🧐 What I Learned Last Week
Week ending Friday February 4th, 2022
What I Learned Last Week curates the most interesting content relating to business acquisitions, operations, entrepreneurship, finance, and more. WILLW is a publication of The Business Inquirer.
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📰 Articles
Tom Benattar sold his SaaS startup PixelMe for $753k to Carbon6 through FE International. He wrote a great blog post that outlines the acquisition process from a seller’s perspective.
Here is a quick recap of the process:
I completed a questionnaire to proceed to the first valuation.
Then questionnaires to follow-up with FE.
Ismael sent me the valuation of PixelMe at $753,032
We did an operational and financial due diligence
FE created a prospectus presentation of PixelMe
And we finally launched PixelMe into the listing
I totally agreed with the FE valuation at $753,000. A valuation at 2.69x the ARR is pretty common when you are selling a SaaS business. FE takes a 15% fee on that, but only if successful, no upfront fees.
PixelMe was acquired for $753,000 for 2.69x ARR by Carbon6.io
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Molson Hart is CEO of Viahart, an e-commerce company doing $8.8M in sales. He’s a great follow on Twitter. Molson wrote a “year in review” of what it was like being an Amazon seller in 2021 vs. 2020. This is a very detailed look at the challenges facing the industry. Must read.
Sometimes I ask people what they would do if they ran my company. The most common answer is “build your business off Amazon”. Amazon was 98.1% of our sales in 2018. We’ve now got it down to 90.8% in 2021. At the current trend, it’ll take us 17 years for Amazon to account for less than 50% of our business.
That’s a problem. You don’t want too many sales concentrated with a single customer because if they change their mind about you, your business can evaporate overnight. With Amazon at 90.8% of our sales, were we to lose them, we could not afford to pay our rent nor the wages of our employees. Further, without Amazon’s sales volume, we wouldn’t be able to demand quality from our suppliers, nor cheap container shipping. We would go bust, fast.
Being an Amazon Seller in 2021; Year in Review
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MicroAcquire held its inaugural seller education webinar. The goal is to give anyone looking to sell a business/startup an overview of the acquisition process so they’re prepared.
Topics covered
Valuations, possible deal structures to consider and why
Marketing materials: Preparing offering memorandums or executive summaries
Internal due diligence / how to build a data room
Fielding buyer inquiries
Handling multiple buyer interest
Vetting buyers / confidentiality
Sharing company information
Fielding offers / LOIs / no-shop clauses
Transaction planning
Buyer and seller disclosures
Due diligence
Financing, escrow, and funding
Understanding the allocation of purchase price
Close of escrow, training, and transition
Inaugural Seller Education Webinar from January 26, 2022
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ZacharyScott is a transaction advisory firm advising private businesses on M&A. They published an interesting article about sell-side QoE.
One issue that QOEs have taken on is the justification of “add-backs”, “COVID adjustments”, and “recasts.” In many cases, the analyses have taken on the perspective of “if it had been different, the result would have been different.” Far from validating an economic reality that is masked by accounting procedures, the job has been to just make EBITDA larger. Last summer, we published an article (“EBITDA Adjustments – A Market Update”, Sum 2021) where we made the case that by taking on too much of the “what if” type of adjustments, sell-side QOEs were leading to more scrutiny, not less, and creating doubt as to the entirety of the presented results.
Sell-Side QOEs: A Return to Utility
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I’ve highlighted XO capital several times in this newsletter. They’re a Micro PE fund that’s looking to acquire, scale, and exit small profitable SaaS businesses. They do a great job of documenting their journey along the way. Their latest post very clearly outlines their thesis, industry dynamics, and why they believe they will be successful. Must read.
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Identity software platform Okta released its latest “Businesses at Work” report showing the growing adoption of an array of software apps across enterprises. Okta’s customers are more forward-looking than the average IT department, which skews numbers a bit. As expected, there is a big focus on collaboration tools of all types that facilitate the ongoing hybrid and remote working conditions. Two years into the ordeal, companies are clearly forming new habits and processes that are highly likely to stay with us.
🧵 Twitter
This thread clearly outlines the opportunity set for SMB acquisition…
Helpful thread on scaling a home service business…
General reminder to either use audited financials or filed tax returns when evaluating a business…
Surround yourself with the right team. Here’s what that looks like…
Well-written thread highlighting the SMB Twitter community…
Some things to watch out for during diligence…
Great breakdown of typical ratios for an e-commerce business…
Follow along as a new DTC brand is launched…
🤔 Thoughts, Commentary, Other
Octillion Capital Partners
OCP is the UK’s first black-owned eCommerce acquisition company. Think Thariso but agnostic to D2C and Amazon/Marketplace brands with a lot more deliberate acquisitions and taking an Omnichannel activation approach. They are early-stage raising ($5M) for their first series of acquisitions.
I’ve had some interactions with their Co-Managing Partner, Ayo Disu and I’d like to support them however I can. If interested in learning more, you can access their teaser here.
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Appletree Business Services
Very rarely do I meet someone who is happy with their accountant. If you’re looking to make a switch, take a look at Appletree Business Services. A friend in the local Boston SMB community recently purchased them. They’ll take care of you.
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Crypto Newsletter
I’ve been really enjoying reading The Milk Road daily newsletter by Shaan Puri. It’s a very quick read with just enough information to wet the beak. If you’re into crypto, alt assets, Web3, etc then I think you’ll enjoy it. Subscribe here.
🛠 Tools & Resources
These are tools & resources that I personally use or have used. They may contain affiliate links so I’ll get a few pesos if you sign-up.
Cerebro Capital - Cerebro has a network of 1,500+ lenders who can provide debt financing for your acquisition, refi, etc. $500k minimum.
BizNexus - Proprietary deal flow, deal aggregator, and exit prep.
PrivSource - Deal aggregator for lower and middle-market listings.
Calendly - Leading scheduling platform to easily schedule meetings without the back and forth. I’ve been using it for several years now. Free 14-day trial.
ProjectionHub - Access to 50+ CPA-developed financial projection templates. 25% discount using code “duedilio” at checkout.
Logology - Best automated logo & brand identity tool I’ve come across.
DeepBench - Access a cutting-edge expert network. $200 discount.
OpenPhone - The best business phone solution that I have found. $20 credit.
Eloquens - Knowledge marketplace. I’ve bought a few guides and templates here.
Deal Flow Scout - Peer-to-peer deal flow exchange. Free, open, transparent.
Deal Sourcing Guide - A directory I put together of online marketplaces, brokers, DFY deal flow, and more.
That’s all for this issue of What I Learned Last Week!
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Important Disclaimer: This newsletter is provided for informational & educational purposes only, and should not be relied upon as legal, business, investment, or tax advice. This newsletter may link to other websites and certain information contained herein has been obtained from third-party sources. While taken from sources believed to be reliable, it has not been independently verified. The Business Inquirer makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. References to any companies, securities, listings, investments, or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any business, tax, or investment decisions. Content in this newsletter speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.