IkmoIkmo got this spot on in his/her comment.
Biggest two mistakes people are making in this thread:
1. $100k was revenue, not profit.
2. I get capital gains rates on the sale, versus ordinary income rates.
(If you didn't know about #2 you should probably sign up for my accounting and tax course for freelancers and entrepreneurs: http://trevormckendrick.com/accounting-course-for-entreprene...)
I try to avoid details when higher levels of abstraction are sufficient for my audience.
> On September 3, 2015, we acquired the Spanish Bible mobile applications and their related website and Facebook properties for $0.5 million in cash.
> ... over 7 months, hundreds of emails, ... psychologically exhausting and definitely the hardest part of the 3.5 years I ran the business.
This. The hardest part for me and my cofounders was keeping the business operating, and growing, while spending what seemed like full time on the "distraction" of a sale process with several potential buyers.
> I always assumed it was dead until the cash was finally in the bank. ... various levels of depression occurred throughout the sales process.
Yet, in the end:
> The deal made a ton of sense and I’m glad it got done.
Amen and congrats to you!
I'm an employee, but just imagining the stress of running a successful business, I honestly can't blame a founder for selling as long as I'm being compensated in a manner I consider fair (ie. fair market rate with minimal/low equity, or meaningful equity with terms that won't screw me).
There's absolutely nothing wrong with cashing out when you think it is the right time. Anyone who did not found the company should understand it is a possibility when they sign on.
Naturally, every potential feature, once implemented, has ongoing costs and risks with respect to availability, data quality, maintenance, impacts on customer service, image, impact on our municipal customers, etc. We were a small, lean organization then. It's impossible to know if we struck the optimal balance; you're reasonable to ask!
I am now just another user of the service and I love it ... but in 2016, location-based everything is a reasonable expectation! Cheers. :-)
This is an interesting read and congratulations to you.
If I understand it correctly the app was pulling in $100,000 a year and required only an hour of maintenance per month? I'm curious why you chose to sell for $500,000 rather than continue with a long term revenue stream? Was there concern on your part that you could keep these revenue up in the long run?
He said he worries 365 days a year that he'll lose out somehow. He specifically mentions the dependence on Apple, e.g. if they change their search algorithm he may be fucked, and there's no independence there. He's small-time and has near zero revenue streams outside of the apple store. (he mentions the Android port being a failure).
About the Android port failure... he's saying Android makes him barely any money at all, but you can imagine he spent $10-20k on that at least last year.
The first year he did things like hire a studio to record an audio book. That may sound cheap, but a bible audio book is 70-75 hours long, and each hour recorded costs $300-600 (you could also do it for $200 or $800, but both aren't very typical). Even for low-quality, shortened books, it's still a significant expense.
He's got costs, the $100k isn't even operating profit, let alone net income.
For example, he mentions he increased his revenue from $75k to $100k from y1 to y2, but also lost money due to new licensing deals that cut deep into his margins, saying that he's not sure it was worth it.
Between a new revenue stream of which he doesn't think it was profitable, and a port to a new app store which he says generates practically non-existent revenue, it doesn't look like he's got the resources to singlehandedly build this out to a ridiculous cash cow. The $100k of course is awesome, but he's had to put in time to make it grow (inc. a brand new app, none of that he refers to when he says he has 1 hour of monthly work to sustain the app), some of these growth projects failed, and he probably invested quite a bit in the first place, more than the $500 he refers to as his initial investment.
After taxes and expenses I'd expect say $50k to be left as net income. I'd take $500k too, for sure. That $50k to say $75k tops he's netting per year, takes at least 8-10 years to beat a $500k lump sum that's reinvested. Now of course he has opportunities to grow the business, but here's the thing... if he grows the business, he's now working part-time or full-time, which carries a significant opportunity cost, too. And it's not without direct costs, either, like developing or licensing content. Further, in those 8-10 years everything can change, particularly the competitive landscape, the OP's purchaser probably would've bought another top 5 app and thrown resources at it.
In short, I think he did quite well with $500k but that's based on a lot of my assumptions and interpretations of his brief comments.
By selling he gets a chunk of money in the bank (possibly less than he'd have earned over time and certainly less than Salem thinks they can earn with the app), but he also avoids a marketplace battle and he can go work on other things. Salem avoids having to develop a competing app and gets a significant and likely fast-growing installed base.
My suspicion is that both sides feel like they came out ahead - Trevor got a couple years of good revenue followed by a nice exit; Salem got a market-leading app that likely will prove popular in some global markets where smartphone usage or capabilities are likely to increase over the next decade - what are the forecasts for smartphone usage in Central and South America? Additionally, if Salem isn't already an international player, having a top-rated app may let them expand other operations to cover more international international markets without having to do a lot of risky physical investment or international marketing first to break into those markets.
You've got too extra letters there :)
"An online post pointing out a spelling error will inevitably contain a spelling error."
Only someone with a time machine could calculate if his business would survive 5+ years it would need to take provide a similar return.
That means it would take you 6.5 years to make the same amount of money. Do you want to run an app for 6 years if you could get the money today + do something else? That $400k can start making 5-10% returns a year.. starting today.
The cool part of the story is that even though it took him seven frustrating months to close the deal, he was earning money every month. Theoretically, with that kind of revenue stream he could have dragged things out for months or years, and the buyer probably understood that.
A great position to be in, and to be so young, too. * envy *
And I'm grateful you did. This was very interesting to read. Thank you!
I love your frugal approach. You deserve everything you got. Nice to see how professionally you both handled the negotiations and it certainly teaches me the virtue of patience!
The joy of Streak, and the fact that they work remotely,
is that I could see them forwarding my email to each other.
You’ll see in the map below that it was opened in multiple
locations, multiple times.
It’s like sending a text to someone you’re interested in
after a date, and knowing that they’re talking to their
friends about how to respond. They’re interested.
This doesn’t always work obviously, but it gave me a ton of
confidence in the moment.
If you're on mobile, basically majority of the apps out there suck at this.
You need to turn image loading off by default and then Gmail, built-in Mail, and FastMail are the only ones that pass.
Can I ask what you did with the rest of your time?
1. It costs $25 to join the slack community. Is this normal?
2. The overview" page mentions all the things in the ThirdPath coaching process but lacks one important thing-how it has anything to do with Christianity. It reads like every other startup coach/bootcamp process.
Makes me think that this bootcamp is just targeting Christians because it's a big niche, not because you believe that there's truly a need for Christian startups
This is against the Slack Terms of Service.
https://slack.com/terms-of-service Clause #6.7
Also I will reach out to Slack's team to find out about the ToS. If this is truly the case then many other slack communities are in violation as well :/
My wife recently gave me this quote from St. Francis - "Preach the gospel at all times, and when necessary, use words." I think it applies here.
Also I feel bringing religion into business (which is essentially what startups are) is unwarranted. Don't get me wrong, but there is literally no correlation here.
You seem like a genuinely nice guy so I just dropped in my 2 cents, and yes, you should reach out to Slack. Best of luck, mate!
According to the Business Insider article, Trevor McKendrick is atheist:
Though McKendrick doesn't have to think about money, his
booming Bible-selling business does have him worrying
about one thing: his morality.
See, McKendrick isn't exactly a believer in his product.
"We don't believe in Christianity," he told Blumberg. "We
don't believe in the Bible."
"I would describe myself as an atheist."
It would be enough if a Christian identified these issues that could be solved with software and found a developer who could build that software.
Congrats on your success man.
Q: Yen Tan
> I’m very curious – isn’t there copyright on the bible/ translated bible? How did you deal with that?
> Great question. The first first I used was in the public domain. I also sold other versions later as in-app purchases, but I licensed those from their respective copyright holders (i.e. Biblica and The American Bible Society)
Is this the standard opener now? Also, is that 3.5 annual or monthly revenue? For centuries I believe that 20x annual revenue has been a rule of thumb for properties, companies &c.
His Bible app is obviously different than most such properties, which is why he was able to bump up the offer. But still, if the app landscape changes, that can make their purchase worthless overnight. So you have to price that into the offer.
There is an aspect to be considered about making money on this topic.
He says that the first one he sold was PD but he also sells others as in-app purchases that are licensed.
You're selling something, so in an acquisition you will have to represent and warranty what you actually own and you're selling. This sounds simple on its face, but technology isn't nearly so well-defined and legally sorted as, for example real estate.
In software, even if you are 100% certain you can transfer all of the code and there are no potential content copyright issues or latent prior agreements by yourself or other sellers, current/former employees who think they own something, etc, you still have at a minimum, a hard-to-quantify "Sword of Damocles" in the form of thousands of potential patent claims hanging over you, trolls or not, it doesn't matter in a sale. As in business itself, the bigger the money involved, the more visible you become to potential claims.
A publicly-traded buyer is likely to be less flexible on terms, but in any case you as a seller have also to consider that in a sale, you're most likely going to be forced to shift liability from your corporation to yourself personally. If you're prudent, as this seller was, you realize this creates a time period increased personal risk, despite your increased assets. Keeping this period as short as possible and limiting its scope and magnitude is your objective.
A few limitations I can vouch for making it past public company scrutinity are 1. any dispute costing less than $X are not your responsibility. 2. a maximum liability limitation equal to the purchase price in cash / shares (in case share prices drops) 3. a time limit of two years or less. 4. escrow of a portion of the purchase consideration (shares and/or cash) as a warranty cap for the duration of the warranty, perhaps with release/reduction over time. The tax treatment of this arrangement would have to be considered carefully.
Finally, it's worth noting that insurance for an acquisition deal may be available from big name insurers, likely for some low single-digit percentage of the deal value. However, their legal department will undoubtedly be more sophisticated in this area than your counsel, so at its worst insurance gives you little more than a contract with an insurance company over which to sue, likely at great cost.
Overall, as lawyers always say, "it depends." Unless the deal and/or your resources are immense, likely it is a problem with no risk-free solution. If you're young and have nothing to lose, risk is an easier choice. For everyone else, all you can do is optimize based on present knowledge.
I think ideally escrow would nicely encapsulate risk for a seller and ramp it down over time. When applied to cash it could create tax issues if a payment is recognized as income in one tax year and only becomes available in a subsequent year. For shares received by exchange for existing shares structured as a merger, this is likely solvable. If a selling party holds only stock options though and is issued shares on closing, again, my initial guess would be that would be deemed a "taxable event." Another aspect of escrow is that it eventually requires sign-off from the buyer to release it to you, effectively giving them control of your proceeds that they might attempt to exercise outside of the original intent of the escrow.
So, as for handling your windfall during the indemnification period, yes, purely the simplest approach would be to hold the proceeds in the most risk-free way until your indemnification period ends.
This is however, again complicated at least by tax implications if you need some of the money to pay taxes due on cash received in the closing.
Furthermore, there is a strong argument for using some cash to hedge against a decline in the value of shares received (if any), simplistically illustrated by purchasing put options on the acquiring company's stock, since you're forced to hold it throughout some inevitable lockup period. Put options on a reasonably closely-correlated financial instrument might also be viable if the acquiring company isn't so large as to have an active options market, since public stock prices seem to move broadly, barring any company-specific failures.
To put some entirely fictional numbers to the hedging argument, imagine you're obligated to sit on $10M worth of public stock for two years and you could spend $250K cash today to gain a significant level of protection against a drop in the share price. After your two-year wait, you either have $10M or more in stock if the price held or rose ($250K is gone but you spent it on insurance of a sort) or perhaps the stock dropped 80% and you now have $2M in stock but another $4M made back from the put options you bought, so while $6M pre-tax isn't $10M, it's a lot more than $2M.
For example News International owns Zondervan who own the NIV copyright; I wish that those who got together to write the NIV (one of the most popular English language translations) would have used a CC license.
Seem like he solved a problem people were willing to pay for http://trevormckendrick.com/my-first-year-in-the-app-store/
The customers that would buy a bible-app are the same who would gladly donate to their church. Indirectly this app may have already contributed its "winnings" back into the community. Maybe someone got inspired by reading the bible-app and did a good deed or grew spiritually. How is that for a winning!
The biggest Christian publisher in my country has been sending take-down notices to websites offering bible texts for free (vs. their paid access). They rather see money than people strengthening their faith. Mull on that for a while.
Besides, churches already make enough money as it is.
No, actually they don't. Let me explain why. The vast majority of churches are very small and underfunded. They are not at all like Joel Osteen's Lakewood Church, or some kind of megachurch. Many of them struggle to fund ministries, and don't pay their clergy and staff much at all.
Someone's feelin' salty.
Address the topic, stay away from ad hominem.
Besides, my account is 209 days old.
Also, it's not a "misperception" to observe the reality that your account is new, and that your comment is essentially thinly-veiled trolling.
Why does it even matter how old the account is?
At any rate, ad hominem are not welcome on HN. Address the topic or say nothing, it's a waste of time to speculate on the author.
I think he did alright.
Rather than valuing them at what they're ACTUALLY worth.
He also launched an Android version and it didn't blow up like the iOS version.