Which Business Buyers Will Pay the MOST for YOUR Business

0:00Selling companies has made me more money than real estate, crypto, and the stock market combined. But here's what most founders don't realize. Finding the right buyer isn't just about getting a sale. It's about maximizing the value of your life's work. I'm Rob Walling, and I've been on both sides of acquisitions. I've bought and sold multiple SAS companies and helped countless founders navigate their exits. Most founders approach selling their company completely backward. They wait until they're burned out, take the first decent offer that comes along, and sometimes leave literally millions on the table. In the next few minutes, I'll reveal the six distinct types of buyers looking for businesses just like yours

0:36right now. Each type has different motivations, different checkbooks, and radically different approaches to valuing what you've built. You'll discover which buyers will pay premium prices for your specific business model, the hidden psychological triggers that make them open their wallets wider, and exactly where to find them when you're ready to exit. And if you're interested in diving deeper into this topic, this video is essentially an excerpt from my new book, Exit Strategy, that you can get on Amazon, Audible, or at exitstrategybook.com. To kick us off, as I said, there are six types of buyers, and I'm going to go through them in order by who typically pays the most to

1:11the least. So, the first, which is strategic buyers, typically will pay the most. And by the time I get to the sixth one, those are usually the lowest multiples on your revenue or profit. So a strategic buyer is usually a company in your space that wants to acquire your business for a specific reason. So you might have a product that's complimentary to theirs. For example, if you started a tiny email service provider, a larger one might buy you. Or if you have a platform specific software application, the platform itself might decide to acquire it. And there's actually a common misconception that most acquisitions are strategic. And

1:45that is not the case. According to my experience and the experience of us at Tiny Seed, having invested in almost 200 SAS companies. Now, this video isn't just about software as a service companies selling, it applies to any business type that you can imagine, from brickandmortars to online only to e-commerce to SAS companies, but especially within SAS, which I can speak to, about 80% of acquisitions that we see once companies are doing at least $2 million in ARR, about 80% of them are done actually by private equity. And there's only 1/5if about 20% that tend to be done by strategic acquirers. Now

2:21in other spaces that might be different. If you started Dollar Shave Club, the odds of private equity buying that are probably less than if it was a SAS company, but a company like say Gillette, which I believe is who bought Dollar Shave Club for a billion dollars, that becomes a more likely thing. So the upside of this type of sale is that strategics tend to pay the highest multiple. And these are directionally correct, right? I'm sure we can find one private equity exit, which that's number two that I'm about to step into. One private equity exit that's more higher multiple than a strategic exit, but in

2:53general, directionally correct strategics pay the most. So, the upside is that they pay the most and sometimes they keep your staff on so they don't dismantle the business and, you know, really kind of screw up your legacy. Um, the interesting part about strategics is they aren't going to mess around with tiny acquisitions. uh they might do aqua hires, which really isn't the scope of of this video. An aqua hire is where they kind of pay you almost like a

3:17signing bonus to shut down your company. They shut the tech down and they take over you and or your team and you get a bunch of stock, sometimes a small amount of cash. But I'm talking about truly selling for amazing sums, six, seven, eight figure, maybe even nine figure sums. And for those types of exits, when a strategic comes a knocking, they don't want to buy a business that's doing half a million a year. It's just not worth their time. They want businesses doing millions or tens of millions a year. And they typically don't want to acquire just the tech. The team is as valuable to them as the tech. So buyer type

3:51number two is private equity. And private equity investors are private pools of capital that buy and manage businesses according to a relatively standard playbook where the goal is to grow the business three to five times within three to five years and often then they flip it. These types of investors generally specialize in buying whole companies or sometimes in minority investments where they purchase secondary shares from the founders. The upside of this type of sale is there are a lot of private equity companies and there's a lot of money flowing into businesses by private equity. So they're relatively common. One of the downsides is that sometimes private equity can do

4:22financial engineering and so they will often try to lay off your whole staff or you kind of take it down to the bone to make it extremely profitable. It it depends. Some really want to grow it and then there are value private equity buyers that will really strip the business down to a place where you might not recognize it anymore. And typically private equity has dipped down. I mean gez 10 years ago they weren't buying anything south of 10 million or $5 million a year in revenue. they've dipped down to where at one point they were buying stuff at once you hit a million they would consider it but since

4:53the kind of the funding dip in 2022 and 2023 it seems like it's about 2 million and up give or take that private equity uh might be interested in. So if you have a a company that's doing half a million a year the odds of private equity buying from you are pretty low. The third type of buyer is a search fund. So this is where a recent MBA graduate raises private capital to buy and operate a company. The individual might be self-funded or might be backed by investors. And the goal is acquiring a business and stepping in as the CEO and running it. So search funds often

5:24buy companies that are too small for private equity. As I said before, private equity, you know, they want to be efficient with their time. So they prefer to do deals for companies that are doing 10, 20, $30 million a year, but they'll dip down to five or sometimes to two if the growth is there. But search funds can go even smaller than that cuz they're one-off deals. And search funds tend to target service businesses, manufacturing, and other companies outside of the high-tech space. So, the reason you might sell to a search fund is if you're not in the high-tech space, which usually is where a lot of private equity wants to be, or

5:54if you are too small for a private equity or a strategic exit. The fourth type of buyer are high- netw worth individuals. And when we wrote exit strategy, I actually interviewed Breck Palumbo. He's an M&A adviser with International Business Associates. and he works with owners of brickandmortar companies ranging from $1 to $50 million in revenue. He's found that the majority of inquiries for these types of businesses are high netw worth individuals. And to quote Breck, he said, "A very common buyer profile is an executive in their late 40s or 50s who's been making about $300,000 a year, has 2 to5 million in savings, and will use 90%

6:32SBA debt, that's small business administration if they're in the US, to buy a cash flowing business in the $1 to5 million range." And so the upside of this type of sale is that high net worth individuals will likely buy businesses that the others will pass on. You know, in in a perfect world, every exit would be strategic because you're going to get the highest ARR multiple. But realistically, not everyone can sell to a strategic or private equity. Now, the fifth entity that you can sell your business to are your co-founders. And usually this happens if a business either stops growing and everyone's kind of wondering what to do with it or if a

7:07co-founder has a life change that happens. Let's say they get married or divorced or they have a child or there's some other dramatic shift and they don't want to work on the business anymore, but you don't want to leave your co-founders working on the business and basically kind of putting money in your pocket, putting that growth in your pocket. And so co-founders will not infrequently have this conversation of what does it look like to buy another co-founder out. So the motivation is usually someone is moving on or has moved on. They're either tired of the business or it's a life change. Usually these are not valued at top dollar

7:38because someone's basically cashing out their shares. And so if you could traditionally sell the business for five times net profit, maybe you discount that down to two or three because one of the co-founders is essentially coming up with cash or pulling money out of the business over time to buy out the other co-founder. And the sixth type of buyer is your network, your customers or your employees. And usually when I see folks doing this, these are for brickandmortars often for small franchises or multi-loation brick and mortars like say a trapeze club that has several trapeze rigs all around the country or I can imagine a fast food chain that is all

8:18owned by you know one entity wanting to just sell it off to the managers. And since often you are selling to customers or employees who may not have as much money or as much credit or the ability to borrow money to purchase these assets in essence and you're kind of splitting one business into a lot of smaller

8:36businesses is is often the way it goes. These deal sizes can be frankly almost any size, but they usually are going to be smaller because if you could sell it to private equity or strategic and if it had a lot of value, that's typically the path that you would travel. Before we talk about how you find any of these types of buyers, if you're finding this video valuable, hit the like and subscribe. I'm shipping actionable content for founders like you every other week. And we are getting close to that 100,000 subscriber milestone. So, the next question is, how do you find these different types of buyers? Well,

9:05obviously, if it's your network, customers or employees, you would reach out to them and communicate the idea that you want to sell the business. You might hire an adviser. You might just hire an attorney and see if you know they're willing to do it. Co-founders is a similar situation. and you don't have to go outside of your network for that. But for the other four types, there are really four options. One of those is one that you don't control. It's inbound interest. And this is when private equity reaches out to you, when a strategic reaches out to you, when a high net worth individual reaches out or

9:34a search fund. You're getting inbound interest. And in that case, you can decide to field that interest to respond. Or you could even take that inbound interest, do the call, and say, "Hey, I'm not ready to sell right now, but when I am, I will circle back with you." And I actually know one founder who collected 20 or 30 of these folks who were interested in the business, kept them in a spreadsheet that when it was time to sell, not only reached back out to them, but then ran a full process with an M&A advisor, it was discretion capital at discretion capital.com and then reached out to another 100 150

10:05private equity and strategic buyers and ran a full process. So that was inbound. Another option, and this is usually when you're doing again 2 million and up in annual recurring revenue, is you hire your a broker, also known as an investment banker or an M&A firm, and I already mentioned Discretion Capital because I'm familiar with them. They represent a lot of our tiny seed companies that exit. They focus on B2B SAS, helping founders exit between 2 and 20 million ARR. And the broker, investment maker, M&A firm. These are kind of interchangeable terms. cuz they're not exactly identical, but you'll hear that term used relatively interchangeably. And if you want to run

10:42a process, which is kind of like just an auction, you go to, you know, the broker, as the investment maker, and they basically do outbound outreach to their network of buyers, and their network of buyers will be strategics, and it will be private equity. And if you have inbound, they'll mix that in and they will take offers in the form of letters of intent. And hopefully you get three, four, five offers. You can compare, you can get them to negotiate against each other. You sign the best one and you complete the deal. But again, these are for larger deals that are going to be certainly deep into

11:14seven figures and more likely into the eight or nine figure range. The third option is an online broker. And so there are brokerages, for example, like quietlite.com that helps small SAS, e-commerce, content websites. You know, a lot of online businesses sell. and they have a list of, you know, I don't know if I were to guess, 20, 30, 40,000 potential buyers on email lists. And those folks on that list are likely high net worth individuals, could potentially be search funds or someone, you know, looking to buy an online business. And the reason you might go with this type of online broker is if your business isn't large enough to go to private

11:52equity or strategics. And there are a lot of businesses that are doing a h 100,000 35 $700,000 a year that are valuable but are not going to be worth the time of a large acquirer. And the fourth and final option that we've seen crop up well over the past decade really are these online marketplaces. And the two biggest ones that I know of are acquirer.com and flippa.com. And these are places where you essentially are listing it. it's for sale by owner and you're listing it for a price and then you field the inquiries and you basically handle most of the sale by yourself. And I would think

12:27about going here if I really knew what I was doing as a seller, probably if I'd sold businesses in the past or if the business was so small that one of the online brokers wouldn't handle it. So if something was doing $25,000 a year or $50,000 a year, I don't know of an online broker that's going to deal with that. Um, but you could feasibly go to one of the online marketplaces. And you know, as I said above, if you sell to private equity or to strategics, usually, I mean, it depends, but the whole company's going with it. They often want the team to continue working

12:56on it. When you go through online brokers and marketplaces, often times you're just selling a piece of it. You're just selling the technology. For example, if you have an e-commerce website, you're not going with it to to continue working on it, right? If you sell a small SAS app, you're not going to continue working on that. They are just acquiring the technology. Once you have a potential buyer, the next step, of course, is to get an LOI, a letter of intent. And I talk a lot more about the full process of selling your business in my new book, Exit Strategy. You can get a copy on Amazon, can listen on Audible,

13:25and you can get a free chapter of the book at exitstrategybook.com. Are you thinking about putting your business up for sale? After working with thousands of founders, I can tell you that timing is everything. Check out this next video on the nine signs it's time to sell your company, including a few counterintuitive ones I learned the hard

13:42way after selling multiple businesses. Thanks for watching. We'll see you next time.