
Q&A with both buyer and seller of a 6 figure web app. Ask us anything - kareemm
Hi HN!<p>kareemm and derrickreimer here.<p>I (Kareem) was part of a partnership that bought Codetree in June from Derrick for six figures. Codetree is a project management tool for GitHub issues.<p>We haven&#x27;t seen anybody fully open up the kimono around an acquisition like this before, so we&#x27;re going to try something we&#x27;ve never seen: we&#x27;re both happy to answer any questions you have to demystify the process around buying a business like this.<p>Here are some things you might want to ask about:<p>- specific numbers<p>- the mechanics of buying a business<p>- our psychology during the negotiation<p>- why we chose this business<p>- how we found it<p>- deal terms<p>- the risks of buying a business<p>- etc<p>Some more context<p>Here are some things we (the buyers) have done before buying Codetree:<p>- We&#x27;ve built products at places like ESPN, Microsoft (via acquisition), and MySpace (back when it was bigger than Facebook!)<p>-  We&#x27;ve led product and dev to help Chimp.net grow from an inkling in the founder&#x27;s eye to more than $150M in donations to charity.<p>- We&#x27;ve bootstrapped four successful SaaS businesses, sold one of them, and folded two others<p>- We&#x27;ve started one venture-funded company, an online marketplace that was sold in 2010<p>- We&#x27;ve run product and dev teams at two venture-funded companies<p>- Combined, the three of us have been writing software professionally for 45 years<p>After a year of figuring out what the next business was that we wanted to start and&#x2F;or run, we ended up buying Codetree.<p>Derrick has also been pretty busy: just after selling Codetree to us, he sold Drip - an email marketing company he co-founded - to LeadPages.  Two acquisitions inside of a month!<p>It&#x27;s 10a PT and we&#x27;ll be around for an hour or so.<p>Ask away!<p>EDIT 1110a: Wrapping up.  Not a ton of questions but thanks for the ones you fired over, HN!
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Shorrock
In this type of transaction both parties end up achieving their goal going
into things. The seller wants to sell, and the buyer wants to buy. Both
parties likely disagree with the potential of the product.

With that in mind, a question for the buyer - What do you understand about the
business that the seller doesn't that makes this seem worth while? And for the
seller - What aspect of the business makes it a target for sale rather than
growth?

~~~
kareemm
Good q, thanks Shorrock.

> What do you understand about the business that the seller doesn't that makes
> this seem worth while?

We were guessing that the seller was getting too busy running his day job at
Drip to devote enough time to Codetree. It seemed reasonable because we'd been
following Drip via Rob Walling's podcast and blog for years and Drip sounded
like it was doing well.

We'd been in a similar spot with a previous business we sold. A seller may
want to sell for a variety of reason, not just because the business is
destined for failure.

But broadly, we think the PM market is huge, GitHub is huge and seems as good
a partner as you could want given the platform risk, if "Software is eating
the world" is true (we think it is) then the # of devs is only going to
increase and they're going to need tools. And we're devs and love serving
devs. So it was a good fit.

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sachinag
I've been bootstrapping a small project management tool for non-technical
folks that integrates with Gmail and Gcal called Braid -
[https://braidhq.com](https://braidhq.com) .

Obviously, getting people to recognize that the tool is important enough in
terms of time/hassle to pay for is super hard. What advice would you have for
me?

~~~
kareemm
> getting people to recognize that the tool is important enough in terms of
> time/hassle to pay for is super hard.

In my experience if it doesn't solve a top of mind burning problem for your
customers, selling is going to be uphill all the way. When do people have the
pain that your tool solves? And how would they go about finding a solution to
that pain? And how do you harvest that intent?

Hiten Shah has a good framework for marketing:

1\. “Who are your customers?” 2\. “Where do they hang out?” 3\. “How should
you engage?”

You can read more here: [http://home.profitwell.com/saas-dna-project/hiten-
shah-saas-...](http://home.profitwell.com/saas-dna-project/hiten-shah-saas-
marketing-product-strategy/)

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chrisgeoghegan
Hey Kareemm,

There are a ton of project management tools out there, why buy Codetree? Was
there something specific about the business that stood out to you?

I imagine when you buy a business you believe there are things you can do that
will increase the value of the business. What are the top things you think
you'll be able to do that were not already being done?

Cheers!

~~~
kareemm
Good q, thanks!

> There are a ton of project management tools out there, why buy Codetree? Was
> there something specific about the business that stood out to you?

We believe that in big markets like project management there's lots of room
for many successful companies (depending on your definition of success). We
know and like the issue tracking space since my partners and I have been devs
for 15y each.

But why Codetree? Because it was available, is a good product, and was the
right price :) It's hard to find the intersection of those things and we
looked at different businesses for about a year.

> I imagine when you buy a business you believe there are things you can do
> that will increase the value of the business. What are the top things you
> think you'll be able to do that were not already being done?

Ultimately the goal is to help software teams make and ship better software.
Right now the things we're focusing on are:

1\. Talk to customers and improve the product. A good product matters,
especially with developer tools.

2\. Build out new marketing channels. Without new signups, it doesn't matter
how good our product is :)

~~~
chrisgeoghegan
Kareemm, thanks for the quick response! Agreed that in a big market there are
lots of players. But even in markets with lots of players, each player will
have some sort of advantage over others. Do you see anything like this
existing in Codetree or is this something your going to have to work at to
develop?

~~~
kareemm
Good q. In our experience a dev tool is right for a team if the tool fits the
team's workflow. If you want to customize the heck out of what you do, use
JIRA. If you're hardcore Scrum, use Pivotal. etc

Codetree's biggest differentiator from the large market is that it has a two-
way sync with GitHub. But there are lots of companies who do that. So if
you're looking for a tool that sits on GH then we may get a look. To
differentiate from the rest of the GH tools we have some feature-level
differentiators, the biggest being that we have a table view of your issues.
From an information density perspective there's no beating a table.

Feature-level differentiators scare us though - we definitely need to work
harder to make Codetree a product that's substantially different from the
everything else that's out there.

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kareemm
I'm going to cheat and ask derrickreimer a question because i'm curious.

Was there any point in time during the negotiation when you thought the deal
with us was going to fall through?

~~~
derrickreimer
Good question! I felt really good about the prospect of selling to Kareem and
the partners after our initial conversation. It seemed like a really good fit.
Probably the point of highest doubt for me was after receiving the first
offer. I was able to stay pretty logical about things, but I was definitely
concerned we would not be able to bridge the initial gap. Having David from FE
International as an advisor was key to keeping me level-headed. After we
agreed on a price, I was pretty confident we would close.

~~~
kareemm
David @ FE did a great job for you guys. We had talked to him a couple years
ago about being our broker when we sold a previous company. We didn't use him
for other reasons, but having been on the buy side of the transaction, we
wouldn't hesitate to him him represent us if we were selling a business.

~~~
dn210
Thanks gents :)

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vinceh
> specific numbers

So what were the specific numbers? How did you guys arrive at the number? Did
you negotiate? Were there any fees?

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kareemm
We paid $128k, which was asking, and 3.5x seller discretionary earnings
(basically revenue minus expenses, where expenses don't include any money the
seller chooses to take out like his salary or healthcare, etc). Our opening
offer was 2.8x SDE. We came up because we looked at our alternatives to buying
it and they were unpalatable - we really liked Codetree because it ticked a
lot of the boxes for us.

Transactions of this size typically go for between 2.5-4x SDE.

Fees, if any, were paid by the seller.

~~~
freakyjoe
I think that answers my question, thanks... Sounds like pretty straight
forward maths for the most part :)

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christopherslee
What kind of technical due diligence did you do?

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derrickreimer
We had several hour-long screensharing sessions where I walked the buyers
through the codebase and talked through the data model, architecture, etc.

