Practitioner pattern · Eric Crowley (GP Bullhound sells and raises capital for consumer subscription businesses and profiles companies in its report)
Borrow no more than 2-3 times yearly profit to buy a subscription app
Lenders need $3-5M profit first; banker's rule from deals, no outcomes given
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What they did
Debt for buying consumer subscription apps is available but harder than for B2B SaaS. A lender will look once the app has roughly $3-5M of profit. Take 2-3x EBITDA of leverage versus the 4-5x common in SaaS, because consumer apps have lower guaranteed cash flow: ~70% first-year annual retention is really good, vs ~90% gross retention for strong B2B SaaS.
What happened
GP Bullhound has seen lenders back its consumer subscription deals on these terms.
In their words
Sub Club by RevenueCat · Building the Berkshire Hathaway of Consumer Subscriptions — Eric Crowley, GP Bullhound“I think you'll be able to see that with CSS, but you need to have a decent scale, 3 to 5 million of profitability to get a lender to take a look at it. We've definitely seen some lenders that will back transactions that we've done.”
“In SaaS, right, getting four to five times SaaS EBITDA isn't bad. I would recommend getting like two to three here in consumer, so you have a little bit more leeway. You don't want to get in trouble on the debt side here.”
Related topics
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