I'm afraid that any way I answer this would make keeping my anonymity that much harder--sorry.

Thanks again for these follow ups.

1 - Was that one developer enough to get the first iteration of the product?

2 - Was there any particular start up cost or operating cost (labor or otherwise) that your executive team had sticker shock on?

500,000ags said:

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Thanks again for these follow ups.

1 - Was that one developer enough to get the first iteration of the product?

2 - Was there any particular start up cost or operating cost (labor or otherwise) that your executive team had sticker shock on?

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*The specialist developer plus one of our co-founders have an engineering/development product was definitely enough. Then we started adding more developers (front end, back end, full stack) as needed.

*Okay, I thought that's what you were asking. Labor has definitely been the biggest expense by far. Especially with the crazy run on tech folks post COVID. Thankfully that seems to have softened. Then we were grown up enough to need to offer good benefits and that added 15-20% on top of every employee immediately. Otherwise I would say things like AWS, our CRM, and soc 2 compliance definitely add up once you get larger. But thankfully most of those scale with you.

My email is in profile. I would like to ask you a couple of questions but could not pm. If you are open please email me and I will respond.

If you did it all over again, what would you change?

What advice do you have for someone thinking of doing this themselves?

thanks for the thread, I am in similar situation, but about 3-5 years behind you. I have so many questions but here are a few to start.


1) What are the terms of the sale, specifically, what does the transition look like, are you required to stick around for x years, are you walking away immediately or are you staying on and simply assuming an c level position with a salary

2) What are the terms of payment, was it all cash or a portion of cash / stock or something different

3) How did you find the buyer, were you marketing yourself to PE firms, was it a cold call to you? or was this a relationship that had from long ago?


This is a good start, but would love to pick your brain at some point

Congrats!

Bag said:

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thanks for the thread, I am in similar situation, but about 3-5 years behind you. I have so many questions but here are a few to start.


1) What are the terms of the sale, specifically, what does the transition look like, are you required to stick around for x years, are you walking away immediately or are you staying on and simply assuming an c level position with a salary

2) What are the terms of payment, was it all cash or a portion of cash / stock or something different

3) How did you find the buyer, were you marketing yourself to PE firms, was it a cold call to you? or was this a relationship that had from long ago?


This is a good start, but would love to pick your brain at some point

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*Two partners staying on, two of us rolling off in the next ~6 months. No terms were in the contract, but the folks staying on have enough equity that they were aligned with investors on future goals.

*All cash. Some offers were a mix, but most were all cash. We had almost 40 bids from PE groups, so we were pretty much able to say "all cash or no thanks" which was nice.

*We worked with an investment banker who specializes in bootstrapped and founder led companies. He ran a fantastic process, and I believe added at least 30% to our final valuation because of it. Well, well worth the 3% commission.

• The two staying on, are they migrating to employees?
• How many partners/founders had initial equity in company?
• How many years from start to finish?
• Any SBA loans, personal loans involved?
• How did you divide up initial equity?
• Any issue with partners not pulling their weight?
• Would you be willing to share the IBs name?

How much equity did you give up along the way as you added non-founding execs?

I am a co-founder in a startup right now. We're making good money and growing, but from an executive level it's really just the three of us. Everyone else is mostly labor. I know that as we grow we'll need to bring on higher level people, but we are struggling with how to integrate them into our executive team and how much equity to give them.

herewegoagain said:

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Long term cap gains was best bet. Not much else we could do from the high powered tax folks we talked to.

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If you are charitably inclined, a donor advisor fund would mitigate some of the tax hit.

Bag said:

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• The two staying on, are they migrating to employees?
• How many partners/founders had initial equity in company?
• How many years from start to finish?
• Any SBA loans, personal loans involved?
• How did you divide up initial equity?
• Any issue with partners not pulling their weight?
• Would you be willing to share the IBs name?

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• Staying in the same roles as before, and both still have some equity. PE group had no interest in running the company day to day.
• 2 founders, 2 executives added and received equity
• Less than six
• Less than $100k written into start company by co-founders; no other loans
• It was 60/40 to start between founders (the one with the idea had more)
• No, all four very aligned. Only "issue" would be alignment on when to exit.
• Probably not at this time. Would make it too easy to trace back to me/our company. These guys don't do more than a dozen deals a year.

At time of transaction, co-founders shared 80% of equity and a total of 20% was owned by others.

you called the person that handled your sale an investment banker, what is the difference between an IB and a broker?

From what I've seen, investment bankers are going to have a confidential sell-side process that is geared more towards corporate strategic and private equity acquirers.

This is pretty accurate. I have worked in M&A for 10+ years and now operate a small boutique M&A advisory firm. I usually think of a business broker as someone who produces a small CIM or offering document, does light preparation, probably does not utilize a sell-side Quality of Earnings, and then utilizes business exchanges and forums to solicit bids. They are more of an intermediary.

By contrast, an investment banker produces a detailed, thorough pitchbook, does tons of preparation to present the company to the market in a well-thought out approach, runs a sell-side Quality of Earnings process, and then strategically targets buyers in a confidential process by sending teasers to their network, perhaps even increasing value through a bidding war, and continues to advise during the diligence and closing processes. They are selective about soliciting bids in order to add maximum value.

In my experience SMB Brokers (think BizBuySell) typically represent a sale based on an SDE multiple - small owner/operator local businesses.

However, an Investment Banker aligns their clients with potential PE Equity Buyers nationally, and these deals are usually some multiple of EBITDA(R) or in some SaaS cases, a multiple of revenue.

Some niche industries use their industry Consulting Agencies/Firms to take their company to a "bid" process within an online "Deal Room." These firms typically have established relationships with consolidators that buy within that industry.

Just curious, is your coverage by size, geography, or industry?

Maybe I'm misreading the previous responses, but I am a bit surprised you didn't offer equity to the engineers. Is that because you used offshore labor?

As a software engineer who has worked for an (unsuccessful) SaaS startup, I wouldn't have considered and offer without equity. I joined during series A fwiw.

Would love to pick your brain on the reasons they failed Ozzy. Email is in profile. Also, if you have time for a project let me know, I have had issues with the reliability of my programmer as of late.

How do you prevent developers from "stealing" your idea and building out on their own?

Really is no way to stop that. No different than any other business.

Geography and industry I am pretty agnostic, though almost all of my activity has been domestic. I've worked on a couple of transactions in Canada, and some that had foreign subsidiaries or major imports from China.

Industry-wise I've seen just about everything out there, mostly mfg/distribution, B2B services, construction/contracting, technology/software, OFS, transportation/trucking, etc. Lightest experience has been in insurance reimbursed healthcare and clinical physician groups due to the specialty of that world.

Size is typically $1-10mm EBITDA any usually somewhere around $20-50mm of enterprise value. It scales higher and lower of course, but that has been the majority of my deals. Happy to answer anything else on this.

What kind of things interest you? What are some candidates for how you're going to spend your time and energy?

Can you find a similar company to the one you built and sold to invest in and work to add value for? Or work as a consultant for start ups?

You might find it fun to give advice, coach, or help people for short sprints without the long term responsibility.

I know of a project that fits your skill set. It may be more than you're looking to take on but shoot me an email if you're interested in hearing more about it. Username @ gmail.

N/M

Might want to edit your post to keep him hidden

herewegoagain said:

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It's been about 20 months now since our transaction, and I wanted to follow up on this thread to acknowledge the other side of a big transaction like this. I took some time off on purpose, but now I am slowly working my way back into the real world of work. Not to sound like a baby because I know I'm fortunate, but it's tough. I've got enough passive income from investments I made to pay our monthly bills, but I'm still young enough (young 40's) that I want to work and use my skills and energy. But I don't really want a job per se. But I also don't have as much energy to go and start something--lol. So I'm just being honest to say that there is a lot of positives, but there are some unique challenges too. And not really being able to talk to people about this makes it tough too. Most of my friends don't have this kind of money, and the ones who do are still grinding away with no interest in slowing down. So kind of a weird spot.

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I "retired" in '22 at 38 years old after selling most of the assets at the company I co-founded in '07. Currently 41 and still enjoying time with my wife and kids. When my youngest is out of the house, I may look into finding a fulltime job again which would likely just be me starting a business. For the past few years I've been passively investing - mainly in private equity.

I struggled for the first 18 months or so feeling like I should be doing something. I've slowly grown accustomed to not having a day job. The hardest part is when people ask what I do for work. I usually just describe my occupation as what I used to do. It's half true as I'm still an investor in that industry.

I got a call last November to step into the CEO role of a private equity backed company in my previous industry. The PE sponsor had fired the management team and was selling the company to another PE sponsor. It was appealing, but ultimately felt like I would have put in a lot of work to "right the ship" with most of that happening from just before Thanksgiving until just after Christmas. Any other time of the year would have been easier to say "yes", but we already had a lot of travel planned for the holidays, so I said no immediately and thought about it for a few more days before abandoning the idea altogether.

I went through a business sale several years ago and took a break. Back at it now and looking to get more aggressive in either finding a business to buy or building my own. I have a couple of ideas I'm fleshing out at the moment on the start-up side, one being a SaaS idea that I'm not seeing in the iteration I'm envisioning. There are a couple of big players in that space (not going to go into specifics on a public forum:-) ) but they are not delivering what I have in mind.