Sales Price – Matching Expectations and Reality
Selling your company can be like selling a rare or vintage car. It’s hard to pin a value because it really depends on who you are selling it to!
Sadly, there is no “standard formula” for exit price.
Your earliest rounds of funding are based on a combination of the market size (TAM), your team, the product and your momentum (traction). As I’ve talked about in a previous post, it’s about how believable your story is to your investors and how close you are to product-market fit. You can sell the future based on the big idea and there is very little comparable (comp) data.
Angels and pre-revenue or Seed stage investors are really betting on you and your team to figure out how to get to that point of launch.
- B2C companies are market adoption and growth
- B2B companies are scaling a sales process and forecastable revenue
There is a trend to multiple Seed Rounds – where some of the Seed Rounds have ranged from Seed 1 to Seed 10. As these rounds mature, the investors are also shifting from Angels to Institutional Rounds.
As you move to the A Round of funding your valuation is going to still be based on all of the factors above plus a new factor – REVENUE. It’s because of this reason that many early companies have opted to call their next round of funding a Seed 2 or Seed 6 (they go all the way to Seed 10 based on my last CrunchBase data).
The same is true when you go to price your company for sale, it’s going to be about more than potential.
- Revenue and revenue growth – is the purchase decision easier for the buyer today because they recognize your price will go up in 6 months based on your revenue growth
- Build or buy – can the buyer build it cheaper than they can buy it, or does buying create speed to market advantage.
- Strategic value – is there a gap in their current product portfolio that your acquisition fills?
- Creating a competitive advantage – does your product improve the implementation of their products? For example, will your product speed up their sales process
By far the best way to improve your selling price is by creating a competitive process with multiple buyers. If you have one buyer, you’re limiting your options and with that the price. Take the time to shop the deal between investor profiles, more on that next week.