I used to believe a $300 MRR startup was worth nothing. I was so wrong….
Startup valuation can be very complicated. I’m going to assume we’re alike:
Valuation = Annualised Revenue x 3
Let’s take a few examples:
You can dive deeper into startup valuation. I don’t. It gets overwhelming and gaining 5% here or there isn’t worth the hustle. I’d rather build more apps.
Imagine you grow a weekend project to $1,000 MRR… You have a 2-year pass to quit your job, move to Bali, and build apps full-time. Congrats.
It’s a tough question. For me, it comes down to 3 criteria:
When you sell a startup, you get temporary financial freedom (and less stress) along with more time to focus on a new project.
You made up your mind, listed your startup, and got interested buyers. What’s going to happen if someone decides to buy?
1. Paperwork
First, you’ll do boring paperwork like signing a Letter Of Intent (LOI) and an Asset Purchase Agreement (APA). The latter is a summary of what’s going to be bought, like your Intellectual Property (IP), marketing assets (like a Facebook page), etc. You might also sign a non-compete agreement. Just make sure it’s not too broad and allows you to build apps you care about.
Platforms like Acquire will do the paperwork for you. You don’t have to read 20 pages of boredness, ask ChatGPT to explain like I’m 5 to make sure you know what you’re signing. If you don’t use Acquire, ChatGPT is also really good at making the paperwork for you.
2. Payment
Second, the buyer will secure a payment through a third party like Escrow. Once the money is secured, you have to send the assets to the buyer.
3. Transfer
Lastly, transfer the domain name, database, credentials, etc (more on that below). The buyer will inspect everything and tell Escrow to move forward with payment. Congrats, you got acquired!
Some platforms don’t allow you to transfer assets. For instance, you can’t transfer an AWS S3 bucket, a Mailgun email-sending domain, or a Google Cloud Console project.
Should you give your credentials and move on? I wouldn’t.
Chances are you use these platforms for other projects and sending your credentials isn’t an option. In that case, explain it to the buyer and ask him/her to create his own account/API keys.
- In March 2023, I sold my first startup GameWidget: $80 MRR for $4,300.
- 3 weeks ago, I sold my second startup Habits Garden: $450 MRR for $10,000.
Valuation
Startup valuation can be very complicated. I’m going to assume we’re alike:
- You’re a solopreneur or have a co-founder
- Building software, AI tools, or mobile apps (no info products)
- Shooting for 5/6/7 figures valuation (no unicorn)
- Low operating cost (hosting, OpenAI credits, etc.)
Valuation = Annualised Revenue x 3
Let’s take a few examples:
- A habits tracker with $300 MRR could be sold for $10,800 (300x12x3)
- A logo maker with AI launched 3 months ago and made $4,000 so far could be sold for $12,000 (4,000x3)
You can dive deeper into startup valuation. I don’t. It gets overwhelming and gaining 5% here or there isn’t worth the hustle. I’d rather build more apps.
Imagine you grow a weekend project to $1,000 MRR… You have a 2-year pass to quit your job, move to Bali, and build apps full-time. Congrats.
Is it time to sell?
It’s a tough question. For me, it comes down to 3 criteria:
- Can I 10x the revenue in a year?
- Do I care about the market?
- Do I need money right now?
When you sell a startup, you get temporary financial freedom (and less stress) along with more time to focus on a new project.
The acquisition process
You made up your mind, listed your startup, and got interested buyers. What’s going to happen if someone decides to buy?
1. Paperwork
First, you’ll do boring paperwork like signing a Letter Of Intent (LOI) and an Asset Purchase Agreement (APA). The latter is a summary of what’s going to be bought, like your Intellectual Property (IP), marketing assets (like a Facebook page), etc. You might also sign a non-compete agreement. Just make sure it’s not too broad and allows you to build apps you care about.
Platforms like Acquire will do the paperwork for you. You don’t have to read 20 pages of boredness, ask ChatGPT to explain like I’m 5 to make sure you know what you’re signing. If you don’t use Acquire, ChatGPT is also really good at making the paperwork for you.
2. Payment
Second, the buyer will secure a payment through a third party like Escrow. Once the money is secured, you have to send the assets to the buyer.
3. Transfer
Lastly, transfer the domain name, database, credentials, etc (more on that below). The buyer will inspect everything and tell Escrow to move forward with payment. Congrats, you got acquired!
How to transfer the assets
Some platforms don’t allow you to transfer assets. For instance, you can’t transfer an AWS S3 bucket, a Mailgun email-sending domain, or a Google Cloud Console project.
Should you give your credentials and move on? I wouldn’t.
Chances are you use these platforms for other projects and sending your credentials isn’t an option. In that case, explain it to the buyer and ask him/her to create his own account/API keys.
Tips to sell faster
- Ditch buyers asking a million questions. If they’re highly skeptical, they won’t buy and you’re losing your time
- It all comes down to trust so build your startups in public: you don’t know it yet but potential buyers are following you and can wire the money to your bank account without asking much (that was the case when I sold Habits Garden). You also save the platforms’ listing fee (4% on Acquire, for instance)
- Don’t be afraid to follow up and tell buyers you need an answer within 3 days.
- If you’re selling on Acquire, ensure your listing is 100% ready before publishing. All buyers on the platform will be notified within 24 hours when most opportunities land.
- If you’re selling on Acquire and no one is interested after a month, lower your price a bit. Acquire tends to lift your listing up when significant edits are made.