Legion (August 2020)

Deal Abstract

https://www.investinlegion.com/ (legion.is is the company page)

Investment company for SaaS businesses. Team is copy paste from Hello Bar. Investment thesis is acquiring bootstrapped SaaS businesses with good product, poor marketing, sub-$1.5MM in ARR and too slow for traditional venture capital. Analysis requested by a reader (yes, I take requests at mail@muhanzhang.com!)

Shoutout to B. M. for the tip!

The 6 Calacanis Characteristics (91 161 18)

Check	Pass/Fail
1. A startup that is based in SV	Fail: San Diego, CA
2. Has at least 2 founders	Pass (2)
3. Has product in the market	Fail: no product.
4. 6 months of continuous user growth or 6 months of revenue.	Fail: no metrics.
5. Notable investors?	Fail: no sharing of other investors.
6. Post-funding, will have 18 months of runway	Irrelevant/most likely: not a startup, so this metric is not relevant.

The 7 Thiel Questions (ETMPDDS)

The Engineering question:
- N/A: No technology.
The Timing question:
- Good: Can see COVID being a great time to acquire cheaper SaaS businesses.
The monopoly question:
- Meh: there are probably some economies of scale, but nothing groundbreaking.
The people question:
- OK: team seems to make sense, but lack of materials not promising.
The distribution question:
- N/A: not a startup so not relevant.
The durability question:
- Meh: good that they’re buying good businesses with solid ARR, but no guarantee that those businesses will last a long time.
*What is the hopeful secret?:
- This team has unique dealflow to profitable, bootstrapped SaaS businesses through their connections at HelloBar and Neil Patel Digital Agency, and that the existing funders (angel, venture, and traditional bank) are leaving money on the table by not analyzing and funding these businesses.

What has to go right for the startup to return money on investment:

HelloBar/Team Unfair Advantage: This is my best hypothesis for the team’s unfair advantage, but the point stands that they have to identify/find their unfair advantage then exploit it to get unique dealflow.
Marketing to Good Products/Bad Marketers: Whether it’s awareness of the plugin market, connections to the web agency community, or friends of friends, they have to be able to spot good products with bad marketers soon and scoop them up, then fix the marketing side.
Scale: The company has to become really good at identifying quickly and operationalizing how to find underperforming web plugins/SaaS businesses then rinse-lather-repeating value add processes for monetizing an underappreciated product.

What the Risks Are

SaaS Businesses With Less Staying Power: SaaS businesses are a relatively new category and if they don’t figure out how to build them big and around, they may get swept away with new upstars.
No Economies of Scale: If the companies have no synergy, then what is the upside to the increased carrying cost of managing multiple products with multiple P&L’s.
No Exit Strategy: VC’s often times get a chance to exit their money when they sell SaaS companies. If these companies are providing liquidity for a category of businesses that have low liquidity, what happens when they want to exit said businesses?

Muhan’s Bonus Notes

I found myself to like the company more as I found out more materials. That said, there were too many gaps to make me comfortable investing in this opportunity. If the team/founders read this, these are the specific points I’d advise:

Your website’s SEO was not great. I first found the investment site, then the deck on a second search, and finally the normal site that showed your portfolio, which lead to two landing pages with email CTA’s with no information given.
Why did I have to google your founders individually to piece together that you all came from the HelloBar team? Is that your unfair advantage, among others? These seem like legitimate strengths but it makes me wonder why you wouldn’t come out front with this more.
If you’re offering investment as a product, you’ve got to conform and answer certain questions about your business e.g. what investments you’ve made, including angel investments. Proof of a track record, warts and all, is more inspiring than conspicuous absence of info.
How are you raising money outside of a FINRA platform? This is the first time I’ve seen a company raise money for Reg CF or Reg A on their site directly.
Small thing, but both videos produced, both for the investment site and the main 23 second on your site, provide little to no information on your company, etc. Investors of your company are probably thinking the same questions I’m asking e.g. your audience isn’t just a normal consumers, but prosumer investors who want to have more depth in content.

Financials (References)

None.

Updates

This is where I’ll post updates about the company. This way all my notes from offering to post-offering updates will be on one page.