Buying and Selling SaaS: Evaluating Deals Beyond the Dollars

Whether you’re thinking about selling your business, or you’ve been perusing listings for a SaaS to buy, the financial aspect of a potential deal is probably top of mind. But from our experience, while valuation is important, there are a lot of factors besides the dollar amount that both buyers and sellers should consider before closing.

In this post, we’re going to take a look at things from both sides of the transaction. Regardless of whether you’re buying or selling a SaaS,, expect to pick up some useful tips to navigate this financial terrain smoothly.

Contents

Advice for Buyers

• ‍Do Your Due Diligence BEFORE the LOI
• Get up-to-date with any regulatory issues that may impact the sale
• Have the cash (or be upfront if you don’t)
• Be able to share your plans for the product, customers, and team
• Have a clear transition plan and expectations for the Founder
• Be a generous member of the SaaS community
• Communicate clearly and thoughtfully

Advice for Sellers

• You’re not selling a house
• Be upfront on what’s great about your product, and what needs work
• ‍Audit potential security and privacy issues in advance
• Choose a buyer you want to work with
• Do your due diligence on your buyer
• Understand the deal terms

Tips for buying your first SaaS company

First acquisitions are the hardest. No one knows who you are, and you don’t have a reputation as a buyer. If you’re closing a small deal for a low- or pre-revenue product, this might not be an issue. But if you want to buy something a bit bigger — say $5-10k in MRR — you’re going to need to build up a reputation through your early transactions.

At SureSwift, we’ve closed 40+ transactions, and talked to hundreds more Founders about their products. Based on that experience and feedback from Founders, we know there are a lot of things outside the valuation that impact a seller’s perception of you as a buyer, and ultimately, their likelihood to make a deal. Even if you don’t have a long history in the SaaS space, here are things you can do to make a good impression as a buyer:

Do Your Due Diligence BEFORE the LOI

Not having a clear understanding of the business and the technology before you write an LOI makes that LOI worthless. Shooting from the hip could tie up a seller needlessly from taking real offers from other buyers that are a better fit. It’s tempting to get excited and try to lock down a deal. But doing that before you understand that business and have a plan for how you will both buy it and run it just isn’t fair to the seller, and it can hurt your reputation as a buyer.

Get up-to-date with any regulatory issues that may impact the sale

While you don't need to be a legal expert to buy a SaaS business, it's important to understand the basics and plan to bring in legal support when the sale is imminent. Unexpected issues, especially in areas like intellectual property (IP) and employment law, can pop up after all the paperwork is signed. 

Being familiar with these aspects or teaming up with legal professionals beforehand helps avoid surprises, ensuring a smoother transition and protecting against potential legal hiccups that could impact the success of the deal. Taking a straightforward and proactive approach to legal considerations enhances your ability to navigate complexities, making the acquisition process more secure and informed. 

Have the cash (or be upfront if you don’t)

You might laugh at this one, but it can be a reputation killer. If you’re raising funds to buy a business, make sure any Founder you’re talking to knows that your offer comes with that contingency.

They may not want to invest their own time and money doing due diligence with you if you don’t have the funds, and that’s fair. However, being up front and transparent about your funding will increase the chance your potential seller is willing to work with you, rather than moving on to the next prospect who has cash-in-hand once you spring the situation on them as a surprise. 

Be able to share your plans for the product, customers, and team.

Whether it has 1 customer or 10,000, Founders have generally put a lot of time into a build, and they’ll be curious about your plans for it. Being able to clearly articulate what you like about their product (beyond cash flow), and why you think you’re a great fit as a buyer for them will make a difference.

Having a plan for a product’s team can be especially important, and bringing the team along in a transition is also a huge benefit to you. We understand that there’s no replacing the knowledge and expertise of an original startup team at SureSwift, so we always strive to onboard as much of the original team as possible.

Have a clear transition plan and expectations for the Founder.

Transitions for pre- and low-revenue products can be pretty quick, but there will always be some kind of transition. Be clear about what you’ll need from the Founder post-sale, and lay it out in a timeline. At a minimum, make sure to cover: transfer of accounts/passwords, email boxes, walkthroughs of code, availability for questions, etc.

At SureSwift, we want Founders involved with the post-sale transition to ensure the smoothest possible onboarding for their product, team, and customers. While most Founders are happy to provide this support, it’s important to make sure that you are aligned with your seller on these expectations.

Be a generous member of the SaaS community.

If you’re interested in buying, be friendly on X or LinkedIn, and get to know people through online communities, courses and virtual or in-person events. You might meet your seller months before they know they’re going to sell and if you’ve already developed a positive rapport, that can go a long way.

Communicate clearly and thoughtfully.

It’s important to maintain professionalism and courtesy in your communication. Simple phrases like 'Hi,' 'Please,' 'Thanks,' and proper punctuation can significantly enhance how you are perceived. While it’s easy to become overwhelmed, especially when managing a large volume of potential deals, avoid letting your communication standards slip. Remember, you’ll likely be working closely with some of these individuals through due diligence, negotiations, and the transition process. Taking the time to start on the right foot is well worth the effort.

For sellers, if you receive a poorly crafted message, don’t hesitate to explore other opportunities. Given the growth of the SaaS market and the number of interested buyers, you can confidently pass on anyone who sends a message like 'Like your biz how’s 10k.' These types of buyers are unlikely to provide the smooth transition you’re looking for.

Want to sell your SaaS? Here’s how to find a great buyer, and how to be a good seller.

Finding the right buyer and ensuring a smooth transaction requires effort from both sides. Here are some tips to help sellers navigate the process effectively and identify the best buyer for their SaaS business.

You’re not selling a house.

Just like you should probably ignore any messages from buyers that just say “Like your biz how's 10k,” you should take some care with how you communicate with potential buyers. “Offers due by Tuesday at noon” may work when selling a condo, but selling a business is different. Unlike a real estate transaction, you won’t simply hand over the keys and walk away. Instead, you’ll likely spend time transitioning with the new owner. It’s crucial to invest time in getting to know your potential buyers and allowing them to get to know you as well.

Be upfront on what’s great about your product, and what needs work.

Things like under-investing before a sale to boost perceived profit margins, and discrepancies between your metrics dashboard and payment gateway are usually uncovered quickly by any buyer who conducts thorough due diligence. Bootstrapped SaaS products all have strengths and areas that can be improved upon by a new buyer. Be upfront about yours.

By being transparent about any issues, you're less likely to encounter dealbreakers. Potential buyers often have the resources to address problem areas, whether that’s bringing in an agency, making an additional hire, or implementing other solutions. At SureSwift, all of our acquisitions benefit from access to our network of subject-matter experts, trusted contractors, and support from peers across our portfolio. If an otherwise great product has a puzzle piece or two missing, we’ll consider whether we can leverage our resources rather than dismissing a deal outright.

‍Audit potential security and privacy issues in advance.

With data breaches on the rise and taking up increased media attention, it’s hard to ignore the importance of data security. As an early-stage startup or solo Founder, it can be easy to file these issues under the “worry about later” label – but For SaaS sellers, prioritizing robust data security and privacy practices is non-negotiable in today's acquisition landscape. 

Neglecting these crucial aspects not only jeopardizes the sale but may result in adverse consequences, including bad press, fines, and reputational damage. Sellers must conduct a thorough audit of their data security protocols before listing their business, addressing any vulnerabilities proactively to prevent deal-stopping issues during due diligence. By aligning with industry best practices and compliance standards, sellers not only enhance their business's marketability but also mitigate legal and reputational risks. Transparent communication about these measures builds trust with buyers, expediting the due diligence process and positioning the business as a secure and trustworthy investment in the competitive SaaS market.

Choose a buyer you want to work with.

If you have a transition period spelled out in your deal, you’ll definitely want to be sure you’re selling to someone you can see yourself working with for that length of time. Six months can feel like a breeze or an eternity depending on relationship quality, so it’s worth considering. Even if you don’t have a transition period, you spent time and sweat equity building your business and you’ll want to feel like you’re leaving it in good hands.

Do your due diligence on your buyer.

It’s not a great feeling to announce a deal to your team and have it fall through. This one’s easy to avoid with a reputable buyer. If they’ve closed deals before, ask to talk to a previous Founder who sold to them. If it’s their first deal, that doesn’t mean they won’t do a good job, but it’s reasonable to ask for things like proof of funds.

Understand the deal terms.

Key details to consider include when the cash will be transferred, what duties you'll be expected to perform during the transition, and whether there are any clauses or fine print that could reduce your payout late in the process. 

A $1 million LOI may sound appealing at first glance, but if it includes a two-year transition period before you receive the funds, it might be less exciting. It's your deal, so ensure you fully understand all the terms before proceeding.

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Ultimately, buying or selling a business is a complex process with a lot more to consider than the number on your check (though that's important). For Founders in particular, selling a business can have deeply personal considerations, including how a close-knit team will be managed, whether customers will continue to be taken care of, and if a business that took a huge effort to get off the ground will continue to grow. Don't be afraid to take all those things into account when evaluating a deal, and you'll be well on your way to a successful exit – and if you're interested in selling to SureSwift, you can get started right here.

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