I have identified a number of problems which I believe my product will solve. What steps can I take to validate my assumptions with actual potential users, given that I have no working prototype to demonstrate?
Any advice or tips would be greatly appreciated!
Some of you may have seen my previous posts about whether to continue with TakenPlace.com or just shut it down but i continued tinkering in the background.
Recent global events skuppered my plans for a summer pilot in a nearby city but I decided to continue with the final feature introduction to complete the entire MVP journey – payments!
until today the final purhcase was handled manually but i had a lot of feedback that this was a big blocker, so i found a local freelancer and got Stripe integration launched today.
Despite the global pandemic effectively putting my marketing plans on hold I'm using the time to add a couple more small features and will be doing further market research so that I can be ready when social scenes pick up again. It may be a small milestone overall but i'm very excited that my MVP is finally 100% complete, and had to share it with someone.
My friend is selling her Software as a Service (SaaS) company. She hopes to do this anonymously due to competitor and staff concerns.
I've been helping her sell it over the past two weeks. In this post I'll share about her company, why she wants to avoid brokers like FE International, what we've tried to get the word out, what worked best, and where she is now in the process.
Note: The point of this post is NOT to solicit offers. She's gotten tons (74 as of today, Monday, July 13, 2020). The point of my post is to show you her business and how we shared the data to solicit potential buyers. Perhaps it will be helpful to you when you want to sell your own company. To comply by this sub's rules, I will not link to my original blog post until I am given moderator approval (requested but no reply).
- Friend has been running a SaaS for 4 years
- The software is marketing- and ecommerce-related
- Now she is ready to exit
- Numbers are good: $ 1M ARR and 70% profit
- Growth was flat in 2019, and up in 2020
Originally posted on my blog with fancy illustrations, plus a more SaaS-specific earlier version posted a few days ago to /r/saas. I've included the most relevant info and updated data for /r/startups below.
What is it?
The company makes a website add-on to help sellers boost their online sales. Half of their revenue comes from clients who use the product on their Shopify stores. It is used by online stores, schools, and other SaaS businesses.
With apologies for being vague: she's asked me to keep it extremely anonymous to not identify her or her business.
Today there are 5,000 paying customers. Each pay between $ 10 and $ 50 per month.
Employees and Team
Monthly expenses for developers, engineers, and support is between $ 15,000 and $ 20,000 per month.
The company pays its team as contractors. They are willing to stay onboard to continue development and maintenance.
Revenue and Growth
Currently $ 1,000,000+ of ARR with an approximate 70% profit margin as of July 1st, 2020.
First-year sales were approximately $ 125,000.
The best month ever was in 2018 with $ 154,000 in sales. That included the recognition of one-time revenue.
Peak MRR without one-time sales revenue was $ 111,000 in February 2019. Sales decreased later in 2019 but profitability increased dramatically.
In June 2020, MRR was $ 88,828.
2020 revenue has been growing. Every month, for the past four months. The founder attributes this recent growth to many new businesses and ecommerce companies being created in 2020.
There are no sales members on the team.
Most new clients find the product organically. They receive 700-1000 new signups per month.
Marketing and CAC
She spends $ 2000 per month on marketing now. For the past few years, it was always under $ 500 per month and only on branded keyword searches.
Recently she has hired a part-time contractor to help with marketing (cost: $ 1200 per month fixed). She has increased her advertising budget to $ 800 per month (variable).
This budget is spent on Shopify ads, retargeting ads, and Google ads. Primarily it is still branded search terms, but now with some additional keywords.
Customer acquisition cost (CAC) is estimated at $ 2.70.
The churn is estimated at 7 to 9%.
It represents about half of the customers. The other half are on Shopify. Maybe during due diligence she could use Chart Mogul to combine subscription data from multiple sources.
Reasons for Selling
The founder recently launched two new ventures. She prefers product-market fit challenges over continued maintenance.
Her best alternative to a negotiated agreement (BATNA) is to further reduce her involvement in the day-to-day operations, perhaps by hiring her own COO. She would then extract dividends from the company in excess of $ 60,000 per month.
Why No Brokers?
FE International is the most popular broker / website for online companies to be sold. But she does not want to list there due to the negative perception of being seen as down-market by potential private equity buyers or family offices.
How We Marketed It
All of the above information, plus some more stuff about the existing team and additional assets, was posted as a blog post on my personal website.
Link to my blog removed, but with moderator permission I can share here or in comments.
I paid an illustrator that I love working with around $ 150 to help me add some color and imagery. Then I shared the post to my Twitter, asked some friends to help RT it for momentum, and sent it to my private email newsletter.
We also submitted it to MicroAcquire who Tweeted it and shared it in their newsletter – great free resource and super nice guy.
Special shoutout to Andrew Wilkinson and Tiny Capital and WeCommerce, who it seems like every third person recommended we talk to regarding selling her company. We're well aware of them, they live up to their reputation, and I have nothing but good things to say about them. That being said: My friend wanted to shop for offers. And I was happy to help her do that.
- The original Tweet I posted on June 30th got about 7 inquiries from potential buyers.
- The follow-up full blog post, by comparison, received 70 inquiries from potential buyers.
And that's not rocket science: there's a lot more info in the blog post, and it paints a more compelling picture of the business. If and when you decide to sell your startup, you would be well-served, in my opinion, to do a public and thorough writeup of your company.
This past Saturday morning we emailed all of the prospective buyers with an update. Nine of them submitted updated bids to reach her price threshold.
She and I recognize that it is hard or impossible for serious buyers to make a serious offer without knowing the company name, specific industry, or without seeing financials. But her goal in getting "estimate" bids was to help eliminate lowball offers.
She's currently reviewing all of their messages and offers. Next she will filter out the "bad" ones, with a bias towards those who have done SaaS deals before (to execute faster).
She's also preparing detailed financial reports with the goal to finish those by Wednesday night (July 15th). Then she's going to share those to her top bidders, and then ask for an updated offer from each based on her financials.
Finally, based on all of that, she plans to ask her top buyers to fill out an NDA, at which point she'll reveal her business and her identity.
Protecting her identity has been an interesting way for me to get involved and see how this is done. I've had two successful prior exits – which I won't plug for fear of violating the rules – but none have been in the SaaS space (and neither generated even a fraction of interest as this has, which makes me believe: damn, this is a hot space!).
If this post has been helpful, I'd be happy to ask her to post here directly when the sale is finished to share what she learned, what she wishes she would have done sooner, etc. Or perhaps I could make an update to this post in a week or two as the negotiations with buyers continue.
Please do not contact me with any inquiries to purchase this business. I am just a friend helping her out. Her contact information is listed on my blog post announcing the sale via a Google Form. You can find that post with a Google search for "nick gray company for sale".
Did you bullet proof all of your intellectual property, purchase certain assets or remove certain debts?
What would you do if you could go back in time?
Any suggestions on a resource/book that will give me a place to start.
I plan to sell in 3-5 year’s and would like to understand what it takes to prepare for that.
So I have an idea for a software that I really want to make into reality.
Problem is, I'm 17 and I have 0 idea where to start financially or logistically.
I know what I want and I've made flow charts and a slideshow for presentation and I have a friend who makes website mockups and graphic design for a living. But that's about it.
Do you guys have any advice on starting out?
The numbers today in Lemonade’s S-1 that showed just how well the company has been able to grow its invested capital and valuation while taking relatively little dilution. If you are a founder looking for a role model, Lemonade may just be the best scenario you can have while raising nearly $ 500 million in preferred equity funding across five rounds.
Read more here.
The post [Lemonade in TechCrunch] Startup dilution done right: Lemonade IPO edition appeared first on OurCrowd.