How do you determine a sale price for a side project?
Hello!
I've been working on Ceev.io since February. Recently I've had a few larger companies ($50M+ funding) ask me about acquiring Ceev.
It seems these companies want to acquire it to integrate into their existing platforms, and are not concerned with revenue/users.
I haven't decided for sure if I'd be open to selling, but I am curious how all of you would go about determining the sale price for a side project.
Thanks
Mitch,
There have been a few posts about this.
Side projects typically sell through brokers for a multiple of 2 - 4 x net income (revenue - costs). This is the rational price based on desired return on capital, with a heavy discount for the unstable nature of online businesses ( a franchise or tangible business with physical assets would sell for higher multiples).
In your case there are potential acquirers who are after the company for strategic reasons. Its a cliche, but your company is generally worth what they will pay for it. For example, we don't know what stripe payed for Indie-hackers, but we can assume it was a lot more than the economic value of its profitability times a standard multiplier.
In your case it's a game of poker, because there are no financial metrics to guide a price. Indicators as you've surmised include how deep the pockets are of the acquirer and what early acquisitions like this have gone for in the past.
The more you understand the strategic value of your code to the company, the more you'll understand what they'll pay.
I'm guessing these companies are asking you to give them a figure, turn the ball around: tell them you'll consider all reasonable offers and see what they pitch you. Their initial offers will be low, but will set the lower bound.
Be aware, however, sometimes the potential acquirers may not have a genuine interest: their interest is a strategem designed to slow you down as a competitor, or to learn secrets about your product and company.
Full disclosure - I’ve only sold one company and it was not a life-changing outcome.
To expand on webapppro's point - you can try to be rigorous in understanding the strategic value.
The cost-based analysis would be: how much would it cost them to build your tech? Don’t underestimate how inefficient big orgs are. It will probably cost them 10x what it cost you. Not kidding!
The value-based analysis would start with: what is their strategy? It’s hard for me to know without knowing more about their business, but here’s a guess:
They’re a job posting site (e.g. Indeed). They’re battling with Hired and others for market share. They believe providing more value to job seekers (the marketplace supply side) will help them win that market.
Start by reading up on the size of that market. E.g. there are 100k people who post a resume every day, company X has 20%. Then pick a very small number, like: "I believe that ceev.io, if bundled with Indeed, can win over an additional 2%". If you know how much revenue they're doing, calculate how much incremental revenue that would drive. Then do a revenue based valuation on that (multiply it by 5), and give them a discount on that price.
You don’t need to present all this analysis to them. A huge part of the reason you do the math is to have confidence and conviction when you name a price. If they ask how you came up with it, walk them through it at a high level, e.g. on a whiteboard. If you present it as a spreadsheet they’ll send it to their finance department. That’s not the point. The idea here is to show that you’ve thought through the strategic value, and bonus points if you can show that the same strategic value could be acquired by one of their competitors. Now you’ve backed into a fair market value!
You brought up a lot of good points I hadn't thought of. Thanks for the response - this will really help me with my responses to the companies going forward.
I too have sold one company before (similar to Ceev - ineedaresu.me), but it was an insanely fast sale for a low amount because I was broke college student, busy with a new job, and just wanted the work off my back - so having this information will be insanely helpful this time around if I decide to part with it.
Cool. Best of luck! It's super impressive how quickly you've built out a product that clearly resonates.
It's for this kind of great answers that I wish IH had some bookmarking functionality!
I guess I'll use my comment for that. #bookmark
Thanks!!
Jake you've just got yourself 50% more followers ;)
2 * 0.5 == (3 - 2)......
=> true!!!Wow, that's all great advice. Thank you very much.
I've been talking with two companies on and off for well over a month now while working on Ceev, and it seems like they're genuinely interested in the product itself.
I still haven't decided if I want to let it go, but thanks for the idea of having them set the first price.
Number of times I've been approached about a potential acquisition: 50+ (over various projects).
Number of times it worked out: 2 (so far).
After the first few times (classic inexperienced founder: imagining swimming pools of money, getting emotional and excited, spending time on putting the information they wanted together) I wised up to the fact that even the serious deals rarely go through.
Since then, whenever I get one of these emails I up front send back the number I want and any terms/conditions I have. That get's rid of the ones who aren't serious. Sure, I'm potentially losing out on an upside by anchoring myself (theoretically at least), but I come out net ahead because the likelihood of it being anything more than a time-wasting exercise is so low.
Speaking to other founders who have sold companies before, this seems a pretty common approach.
Good luck!
It's like flirting, you can't take every expression of interest as serious. This is why some brokerage sites require a hefty refundable deposit.
You could be consuming considerable physical and emotional energy: on offers that are not serious, like somebody wasting their energy on a flirt.
I really love how your product looks, but is there any reason why you want to sell it so early?
Did you build it?
Yup, I've been working on it in my free time since February. I haven't decided if I actually want to sell it yet - I just got curious when one of the companies asked me about a price!
Haha then ask for a price that you think is not achievable and if they will give it, sell, otherwise continue working on it as it looks very nice.
I'm thinking of learning Angular. Any suggestions?
I always gamble.
Heads you buy Ceev for $1,000,000, tails its free.
There you go, seems like you've got a price in mind you'd sell for. Pitch them on $2m, see what they counter with. :)