July 04, 2017

220: How to Buy or Sell a SaaS Business

In this episode, Steli and Hiten talk about buying and selling a SaaS business. With a lot of experience in both buying and selling SaaS businesses, Hiten shares how he evaluates whether a company is worth buying or not. Hiten also shares tips on how you can get the most out of the deal from both the buyer’s side and the seller’s side. Tune-in to find out the importance of doing your due diligence when it comes to making a deal and why it’s important to question a buyer’s motives.

Time Stamped Show Notes:

00:05 – Today’s episode is about how to buy and sell a SaaS business

00:35 – Personally, Hiten has bought and sold SaaS businesses including Holo Bar and Stride

01:08 – When buying a SaaS business, evaluate the financial aspects and your capacity to grow the business as well as if it satisfies a need that you have

02:15 – Ask yourself if it can make you more money—if not, don’t buy it

02:54 – The exception is buying tools that don’t make money, but will help you get more money

03:11 – The most common reason founders sell is because they get tired of it

04:32 – If the ARR (annualized recurring revenue) is more than 1 million and is growing at a healthy pace, you can predict what would happen if you were to buy the business

05:35 – Prior to reaching 10 million in revenue is usually just a small transaction

06:38 – In Hiten’s experience, they tend to buy businesses that come to them or they buy if they really like the business

07:06 – Hiten is not looking for businesses to buy; but, most of the time, they are connected to sellers that do not want their businesses anymore

07:46 – Look at your own financials and theirs and see if it can make you more money—do the math

08:17 – Assess when you can get your return of investment

08:31 – If you are a seller, help the buyer figure out how they can get more money and when they can get it

09:03 – The buyer and the seller should talk about what they can both get from the deal and settle on a price

09:12 – When the buyer is hunting down companies, the seller is at a disadvantage because the buyer already has a price in mind that they’re not telling the seller

09:34 – If you are the seller and the buyer hunted you down, ask yourself why the buyer wants to buy your company and estimate the price

10:21 – Every deal is a separate deal and it relies on the terms

10:53 – When deciding the structure of your deal, ask yourself why the buyer is buying

11:00 – The biggest red flag is a misalignment—to avoid this, ask questions

11:38 – When doing a deal on the phone or in person, make sure you have a written document, so you are both aligned

12:01 – Do your diligence

13:33 – If you are selling, talk to your broker about everything, but you don’t necessarily have to go with him

13:58 – The broker can help you calibrate as they have the data and can look from the buyer’s perspective

14:51 – If you are a buyer, also go to your broker

15:33 – It is much harder to start a SaaS business than to grow one

15:36 – End of today’s episode

3 Key Points:

Before buying a SaaS business, make sure it can either make you more money or be a tool that helps you get more money.

For the buyer and seller: discuss your terms, find an agreement, and have it in writing.

Growing a SaaS business is easier than starting one from scratch.

[0:00:00]

Steli Efti: Hey everybody, this is Steli Efti.

[0:00:03]

Hiten Shah: And this is Hiten Shah. And today on The Startup Chat, we're going to talk about how to buy and sell a SaaS business. Where going to focus on, sort of, both sides. But we're also ... I think it's going to go pretty quickly. The main reason is, I personally don't have much to say on this.

...more

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By Steli Efti & Hiten Shah: Serial Entrepreneurs, Sales & Marketing Experts, Startup Investors & Advisors, CEOs running multi million dollar SaaS Startups

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