Negotiating a Micro Saas Acquisition
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If you're tired of hearing about 'synergies' and 'long-term strategic visions,' you're in the right place. Today, we're getting into the nitty-gritty of micro SaaS negotiations. Keep in mind, this is our style. You may develop your own but this is how we do it. Feel free to steal or modify as needed. Let's get tactical!
1. Know Your Price, Keep Your Cool
Here's the deal—you don't have to haggle like you're at a garage sale. Find a price that tickles your fancy and stick to it. Don't get all FOMO-y; there are enough fish in the SaaS sea. Our rule of thumb? We shoot for a 2-year payback period. Less than that? Awesome. More than that? Swipe left. But what if you really want it? Just make sure it's not an emotional decision. If you see something nobody else does, go for it, just try not to over pay.
2. The Speedy Gonzalez of Deals
The best deals are like a good martini—shaken, not stirred, and quick to the table. You don't need 20 back-and-forths to know if the acquisition fits. If it's dragging, it's probably not worth it. If it's complicated, it's probably a bad sign.
3. Model? What Model?
Forget about building a Wall Street-grade financial model to justify your price. In micro SaaS, the numbers usually speak for themselves. Less Excel, more deal. If you find yourself having conversations about why a 2.3 multiple makes sense vs a 2.6, you're already in trouble.
4. Make 'Em an Offer You Would Actually Say Yes To
We usually throw two offers on the table:
- Lower Price: A bag of cash upfront (maybe not a literal bag, but you get it).
- Higher Price: Less cash upfront + seller financing.
Honestly, we sometimes make our initial offer a little insulting. It's only insulting because founders typically believe their shit product is going to sell for 10x to a strategic. Maybe ... but probably not.
It's 10x more likely it will go for 2x-3x ARR to someone like us. That often hurts founders who haven't gone through this before.
Our go-to phrase? "Totally understand if this doesn't work for you." The first response is often a virtual middle finger. But lo and behold, they often come back when they realize ours was the only serious offer on the table. If someone comes back higher, feel free to evaluate it but you should have one or two turns max on pricing discussion. Any more and it's probably not going to work out. We often try to agree on a price before diligence and we do our best not to use diligence as a weapon to lower price.
5. Reputation: Your Invisible Wingman
Done a few deals? Flaunt it. Sellers and brokers need to trust that you're not going to ghost them. The reputation game is especially crucial when you're floating some seller financing, which, by the way, we've done at rates of about 10%-25% in the past.
6. Keep It Simple, Smarty
Some folks like getting into complex structures, letting the team keep some equity and whatnot. Not our jam. We like to keep it clean — 100% or nothing. Plenty of people deviate from this. We do not.
7. Churn Out > Earn Out
You could structure an earn-out, but we prefer a "churn out." Less cash upfront, but if the MRR stays solid for the next few months, they get a bonus. What's really nice is if the founders are confident in the business they usually agree to this. They take some risk with you and your overall risk lowers. We've had to do this multiple times for < $10k MRR products that haven't been around very long.
XO Capital - Field Notes
8. Remember, You're Human (and so are they)
You can be firm and nice. Don't turn this into an episode of Storage Wars.
It's also tempting to go into a bidding frenzy, or get caught up in wanting the deal. Try to avoid this.
Don't be an a-hole.
Don't bend; remember, the best way to profit is buying a decent business at a great price.
Wrapping Up
There you have it—a quick and dirty guide to how we navigate micro SaaS negotiating. No bells, no whistles, just straightforward deal-making.
Remember, whether you're a newbie or an old hand in the micro PE space, the key is to stick to your guns and keep it simple. And if the seller sends you a meeting invite instead of a middle finger, you know you're off to a good start.
Good luck out there!
