In this episode of the My First Million podcast, host Sam Parr talks with two experienced entrepreneurs about the rarely discussed art of selling a company. They explain that selling is a distinct skill set separate from starting and building a business, and they liken the process to a courtship: an initial excitement phase followed by a painful due‑diligence period where lawyers take over and founders must survive a waiting game. The guests stress the need for sincerity, a clear shared vision with the buyer, and the ability to articulate why selling benefits both parties. They warn that deal structures often include earn‑outs and that lawyers can easily rip founders off if they don’t understand the terms. Negotiation is highlighted as a critical, under‑practiced skill; most people overestimate their ability, and founders must balance appearing neither greedy nor desperate when pricing their company. Three valuation approaches are outlined: (1) a discounted earnings multiple (typically half of the market multiple), (2) a revenue/traffic‑based model that ties value to future ad monetization, and (3) comparable‑company analysis, which the guests admit is often a “BS” but still widely used, especially in tech acquisitions. Real‑world examples such as Giphy and its competitor Tenor illustrate how companies are valued beyond earnings. One guest shares that his impatience during a due‑diligence period led him to start the My First Million podcast as a distraction, underscoring the emotional strain of selling. Throughout, the conversation remains conversational, candid, and instructional, offering practical advice for founders who may one day consider an exit.
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selling companies is hard. Most people will never sell one. How are you— how are you able to sell so many, you think?
Like, you know, that's a— that's a great question because— and let me ask you, Sam, I don't know if we've talked about this. Have you ever sold a company?
I had a small, like hundreds of thousands of dollars sale for this company, The Hustle. We had term sheets and I walked away at the last minute. I've had 2 or 3 term sheets and I've walked away from them and I've never closed the deal.
Uh, yes. So, so, and then, and then I bought, I've also helped buy companies too. Yeah. So it's a similar, it's similar skills on both sides of, of, uh, but maybe slightly different. But people don't realize selling a company is very difficult. Like it's, there's 3 skills. There's starting a company, there's building it, and there's selling it.
And Sean sold his company too to Twitch.
Yeah. Last year. Okay. Congratulations for you. Yeah. And you, so you know what I'm talking about, like, You'll, you'll, your company's up for sale and everybody's, and you meet a bunch of people. I don't know if you met a bunch of people, but like I would meet a bunch of people each time. And, uh, you kind of, there's this courtship and you kind of fall in love with each other, like just like in a courtship. And then there's, and then there's suddenly you move into a different period where lawyers take over and you're waiting. It's a waiting period and it's a due diligence period and it's a very painful Period. Because before you were in this like massive selling and dating mood, but now you're like living together and you're getting to know each other and you know, you don't want her to figure this out too fast and you know, before she really falls in love and, uh, you know, and all that dopamine you get when you first meet has gone away and it's—
by the way, that's when I started this podcast was during the due diligence period because I got so itchy because I was waiting and I was like, oh my God, I'm, I'm gonna jeopardize this deal either because I'm gonna push too hard. And just 'cause I'm impatient, or I'm gonna go start another business, which is the worst thing I could do while I'm trying to sell this one. So I was like, I need to do something. And so that's why I started the podcast was during that due diligence period.
Yeah, that's smart because I would just do nothing but wait. And, uh, it's, it's, it's a painful process. And the way you sell is, first off, you have to, and this is not, you have to be sincere the whole way through. You have to have a vision. That matches their vision very strongly. And it has to explain why you would— if this, your business is so great, why do you want to sell it? Like there's that inherent contradiction in selling a business. And I was always aware that I would, you know, in every business I've sold, that I would be better off with a better capitalized partner. And now maybe I would limit my upside, but you know, the first time you sell a company for millions and then the second time, If you're broke the second time, you sell a company for millions, and then the third time, it's okay to not sell for billions because you want to get that initial chunk. But you also have to say, look, together, here's how it's 1 1 3. And you have to be really persuasive on, on why 1 1 3, even for you personally. Like you have to be able to express that this vision is gonna benefit you personally if you partner with this other company. And, and, and, and it has to really make sense. And then, and then of course you have to survive this waiting period. You have to survive the initial period where they're still checking you out, but now you're together and you have to integrate and get along and you have to keep all your employees cuz usually there's some backend earnout or something like that. Like the every, you have to understand deal structure so you're not ripped off. It's very easy to be ripped off by lawyers in a deal and people don't realize that. And you have to be, you have to have some skills at negotiation. Which negotiating is one of those things that 9 out of 10 people think that they're above average, which is impossible. Like you have to be 4 out of 10 only could be above the median and only 1 out of 10 is really good enough to sell a company properly. And so I had to learn the hard way how to negotiate. And like when they come to you and they say, well, how much do you want for your company? That's a very hard question to answer because you don't want to sound greedy and you don't want to sound desperate and you don't want to sound and you don't want to underprice yourself. So there's all sorts of negotiating techniques that you have to use to, to help them answer that question in a way that works for both sides, not just for you, but for both sides.
Did you value your companies on a multiple of your profit or revenue, or was it, uh, if you use our stuff with your audience or your current products, it, it will create this much value?
So that also is a really great question because there's, there's 3 ways to value a company, right? The one is a, a standard industry multiple on your earnings and cut it in half, by the way, because no one's gonna pay the maximum. You cut it in half so they, everybody wants to get a deal. So like if, if you have a profitable company and it's in an industry that trades on the stock market for 20 times earnings, then your company is probably your last year's profits times 10, the 20 divided by 2. Uh, that's just a basic formula. Or you could do what you just said, which is, hey, and I learned this for my second company, I didn't learn this from my fir— my first company was profitable unlike every other internet company. And so we sold for about 10 times earnings, which was, was, was a mistake. The second company was like, I did value it like how you said, which is if, if you, if we put ads all over here and you're driving this amount of traffic and we monetize those ads, And then you cut that in half. This is what we're worth. And I, the second company I sold on the basis of that. The challenge there is with the other company, you work out this formula for how you're going to value your company based on their, their, them helping you build your earnings. And the challenge is then you fill in all the variables. They know the variables better than you. So you have to make sure when you're negotiating the formula that, and you agree on the formula that you understand the variables enough to that it works out to what you want. I didn't do that part properly on my second negotiation. And then the third way to value things is you look at other companies acquired in the space. They sold for this, we're bigger, so we should be this. Now that's kind of a BS way to value a company, but that is how people value companies often, particularly in the tech sector, like Giphy. I don't know what they, how they value themselves, but certainly wasn't off of earnings. I don't think they had $20 million in earnings. My guess is they were losing money. So, uh, so they probably valued off of something, some kind of comparable deal in, in the internet.
Yeah. Cause, and then Tenor sold, Tenor, which was Giphy's competitor, just sold to Google a year before for a little less than that.
Oh, well, who was their competitor?
Uh, a company called Tenor, T-E-N-O-R. They were, and, and their competitor.
Yeah. It just says aside, is it true that Giphy was the second largest search engine in the world? That's what they're saying. Yeah.
They, I don't think the second largest is. Yeah.
They love to say that.
I thought YouTube was.
Yeah. So YouTube is number 2 and then Amazon would be about number 3. Bing is 3, Amazon's 4, right? Like, so yeah. Depends what you call a search engine.
But I, I did interview the founder in New York and, uh, it is huge. It was just, um, there was no way to make money off of it really.
Yeah, I had that issue. I was a, I was a, a seed investor and on the board of Bitly. So Bitly had about 5% of the internet's traffic every day running through it. And for the life of us, we just could not figure out how to monetize it. Like it was impossible. And they did exit, the private equity firm bought it, but it was like a, a 2 or 3x, which is not really what you're looking for in a angel investment.
