sectors?
GW: We’re all technology focused. Our company, other than being an oil and gas company, which it was, was a vertical SaaS company. When we’ve looked at whether it’s oil and gas or management software for gyms and health clubs or something like that, they’re sort of a vertical SaaS playbook like those companies tend to look alike and share some common themes. We’re pretty focused on that. I would guess just you know given the market dynamics of the last five years or so, three out of four deals that we end up doing will be SaaS companies of one kind or another.
The main thing we’re really focused on is you know we call it “founder-led”–doesn’t have to be bootstrapped. To my point before, capitals have been pretty easy to come by for a decade or more, but we’re not mostly in the business of sort of talking to VCs to say “what do you need sold?” “how can we sort of help you cycle through the fund?”– that that business is fine, but we’re really out there going kind of bottoms up and just want to talk to founders about their business whether there’s a deal today or not. We think that’s in the back of people’s minds at some point so I’d say that’s our main thread, all tech, probably a lot of SaaS, but we’re pretty flexible. The really common thread is it’s kind of a founder-led business and that’s what Jay said.
It’s fun in that respect where that’s how we spend our time talking to people about that. It’s a pretty fun way to spend your day all things considered and it’s really fun on the outcome side.
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The background and experience of ScaleView Partners:
CM: I want to roll back the conversation a bit and talk about how you said you both had backgrounds and finance before Mineralsoft. I want to hear from both of you real quick what you did before Mineralsoft. This podcast is about ScaleView, but it’s going to be a lot about Mineralsoft because we never had that podcast about Mineralsoft right. I want to know those backgrounds before Mineralsoft, how you guys started Mineralsoft, what led to discovering the problem, creating a solution. Let’s tell that whole story. First, tell me about what you guys were doing before Mineralsoft.
JS: I’ll start. I was out of college working for a fund in New York–talk about being a former deal junkie. We were a team of 10 people and we were doing on average 100 to 200 deals a year. Every day you’re working on a dozen deals at different stages and it was mostly growth capital for small public really small public companies and also some private companies. It was one to five million type investments, sometimes highly-structured. We were doing a lot of stuff in capital intensive industries. The oil and gas was a big one. Mining was a big one, but also some tech stuff.
I was there for about 10 years before coming to join with Gabe at Mineralsoft and we’ll get into how that linked up. My background was working at the same fund, doing just “deal junkie,” doing deals, deals, deals. It was great because going into Mineralsoft, that’s where I really cut my teeth in learning sales. My job was sourcing, which meant that I was cold-calling CEOs. I was in my early 20s calling guys in their 50s and asking them if it made sense.
CM: It’s very much a sales process, right? I mean you’re having to build a relationship with these people and sell them on your firm, why would they use you.
GW: It really is a sales process. I’m not sure what’s not sales.
CM: That’s why I tell everyone that soft skills make the money. I tell a lot of engineers that because everything in life is sales, so yeah agree with that 100%. So, what was your background in finance?
GW: I grew up in Arkansas in a little town north of Little Rock. It’s not a big state population wise. So after college, I worked in finance. I worked at an investment bank that looked something like what we’re doing here in Palo Alto. We were helping founders sell their businesses at the time it was a lot of internet marketing. It was kind of in its early days so lots of SEO and SEM companies, lead gen companies, which was not a dirty word but was maybe becoming a little bit of a dirty word. I think it’s going to come back in a good way now. There’s some good ones out there.
This was 2008 or so. I was on that desk when Lehman went down. The owner of that firm sort of gathered us together and he’s like the bad news is Lehman went down and that’s going to be a pretty big ripple, the good news is you guys work at the shitty little investment bank out in Palo Alto not at Lehman so you guys are in great shape. Life is basically the same.
It was a lot of fun. It was also a cold calling business. I was, same as Jay, at a desk calling CEOs. I think cold calling is really good for anybody earlier in their careers just like you said. Soft skills are important to have. Super educational if you’re lucky enough to get into a spot where you’re actually calling that level because like what a business education. That’s kind of what I thought.
My family comes from a family of entrepreneurs on a small scale. We had a gas station in a small town. I thought “investment banking? I don’t know. I really want to learn about business. I want to learn how businesses work” and that actually turned out to work out really well. I mean talking to CEOs of real companies all day, the ones that didn’t hang up on me. We were in this boiler room of young people, early 20s on the phones. Every now and then it would get quiet enough where the rest of the group could hear somebody say something completely stupid on the phone. We would live with it forever. My best was probably when I called a guy and he was chatting with me and he said “hold on, hold on, hold on, I’ve pulled up your website here and I’m looking at your picture. How old are you anyway?” I guess I was 22. I said 25 or so.
CM: That reminds me–I was at Hillcorp’s headquarters and we’re in one of their big boardrooms. I’m 24 years old and I’m leading this completionist project on one of their wells up in the Marcellus. We got probably 15 people around this boardroom table and we’ve got the Marcellus field office on video call as well. I’m 24. I don’t have a beard. I can’t grow facial hair and babyface. I look like I’m 12. The way that they open up this meeting is one of the executives of Hillcorp it’s like “I want everyone to know that Collin may look like he’s a kid, but he knows what he’s talking about, so just give him a minute.” I just like turning beet red. I’m like man these guys. So I know that feeling of embarrassment. It’s pretty funny to be like 24 or so.
GW: In the end, the feeling of embarrassment is also an important part of why you should have that experience, right? I didn’t make up the phrase “not being afraid of no is like an incredible superpower.” Whatever you do yeah and it’s unbelievable people who are able to internalize that. It’s really hard and being able to fail too.
JS: Be willing to fail and as long as it’s okay to fail as long as you learn something from that failure and redo it.
CM: Really brings down the ego to be able to fail. I think that most successful founders will tell you that failures are to be celebrated and you have to be able to embrace that. I didn’t really ever think that maybe you should be embarrassed here.
GW: It was well earned. I definitely should have been embarrassed about that.
Where did the idea for Mineralsoft come from and what did starting that business look like?
JC: How did banking, finance, Mineralsoft–closing the gap there. How did you guys come up with this idea? How did y’all link up and then how did you get the idea?
GW: I spent three more years. I switched to the buy-side and worked at a private equity fund in Boston, spending three more years doing that. That’s probably when I sat up and had that realization that I made or the comment on earlier which is like work for a real company. I don’t even know what that was. I talk to them all day but I don’t really even know what that’s like. What I should have done, if I had the guts, was probably just left that job and kind of sat in my room for six months or something until I figured out what I wanted to work on. It’s not what I did, what I did instead was take out a loan and start business school.
I went to Wharton, not knowing what for my MBA, not really knowing why I was there other than to figure out what I wanted to do next. It was still really fun, of course, but business school is super fun for the people who are not going through that. It’s fun for the people who just kind of have it figured out like if you’re at Bain before and then Bain’s paying for business school and you’re going back to Bain afterward…that’s the setup right there. I’m kind of over on the side like thinking about “what do I do? I’m not going to jump into recruiting here and I’ve paid all this money and I’m not even doing the recruiting.
That summer, I was back out in San Francisco. I linked back up with a former colleague from my investment banking days, John Parker. Shout out to John Parker. He had become a full-time software engineer in the 10 years or whatever since. He was at a spot where he’d been a part of a couple startups. He was looking to do his own thing, so the timing was right. We’re both on that same journey to kind of figure out. Thank god for me, he can actually write code so I’m like “okay, finally!” That’s the running joke in the MBA program, right. It’s like you would you literally see flyers posted around the undergrad buildings that are like MBA seeks undergrad who can code. Unfortunately for the MBAs, the market even then had already realized that it was the code monkey who had all the value, right? The MBA was just hoping to get in the middle. I got lucky to get out. I didn’t finish.
The only reason John probably agreed to start the company with me is that I didn’t finish my MBA, so I left after the first year. Here’s where the Arkansas thing comes back in. John hadn’t worked in oil and gas. I hadn’t worked in oil and gas, but I had because one of my grandfathers was just this sort of small-time country trader. He’s like land buying and selling. He had the convenience store idea. He was an entrepreneur but classic like a country entrepreneur. Don’t buy anything, sell anything, trade anything.
JC: Why do I feel like he was selling pelts?
GW: There’s a ton of stores for him, but closest to pelts is he once passed a wrecked refrigerated truck on the road that had TV dinners, like swanson’s TV dinners, in it. He paid the guy 20 bucks or whatever to let him load his truck up. He didn’t sell him at a convenience store, don’t worry. Nobody just doesn’t get the wrong idea. He would sell them on the side and mostly give them away to friends and family, so it was like he was doing you a big favor by giving you a dozen.
CM: I’m always fascinated that there’s certain people like that you come across that are just good at making money in the most oddball ways. I know like two personally that come to the top of my mind. They’re not people that would go build and scale companies, but they’re just good at finding a couple ways to make a couple hundred thousand dollars.
JS: Back in the day when it was a little less efficient, the market and then they were finding people who needed money and had minerals. They were making trades.
JC: So it was your grandfather doing some mineral deals?
GW: So, he sort of did. Accidentally, right? I don’t know if he ever did a deal that he really knew to be a mineral dealer for that reason. He also was savvy enough. He probably bought and sold a thousand different parcels of land. Every time, he stripped the mineral rights if he could. Fast forward now, unfortunately,
CM: I love that yeah because like Jake and I bought some old stripper wells up in Oklahoma back in 2018. The top question that we get from engineers is like “how do you do that?” I’m like I don’t know, we just went and found a deal and put some money together to sell them. We wanted to buy it. You hear about your grandfather and like he didn’t really even have any underlying knowledge of what he’s doing. He’s just putting pieces together and making it happen. I love that just like people that just do it.
GW: I have a lot of respect for that, especially with no platform going into it. That’s the other good thing about that kind of work ethic is you don’t need a platform. You build a platform just by hustling over time. He definitely had that. I ended up, by this point, things have been passed on. This is all Arkansas stuff, it’s like Fayetteville, Shale. I was getting, at this point, sporadic checks. Not big money, a couple hundred bucks every now and then. Then this 350 page statement with the royalty check.
At some point as we’re cycling through, John and I are in this room with the whiteboard. We’re writing down random things like “What do we do? How do we make money? What do we do?” I’m like this is a really weird one, right? There’s this thing, I got this check which is fine, it’s not not a great check, but I got this statement with it. This thing’s a mess. I think I’m a smart enough guy. I’ve actually tried to spend an hour and because the whole family’s getting a little bit of that. It’s not a big difference maker for us, but it’s not nothing. I’m sure someone here knows what’s going on. Quickly found out, nobody knew what was going on. I was the first one to ever even look at the statement very carefully. Normally, it’s just ripped the check and that’s it. So, I thought, “well, this seems like a problem. This is what I’m supposed to tell me, my uncle, my cousins and all the people who are not industry folks. This is how they expect to give you the background on why the check was 211 dollars and 34 cents. This is pretty weird, there’s something going on here.
John had worked on, from a software development standpoint, he had done some stuff where they were trying to take insurance claims data and make sense of it at a high level right. Pull out the data, standardize the data, figure out what’s going on, organize it into some consumable format. From an engineering standpoint, this challenge is something I’ve worked on before. Is there an industry here? This I’ll never forget. We made a couple of quick calls, we talked to a guy back in Arkansas, he was like a local kind of mineral flipper.
We didn’t know anything. We’re just like “What is this industry? How does it work?” He gave us some basics and he said it’s too bad but you guys just missed it. What I would have recommended is there’s this conference called NAPE. It’s in Houston, I think it just happened, but if you could have gone there then you would have learned what this was all about. We looked at the computer, and NAPE was in three days. We’re in San Francisco and we’re like we should try to figure it out. I think we should get a ticket and go.
We went to NAPE. We actually went on Vistaprint and that’s when we named the company because we had to have business cards.
JC: So in three days you were Mineralsoft?
GW: We paid a tenth of a cent per card for the lowest quality. We probably paid 100 bucks to get them the next day because it was all in the shipping and expedition. We stayed at a place, and here’s a shout out, I’ll give it here in Houston. We stayed at a place called the Athens Inn and Suites downtown. It’s by far the worst hotel and I’m a connoisseur of bad hotels. I’m a bad hotel guy. I’ve put more people in the Red Roof Inn and I love the Red Roof Inn. To me, that’s not a bad hotel. I had an early flight out after NAPE. I got up and I was trying to catch my car to the airport, and the front doors were changed shot from the inside. I just couldn’t get out. Chains on the doors. I got down to the lobby, my car was waiting outside, and there were just heavy chains locking the front doors from the inside. I’m like I don’t know what to do. I ring a button and then I bang on the door, and the front desk guy wakes up. It was crazy, but that was NAPE.
We met the Royalty Clearinghouse guys at NAPE. We stopped by their booth and met Todd O’Neill who eventually joined us, worked with us after quite a long pass. We met them from that day one and learned enough to get us excited and think let’s investigate this a little bit more. We were sort of in between and that’s a question that a lot of people ask like how’d you know to jump off and do the thing? My answer is that it’s a little bit like the question of how did you know to get married. I don’t know, I mean you do for sure and you also don’t for sure there’s no calculus. Not to understate the magical feeling of love and meeting your spouse because that’s you know obviously a real thing, but it’s similarly non-rational, you just kind of do it.
CM: I mean that goes into a much deeper topic for another time. A lot of people, especially in this industry when they’re engineers and geologists, they’re very analytical minded and sometimes that can hurt you if you’re too analytical. You get analysis paralysis. There’s a lot of science behind how much faster processing is for decisions on a subconscious level and it’s cliche, but it’s a gut feeling. This is worth taking a shot on so you can’t even sit there and articulate “How did you know?” You just did.
What did Mineralsoft do?
JC: So what did the actual Mineralsoft software do? What problem were you solving? I know you talked about the complexity of the checks and things like that, so is this what you were kind of working to build software on the behalf of like royalty owners or was it a marketplace for minerals? Walk us through that.
GW: It’s a good question. Do you want to start?
JS: I can start. The first plan we thought was the right market was to go find people like Gabe who had $200 checks. The other conference we went to was a NERO conference–a national social royalty owner. That’s a fun one if you haven’t been one of those have a different kind of crowd–more of the bingo crowd. There’s a bunch of people who paid a thousand dollars a hundred dollar ticket and travel expenses and they have two thousand royalties a year. They just want to go for a social thing.
GW: I drove from Philly to the Biltmore Hotel in my Honda Fit by myself and it’s a long drive. It’s a weird drive to go to an area to go to a narrow event at the Biltmore and, of course, I was staying like five miles down.
CM: So it was in Asheville?
GW: We were right outside. With the casino in the basement and the whole whole deal.
JS: I met you for the next one at a state college. I took a bus from New York City to state college. That’s a long ass bus. Flights were like flights for like fifteen hundred dollars around there even way in advance. I was like well I’m not gonna do that. The Greyhound was a hundred bucks.
We thought the original market would be like a mint.com like a personal finance that helps you look at all your credit cards and stuff and see what you’re doing. We thought the same model would work for minerals. They tell you there’s 10 or 20 million people in America who own royalties. We’re like well that’s a massive market. We quickly realized that there’s a really long tail. There’s a lot of people who just have minerals and don’t have royalties. There’s no production. That’s a big chunk of them. The second one who have it and there’s a lot of people like Gabe making a hundred dollars a year on one check.
CM: That’s a great point because the first thing my mind goes to is large total addressable market and aggregate, but how much money is actually in that market when it’s small, very fractionalized mineral owners with $200 checks, so tough, tough crowd, tough business.
GW: Well, you’re going to hear what geniuses we are because we figured out over a five-year period what you’re about to say in a minute and a half.
How does luck play a part in building a business?
JS: We started building to that and we kind of lucked into a lot of things. Every successful startup lucks into a lot of things. Gabe actually wrote a really good blog post about luck and startups. We realized that guys like Royalty Clearinghouse, the reality is problems are actually very similar whether you have a portfolio of 20,000 wells or one. You still have the same challenge of accounting, you still need land management, you still need to build a track activity around, and so forth. We quickly said well we should pivot instead of trying to do a free product or a freemium product or whatever. Why don’t we pivot and see if we can if there’s a B2B business.
I think where we really lucked out was we took the product to market. We went live with the product in the market and sort of end of 2015 early 2016. Oil had sort of gone down to whatever was 38 bucks, so oil was a disaster, but in some ways all the mineral buyers had been super busy just buying, so they had no time to figure out how to manage things or even think about software. Software didn’t exist. Now prices are low. At the very beginning, there wasn’t much activity happening for buying. Now is a good time to start to get organized, and we’ve actually cut a few people cut expenses back, so we need to be more efficient on how we manage our portfolios. That’s what software does. It helps you be more efficient.
Where we really lucked out though was that obviously from when we launched a product at the bottom of oil at that time, later we found out there’s even further bottom in oil than 38. We’d already sold the business–you can go negative. We ended up coincidentally selling it in December 2018 which is close to the last peak of oil and in between not only the oil prices went up, but even more important to us was minerals, in the past, it was not institutional money. It was family offices, it was hustlers, but then you had the big private equity shops starting to say this is an interesting strategy. Billions of dollars started flowing in and these and those guys couldn’t even imagine picking a billion dollars to put into work and not having software to manage your qualities.
That’s where we sort of got lucky. All of a sudden, we thought we were going to sell a product that was a freemium product, and now we’re selling it you know 10 to 100,000 plus a year subscriptions and that’s a whole different business model for scale.
CM: I love that you walked us through that arc because whoever says luck doesn’t play a part in success is bullshitting you. It’s about increasing your surface area and putting yourself in those positions to get lucky which you guys did so you can’t take away credit like hey you built something you had a thesis and you put yourself in position to get lucky. What’s really interesting is two acquisitions to embarrass which come to mind now that I’ve heard y’all’s story and luck.
I mean you can look at Hugh Engineering, Mark Mcgorge over there. They closed their sale a month before oil prices went negative. You want to talk about getting lucky. There’s always points in the arc where it’s like, oh yeah, we got really lucky. It’s interesting to hear that when Wall Street started, you had these huge mineral funds coming in. That really became a business was minerals whereas maybe prior to that, there were a lot of land men and people making money family offices, but maybe not that institutional capital.
GW: To your point on luck, it actually reminds me a little bit why banking, why are we doing advisory stuff instead of investing, or even a startup you know on the software side again. I think another comment I would make is that I’m an optimist. I’m in technology, I’m in growth. Here’s a caveat: I’m optimistic, but I’m also pretty risk-averse. I’m VC and it’s for survival, so you have to be a little bit of a gambler.
You have to be very optimistic about the future, but you also have to think, what’s going to get us? What is the thing? How do we handle it and how do we maneuver? If you think about the VC world where it’s like it’s all about the winners, it’s all about the thousand x, and the model dictates that. It actually dictates that they only really keep the winners in their mind. They’re gonna spend all their time nurturing the other. It’s just the way that model works.
We relate much more to the founder who’s like yes we want the biggest win possible, and you wouldn’t be you wouldn’t be doing this versus a salary job if you were not a risk taker, but you also want a win and it really matters that you have a good outcome. Windows come and go. It’s not a continuous public stock where you can sell it on any given day at any given hour. You have these windows and these moments in time.
CM: That’s a really good point. So me and Chuck Yates were in Vegas last month. We landed in Vegas. Chuck wants to go hit blackjack, and I’m like oh yeah I’ll go and I’m sitting next to him and I’m not gambling. He’s like you don’t gamble? I was like no, I don’t gamble. He’s like is it more of you don’t know how to gamble or you just don’t like gambling? I was like well both. I was like I don’t know how to gamble because I never have. I was like but I’m someone that has an infinite appetite for risk, so gambling in Vegas, that’s one thing. Around here saying I’m like hedging is for the weak, like you swing for the fences. Keeping in mind that there are opportunities for getting on base at some point, especially when you don’t have much.
You want to take a win, but also I look at people like Elon Musk and Mark Zuckerberg, and you look at Snapchat. When they turned down Facebook, I thought they were insane, which probably 99.9 percent of the world did, and they ended up making the right call on that.
JC: Instagram, too. A billion dollar acquisition everybody’s like oh this is crazy, but now Instagram is worth 250, 260 billion, including a lot of stock. It was a great outcome for those founders. Who would have known that it would have become what it is today.
GW: You guys are probably familiar with this literature as well as the diminishing returns. There’s a very big difference for most founders. Most founders, most humans. There’s a big difference between sort of being where you are right now and having 50 million bucks of assets.
You kind of have to ask yourself like do you keep flipping the coin? Is there a big difference between 250 and a billion? The real mission is another side of it right and being mission driven is and I think some of the ones you named are mission guys as well.
JC: Talking to successful founders who’ve had really great exits, here’s what I’ve realized, anything over a hundred million feels the same.
GW: I’ll take their word for it.
CM: Toby Rice told me one time. He said it’s hard to spend a million dollars a year. Trust me, I tried. Me and Jack want to have the ability to try.
JS: I’ll say like in our in our business now, we talk to founders all day and we’re mostly focused on helping them exit their business and sell their business, but obviously you talk to guys who are also fundraising sometimes at an earlier stage. We don’t we don’t typically advise like formally advise people or help them raise money at an earlier stage, but the thing is there’s a lot of times where it’s especially in vertical SaaS it’s like a niche market, you gotta understand like you don’t you might not have a billion dollar business and it might not make sense to raise venture capital and do a series A because once you do that your hands are tied on when you can exit.
Typically venture funds are going to have a blocker and anything that’s you know less than three or four times the valuation that they put their money in. It’s definitely almost certainly gonna push out your chance for when you can exit and two it makes it makes the bar pretty high.
As you know I’m sure you’ve talked to, never mind in oil and gas, there’s a lot of startups who are just sort of now stuck. They can’t do anything. They’re stuck in zombies.
JC: I had a conversation this week about that exact situation. The VCs have a blocker. The company just due to COVID stuff kind of took three steps back. They were on track to do some really big stuff. Now they can’t sell, and so now they’re running out of money at the same time. Now you’re just stuck in this purgatory.
CM: You have to differentiate as a founder between two different types of companies and I think Gabe said it here mission driven versus economic outcome. I think that there’s very real opportunities like I’m involved in them. I advise them, I help them. You can go build something and 30-50 million dollar exit. There’s a lot of opportunity for that out there and that’s life-changing money for most people.
JC: By the way, the equivalent exit if you’re a venture back, you might have to do a 200 million or to get the same cash as a founder.
CM: A lot of people don’t really think through those outcomes and think about that.
JS: We should talk about this too because I think a lot of founders don’t really understand it. They should know to get smart on this term sheet book by Brad Fields. I think it is probably one of the best in this, but even like how they structured like this like prep rights like they don’t understand that if there’s 20 million in and the sale is you know only 25 even though they think they only sold whatever quarter their company. No, that’s not how it works. They get their 25 first and then the split comes. You might not get much at all if you don’t understand. You would be shocked. You’d be shocked how few people know that.
CM: We’ve talked about that book multiple times on this show Venture Deals by Brad Fields. I’ve combed through that book multiple times and really gives you an understanding and that’s like a digital wildcatters. We’ve raised on very favorable terms for us as founders because I studied that book and understood where I wanted to be.
JS: I think the other book that I think is tied to that for other guy founders or want to be founders listening to this would be Horowitz. Just in terms of running your business, that’s also really good.
CM: Speaking of that, super random, but did y’all see that John Arnold’s backing this oil and gas credit fund yesterday? You’ll see that story? Oh well, anyways, the guy that’s running that fund his name is Richard Punch.
GW: My last one since you mentioned Musk like the last thing on I certainly I’m not against the billion dollar thing. Musk is another good example where I’ll remind you that he had an exit already.
CM: A lot of people don’t know but he founded zip2 and sold it off. He sold zip2. It was actually pretty large like 200 million dollars and then started x.com which evolved into PayPal and so you could see his progression.
JS: Somebody read the founder’s book that just came out. Tells the whole story.
CM: A great book on Elon Musk is called Elon written by Ashley Vance. You saw that progression and even Elon still to this day says like hey if you’re getting started like start an internet business and get a win.
GW: Whether it’s an internet business or not, they get a win.
CM: He didn’t go straight to making rockets that that’s right can be reused. There’s definitely a progression to getting up to that point.
What was the process of selling Mineralsoft to Enverus?
CM: So you guys built Mineralsoft. Things in the market had changed on a macro level that played in your favor and Enverus comes in as well which is also kind of an interesting part of the story. Around that time when Enverus was really starting to ramp up and wanted to kind of be the kingpin in the industry. They were setting up for acquisitions.
JS: Genstar, that’s their model, is a lot of inorganic growth. That’s why they did so many deals and being a home run for those guys. We can tell you a little bit about how we got there.
GW: As a quick aside, after the acquisition, we got acquired while they were still DrillingInfo but they were shortly about to announce the name change. They brought me into this executive meeting. It was with the branding people and there’s a room full of people and they had obviously been living and breathing this name change super painful process for like a year and the CEO was like they were about to start talking about it. He said no, no, wait, wait, wait. Gabe’s here. He’s new. Gabe, Enverus, like what do you think? I was the only fresh you know person in the room and everybody’s looking at me. It’s clearly like they’ve spent a ton of money, a ton of time like massive brain damage. I’m like I like it. I would make sure that people know how to pronounce it.
CM: How did the acquisition actually happen? I know that’s actually what y’all are doing today ScaleView is part of the advisory like helping to make those acquisitions happen, so dive into that.
JS: Probably a year and a half or so before we sold the company, one area we were really struggling with, so there’s sort of three major components. One was the accounting component, second was land management, and then the third part was tracking activity around your properties. If you get those three overlaid, and historically they weren’t.
Historically, you had a land management system, probably Microsoft Excel. You had some accounting system and then you had joint info, but none of those things talk. You couldn’t get any real-time insights to help you. We had sort of tackled the accounting part, we had tackled the land part. We were trying to build those ourselves. The thing that was a real struggle for us was the activity thing.
We had tried some other startups at the time, but we tried it with a couple of vendors. It was a disaster. We just couldn’t get reliable data to overlay. We had a friend who worked at DrillingInfo and he was sort of on the strategy side. We talked to him and we said you know maybe we should try to do a partnership with them because their data is super reliable and they spent a fortune cleaning it up and frankly it’s a lot of validation to have DrillingInfo as your partner. We gave a pretty significant economics on that partnership. It worked out in the end, but who knows if it would have worked out long long term.
GW: We didn’t do an equity partnership, but we did a revenue share with them on the sort of joint product. It was interesting because it was like Jay said it was a little bit painful for us as a little company without a lot of revenue and it didn’t make any difference to them.
JS: Going forward a little bit and how like the acquisitions or how that is how we got to there so the other key piece for our platform the accounting side was able to bring in accounting data. There were three major players in this sort of accounting data market when we first started. One was coming out of Austin called PDS. There was Oil Dex and then there was Energy-Wing. We had some crappy things in the very beginning to sort of end around them. That’s a whole other set of stories that talk about startup pains.
A little bit into our business PDS sold to Oil Dex, so now we’re down to two. We ended up doing a partnership with Oil Dex as well to get data from them and have it fully integrated and clients don’t have to pay separate bills and mainly load in and that was that was super powerful. Fast forward and Gabe and I are about to go as a mini sponsor to Oil Dex’s annual user conference in colorado. Anyway, the day before we go out there, the CEO of Oil Dex calls us and says he’s got some news for us. He knew we had this partnership. He told us that he sold the business to DrillingInfo. We’re like well obviously congratulations to him and by the way, from what we heard, it was a home run for the Oil Dex investors. It was a very strategic acquisition.
Looking back, it was a home run for both sides. They were extremely happy about their exit. Well this is kind of scary because two of our partners are now merged. There’s a chance that they could just cut us out and develop new software and build their own mineral management software. We quickly pivot. We flew out to the conference. Next thing you know, we’re having sort of early back channel communications.
We had some conversations in the past about whether they should buy. We would decline, and but this time, we have to finesse it because you can’t look like you want to sell. We knew they were the natural buyer for us. That was probably the end of August, thinking back maybe, early September. It was around that time. We went through and we closed that deal in mid-December. Four months from start to finish. I would hesitate to wonder what it would look like if it continued beyond 2018. Our biggest competitor just announced the sale competitor back then.
CM: Which was a weird acquisition– Mineralwear, right? The economics on that. We’ll have to get the Mineralwear guys on the show. Essentially, they sold it a 3.2 x on revenue which is just odd given the tillwinds on energy right now.
JS: It is but I think it’s an all cash offer. There’s a lot of companies who didn’t take offers and there are zeros. The limited stuff I know of where their business went in the three and a half years when we sold ours and theirs. It’s a tough, really tough market for oil, but growth. I know from Mineralsoft that growth became a challenge in that time.
CM: A good talking point too is that multiple exits in a very niche space in the same space, so that’s actually pretty interesting too.
GW: I’m super happy for them they were they were a good competitor. They were very honest. They sold to a good company.
JS: They’re a financial technology company. They had bought a couple years back innovest which probably made a product called PDS, not the PDS just talked about. It’s also accounting but it’s accounting software versus accounting data, but there were two PDS. They rolled it in.
GW: Those guys, they’ve spun up other businesses that they’re still working on and maintaining. They had a really more than respectable exit thing and if you look back to that Nape that Jay and I went to in 2014 sort of the big name well-funded tech companies in and around the space then there have been some not so good outcomes. For us, we kind of sold the business to DrillingInfo twice. The partnership was the first chance to, and it is a common sort of date before you marry, how do we get involved with each other, and get a look at how complementary or not the businesses might be. There’s some risk to it as well and when you’re the little guy and you’re gonna try to dance with elephants, it’s risky.
As an aside, I have a lot of respect for Enverus. It’s a well-run company. In all our dealings with them, they were honest. They did what they said they were gonna do and that you can’t count on it. That’s why it’s high risk to be a little guys. You’re like well they said this but what if? That’s the scary stuff.
JC: I’m curious. The four months of kind of like negotiations–was it them kind of driving the outcome or is it you guys kind of pushing more so?
GW: That was me playing banker. That’s the most direct prelude to thinking Ii want to go back to doing it full time. This is where my experience really comes into play. Take that one year of MBA and go to town. Dangerous level of knowledge. The interest was there. The fact that we had the partnership in the background meant that we had a level of comfort on both sides. It was really helpful. We both had a framework for: What is the value here? Why does this even make sense? We actually had data to support that.
One of the interesting things about this part of the market is generally just being like the small end frankly. The lower metal market type of deal is that it is less a financial engineering exercise to say well our weighted cost of capital is this because we have this debt facility. Then we’re gonna have a conversation on their end deep in the background of like how do we write this check in an efficient way, but that’s never the conversation with the target. The target in the real conversation for us is like what’s it gonna take to get this done?
Our signal which we believed even though we had some fears. We always do when you’re a startup. Our position was like look, we just raised an A round 11 months ago. We raised series A with Montrose Lane, Cottonwood Ventured, another name change on us, but Cottonwood, at the time. Montrose Lane, love those guys. We had the balance sheet and the momentum and everything else to keep going. That was our position was like look our default tears that were heads down running the business. We just added more capital. We’ve got a lot of runway. That’s what we’re going to do unless there’s a sort of ticket for today’s price. Having the investor involved also gave us a real not negotiating tactic, but a real sort of level like it would give us a real hurdle to clear.
We had to say well look these guys contractually don’t have to say yes to a deal unless we get above a certain threshold. If we’re talking about deals below that, then they literally have approval.
JS: That’s the reason you have to be careful about taking a venture. The plus side is if you do have a process, you can point to a number and peg a number to say, well we contractually can’t sell for less than this. Now, the reality is you probably can, not contractual routes. You’ll get them to sell below that, but at least you can point to a number. That’s like way up there. It’s a starting point.
CM: So you guys have that from raising the series A?
GW: Four million bucks, I think.
CM: Smaller than most C rounds these days.
JS: Like you said, when we sold the company, we had cash and a balance sheet equal to all the money we raised in the entire life of the company. We had five or six million.
GW: We raised probably five or so in the whole life of the company. About five million bucks. We sold it with most of the money in the bank in the end. That was the process and then the back and forth issues on the economics are all cash versus stock, which plug the blog post again, we’ve written about that.
GW: Cash in stock is a big one. Just at a high level, and we started with a mix of cash and stock as the opening offer. We moved to more of an all cash structure with them which made the investors happy. The investors want cash that’s their business. We moved to that structure with the exception of a couple of co-founders. They insisted that we roll a certain amount of stock, and by looking back, I wish they’d insisted we rolled more.
It’s been a great company and that’s hindsight. A lot of the management, this is something we talk to other founders about all the time, about the deal process itself. It’s very hard to sort of put the thought in your mind about what’s it going to be like when we sell this thing and the wire hits the bank and the shares are transferred. This isn’t my job anymore. There’s good and bad that comes with that. There’s a lot of like wrestling with it.
CM: You hear a lot of founders deal with depression after acquisitions which is it’s kind of this dichotomy because okay you had a great economic outcome you built something great we’re able to sell it, but then all of a sudden you lose a kind of big part of your identity.
GW: There’s this hedonic treadmill concept. Justin Khan, one of the Twitch founders, talks about it a lot.
CM: He opened up about that a lot over the past year and wrote some good material on it now. Just talking about I can’t remember what the outcome was for Twitch, but a billion dollar unicorn, and then felt that pressure. He’s like I gotta go do another unicorn and just dealt with a lot of mental hurdles that came along with that.
JS: I think something that helped a lot was that although we weren’t sort of contractually obligated to stay at the company, after we sold it, we did. John left almost immediately after our CTO. Gabe and I stayed on and part of our reasoning for staying on was to help our team make sure they got sort of integrated well and took care of them. It really helped when COVID rolled around. We ended up being there for almost two and a half years.
CM: That’s also an interesting dynamic too. Post acquisition, different companies have different situations with earnouts, how long you need to stay on is critical, but that actually says a lot about you guys that you wanted to stay on. You care about the team to make sure that it was a smooth transition to the team. You got to think about the emotions and volatility that they go through yeah as well. It’s a lot of change for them too.
JS: I think the other thing too that we did that was important for a lot of the team. Most of the team had equity, but a lot of our growth and headcount had been you know within the last year. Every year we were doubling revenue and definitely doubling headcount. We had a lot of employees who hadn’t invested a year and the founders came in. We agreed to let everyone get something out of it.
CM: There’s definitely cases of founders that don’t care about economic outcomes for their team members to take advantage of the lack of knowledge around restricted stock units and stock options and how they work and they don’t put a lot of time into structuring things to make sure that their team members have a good time.
JS: Even the ones who didn’t, we even gave at least a small cash bonus. I think Allen Gilmer did that. I don’t think many people had stock options coming back. I think he famously went to the bar with a duffel bag of cash.
CM: Allen is one of our biggest investors. We raised a seed through angel investors and I sent Allen a message on Twitter. I’m like, “Hey Allen, we’re gonna raise some capital. I would love to have a conversation with you.” He’s like, “hell yeah send the deck.” I send the deck. I didn’t hear anything from him from like three weeks. I’m like hey man just following up, wanted to see if you want to get on the phone and talk and he’s like mark me down for this amount send me some new documents.
CM: Let’s save stories for part two on this podcast. Now that I have some context into y’all’s backgrounds and how you all are advising startups in the M&A process now. There’s probably a whole other episode that we can do walking through that process alone
What did you learn as a founder going through an acquisition?
GW: In those four months, the biggest thing that happened is you get it in your head, as a founder. For the first time, you actually let yourself think about selling the company. You think about all the good things. You think about what my life is going to be like? You think mostly about the good things. There are some bad things, as you pointed out, but I’m gonna have security for my family. I can pick a project you know next is all this stuff is gonna be positive.
Then you live in this limbo where you’ve let the idea into your head, but the deal is not yet done. It is like a super scary place to be. It’s a dangerous place to be because you have mentally committed to this outcome. If something does go wrong, there’s a real question: am I going to be able to put myself back in that grinder mode? Am I going to be able to put that back down and go back and do startup life like I’ve done before? It’s a really tough thing. There’s a lot of risk there.
I’ll be really complimentary again about Enverus. They did what they said they were going to do. There’s attorneys on both sides. They are what they are so you’re always kind of whipping them and trying to tell them not to pick fights over stuff that doesn’t matter. You’re super focused on a deadline. We were targeting closing right before Christmas. We’re like this cannot slip at all if it’s Christmas then the attorneys aren’t going to work over Christmas time. It’s going to be New Years then there’s some tax thing if it rolls into the new year. It’s going to be a pain in the ass to redo stuff.
Time kills deals, so we were just pushing super, super hard to get it closed on the day we picked. Thankfully, we did. They don’t always work that way. A big part of what we do now ScaleView is run that process, manage that process, provide more certainty that the things are going to happen on time and as promised, and be there for the founder. Strangely enough, it’s one of the toughest parts of the process.
In my opinion, even tougher than the ups and downs of startup life. If you’re in it for any time, and you’re any good at it you know how to put on your blinders. You’re like I’m startup mode. This is what I do. I grind. We’re going to grind through it. Once you’ve let that exit into your head, it’s a really tough time.
CM: I actually learned that at my last startup. I always say that I spend too much time on the calculator and thinking about economic outcomes. It puts you in a bad headspace.
GW: Really bad. You’ve got that excel spreadsheet with the waterfall and you’re just imagining everything. That’s the good and the bad. It is kind of a life-changing thing you’re contemplating. I’d still like to plug ScaleView and say even in our process, we would have greatly benefited from somebody like us who was an outside party with all their attention just on the process.
It’s hard to be the good cop and the bad cop as the founder when you’re selling the company and you want to negotiate hard, but say also I’m so excited about this combination, it’s going to be great. We’ll work together for the next 20 years. A banker’s really good for that. The real issue is that it doesn’t always go as smoothly as ours did. Looking back, the buyer doesn’t always do exactly what they said they were going to do. They know very well what’s going on in your head once you’ve let that deal idea in. They know how that shifts leverage. They’re going to play into that.
CM: People will absolutely use that as well. They’ve given you a bit of a taste. You see Elon Musk doing this to a certain degree with Twitter right now. Last thing I’ll say, he holds all the cards.
JS: One last quick plug I think Gabe made earlier. There’s a lot of oil and gas people that listen to this Oil and Gas Startups Podcast. Enverus, great company, great acquirer. We hear a lot of people poo poo them. Just says oh their software is no good and that’s a joke the company.
Enverus is one of the most successful, never mind oil and gas, one of the most successful private SaaS companies in the world. Their acquisition process is world-class. The way they treat the people after you join it, I couldn’t say anything better about that.
JC: In closing, I have one question. We can just keep the answers short. I’m just kind of curious and I’m sure listeners are as well. I think it also kind of tells like it ties to doing a part two more focus on ScaleView. In your personal lives, after the exit, money’s in the bank, you’re closed out. Everything’s good. What would be the biggest change that you saw in your personal lives? If there was one? It could be that stress is gone. It could be like you bought a motorcycle.
GW: My disclaimer on this is that I had a bunch going on. I started a diet and stopped smoking and stopped drinking all at the same time. You’re like maybe which one of those was good. I had my first child. He’s 18 months old now. We’re expecting another one any day now. My life has changed. There’s a lot going on. My perspective for me is different. It is a combination of those things, but it’s been a reason for me to sort of step back and think about why I played that game to begin with. In the context of a win, it kind of made me think before we started ScaleView. It made me think like why did I play that game to start out with? Where does it fit into the bigger picture for me?
By the way, it does fit, hence why I’m here. I’m not you know I’m not sort of gonna sit around and just hang out with my family and get tired of that version of me. I think being a little bit more thoughtful. On that level, I was pretty thoughtful about the tactics and what are we gonna build and why and how are we gonna sell it and all that tactical stuff. For the first time, now after working and finance and starting Mineralsoft and selling it, I finally kind of asked the question of like what’s the game I’m playing and why?
CM: From my point of view, we have two different types of founders across the table right now, bad economic outcomes and an exit and a different one. Sometimes I actually get scared of positive economic outcomes. I personally enjoy the journey and the grind so much that I’m like I don’t ever want to lose it. I like the hard times because you talk about you putting on blinders. You’re like we’re gonna grind.
JC: You think it’s gonna make you complacent?
CM: I’ll never, personally, be complacent. I know that I’ll look back 10 years from now and I’ll miss the times that were hard.
JC: I already looked back now to five years ago and I think of some of the really hard times and I’m like damn like those were some good times.
JS: We’ll make a deal with you. We’ll help you sell your business and then we’ll make you an investment banker. You come join us. We need more founders.
CM: Before we end the show, let’s talk about who are the target startups or founders for ScaleView. Is there a bucket that you guys have defined in terms of stage or evaluation? Who’s ideal startup if they’re listening to the show that should be talking to you guy
Who does ScaleView Partners help?
GW: I’ll take a stab at it. We say founder-led companies. That’s important to us. It’s just more of a preference. There are a lot of different flavors of advisors and banks in the market. That’s who I think should pick us. We get it, We’ve been there. That’s sort of the right client for us. Software companies, in general. Technology companies, broadly. We’re working on some stuff that has a hardware component now. Technology-enabled services–there are a lot of those models that look and feel like software companies, at least on the financial side, which is really exciting.
Scale-wise, five to 15 or 20 million dollars in recurring revenue is a pretty good sweet spot for us and for the and for the market. Just to be able to look at a significant transaction. That’s really the last thing I would say is it’s mostly folks who are now, this isn’t necessarily when we want to meet and get to know you, we’d like to get to know you now right, whether you’re thinking about that or not.
What will you actually end up paying us to do someday maybe? It would be work on what I would call a significant transaction: you’re going to sell the company to a strategic or a financial buyer. Or you’re going to sell a significant portion of your shares and roll some forward, but it’s kind of a real money thing. Most people don’t need to pay advisors to raise an A round. They don’t want to hear from an advisor usually on an A-round anyway.
CM: That’s kind of crazy to me. I talked to an investment bank that used an advisor for an A round. I was like why?
JS: I would say 20 million transaction size and sort of the floor where even if it was an A-round. That’d still be weird, but if you look at it from that perspective either revenue or transaction size, 20 million is good.
CM: Are you guys only working on acquisitions or do you all help on capital raises as well?
GW: We certainly help on capital as well. Secondary doesn’t have to be the case. If somebody’s going to raise a significant round and it really is worth the investment to optimize the process. If you’re going to raise 20 or 50 million bucks, it probably is worth it. What’s typical for us and traditionally in those rounds. You’ll see a portion go out the door for founders for secondary and then a portion to capitalize the business. That’s kind of a classic growth equity one where there are a lot of players out there, a lot of capital providers there. It makes a ton of sense to have a banker help you run a process to look at a lot of options.
CM: Absolutely. Appreciate y’all coming down from Austin and taking the time to do this. I know this is going to be extremely valuable for people that are listening. Guys, if you’re a startup founder, aspiring founder listening to the show, reach out to these guys and start building a relationship. You don’t want to start building it when it’s time to start doing deals. You wanna start building relationships early in the process. I’m sure these guys would appreciate talking to you and just have a ton of insight to offer them.
