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I almost sold Baremetrics for $5M

baremetrics.com

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Re: I almost sold Baremetrics for $5M

#221

Post by garyclarke27 »

charlesdm wrote: post #207
Mr_2020 wrote: post #169

Earlier quoted context omitted.

~$8m price. Asked for $25,000 break fee to cover our costs. Was balked at. Have no reason to believe they were not serious buyers as they bought another company or two.

I'm based in Europe but together with a partner I'm a buyer of small tech businesses. We have bought businesses so are credible and are always interested in buying more. We could pay $8m if an interesting business came along. The issue is that a lot of smaller deals fall through, either because of unrealistic final price expectations by the seller or because some metric that is super important to the business was cal…

Agreed - I sold a tech company in the UK for $6M a 2.5 years ago. The idea of a buyer paying a deposit is pipe-dream, as a seller you have to take a risk, you have to pay significant legal fees and a retainer to the broker and of course the due diligence is painful and time consuming. One thing that you can do is get to know the buyer well, before you commit, I studied their financials in depth, this gave me the confidence to go-ahead, knowing that they had the cash available. Unexpectedly to me, it was the buyer’s lawyer’s who nearly scuppered the deal on several occasions when I completely lost my temper with them - they were awful to deal with, extremely anal over minor details, impractical also untrustworthy, they kept resurrecting issues we thought had been resolved.

Re: I almost sold Baremetrics for $5M

#222

Post by taylortrusty »

throw3982 wrote: post #181

Is there any forum or group that has people that can advise on such matters? I know HN is one but it's too big/too impersonal for this. I mean a place for founders to find "mentors" (i.e. people with more experience or people that have done similar things before) that would be willing to help them with things as a sale to a big company or how to structure a deal.

There’s a global peer group called Entrepreneurs Organization I’ve been part of for five years that satisfies this for me. It’s for founders/owners with $1m+ in revenue. 14,000 members around the world broken up into smaller chapters. The NYC chapter has 200 members, for instance. eonetwork.org

YPO is another one, though for larger companies ($8+ million in revenue).

Re: I almost sold Baremetrics for $5M

#223

Post by brianwawok »

unlinked_dll wrote: post #159
tuesday20 wrote: post #146

Earlier quoted context omitted.

There is always a non insignificant chance that exits will be followed by layoffs

True, but layoff + severance < layoff + severance + liquidity event

How about cases where due to liquidity preferences, no one but founders get money at the liquidity event? A small exit is often 0 for employees.

Re: I almost sold Baremetrics for $5M

#224

Post by mlyle »

thethimble wrote: post #199
mlyle wrote: post #178

Earlier quoted context omitted.

Deals take a lot longer than 7 days to close-- especially real acquisitions, but even asset purchases usually take months.

There's a lot of misconceptions here around how corporate acquisitions work. Here's typically how things work in practice when companies are sold: - Seller attempts to garner interest, sometimes facilitated by an investment bank. - Buyers indicate interest informally, eventually culminating in a Letter of Intent (LOI) from each buyer indicating a price and other important factors related to a deal. - A cricitical com…

The way it's worked for me is more like:

1. Buyer approaches seller for strategic reasons.

2. Seller tries frantically to probe interest elsewhere while early acquisition discussions continue.

3. Buyer writes a LOI, seller demands reverse break-up fee and changes, tries to stall to continue discussions in #2 without scaring away buyer.

4. Eventually some LOI gets signed.

Re: I almost sold Baremetrics for $5M

#225

Post by irjustin »

mounram wrote: post #212
irjustin wrote: post #72

Earlier quoted context omitted.

Common practice from VC is to do a 3rd party financial audit - billed to the startup in the end. Very expensive, but as you mention, it helps uncover potential ticking time bombs. It's easy to complain about a heavy, expensive finance audit, but startups commonly are setup or practicing mildly to extremely incorrectly. It's just too risky not to do it. Tech audits seem to fly under the radar a lot. Post deal, I've ha…

"was using a single table for users & bookings just more columns" Could elaborate more on this point please ? Thanks.

They were a ticket/booking platform for concerts in ASEAN.

I don't know much else beyond they had a single table which contained both users and bookings where new bookings were just in new columns next to the user info. If the user w/ the most bookings had 51 then they had at least 51 columns. Every time the max bookings user added a new booking they would add more columns - what.

If the DB data structure of the core business looks like that, you can imagine the rest built on top looks absolutely terrible.

Diligence would've easily seen this, but it was never performed. The VC never made that mistake again. Trust but verify.

Re: I almost sold Baremetrics for $5M

#226

Post by nugget »

Misdicorl wrote: post #185
nugget wrote: post #115

Earlier quoted context omitted.

I've handled a decent volume of small tech startup m&a and I've never seen an escrow. Better advice is for the sellers to spend a decent amount of time in person with the buyers. Get to know who you are dealing with. It's a lot easier for a buyer to mislead (intentionally or otherwise) via email as opposed to in person lunches and dinners.

You're advising people to play poker (guess intentions face to face), but only have your side put chips on the table?

Actually the opposite. If chips represent time, I'm advising that the seller force the buyer to spend time (in person) with them to reflect commitment. A classic example is whether or not the seller can get a meeting with the buyer's CEO (depending on the relative sizes of the two companies, it could be a lower level exec too). A CEO will not waste his or her time on a dozen meetings with a dozen different companies to support an m&a fishing expedition. But if the list is narrowed down to just 1 candidate, and certainly if the deal is progressing, then the CEO (or other C level exec) is usually eager to meet with the seller's management team.

Re: I almost sold Baremetrics for $5M

#228

Post by einarvollset »

ablekh wrote: post #203
einarvollset wrote: post #188

Earlier quoted context omitted.

Basically, there are 3 types of buyers: value PE, growth PE and strategic. Value pays 3-4x, growth 4-7x, strategics ¯\_(ツ)_/¯ Stripe would be a strategic for Baremetrics.

Hmm ... Where did you get these multiples from? Based on what I've seen in many sources (here's one that I have at hand, by McKinsey: https://www.mckinsey.com/business-functions/strategy-and-cor... ), high-growth tech/IT startups are valued (and, I assume, could be acquired) at > 15x, sometimes even > 20x.

Public company multiples, VC investment valuations and lower middle market PE exit multiples are very different markets.

The multiples come from direct personal experience.

Re: I almost sold Baremetrics for $5M

#229

Post by einarvollset »

blrgeek wrote: post #208
ablekh wrote: post #203

Earlier quoted context omitted.

Hmm ... Where did you get these multiples from? Based on what I've seen in many sources (here's one that I have at hand, by McKinsey: https://www.mckinsey.com/business-functions/strategy-and-cor... ), high-growth tech/IT startups are valued (and, I assume, could be acquired) at > 15x, sometimes even > 20x.

For public companies, growing > 40%, ARR > $100Mn, NDR>125$ revenue multiples are sky-high ATM. For private companies at around $1Mn-$3Mn ARR growing sub-20% YoY there are very few buyers in the first place.

Compared to public markets yes, but there are 100s of buyers, particularly if you’re (adjusted) EBITDA profitable, but even if just break even.

Re: I almost sold Baremetrics for $5M

#230

Post by einarvollset »

einarvollset wrote: post #188
czbond wrote: post #135

Earlier quoted context omitted.

Fair and thank you for that. Wouldn't their value to Stripe be much more than 3.75x in this case?

Basically, there are 3 types of buyers: value PE, growth PE and strategic. Value pays 3-4x, growth 4-7x, strategics ¯\_(ツ)_/¯ Stripe would be a strategic for Baremetrics.

And for the record, make sure you keep track of price/earnings vs price/revenue multiples :)
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