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Ask HN: Where can I buy real software companies?

485 points| bluedevil2k | 10 years ago

So I have a software company that is generating a good amount of cash. I'd like to buy another small software company and (ideally) optimize it and make some more money.

Problem - most of the sites, like flippa, have crap businesses for sale. Is there a real place that one can find $50k - $500k software businesses for sale? Side projects that people make money from but don't have the time for?

158 comments

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[+] patio11|10 years ago|reply
I sold Bingo Card Creator through FEI (http://feinternational.com) and have nothing but good things to say about them. Something like 20% of their listings are SaaS businesses. The going rate for a SaaS business is roughly 3X yearly SDC ("seller discretionary cashflow" -- revenue minus costs required to run the business as opposed to e.g. the owner's salary, distributions, interest expense, etc). It is closer to 2X for software businesses where the revenue is not by-nature recurring. (Naturally, these are guidelines -- businesses are, like all things, priced at where a buyer and a seller can mutually agree, and certain factors can make buyers very agreeable.)
[+] hkmurakami|10 years ago|reply
>The going rate for a SaaS business is roughly 3X yearly SDC ("seller discretionary cashflow" -- revenue minus costs required to run the business as opposed to e.g. the owner's salary, distributions, interest expense, etc).

Fascinating. I just messed around in Excel to see what the DCF discount rate would be, and it's exactly 25% discount to get to the 3x number.

[+] codegeek|10 years ago|reply
Could just be me but it feels like feinternational always show a very inflated price. 3x seems too much specially for companies that are barely 1 year old.

Also, it is extremely difficult to sign an NDA just to inquire more about a sale as feinternational does not give any details upfront. Totally understandable that the company in question wants to maintain its privacy, secrets etc but this is a difficult situation. How do we move forward without knowing more about a company but they want you to sign NDA even without giving any details.

[+] mathattack|10 years ago|reply
This # sounds very low. Generally public companies sell for many times this. Is this because so much of the equity in side projects is tied up in the owner? Or that there isn't growth? I frequently see software firms selling for 8 times revenue.

With interest rates so low, it seems like businesses with recurring revenue that can recoup their costs in 3 years are a steal.

[+] nicdo777|10 years ago|reply
Hi guys

I have a website that makes quiet some amount of money (at least according to my own criteria) and out of the blue I have been contacted by a so called buying/sellin sites company, named Hautesite, on behalf of a potential client interested in buying my website.

Ever heard of Hautesite? Their french website is http://www.hautesite.fr/, they say they are from the UK and are big in the UK (but no website to be found). I was wondering if it was a scam?

I even got into a Skype call with one of the employee who seemed very professional and so on...

But still... a buying and selling sits business with NO website in english, no social network, no presence on social media... I find it very strange.

Thanks in advance for your help :)

Nicolas.

[+] alexdowad|10 years ago|reply
Off topic, but: I like your blog! Thanks!
[+] anovikov|10 years ago|reply
Why so little? It contrasts sharply with the valuations at which the startups (or even established companies, which no longer grow like crazy) are invested into at.

Why would i sell my business at 3x SDC (which, if it's a small one-person shop, probably just 15-20 months' worth of all 'take home money')? Only if was a 'crap business' as said, and i know it is heading straight into the ground and can somehow conceal it from the buyer.

[+] lostpixel|10 years ago|reply
Worked next to the FE guys in a startup space and they are certainly hard working guys and know there stuff. Would recommend chatting to as well.
[+] davepeck|10 years ago|reply
Out of curiosity, how do growth (and churn) factor into these valuations?
[+] callmeed|10 years ago|reply
Like Patrick, I also sold my company through FEI (http://feinternational.com/) last Fall. Once we got all our information in place, the process went very quickly. We had several interested parties and due diligence calls almost immediately. After that, we had 3 offers. There were a few unexpected hiccups (I think there always are with acquisitions) but overall the process was very smooth and I'd use them again. I'd recommend registering with them and getting to know one of the brokers. They'll start sending you deals as they come in.

A few recommendations based on my experience (YMMV):

- Cash is king. While you should definitely structure the deal with a transition period, an all-cash offer carries more weight than a deal where you are financing some/all of the price. You'll need to show proof of funds too, so make sure you can do that easily.

- Get your attorney on standby. You'll probably need help with offer letters and purchase agreements. Plan on going through a couple rounds of revisions for both.

Feel free to email me if you have more questions.

[+] xfax|10 years ago|reply
I work at Axial (http://www.axial.net) and this is what we do. Check us out and if it seems interesting, submit the form and someone will get back to you.

(Caveat: the size of the business you're looking for is on the lower end of the deals on Axial)

[+] bemmu|10 years ago|reply
Most businesses are for sale if the price is right.

I've sold an app before where I just got a phone call from an interested party (without it being listed for sale anywhere), agreed on a price and just a few weeks later the transfer was complete.

If anyone wants to buy candyjapan.com for 4x profit, feel free to contact.

[+] pcunite|10 years ago|reply
I would like to sell my business. You'll need to know C++ and care about the Windows desktop market. I get about 8K downloads every month. I want $225K which is 5x revenue.

I don't know if I'm entirely serious. It just makes money and I don't work it properly. It should make $90K-$110K if someone cared about it.

[+] 72deluxe|10 years ago|reply
I know C++ and care about the Windows desktop market but don't have that money. Out of interest, what software is it? What sort of market? Do you need assistance or another developer?
[+] lazyant|10 years ago|reply
(slightly OT) I don't understand Flippa; I've search several times for a regular web site making a bit of money and all of them look like scams, even the ones that are sold, with no PageRank since all the incoming links are spam.
[+] trimble-alum|10 years ago|reply
Any decent marketplace for one-app or brand companies needs to prominently display intedependently-verifiable, evidence-based due-diligence metrics than can be dug into by your legal and forensic/tax accountant folks before a transaction. Saves lots of time. BTW: on apps, it is usually more profitable to license source code to games and similarly common apps (say for gyms, restaurants, etc.). If it's a FNAC app that you're bored of try to sell it, first, don't just throw out your work (or at least salvage the best parts business of assets/staff/knowlege)! Reduce, reuse, recycle.

(Some, but not all, due-diligence is worry alleviation through hazing ritual business theatre.).

[+] marissamary|10 years ago|reply
http://sideprojectsforsale.com - I had the same thought last year and made this working prototype for these types of businesses. It's pretty straightforward and mostly for the purpose of putting people in touch.
[+] carbocation|10 years ago|reply
It's a two-sided market, and seeing only 1 side project listed there (from August 2014) makes me think the marketplace is dead.

Two thoughts:

1. If there are prior successful sales, show those!

2. If possible, try to show more (even if this means linking out to projects for sale on different sites until you get some traction).

[+] cookiecaper|10 years ago|reply
I just want to say this thread is awesome. I have a side project that makes real, substantial revenue that I've been wanting to offload for a while. I don't think it's quite in condition to be listed with a broker yet, but it's great to hear about these resources and read about other hacker-entrepreneurs experiences offloading their own side projects.
[+] gohrt|10 years ago|reply
Why are the answers here so coy?

"Send me an email, we'll talk"

Is it a secret to be shopping your website/product to a new management? Why?

[+] jacquesm|10 years ago|reply
Advertising your business is for sale may bring unwanted attention too.
[+] csomar|10 years ago|reply
Personally, it's kind of self-advertising. you can find my products/things if you fly over to my site. Otherwise, some people might be afraid of the competition and are gathering some low-hanging fruit that not a lot are aware of their worth.
[+] trimble-alum|10 years ago|reply
Poker face and cordial until all the bodies are dug up and the figure and most importantly, terms and conditions of sale and transition plan are agreed and the check is deposited, because it's tire-kicking until the ink is dry. It's important to telegraph genuine admiration to suggest a shop might have a better home than competing bids.

It's a hard thing to do, trade-in somwthing more precious than cash, labor, time and effort, life... so have a good time and aim make people consistently, insanely happy and always satisficed

[+] nedwin|10 years ago|reply
The best companies aren't sold, they're bought. ;)
[+] tsotha|10 years ago|reply
Would you enter a contract with a small business when you knew the sole proprietor was actively looking for a buyer?
[+] forestcall|10 years ago|reply
I own Peaceofcode.com a PAAS with a focus on remote software development. Think Freelancer/Elance but with project manager/project owner/developer roles and business process flow to reduce risk (scrum/git/unit testing). In the past we focused on creating features that greatly reduce the risk of loss for the customer and development people. This last year we moved toward scrum and extreme programming features throughout the platform. We want to create a API and integrate 50+ 3rd party tools such as (codio.com Online IDE). A big feature-set we want to complete is based around opening the platform so the members can actively steer the features we release. Another endeavor we want to move forward is a "non-profit foundation" that focuses on Online Remote Software Development and identifying a "standard".

We want to give away up to 50% of the company in exchange for working capital and business expertise.

We do not want to sell the company but we dont mind giving up majority ownership so long as we can stay on as key executives. I currently own the company 50/50 with another American.

Any ideas how we might find such partners?

Sorry if I am way off topic.....

[+] phkahler|10 years ago|reply
I think this is going to be important now and in the future. Systems are getting so complex nobody can build something complete from scratch. I see people making high quality components and then merging or being acquired to create a whole end user product. Prior to that point, you'd have something that's not very profitable unless lots of companies license your component and do integration themselves.
[+] aculver|10 years ago|reply
So, an interesting thing I observed while building a SaaS company was that you can actually get off the ground with a very simple solution, you'll just end up serving smaller customers with relatively simple needs (say $50-100/mo.) These initial folks will pepper you with feature requests while still paying you money for what you've got, which can give you feedback about which complexities you're missing that you really need to implement. If you choose which things to implement carefully, you end up making your product more useful to larger customers and you'll start closing some larger deals. (E.g. $500/mo.) Rinse and repeat and before too long you've got a product with all the bells and whistles and you're closing enterprise deals. (E.g. $2,500+/mo.) The numbers here are all relative, but the point is that the smaller customers end up subsidizing the development of what becomes an enterprise product.

(I think the advantage this approach has over the one you've suggested is that the product is always capable of making money even from the very beginning, just on a smaller scale at first. I think this is a critical feedback mechanism so that folks know whether what they're developing is actually useful to folks.)

[+] patio11|10 years ago|reply
Systems are getting so complex nobody can build something complete from scratch.

Come out to Microconf sometime. You can meet ~300 nobodies all at once!

[+] fsloth|10 years ago|reply
"Systems are getting so complex nobody can build something complete from scratch."

I would claim there is still a large chunk of areas that have very poor service from the software field and would find tremendous value of a trivial software product that is just applied correctly. So it's more about service design rather than hightech, if one is just looking to make a profit.

[+] rexreed|10 years ago|reply
I (had) a good ecommerce inventory management company going - if you want to buy it, drop me a note. I'm on to bigger / better things.
[+] justintocci|10 years ago|reply
you don't have any contact info on your profile
[+] pmrd|10 years ago|reply
A $500k business would mean you'll end paying on average between $3-5 million for it. May I ask your rationale behind chasing these deals?

Why not split the $3-5 million into risk-based chunks and invest in startups instead? You only need 1 of them to hit 50x.

[+] jonknee|10 years ago|reply
I think the OP was talking about businesses to buy for <$500k, not what they produce in annual earnings.
[+] bluedevil2k|10 years ago|reply
I don't think that multiple is right - for a $500k rev software company, I wouldn't pay any more than 3x.
[+] SwellJoe|10 years ago|reply
Only if growth is 6%-10% per year (or as much as twice that depending on who you ask), and you have reasonable expectation of that growth continuing or accelerating for the foreseeable future. That kind of multiple isn't for a stable business with predictable sales.
[+] huhtenberg|10 years ago|reply
I don't know why you are downvoted.

The $500k/year business does, conservatively, cost $2-3 million (using the common "5x the yearly revenue" formula).

[+] justjimmy|10 years ago|reply
I run www.hearthstoneplayers.com

It's a profitable site (making enough profit the equivalent of a 2nd job), minimal upkeep - just managing/scheduling content/writers. If anyone is interested in taking it and scaling it or even automating it (it's about 2 years in and I don't mind letting it go and moving on to bigger stuff), I'm open to contact!

[+] hamhamed|10 years ago|reply
I'm selling Zilyo https://zilyo.com/ for around 200k USD, which is a meta search for vacation rentals, big competiton in this space and it's currently the inudustry leader in terms of product quality and # of features and data. Many of its competition has raised millions and today it's running on it's own with a monthly burn rate of 30$. It does around 12,000$ a year. You can reach me at [email protected]

It also hosts one of the most active and fastest growing APIs in mashape, to leverage vacation rental data for developers and other businesses. Currently it hosts around 250 API consumers (most of them are businsess leeching it for free, so great oppurtunity in the B2B side of things) https://www.mashape.com/zilyo/zilyo/

[+] ukaner|10 years ago|reply
Love this thread. I've been looking to find answer to this question. I used to get more quality results from Flippa when I wanted to buy sites, back when they were Sitepoint. Now it's more or less for newbies to drop their money.

For sales, Flippa offers a brokerage service as well. They don't charge, unless the site is sold. I've got an extension for a CMS that stably makes 6-figures profit for past 3 years. Last year I wanted to experience the process and test the market, but didn't find the right buyer. This year might try again. If interested, reach me on Twitter: @ugurkaner

[+] dennisgorelik|10 years ago|reply
Why buy another company (as opposing to focusing on your existing business)?
[+] greenwalls|10 years ago|reply
Find apps you like then do some research and see if you can get a general idea of the revenue they are making. If it looks like you could afford to acquire them then email them and see what happens.