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MenuHow can I build an Ecommerce brand to eventually be acquired by investors?
I would like to learn everything I can about how to create an eCommerce brand to eventually be acquired in 3-5 years. I have experience in eCommerce but no experience at all with acquisitions/selling a company.
Answers
For starter, you can apply the framework that you used to sell a product in your eCommerce business, to selling a brand/website/company to potential buyer/investor. Since you have experience in eCommerce, this must be familiar with you.
For example:
1. Understand the market. Is there a market for your brand? I.e. is there a potential buyer who would be interested in buying your brand? What marketplaces have you looked into to buy and sell these brands/websites/companies?
2. Pricing/valuation. How do you value your business? What valuation methodology do you use? is it a multiply of revenue, profit, or something else? Going backward, what kind of financials do you have to achieve to be able to sell your brand at the valuation you are expecting?
3. Fulfillment/transfer of ownership. How do you manage this? Is your business transfer-ready (i.e. having a system in place that can easily transferable to a new owner?)
Happy to jump on a call to chat more!
I'd recommend a couple of things here:
1. Make sure you go into a vertical that isn't completely saturated. Make sure your product offering and value stands out and isn't in a sea of similar options. Trademarking and patenting can also be great tools to keep people from encroaching in your space, but it isn't full proof and there's tons of ways for people to get around it. More important here is to establish yourself as the original and first market leader
2. Focus on scaling sustainably and profitably. This is one of the most important things buyers/investors will look for. Gone are the days where unicorns that lose as much money as they make are being snatched up or seen as valuable. You want to prove you can build your business and that it can last 100 years on its own
3. Build a defensible position: Establish marketing and business building tactics that make it very difficult form competitors to come into your space. For example if you , you can negotiate category exclusivity in some areas so your partners can't work with any of your competitors. This is immensely valuable.
It's great that you're considering your exit now. Some buyers like to be the first capital to the table so having multiple rounds of funding may be fast no. While other buyers will get in on the fun and hope to make big wins once the company is public. Focus on building a good company with significant revenue...you will have no issue finding a buyer.
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How to entertain offers to buy out my company?
Q) What info would a buyer need in order to make an offer? Unsolicited offers rarely start out as offers. They start as conversations. Cold inbounds from potential acquirers are usually done to establish some facts and also willingness to entertain an offer. They need to have enough information to form a rationale (i.e. explanation as to why it makes sense to the acquiring company) and enough confidence that there is interest by the seller. Q) Would that info need to be verified or can an offer be made on the condition of verifying later (if the conversation gets serious)? A) Offers are always conditional. There is a delicate balance between knowing how much to disclose and when to disclose information, versus trying to force more commitment on the part of the potential acquirer. Q) What is a general rule of thumb (formula?) for how to valuate a SaaS business? A) Depends on the size and business of the acquirer. The smaller the acquirer (especially where its valuation is $100m or less), the more it becomes a relative valuation argument (what do we have and what do you have), but the larger the acquirer it is typically a talent acquisition model where the business dynamics are less important to what the team has demonstrated it can do and the perceived value that that team can make internally. This is even more true when the target (you) is generating less than $5m ARR on a trailing basis. Finally, you phrased this question as "how would one go about entertaining an offer to buy my company?" so let me speak to a few general rules. 1) If you're willing to sell, be polite, efficient and courteous to any potential interest. 2) Quickly qualify who you are dealing with and their ability to make a decision (are they junior and just doing research or are they VP Corp Dev?) 3) Quickly establish mutual interest in a desire to dive deep, and get them to explain their process including other decision-makers etc. 4) Ensure that you have competent legal counsel who has significant experience in M&A, ideally with the buyer you're talking to. 5) *GET A TERM SHEET*. You have nothing until you have a term sheet and even then, you don't have a deal. 6) As soon as you have a term sheet, begin aggressively marketing your Company to other potential acquirers. 7) Try and put the impact of the financial outcome aside for a moment (very hard to do) and begin evaluating your suitors based on who you really want to work for over the next 3+ years. Do your due diligence on this question as much as possible. 8) Don't take your eye off the business or celebrate the deal until it's done. I've seen too many friends celebrate prematurely only to see the deal die or radically change at the last minute. Happy to talk through this in a call with you in more detail.TW
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What concerns should I be worried about when thinking about selling my startup?
Compatibility with your vision? Does 1+ 1= 3 or even 5? Personality mix? If you are going to stay with the acquired entity. These might be more important than any of the numbers.CR
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How do I value my startup for acquisition?
As you may know, we acquired Clarity recently and have done numerous acquisitions at Startups.co so we spend a lot of time thinking about this. I've also personally been acquired a few times so I've been on both sides. With that said I think the earlier comment about how much value you can bring to the acquirer is always a great place to start. For example, if your company had $100k in sales per year, no reasonable multiple of that is going to get you into a meaningful acquisition price. So scratch that. Instead - try to determine what kind of revenue the acquirer might generate in the first and second year post acquisition. That at least gives you a starting point. What you can't do is start thinking about what Instagram sold for. None of that type of silly math matters. Those are one of conditions where a company is in such hot demand is so singular in it's value (no one else was that big at that time in that particular segment) that they play by entirely different rules. What's nice about the 'what value can we bring' discussion is that it shows that you are thinking about what's in it for them, not just what's in it for you.WS
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How do I go about selling my app?
Hello, I might be interested. My name is Humberto Valle. Feel free to Google me and let me know if you would like to partner.HV
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