SaaS Business Transaction: Need Your Expert Advice!

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by a searcher from Yale University
in Atlanta, GA, USA

3yrs ago

SaaS Business Transaction: Need Your Expert Advice!

Dear Searchfunder community,

I'm in the midst of a promising transaction involving a high-growth, niche B2B SaaS business ($1-2m in revenues, 50-60% EBITDA).

Would love to hear your quick tips and lessons learned on SaaS - specific transactions and conducting the final due diligence (whether on the operator side or investor side). Your insights could make a significant difference.

Thank you for your time!

Best,
Nathan redacted

6 Likes

457 Views

reply by a searcher 2yrs ago
from Stanford University in San Angelo, TX, USA

This is super strong stuff ^redacted‌. SaaS searchers should bookmark this one.

reply by a searcher 1yr ago
from Columbia University in Santa Fe, NM, USA

Buying these feels like buying half baked cakes. There’s more risk with the <4m in ARR deal.

1/There’s likely a lot of “ebitda” because they’re on cash accrual and not gaap and no infrastructure to support growth yet (tools and people)

2/You don’t have a lot of redundancy in the team nor operating leverage

3/The customers they have are usually early adopters - it is likely they haven’t figured out how to do selling motions to the early and late majority.

4/If the market is greenfield, they may have it easy before more established entrants and copycats (startups included) pour in.

5/The tech is usually spaghetti code and lacks the backend Infra for proper product development, security, etc.

6/You don’t have enough buying cycles to establish if they are mission critical or not. If they have churn watch out for leaky bucket / bad PMF.

7/They almost always tend to overvalue themselves. To solve these problems you tend to over complicate the trx.

Because of the above, they tend to be better minority investments as part of a larger portfolio to mitigate these issues. There still isn’t enough cash or proof to (usually) merit a buyout.