What founders need to know about SaaS exit strategy.
We love giving Founders dream exits that include life-changing checks. But there’s more to a dream exit than the money. In this guide, we’ll look at what you need to think about beyond the financial value of an exit so you can be sure it checks all of your other boxes as well.
By Chris Reedy
VP of Acquisitions
If you’re thinking about selling your SaaS, you’ve probably spent some time thinking about and researching topics like valuation and SaaS multiples. But working with and talking to bootstrapped Founders every day for the last 5+ years, we can tell you a dream exit is so much bigger than a number. And the best time to know what you want is before you are presented with an offer.
Obviously a life-changing amount of cash in your bank account is huge. And a great product could get multiple offers. Even if you throw out lowballs, you may still be evaluating two or three deals, and you’re doing yourself a disservice if you don’t know how to evaluate both the numbers, and fit with your goals beyond the surface level of the numbers.
Let’s look at the numbers first.
How to evaluate the financial aspect of a SaaS exit
The numbers might seem like the simple part, but there are SaaS “buyers” who make offers and write LOIs when they don’t have the cash. So, you want to know how to look for and ask about those financial details, too.
Here’s a real-life example of a bootstrapped SaaS Founder with two offers. Josh Pigford of Baremetrics almost sold for $5M in 2019. Turns out the buyer didn’t have the cash, and it was a terrible (and costly) experience for him. In 2020 he did sell for $4M. If these offers had come in at the same time, and you looked only at the numbers, the first one looks better.
But if you look deeper, the second offer was the better deal — that buyer had the cash, and was able to close. Now Josh has his time back, and he walked away with $3.7M in cash. (You can hear all about what post-exit life is looking for Josh on the Startups for the Rest of Us podcast.)
So the very first part of a dream exit: Make sure your buyer has the cash they’re offering you. You can ask for proof of funds, just like you would if you were selling a house. Also look at their buying track record — is this the first deal they’re doing, or do they have a history of successful closes and happy Founders?
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Even assuming a buyer does have the cash in hand, a deal for $4M and $5M may have a pretty similar effect on your life financially, but the details behind those deals could mean all the difference between a disappointing exit and a dream exit.
Which brings us back to…
How to evaluate a SaaS exit beyond the numbers
There are two really big questions besides the selling price we encourage Founders to think about during the exit process that should impact all the other details of a dream deal.
Big Question No. 1
Why are you selling?
There are a lot of possible answers to this question, and none of them are “right” or “wrong,” but it’s just one of those things you should think through and be honest with yourself (and Co-Founders, life partners, etc. if you have them) about.
The things we tend to hear from bootstrappers do fall into some general themes though — maybe one of these makes you say “YES” when you read it.
You want to make, not manage.
People who excel at bootstrapping tend to love working independently. That often means they’re more into making products than managing a team. And there’s nothing wrong with loving the early stages of a business more than the later stages. As a company grows so does the operations overhead, and if that’s not your thing, selling your product to an operator who wants to do that can be a great move.
You want to take some (or all) of your risk off the table.
Marvin Russell, our Head of Growth, calls SaaS “the Wild West.” It’s tempting to think you can just keep growing and growing, but native solutions (if you’re serving customers on a specific platform like Shopify), competition, and black swan events like COVID can affect your revenue in totally unpredictable ways.
And if you’re running a company on your own, or with a Co-Founder or two, your business financial risk is your personal financial risk. So once you’ve grown to a certain level it can be really tempting to trade in some or all of the upside on future growth to take that risk off the table.
You want your time back for something else — even if you’re not sure what.
Traditional long-term exits with long earnouts and long transitions appeal more to folks who have raised outside capital and need a very high exit number before they hit their personal financial goals. That sort of exit has a very long timeline. Sometimes Founders want to sell to us knowing that they could raise capital and keep growing the business, but that doing so means years are added to their exit timeline and getting more control of their time — which after all, is what a dream exit is usually about.
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You’re coming up against a skill or interest ceiling.
Typically the one that comes into play for bootstrappers is around marketing and growth since the vast majority of bootstrappers come from a technical/engineering background. But the flip side might be true if you’re a non-technical founder, and you might run into issues with tech and scaling.
Either way, if you’ve hit a point where you just don’t know how to grow your product further (or you know what to do, but you’re not interested in doing it), you have a few options.
If you’re interested in it and have the time, you can work on leveling up your skills in the area where you’re weaker, but you’re going to be years behind folks with experience.
You can hire out for it, either by adding a position on your team, or by working with a freelancer. It can be challenging to set goals and manage performance for a function you’re not already familiar with, though.
You can bring on a Co-Founder to fill that gap. But 65% of high-potential startups fail due to co-founders falling out.
And finally — you can sell if you’re not interested in the other options.
Running and growing a SaaS to a certain level requires a serious time and mental space commitment. So does raising kids. Or caring for aging parents, or a sick loved one. Or moving to a new country. Sometimes life changes are intentional, and sometimes they’re just thrown at us. Either way, they can make us feel differently about the time and mental commitments of running a business.
You’re burnt out and want a break.
People don’t always talk about this one, but it’s legit. Growing a product from nothing to a healthy MRR, constantly answering support questions, trying out new growth hacks, updating code, etc. etc. etc. can eat away at your life. Especially if you started your SaaS as a side project and were working part- or full-time somewhere else while you launched.
We’ve heard from Founders who haven’t had a vacation in 2+ years, and one who joked about needing immersion therapy to be able to open a laptop again. There’s no shame in putting a value on your time. It’s a cliché, but we all really do only get one life.
All the things.
Most of the time people don’t sell for a single reason, there’s a combination of two or more of the things on this list.
Why you need to answer this question:
You should evaluate every aspect of a potential deal from the lens of your personal “why” because a dream exit means your dream, not someone else’s, or something that sounds good on Twitter.
So it’s worth taking the time to list out all of your personal reasons because the “why” behind your exit can and should impact the “what’s” of the deal you ultimately choose (more on those in just a bit) — like if you want a full exit, how quickly you want to the process to take place, whether you’re looking for a full-cash exit, or other terms, etc.
If you have Co-Founders, it’s also especially important for all of you to know your own reasons and goals, and each other’s before a sale process starts. You’ll have a much smoother sale process this way than if you uncover major differences during a sale.
In the case of Co-Founders — a dream exit is one that ticks all the boxes you agreed on ahead of time.
Big Question No. 2
What do you want to do with your time (long-term) after you sell?
Short-term you might just want some time off.
Long-term what you want can really vary, and it’s also totally okay not to have a crystal clear image.
If you don’t have a long-term picture, it is a good idea to think about how to add some structure to your time, because after the initial elation of a deal and a break, the reality of going from 100mph every day to zero can leave you feeling a bit unmoored. (I’ve never known a bootstrapper to really be good at just sitting on a beach. You all are a motivated bunch, and usually you’ll be thinking about what’s next at least a little bit when you take that bucket list post-exit vacation.)
Here are a few things SureSwift Alumni Founders have gone on to do long-term after an exit.
- Fully focusing on another product they were already working on (Tristan Gamilis and Nick Firth McCoy, Paydirt)
- Making a brand new product (Moritz Dausinger, Docparser and Mailparser)
- Working for someone else for awhile (Mack McConnell, Marvin Russell, and Lilia Tovbin all joined the SureSwift team after selling their products.)
- Shaking up the SaaS investment world with a new funding model for bootstrappers (Tyler Tringas, Storemapper)
- Writing a book (Arvid Kahl, FeedbackPanda)
- Moving into a different business or industry area (Deven Soni and Ryan Kulp, Cross Sell)
Why you need to answer this question:
Again, this one’s good to think about before a sale, because it can impact how you feel about many aspects of your exit, like how quickly you want to transition. If you have something else you want to focus on immediately, the answer is probably “fast.”
If you don’t, a slower transition might be more ideal to take the day-to-day pressure off of you, but give you some time to think about what’s next.
Additional SaaS exit strategy details to think through
Once you’ve answered the big questions, it should be a lot easier to think through the details that will work best for you.
So, as we mentioned above, why you want to sell and what you want to do with your time long-term should factor into your thinking on all of the questions that follow from here. They’re like the blueprint of your dream exit, and then the details form the actual structure and details of your deal from there.
- Would you prefer a simple, clean cash exit or are you looking for another structure
- What is your ideal closing date?
- During a transition period, what types of involvement would you hope to have with the new owner and the product?
- If you have a team, what worries do you have about them and their transition if you sell?
- If you have a team, are you planning to compensate them in any special way as part of the sale?
- Would an earnout (or similar structure) that might get you to a higher total value be worth the extra time on a transition and risk to meeting your goals?
You can see how the big questions would and should impact all of these details. If you’ve got multiple projects going and you want to focus on one and sell the other(s), a clean and quick cash exit has a lot of appeal. If you’re burnt out, or going through a big life change, that can be a great option, too.
If you’ve hit a stage of the business that’s not your jam and you want to get back to the early creative stages, but you’re not quite sure what that next project looks like, your answers to these questions probably look a bit different.
Or maybe you just want to take some of the risk off the table, but you’d still love to maintain some of the upside on future growth. That exit’s going to look different, too. Maybe you’d accept a slightly lower price to hang on to that future upside, and you don’t need a super fast transition.
These are all just loose examples of things we’ve heard over the course of thousands of conversations we’ve had with bootstrapped Founders. But while there tend to be similar themes that pop up, each exit story is unique.
That’s why it’s worth really taking some time to map out what your personal dream exit looks like (and have ALL of your Co-Founders do the same). Because no one else can do that for you. Any buyer can throw a number and an LOI at you. A great buyer has both the cash and a track record of happy Founders. But even the best buyer can’t do that thinking for you and your Co-Founders.