
I almost sold Baremetrics for $5M - cj
https://baremetrics.com/blog/i-almost-sold-baremetrics-for-5m?ck_subscriber_id=1673362
======
quickthrower2
Sounds like there needs to be a way for the buyer to put some skin in the
game. Maybe asking for a $50k non-refundable deposit to kick things off.

Sounds harsh? Well non-refundable deposits are a thing in real estate. For
example in my country it is common to put 0.25% down to take the property off
the market, non refundable, allowing you to do due diligence and then 19.75%
deposit within 5 days non-refundable, with a closing period of say 30 days to
pony up the other 80%, usually from finance. Probably the 19.75% is lost if
finance doesn't come through but IANAL not sure if that holds up court or not
or if you can get it back in some circumstances. But people understand it's
serious you might lose it.

If you don't really need to sell but wouldn't mind $5m this would be a good
way to weed out non-serious people. If everyone says NO then that's OK you
keep on running the business as before. If anyone says yes then you know they
are serious. They might not buy, but you get $50k compensation, which might be
less than your costs, but the point is the $50k is like a way of communicating
information 'we are serious' than an actual payment.

Asking for $50k from someone who invests $5m is like asking $50 deposit for
someone who wants to book a luxury hotel room for a week. Maybe I should have
said $100k (!)

~~~
Mr_2020
~$8m price. Asked for $25,000 break fee to cover our costs. Was balked at.
Have no reason to believe they were not serious buyers as they bought another
company or two.

~~~
charlesdm
I'm based in Europe but together with a partner I'm a buyer of small tech
businesses. We have bought businesses so are credible and are always
interested in buying more. We could pay $8m if an interesting business came
along.

The issue is that a lot of smaller deals fall through, either because of
unrealistic final price expectations by the seller or because some metric that
is super important to the business was calculated and supplied in the wrong
way (i.e. churn). Or there are issues in structuring the contract because the
seller (or his legal advisor) "overengineers" the contract -- lawyers can and
sometimes do end up killing deals.

As a buyer, if I pay you a $25k fee, you now have leverage over me. Because if
the deal doesn't happen I'm out $25k. If I don't pay you anything you're
incentivized to get the deal done and try and draft a balanced sale/purchase
agreement that works for seller and buyer. That means both parties making
concessions on terms. In my mind, that is healthy, because if we finalise the
deal you're getting a bag of money.

Let's say there is a clause we just can't find each other on. No worries, we
can jointly decide to walk away. If I paid you and you're not willing to
budge, then I'm out $25k if I walk away. It doesn't keep the discussion
balanced.

Add to that that some people might (in the end) be unsure whether they even
want to sell or not, and you end up in a situation where it's all mostly
uncertainty (for both parties) until the deal closes.

~~~
trentnix
>Let's say there is a clause we just can't find each other on. No worries, we
can jointly decide to walk away. If I paid you and you're not willing to
budge, then I'm out $25k if I walk away. It doesn't keep the discussion
balanced.

 _Balanced_? Utter nonsense and I suspect you know it. You know that
proceeding past an LOI involves the seller accruing costs, sinking massive
amounts of time on activities other than working on their business, and, more
often than not, becoming emotionally invested in 'doing the deal'. Buyers buy
businesses a lot more frequently than sellers sell businesses, and that makes
the transaction a "home game" for the buyer, giving buyers an advantage.

Not providing any earnest money minimizes buyer risk, allows buyers an
opportunity for a cheap education on the ins and outs of a successful
business, and invites other tactics to tilt negotiations away from the seller
- all the reasons selling a business becomes one of the most painful
experiences of an entrepreneur's professional life.

If you're not prepared to provide any earnest money, you probably haven't done
enough work to decide whether you're really entering into an LOI. Hopefully,
the sellers negotiating with buyers like you figure that out and push back.

------
Exuma
This is very painful to hear. I've tried selling my main company to 4
different buyers now... every single time we get past the LOI phase, they see
all our financials in plain sight, and there's always some stupid
hangup/ghosting/sketchiness exactly like in this article.

Very disappointing, considering how transparent we are up front sending every
financial, and there's no real 'discoveries' later that would change their
mind. It's just general terrible flakiness.

One guy's excuse was that his brother had put all his money into collateral
without his knowledge, and that discovery phase was a waste of 5 months.

This last one, we thought we learned our lesson so we demanded proof of funds,
as well as much more thorough checks....... and they just magically ghosted us
LITERALLY after I FedExed the signed agreement... so after months and months
of due diligience. They change their mind after about 100 confirmations from
their lawyers, accountants, financers... and just ghost hours after I send it.

It has been greatly discouraging to me, as the 3 serious attempts to sell have
essentially crushed our momentum, and now the company is dying/dead. I won't
say that its a direct result of it, but we ran it very conservatively during
these times as not to upset anything, and those were the times we needed to be
running more aggressively to keep up with competition.

The company is essentially insolvent now, with a large amount of debt. I also
made the bad mistake (I was quite young) to originally put the company card on
an Amex applied for by me (I had 820 credit at the time). Because of inability
to pay back debt on this company, my personal credit is now destroyed.

So.. going from 820 credit, making hundreds of thousands profit per month...
to freelancing to pay bills with a 590 credit. Such is the life of an
entrepreneur and the brutal lessons one learns along the way.

PS... I found out later our accountant had dementia, and did all our taxes
wrong. My biggest advice, have an accountant who is really on point, and
accept absolutely nothing less. Don't fall for the illusion of the pain of
having to "retrain" someone if you don't think your accountant is 100%. Just
find someone who is fucking good, and if they show a red flag, find someone
you fully trust. My business partner has also been ruined in the past by
incompetent accountants.

~~~
Misdicorl
Require 10% of the deal in escrow after the first 2 weeks in the discovery
phase. If the deal doesn't go through, the amount in escrow defaults to you.
If they jerk you around on the escrow, cut them loose, they're not actually
interested in acquisition

~~~
_e
Great point. This is what happens in a real estate. A letter of intent should
have earnest money deposited into an escrow (because the offer is being made
in "earnest") and each contingency should have an expiration date. Upon
expiration of the due diligence contingency, for example, the earnest money
deposit becomes non-refundable and credited towards the purchase price. If the
buyer defaults after the due diligence contingency then the earnest money goes
to the seller.

Does anyone have a link to a sample LOI for selling startups or M&A in
general?

~~~
asharma24
bump. also looking for this.

------
athiercelin
"In many ways, I feel like my job as CEO and Founder is to absorb all of the
insane parts of running a business so my team can focus on building, learning
and enjoying their jobs."

This is spot on. I would extend to senior leadership in general.

~~~
bcrosby95
One way I've heard the role of product manager described as is a "shit
umbrella".

~~~
cletus
This is applied to managers in general:

\- Good managers are shit umbrellas

\- Bad managers are shit funnels

~~~
geebee
beautiful metaphor. anyway, I quasi-agree, though I've become suspicious of
managers who claims to be an umbrella protecting their team from the rain.
Half the time, they're really just trying to make sure their team doesn't see
the forecast and quit.

~~~
alias_neo
I guess umbrellas also keep the sun out.

What you need are those clear plastic umbrellas, no rain, but all the sun.

Transparency.

~~~
o-__-o
Raining shit would be opaque, tho

------
socalnate1
Two quick thoughts on this.

1) The amount of transparency that this company shows is insane. I have a hard
time imagining any one else in this situation sharing the way they do. I hope
it works out for them long term.

2) The due diligence work they did for this deal was absolutely not a waste
(even if they never sell the company). Having gone through this process once
will make it orders of magnitude easier if they sell in the future (especially
gathering and organizing documents from the very early stages). Even if they
don't sell, the process would have shown light on potential liabilities and
issues they hadn't even been thinking about. This is helpful regardless of who
owns the company. Maybe not worth the time and money; but definitely not a
waste.

~~~
zyang
It wouldn't feel great seeing this as an employee of the company. The only
reason you are not sold to the highest bidder was because the ceo got played.

~~~
unlinked_dll
I fucking wish some of the companies I've been at sold to the highest bidder
when they had the chance.

Exits are better than layoffs.

~~~
tuesday20
There is always a non insignificant chance that exits will be followed by
layoffs

~~~
unlinked_dll
True, but layoff + severance < layoff + severance + liquidity event

~~~
brianwawok
How about cases where due to liquidity preferences, no one but founders get
money at the liquidity event? A small exit is often 0 for employees.

~~~
unlinked_dll
then you worked at a bad company with a bad outlook and should have been
prepping to leave anyway?

------
meritt
It's not uncommon for potential acquirers to feign interest in a purchase so
they can derail your business for months while your competition (their actual
investments) pull ahead.

~~~
paxys
If not derail then just to get a ton of valuable business insight that isn't
available publicly. A while ago a large software company dragged us through
this process for months, and eventually backed out at the last minute. A short
while later they had a complete clone of our service ready for launch.

~~~
streetcat1
Have you tried to getting a patent? Does this help in any way?

~~~
marcofiset
A patent is only worth what you're willing to pay in legal fees to defend it.

A patent in and of itself doesn't prevent that from happening.

------
ngngngng
There's got to be a business in here somewhere. A company that acts as a
middleman that sorts through all your financials for you, does all the
communicating, drafts all legal paperwork and just gives you quick regular
updates through the process. That way you can keep running your company during
all of this madness.

I wish I knew more about selling and acquiring companies since it seems like a
business well worth launching if it's feasible, which I don't even know if it
is.

~~~
zonethundery
It can't really work that way. There are diligence firms that provide quality
of earnings analysis, compliance analysis, intellectual property audits, etc.
But potential buyers always have questions that require input from staff.

The executive team has to be very involved in the process. Their involvement
naturally drags management/staff into it.

------
kerng
A friend of mine who sold his company told me that it's common to get
approached and if the buyer is serious things move very fast. Most of the time
though it's just a game of delay to keep competition in control and get more
insights. So, if buyer is interested they will make an offer quickly
(initially maybe too low), but they show they are serious by doing so. Dont
get dragged in meetings or fly around to meet buyers like crazy. Better to
focus on growing the business.

~~~
fludlight
What software/service do you use for your data room?

------
pxlpshr
I didn't fully appreciate the value of our data room until it mattered. Since
the last deal, we've kept our data room impeccable and exceptionally granular.
We're also way more sensitive about the timing of what we share and what we
black-box for as long as possible. There's a strategy for managing your data
room in situations like this, so I encourage talking with mentors/advisors if
it's your first time.

This is also true for general communication to the team about offers like
this. It's way too distracting and too high of a risk to morale if the deal
falls apart.

~~~
icelancer
Can you go into more detail on your data room? Thanks.

------
czbond
Anyone have an idea on why 3.7x revenue for SaaS was considered a fair
valuation? I thought SaaS was always closer to 5-6x

~~~
mritchie712
BareMetrics MRR is public, check it out:

[https://demo.baremetrics.com/#start_date=2019-01-01&end_date...](https://demo.baremetrics.com/#start_date=2019-01-01&end_date=2019-12-31)

20% growth last year or 1.7% per month. That's considered slow for a SaaS.
That's likely what's driving the 3.7x multiple.

~~~
czbond
Fair and thank you for that. Wouldn't their value to Stripe be much more than
3.75x in this case?

~~~
einarvollset
Basically, there are 3 types of buyers: value PE, growth PE and strategic.
Value pays 3-4x, growth 4-7x, strategics ¯\\_(ツ)_/¯ Stripe would be a
strategic for Baremetrics.

~~~
ablekh
Hmm ... Where did you get these multiples from? Based on what I've seen in
many sources (here's one that I have at hand, by McKinsey:
[https://www.mckinsey.com/business-functions/strategy-and-
cor...](https://www.mckinsey.com/business-functions/strategy-and-corporate-
finance/our-insights/multiples-analysis-industry-labels-dont-matter-
performance-does)), high-growth tech/IT startups are valued (and, I assume,
could be acquired) at > 15x, sometimes even > 20x.

~~~
blrgeek
For public companies, growing > 40%, ARR > $100Mn, NDR>125$ revenue multiples
are sky-high ATM.

For private companies at around $1Mn-$3Mn ARR growing sub-20% YoY there are
very few buyers in the first place.

~~~
ablekh
I was definitely talking about the first category (though not necessarily
public only; AFAIK there are some [many?] private companies that fit that
profile). I agree that those revenue multiples are high, though I'm not sure I
would refer to them as "sky-high". Who knows what kind of numbers we will see
in the future ... ;-)

------
mytailorisrich
Due diligence works both ways and it pays to do your homework on potential
buyers and to ask them to prove their claims, or even ask them to put some
money down, before proceeding.

I don't know the company or what they do but cynical me can also imagine a
third party pretending to want to acquire in order to gain inside knowledge.

~~~
throwaway_tech
>or even ask them to put some money down, before proceeding.

Yep. Just look at mature markets like housing. You don't see anyone wasting
time without a deposit, which will be kept if the buyer doesn't go through
with the closing.

Won't put down a earnest money deposit? They aren't serious. For all you know
the do this knowing they won't pull the trigger, but to justify their
job/identifying an opportunity, then being the hero when they "find something
off" and save the company from a bad deal (which they manufactured in the
first place)

------
RaceWon
Want to sell your startup: don't be desperate; people smell that--and it
stinks.

Attract buyers (put out press releases about how well you're doing--hire a PR
firm), and then Say No. Tell them are too busy to prepare financials, and your
lawyers refuse to waste their time. Just say no But Be NICE About it.

This works like a motherfucker because (A) People Really Want What They Can't
Have... and (B) They Already Really, Really Want It Because Of The Press
Releases. (C) Hire a Real Negotiator--and a person who is dispassionate about
the business. Pay them a percentage of the gross profits; of course you tell
them a bottom line number which is the lowest offer you'd accept.

Put the sale money in escrow and you each pay 50% of the due diligence cost
After the money is in the bank.

------
lmeyerov
So hard! And this is a reality even you're not trying to sell but are doing as
part of your regular corp responsibility! I've been on the founder side in
convs like this, both real+fake, so some advice I got here that has resonated
the most:

1\. Assume 95+% of inbounds won't go through, even if 'serious'

2\. Use every ask from the acquirer to get a parallel give: if they're
serious, they'll increasingly show they're not the 95% here

3\. Almost all teams are not emotionally equipped to understand the 95% no-
deal thing, unless you're say a VP-only company (???). As soon as they hear
potential acquirer, it's natural to think "maybe 30% chance for one, so 100%
across 3-4 inbounds", not "maybe 5% for just one if we qualify it more." It's
hard to do anything if you're worrying about your kid's college tuition for
6mo wrt to a fragile deal's ups and downs that you have little control over.

A common path here is to understand indiv employee personal goals, and only
bring in the acquirer in front of them, such as for interviews or whatever,
only once you've gotten a deal to the 99% point (one of the biggest asks).
Baremetrics is going for more transparency afaict, so having someone to help
contextualize for both its ~first-time ceo + employees would seem required to
avoid morale going through the ringer.

4\. Don't optimize for building to exit, but do treat as part of general BD.
(Though I feel most YC etc. co's don't do this, and the wave of quick-flip
startup people is poisoning the well for follow-on founders more serious about
high-trust areas like enterprise.)

==> 4b. This kind of distinction can be all sorts of confusing for team
members too, who aren't thinking about BD+Prod+... etc. strategy all day but
how to make an X do a Y. They can make bad high-level decisions if it takes
center stage.

==> 4c. More likely outcome is becoming colleagues with folks for future
accounts/partnerships/etc., and even hires. So do that!

------
salimmadjd
Jay Jamison (when he was a VC) gave me a great advice once.

"Companies are bought not sold"

~~~
tptacek
This is a hoary old chestnut; my dad told me this back in the 1990s.

~~~
knodi123
> This is a hoary old chestnut

As is the phrase "hoary old chestnut"

------
rajacombinator
5mm is just too low for a web based SaaS business. You’ve already done the
hard work of getting some PMF validation. Why not double down and try to scale
the business? Going from 5mm to 15mm is way easier than 0mm to 5mm.

~~~
Shpigford
That's the route we're going down now! As I mentioned in the article:

> For me, this came at a time where, personally, life was…draining. Outside of
> work I wasn’t in a great place mentally. I was dealing with some family
> issues that were consuming every ounce of my mental energy. I was depressed,
> anxious and the most stressed I’ve ever been and the prospect of being able
> to sell the company and give myself and my brain a break was very appealing.

------
jakozaur
Hearing many horror stories over backing out at last minute, I wonder why
breakup fees and escrow are not more popular in startup world.

E.g. if you would like to acquire for $5mln you need to deposit $100k. If you
walk out, this is a breakup fee. If startup bails it also have to pay same
amount to the acquire.

~~~
hinkley
Part of any acquisition is getting a look at your books.

Now the buyer knows exactly how much runway you have left and all they have to
do is drag their feet until you get desperate to make a deal.

Either you have to be cashflow positive, or keep at least two buyers on the
hook past whatever disclosure phase nets them this sort of information. I
think maybe one company I ever worked for was clever and healthy enough to do
this. And even on that one, things went a bit touch and go. One of the worst
kludges we ever did, it came out later, was worth a month of payroll, which
got us through that acquisition without bouncing checks.

(Still the longest single method body I've seen a human create, and from
someone I thought would never write code like that.)

~~~
jessaustin
Wow I'm struggling to imagine how a too-long method could keep the wolf from
the door for a month. More details please, if you can.

~~~
hinkley
Horrible messy business logic to fulfill a short term contract. It's been a
long time, but if memory serves it was used for data ingestion. The file was
6000 lines, the worst method was over a third of that, closer to half.

It never really worked, as some of us predicted while the project was being
ramped up. Without going into too much detail (most of which has gone from my
head anyway), the speed of light won and we used a different architecture
which obsoleted most of that code.

However, if I and the other people who said it couldn't be done had gotten our
way, that sale would have gone much worse for us. Decisions from incomplete
data and all that jazz. It went live and the customer and we cashed the check
with less than two months of operating capital left, while the lawyers were
still futzing around with term sheets.

The irony is this was also the owner who thought he was rallying the troops
and instead filled us with existential dread every time he tried to give us a
speech. Why I wasn't aware we were scraping bottom of the barrel until six
months later, I'll never know.

------
FpUser
Same thing happen to me. Only it was 2 mil instead of 5 and I did not really
have to do any due diligence as I was selling my product, not my company. So
other then spending some time and paying couple of grand to have lawyer go
over the agreements I did not suffer much.

But boy, was I disappointed ;(

~~~
wolco
You lost a few grand?

~~~
elbear
More like missing out on 2 mil

~~~
paulcole
Spending $5 on a losing lottery ticket isn't missing out on $100 million.

~~~
elbear
I know what you mean, but we're talking about someone's perception, not the
mathematical way to see things.

Also, winning the lottery and almost selling your business don't have nearly
the same probability.

------
throw3982
Is there any forum or group that has people that can advise on such matters?

I know HN is one but it's too big/too impersonal for this.

I mean a place for founders to find "mentors" (i.e. people with more
experience or people that have done similar things before) that would be
willing to help them with things as a sale to a big company or how to
structure a deal.

~~~
bkanber
I'm in a program in NYC called
[https://www.venwise.com/](https://www.venwise.com/), it's a moderated CxO
peer group that meets for a long session every month and does exactly this.

~~~
throw3982
Thanks.

Anything in London?

------
in3d
I wish people would name names. That would discourage this type of behavior.

------
metastart
Sadly it's very common to hear from many reasonably serious potential
acquirers before something is consummated. 10 is not unusual I think. It's
best to always focus on your business and growing it, assume the acquisition
isn't going to close and not getting distracted by it. Avoid any legal or
other costs until it's basically negotiated/closed and they're putting some
non-refundable closing money down.

------
xwowsersx
Can breakup fees be negotiated in these kinds of deals to protect the would-be
acquired company? Seems like the company to be acquired bears all the risk.

~~~
adventured
You can negotiate anything you want, and I'm not joking or being sarcastic
about it.

A lot of people in this thread will say: well, it's unusual or non-standard to
do x y z. Good. Most of the interest a company receives re acquisition is
going to be pure bullshit at best and malevolent at worst. Ideally you cause
the majority of both types to turn tail and run away immediately. If you're
not careful you'll waste an enormous amount of valuable time dealing with
bogus acquisition (and partnership) interest. Big companies waste a lot of
time and money screwing around with: let's make a deal; they can afford it.

The break-up fee should not be layered under 27 conditionals. As someone
pointed out, the acquiring company will bury you under a mountain of difficult
to fight legal justifications to get out of the break-up fee if they can. And
they're almost always going to be far stronger financially than you are.

A fee is going into the company bank account no matter what, without
conditions, if you want to get serious about an acquisition. You're going to
pay us for our time - risk, legal costs, etc. - if you're serious. The mental
approach is simple: don't like the arrangement? Fuck off right now so I can
get back to running my business. That's not standard? Too bad. It's your
business, you can do anything you want to in that respect. Don't let people
tell you that you can't do it, you certainly can. If a company is very serious
about buying you, they won't run away if you put this on the table up front,
they'll be willing to discuss it at least.

~~~
xwowsersx
Thanks for the reply, I agree with you. Parenthetically, I know you can
negotiate anything you want. I went to law school (though never practiced) and
I find one of the common misconceptions is that contracts are these highly
fomulaic documents with no room for creativity. The reality is, as you say,
that you can put whatever you want in there. Contract law is mostly about
enforcing the freely-negotiated agreements between parties. I wrote a lot of
contracts that were highly specific to the scenarios in question and there was
a ton of creativity - only trick was to use very precise language (verbose
bordering on annoying).

My question was more whether this is something that is done in such contexts,
namely smallish acquisitions. I think you're right that Baremetrics made a
mistake here in not insisting on some of the things you mentioned.

------
YPCrumble
One of the best parts of Baremetrics is that it's an "Open Startup". I can't
help but think that the acquisition is clearly not open if he didn't talk
about it during the acquisition and doesn't name names here.

I think he's right not to dox the company, but perhaps in the future having an
"open acquisition process" could have avoided some of the headache.

~~~
Shpigford
I threw around the idea but the reality was I wasn't in a strong position to
try to negotiate that with a potential buyer.

Acquisitions are incredibly closed-door and so finding a buyer who was willing
to be open about the process would have been nearly impossible.

------
tnolet
Rule number one: Nothing is real till the money hits the bank account. The
rest is all foreplay.

------
rolltiide
> You see, it turns out they’d misrepresented their funding situation at the
> beginning.

it’s so aggravating when my business partners can’t see these posers from a
mile away.

------
KODeKarnage
This has been posted half a dozen times, but now gets 250+ up-votes and 150+
comments?

------
maxzon
congrats

------
rdslw
I can't even visit OP as my pi.hole blocks it :)

Let me guess: another spam^H^Hads analytics^H^H^Hspy business there under the
pretext of 'better user satisfaction'.

~~~
bkanber
No, Baremetrics is a Stripe-et-al analytics service.

