One of the most important decisions you will ever make is when you sell a founder-led SaaS company. It can be the most significant financial event of your career, if you get it right. If executed incorrectly, it may result in lost revenue, a broken team and torn apart companies that have taken a long time to establish.
The majority of founders that have tried to go through a sale process have one thing in common – they were not ready when they began. What they all have in common is that they did the work first, had clarity and confidence about what they were looking for, and closed strong deals with buyers.
The 5 things that make a difference between founders who can make a hard sell and those that can’t is what I have.
Establish clear objectives prior to selling your SaaS company
Before you start speaking to any buyer, have a clear idea of what you are looking for in the deal. Selling a SaaS business Not one size fits all situations. The word success can have vastly different meanings, depending on the priorities.
Would you like to receive the best possible selling price? Reduce your personal risk? Identify a buyer that can fuel growth? Maintain a culture with team and customers? These goals don’t always go together. The founder pursuing only the “maximum” bid may wind up with a business structure that is sub-optimal for the long term.
Establish a prioritized list of goals and get the right buyer quickly. What they are responding to is not offers – it is how they compare these offers to a framework they created beforehand.
Create a Pitch Story that will attract Purchasers
They are assessing your business beyond your revenue when a potential acquirer is in front of you, be it in-person or on a video call. They’re checking you out. Do you have a clear answer to why your SaaS business exists, who you’re serving and why they’ll choose you over the competition?
When pitching a vertical SaaS, you have to answer 3 questions: Why do they stay? But where is the best growth opportunity?
When founders can be confident with their answers to those questions and they are specific, they create true excitement in the eyes of buyers. Vaguely answering these questions causes concerns on product-market fit, customer dependency, and leadership depth among the founders. Your growth story isn’t just a marketing story — it’s a business story, and it’s a sign of how knowledgeable you are about your business.
Familiarize yourself with the role of AI in your SaaS business.Know what the role of AI is in your SaaS business
AI was a nice add-on feature 18 months ago in a sale. Today, it’s taken for granted. All serious SaaS vertical business buyers will ask you how you’re leveraging AI to make operations better, enter products faster, and deliver significantly greater value to customers.
What is most important is that they will want to know that you have been thinking about the risks. Is it possible for AI-based rivals to take your moat away? How much does it cost to re-create basic product functionality? What do you think will be the next 3–5 years like for your customers when it comes to software like yours?
AI pioneers who are able to articulate the opportunity and risk of AI with clarity are standout founders. People who are unable to think in terms of asking serious questions as to whether the business can continue to compete if the business is to continue. The use of AI is not something that should be just for the sale, but for the business itself – if it’s not in your business and product conversations already, it should be.
Understand the various numbers and their values.Recognize numbers and their values
The potential SaaS business Buyer is diligent. They’ll explore every aspect of every metric, every line of your P&L, and every assumption of your financial projections. If you don’t believe in your own numbers you don’t get the deal — or you slow it down.
Essential metrics to track in a founder-led SaaS acquisition are: EBITDA, Net Revenue, New Logo Pipeline, Net Revenue Retention, GAAP and Cash Accruals. These are not simple terms to memorize. They each provide insights into the health and scalability of your business.
Numbers aren’t enough, the execution of the numbers is important. During the selling process, buyers will be watching to see if you are performing in line with expectations. Build trust and strengthen valuations by founders that achieve their goals before closing. Even a slight miss upsets the price, adding uncertainty and leading to renegotiation. Be familiar with your numbers, hit your numbers and be prepared to explain them in detail.
Know of the deal structure and type of buyer you are dealing with, not only the headline price
The headline, ‘Purchase Price’, is the price at which the product was bought. The deal structure is the story! Your life for the next few years is your buyer’s operating model.
It’s not just a completely different set of buyers when it comes to SaaS acquisitions, there are meaningfully different types. When it comes to SaaS acquisitions, there are meaningfully different types of buyers. They both take an individual perspective when it comes to leadership changes, post-close investment, cost structure and long term vision. A founder who only thinks about valuation without knowing all these things, will end up in a way that is not working for him/her and his/her team.
For instance, permanent capital buyers are buyers of businesses who intend to keep them forever. That influences their approach to leadership continuity, what they invest in and think about culture after close. Meanwhile, growth-oriented PE firms often have a set time horizon and their cost and scaling logic is different. One isn’t necessarily superior, but one might be more suitable for you depending on your objectives.
Carefully consider earning structures in the financial terms. Paper looks promising great, but in reality earnouts can be set up in a way that isn’t going to work. Be aware of the underlying conditions on which the targets are based and whether you have any useful influence over the factors that affect the targets.
The ones that do have money to spend are the ones who take the evaluation process of an SaaS company seriously as the company takes the evaluation process seriously. They have a clear idea of their objectives, know their businessand have a clear idea of what they want before their first meeting.
That prep isn’t only about results — it streamlines the process, lessens stress and safeguards your legacy of what you developed.