7 ms·

I sold Bingo Card Creator through FEI (http://feinternational.com http://feinternational.com) and have nothing but good things to say about them. Something lik

by patio11 11y ago

I sold Bingo Card Creator through FEI (http://feinternational.com 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.)

bcjordan 11y ago
Patrick's talk at Microconf on selling Bingo Card Creator was fascinating—nice set of notes at http://doubleyouraudience.com/microconf/patio11/ http://doubleyouraudience.com/microconf/patio11/
- patio11 11y ago
  I'll write about this more in the near future -- don't want to step on a Starfighter announcement coming up though.
  - sgallant 11y ago
    The talk wasn't recorded, was it?
    - patio11 11y ago
      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.
      - aerovistae 11y ago
        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.
        patio11 11y ago
        Noted. It's a placeholder, and will likely not survive the launch of our first game in its present incarnation.
      - christiangenco 11y ago
        I have a bootlegged audio recording - think it'd be alright to post it here?
  - deleted 11y ago
    [deleted]
alexdowad 11y ago
Off topic, but: I like your blog! Thanks!
- beat 11y ago
  Yeah, it's a most excellent blog. :)
davidw 11y ago
Rob and Mike talked with the guy behind that: http://www.startupsfortherestofus.com/episodes/episode-197-how-to-sell-a-web-application-with-guest-thomas-smale http://www.startupsfortherestofus.com/episodes/episode-197-h...
codegeek 11y ago
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.
- jacquesm 11y ago
  That's to protect the broker, not the company. They don't want you to bypass them.
  - quickpost 11y ago
    Good call - that makes total sense! They get confirmation of the identity of the inquiry / lead before you can contact the owner directly.
  - bostonpete 11y ago
    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...
    - yuhong 11y ago
      Not that it is a good practice in general IMO. I also don't like the "hush money" practice mentioned by Lane Becker either.
    - jacquesm 11y ago
      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.
davepeck 11y ago
Out of curiosity, how do growth (and churn) factor into these valuations?
- patio11 11y ago
  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.
mathattack 11y ago
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.
- nedwin 11y ago
  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.
hkmurakami 11y ago
>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.
anovikov 11y ago
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.
- KaiserPro 11y ago
  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)
  - anovikov 11y ago
    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).
    - schlumpf 11y ago
      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 https://news.ycombinator.com/item?id=9589223 [2] https://en.wikipedia.org/wiki/Earnings_per_share https://en.wikipedia.org/wiki/Earnings_per_share see also ../Net_income [3] https://news.ycombinator.com/item?id=9516910 https://news.ycombinator.com/item?id=9516910
lostpixel 11y ago
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.
nicdo777 11y ago
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/ 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.

by patio11 11y ago

bcjordan 11y ago

Patrick's talk at Microconf on selling Bingo Card Creator was fascinating—nice set of notes at http://doubleyouraudience.com/microconf/patio11/ http://doubleyouraudience.com/microconf/patio11/

patio11 11y ago
I'll write about this more in the near future -- don't want to step on a Starfighter announcement coming up though.
- sgallant 11y ago
  The talk wasn't recorded, was it?
  - patio11 11y ago
    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.
    - aerovistae 11y ago
      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.
      - patio11 11y ago
        Noted. It's a placeholder, and will likely not survive the launch of our first game in its present incarnation.
    - christiangenco 11y ago
      I have a bootlegged audio recording - think it'd be alright to post it here?
- deleted 11y ago
  [deleted]

alexdowad 11y ago

Off topic, but: I like your blog! Thanks!

beat 11y ago
Yeah, it's a most excellent blog. :)

davidw 11y ago

Rob and Mike talked with the guy behind that: http://www.startupsfortherestofus.com/episodes/episode-197-how-to-sell-a-web-application-with-guest-thomas-smale http://www.startupsfortherestofus.com/episodes/episode-197-h...

codegeek 11y ago

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.

jacquesm 11y ago
That's to protect the broker, not the company. They don't want you to bypass them.
- quickpost 11y ago
  Good call - that makes total sense! They get confirmation of the identity of the inquiry / lead before you can contact the owner directly.
- bostonpete 11y ago
  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...
  - yuhong 11y ago
    Not that it is a good practice in general IMO. I also don't like the "hush money" practice mentioned by Lane Becker either.
  - jacquesm 11y ago
    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.

davepeck 11y ago

Out of curiosity, how do growth (and churn) factor into these valuations?

patio11 11y ago
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.

mathattack 11y ago

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.

nedwin 11y ago
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.

hkmurakami 11y ago

>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.

anovikov 11y ago

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.

KaiserPro 11y ago
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)
- anovikov 11y ago
  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).
  - schlumpf 11y ago
    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 https://news.ycombinator.com/item?id=9589223 [2] https://en.wikipedia.org/wiki/Earnings_per_share https://en.wikipedia.org/wiki/Earnings_per_share see also ../Net_income [3] https://news.ycombinator.com/item?id=9516910 https://news.ycombinator.com/item?id=9516910

lostpixel 11y ago

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.

nicdo777 11y ago

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/ 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.