I sold a Company on MicroAcquire AMA
I recently did an interview with Acquire.com on my experience buying and selling a company on their website.
One tip I share in the interview is how to properly value a company.
Most of the time, we value companies based on a multiple of revenue. Eg If a company makes 10k/year and we give it a 3x multiple, then the company is worth 30k.
However, for smaller companies this is actually a mistake because it doesn’t account for the value of the IP itself. Especially at low revenues, the code and IP are worth far more than the revenue it generates.
So the proper way to value a company, especially if it doesn’t make that much money, is to ask these two questions:
1️⃣ How much would you pay for this company if it made 0 revenue?
2️⃣ Then add on the revenue multiple on top of your answer to 1).
And that’s the real value of the company.
In full transparency, I didn't make much on the acquisition, maybe $15k from the acquisition + revenue which I had to split with a partner and to cover some costs. But it was still an experience.
If you have any more questions on buying and selling companies, I’ll answer them below.
My full interview is here: https://acquire.com/blog/how-to-buy-and-sell-a-saas-business/
Thanks for sharing your experience Michael. Im curious, for first-time acquisition entrepreneurs, would you recommend (1) acquiring a micro-saas in the <$2K range all cash or (2) purchasing a saas in the $15-20K range with a small business loan?
I can see pros/cons to each, but wanted to get your opinion. Thanks!
I'm curious, what would have to have been different for you to NOT sell?
My partner and I had other life events going on that made it hard for us to focus on this anymore.
Wow, thanks for sharing your experience and knowledge on valuing a company. I really appreciate the tip on considering the value of the IP, especially for smaller businesses. And kudos to you for being transparent about your own acquisition, even though it didn't bring a huge return. I'm sure it was still a valuable experience. Thanks again for sharing!
Np, thank you!
Congrats!
Here's what I'd like to know,
Did you really plan to sell the company when you started?
Was it possible to build & grow the company without your partner?
Having a partner was critical. I generally recommend most founders to have a partner.
Hi Michael. Congratulations on your success. I am thinking to acquire a startup for a long time but dont know how to research and what to look for.
Can I please know:
I appreciate your response.
Try to know what your growth plan is and what engineering changes you want to make before you buy the company. That way you can ask their team how to make those changes while they're still there so once you buy the company, you can implement it immediately.
Congratulations on the acquisition of your company. What do you think is the best way to approach organizations about acquiring a start up? Such as who to connect with? How to get into contact with them? Etc?
You can message the founders, also I'd just try to list it on Microacquire anyways. I got like 20 offers to buy the company in 2 weeks.
Hello, Thank you for sharing this post,
How to value a company when there is some growth every month, for eg, lets say its making $25 for the first month, then the next month $30, then the next month $40 etc. How do we decide the correct value?
Just take the trailing twelve months revenue and apply a multiple to it. If it's growing more, then use a higher multiple, if it's not growing as much, use a smaller one.
That's valuable advice. Congrats on the sale and thank you for sharing.
Any time :)