Ask HN: Where can I buy real software companies?
170 comments
I sold Bingo Card Creator through FEI (http://feinternational.com) and have nothing but good things to say about them. Something like 20% of their listings are SaaS businesses. The going rate for a SaaS business is roughly 3X yearly SDC ("seller discretionary cashflow" -- revenue minus costs required to run the business as opposed to e.g. the owner's salary, distributions, interest expense, etc). It is closer to 2X for software businesses where the revenue is not by-nature recurring. (Naturally, these are guidelines -- businesses are, like all things, priced at where a buyer and a seller can mutually agree, and certain factors can make buyers very agreeable.)
Patrick's talk at Microconf on selling Bingo Card Creator was fascinating—nice set of notes at http://doubleyouraudience.com/microconf/patio11/
I'll write about this more in the near future -- don't want to step on a Starfighter announcement coming up though.
The talk wasn't recorded, was it?
Rob Walling and Mike Taber have a more authoritative answer on that than I do. There was a videographer there but I'm not sure what got shot. Don't quote me on this, but I think the talks were recorded. They typically release them midway through the year as part of marketing the next conference.
Unrelated to this thread, but have to say, text/background color contrasts and font sizes on starfighter landing page are a bit painful to the eyes.
Noted. It's a placeholder, and will likely not survive the launch of our first game in its present incarnation.
I have a bootlegged audio recording - think it'd be alright to post it here?
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>The going rate for a SaaS business is roughly 3X yearly SDC ("seller discretionary cashflow" -- revenue minus costs required to run the business as opposed to e.g. the owner's salary, distributions, interest expense, etc).
Fascinating. I just messed around in Excel to see what the DCF discount rate would be, and it's exactly 25% discount to get to the 3x number.
Fascinating. I just messed around in Excel to see what the DCF discount rate would be, and it's exactly 25% discount to get to the 3x number.
Could just be me but it feels like feinternational always show a very inflated price. 3x seems too much specially for companies that are barely 1 year old.
Also, it is extremely difficult to sign an NDA just to inquire more about a sale as feinternational does not give any details upfront. Totally understandable that the company in question wants to maintain its privacy, secrets etc but this is a difficult situation. How do we move forward without knowing more about a company but they want you to sign NDA even without giving any details.
Also, it is extremely difficult to sign an NDA just to inquire more about a sale as feinternational does not give any details upfront. Totally understandable that the company in question wants to maintain its privacy, secrets etc but this is a difficult situation. How do we move forward without knowing more about a company but they want you to sign NDA even without giving any details.
That's to protect the broker, not the company. They don't want you to bypass them.
I would think it protects the company just as much. I've never sold a company but I'd imagine that people often don't want their customers and/or employees knowing that they're shopping the company around. Requiring an NDA before the company name is shared presumably makes it significantly less likely that word will spread in undesired ways...
It's quite hard to gain traction on a corporate sale and you're right that keeping the customers and the consumers in the dark is 'par for the course', but to withhold the name of the company from an interested party serves only one goal.
Think about it: I have this company for sale but I won't tell you which one it is until you sign this document.
What's is there to lose for the company to have its name spread to those that might be interested?
It's not like they're advertising the name in the NYT or making it public other than on a one-to-one basis with leads and those leads are definitely not going to publish the name if they're really interested because the last thing they need is more interest from others.
Think about it: I have this company for sale but I won't tell you which one it is until you sign this document.
What's is there to lose for the company to have its name spread to those that might be interested?
It's not like they're advertising the name in the NYT or making it public other than on a one-to-one basis with leads and those leads are definitely not going to publish the name if they're really interested because the last thing they need is more interest from others.
And journalists wouldn't pretend to be interested in purchasing companies just to get a scoop?
Not on this size companies. Mid sized deals involve 20 to 50 people 'in the know' and very rarely leak, even if the deals fall through. Any broker that can't tell a journalist from a serious entity won't be in business for long.
Not that it is a good practice in general IMO. I also don't like the "hush money" practice mentioned by Lane Becker either.
Good call - that makes total sense! They get confirmation of the identity of the inquiry / lead before you can contact the owner directly.
When you're dealing with such small companies, they're usually pretty early in their market and might not have built up enough defensibility to share all of their information publicly. They'd rather limit disclosures to those who have taken some action to express interest.
Public listings increase the number of copycats the end buyer will have to deal with. This isn't much of an issue for a well-established company with significant market share, but it is for a young software company fighting it out with their other (early) competitors.
Public listings increase the number of copycats the end buyer will have to deal with. This isn't much of an issue for a well-established company with significant market share, but it is for a young software company fighting it out with their other (early) competitors.
3x doesn't seem bad at all. It's like an investment that generates 33.3% annually. After 3 years it's all free money.
It's counting the founder's salary as profit. In these small businesses? founders usually have to do a good bit of work. what do they say? you are buying yourself a job?
if you're making 33.3% of $50k-$500K per year... the very top end of that is close to what you'd get working for someone else, and usually you don't have to put down a half million to get those jobs.
So, while I don't think I'd sell you my company for 3x SDC, I completely don't blame you for wanting to pay less than that. It'd really only make sense if you were sure that I had things setup to the point where I didn't have to do any work (which is something I can deceive myself about... I don't see how you could get a solid answer out of someone who had an interest in deceiving you.)
if you're making 33.3% of $50k-$500K per year... the very top end of that is close to what you'd get working for someone else, and usually you don't have to put down a half million to get those jobs.
So, while I don't think I'd sell you my company for 3x SDC, I completely don't blame you for wanting to pay less than that. It'd really only make sense if you were sure that I had things setup to the point where I didn't have to do any work (which is something I can deceive myself about... I don't see how you could get a solid answer out of someone who had an interest in deceiving you.)
"you are buying yourself a job?" Bingo. And the prospect of growing the business to a point where it can sustain a team and be less reliant on you.
If the business can run without any input from the founder a) why would they sell it? and b) if they did they would sell at a much greater multiple.
If the business can run without any input from the founder a) why would they sell it? and b) if they did they would sell at a much greater multiple.
People might need to sell companies because of:
1) sudden financial hardship like hospital bills
2) a divorce court judge ordered it
3) a non-founding owner has no emotional attachment and wants to switch to another investment.
Online companies that produce passive or near-passive income are bound to become obsolete quickly. The internet moves quickly in a lot of niches. The potential lifespan of the business affects the multiple.
1) sudden financial hardship like hospital bills
2) a divorce court judge ordered it
3) a non-founding owner has no emotional attachment and wants to switch to another investment.
Online companies that produce passive or near-passive income are bound to become obsolete quickly. The internet moves quickly in a lot of niches. The potential lifespan of the business affects the multiple.
Your fourth option, I think, is the most important one to understand here. Just about any business, assuming you have a competent employee or two, can kick along without your input for a while. But without you, the owner, actively putting in work? it's going to do worse this year than it did last year. It's gonna fade pretty fast. And yes, if you do need to ignore it for a while, selling it to someone who won't ignore it is a good option, too.
But it's just plain wrong to think that you can look at the current numbers and assume they will go forward without more input from the owner.
I would argue that the whole idea of 'passive income' when combined with the idea of a 'small business' is a little flawed, or really, a lot flawed. Owning a small business is not like owning stock in google. You are an active participant in the business. A small business owner is fundamentally different from someone who owns shares in a large corporation.
I kind of like using marxist terminology for it. We are bourgeois[1]. We are not full members of the capitalist class; we still need to combine our labor with that capital, or else it's all gonna go to shit pretty fast.
But the real takaway you need to understand is that owning a small business is not at all like owning stock in a large business. It's a completely different thing, and your return on investment capital should be very different (and in my opinion, much higher.)
[1]no, not necessarily in the 'poor taste in lawn furniture' sense. I don't even have a lawn.
But it's just plain wrong to think that you can look at the current numbers and assume they will go forward without more input from the owner.
I would argue that the whole idea of 'passive income' when combined with the idea of a 'small business' is a little flawed, or really, a lot flawed. Owning a small business is not like owning stock in google. You are an active participant in the business. A small business owner is fundamentally different from someone who owns shares in a large corporation.
I kind of like using marxist terminology for it. We are bourgeois[1]. We are not full members of the capitalist class; we still need to combine our labor with that capital, or else it's all gonna go to shit pretty fast.
But the real takaway you need to understand is that owning a small business is not at all like owning stock in a large business. It's a completely different thing, and your return on investment capital should be very different (and in my opinion, much higher.)
[1]no, not necessarily in the 'poor taste in lawn furniture' sense. I don't even have a lawn.
> a) why would they sell it?
If I had to come up with something... Risk that the business fails. Some would rather take $200k than hope a $66k income sustains in 2019 and beyond.
And liquidity, although it's usually not terribly difficult to borrow money if you're cashflow positive, it can be very nice to get $200k today to jumpstart an even more promising business or jumpstart a mortgage, instead of delay that for 4 years.
If I had to come up with something... Risk that the business fails. Some would rather take $200k than hope a $66k income sustains in 2019 and beyond.
And liquidity, although it's usually not terribly difficult to borrow money if you're cashflow positive, it can be very nice to get $200k today to jumpstart an even more promising business or jumpstart a mortgage, instead of delay that for 4 years.
if a business owner insists on a much higher multiple, that usually has more to do with how much he or she enjoys that job they are selling you than it has to do with the fundamentals of the company.
While that's technically correct, with only 1 year of data behind it, it's arguably a bigger risk assuming that the first year of data will continue into the second year.
It's not free if you become an employee and need to put in time to maintain it. Think of it like a fast food franchise - you're buying a job, not a passive income stream.
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I hear a lot of talks about NDA's but I have never heard of one being enforced. Anyone else seen where an NDA was successfully enforced?
Every civil court is backlogged with business misunderstandings / disagreements. People sue all the time for what may may not be legitimate reasons. All it takes is a simple majority of the jury for a victory. It's a highly subjective process whose most prized skill is the ability to sway a jury. More like coin toss, less like justice.
In business it's a bad idea to deceive business partners or to sign an agreement intending to ignore it. Your reputation will catch up with you, and don't be surprised when you get sued.
In business it's a bad idea to deceive business partners or to sign an agreement intending to ignore it. Your reputation will catch up with you, and don't be surprised when you get sued.
This # sounds very low. Generally public companies sell for many times this. Is this because so much of the equity in side projects is tied up in the owner? Or that there isn't growth? I frequently see software firms selling for 8 times revenue.
With interest rates so low, it seems like businesses with recurring revenue that can recoup their costs in 3 years are a steal.
With interest rates so low, it seems like businesses with recurring revenue that can recoup their costs in 3 years are a steal.
Stock in a public company is far more liquid. A larger software company is also likely to have employees, big clients etc.
If you're looking to sell and walk away from a founder-run SAAS startup 3x is about right.
Add multiples if you have employees, long term contracts, significant market share etc etc.
If you're looking to sell and walk away from a founder-run SAAS startup 3x is about right.
Add multiples if you have employees, long term contracts, significant market share etc etc.
Rob and Mike talked with the guy behind that:
http://www.startupsfortherestofus.com/episodes/episode-197-h...
http://www.startupsfortherestofus.com/episodes/episode-197-h...
Hi guys
I have a website that makes quiet some amount of money (at least according to my own criteria) and out of the blue I have been contacted by a so called buying/sellin sites company, named Hautesite, on behalf of a potential client interested in buying my website.
Ever heard of Hautesite? Their french website is http://www.hautesite.fr/, they say they are from the UK and are big in the UK (but no website to be found). I was wondering if it was a scam?
I even got into a Skype call with one of the employee who seemed very professional and so on...
But still... a buying and selling sits business with NO website in english, no social network, no presence on social media... I find it very strange.
Thanks in advance for your help :)
Nicolas.
I have a website that makes quiet some amount of money (at least according to my own criteria) and out of the blue I have been contacted by a so called buying/sellin sites company, named Hautesite, on behalf of a potential client interested in buying my website.
Ever heard of Hautesite? Their french website is http://www.hautesite.fr/, they say they are from the UK and are big in the UK (but no website to be found). I was wondering if it was a scam?
I even got into a Skype call with one of the employee who seemed very professional and so on...
But still... a buying and selling sits business with NO website in english, no social network, no presence on social media... I find it very strange.
Thanks in advance for your help :)
Nicolas.
Why so little? It contrasts sharply with the valuations at which the startups (or even established companies, which no longer grow like crazy) are invested into at.
Why would i sell my business at 3x SDC (which, if it's a small one-person shop, probably just 15-20 months' worth of all 'take home money')? Only if was a 'crap business' as said, and i know it is heading straight into the ground and can somehow conceal it from the buyer.
Why would i sell my business at 3x SDC (which, if it's a small one-person shop, probably just 15-20 months' worth of all 'take home money')? Only if was a 'crap business' as said, and i know it is heading straight into the ground and can somehow conceal it from the buyer.
3x SDC is the normal rate.
I've worked at a few companies where we've been sold to VCs and the like.
Anything more, and the risk of no recuperating the invested money is too great. (unless you find a sucker to dump it on, which is basically the current buisness model for most of silicon valley)
I've worked at a few companies where we've been sold to VCs and the like.
Anything more, and the risk of no recuperating the invested money is too great. (unless you find a sucker to dump it on, which is basically the current buisness model for most of silicon valley)
Average P/E across all business sectors tends to be around 15 long term, with fluctuations mostly staying between 10 and 25, getting out of these ranges only in extreme cases like a war or a major international crisis (in XX century, U.S. average p/e was under 10 for any significant time only during WWI, WWII, and the 1970s oil shock). If some business is really worth only 3x of its annual profit it must be a really, really dodgy one (only one of the hundreds of tracked business sectors with P/E under 3 now is TV broadcasting, which is agreeably on its death track).
A company’s valuation multiple can be highly sensitive to the choice of denominator. You are making an apples-to-grapefruits comparison by trying to equate “seller discretionary revenue” with US GAAP net income per share.
The SDR calculation [1] excludes compensation and looks like a generous net revenue measure. Earnings per share -- from which P/E multiples on public companies are typically calculated -- includes compensation, interest expense, various non-cash adjustments, and adjustment for dilution.[2] Generally you would expect the SDR number to be higher than net income and correspondingly attract a lower multiple in estimating firm value.
As others have commented, there are additional reasons why valuation metrics for large-cap listed companies don’t make for useful comparison with SaaS startups. See also Heidi Roizen’s cautionary tale [3] about the perils of multiple envy.
[1] https://news.ycombinator.com/item?id=9589223
[2] https://en.wikipedia.org/wiki/Earnings_per_share see also ../Net_income
[3] https://news.ycombinator.com/item?id=9516910
The SDR calculation [1] excludes compensation and looks like a generous net revenue measure. Earnings per share -- from which P/E multiples on public companies are typically calculated -- includes compensation, interest expense, various non-cash adjustments, and adjustment for dilution.[2] Generally you would expect the SDR number to be higher than net income and correspondingly attract a lower multiple in estimating firm value.
As others have commented, there are additional reasons why valuation metrics for large-cap listed companies don’t make for useful comparison with SaaS startups. See also Heidi Roizen’s cautionary tale [3] about the perils of multiple envy.
[1] https://news.ycombinator.com/item?id=9589223
[2] https://en.wikipedia.org/wiki/Earnings_per_share see also ../Net_income
[3] https://news.ycombinator.com/item?id=9516910
Worked next to the FE guys in a startup space and they are certainly hard working guys and know there stuff. Would recommend chatting to as well.
Out of curiosity, how do growth (and churn) factor into these valuations?
About in the way you would expect. In general, demonstrable recent growth tends to bias valuations upwards. Remarkably worse churn than average tends to bias valuations downwards. Remarkably better churn than average tends to bias them upwards.
Like Patrick, I also sold my company through FEI (http://feinternational.com/) last Fall. Once we got all our information in place, the process went very quickly. We had several interested parties and due diligence calls almost immediately. After that, we had 3 offers. There were a few unexpected hiccups (I think there always are with acquisitions) but overall the process was very smooth and I'd use them again. I'd recommend registering with them and getting to know one of the brokers. They'll start sending you deals as they come in.
A few recommendations based on my experience (YMMV):
- Cash is king. While you should definitely structure the deal with a transition period, an all-cash offer carries more weight than a deal where you are financing some/all of the price. You'll need to show proof of funds too, so make sure you can do that easily.
- Get your attorney on standby. You'll probably need help with offer letters and purchase agreements. Plan on going through a couple rounds of revisions for both.
Feel free to email me if you have more questions.
A few recommendations based on my experience (YMMV):
- Cash is king. While you should definitely structure the deal with a transition period, an all-cash offer carries more weight than a deal where you are financing some/all of the price. You'll need to show proof of funds too, so make sure you can do that easily.
- Get your attorney on standby. You'll probably need help with offer letters and purchase agreements. Plan on going through a couple rounds of revisions for both.
Feel free to email me if you have more questions.
You will probably want to work with a business broker. These are two that I know of that have a listing of businesses for sale:
http://feinternational.com/buy-a-website/
http://empireflippers.com/marketplace/
It seems like the best deals come through old fashioned networking. Maybe look at several businesses that would compliment your existing product and get in touch with the owners?
http://feinternational.com/buy-a-website/
http://empireflippers.com/marketplace/
It seems like the best deals come through old fashioned networking. Maybe look at several businesses that would compliment your existing product and get in touch with the owners?
I work at Axial (http://www.axial.net) and this is what we do. Check us out and if it seems interesting, submit the form and someone will get back to you.
(Caveat: the size of the business you're looking for is on the lower end of the deals on Axial)
(Caveat: the size of the business you're looking for is on the lower end of the deals on Axial)
Most businesses are for sale if the price is right.
I've sold an app before where I just got a phone call from an interested party (without it being listed for sale anywhere), agreed on a price and just a few weeks later the transfer was complete.
If anyone wants to buy candyjapan.com for 4x profit, feel free to contact.
I've sold an app before where I just got a phone call from an interested party (without it being listed for sale anywhere), agreed on a price and just a few weeks later the transfer was complete.
If anyone wants to buy candyjapan.com for 4x profit, feel free to contact.
I'd love to buy Candy Japan! But it doesn't make much sense for me, and I don't have the money to pay for it - but I would honestly put in an offer if the contacts/network for supplying the candy and such was well set up and going from your blog posts about your journey so far, that probably is the case.
Keep up the excellent work Bemmu! :-)
Keep up the excellent work Bemmu! :-)
Just to clarified, I'm very new at this world of selling and buying companies.
This is 4x the yearly profit?
Cause a user asked if it was 4x daily profit which is absurd to me imo.
edit:
Whoa that website is awesome, too bad I'm poor but the idea is awesome. I wonder if I can sell horrible fake American chocolate lol.
This is 4x the yearly profit?
Cause a user asked if it was 4x daily profit which is absurd to me imo.
edit:
Whoa that website is awesome, too bad I'm poor but the idea is awesome. I wonder if I can sell horrible fake American chocolate lol.
4x daily profit?
I would like to sell my business. You'll need to know C++ and care about the Windows desktop market. I get about 8K downloads every month. I want $225K which is 5x revenue.
I don't know if I'm entirely serious. It just makes money and I don't work it properly. It should make $90K-$110K if someone cared about it.
I don't know if I'm entirely serious. It just makes money and I don't work it properly. It should make $90K-$110K if someone cared about it.
(slightly OT) I don't understand Flippa; I've search several times for a regular web site making a bit of money and all of them look like scams, even the ones that are sold, with no PageRank since all the incoming links are spam.
Any decent marketplace for one-app or brand companies needs to prominently display intedependently-verifiable, evidence-based due-diligence metrics than can be dug into by your legal and forensic/tax accountant folks before a transaction. Saves lots of time. BTW: on apps, it is usually more profitable to license source code to games and similarly common apps (say for gyms, restaurants, etc.). If it's a FNAC app that you're bored of try to sell it, first, don't just throw out your work (or at least salvage the best parts business of assets/staff/knowlege)! Reduce, reuse, recycle.
(Some, but not all, due-diligence is worry alleviation through hazing ritual business theatre.).
(Some, but not all, due-diligence is worry alleviation through hazing ritual business theatre.).
Google search did't help, so I have to ask: What is a "FNAC app"? Thank you.
Fart Noise Amplification Chamber: http://www.urbandictionary.com/define.php?term=FNAC
I did not expect that!
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http://sideprojectsforsale.com - I had the same thought last year and made this working prototype for these types of businesses. It's pretty straightforward and mostly for the purpose of putting people in touch.
It's a two-sided market, and seeing only 1 side project listed there (from August 2014) makes me think the marketplace is dead.
Two thoughts:
1. If there are prior successful sales, show those!
2. If possible, try to show more (even if this means linking out to projects for sale on different sites until you get some traction).
Two thoughts:
1. If there are prior successful sales, show those!
2. If possible, try to show more (even if this means linking out to projects for sale on different sites until you get some traction).
I just want to say this thread is awesome. I have a side project that makes real, substantial revenue that I've been wanting to offload for a while. I don't think it's quite in condition to be listed with a broker yet, but it's great to hear about these resources and read about other hacker-entrepreneurs experiences offloading their own side projects.
Why are the answers here so coy?
"Send me an email, we'll talk"
Is it a secret to be shopping your website/product to a new management? Why?
"Send me an email, we'll talk"
Is it a secret to be shopping your website/product to a new management? Why?
Advertising your business is for sale may bring unwanted attention too.
Could you give an example of such unwanted attention?
Customers/users abandoning a product when they learn it is for sale.
Bargain hunters, brokers of ill repute, press and so on, it may also put a serious dent in your ability to do business development until the situation around the (potential) sale has stabilized which in turn will hamper your ability to negotiate.
Personally, it's kind of self-advertising. you can find my products/things if you fly over to my site. Otherwise, some people might be afraid of the competition and are gathering some low-hanging fruit that not a lot are aware of their worth.
Poker face and cordial until all the bodies are dug up and the figure and most importantly, terms and conditions of sale and transition plan are agreed and the check is deposited, because it's tire-kicking until the ink is dry. It's important to telegraph genuine admiration to suggest a shop might have a better home than competing bids.
It's a hard thing to do, trade-in somwthing more precious than cash, labor, time and effort, life... so have a good time and aim make people consistently, insanely happy and always satisficed
It's a hard thing to do, trade-in somwthing more precious than cash, labor, time and effort, life... so have a good time and aim make people consistently, insanely happy and always satisficed
The best companies aren't sold, they're bought. ;)
Would you enter a contract with a small business when you knew the sole proprietor was actively looking for a buyer?
I own Peaceofcode.com a PAAS with a focus on remote software development. Think Freelancer/Elance but with project manager/project owner/developer roles and business process flow to reduce risk (scrum/git/unit testing). In the past we focused on creating features that greatly reduce the risk of loss for the customer and development people. This last year we moved toward scrum and extreme programming features throughout the platform. We want to create a API and integrate 50+ 3rd party tools such as (codio.com Online IDE). A big feature-set we want to complete is based around opening the platform so the members can actively steer the features we release. Another endeavor we want to move forward is a "non-profit foundation" that focuses on Online Remote Software Development and identifying a "standard".
We want to give away up to 50% of the company in exchange for working capital and business expertise.
We do not want to sell the company but we dont mind giving up majority ownership so long as we can stay on as key executives. I currently own the company 50/50 with another American.
Any ideas how we might find such partners?
Sorry if I am way off topic.....
We want to give away up to 50% of the company in exchange for working capital and business expertise.
We do not want to sell the company but we dont mind giving up majority ownership so long as we can stay on as key executives. I currently own the company 50/50 with another American.
Any ideas how we might find such partners?
Sorry if I am way off topic.....
I think this is going to be important now and in the future. Systems are getting so complex nobody can build something complete from scratch. I see people making high quality components and then merging or being acquired to create a whole end user product. Prior to that point, you'd have something that's not very profitable unless lots of companies license your component and do integration themselves.
So, an interesting thing I observed while building a SaaS company was that you can actually get off the ground with a very simple solution, you'll just end up serving smaller customers with relatively simple needs (say $50-100/mo.) These initial folks will pepper you with feature requests while still paying you money for what you've got, which can give you feedback about which complexities you're missing that you really need to implement. If you choose which things to implement carefully, you end up making your product more useful to larger customers and you'll start closing some larger deals. (E.g. $500/mo.) Rinse and repeat and before too long you've got a product with all the bells and whistles and you're closing enterprise deals. (E.g. $2,500+/mo.) The numbers here are all relative, but the point is that the smaller customers end up subsidizing the development of what becomes an enterprise product.
(I think the advantage this approach has over the one you've suggested is that the product is always capable of making money even from the very beginning, just on a smaller scale at first. I think this is a critical feedback mechanism so that folks know whether what they're developing is actually useful to folks.)
(I think the advantage this approach has over the one you've suggested is that the product is always capable of making money even from the very beginning, just on a smaller scale at first. I think this is a critical feedback mechanism so that folks know whether what they're developing is actually useful to folks.)
Great comment. In a way, it's like what Geoffrey Moore talks about in his book "Crossing the Chasm", about the difference between early adopters and mainstream users.
Systems are getting so complex nobody can build something complete from scratch.
Come out to Microconf sometime. You can meet ~300 nobodies all at once!
Come out to Microconf sometime. You can meet ~300 nobodies all at once!
"Systems are getting so complex nobody can build something complete from scratch."
I would claim there is still a large chunk of areas that have very poor service from the software field and would find tremendous value of a trivial software product that is just applied correctly. So it's more about service design rather than hightech, if one is just looking to make a profit.
I would claim there is still a large chunk of areas that have very poor service from the software field and would find tremendous value of a trivial software product that is just applied correctly. So it's more about service design rather than hightech, if one is just looking to make a profit.
Please forgive me if this presumissious of me, but you wouldn't happen to know of some of these areas that need more quality software? The only one that I'm aware of its medical, which usually has regulations and long leads before making money.
I'm mostly clueless. But I see the pattern all around me still that in established business processes there are so many places where lots of things are done as in pre digital ages. B
As an example...
Building and construction is still in infancy as what it comes to utilizing digital technology. The field is fragmented with long subcontractor chains. The digitalization that happened in e.g. car manufacturing is not yet complete. The field is dominated with clunky, expensive cad packages which, while some may be eatabslished standards, are never the less decades old piles of legacy software. Most of the data is still transmitted between parties in paper drawings.
As an example...
Building and construction is still in infancy as what it comes to utilizing digital technology. The field is fragmented with long subcontractor chains. The digitalization that happened in e.g. car manufacturing is not yet complete. The field is dominated with clunky, expensive cad packages which, while some may be eatabslished standards, are never the less decades old piles of legacy software. Most of the data is still transmitted between parties in paper drawings.
I (had) a good ecommerce inventory management company going - if you want to buy it, drop me a note. I'm on to bigger / better things.
A $500k business would mean you'll end paying on average between $3-5 million for it. May I ask your rationale behind chasing these deals?
Why not split the $3-5 million into risk-based chunks and invest in startups instead? You only need 1 of them to hit 50x.
Why not split the $3-5 million into risk-based chunks and invest in startups instead? You only need 1 of them to hit 50x.
I think the OP was talking about businesses to buy for <$500k, not what they produce in annual earnings.
I don't think that multiple is right - for a $500k rev software company, I wouldn't pay any more than 3x.
Revenue is largely a function of marketing effectiveness/marketing spend coupled with a minimum product/market fit. If someone has a legit internet software product bringing in $500k a year, they'd have to be pretty silly to sell it for $1.5M - unless they're really desperate for cash or hit a scale/product/market/ops ceiling they cant crack.
Capital is free flowing at the moment and a legit revenue-generating, valuable, scalable business shouldn't have to cash out this early or this low.
Capital is free flowing at the moment and a legit revenue-generating, valuable, scalable business shouldn't have to cash out this early or this low.
This 3x yearly earnings is mentioned quite often. But I can't believe anybody is selling for this. Maybe for 5x if you are in need of money.
And in times of zero interest rates this 3x thing sounds even more unbelievable.
Well software isn't like a lot of businesses. A plumbing supply company will probably be just as successful in 3 years as it is now, but a software company might be worthless. Three years is a long time in software.
3x revenue, not 3x earnings. Revenue and earnings are two different beasts.
In a one man software company, there's often not a great of outgoings.
Only if growth is 6%-10% per year (or as much as twice that depending on who you ask), and you have reasonable expectation of that growth continuing or accelerating for the foreseeable future. That kind of multiple isn't for a stable business with predictable sales.
I don't know why you are downvoted.
The $500k/year business does, conservatively, cost $2-3 million (using the common "5x the yearly revenue" formula).
The $500k/year business does, conservatively, cost $2-3 million (using the common "5x the yearly revenue" formula).
Valuing companies based on revenues is a bit of a stretch in my mind. Actual income/earnings/cashflow makes a lot more sense.
If you don't take into account expenses then you get some really wacky valuations: ie a company is in the business of selling houses (or other large cost item) for a small percentage higher than they bought them. If you don't take into account the cost of buying the house and running the business, and just look at the revenue from each house sale you will drastically over value the business. If they sell 50 $100,000 houses that they bought for $99k each and it cost them $500 in fees per house sale they would have $25k in actual earnings but $5 million in revenue. Valuing on a common "5x the yearly revenue" you would be willing to pay $25 million for a business that produces $25k per year (if you are willing to do so and have a lot of money I'll sell you a lot of businesses like that!).
Software is a higher margin business of course, but at the end of the day as an investor I care about how much cash is going to go into my pocket due to an investment rather than how much total cash passes through the companies books.
Even the 2x to 3x of earnings that sole proprietor/small software shops are getting now sounds outrageous to me. You're betting on growth (and paying like it's there) and hoping that clients don't leave for 2 to 3 years. Higher multiples can make sense if there are expenses you can cut to get earnings (or a very clear, easy to see growth opportunity [if that is there then why are they selling of course?]), otherwise you're just tossing away money.
If you don't take into account expenses then you get some really wacky valuations: ie a company is in the business of selling houses (or other large cost item) for a small percentage higher than they bought them. If you don't take into account the cost of buying the house and running the business, and just look at the revenue from each house sale you will drastically over value the business. If they sell 50 $100,000 houses that they bought for $99k each and it cost them $500 in fees per house sale they would have $25k in actual earnings but $5 million in revenue. Valuing on a common "5x the yearly revenue" you would be willing to pay $25 million for a business that produces $25k per year (if you are willing to do so and have a lot of money I'll sell you a lot of businesses like that!).
Software is a higher margin business of course, but at the end of the day as an investor I care about how much cash is going to go into my pocket due to an investment rather than how much total cash passes through the companies books.
Even the 2x to 3x of earnings that sole proprietor/small software shops are getting now sounds outrageous to me. You're betting on growth (and paying like it's there) and hoping that clients don't leave for 2 to 3 years. Higher multiples can make sense if there are expenses you can cut to get earnings (or a very clear, easy to see growth opportunity [if that is there then why are they selling of course?]), otherwise you're just tossing away money.
That's fair, but you can only reason that way with an owner who is mentally "done" with his business, or his business is flat/ declining. For entrepreneurs that feel they haven't yet attained anything close to the full profit potential of their business, you just have to make them an offer they can't refuse, which leads to absurd valuations. Sometimes works great, sometimes it doesn't, hopefully it evens out positively in the end. That's the game you play when you invest.
It's a different story if staff doesn't come with, which many times for businesses this small, is just the founder.
I run www.hearthstoneplayers.com
It's a profitable site (making enough profit the equivalent of a 2nd job), minimal upkeep - just managing/scheduling content/writers. If anyone is interested in taking it and scaling it or even automating it (it's about 2 years in and I don't mind letting it go and moving on to bigger stuff), I'm open to contact!
It's a profitable site (making enough profit the equivalent of a 2nd job), minimal upkeep - just managing/scheduling content/writers. If anyone is interested in taking it and scaling it or even automating it (it's about 2 years in and I don't mind letting it go and moving on to bigger stuff), I'm open to contact!
I'm selling Zilyo https://zilyo.com/ for around 200k USD, which is a meta search for vacation rentals, big competiton in this space and it's currently the inudustry leader in terms of product quality and # of features and data. Many of its competition has raised millions and today it's running on it's own with a monthly burn rate of 30$. It does around 12,000$ a year. You can reach me at [email protected]
It also hosts one of the most active and fastest growing APIs in mashape, to leverage vacation rental data for developers and other businesses. Currently it hosts around 250 API consumers (most of them are businsess leeching it for free, so great oppurtunity in the B2B side of things) https://www.mashape.com/zilyo/zilyo/
It also hosts one of the most active and fastest growing APIs in mashape, to leverage vacation rental data for developers and other businesses. Currently it hosts around 250 API consumers (most of them are businsess leeching it for free, so great oppurtunity in the B2B side of things) https://www.mashape.com/zilyo/zilyo/
ExitRound (http://exitround.com/)
Love this thread. I've been looking to find answer to this question. I used to get more quality results from Flippa when I wanted to buy sites, back when they were Sitepoint. Now it's more or less for newbies to drop their money.
For sales, Flippa offers a brokerage service as well. They don't charge, unless the site is sold. I've got an extension for a CMS that stably makes 6-figures profit for past 3 years. Last year I wanted to experience the process and test the market, but didn't find the right buyer. This year might try again. If interested, reach me on Twitter: @ugurkaner
For sales, Flippa offers a brokerage service as well. They don't charge, unless the site is sold. I've got an extension for a CMS that stably makes 6-figures profit for past 3 years. Last year I wanted to experience the process and test the market, but didn't find the right buyer. This year might try again. If interested, reach me on Twitter: @ugurkaner
Why buy another company (as opposing to focusing on your existing business)?
It depends on what skills you bring to the table. (Personally) I know I can execute and grow. But I can't for the life of me find an idea to get started with.
Also, if you already have an existing business (such as the OP), then you may be able to bring some cost savings (therefore more profit) than someone coming in cold.
Or if you already have an existing client base, adding another business to the mix means you may be able to sell to them
Also, if you already have an existing business (such as the OP), then you may be able to bring some cost savings (therefore more profit) than someone coming in cold.
Or if you already have an existing client base, adding another business to the mix means you may be able to sell to them
Buying your own customers is a very expensive way to increase sales...
You might hit the plateau, or get into a decline state and use new products to grow your business
Tax write off? He's too profitable, perhaps!
If your business is too profitable, you may try to grow faster -- that guarantees to eat all extra profit (see Amazon).
Find apps you like then do some research and see if you can get a general idea of the revenue they are making. If it looks like you could afford to acquire them then email them and see what happens.
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I'm planning to refocus my mobile app business, and while I had planned on just continuing on cashing the checks from my other apps, lately I've considered the idea of selling them and really concentrating 100% on the main one.
A few questions: 1. What kind of cost do the popular escrow services charge? I assume it's percentage based, only on successful sale?
2. Do places like FEI sell apps, or just websites?
3. If not, any recommendations on places to sell an app or bundle of apps?
A few questions: 1. What kind of cost do the popular escrow services charge? I assume it's percentage based, only on successful sale?
2. Do places like FEI sell apps, or just websites?
3. If not, any recommendations on places to sell an app or bundle of apps?
Here's a company that focuses on buying/selling apps specifically: http://www.appbusinessbrokers.com/
hadn't seen them before, looks pretty good. thanks a lot.
We've got a profitable Bitcoin casino for sale... https://bitcoinvideocasino.com
Again, if a side hobby/business is getting too time-sink, boring or unsure how to scale it, selling off the value, happiness of customers, employees, vendors, etc. created, is a rational act. Shutting down is only advisable if the business model cannot ever have hope of being monetized AND folks running it lack ideas (and asked around to advisors and such) how to adjust the consumer/producer relationship.
On this thread, services like the reinteractive Operations as a Service (https://reinteractive.net/service/sentinel) can help with a SaaS sale. Getting operations and deployment outsourced means one less thing for the buyer to worry about and one big less thing for the seller to handle.
Disclaimer: I work for reinteractive
Disclaimer: I work for reinteractive
Have you considered hiring a software developer? Some one extremely technical most likely can deliver on any business model you conceive of.
It's the opposite situation here - I have the technical and business skills but am looking to buy the idea.
To be honest, you'd be better off starting from scratch. Buying something already existing will take a while to make back the revenue.
I have no interest in selling in the near future, but I'm curious whether anyone in this thread has a sense of what kind of multiple an ad- and affiliate-supported site like www.autotempest.com would bring. It's not recurring revenue in terms of recurring billing like a SaaS, but revenue and user base are very highly correlated.
There are many startups with 1 or 2-person teams who fail to raise funding since investors are looking for companies that can become worth $20M+. They might be interested in a cheap sale to someone who would be happy with a solid long-term revenue stream.
If you are (or any other investor/buyer) interested in WordPress/Advertising and looking either to buy or invest, email me and maybe we can have a short-talk to exchange information, knowledge and who-knows.
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We're selling one called Flutter - http://flutter-app.com
We're about to close it down, its got customers and MRR
We're about to close it down, its got customers and MRR
Also FYI to anyone trying this out -- this app gives you no warning or prompt before following hundreds of accounts on your behalf. I went through the FTUE and the first thing I saw was "You followed <rapidly increasing number> of Tweeter's [sic] today".
Wrong - every action has to be initiated by the user. Nothing is automatic.
FYI, I couldn't see your login button until I disabled µBlock (a Chrome plugin like AdBlock).
Wow, thanks for the tip.
Would you like to purchase yipgo.com? Feel free to email me.
Your business seems interesting. May I suggest you use HTTPS in your login/registration forms? SSL certificates can be as cheap as US$ 9/year and your users will feel more secure while using your site.
One of the many tweaks it needs.
needs more demo... the bubble screen shots should be clickable to see the whole thing.
Agreed... let someone try it out by themselves. A screencast of someone using it would also be useful (think laracasts style screencast or similar). Being a user of this product really appeals to me (aligns with some stuff I already do), but the marketing is a bit light to convert me.
You're right, only laziness stops me. Thanks.
I've thought about selling my side business, but I want to sell it to the right person.
I'm in Austin. Lemme know if you want to meet. My email is HN username + gmail.
I'm in Austin. Lemme know if you want to meet. My email is HN username + gmail.
I don't know why people are downvoting this comment, but I'm having lunch with the OP next Wednesday so clearly there is some value here...
Drop me a note (email is in my profile) if you'd like to look at a SaaS business at the higher end of your revenue target.
Note: While HN's profile indeed shows an email field, that's not made public to people looking at your profile. You will need to put it (obfuscated) in your "About" section if you want other users to be able to see it.
Emails not in the profile
We've just decided to sell our company. Squire.io give us a shout if it's something you're interested in.
no email address in your profile :(
Take a look at http://exitround.com
I am selling my fashion e-commerce website and app. Check my app at leposha.com
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send me an email (address is in my profile). we have something that might fit what you're looking for...
www.greenfossil.com <= crazy about engineering good software
Can you send me a note - [email protected]. I'd like to run something by you.
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This strikes me as one of those 'if you have to ask, you shouldn't do it' situations.
Care to explain? The OP's question was not whether it was a good idea, but the specifics of how, where, and why a particular website marketplace.
I was confused as well. A market place is basically lead-gen into the funnel of deciding whom is worth further diligence (interviews, tours, IP review, finances, customer surveys, etc.)
Problem - most of the sites, like flippa, have crap businesses for sale. Is there a real place that one can find $50k - $500k software businesses for sale? Side projects that people make money from but don't have the time for?