We’ve all seen it in the news – massive valuations for technology companies many of us have used, but perhaps never paid for. And that’s what is so interesting about these companies – their valuations are set at the pre-monetization stage. Many of these companies have lived off of round after round of venture capital only to finally get to the exit stage – where everybody gets paid off handsomely. But before a business owner can pop the champagne, they first must find a buyer that has synergy and stamina to see the deal to the end.
What many tech companies lack in revenue, they gain in market share, users and/or subscribers. They generally offer a solution to a problem that is better than the competition and they disrupt a sector or an industry in a very meaningful way. So, even though they might not operate in the black, with a burn rate that would terrify most business owners, their database and scale opportunities make them a valuable tool for synergistic partners. As an example, Instagram was purchased by Facebook for $1 Billion (actually $750 Million given Facebook’s stock price declines by the time the deal closed, but who’s counting) before it made any money. The photo sharing tool offered users of a certain demographic, something Facebook obviously puts an internal price tag on – a User Acquisition Cost – meaning that Facebook sees the User Count just as important as revenue because once the users are Facebook users, they can they target them and their network with ads.
For those of us that buy, sell and facilitate the sale of companies in the technology sector, the point about Instagram and similar companies, whether an Internet Company, proprietary SaaS software, an App or a product or service company operating in the digital space, is that all of these companies are able to realize strong multiples when selling because, to a very real extent, the technology sector as a whole is booming in large part because of the enormous valuations being placed on certain companies, like Instagram.
So, when Website Owners come to our Business Brokers and Intermediaries, asking us about the prospect of Selling a Website or other business in the Tech Sector, and a fair valuation, we always reply the same – it depends. We’ve written a number of blogs on Website Valuations, but whether a website or a piece of software, it always depends. It depends on whether the business offers something other than cash flow. It depends on whether the intermediary can link the business with a synergistic buyer that sees more in the business than cash flow. It depends on whether the business operates under intellectual property, has barriers to entry or otherwise lower than average competition. It depends on whether the company has reoccurring revenue or a large repeat conversion rate. And notwithstanding all of this, just about every business in the Internet Sector is different, with different characteristics, mission statements and business models.
But you know what is truly critical to maximizing valuation as well as purchase price? It’s finding the right business broker to sell your business. So, whether a Website Broker, Internet Broker or a M&A Technology Intermediary – it is important that business owners contact the right firm to broker their transaction. Somebody that understands the technology sector well, somebody that has operated within the sector successfully themselves, and somebody that will work hard to maximize the sale price.
Give us a call or send us an email to discuss what options you have with us – you will be glad you did because all we do is close.