Buying Developer Tools Companies with Greg and Matt from Polychrome
Greg Lazarus and Matt Althauser's first attempt at buying a company was a $50 million deal, deep into a letter of intent — until the seller realized they'd never actually bought a business before and walked away. That "brutal" loss is what pointed them toward buying developer tools instead.
Greg Lazarus and Matt Althauser are co-founders of Polychrome, a holding company that takes majority or 50/50 equity stakes in bootstrapped developer tools, running go-to-market while the founder stays in charge of product and engineering. Their portfolio includes Flagsmith (their first deal, then called Bullet Train, doing $2,000 a month in revenue) and Browserless.
We get into why they concluded their operating background — not financial engineering — was the actual skill worth a premium in small software acquisitions, how they structured their first deal so Flagsmith's founder never had to give up his other businesses, and their conviction that open-source specifically is a durable, ownable distribution channel in a way most 'rented' growth channels aren't.
The Q&A below is experimental — extracted from the episode transcript with AI. If you spot a mistake, let us know at jack@scalingdevtools.com.
How did you land on the idea of Polychrome after coming from operating roles at venture-backed companies?
Matt was the first non-technical hire at Optimizely, working closely with developers to sell A/B testing, then became CRO at Amplitude; Greg was CRO at Returnly at the same time. At a venture-backed company you have essentially unlimited resources, and we started wondering what it would look like to build a business a different way — with more constraints, but with much heavier ownership. We started with very little money, going out and literally asking founders if they'd sell us half their business, which sounds completely crazy looking back given we had zero experience buying businesses.
You almost bought a $50 million company as your very first deal. What happened?
We got into a letter of intent and went deep into the process before the seller realized we'd never actually bought a business before, and the deal fell apart — a brutal loss, but genuinely useful feedback. It forced us to realize there's a spectrum of skills valued differently depending on a company's stage: building a product from scratch rewards engineering ability, early customer traction rewards people who can run early sales cycles, and once a business matures into something closer to a financial instrument, the valuable skill becomes understanding debt and equity — the world of Barbarians at the Gate. We didn't have that skill set, so we asked ourselves where we could actually get the biggest premium for what we were good at — which turned out to be right at early product-user fit, with initial revenue but no clear path to the next milestone.
How did the Flagsmith deal actually get structured?
Flagsmith — then called Bullet Train — was an open-source project with a small SaaS offering doing about $2,000 a month in revenue, started as a nights-and-weekends project spun out of Ben's agency. We put up $225,000 in cash for a 25% stake, with an agreement to become 50/50 partners once revenue hit a certain milestone. Ben was actually talking to venture investors at the time, but he's a serial entrepreneur running other businesses too, and venture capital would have meant giving those up — going down that path is basically the only path once you take it. We were introduced through a mutual friend, and it was a clear fit: a technical founder who needed go-to-market help, paired with go-to-market people who wanted to build alongside a technical founder rather than just write a check.
That first deal put real personal money and time on the line. How did you sustain yourselves while building Polychrome?
To support all three of us — Greg, myself, and our third partner Alex, who joined a few months in — we did consulting for venture-backed businesses on the side and reinvested that money back into Polychrome. It took about three years, and to date we've only lost around $100,000 in actual burn across the whole portfolio, with every company profitable or cash-flow breakeven. We only went to friends, family, and outside investors for the first time after two years of operating on our own money and time, once we were well past proving the model worked for us specifically. It's a long game — you have to be genuinely obsessed with what this can become in ten years, which is part of why doing it with people you've known for over a decade matters.
How do you actually evaluate whether a business is a good fit to buy, if you're not evaluating it primarily on financials?
We price in that we're never going to out-evaluate a purely financial buyer, so our process is rooted in go-to-market and product strategy instead — the real question is whether we can see a clear path to 10x the business. We use a framework we call market-product-model-channel fit: can a founder clearly answer those four questions, and do the answers actually work together? If your target market is enterprises willing to pay $100,000 a year, a self-serve, product-led-growth motion simply isn't going to get you there — that's an obvious mismatch, but people miss it constantly because they're borrowing a playbook from a different context rather than working out what's coherent for their own situation.
Flagsmith is open source. How did you approach monetizing an open-source project without it feeling like a bait-and-switch to the community?
That was new territory for us, and we were nervous about it at first — but it turned out to be a genuine strength rather than a constraint. The two things we worked on immediately with Ben were nailing down our specific target customer, since feature management is a commoditized, crowded space, and defining our own open-source philosophy: what stays free for anyone to self-host, and what gets gated. Ben's original model was a hard line between the open-source version and a separate SaaS product. We realized there were large organizations that specifically wanted to self-host feature flags on-premises for performance or security reasons and were willing to pay for that — so instead of taking anything away from the free, self-hosted open-source experience, we gated things like SSO and role-based access control, features an organization only really needs once they've already proven the product works for their team.
Why did you specifically want to focus on open-source developer tools rather than general SaaS?
A few reasons. Developer tools are almost always founded by a technical person who usually doesn't have sales or go-to-market experience — that's exactly the founder profile Polychrome is built to complement. Developer tools also tend to have very high net revenue retention, because they get built into an organization's actual processes and infrastructure rather than being a one-off decision. Matt has a framing he likes: some products are a hammer you pick up to solve one problem in the moment, like an A/B testing tool, while developer tools are more like scaffolding that teams and processes get built on top of, which tends to be stickier. We also just believe open source is a genuinely powerful distribution channel and a real way to build trust and community with developers and customers, not just a licensing choice.
You've written about 'rented' versus 'owned' growth channels. What's the distinction?
A rented channel is something like paid ads, where a bigger competitor with greater customer lifetime value can always outbid you — Salesforce can always pay more for the same keyword than a small new CRM trying to compete with it. An owned or built channel is something you invest in over time that compounds and stays defensible specifically for you. Open source was that channel for Flagsmith. At Amplitude, we built owned distribution through genuinely good first-party events with strong speakers, which worked because we weren't operating on a constrained bootstrap budget. One of the first things Matt did in his early months at Flagsmith was start a podcast as an awareness channel, on the same logic — a podcast is a built channel because the marginal cost of each new episode is low once you've made the upfront investment, and the better the guests you attract, the more the distribution compounds; Jack's own podcast is a good example of exactly that dynamic. We're doing the same thing right now building what we think is the first industry conference for the headless browser space, with speakers from Google and Sauce Labs, run by a seven-person company.
What's your advice for a bootstrapped developer tools founder weighing their options?
There are more paths than people realize — you can raise venture money, keep running the business yourself indefinitely and make it profitable on your own terms, sell to private equity, or go down a path like ours. Not many founders know an alternative to venture and PE actually exists, and it doesn't have to be exclusively one or the other; you can build a great business while keeping other parts of your life and other ventures intact. For anyone on the buying side: you're not just buying upside the way you would with a stock — you're buying real downside too, and you can lose your own time, which is arguably scarcer than capital. At this stage of company, you're buying a partner more than a pure asset, so who you choose to get in the foxhole with matters enormously — losing sight of that is genuinely dangerous.
Links & references
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