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No way that 7, 15x is realistic. From my previous 2 startups none were sold for more than 4x. And these were healthy growing +10m businesses. I am not sure wher

No way that 7, 15x is realistic. From my previous 2 startups none were sold for more than 4x. And these were healthy growing +10m businesses. I am not sure where you got those numbers from. I am curious.

tgtweak 3y ago
What market were they in? What did the growth and earnings look like?
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titanomachy 3y ago
Why sell a healthy growing $10m business for 4x earnings? Did you have debt to service, or just wanted to do something different, or some other reason?
- gamepsys 3y ago
  At 4x it almost seems worth it to hire out the rest of your day-to-day and let the operation cruise. The company will probably under perform over time but you'll get more juice from the fruit.
  - mewpmewp2 3y ago
    With how fast tech is pacing there's no guarantee that this business wouldn't be outpaced by competitors, and so if you stay idly by and provide no innovation, the business might just fizzle out.
  - Aurornis 3y ago
    > At 4x it almost seems worth it to hire out the rest of your day-to-day and let the operation cruise. As many small business owners learn the hard way, it's nearly impossible to find someone capable of single-handedly operating a small startup who would rather operate your startup than their own startup. Frequently, you can find someone to take the role for a while. They might even perform well while you're training them up. Then they're likely to go off and start their own thing, which might come uncomfortably close to competing with you (while staying just outside the reach of noncompete agreements).
- holoduke 3y ago
  Because valuation is different than the actual yearly revenue. Company could be valued 10m, but revenue 1m. In our case because of legal permits we aquired to run our business and would normally take up to two years to get.
  - airstrike 3y ago
    so 10x revenue, which seems pretty decent for tech
RowanH 3y ago
It really depends on a bunch of factors, if you've capped out your total addressable market, and/or there's no fat to cut out of the business (i.e. potential is limited) lots of competitors etc, then a low valuation is reasonable. But if you're growing, have big upside, and can be a rollup or been operating quite inefficiently 4x would be ridiculously low.
- Aurornis 3y ago
  > But if you're growing, have big upside, and can be a rollup or been operating quite inefficiently 4x would be ridiculously low. That's the dream, but the number of startups that check all the boxes to fall into this category is extremely small. There's a lot of data supporting 2-4X for small SaaS companies. You'd have to be growing at an extreme rate year over year over year for 4X to be considered "ridiculously low".
solumunus 3y ago
Ouch. Businesses sell for more than 4x all the time. There are countless examples of that.
- Aurornis 3y ago
  Not in the small cap SaaS world. 2-4X is the current range. The exceptions are for companies with extreme growth rates for multiples years in a row. These are extremely rare, even more so with pure bootstrapping.
- danielmarkbruce 3y ago
  Give the examples. Businesses this size in this market have very few (/0) logical buyers.
  - t_mann 3y ago
    I can't speak for valuations, but I don't see the 'no logical buyers' argument. This product has multiple competitor products, mostly at far higher price points, any of those manufacturers would seem like a logical buyer to me (if only to get rid of the competition). Can you elaborate?
    - danielmarkbruce 3y ago
      It's small. There are very few logical buyers of technically complex small businesses. There are logical buyers of small businesses and logical buyers of technically complex businesses, but at the intersection there is not. Even bog standard SAAS companies struggle to sell at a decent multiple when they are really small, and they aren't especially complex.
    - lozenge 3y ago
      You aren't just buying a company, you're buying a job. In this blog post, the payroll expense is $250k a year. The founder is working for free 40 hours a week, acting as a software dev, managing a $40k advertising budget, developing the product, and overseeing the customer support team. If you buy this company and hire somebody who can do all those things, that $235k of net profit becomes $0. Buying it just to shut it down without continuing the product- eh- does your product really address all the needs of the customer base? Or will they go to another competitor instead?
hn_throwaway_99 3y ago
Thanks for posting this. I was also misinformed, thinking 7/15x was reasonable, but for small businesses valued primarily on cashflow, looks like 3x is more accurate (of course, growth affects that number a lot). I thought this had a lot of good data: https://www.bizbuysell.com/learning-center/industry-valuation-multiples/ https://www.bizbuysell.com/learning-center/industry-valuatio.... For "Software and App Companies", the multiple was 3.17.
- hinkley 3y ago
  Payback period I assume. 3 years at 3x if revenue is flat. I suspect 3.17 is around 30 months if your revenue growth outpaces inflation.
kentlyons 3y ago
Was management in place so when the founders exited the company would still grow? With lower valuations (1-3x), the purchaser is often buying a job in some way (either for themselves or needing to find an operator). At 7-10x multiple, the company is already has senior management in place so the new owners would expect continued growth without their own intervention.
windowshopping 3y ago
You built two $10m businesses? Geez man where's your blog post series
- deleted 3y ago
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tgtweak 3y ago

What market were they in? What did the growth and earnings look like?

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titanomachy 3y ago

Why sell a healthy growing $10m business for 4x earnings? Did you have debt to service, or just wanted to do something different, or some other reason?

gamepsys 3y ago
At 4x it almost seems worth it to hire out the rest of your day-to-day and let the operation cruise. The company will probably under perform over time but you'll get more juice from the fruit.
- mewpmewp2 3y ago
  With how fast tech is pacing there's no guarantee that this business wouldn't be outpaced by competitors, and so if you stay idly by and provide no innovation, the business might just fizzle out.
- Aurornis 3y ago
  > At 4x it almost seems worth it to hire out the rest of your day-to-day and let the operation cruise. As many small business owners learn the hard way, it's nearly impossible to find someone capable of single-handedly operating a small startup who would rather operate your startup than their own startup. Frequently, you can find someone to take the role for a while. They might even perform well while you're training them up. Then they're likely to go off and start their own thing, which might come uncomfortably close to competing with you (while staying just outside the reach of noncompete agreements).
holoduke 3y ago
Because valuation is different than the actual yearly revenue. Company could be valued 10m, but revenue 1m. In our case because of legal permits we aquired to run our business and would normally take up to two years to get.
- airstrike 3y ago
  so 10x revenue, which seems pretty decent for tech

RowanH 3y ago

It really depends on a bunch of factors, if you've capped out your total addressable market, and/or there's no fat to cut out of the business (i.e. potential is limited) lots of competitors etc, then a low valuation is reasonable. But if you're growing, have big upside, and can be a rollup or been operating quite inefficiently 4x would be ridiculously low.

Aurornis 3y ago
> But if you're growing, have big upside, and can be a rollup or been operating quite inefficiently 4x would be ridiculously low. That's the dream, but the number of startups that check all the boxes to fall into this category is extremely small. There's a lot of data supporting 2-4X for small SaaS companies. You'd have to be growing at an extreme rate year over year over year for 4X to be considered "ridiculously low".

solumunus 3y ago

Ouch. Businesses sell for more than 4x all the time. There are countless examples of that.

Aurornis 3y ago
Not in the small cap SaaS world. 2-4X is the current range. The exceptions are for companies with extreme growth rates for multiples years in a row. These are extremely rare, even more so with pure bootstrapping.
danielmarkbruce 3y ago
Give the examples. Businesses this size in this market have very few (/0) logical buyers.
- t_mann 3y ago
  I can't speak for valuations, but I don't see the 'no logical buyers' argument. This product has multiple competitor products, mostly at far higher price points, any of those manufacturers would seem like a logical buyer to me (if only to get rid of the competition). Can you elaborate?
  - danielmarkbruce 3y ago
    It's small. There are very few logical buyers of technically complex small businesses. There are logical buyers of small businesses and logical buyers of technically complex businesses, but at the intersection there is not. Even bog standard SAAS companies struggle to sell at a decent multiple when they are really small, and they aren't especially complex.
  - lozenge 3y ago
    You aren't just buying a company, you're buying a job. In this blog post, the payroll expense is $250k a year. The founder is working for free 40 hours a week, acting as a software dev, managing a $40k advertising budget, developing the product, and overseeing the customer support team. If you buy this company and hire somebody who can do all those things, that $235k of net profit becomes $0. Buying it just to shut it down without continuing the product- eh- does your product really address all the needs of the customer base? Or will they go to another competitor instead?

hn_throwaway_99 3y ago

Thanks for posting this. I was also misinformed, thinking 7/15x was reasonable, but for small businesses valued primarily on cashflow, looks like 3x is more accurate (of course, growth affects that number a lot). I thought this had a lot of good data: https://www.bizbuysell.com/learning-center/industry-valuation-multiples/ https://www.bizbuysell.com/learning-center/industry-valuatio.... For "Software and App Companies", the multiple was 3.17.

hinkley 3y ago
Payback period I assume. 3 years at 3x if revenue is flat. I suspect 3.17 is around 30 months if your revenue growth outpaces inflation.

kentlyons 3y ago

Was management in place so when the founders exited the company would still grow? With lower valuations (1-3x), the purchaser is often buying a job in some way (either for themselves or needing to find an operator). At 7-10x multiple, the company is already has senior management in place so the new owners would expect continued growth without their own intervention.

windowshopping 3y ago

You built two $10m businesses? Geez man where's your blog post series

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