Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Ask HN: Selling my first company - need help with the process

news.ycombinator.com

Post reply on HN
Print view View original

31–40 of 52 posts

Re: Ask HN: Selling my first company - need help with the process

#31

Post by user2newyork »

kirse wrote: post #7
drewcrawford wrote: post #2

I've never been in your shoes, but one small tidbit I've learned about business in general is that the first person to say a number loses. If you can, try to get an offer out of them, and start negotiations there. The other rule of thumb I've seen acquirers use is (yearly revenue) * X, where X is some indicator of the risk of the business evaporating. Values of 0.9-1.6 for X seem pretty common for a product with litt…

the first person to say a number loses This is really just a myth. If you present a buyer with well-justified and thought-out reasons for your number, it's going to be hard for them to counter-offer with something ridiculous, unless they're just being an ass. Not to mention you should always have your base number in mind, at which point you just walk away. The OP also said the company has agreed with most of his init…

Thanks for the details. like the $Well-Justified-Price+$Extra.

Re: Ask HN: Selling my first company - need help with the process

#33

Post by adammichaelc »

Two quick thoughts:

1. The best way to have leverage during negotiations is to have another option. So another potential acquirer, or whatever.

2. I would talk to somebody who has been through an exit. There's this list http://spreadsheets.google.com/ccc?key=tgPKuNIdWWOPUpj2ZnF8N... (was created on HN a while ago). It's a list of entrepreneurs and others who are willing to mentor HN startups. Find one who's been through an exit, and see if they're willing to help.

Good luck!

Re: Ask HN: Selling my first company - need help with the process

#34

Post by user2newyork »

zackola wrote: post #8

Regarding pricing have you explored whether or not companies W, Y or Z might be interested in buying your product? Until you explore other buyers you are limiting the range of offers you may be able to get. By only entertaining what company X might buy this for you have already agreed to a price range which is $some amount of money that's an obscene deal for company X to $the maximum company X might be willing to pay…

I tried to reach W Y and Z but unfortunately they are not aggressive enough to entertain new innovative solutions.

Re: Ask HN: Selling my first company - need help with the process

#35

Post by SkyMarshal »

Read Fischer & Ury's Getting to Yes if you have time. Great little book on negotiating. One of their main pieces of advice is, before entering any negotiation, work out your BATNA - Best Alternative to a Negotiated Agreement.

A BATNA is not the lowest price you're willing to accept in a negotiation, but rather what you would do if the negotiation never occurred in the first place. Bootstrap your product, try to gain traction, profit? Raise angel/VC money, work towards an exit strategy? Apply to YC?

Once you have that figured out, you can enter into a negotiation with a much better idea of the value of your product to you. If there is overlap with that and what the other company is willing to offer for it, then you can make a win/win deal.

It also helps to have some idea of the value of your product to the other company, as you do.

Good luck, and congrats.

Re: Ask HN: Selling my first company - need help with the process

#37

Post by SkyMarshal »

user2newyork wrote: post #29
donw wrote: post #6

Is the product currently generating revenue? If so, at what percentage of the amount that the buyer thinks it will add to their bottom line?

No I haven't released the product yet. Buyer has the revenue with a product which my product complements.

Can your product make money on its own, or only in conjunction with the company's complementary one?

Re: Ask HN: Selling my first company - need help with the process

#38

Post by JacobAldridge »

bmr wrote: post #20
thiele wrote: post #17

Earlier quoted context omitted.

0.9 to 1.6 multiplier seemed really low to me too. I'd love to hear some more opinions of "common" multipliers.

I've done grunt work on some deals and seen multipliers in the 6-14X range. But the multiple was of EBITDA, not revenue. If you talk in terms of revenue, multipliers can vary as wildy as companies' margins do. EBITDA (or one of its zillion variations) common-sizes the multiple.

You're correct, the difference is multiplying by gross revenue or by EBITDA. In Accounting firms, for example, it is common to have a multiple (often about 0.9) of Revenue, which is often 3-5 times EBITDA. A property management rent roll is another example where revenue is used, often 2.7 - 3.2 times depending on the market.

Most companies, however, are sold on EBITDA multiples. Unless the new business can rapidly be plugged into existing processes (like in accounting and property management), then the buyer wants to have a better idea of profit margins. EDITDA will give them that.

Re: Ask HN: Selling my first company - need help with the process

#39

Post by arethuza »

Be very careful if it is a paper transaction (i.e. you get stock rather than cash) - especially if they are a private company. If they are public, check how liquid their stock is - some small cap stocks are anything but.

A cash transaction, even with an earn out or something similar, has a lot going for it.

Re: Ask HN: Selling my first company - need help with the process

#40

Post by retube »

gojomo wrote: post #30

Get a good business laywer. A lawyer can help with both negotiating strategy and structuring the deal. If for company X your product will really make them $Y million/year (Y>1) then the size of the deal is large enough to make getting professional help worthwhile, ASAP. Two key factors influencing their willingness to pay: - the net-present-value (NPV) of all expected future profits from your program. If they've alre…

> their best-alternative to a negotiated agreement -- aka their "BATNA" -- be it some competitor's software, or an in-house development effort, or whatever.

This one is important. Just because your product may earn/save a million bucks a year doesn't mean it's worth that. If they can build it themselves for a 100k then it's worth a 100k.

Post reply on HN