How Non-Unicorn SaaS Founders Are Making Multiple Six-Figures Quitting Their Businesses
Selling Your SaaS Business to a Hungry, Non-VC Crowd
Your SaaS business has become one of the most coveted online business models available.
A recurring revenue stream, such as monthly recurring revenue (MRR), means that entrepreneurs and investors are on the hunt to acquire successful SaaS companies.
MRR aside, it’s a model that has a string of benefits as far as buyers are concerned. The cloud-hosted product means adding new customers is no extra burden when it comes to maintaining the business, unlike an e-commerce business where you need to keep buying more inventory.
It’s also a truly global business: anyone can come to your site and be a customer. This and the high margins allow for more aggressive marketing and nurturing funnels. The end result is that SaaS businesses are selling for the highest valuation multiples of any business model.
Many SaaS founders hold the opinion that they must reach a “certain level” to sell their business like that of a unicorn. This is because there tends to be a belief that only venture capital (VC) and private equity funds want assets of this kind. But, this simply isn’t true.
There is a Huge, Hungry Market of SaaS Buyers Outside of VC
A lot of time, effort, and technical know-how go into building a SaaS company. Often, the goal is to acquire VC funding to propel your company into the next big thing.
We’ve talked to many SaaS founders that have built up a modest MRR of $2K–10K, and they view themselves as failures because they can’t sell it to a big firm. What they don’t realize is there are literally hundreds, likely thousands, of business buyers that are not private equity or VC firms that want to buy these smaller SaaS businesses.
When you compare selling on a private marketplace to pitching for private equity or VC funding, you find a lot of benefits to the former. First, selling on a marketplace allows you to make a much cleaner exit. You can make the most of a high valuation multiple and get a pile of capital to take with you to your next venture, whether that’s starting up a new company or enjoying the fruits of your labor on a beach somewhere.
The mindset to get into is that there is a huge, underserved market that you, as a seller, can take advantage of when you decide to exit your “failed” SaaS startup. You just need to know what these buyers are looking for.
How to Sell to These Buyers
A market of high-net-worth individuals is different from VC firms because they’re not looking to buy the next Uber. Instead, they usually want to buy high-quality, smaller SaaS businesses that have a healthy cash flow.
In this case, profit matters more than revenue. While some SaaS businesses are sold on the basis of revenue, some aren’t even making money at all when they sell for a high multiple. While this type of deal can happen, you need to remember that this kind of buyer will likely focus more on your net profit than things like market share to evaluate your business.
The majority of the buyers in this market are going to be non-technical; they won’t know how to code and may never have managed a developer. As the owner of the company, you need to reassure them that there are systems in place to make it easier for them.
One way to do this is to build a team before the point of sale or at least have a contact base of developers who are familiar with your product and can be contacted when work needs to be done.
If this isn’t possible, then helping the buyer hire a developer as part of the deal agreement will go a long way to making the deal go through quicker. This might seem like additional work, but you can bake the engineering cost into your valuation.
It’s important to remember that the buyer is coming into this with no prior knowledge of your business. They’ll probably want you to show them how to read your code documentation.
More generally speaking, you’ll probably need to offer some post-sale support. This can be as little as 30 days worth of support that includes one call per week and unlimited emails. Usually, this support isn’t even used, so it is in your best interest to offer more. The buyer may use the first week or two, but as time goes on, they’ll be calling their own shots. Consider doubling your support to 60 days to make your business seem even more of an attractive no-brainer for the buyer.
There are a ton of non-technical buyers ready and willing to pay you multiple six-figures for your profitable SaaS company.
Preparing your business for sale will require you to clean up all of the documentation associated with it. The first part of this is the code documentation, which a buyer will need to give to a developer to help maintain the business or grow it with new features.
The next most important document is your profit and loss (P&L). This is a key document, and we recommend using a bookkeeper to put this together for you, or we can put it together if you decide to sell your SaaS with us.
The more transparent you are, the easier it is for buyers to do their assessment. You will need to know the following key metrics:
- Lifetime value
- Churn rate
- Customer acquisition cost (CAC)
When you’re compiling your metrics, investigate any dips or spikes to see if there is an explanation. Maybe you optimized your paid ads so your CAC came down. Whatever the reason, these are the core metrics buyers will want to know, and so they will be looked at closely.
There Are More Options for Selling Your SaaS Business Today than Ever Before
The landscape of building and selling SaaS companies is changing. It used to be just the property of VC and private equity firms, and they’ll have you believe that that’s still the only way.
Why would they want you to know that there are a plethora of high-net-worth individuals that can offer you a different, and often better, deal than them?
If you’re ready to hang up the pitch deck, stop going to endless meetings in hopes that networking gives you that lucrative private equity or VC exit you’ve dreamt of; you can likely sell your SaaS business far faster and on better terms using a private marketplace.
All you have to do is be okay with having a non-unicorn SaaS, and you could walk away as many of our startup founder customers have — with an amazing exit.
To get an accurate estimate of how much your SaaS business could be worth, use our free valuation tool. It will ask you a few questions about your SaaS business and give you a valuation that’s built on the latest market data. From there, you can decide whether you want to sell your business and join the other non-unicorn SaaS founders making life-changing exits.
