
The Founder’s Guide To Selling Your Company (2014) - itschekkers
https://justinkan.com/the-founders-guide-to-selling-your-company-a1b2025c9481
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justin
Hey HN, Justin here (the post's original author). Didn't expect this to get
posted again. I'm happy to answer any questions here about selling your
company.

I recently started a new company, Atrium, aiming to make legal services (such
as M&A) for startups and tech companies easier as well.

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luminati
Isn't getting a term sheet from a VC orthogonal (and potentially relationship
damaging) while you are actively looking for an acquisition?

~~~
justin
No. I think you can credibly claim after the fact that you wanted to
understand what all the options were. Which is probably true for most
founders.

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AndrewKemendo
I've read this a few times and having been through up and down periods it's
clear that the most important part of this, is the following:

 _The best time to sell your startup is when you have many options._

It needs to be really emphasized that this is a _very_ rare place for the vast
majority of startups. That means this advice isn't generally applicable.

Which brings up the implicit question, why would you decide to sell your
startup if you are clearly winning and growing at the pace that you can build
a sellers market?

There are a lot of really good reasons you would, but I think all of them come
down to: At some point you won't be able to be competitive in the market
without the resources of a larger company. Whether that means you'll never be
able get to an IPO, or you'll get out competed between now and then.

I've never read a good rundown of WHY they decided to sell, Twitch or
otherwise.

So it's really a question of when, not if. Opportunities to sell will come in
waves over time so how do you know which one you should take because it's
possible to overshoot and then the whole thing goes bust (Digg, Foursquare
etc...).

What I'd be interested in is the Founders guide to selling your company when
it has relatively few options. That's the more common case, and one that where
I think the opportunities there are missed by most founders. I never read
stories about that, I've only read "we were on track to a billion in revenue
and sold."

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justin
Interesting point. I could also write "The Founder's Guide to Selling Your
Company When You Have Few Options" based on my experiences. It is a much more
horrible process.

Re: why sell? 970 million reasons. Biggest one was that it seemed like good
value for what we had.

Another reason: from my perspective (it may be different for other people
involved) we were also at an inflection point where there was a steep power
law distribution of people who owned content (game studios) and therefore a
relatively small number of people had a lot of power over Twitch. Similar to
Netflix pre-Netflix originals. That's not a good long term position to be in
(hence Netflix originals). I think that's changed now for Twitch.

~~~
plinkplonk
> I could also write "The Founder's Guide to Selling Your Company When You
> Have Few Options" based on my experiences.

I hope you do this someday. It would be highly valuable to many founders.

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everdev
Great article and insight into a somewhat opaque process.

I sold my company in 2014 and the biggest surprise to me was how long and time
consuming the process was. It really impaired my ability to run the company as
efficiently as I would have liked during the transition process. And the
stress of having to meet with buyers, but not being able to fully communicate
the scope of the meetings to the team until the appropriate time was
significant.

~~~
justin
Yup! Don't engage in the acquisition process unless you want to commit to it
-- it will suck out all your time.

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throwawayyx96
At the time of its sale to Amazon, I remember wondering how twitch could only
be worth 1 billion compared to something like WhatsApp being worth 20 billion.
It was purely from an engineering standpoint that I considered what twitch was
doing to be vastly more impressive. It's three years later and Amazon hasn't
been too overbearing with the changes they've made, but I wonder if JKan
believes he got fair value for his company?

~~~
justin
Life is what you negotiate :)

Taking $970mm seemed like a good deal given the level of risk. So from an
expected value perspective it was a fair trade. Twitch has grown much since
then, but you can't have regrets when it comes to trades.

~~~
FollowSteph3
Exactly, it could have gone the other way and the value could’ve crashed. As
long as you got a fair price you should never look back at what could’ve been.

Back in the dot com days I had a friend who sold his options early. He made
enough to pay off his house cash. The price kept going up and he could’ve been
a millionaire. But then as we all know the bottom fell out and his company
crashed hard, almost overnight. He was happy he sold out. Had he waited he may
have gotten nothing. He may not have cashed out st the peak but he definitely
got a good deal for his options. And every time some tells him he should’ve
waited to get millions he tried to remind them he probably wouldn’t gotten
zero if he waited. Most people still don’t get that, they just focus on what
the highest value could’ve been, even if that’s the least likely price he
would’ve gotten in reality.

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mbesto
I've worked in software M&A advisory for 3 years now. This is an awesome
guide. Anyone looking for professional advice (go beyond just reading blog
posts and internet material) on this type of thing, feel free to reach out.
Happy to speak for free initially and point in the right direction.

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austenallred
> A company’s financial value hinges on its profits and model of its future
> cash flows. For the vast majority of startups in tech, this will be zero.

I’m not sure just how true that is today. In my YC batch probably 30%? of
companies were profitable or at least eying profitability.

I’d actually be very curious to know what those numbers are.

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davidu
"Ramen Profitable" ≠ Profitable for most public companies, and even if they
did, would be immaterial. I'm sure most of the 30% referenced above are barely
profitable.

At Cisco, I operate at a roughly 20% profit margin on a roughly
$50,000,000,000 annual business. Most acquisitions are immaterial from a
profitability standpoint.

~~~
austenallred
Gotcha

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porter
Justin - you mentioned that investments bankers take 1-2% of the selling
price. What percentage do all the rest of the closing costs take up (lawyers,
etc)? What are these other closing costs?

~~~
justin
Lawyers are one of those costs that can be a lot, or controlled, depending on
how much negotiation happens. For billion dollar acquisitions usually you will
pay $1-2mm in fees in my experience. For smaller acquisitions I've seen
anywhere from 100-500k. Those are very loose ballpark numbers.

Other closing costs -- usually there will be an escrow service for any
holdbacks. That usually is only tens of thousands of dollars - not expensive
relative to deal size.

~~~
mbesto
On the sell side, the typical costs are:

\- Bankers (and/or other advisors)

\- Lawyers

\- Accountants (if you don't have dedicated resources)

\- Your time

I can't stress this enough - the last one ends up being your biggest cost
(although not direct). I've seen more than enough company's execs struggle
with transaction fatigue because you're trying to sell a company while still
running one. This is where good bankers/advisors come in.

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nodesocket
This is great, but I'd love to see a post on selling a side business (no
outside investment) and less than $10,000 a month in MRR.

~~~
jacquesm
Find a couple of your competitors and set up a bidding process, that is
probably the best way to get the maximum out of a company like that. Aim for
10 years net or so, and be sure to stipulate that you reserve the right to
refuse all offers.

I've written up a HN thread about this subject a long time ago:

[https://jacquesmattheij.com/how-to-sell-your-
company](https://jacquesmattheij.com/how-to-sell-your-company)

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Denzel
When you say aim for 10 years net: if the company nets $100k/yr, you think
it'd be reasonable to ask for a $1M sale?

Where does this 10x multiplier come from? I thought the prevailing multiplier
(for small SaaS) was 3x net.

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berkay
multiple is highly dependent on the growth rate, and makes no sense to talk
about it without knowing how fast the company is growing. $100k/year growing
100% is very different than growing 10%.

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jacquesm
If it was growing 100% per year do you think the ggp would be interested in
selling?

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forsaken
Anyone have good links on selling a company that actually has revenue?

