How to Analyze a Tech Deal in this case ? Raised alot of $$ / Founder sick

July 15, 2024

by a searcher from Yale University - School of Management in San Francisco Bay Area, CA, USA

A fellow founder reached out that he wants to sell a company. It's slighlty relevant to what we do in terms of market so can help if we add it to our portfolio. Here's the issue

They've raised 3M in debt and have just over 1M in revenue. Product is almost breakeven but I think we can reduce the cost and have around 500-600k in profit.

While I have to look into agreements on how strong they've but how would you position this sale ?

Couple of options

- Have a asset sale. Buy it for 2X EBITA ( post we cleanup ) in first year. Restructuring etc and pay it over time. I expect it can be 1M atleast.
- Offer like 250k or something and take the risk

Any one has creative ideas when product is growing but still just have 1 M in revenue and slightly big payroll ( 1M/Year)

Reply by a searcher
from Georgetown University in New York, NY, USA

Without seeing the full P&L it's hard to give a good opinion, but this sounds like a restructuring given the leverage. Does this include PIKd interest? What is the rate on the debt? If the answers aren't great, the founder will likely get wiped out. You probably directly want to negotiate with lenders to purchase what's available. Presumably there's little-to-no assets to pay back lenders. Lenders may be open to converting to equity alongside you (or someone else) as the operator, but if the tank is running low, this sounds like a huge risk.

Reply by an member
from Queen's University in Toronto, ON, Canada

raise venture debt for something like this?

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