Selling Your SaaS Business: A Founders’ Guide to Acquisition Deal Structures

Whether your SaaS company is just reaching cash flow break even or already generating profits and attracting the attention of buyers, it’s important to understand different acquisition deal structures and the impact they could have on your exit outcome. 

We sat down with Connor Edwards, who leads SureSwift’s Mergers & Acquisitions team, to discuss the ins and outs of acquisition deal structures, actionable steps for Founders looking to sell, and what kind of businesses pique SureSwift Capital’s interest. Connor also shares some insights for Founders looking to run an efficient acquisition process. 

Read on for a breakdown of common SaaS deal structures, along with some tips on running a smooth process for the sale of your business.

Table of Contents

• Common deal structures for SaaS acquisitions
• Tips to prepare your SaaS startup for a successful exit
• Which types of SaaS businesses does SureSwift Capital look for?

Common deal structures for SaaS acquisitions

When it comes to closing the deal on your SaaS company, you’re likely to find yourself in one of the following four deal structures:

1. Cash Consideration

As the age-old saying goes, “cash is king” and that is often true for acquisitions too. With a cash deal, the buyer pays the full purchase price in cash. Cash deals are often preferred by both buyers and sellers because they’re straightforward and simple. For Founders, a cash deal guarantees liquidity with no required involvement in the future of the business. Sometimes the cash is paid entirely upfront and sometimes payments are deferred across multiple years. This may depend on how the buyer is financing the purchase.

While a cash deal is quick and efficient, this structure may result in a lower overall purchase price compared to deal structures where Founders are incentivized to stay involved. Even if the purchase price is lower, Founders receive their proceeds with no strings attached. And that could be a life-changing outcome.

2. Performance Earn-Out

In a performance earn-put, the buyer pays a portion of the purchase price upfront in cash, but the offer includes a deferred component of proceeds that is tied to certain milestones relating to company performance like maintaining or growing revenue or EBITDA, or reducing churn.

The purpose of a performance earn-out is to align the buyer and seller with the success of the business over the long term. It also gives the buyer and seller the opportunity to work together on maintaining continuity for the team and customers, transitioning the product, ensuring the business is hitting key performance targets for long-term success. 

Conversely, there are risks to this deal structure that Founders should be aware of. For example, if the business doesn’t meet its targets during the earn-out period, you risk losing out on future payments tied to the earn-Out milestones.

Take the time to consider whether this structure is a viable option for you and your team or whether the Founders would prefer a clean break. If the business is stable and generating predictable cash flows, you’re confident meeting or exceeding mutually agreed upon performance targets and open to operating the business during the transition, then this might be the deal to aim for.

3. Equity Consideration 

In an Equity deal, the seller pays the purchase price with equity stock in the acquiring company, either alongside or in place of a cash payment. The seller then becomes a shareholder in the buyer’s company. 

This deal structure is less common in the private markets as buyers’ organizational structures often preclude them from offering this type of deal, especially if they invest out of vehicles managing external capital like a GP/LP fund. You’re much more likely to see this structure if you’re selling to a strategic buyer like a public company for a purchase price that is material.

4. Seller Financing

Seller, or Vendor, Financing is a form of acquisition debt that allows the buyer to hold back a portion of the purchase price as a debt to the seller/vendor. Essentially, the seller is loaning the buyer some of the money it needs to buy the business. With this structure, the buyer pays a percentage of the total purchase price upfront in cash – typically 25-30% – and pays the remainder as a loan with interest over a period of time.

This type of deal can be beneficial for the seller, because it widens their pool of potential buyers, increasing the likelihood of selling at a higher price. Typically, sellers generate a return from the interest earned on the seller note to compensate them for the risk they’re taking on as a lender.

Tips to prepare your SaaS startup for a successful exit

Connor Edwards, SureSwift Capital’s Director of M&A, has extensive experience working with and investing in private software companies – both those who have raised external capital and those who have bootstrapped. Below, Connor shares some advice for Founders preparing for a successful exit.

1. It’s never too early to start a conversation, so ask for that initial meeting.  

Start building connections with industry leaders and potential investors or acquirers early on, even if you’re years away from selling your business.

"The best outcomes for us are those where the relationship was established months, or even years, in advance," he explains. "These relationships often start from a simple call with a Founder who has a great business."

Connor suggests that Founders focus on building long-term relationships with potential future funders or buyers, even in the early stages of their SaaS startups. Even for those not yet ready to discuss an acquisition, there’s much to be gained from simply getting to know another business and its people.

“For us, taking a half-hour call with a Founder is never a waste of time. It’s a small investment in getting to know an entrepreneur or being helpful to a fellow operator that could lead to working together in the future. The tech ecosystem is small and you never know who you’ll do your next deal with.” Selling a SaaS company isn’t as transactional as it might appear. “In an ideal scenario, long before we write a check, we’ve already spent time building a relationship with the Founders, and learning about and building conviction in the business.”

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2. Be open to supporting the company post-closing.

Although an all-cash deal might seem like the most ideal outcome, plenty of buyers look for Founders who are willing to stick around to make sure the business transitions well and hits its target goals in the future. After all, who knows a company, its product, customers and team,  better than its Founders? Connor explains that, for many buyers, there’s strong appeal in bringing one or all of the Founders on post-closing, even temporarily, as part of the deal:

“Keeping the Founders involved for a transition period post-closing gives us more time to identify the best-fit leader going forward, maintain continuity, and learn directly from the Founders about the product, team, and customers. Finding the right people, especially in niche spaces like e-commerce, can take months – even up to a year. So, having a seller who’s willing to support the company during a transition period is incredibly important."

3. Don’t let a competitor’s acquisition pigeonhole your expectations.

It happens often enough. You see a TechCrunch article announcing the acquisition of one of your competitors. Now you’ve got specific dollar amounts in mind that you absolutely must meet to achieve success, right? Wrong.

Connor warns that businesses set themselves back by setting unrealistic expectations based on incomplete information, like a flashy headline number. The reality is that Founders won’t know if the deal was a cash deal or a lofty earn-out that may not complete. 

"Many Founders simply choose an arbitrary valuation method—like a multiple of revenue or EBITDA—and randomly pick a number, say 10, assuming that's the right valuation for their business. But there’s much more nuance involved. We look at each deal on a case-by-case basis, so you should too.”

Instead, Connor advises Founders to place a stronger focus on finding the right buyer:  

"If you have a team, a product, and customers that you care about and want to see thrive, it’s important to choose the right long-term partner to carry that legacy forward. Doing your research and approaching the process with an open mind is key.” 

He also encourages Founders to do their due diligence on buyers before accepting their terms at face value. “Talk to other Founders who have worked with the buyer or ask the buyer for Founder references. I think Founders should treat this relationship like a partnership. Think holistically about the buyer, their reputation and the individuals at the firm you’re working with. There’s definitely a lot to consider."

4. Sometimes the best SaaS products are the “boring” ones. 

While it may be tempting to focus on creating the flashiest generative AI product, many buyers are more interested in SaaS businesses that aren’t showy. Connor recommends that Founders aim for “the painkiller, not the vitamin;” in other words, build the product that customers can’t live without.

 "I prefer companies that are essential to their customers’ operations. Sometimes these are considered boring, but they’re actually sticky and often have an unfair competitive advantage, making them solid and reliable investments. That’s the kind of business I’m most interested in.”

5. Accept constructive feedback well, and then act on it – it might pave the way for a future deal.

Connor suggests that one of the most effective ways Founders can stand out is by how they respond to constructive criticism. 

“The reality is, we see about a thousand companies every year, but we only do two to three deals—so we’re saying ‘No’ much more than we say ‘Yes.’ I always try to offer feedback on why we’re passing, highlighting both the great things about the business and our areas of concern.”

In fact, some of the best outcomes have occurred when Founders took that advice seriously, he reveals. 

“Founders might come back six months later and say, ‘You were right about these two concerns, and here’s how we’ve addressed them. We’re still not sure about this third one, but we’d love for you to reconsider.’ In many cases, some of my best 'No’s' have turned into a ‘Yes’ because of how Founders considered our feedback, acted upon it, and came back with an even better opportunity."

When a Founder achieves a goal they’ve shared, that’s equally impressive to Edwards.

“If we get to know someone over the course of a year, and they initially tell us they'll sign three new customers by the next quarter, and six months later, they’ve signed even more—it's exciting, because it shows the business can execute. It also means their team is performing well, the customers like the product, and we're likely acquiring a strong and growing company.” 

Which types of SaaS businesses does SureSwift Capital look for? 

As fellow operators, we’re always looking to meet entrepreneurs building interesting businesses, regardless of whether they’re considering an exit or not. Here’s our ideal acquisition profile: 

• B2B software companies with a bias towards the SaaS business model
• The company can be based anywhere, but we prefer remote-first teams serving English-speaking markets
• The ideal size is $1-5M TTM revenue and growing 10-30% annually
• We’ll consider bootstrapped or lightly capitalized companies
• Ideally, the company is EBITDA positive or cash flow breakeven with a path towards profitability
• The company has low churn, strong revenue, and logo retention
• Customers consider your product to be essential to their business operations
• Distribution is not dependent on any one platform (e.g. Shopify or Salesforce apps).

Beyond these characteristics, Connor explains that the Founders that make the most impact as potential sellers are the ones that cultivate long-term relationships with SureSwift, building trust and value over time.

“We’re less interested when it’s purely transactional. We prefer working with Founders who build a successful company and we partner together when we acquire it. Then they go off and build another great company, which we might also acquire when they’re ready to sell it. Long-term relationships are what really excite us." 

According to Edwards, often what attracts Founders to SureSwift over any other private equity firm is our investment thesis.

“We're focused on a buy-and-hold model — we don’t buy companies with the intention of flipping them. We want to find well-run, enduring businesses with an unfair competitive advantage, buy them for a fair price, and grow and hold them for the long-term. Most private equity firms make their money by optimizing costs and increasing equity value in a sale. That's not what we do. If a Founder is looking for a permanent home for their team, product, and customers, we’re a compelling option.”

If you’re the Founder of a B2B SaaS company and you’re considering an exit, even if not top of mind, we’d love the opportunity to connect. Here’s how to get in touch.