
The Inside Story of a Small Startup Acquisition (Part 2) - aaronbrethorst
http://www.softwarebyrob.com/2012/02/02/the-inside-story-of-a-small-startup-acquisition-part-2/
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sologoub
Although I realize that this is entirely private, but it would be incredibly
awesome if you could share some vague ranges of how much you paid for both
this startup and the other "web apps" mentioned in part 1. This info could put
it into perspective of what it would cost to buy the idea and work, as opposed
to having to incubate it yourself.

You make interesting arguments about how buying saved you time and effort, and
also reduced risk, but ultimately everything is a trade-off and knowing the
range of $$$ would make comparison a lot easier.

Thanks for a great post too!

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rwalling
Sure.

I've purchased web apps and websites (and have colleagues who have done the
same) for $1k-$2k that today make right around that each month. But those are
the best results; that's not the most common outcome of purchasing in this
range.

The most common purchase price is between $2k and $7k. Though I do feel like
that's been creeping up over the past couple of years as this approach of
buying becomes better known.

The more you can spend the better off you are; everyone's trying to buy in the
$2k-5k range so there is far less competition in the $10k-$25k range. But
$5k-$10k can also net you a nice app.

In addition, although this approach saves months of dev time it does take time
to find deals. You either have to sift through sites on Flippa, which I did
for years, or find deals and cold email like I did. It's not something where
one day a deal just drops itself into your lap with no work invested.

The hardest one is the first one - once that's going you can use revenue from
that to buy the second, and so on. This most recent acquisition was funded
purely with revenue from the other 8-10 apps I've bought and revamped over the
past several years.

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sologoub
Thank you! This is actually incredibly helpful in putting this into context.
Reading your original posts, I somehow expected to see 5 to 6 digit numbers,
as opposed to the 4 to 5 digits that you quoted.

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davidw
Very insightful, as always. I liked the bit at the end about squirming a bit
because "I didn't build it". It puts the focus on the _business_ of making
money from a product.

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runako
I'm enjoying the series so far. In part 3 I'd love to see something about the
mechanics of executing the deals without getting burned. Stuff like finding
contracts, escrow, etc.

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rwalling
Sure; will do.

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earl
Hi Rob --

Perhaps you could broadly discuss how you made the economics work? As I
understand it they had a site that they were putting virtually zero effort
into, so they must have wanted a pretty hefty multiple of the annual income.
Because even if that income was declining, it was still taking zero effort to
generate. You, on the other hand, had to have assumed you could make the
revenue grow significantly via active investment, right? You did mention that
eg broken sql or query parsing was leaving a ton of data and/or money on the
table as it were, but you couldn't have known that ahead of time, could you?

So maybe you could explain something like: eg they wanted 3x annual profits,
and I made assumptions x, y, z around potential growth via active marketing,
etc. Or perhaps you dug up some competitors to imply that future revenue
declines would be more rapid than expected? Also, perhaps you could explain
how you came to your opening offer -- did you literally email them and say hi,
I'd like to buy this and here is my estimated offer, or did you get some
numbers first? If the former, how did you ballpark the income?

Even if you don't care or have time to answer the above questions, thanks a
bunch for being willing to share these things. I feel like these deals must
happen pretty often but there isn't much of a public guide to doing them.

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rwalling
Sure, I'll cover many of these in part 3; thanks for asking.

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j45
Great post. Most talk about the surface and not the details of each step that
take many years (and iterations) to learn the subtleties of.

