Why SaaS Entrepreneurs Don’t Need VCs for a Wild, Profitable Exit
Screw Venture Capital and Say Hello to Private Acquisitions
So you think you’re the next Facebook?
The dream of venture capital (VC) funding is incredibly enticing to many SaaS entrepreneurs. With seemingly millions of dollars worth of investment just a pitch away, it’s easy to see why.
However, the reality is often far from the dream, as contrary to what you might see, VC funding is reserved for a select few. Entrepreneurs in the SaaS space are constantly bombarded with news of crazy high VC exits. Facebook, Uber, Deliveroo, VC backing seems like the only way to go.
The good news is that this isn’t the case. There are far more options for a profitable exit or even to raise capital for your business outside of the VC route. If you’ve been chasing VC funding, then it’s likely you will have experienced the revolving door of sales pitches. One after another, it can be hard to take rejection, but it’s important to remember that you might still have a great business on your hands. Furthermore, even great businesses get rejected, and this can lead to the depression of non-unicorns.
The Depression of Non-Unicorns
Hearing no and no over and over again is enough to get anyone down, especially when it’s about something that they’ve put such effort into.
If a VC exit is the moment you geared up for, then it can leave you wondering: what’s next? The idea that you need to become a unicorn for a profitable exit is simply not true. The good news is that by creating a profitable SaaS company, you have a highly desirable asset on your hands. There are tens of thousands of investors, high net worth buyers, and private equity firms that will want to buy your non-unicorn
The Benefits of Selling Your SaaS Company without VC
Deciding to move away from VC funding can be a liberating experience. It turns the tables and suddenly you become the one that’s getting the offers.
Listing on a marketplace means your SaaS business is reaching a large audience. You could be getting dozens of interested buyers competing against each other to acquire your business. Compare this to the strict VC criteria where it can be difficult to even get a foot in the door. Plus, there’s no need to pitch VCs, no fancy pitch decks, and no need for in-connections.
What’s surprising is that opting to sell on the open market to a non-VC can take as little as a few weeks to a little over a month, depending on the size of your business. It’s also a process that is far less time-intensive in terms of preparation and deal structuring. A deal can be done using simple asset purchase agreements (APA) and escrow.
If you do establish the right connections and move towards VC funding, prepare to be in it for the long haul. Often, VC won’t be a true sale in the sense that you’ll still need to work on the business. The idea that you’ll be able to make a smooth exit isn’t always how it works. With large amounts of money invested into your business, the stakes have been raised, and people will be relying on you to make sure you deliver on your promises.
Maybe the reason you started your SaaS company was to be your own boss. Working with a VC can leave you feeling like an employee for your own business. If this isn’t the path you want to take, selling your SaaS company is a much cleaner exit. There’s often no need to stay around and work with the business, so you can take the lump cash sum and use it however you wish.
There will be less of a monetary benefit if you choose to sell, but selling your SaaS business to a private buyer whose life will change in a positive way is a pretty rewarding experience. However, this doesn’t have to be the end; we’ve seen many sellers sell their business and then later down the road, the buyer and seller end up working together on another project.
Perhaps you have other projects on the go or have an idea percolating that you just haven’t had the time to start. Receiving all of this upfront capital that isn’t tied to a project gives you the freedom to use it as you see fit.
Maybe you want to take a break and spend some time traveling. Or how about you use the capital to go out and create or buy other SaaS companies. It could be the start of a SaaS portfolio wherein you use your knowledge to fix up profitable companies and sell them for even more profit.
Pinning all of your hopes on VC funding might not be healthy for you or your business. It is important to realize what you’ve got, and that’s a successful SaaS business.
Remember, There are More Buyers for Non-Unicorns
The truth of the matter is that most SaaS businesses will never reach unicorn status, and that’s completely OK. By definition, it’s supposed to be rare, so having other options if reaching this status doesn’t work out is good business management.
There are far more buyers with the required liquidity ready to buy your business over a unicorn. The SaaS industry has seen a real boom over the past few years, and suddenly everyone’s become aware of SaaS as an incredibly enticing online business model. Investors love the recurring revenue model, and it means there are buyers on the hunt for businesses just like yours.
Utilizing this as an end destination gives you more control when it comes to making an exit. Use our free online valuation tool to see how much your SaaS business is worth. It uses real sales data to give you a very accurate estimate as to what you could get for your business at the current market rate.
Getting a valuation doesn’t mean you have to sell right away. We would recommend that you write down a figure that you would be comfortable letting your business go for. Every few months, come back and fill out the valuation tool to get an impartial view of how close you are. When it hits the number you’ve written down, then you can move to list your business on the market with the knowledge that you have greater control over what happens.
In the end, you can make a far cleaner exit for your SaaS business by selling to high net worth individuals and specialized private equity firms than you’re ever likely to do with VC funding.
