Not disagreeing with you, but I think it is kind of amazing that a "few hundred thousand in revenue" would be considered a failure. It is a shame that it might be in some circles.
Say, $300,000 in revenue, and a %80 operating margin, would mean you're operating profit is $240,000. IF you're growing at %50 a year, and the company sells for 50 times earnings, then you've got a business worth $12M.
I think you are greatly overestimating the revenue multiple there. Try 2 or 3, not 50, and I'd be lucky to get either. (We'll set aside the case where the acquisition is an outsized signing bonus.)
Adjusting for the reasonable valuations, selling does not move the needle for YC, and all time spent on me would be time wasted relative to mentoring one marginal try to build the next Zynga, GroupOn, Mint, etc.
That is neither regrettable or joyous. We merely have goals not in alignment at present.
2 or 3 is a common multiplier when buying a site. For plain forums, it's often just 1, or less (which does beg the question why sell at all). For fast growing sites with potential, where there may be strategic reasons to buy it, it may be 5 to 6.
50 is out of the question: get your money back in 50 years? No way.
Unfortunately companies only exit for 50 times earnings in Web 2.0 fantasy land. In the real world, it's closer to 2 or 3 times EBITDA(not revenue).
If I could build a business to $20K in revenue and flip it for a million I, and many, many others making a living online, would be a millionaire many times over.
A 'lifestyle business' - but fairly "web2 buzzword compatible". And yet, according to the fairly believable numbers they made than $100K in profit in their first year (and about that much LTM also) and sold for only $90K after 18 months.
Interesting example, as the creator of that site, dangrossman, posted in this thread. You can ask him about the sale.
In that case, any smart buyer will instantly see that there is a sharp downward trend in revenue. Maybe the site is falling in the SERPS, new competitors have entered the market, or, worse, the target market is becoming saturated.
This explains the low sale amount.
Dan was smart to sell before revenue declined too much.
I can believe that 2-3x EBITDA is common, but it seems all the exits we hear about here, at least, must be higher than that (we admittedly probably hear about the more spectacular ones). Google bought Aardvark for $50m, for example--- did they really have $17-25m EBITDA at the time of the acquisition? Though I suppose a search engine buying another search engine could certainly fall under Web 2.0 fantasy land.
I fully agree with you on the 2-3x multiplier, but lzw never claimed an evaluation based on 50 x Revenue. He stated that operating profit would be used--which is exactly what EBITDA essentially is.
That being said, you probably could still flip a web company for $1M with the 50x multiplier (given $20k in revenue). If you're serving an SaaS to 167 customers (paying $10/mo), your EBIT to Sales ratio --> 1.00 with negligible variable costs. God bless the interwebs.
I've sold several SaaS web sites with $10-$20k in revenue, not one of them for more than $50k. If you know anyone willing to give me a million dollars for the next one, PLEASE let me know.
Say, $300,000 in revenue, and a %80 operating margin, would mean you're operating profit is $240,000. IF you're growing at %50 a year, and the company sells for 50 times earnings, then you've got a business worth $12M.
That's a success in my book!