How to Sell Your Startup | Hacker News Reader

How to Sell Your Startup

bilalmahmood.medium.com

143 pointsAnhTho_FR27 comments

There’s some major caveats that need to be detailed:

- Acquisition price. The smaller the $, the quicker the process can be.

- Who’s the champion. The higher up in the org the acquiring champion is, the quicker the process can be. (Eg Zuck acquiring WhatsApp took just days)

- Regulated industry. If the acquirer is not in a regulated industry (Eg banking), the quicker the process can take.

- Competitor acquisition halo effect. Eg did Coke just acquire a Coffee company, that will put time pressure for Pepsi to do the same.

And just because an acquisition can be quicker, doesn’t mean it will be quick.

Also keep in mind, there’s a higher chance the acquisition will fall through than to actually complete. If the acquisition does complete, there will likely be an earn out period of 12-24 months.

If you read this and found it useful then maybe this one is useful to you too, it was the work of quite a few HN'ers to gather all that information:

https://jacquesmattheij.com/how-to-sell-your-company/

It's a while ago but as far as I can see most of it still applies today.

Thanks for sharing, Jacques (and Merry Christmas, even if it's late!). I actually remembered something like that and was pleasantly surprised to see it mentioned by you.

Hello Simone, Merry Christmas to you too! That article is an evergreen, I still get pretty regular mail about it from people that are in the process and somehow find it and have concrete questions about what they are going through.

> Most acquisitions happen due to an acquirer wanting one of three assets: your team, your product, or your revenue. And if you’re lucky, all three.

I might be alone on this (I don’t see it mentioned often) but I think I’d consider it very lucky if they only wanted 2 of those 3. A huge part of why I started a company in the first place is to not work for someone else, and selling myself back into a job seems like the opposite of a win!

It doesn’t seem very common for sales to happen without the founder sticking around though. I’ve assumed this is because buyers do in fact mostly want the founder as an employee, and either aren’t willing to do the deal without that, or the offer is so much lower that it’s not worth selling.

> It doesn’t seem very common for sales to happen without the founder sticking around though.

Typically there's a reason to keep founders around and it's not related to their output, but more as a figure head/tacit acceptance of the deal that is made.

If a larger company is swallowing a smaller company, they may want to continue to work with the founder/some members of the exec team to help with integration efforts for the companies.

In return, the members of this team typically added incentives and ability to generate even more wealth as a result.

I think the article should more accurately be titled as how to do a small scale feature tuck in / acquihir-ish soft landing.

The intro talks about 9-figure deals, which seems a bit higher than an acquihire to me. 7-8 figures sure.

I found anchoring on price early in the process has been helpful to understand who is serious and who is not. I've been through the process twice, well actually three times as the first time the deal fell through (we sold 20 months later). Some businesses simply are bought on a multiple of revenue or ebitda that is common in their industry and in that case I found it expedites the process to be clear on top line + adjusted ebitda and expected range of valuation.

I also negotiated salaries etc early in the process so it's all generally done at the same time before the term sheet.

Selling on revenue multiple is easier bc means leaving a lot of $ on the table: a good sale is in terms of the value to the acquirer, which can be a % of a massive #, not the immature revenue operations of some young startup . But if you don't super care, then based on revenue or next round are easy low standins -- basically the "BATNA".

A lot of the reasoning in the article comes from the difference between being bought vs sold. Hiding lack of runway is clear there. The article repeats a lot of good standard advice & prioritization in general.

Similar. I wanted out of my startup to pursue a new avenue. I sold for 5x annual revenue and a 1-yr exit. All paid in cash over that one year.

What was your growth rate when you sold?

A company growing 100% YoY vs a company shrinking 10% a year make the 5x buyout very different sounding to me.,,

Our growth rate was fairly modest by that point, about 10% YoY. That was mostly a result of me being greedy and taking cash off the table each year and running it as a lifestyle business.

Interviewing to keep your job sounds brutal, especially given how much of a crap-shoot it is whether the problem you get is one you can solve in 45 minutes. When you are job hunting, you can interview a bunch of places so that hopefully one of them succeeds, even if the per-interview pass rate is low. But in an acquisition context, where it's just one interview, wouldn't we expect the vast majority of the team to fail? Are these interviews graded more gently? Or do employees of acquired companies actually do meaningfully better in the interview process than people off the street?

Our experience was quite different in terms of how it progressed (we were acquired by a public company). I remember after meeting with the Chairman/CEO they more or less went straight into heavy due-diligence; Deloitte audited our financials (I believe this was paid for by the acquiring company). The process in our case was much quicker than six months to get to the definitive agreement - only a few months. It was tremendously stressful, however I recall that day of initialing what seemed like hundreds of pages of agreement for the sale - such relief.

Did you have a number worked out (or something like a multiple) before diving into due diligence?

How does the process look for a 1man product that took no VC?

Keep everything clean. Have accounting setup correctly with PnL no matter how small. Then calculate Seller's discretionary Earnings (SDE) for 12 months and multiply it by 2x-5x usually to get a price. the multiple depends on tons of factors. rarely it will be over 5x SDE if your SDE is less than 500K.

Is it possible to sell a something that's not yet a going concern? ie name, logo, branding, ideas, prototypes, etc? Where and how?

All of this is worth basically 0. If you got a good .com name maybe someone will want in 10 years.

In general I agree, but it really depends on the idea, product, branding etc.

Movie ideas can be sold for 6-7 figures.

So why wouldn't something more developed than just an idea also be valuable to someone, ie a good fleshed-out business/product idea and some development, trademark etc, but not yet online/no paying customers, etc.

How to find that someone?

Because the world is full of ideas. 99% of them are bad and worth no money. The way you prove it is, is to go implement it and see what happens.

Movie scripts are sold for 7 figures if you have written multiple 7-9 figure movies. Which again, is proof by doing that it is good. If you or me spends 6 months and write a banger movie script, I doubt we can sell it for $250.

Not necessarily, 'off the street' movie ideas do indeed sell.

And good ideas really are not worthless, though I agree 99% are just not good ideas. This industry would have you believe that ideas are nothing, because their business is funding idea development.

And the assumption is a web product. Of course it's difficult to gauge if a web product is going to work, and you should just try it because it's relatively easy. For real products, this doesn't apply so directly. In some ways it's easier to see if an idea is worth trying out or not, and since it's harder to actually test a real product idea, the idea better be good.

And I'm specifically talking about more than just an idea, particularly some product development and branding.

Like I said..

No one is going to buy your product idea and branding.

Don't believe me? Go try to sell it. Show me the offer letter. I am guessing you do the thing of making people sign a NDA to hear your idea?

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