In this episode of the SaaS Revolution Show our host Alex Theuma is joined by Tim Schumacher, co-founder of saas.group, as he shares his insights on exiting your SaaS business.

“The one thing that’s moved the needle every time is being open about certain problems which appear in one business and solving them myself, in a way, and that usually made a good business. And those were always been than the ones where I was just looking at some general trend I didn’t really understand, those were my failures.”

Tim shares:

  • Growing his first business: from three friends in a garage to 300 people (before then selling to United Internet!)
  • His beginnings in angel investing and what constitutes a fundable founder
  • A saas.group snapshot: 20 companies acquired ranging between $1-$10M ARR
  • The key steps involved with acquisitions (and why soul searching is #1)
  • His advice to founders considering an acquisition… and why it’s important to remember valuation is just one factor!

and more!

Watch or listen to the full episode below or read on for key takeaways.

 

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Why founders exit early

Alex opened the podcast by explaining his surprise at the number of founders looking closely at M&A and thinking about selling their businesses. Some after a longer and perhaps more expected tenure of around ten years but others are much earlier in their journey.

He asked Tim what makes a founder 3-5 years into running a seemingly successful business look to exit. Aside from macroeconomics and the challenges with access to capital in the current climate, Tim identified a number of other reasons why founders sell early:

  • Burnout: Running a company can be all encompassing and some founders get to the point where they want (or need) to step away. This might be for their mental health or simply to spend more time with friends and family. 
  • Financial security: Even with good revenue, financial security requires consistent profitability. Many founders choose to in Tim’s words “take some chips off the table” so they don’t have everything tied up in one place. 
  • Changing responsibility: Some founders just enjoy building great products. As you scale, the role becomes running a company and that isn’t for everyone. 
  • Industry changes: Nobody knows their industry like a founder – some see changes happening that may impact what they’ve built and would rather sell early than navigate the change or risk losing what they’ve got. 
  • Diminishing returns: While there’s a big difference between making $1M and $5M, the returns start to diminish beyond that. Some choose to sell early rather than staying for marginal gains. 

Tim is of the view that there aren’t really any good or bad reasons to sell. What’s important is founders “soul searching”. That is, taking the time to really think about why you want to sell and if it’s the right time. Something that, for some, takes years. 

The exit process explained

Deciding to sell is an individual journey, even amongst co-founders. But beyond that, there are steps that form the rest of the process. 

Preparation 

Once you’ve decided to sell, there’s data to gather and decisions to make. 

Firstly, whether or not to engage a broker or advisor. Tim mentioned that a broker might be best if you’re not sure of the process or if there are multiple stakeholders to navigate. For deals where there is a pre existing relationship with a buyer you’re comfortable with, you could just work with an experienced advisor. 

In this stage, you’ll also need to gather the data you’ll need to engage potential buyers and inform the letter of intent (LOI) and due diligence stages that follow.

Outreach to potential buyers (~2 months)

Whether you do this directly or engage a broker to do it on your behalf, there are things you can do to streamline your outreach to potential buyers–and it starts before you decide to sell. 

Most founders experience interest from buyers at some point on their business’ journey. Rather than ignoring those emails and messages, Tim advocates for replying with a standard response so you can filter through and go back to them when the time is right. 

Letter of intent (LOI) phase (1-2 months)

After your outreach, you’ll receive formal expressions of interest from potential buyers and will ultimately decide who to progress with.

For saas.group, letter of intent is treated as a “handshake agreement”–something Tim attributes to their 80-90% deal success rate after this stage.

Tim advises founders to thoroughly vet potential acquirers and consider how the company will be preserved post-acquisition. This is also time to start thinking about your valuation (and how to maximise it). This continues through to contract negotiations and includes considering: how long you agree to stay with the company post sale, growth commitments, payment terms, and how flexible you’re willing to be about the deal structure. 

Due Diligence phase (1-2 months)

Once you’ve decided which buyer to progress with, they’ll run a set of due diligence checks. Similar to when you go through a venture capital funding round, the buyer will thoroughly examine your company’s data, including:

  • Financial data
  • Team information
  • Customer data
  • Technical diligence (code quality and documentation etc)

Contract negotiations and closing the deal (1-2 months)

After due diligence is complete, contract negotiations can start. This is where you iron out the final details of the sale before contracts are signed by all parties. 

Depending on the size of the deal, Tim says founders should expect the process to take 3-6 months from outreach to closing a deal.

Get more from SaaStock

Whether you’re one of the founders thinking seriously about this now or it’s something you’ll do in the future – one thing SaaStock is passionate about is connecting companies and their founders on the journey. Whether it’s with investors, brokers, or buyers, or with a fellow founder that you can confide in, having a robust network is an invaluable experience that has real impact for our community.

SaaStock facilitates lots of opportunities to build these connections. See our local meetups, founder community , and upcoming SaaStock Europe event where we’ve added a whole new networking programme from for 2024.

Other ways to get involced:

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