Welcome to the Growing a B2B SaaS podcast, where we provide actionable advice on all aspects of growing a business-to-business software company. Whether it's customer success, sales, funding, bootstrapping, exits, or scaling, we've got you covered. In this episode, we'll dive into the topic of making your SaaS startup sellable and discuss the steps to selling your business successfully. Our special guest today is Thomas Smale, the founder and CEO of FE International, Inc, a tech-focused M&A advisory firm with an impressive track record of over 1 billion in closed transactions and more than 1200 deals completed worldwide.

Getting Ready for an Acquisition

Understanding the Path to Acquisition Thomas begins by emphasizing that the decision to sell a SaaS business should be considered early on in its journey. Once a business starts gaining traction, usually at around $1,000 monthly recurring revenue (MRR), founders should start thinking about their long-term goals. It's essential to be honest with oneself about what you want to achieve, whether it's building a billion-dollar valuation or a smaller, million-dollar valuation. Each path requires different strategies and efforts, and defining your goals early will help you align your business accordingly.

Valuation Methods 

Thomas explains that valuing a SaaS business is a complex process. While the most common approach is using precedent transactions (comparing the business to similar ones that have been sold), there are various valuation methodologies. These include discounted cash flow analysis (DCF) and multiples of revenue or profit. However, no single formula fits all businesses, and it's crucial to consider the specifics of each case to arrive at a fair valuation.

Common Mistakes to Avoid 

One of the most common mistakes SaaS founders make when preparing to sell is artificially inflating short-term profitability to improve valuation. This involves cutting costs or laying off staff to increase profit margins temporarily. Such tactics can backfire in the long run and are easily spotted by savvy buyers. Instead, focus on building a strong and sustainable business model with genuine profitability.

Challenges in the Selling Process

 One of the main challenges for founders is managing their expectations during the selling process. Unrealistic valuation goals can hinder the selling process, leading to wasted time and missed opportunities. Thomas advises being open to negotiations and realistic about the market value of your business. Additionally, founders sometimes try to handle the selling process themselves to save money, but this can result in suboptimal outcomes. Engaging an experienced M&A firm can lead to better deals and higher returns, making it a valuable investment.

Key Timecodes

• (1:16) Why you should listen to Thomas
• (1:55) – What is M&A?
• (2:52) When should a SaaS founders consider acquiring themselves?
• (6:50) Different ways to value businesses.
• (8:27) The most common mistakes companies make before they try to sell their business or even while selling their business?
• (10:53) What are the most common challenges startups face while selling their business?
• (12:04) Set realistic expectations.
• (13:10) The acquisition process
• (17:41)– When to sell your SaaS
• (18:47) When to ask for help?
• (21:22)– 10k MRR advice
• (22:59)– Multi-Channel Marketing approach
• (26:36) 10million ARR Advice
• (27:33) What Thomas Wishes he knew 10years ago
• (30:00)– Get in touch with Thomas.