This is a guest post from Andrew Gazdecki, Founder and CEO of MicroAcquire — the largest startup acquisitions marketplace for bootstrapped SaaS Founders and other types of online businesses.
SureSwift has closed a few deals via MicroAcquire, and new listings for SaaS companies there are always on our acquisitions team’s radar. We can tell you from experience that organizing a data room on your SaaS before you list means quicker offers and an easier sales process. We asked Andrew for his take on what should be in your data room, and why it’s so helpful for both the Founder and potential buyers like SureSwift. Here’s what he had to say!
You already have everything you need to sell your SaaS. The problem is, it’s spread across different files, folders, systems, and departments. Consolidating all this data will take hours (perhaps days), but if you prepare it in advance, you’ll help your startup get acquired. How? You can respond to buyers’ requests quickly and easily and resolve issues before they arise.
Acquisitions involve many moving parts. While attending to buyers, negotiation, and preparing for due diligence, you also have to keep growing and operating your business. You don’t want to waste time pulling data from one silo to another where you risk looking unprepared, making a mistake, or discovering something unsavory. Instead, build a data room long before you list.
What’s a Data Room?
A data room is a virtual, sharable workspace where you store all the information pertinent to the acquisition. Rather than get lost in a sea of email attachments, you upload everything to one place from where you share documents and files as you see fit. Consolidating your data into one convenient location avoids confusion, duplication, and unknowns spoiling your acquisition.
If you want to sell a house, for example, you might create a Google Drive folder in which you store pictures, descriptions, video tours, deeds, maintenance records, and more. Like a locked filing cabinet, you have control over who sees what in your data room, preferentially giving access to only the most interested and trusted buyers. It’s the same with acquisitions.
A typical acquisition data room includes financial records, customer lists, vendor licenses, contracts, asset inventory, and lots more. You might also include legal documents like your attorney’s digital minute book. What’s important here is that you create a single source of truth no matter how big or complex your startup is, which makes sharing data super easy.
How Can a Data Room Help You Get Acquired?
A successful acquisition relies on finding the right buyer for your startup. You could simply list your startup on a marketplace like MicroAcquire and wait to attract offers — but acquisitions don’t work like that. Buyers want a lot of information before making an offer, and if you don’t have that information, relay incorrect data, or are too slow to respond, your buyer may lose interest.
Creates a Focal Point for Your Acquisition
A data room is your focal point for acquisition preparation. It shows you what’s done and what’s left to do. It should include everything prospective buyers want to see and that which those who go so far as due diligence need to see. You control access to the data, and a non-disclosure agreement (NDA) handles the rest.
Some buyers who handle a lot of transactions — like SureSwift — will have their own template for NDAs that they’ll prefer to use. If you’re dealing with a first-time or smaller buyer, you may want to have your own NDA template, which you can store in your data room.
It’s a good idea to populate a data room in advance of listing your business because it will save you days of rushing to compile everything when buyers start asking for it. You’ll also discover issues that you can rectify before a buyer ever sees your listing, preserving your asking price, and with more time to prepare, you’re less likely to let mistakes and unknowns creep into your data.
Helps You Negotiate From a Position of Strength
A thoroughly populated data room helps justify your asking price (assuming it’s realistic). When you can share relevant data for instant feedback, you’re also less likely to waste time on buyers who aren’t the right fit, and your overall sale process will be faster and smoother.
Some buyers, for example, might not have the time to wait while you compile your data. They might be considering multiple SaaS targets, and if you’re in the running but can’t provide supporting data fast enough, you might lose out to another Founder who’s better prepared.
Speeds Up Due Diligence
Due diligence is the stage where most acquisitions fail, and can involve dozens of questions and points of verification about your business. But with a well-populated data room, most (if not all) the information you need to share during due diligence is ready in advance. You might even say that preparing a data room is doing due diligence on yourself — a dry run for what’s to come.
In that respect, you’ve overcome the worst. You’ve peeked into the dark corners of your startup, patched up any faults, and itemized and documented everything from your employees to your codebase. When the due diligence questions arrive, your data room provides the answers, which could cut weeks off the process and save you a great deal of stress, too.
How to Set Up a Data Room
A data room takes minutes to set up but could take days or weeks to populate. You’ll also want to categorize the data into folders so it’s easy to navigate. Once done, however, sharing your data is as easy as sending buyers a single Drive link.
The bigger question is what to put in your data room. We answer this question in detail on MicroAcquire, but the high-level goal of a data room is to have credible buyers have as close to the same understanding of the risks and rewards of owning your business as you do.
Being organized and thinking through the buyer's perspective while of course being positive about your business helps reduce the friction and time needed to find the right next owner.
Here’s a basic list of what you should include:
- Marketing materials, including an information memorandum and other supporting information that will help sell your startup. (Even a very short memo with links to the key bits of your deal room is a much better sales doc than just sharing deal room access because it makes all info easier to understand.)
- Digital minute book, which is a digitized collection of legal documents including intellectual property rights, patents, share certificates, and so on.
- Audited financial records for the past two years, including tax filings and financial commitments such as depreciation, capital expenses, and inventories.
- Employee records, including resumes, salaries, benefits, equity percentages, performance records, and so on.
- Pending legal disputes — if you can settle before you list, probably best to do so, otherwise include details in your data room and ensure you ask the buyer to sign an NDA before sharing them.
- Customer lists, including demographics like age, location, persona, purchase history, preferred contact details, and so on.
- Vendor lists, including licenses, which products and services you bought, whether you negotiated special rates, who to contact, and so on.
Whether you prepare a data room or not, prospective buyers will need this information from you. Leave it until the last minute, and you risk jeopardizing your acquisition or not getting what you want from it at worst, and creating a more stressful sales process for yourself at best. Prepare it in advance, and you can field inquiries quickly and efficiently, and ensure you’re set up for a smooth sale.
Create your data room now using this free template.
The SaaS Due Diligence Checklist to Ensure a Successful Deal
If you’re an acquirer or looking to sell your SaaS business, our team at SureSwift Capital is here to help guide you through this process and answer any questions you may have. Following the tips outlined in this checklist and having the proper documentation in place can save yourself time and stress during the due diligence review process.
Why Niche SaaS Businesses are Our Favorite Acquisition Targets
Since 2015, SureSwift Capital has acquired over forty businesses. While not all of those businesses are in our portfolio today, over the last seven years, we’ve refined our ideal acquisition target and perfected our growth strategies.
What Makes a Great Startup Founder?
Great leaders come in many different forms, with different backgrounds, strengths, and areas of expertise. But some patterns do start to emerge when you look at a big sample of successful founders — especially in the bootstrapped business model. Being in the acquisition business we’ve had the distinct advantage of purchasing more than 30 companies and reviewing hundreds more from behind the scenes. These are a few things we’ve noticed along the way.