Sell Your Web App: Lessons I Learned From Selling DropSend | Hacker News Reader

Sell Your Web App: Lessons I Learned From Selling DropSend

thinkvitamin.com

117 pointsmadmotive28 comments

Great ... I'll file this under my "stuff to remember if my wildest dreams come true and someone buys my startup" folder.

I a lot of interesting info that I haven't seen linked yet:

From 11/24/06, via Google cache: http://is.gd/5cvU

"How much profit does DropSend bring in each month?

    * Revenue: $9,041.81 per month (and growing by 8.6% per month)

    * Costs: $2,100 per month (Servers at 365main.com + maintenance)

    * Profit: $6,941.81 per month"

Interesting... 10X profit would make it an approximately 700K sale. I wouldn't be surprised if that was close to the actual number because Carson wanted around 1M, so after negotiations this seems likely.

I guess the "Cash not stock" advice is more true right now, in retrospect, than in general?

I mean, since stock is riskier than cash, you can demand more of it? Of course it depends what stock is on offer - but as the market looks now, and if I'm able to sit on it for five years, I'd absolutely prefer 110 value-units of GOOG over 100 value-units of cash.

It definitely depends on the circumstances. Viaweb sold to Yahoo for stock before it went up in a huge way. They probably would have had a much lower price if it was straight cash.

In one of the Startup School talks, someone said the $50 mil in Yahoo stock turned into $750 mil. So getting stock worked out pretty well for Viawebbers.

there's a huge difference between public company stock and private company stock. public company stock isn't necessarily bad: you can decide to do what you want with it, since it's fairly liquid. if you hold on to it and the price drops, that's a risk you assumed.

private company stock, however, is completely illiquid, and has a very high probability of being worth $0, and that is usually what people mean when they talk about accepting stock vs cash. agreeing to a stock buyout of your company by another private company can be good, but you're essentially trading your risk for theirs.

"Expect staged payments The buyer will usually pay 50% on completion (signing) of the contracts and 50% on successful transfer of the domain name(s). Make sure to start the domain transfer process the moment the contract is signed."

This is not quite the normal way that it works. In the last 12 months I have been involved in two major UK web acquisitions and, actually, the way it works is that a couple of % of the transaction value is kept as a retention for a full financial year after completion. This is in case of something going wrong (whatever that might be), the buyers will have a pool of cash big enough to sort out whatever is likely to happen. If everything checks out ok, then that cash will be released.

Good article.

Interesting about the merchant account/billing stuff. I would think an acquiring company would be willing to work things out over time–even after the sale. After all, all the money is still going to them.

Invoices have to be correct for filing your accounts. If they're issued by the wrong company you're making life unnecessarily hard for yourself.

How do you find buyers though?

Greatest quote I've heard on the subject: "Companies are bought, not sold."

If you're selling someone a company, surely you would just sell them the merchant account and company bank account as well, no? Did they sell the application but not the company?

Yes, they did.

Dropsend was the application, and Carson Systems is the company.

How common are the two scenarios? A lot of YC companies are created with one and only one thing, so I guess you can sell the whole company. Other kinds of companies might have more products, and sell the product off, rather than the company. Does it really matter much one way or the other?

That's a fair point. I think it would matter only when the company in question has decided to share common tasks (like a bank account, or even a user database) across all of their projects.

Quick decoupling or forced encapsulation of projects seems to be a consideration that should be built into a company with more than one product.

there's a huge difference tax wise: stock vs. asset sale. asset sales can get taxed through the ass and back out again.

Good article.

Does anyone know about how much DropSend sold for?

They declined to say: http://www.carsonified.com/dropsend/carsonified-sells-dropse...

They blogged about the process in 2006.

http://www.carsonified.com/misc/dropsend-acquisition-talks-f...

http://www.carsonified.com/misc/things-potential-buyers-are-...

Unfortunately the buyer wouldn't let me say. Needless to say, it was pretty nice :)

Hey Ryan, I've been following this from a distance ever since you'd started blogging about what it took to build dropsend and heyamigo. I think there's probably a lot of people here that haven't seen the barenakedapp website that would love to. Any chance you could put it back up?

Good Job btw, it takes a lot of courage to buck the trend and be so open about the whole process, but I'm learning a lot from your experiences, so thanks.

> [serious buyers] don’t want [the price] available to competitors

Anyone know why?

This is normal business practice. If you know, then the companys competitors know too. From the price they can infer all kinds of things. If you paid above market price maybe it is a strategic asset, if you paid below market price maybe it isn't central to the core strategy but too good to pass over. Etc.

It's normal business practice but that doesn't mean it's logical. The real reason in most cases is just that most people and businesses consider anything to do with money to be private.

You could cough n times and sneeze m times, where your sale price is nem.

[edit: nem as in n*10^m]

Actually, all we care about are the sneezes.

Reply on news.ycombinator.com