The Founder’s Guide To Selling Your Company (2014) • Hacker News Board

Re: The Founder’s Guide To Selling Your Company (2014)

#21

Post by justin » Thu, Jan 25, 2018, 9:43 PM UTC

porter wrote: post #19

Justin - you mentioned that investments bankers take 1-2% of the selling price. What percentage do all the rest of the closing costs take up (lawyers, etc)? What are these other closing costs?

Lawyers are one of those costs that can be a lot, or controlled, depending on how much negotiation happens. For billion dollar acquisitions usually you will pay $1-2mm in fees in my experience. For smaller acquisitions I've seen anywhere from 100-500k. Those are very loose ballpark numbers.

Other closing costs -- usually there will be an escrow service for any holdbacks. That usually is only tens of thousands of dollars - not expensive relative to deal size.

Re: The Founder’s Guide To Selling Your Company (2014)

#22

Post by throwawayyx96 » Thu, Jan 25, 2018, 10:18 PM UTC

justin wrote: post #12

throwawayyx96 wrote: post #11

At the time of its sale to Amazon, I remember wondering how twitch could only be worth 1 billion compared to something like WhatsApp being worth 20 billion. It was purely from an engineering standpoint that I considered what twitch was doing to be vastly more impressive. It's three years later and Amazon hasn't been too overbearing with the changes they've made, but I wonder if JKan believes he got fair value for his…

Life is what you negotiate :) Taking $970mm seemed like a good deal given the level of risk. So from an expected value perspective it was a fair trade. Twitch has grown much since then, but you can't have regrets when it comes to trades.

Hey, thanks for answering! It's probably closer to the truth that WhatsApp was just insanely overvalued in comparison as FB has been very aggressive in eliminating anyone that threatens their dominance. I'm a long time twitch/JTV user who's been there almost since the start (close to 10-year anniversary now), so I'll take this opportunity to say thanks.

Re: The Founder’s Guide To Selling Your Company (2014)

#23

Post by Denzel » Thu, Jan 25, 2018, 10:23 PM UTC

jacquesm wrote: post #18

nodesocket wrote: post #4

This is great, but I'd love to see a post on selling a side business (no outside investment) and less than $10,000 a month in MRR.

Find a couple of your competitors and set up a bidding process, that is probably the best way to get the maximum out of a company like that. Aim for 10 years net or so, and be sure to stipulate that you reserve the right to refuse all offers. I've written up a HN thread about this subject a long time ago: https://jacquesmattheij.com/how-to-sell-your-company

When you say aim for 10 years net: if the company nets $100k/yr, you think it'd be reasonable to ask for a $1M sale?

Where does this 10x multiplier come from? I thought the prevailing multiplier (for small SaaS) was 3x net.

Re: The Founder’s Guide To Selling Your Company (2014)

#24

Post by berkay » Thu, Jan 25, 2018, 10:41 PM UTC

Denzel wrote: post #23

jacquesm wrote: post #18

Earlier quoted context omitted.

Find a couple of your competitors and set up a bidding process, that is probably the best way to get the maximum out of a company like that. Aim for 10 years net or so, and be sure to stipulate that you reserve the right to refuse all offers. I've written up a HN thread about this subject a long time ago: https://jacquesmattheij.com/how-to-sell-your-company

When you say aim for 10 years net: if the company nets $100k/yr, you think it'd be reasonable to ask for a $1M sale? Where does this 10x multiplier come from? I thought the prevailing multiplier (for small SaaS) was 3x net.

multiple is highly dependent on the growth rate, and makes no sense to talk about it without knowing how fast the company is growing. $100k/year growing 100% is very different than growing 10%.

Re: The Founder’s Guide To Selling Your Company (2014)

#25

Post by AndrewKemendo » Thu, Jan 25, 2018, 10:52 PM UTC

justin wrote: post #15

AndrewKemendo wrote: post #3

I've read this a few times and having been through up and down periods it's clear that the most important part of this, is the following: The best time to sell your startup is when you have many options. It needs to be really emphasized that this is a very rare place for the vast majority of startups. That means this advice isn't generally applicable. Which brings up the implicit question, why would you decide to sel…

Interesting point. I could also write "The Founder's Guide to Selling Your Company When You Have Few Options" based on my experiences. It is a much more horrible process. Re: why sell? 970 million reasons. Biggest one was that it seemed like good value for what we had. Another reason: from my perspective (it may be different for other people involved) we were also at an inflection point where there was a steep power…

It is a much more horrible process.

Well exactly, which is why it's really valuable for founders in that position to lean on - much more applicable to the bulk of founders.

Re: The Founder’s Guide To Selling Your Company (2014)

#26

Post by jacquesm » Fri, Jan 26, 2018, 12:16 AM UTC

berkay wrote: post #24

Denzel wrote: post #23

Earlier quoted context omitted.

When you say aim for 10 years net: if the company nets $100k/yr, you think it'd be reasonable to ask for a $1M sale? Where does this 10x multiplier come from? I thought the prevailing multiplier (for small SaaS) was 3x net.

multiple is highly dependent on the growth rate, and makes no sense to talk about it without knowing how fast the company is growing. $100k/year growing 100% is very different than growing 10%.

If it was growing 100% per year do you think the ggp would be interested in selling?

Re: The Founder’s Guide To Selling Your Company (2014)

#27

Post by jacquesm » Fri, Jan 26, 2018, 12:19 AM UTC

Denzel wrote: post #23

jacquesm wrote: post #18

Earlier quoted context omitted.

Find a couple of your competitors and set up a bidding process, that is probably the best way to get the maximum out of a company like that. Aim for 10 years net or so, and be sure to stipulate that you reserve the right to refuse all offers. I've written up a HN thread about this subject a long time ago: https://jacquesmattheij.com/how-to-sell-your-company

When you say aim for 10 years net: if the company nets $100k/yr, you think it'd be reasonable to ask for a $1M sale? Where does this 10x multiplier come from? I thought the prevailing multiplier (for small SaaS) was 3x net.

From experience this is what you should be able to get if you negotiate hard and have more than one interested party at the table. If you can find only one taker and they are aware of it you will see a much lower value.

Also: for less than 10x net, if is growing steadily just hold on to it for a little while longer, but do continue to talk to interested parties, you will meet your goal sooner or later. Patience is the big secret to successful negotiation.

Re: The Founder’s Guide To Selling Your Company (2014)

#28

Post by [deleted] » Fri, Jan 26, 2018, 12:47 AM UTC

justin wrote: post #16

Hey HN, Justin here (the post's original author). Didn't expect this to get posted again. I'm happy to answer any questions here about selling your company. I recently started a new company, Atrium, aiming to make legal services (such as M&A) for startups and tech companies easier as well.

[deleted]

Re: The Founder’s Guide To Selling Your Company (2014)

#29

Post by mbesto » Fri, Jan 26, 2018, 12:47 AM UTC

I've worked in software M&A advisory for 3 years now. This is an awesome guide. Anyone looking for professional advice (go beyond just reading blog posts and internet material) on this type of thing, feel free to reach out. Happy to speak for free initially and point in the right direction.

Re: The Founder’s Guide To Selling Your Company (2014)

#30

Post by mbesto » Fri, Jan 26, 2018, 12:52 AM UTC

justin wrote: post #21

porter wrote: post #19

Justin - you mentioned that investments bankers take 1-2% of the selling price. What percentage do all the rest of the closing costs take up (lawyers, etc)? What are these other closing costs?

Lawyers are one of those costs that can be a lot, or controlled, depending on how much negotiation happens. For billion dollar acquisitions usually you will pay $1-2mm in fees in my experience. For smaller acquisitions I've seen anywhere from 100-500k. Those are very loose ballpark numbers. Other closing costs -- usually there will be an escrow service for any holdbacks. That usually is only tens of thousands of doll…

On the sell side, the typical costs are:

- Bankers (and/or other advisors)

- Lawyers

- Accountants (if you don't have dedicated resources)

- Your time

I can't stress this enough - the last one ends up being your biggest cost (although not direct). I've seen more than enough company's execs struggle with transaction fatigue because you're trying to sell a company while still running one. This is where good bankers/advisors come in.