Why I haven’t built my software rollup yet - but still believe in the idea

This time last year, I was feeling exhilarated. I had just arrived in the windswept, sun-drenched southern Portugal for a family vacation. I wasn’t about to slow down though: I was buzzing with the idea of building a software “platform play”. Perhaps more than one. 

Fast forward to this summer, and several hundred conversations later, my conviction has only grown. I am better informed too, having sifted through 60+ enterprise app marketplaces and reviewed several thousand targets.  

And yet, I have not yet made an acquisition. But nor am I feeling disappointed.

• What does a “software platform play” actually mean

• How I went about researching and derisking the idea

• My learnings along the way

• What’s next for RollUpEurope and for Cauma Group

What are these “platform plays”, anyway?

A growing % of the nearly $1 trillion global software spend is being transacted through value added resellers and enterprise app marketplaces. Firms like Salesforce, Atlassian and ServiceNow are encouraging third-party developers to build add-ons and plugins that address gaps in their product offering. 

The Atlassian Markeplace alone is doing $1B+ in annual sales across 6,000 apps.

For developers, marketplaces solve some headaches (product/market fit and distribution) while creating others, such as platform dependence and visibility vis-a-vis competitors. The more downloads you have, the more people notice, and want to copy your product. Which naturally caps these apps’ growth potential. For example, the largest independently owned Atlassian apps sport revenues exceeding $10M, with profit margins in the 70s and the 80s. However, most apps seem to be stuck in the $1M to $5M revenue bracket. 

Here was my rollup farm strategy, adapted for the marketplace use case:

• Acquire multiple apps per ecosystem

• Drive incremental distribution through partners, such as system integrators (more on that below)

• Get to $20M+ revenue, at which the platform will attract Financial Sponsor interest

• Leveraged multiple arbitrage does the magic 🪄

Appfire did it with Atlassian. Staytuned did it with Shopify.  

Surely there was room for more?

Q4 2023: tasty early catch

By September, the good people on Upwork had scraped 62 app marketplaces, handing me a list of 180,000 apps. Guided by the Pareto principle, I whittled it down to 1,300 businesses, which I loaded onto Apollo.io. High on a hill above my house, I recorded the pitch. 

I had set up 23 apollo.io sequences: one for every rollup thesis I could think of. Just like the shiny Märli tram that ferries kids around Zurich at Christmas time (pictured below), I was able to capture the business owners’ attention. My calendar began to fill up with calls. People wanted to get on. 

How I narrowed focus list from 62 to 6 marketplaces

First, I discarded the ecosystems with subpar churn rates and low product differentiation. Out went ecommerce SaaS (Amazon, Shopify, BigCommerce, Stripe, Square). Website builders (sorry Wix and Webflow). Creator tools (Canva, Adobe). Finally, I spent a fair amount of time looking at accountancy tools (Quickbooks, odoo, Sage, Xero) but concluded that a) Hg had bought up the most attractive assets and b) whatever good was left was heavily verticalised (e.g. tax / reporting plugins for ecommerce sellers). 

Enterprise grade apps presented an altogether different challenge: I was either too late or too early. Every Atlassian and Hubspot app I spoke to had been seemingly approached by consolidators. Less developed marketplaces like Monday.com or Zendesk presented a different set of challenges. The few sizable businesses came with unrealistic value expectations. For system integrators, commission rates were on the way down, but you could not tell by looking at company projections.   

I ended up with 2 verticals and 6 ecosystems: 

• Workflow (ServiceNow, Atlassian, Monday.com)

• Data storage and processing (Datadog, Splunk, Snowflake)

Fancy owning a form builder?

As time went by, I learnt to distinguish undervalued apps from value traps. Here is an example of the latter. A decent but static form builder. Mid single digit million ARR. Their legacy Wix app was being slowly cannibalised by Wix itself. The Salesforce app, on the other hand, was booming off the back of US enterprise sales. 

There was a catch: Salesforce users do not buy apps the way Wix-toting ecommerce solopreneurs do. They are fed apps by system integrators who vie for commissions from app developers. Formstack is a prime example how to do this right:

• Raise from investors who intimately understand buy & build (PSG and Silversmith)

• Assemble a complete product stack for enterprise customers through M&A (surveys, contract management, e-signature tech)…

• …and actively push distribute it through top Salesforce partners

In the end, I figured out how to reboot the business. But with a checked-out CEO and lukewarm investor interest I knew this deal could break my back. 

The pivot - and the deals ahead

I had many more setbacks like the one I have just described. And yet, I am far from despairing. For one, I know for sure there are M&A opportunities in these marketplaces. I just need to partner with the right people: the experts who know specific ecosystems inside out. I can help them with the funding, the playbooks and the recruitment. 

In fact, I already am. 

Another, unexpected outcome of the outreach were reverse enquiries from business owners looking for a sell-side adviser immersed in the aggregator space. I picked up my first mandate last month. 

So Cauma Group is pivoting from a pure-play software Holdco to an advisory and principal investment vehicle that I own 100% of. On the other hand, RollUpEurope remains what Pavel and I had envisaged it to be: a media business wholly focused on the serial acquirer community. 

And while software rollups will remain close to my heart, the project I am most excited about has to do with good old brick and mortar businesses. 

Stay tuned for next week’s announcement!