How to value a startup when you're buying or selling one. The speaker covers multiples of profit, seller discretionary earnings, and the factors that move the needle: churn, customer acquisition cost, and how founders can justify their asking price to buyers.
Pricing and valuing your startup, there's no exact way to do it. A lot of buyers will say the typical market ranges that I see being discussed and really a lot of deals do get done with. This range is typically profit or SDE at a multiple of 3 to 6, 7, 8x. If your business is growing, the number one thing as a seller, as a founder, you want to understand how you can justify your multiple. How did you get there so you can explain that to a buyer. Every startup is different and you want to understand your estimated value. Basically you're taking your earnings or profit and giving a multiple on that or your revenue seller discretionary earnings is something that every founder should know. Basically you were taking your revenue, you were minusing your operating expenses and your cost of goods sold and you were adding back back your salaries moving forward. If you use even da, even dollar is just a fancy word for profit or se. But if it's zero, you definitely want to articulate that to buyers because that essentially means that you were investing heavily in growth. Deciding the multiple. Some buyers, they'll only acquire businesses in a certain range. So on microacquire, a lot of buyers are looking for businesses that have a valuation that they can justify. There's so many factors that go into eval like your churn. If you have negative net churn, you can command a much higher multiple if you understand simple things like your customer acquisition cost, your lifetime value. As a person who's even acquired a few small SaaS companies myself, these are things I look at first and then bringing it all together. So decide which methodology is most appropriate. Are you going to add a multiple based on SE or evenda or revenue? SDE typically is the industry norm and that is good in 99% of cases. If you're a business that's growing like crazy, multiple on revenue probably makes more sense. And then look at other ranges that you see from other businesses selling that's in your market. If you're in a really, really fast growing market, businesses might be selling at a much higher multiple and that should definitely be taken into account.
The Buyers Who Made the Move: What They Bought, How They Did It, and What Happened Next
