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!



Why Investing/Passing

  1. Surface Level Materials: Intro video was all broad statements. No deep dives or review of founder’s unfair advantages, nor exposing why their dealflow is competitive.
  2. Lack of Demonstrated Experience: You know it’s concerning when some random dude on the Internet (yours, truly) has more public proclamation of investment theses and deal history than your investment business. (Link.)
  3. Ambiguity of Value Add: I vigorously agree with the thesis of investing in profitable, bootstrapped, SaaS businesses, but with no numbers, case studies, or more details, it’s hard to size this business up. In addition, while I could do more due diligence, since this is an investment company as opposed to an operational business, I’m holding them to the higher standard of knowing what investors expect and look for, as that is exactly what they should be looking for in their investments.

The 6 Calacanis Characteristics (91 161 18)

1. A startup that is based in SVFail: 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)

  1. The Engineering question:
    • N/A: No technology.
  2. The Timing question
    • Good: Can see COVID being a great time to acquire cheaper SaaS businesses.
  3. The monopoly question
    • Meh: there are probably some economies of scale, but nothing groundbreaking.
  4. The people question: 
    • OK: team seems to make sense, but lack of materials not promising.
  5. The distribution question
    • N/A: not a startup so not relevant.
  6. 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.
  7. *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:

  1. 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.
  2. 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.
  3. 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

  1. 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.
  2. 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.
  3. 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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.


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.

Review these deal memos every time the startup raises a new round

Test if original thesis still applies

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  1. Ryan Bettencourt
    Ryan Bettencourt
    August 25, 2020 at 10:33 am

    Hi Muhan,

    Thanks very much for your coverage on what we are doing at Legion. We really appreciate your points. We take your feedback to heart and agree that we can do a better job of articulating who we are, what we are doing, and how we have competitive advantages in the market.

    Addressing a few points:

    Platform: We love the platforms but have chosen to raise money on our own platform (fully approved by FINRA) for a variety of reasons, including our ability to optimize the experience for our potential investors, to be able to offer terms we think make sense (ie many platforms don’t like warrants) and to retain more of the capital within the company to use on the operational and investment activity of the company. Our site is powered by a tech partner that has built the underlying tech to a number of the platforms. Our approach is not unique on this – there are a lot of very successful Reg A+ deals that have raised on their own websites (Real Estate platforms, Tasty Equity, Winc, etc..).

    Team: We are an experienced team and you are right that we should highlight that experience better. We have chosen not to focus too much on our Hello Bar experience because, while Mike, Keiran and I have grown that together we have worked together and independently on a number of other successful ventures as well. We will do a better job of highlighting those experiences going forward. Thank you for that input.

    Additional Background Content: Yes, you are right – we are working on sharing more details on our approach and traction and we appreciate that feedback. We are starting to do interviews with a number of publications, we have a video series we are working on and we have launched a blog where we are sharing more about our approach. Through those we will be sharing more about our competitive advantages (both as Legion but also for each of the companies we acquire and start), how we think about our eventual exit opportunities, etc…

    Our initial blog posts also address some of the points you have raised so we encourage you to check those posts out:

    -You can see our thoughts on geography and why we don’t look for deals in Silicon Valley here: https://medium.com/legionworks/how-we-think-about-geography-47eaf0543014

    You can see more about our approach and thesis here: https://medium.com/legionworks/our-thesis-on-a-thesis-1b4cdf79b99d & https://medium.com/legionworks/our-thesis-in-greater-detail-45307601c511

    Again, we really appreciate your great feedback and for taking the time to cover what we are doing. We are very bullish and confident in what we are doing, but we also want to get better every day and take your points to heart.

    All the best,

    Ryan Bettencourt
    Co-Founder & CEO, Legion

    • muhan
      muhan • Post Author •
      August 30, 2020 at 2:46 pm


      Thanks so much for taking the time to pen this thoughtful response! I flipped through some of your attached materials. It’s promising to see this content, and I’ll be excited to see more of the specifics regarding your targeted acquisition plans, portfolio companies, track record, etc.

      Bests and good luck with the rest of the raise.


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