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Comment by blackhawkC17 | Hacker News Reader

It must be nice for the founder to pocket $2 billion in cash from selling his company.

For users, on the other hand, I'll hardly trust a PE firm with a SaaS product. There's just too much incentive to jack up prices to service the debt taken to acquire Squarespace, and cut costs on customer support and building new features.

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Also the model of squarspace is that they have your site and you can’t port it to another provider. So usually a customers options are “pay the new price or rebuild your site.”

And there’s lots of small businesses who could probably afford to pay $2k/year instead of $100.

I expect that prices will really go up. I always avoided squarespace because I didn’t like the idea of paying a monthly fee “just” to host content. I mean, Wordpress has flaws but at least you design once and then host on one of the billion Wordpress servers. And if one gets uppity or sells to PE, you can just switch.

It's true that PE firms cannot be trusted with a SaaS product. It is also true that most SaaS companies are not profitable for the service they provide at the revenue they derive. This reset, which we will see a lot of since the entire SaaS category has to be re-priced, is the scalable way to clean up companies (why are SaaS employees paid so much?, why are customers paying so little etc..) and put them on a sustainable path. This trend will continue to grow.

If there is $300M revenue and no profit, lay off the half of the staff and you get $150M profit in a SaaS company. The Musk recipe.

How is untrustworthy companies implementing asset stripping and debt loading a scalable way to put already unprofitable and questionably sustainable companies on a sustainable path? That doesn't square.

Taking a company private CAN indeed counter short term profiteering if done by a group that actually cares about the company but I have yet to see a PE firm provide that.

What is the source for the $2B figure?

The most recent SEC filing shows the founder owns 2.8M class A shares, and there are 88M shares of class A shares outstanding and 48M shares of class B shares outstanding.

I do not see why they would pocket 28% of the sale price.

https://d18rn0p25nwr6d.cloudfront.net/CIK-0001496963/5ba2ffc...

https://investors.squarespace.com/news-events-financials/inv...

> As of December 31, 2021, the Reporting Person’s beneficial ownership consists of: (i) 387,500 shares of Class A Common Stock and 2,050,838 shares of Class B common stock, $0.0001 par value per share (“Class B Common Stock”) held directly by the Anthony Casalena 2019 Family Trust, for which the Reporting Person is the trustee, and

> (ii) 4,930,175 shares of Class A Common Stock and 40,835,572 shares of Class B Common Stock held directly by the Anthony Casalena Revocable Trust, for which the Reporting Person is the trustee. Each share of Class B Common Stock is convertible at the option of the holder into one share of Class A Common Stock.

> The Reporting Person may be deemed to have voting power and dispositive power over the securities held by the Anthony Casalena 2019 Family Trust and the Anthony Casalena Revocable Trust.

https://www.sec.gov/Archives/edgar/data/1496963/000110465922...

He'll convert his 40 million+ Class B shares into Class A and sell them to Permira. His Class A and Class B shares total 47 million+.

At $44 per share, that sums up to slightly over $2 billion in cash.

Thanks, I assumed all holdings would have been reported on Form 3 and 4 under the beneficially owned section.

Yeah, SEC filings are complicated. It's taken me years of experience to understand them.

Going from their financials, Squarespace makes no money: Revenues of $281.1 million for Q1 with Net Income of $0.1 million so it can be rounded to $0. They have debt of $556.9 million so yes, for the founder being able to pass on this pig with lipstick is great.

Permira is well known for what was their management approach with AA in the UK, so for the employees this will probably mean massive layoffs soon.

https://www.theguardian.com/business/2007/feb/23/privateequi...

"MPs accuse owners of asset stripping AA motoring group" - https://www.independent.co.uk/news/business/news/mps-accuse-...

Something is really wrong in this market when even a "successful" company like Squarespace deson't manage to be a profitable business.

If growth is the goal, you sacrifice margin for revenue

And sometimes you sacrifice solvency as well?

Gambling on exponential growth and then having the growth fall short (say, because people moved their personal web sites to facebook instead of squarespace) is a risk in any time you go big or go home. Sometimes (often!) you ... go home.

I would say most of the time you sacrifice solvency

Headcount and marketing spend required to be perceived as "successful" in the industry is commensurately high.

Because companies chose to not be profitable and invest all their money into growth.

It sounds like investors invested billions of dollars making a product that makes million dollars per quarter?

So from that perspective, was this ever a successful company or just a grand party thrown by the investors? Isn't this just "how it works" ?

The vast majority of investors in the railroads lost their money; lots of people lost money running fiber around the world, iridium went bankrupt and lots of people use those phones, etc.

Not all investors are looking for the business to be profitable. NVidia investing in AI companies drives up demand for AI chips. NVidia is simply seeking to create a prisoner's dilemma around AI compute spending. If Nvidia is successful, then most of the money they invest will flow back into their coffers as margin + the forced spending by other parties to keep up.

If you look at the past 10 years (or more) this has been the case with nearly every single poster child of successful US tech company.

Look at YCombinator's top/most darling startups. Hardly any of them are profitable or sustainably profitable

My old fashioned view is, and notwithstanding periods of debt for grow investment, if you don't make a profit, you don't have a business.

If you have enough money, you can kill a lot of viable businesses though.

Seems like the model has been to sell it to the next sucker all along: an acquisition by a bigger company, the stock market, or just another PE company.

Never to actually create a proper business...

Are they actually successful or just succeeded in marketing their brand recognition. Probably with absolutely massive spend... Just how many people are in their market with whatever monthly spend they have.

This is insane. I can't imagine (and be bothered to look if it's available) how much percentage of this is dedicated to marketing, but it must be a massive part.

Those numbers don't tell you that Squarespace is a pig with lipstick. It might be one! But, SAAS economics treat the ability to hit near-zero profitability as a feature of the business model, not a problem.

Here's why -- income is taxed, and growth is rewarded, heavily, in the valuation of the company. If every dollar of business you make is worth $6 (Roughly $1.2bn in revenues = $7bn buyout), and every $1 of new business you earn costs $1, then by spending all your cash, you make 5x on it. In the alternative, you can keep $0.78 / dollar, so the net gain versus keeping earnings is $4.22. I like that trade, and I'd make it as the CEO of Squarespace.

What's unusual about SAAS companies is how easy it is to manage this part of the business economics as compared to, say a bean factory. Much of the spend is digital marketing, and sales teams are much easier to scale up and down than say factories.

The people that don’t get this are the people that want their startup to turn a profit by next Tuesday.

You mean to tell me the best thing you can do with that revenue is put it in your pocket? There’s no way to spend it on your business to make more money? Sounds like you don’t have much of a startup then.

Sales growth for 2023: 17%

https://www.cnbc.com/quotes/SQSP?tab=financials

So, we've achieved growth-valuation stasis: $1 in growth = $1 in valuation, give or take, Time to sell the company, or re-trench it for margin. Or both, in this case.

Yeah. Sounds like the beginning of the end for Squarespace. Grats to the owners for cashing out, though, hope they enjoy their yachts.

They were already public, they could have cashed out already at a good sized chunk of this. The yachts were already within reach.

>There's just too much incentive to jack up prices to service the debt taken to acquire Squarespace, and cut costs on customer support and building new features.

So what's the best ownership structure? Public companies have their issues (short-term thinking), acquisitions have their issues (getting closed down)...

I mean, cutting costs and upping prices isn't awesome for the customer, but do you have more faith in a company that's scraping by versus working to be profitable?

What evidence do you have that the new owners are interested in making Squarespace profitable or sustainable? PE firms are the "selling the car for scrap" of business acquisitions.

They're trying to buy it and probably do some rationalizing to increase profitability. Classic PE play.

But can they "sell it for scrap" for more than they bought it in the first place?

Presumably, or else they wouldn't have bought it. Plenty of ways to make a profit while hollowing out a company: fire as many employees as possible, steal as much as possible from their employees and vendors, raise prices on customers, make closing customer accounts as difficult as possible, do some silly accounting tricks to make someone else hold the bag, try to find someone to fob off the brand name to for a few bucks once there's nothing left to extract. The usual stuff, they know the routine.

> do you have more faith in a company that's scraping by versus working to be profitable

Working to be profitable is not correlated with well-functioning. Its usually correlated with enshittification (https://en.wikipedia.org/wiki/Enshittification), and poor functioning.

The most profitable (at least in the short term) is to provide a costly product that you took no time to produce, with zero support.

When I read the comment you are responding to, I just chuckled and thought of Amazon, which famously did not turn a profit for decades and nevertheless, proved to be one of the best run companies during that period (for investors - obviously their treatment of employees is miserable).

Soon, most of the engineering and support will be over in India. I'd make a joke about innovation, but not sure how innovative Square has been the last five years.

> I'd make a joke about innovation, but not sure how innovative Square has been the last five years.

Honestly, isn't that a great match for PE?

Once a company has run its innovation sprint, convert it to keep-the-lights-on and cut costs.

In return, PE gets to buy a revenue stream.

The unsaid thing is that the customer signed up to squarespace is going to get less value for their dollars. Profit has to come from somewhere, and it aint innovation as you said.

Flip side is that PE-owned companies probably run leaner than public, as they don't have to show growth.

We're all familiar with the gut-and-life-support PE examples.

But there are a lot of trim-the-fat PE examples too.

Squarespace, very different company, though they do compete to an extent.

I’ve seen a lot of changes from Square, though half of them were bad.

Squarespace.

Different company than Square.

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