How I build and sell an A.I SaaS in 2023
Intro
Hello everyone!
As I said in the last newsletter and on my LinkedIn, the 2nd article from “Growth’s Chronicle” is about my 2023 journey with Docstract.
As a reminder, in 2023, I made an operational exit from my Web Development Agency (INNTECH) and started an AI company called Docstract. (data extraction from unstructured documents as receipts, invoices, and so on, through LLM technology)
Docstract’s Birth
In 2022, I made my first investment in a lovely HR startup (Jobful), where I’m now Chief Growth Officer. Through this startup, in 2023, we received a project for a Romanian Enterprise Client — developing a Python micro-service that can be connected to Jobful that extracts data from some onboarding documents (like Identity Card, Birth Certificate, Education Diploma, etc.)
After successfully delivering this project with a colleague from the university, I realized that we could do it for unstructured documents. We started building a prototype for the receipts, and it had good accuracy. Then, we started a Laravel application with InertiaJS through a boilerplate from my Web Development Agency (INNTECH) and built the product.
Initially, we thought the product should address small and medium businesses (mid-market) through the product-led growth strategy. (basically, even from the first version of the MVP, you could buy credits with Stripe and use the app without external intervention)
Used tools
We used a mix of tools for running the startup like:
- Laravel & Inertia JS for the Web App;
- Python & OpenAI for the AI part micro-service;
- Google Cloud for the Python micro-service;
- AWS S3 bucket for the file storage;
- OVH for the VPS hosting;
- Gitbook for the API documentation;
- Tawk.to for the website chat;
- Mailchimp for the newsletter;
- Cloudflare;
- Stripe for the payments;
- Github for the repo;
- Hubspot for the sales CRM part;
- Apollo for the outreach system;
The mistake
The mistake was to generalize the first client’s pain without validating it with potential clients from the mid-market. After delivering the first project, we started building a similar product for a different market without validating it.
After building the MVP, we started discussing with different clients from the mid-market and realized that the pain was not too hard for this market because they wouldn’t process a lot of documents. Also, we tried to focus on different niches, but the result was the same — the pain point was felt only by bigger companies, and bigger companies need a lot of input and output integrations.
The decision
After realizing that we needed to make a shift to have success, and considering that we are bootstrapped and my co-founder was less than a part-time, we had two opportunities: sell the project or make it primary in our lives, get investment, and build a robust platform with a lot of input and output integrations.
After internal meetings, we decided to sell the project through a really lovely marketplace called acquire.com.
The selling process
The listing
We created an account on acquired.com and listed Docstract; after that, our list was approved, and in less than two days, we had 30+ NDAs signed by potential buyers. From these NDAs, we had two serious potential customers, and after some discussions, we decided to move further with a US company specializing in automation software for accounting.
The LOI (Letter Of Intent) & APA (Asset Purchase Agreement)
A potential buyer can send you an LOI (Letter OF Intent) with the offer. After accepting the offer from the buyer, your listing becomes “under offer”, and nobody can sign NDAs anymore.
When you sign the LOI, you move to the next step, where an APA is created. The APA is a document where you, as a seller, write all the assets you’ll provide, and the buyer sign to pay for these assets.
The due diligence process and escrow.com
After signing the APA, both parties need to create an account on escrow.com.
Escrow.com is a platform integrated into Acquire.com that allows the buyer to deposit money and notify the seller to start the migration process.
After pressing one button from the Acquire’s interface, the APA is automatically sent to Escrow, where the buyer deposits the money.
Now, you start the migration process (you’re insured that you’ll receive the money).
Important
I was inspired when I started this startup and created everything for this project separately. I started with a Gmail account, and from this account, I created the rest of the accounts separately (VPS, Tawk.to, etc). That helped me a lot because the migration process was straightforward; I just changed the Gmail account password and the business details on the third parties, and the buyer now has access to the entire startup.
After the entire migration (3 hours in a Google Meet with the buyer), the buyer finalized the escrow.com migration and in ~2 days, the money was in my account.
Conclusion
After building and selling Docstract, I realized the following:
- There is a huge M&A market for MicroSAAS;
- Is very important to separate all your accounts when you launch a new product;
- Acquire.com is really nice and the M&A process is straightforward;
- Use technologies that allows you to build fast with a small learning curve;
- Validate, validate, validate!
- Apollo.io helped us a lot with the outreach; (finding relevant contacts and send emails sequences)
