How to sell your startup

I have got many calls and emails in the two months since I sold InBoundio, with queries on how to sell one's business. I thought a post with what I told others on email and phone would help startups and founders looking to sell their businesses.

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What you need to know first

1. There is huge (10x+ valuation difference) between you approaching someone and someone approaching you.
2. This is a very time-consuming process and can take six months easily. Ideally, one Co-founder has to pursue this full time.
3. Be realistic - If you are looking to sell, the chances are business has stagnated or you have lost interest and want to move on. You won't get premium valuation if these are the reasons. Also for SaaS startups, the industry standard is often 1.5x to 3x. It should be little more if the buyer sees more value but it will always be something realistic. Having realistic expectations and understanding the market often saves time. As a founder, you will always feel like you deserve premium, considering the risk you took, the time and money you spent and how you lived with minimum salary. But unfortunately this will not make any difference in what the buyer is willing to pay. I have seen people selling startups and businesses at a loss too, as most times, something is better than nothing.
4. You can sell the whole product with all assets at one go but many buyers will ask you to continue working on it or provide minimum support for X months. There may be a few who want to pay X amount up front and the rest after Y months based on performance, and some just want to do partnerships. Make sure you understand the pros and cons for each option. For me, I was clear I wanted to move on since I wanted to focus on AeroLeads full time.
5. I can't emphasise enough on preparing yourself for a slow process where things can even go wrong. If you attached feelings and emotions to the sales process, it will hurt.

Pre-work before you start selling your startup

1. Make a list of all potential buyers. It is likely you want to contact companies who are in your vertical. It helped that I already had most such people already on my LinkedIn network.
2. Make sure all P/L documents and finances are up to date. In my case, I wasted lot of time as I had not got this prepared.

How to start contacting

1. I had spent lot of time finding potential buyers on LinkedIn and had used its inmail feature for this (coincidentally our current software AeroLeads simplifies this process of finding prospects). People did reply asking for more details, but that never worked out. We "not having enough paying customers" was the common concern.
2. Flippa - it has lot of noise but still, the best way to find some visibility. They have a deal flow option which you can explore.
3. FEInternational - If you check HackerNews, this name often pops up. It is probably one of the best platforms to sell software product and SaaS sites.
4. Check out BusinessforSale and BizBuySell too. I haven't explored them enough but it looks like they have an active user base.
5. If you are looking to do some more research, see this thread. There are few such threads on Quora too.
6. Brokers - There are lot of business brokers who takes 10-15 per cent to assist you in finding the right buyer. Most of them deal in $100,000 to $2 million and more. You can search online to find such business broker firms. I have seen a few Indian businesses being sold in $1-3 million range through them.

Legal work and escrowing

1. It is worth hiring someone who can take care of the legal work as you can save lot of time later in case something goes wrong and most of the time, it is not worth scrimping on the Rs 20,000 -30,000. At least, have someone read the draft if the buyer is the one taking care of legal work.
2. Escrowing money will always be a problem if you are in India and the buyer in a different country. I am little unsure how it works for big transactions but if you are hiring a broker, they should take care of all this. For big transactions, you obviously want to meet the buyer face to face too.