EP 58: What you need to know about selling your SaaS business with Okan Inaltay

Introduction to SaaS Buyers Club
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Welcome back to another episode of SAS Buyers Club. I’m your host, Omid, and I’m the managing partner at Optimus
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Legal. We’re a fullervice corporate boutique law firm that helps SAS founders from incorporation to exit.
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Anything that has to do with contracts is what we help SAS founders with. So, incorporations, entity formations, terms
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of service, master services agreements, venture capital raises, and exits. Those are really our areas of focus. In
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addition, if you’re watching this, you are watching SAS Buyers Club, which I’m the host of. And the mission of SAS
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Buyers Club is to help SAS founders get the best exit possible. Because here’s what I believe. I believe anyone that
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comes on this show and can share a value that would help SAS founders increase the value of their business will help
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them get a better exit. With that being said, I’m pleased to introduce Okon.
Meet Okan: Head of SaaS at Com Cap
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Okcon is head of SAS at Comap. Okan, tell me a little bit about Comcast. Tell me a little bit about you. Yeah, thanks.
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Uh, thanks. Thanks for having me on the show and good to see everyone. Comap was founded back in 2012 out of San
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Francisco. We are a boutique advisory firm that 100% focuses on technology
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verticals. I spearhead our SAS vertical. We do have other bankers that have
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specialization in other verticals in tech and tech enabled verticals. and we
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provide strategic advice on M&A mergers and acquisitions both representing the
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sellers as well as representing the buyers as well as you know fundraising and corporate diversity you know we have
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about 40 people globally and we differentiate by having a kind of single
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P&L so once you’re a client of us you get the entire support of our organization behind you and your your
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process would be led by, you know, individuals with 10 plus years of experience like myself with thought
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leadership and and day-to-day execution. Awesome. Thanks for that rundown of
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Comap. You know, you’re head of SAS at Comap and you help SAS founders exit.
Key Advice for SaaS Founders
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What would you say is the number one thing that you want SAS founders to get from the episode today?
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Yeah, I think you know there is a number of things but if I would summarize it under you know maybe one bullet would be
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you have a number of options. So being aware of kind of different types of
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buyers and investors out there and different types of deals different
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structures is important. You know, I used to believe kind of back in my days, I’m originally from Turkey and I was
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kind of always interested in tech, reading about kind of Silicon Valley startups coming up that really amazed me
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and I wanted to be a part of that change, which is why I kind of moved to the Bay Area 16 years ago to have my
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MBA. I used to believe the only path to success was by kind of raising
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traditional capital by you know seed rounds followed by a series ABC rounds
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and then you know pursue an IPO and my 10 plus years of career showed me that
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there you know that’s not the only way to success and that’s actually you know rather rare you know I I could which
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could also SAS founders who who do that and reach that status but I’ve also seen
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a lot of founders who either choose a bootstrap journey did kind of like debt
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raises along the way based financing and others to reach an exit and made millions of dollars in
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their pockets all the way to like you know private equity firms coming in helping them with a platform acquisition
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strategy and help them grow organically and inorganically. So I think you know
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taking a step back you as a salesponder have a number of paths and you know they
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they all can lead up to success. It’s it’s just I would recommend to sit down, take a step back, work with an adviser
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like ourselves to think through your options, what makes the most sense for your specific business and and vertical
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because you know even within SAS there is nuances and differences between
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horizontal solutions versus vertically focused solutions within horizontal
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whether you’re dealing with more enterprise clients or SMB and mid-market clients. So there’s a lot of detail that
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comes into play. So you know having someone that’s specialized in in SAS but also then the the subvertical adds a lot
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of value. Cool. It sounds like what you want SAS founders to get from the
Understanding Exit Options and Multiples
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episode today is an understanding of various exit options. Yeah. The various
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strategies to exit whether it’s you know a strategic buyer or the different types of buyers. For example, it could be
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strategic. It could be private equity. And then it also sounds like one of the things that you
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have grown with respect to is you thought that there was a more linear
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approach to success in startups. It sounds like that linear approach that
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you believed before was, you know, you follow the traditional kind of VC route
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until you either IPO or you exit for like a hundred million to Apple or
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Google or Facebook or something like that. But you’ve come to realize actually that there are many different
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variables that could lead to success. It doesn’t necessarily have to be that you raise venture capital and go through the
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various funding rounds essentially those two very limited options. It could be
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you raise one round and then you exit. It could be that you bootstrap and never raise a round. It could be that you
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raise multiple rounds and then you know maybe you sell to a very specific type of buyer like for example private
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equity. There are actually a lot of different pathways that a founder could
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take to success. Yeah, exactly. That that that’s right and you know one key
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analysis that an investment bank typically does is kind of what we call a waterfall analysis the proceeds analysis
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in an M&A scenario. you know the money coming in from the buyer how that gets distributed to various
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stakeholders among the company including the debt holders and and the equity holders and you know after running I
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don’t know the number but like probably hundreds of proceeds analysis like that in my career you know yes to your point
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you know I’ve seen occasions where the company was very lightly capitalized or bootstrapped and the founders ended up
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making you know significant portion of that money coming in, you know, and they were extremely happy with the
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transaction. And I on the flip side, I’ve seen situations whereby, you know, very diluted funders, you know, and kind
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of not ending up getting the outcome maybe they would originally would like to pursue. So, you know, being aware of
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all those options early on in your journey can add up a lot when you’re
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kind of weighing in on your options in the early days of like, do I raise a series A round or do I use maybe a
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little bit more AR financing or debt or how much equity I’m willing to give at this round and how I’m going to use
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those proceeds because I would say the buyers and investors today a lot more are sophisticated than the buyers and
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investors of like say 10 years ago in my experience. I’ I’ve seen the trend of like you know
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we were able to pitch a business and just the products and based on the product to the potential acquirer you
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know if they were throwing up IOS in front of us I would say that’s no longer the world that we live in in today’s
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world most buyers almost all would love to see kind of SAS KPI package in the
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data room they would love to review that and better understand not just kind of at the company level but also looking at
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your ICP they expect you as founder to have a very strong understanding of your
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core ICP hand that kind of retention and on a net and growth basis and all the
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you know surrounding KPIs are trending as well as they they expect better understanding of your kind of churn
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ration for each significant client that churned in the last say 12 to 18 months
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to to see they going to your competitor etc. So yeah, yeah,
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100% being aware of the ecosystem and what people are expecting you to be
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knowledgeable of at the point of an exit is very important. Interesting. So
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you’re saying buyers have become more sophisticated which requires founder and
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the way that they’ve become more sophisticated is specifically they expect the founder to have a much
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stronger grasp and understanding of their own business. Yes, that’s that’s right. Talk to me a
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little bit about the founders that you work with. the market has matured and
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become more sophisticated is requiring a a greater level of sophistication from
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you know the the acquisition targets. What is it that you typically see when you work with clients? Great
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question. So we look for kind of businesses that are on the I would say
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lowend you know five but ideally closer to 10 million of ARR. So you know 10
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million of AR is is it brings in scale premium and it opens up the door to a
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number of potential parties that goes beyond just strategic partners. Again, we’ve talked about private equity.
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Private equity buyers typically most of them would have like a 10 million AR is their kind of lowest threshold to look
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at an asset from a platform acquisition point of view to then help buy other
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assets under it to kind of build. We look for kind of growth businesses that
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have you know rule of 40 dynamics. You know, either the business is growing healthily and you know, maybe burning
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cash at the expense of burning cash or maybe you know profitable growth or path
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to profits you know vis visibility because again those are the some questions that you know potential
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partners do ask us in the first interactions is kind of what is what is
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the business’s trend on a rule of 40 scale and kind of do we have clear visibility into profits in the next say
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12 to 24 months especially If it’s private equity discussion on on strategic it’s it’s a lot more kind of
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retention dynamics comes into play enterprise versus mid-market focus SAS
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businesses have different underlying um benchmarks but typically kind of top to
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second quartile of retention metrics are appealing to those buyers and I’ve seen
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buyers walk away from situations where kind of the retention metrics are kind of lower significantly lower than the
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industry benchmarks. So that’s in a nutshell what we look for from our clients. Got it. And these are clients
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that you will take. So these are the metrics that you look for in terms of people that are a fit for you.
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Yes. Let’s say you know someone comes to you, they’re at 10 million ARR, for example, and you know they’ve achieved
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the rule of 40 metric. How are you typically working with these clients? Yes, great question. And they typically
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reach out to me or us kind of either when they’re at that point in time where
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they want to transact or maybe 12 to 18 months in advance. I I actually
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recommend funders to start relationships with a handful of bankers, not just
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ourselves, but having optionality is important to finding the right fit. But I recommend people to
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start building on their relationship 12 to 18 months in advance. The way we work with them is kind of series of sessions
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to get us me and obviously there’s a big team supporting me up to speed on the
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business including us and kind of legal advisors like yourselves you know at
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occasions we would bring in kind of third party accounting firms to do GOE. So all the advisers that’s going to be
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surrounding the transaction does need sufficient enough time to kind of get their hands around the business and
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better understand the story you know because M&A is about storytelling. There needs to be you know
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a clear concise and effective story of where the business is today and where it’s heading
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and how it can fit into this kind of potential partner and how 1 + 1 can be
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greater than two. If we deliver that pitch very effectively, you know, that’s how we drive premium multiples in our
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transactions consistently. Talk to me about multiples. Every founder always wants to know about multiples. What do
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you talk what do you tell founders when when they ask you about multiples? I mean that’s the probably the number one
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question that I get asked on a weekly or daily basis at this point. And um
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multiples have fluctuated a lot. you know when we look at it from a kind of
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last five years perspectives we do actually have a contas index which
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consists of like some 100 public companies and kind of when we put them
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on a chart what we see is kind of the current state of the market is above the
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last five year averages although it can be you know it is lower than where those multiples were
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you know back in 2021 And you know the overall sentiment is kind of multiples are not going to get
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to those levels in at least in the near to midterm. So if you’re considering an exit signals are this is a good time to
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run a process. Q4 of last year actually was one of the highest levels of
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activity in SAS. Q1 numbers are probably coming up shortly and I I would expect
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to see healthy amount of activity in Q1 based on my buyer and and private equity
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discussions. You know, both parties are eager to deploy capital to, you know, good businesses. You know, they’re
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actively searching. There’s a lot of detail that goes into so it’s kind of it would be very generic for me to say,
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hey, expect like a, you know, high singledigit AR multiple on your exit. You know again there are a number of
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factors going in like your revenue historical revenue growth your ebida
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margin your gross margins your and gross retention rate your customer base
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whether it’s enter enterprise or SMB um your customer concentration whether it’s
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geographical concentration sectoral concentration obviously the more diverse your customer base is the more premium
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it transacts to and you know within your specific specific vertical in organic growth avenues. Are
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there a lot of competitors out there that might be facing some headwinds and can we do like a consolidation play and
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pitch that to a private equity firm that could be quite appealing and you can be the platform. So there’s a lot goes in
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there. What I can say is top quartile businesses that lands really well in almost all these aspects. Like I was on
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a call with a potential client yesterday. It’s a SAS business growing about 300% year-over-year pro while
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being 20% the margins diverse clients enterprise they’re going to hit 10
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million you know in the in the next couple quarters kind of you know that
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business is going to have a significant premium multiple as compared to most of the deals that you might be seeing out
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there in the market. Yeah. Talk to me about most of the deals that you’re seeing in the market. And I think a lot
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of SAS founders think that you know this multiple
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aspect is something that they more control over in a deal. And what I mean
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by that is it seems like they think that there’s like a lot of negotiation that for example happens around this this
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multiple piece. I’m curious what’s your experience with that? So the two questions are the first one is you know
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you said most businesses obviously are not hitting 300% and 10 million ARR in
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the next you know few quarters and having like great customer concentration they probably have more reasonable growth and so on and so forth. So what
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are you seeing you know with respect to that and then also what is like the negotiation around multiples really look
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and sound like in a deal just to paint a clearer picture for SAS founders out there. Yes. No for sure. um you know we
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we do work with kind of companies that have kind of relatively low growth and path to profitability as well. I think
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when it comes that like better understanding the ORICP retention metrics becomes key and the strategic
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fit because you know we like to create a synergy model up front so that we can
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articulate it to the corporate development individuals and the COS of potential parties to illustrate the
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revenue uh synergies and how much you know potential upside they would have from acquiring our client and for those
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businesses I would say the multiples range from mid single digit and a four
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5x to kind of high singledigit ARR multiples. Um to address
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your second question kind of how much room there is to negotiate you know I would advise I
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advise my clients not just to be stuck on the revenue multiple per se. There are a lot of
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other details surrounding a transaction that can bring up a lot of value like
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kind of earnout elements you know whether the earnout is going to be contingent contingent upon what that’s
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that’s a topic of itself uh deferred consideration whether it’s kind of maybe
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employment based so as long as you’re employed with the business and help make small transition you continue making
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proceeds um you know equ you know equity versus cash. You know, obviously there’s a
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mutual understanding that a founder at an exit would look for some liquidity, but you know, occasionally buyers like
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to incentivize them by kind of equity that they have and kind of we do a lot of kind of diligence on the buyer. So,
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it’s not just buyer doing diligence on or clients, we do diligence on the buyer and their stock. so that we can weigh
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that into the context of kind of how much value are we getting today and what that value would look look like in the
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future. There is definitely some room of of to negotiate but the more options
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that you have and the more effective of a process that you run brings you that kind of negotiation power. So if you
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were ever in an exclusive one-to-one discussion with a potential buyer,
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you’re not the power of kind of having the greatest outcome in my experience.
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So you know, we have have we have had clients where they reach out to us at a
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point where somebody knocks on their door, sniffing around the business, kind of they had a couple meetings, they
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expressed verbally like, you know, they will be submitting an offer relatively soon. And so they come to us and ask for
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our advice on how to handle that inbound as well as quickly go out to a handful
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of their competitors or other potential buyers out there to maximize value. Makes sense. Okay. So it sounds like the
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answer to the negotiation of the multiples piece is hey there’s actually a bunch of tools that you can utilize.
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It’s not necessarily specifically don’t focus so much on the multiple negotiation, but it’s more like okay, if
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there’s a number that you want to hit in terms of exit value. There are a few various uh tools that you can utilize
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and the three various tools that I’ve for example heard you reference is the
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earnout, employment compensation or you know equity rollover essentially. Yes,
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those are kind of some high level you there’s obviously a number of other things that go in and kind of the list
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is quite long actually and so let’s you know I I advise my clients look at it in the context of everything else not just
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not just the multiple right do you know who Adam Robinson
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is well no I’m not okay cool he’s like a pretty right now he on LinkedIn he’s
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like an influencer on LinkedIn he’s a SAS founder he runs a SAS company called
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Retention.com, which is essentially like a retention tool for SAS
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businesses. And he posted a post the other day that was talking about how he
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had an exit in the past. Essentially, he was saying, “Don’t use an investment
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banker or a broker in a deal.” That was essentially the point of the post. I’ve
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heard like some SAS founders say this as well. They’re like, “Well, what do I really need, you know, a broker, a
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banker for in an exit?” What would you say to something or someone like that? I
The Role of Investment Bankers in Exits
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mean, my sincere feeling here is you you would almost always leave money on the table by not
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having an advisor on your side. I’ve seen in my
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career on my transactions as well as my other colleagues transactions the offers
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increase significantly from the initial offers. The company got inbounded by to
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the kind of the final transaction value that you know myself us or other bankers
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that I know of deliver to their respective clients. So you you need to
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understand here that the buyers almost always have invest corporate development
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individuals on this on their side with tens of years of experience in investment banking. Not just one most of
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the large public companies have a corp team of kind of a handful of if if not
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10 plus individuals working on their side to kind of obviously get a good deal out
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there. you know, we would just kind of level up the the fields by kind of being
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on your side because most entrepreneurs, most successful entrepreneurs that I’ve seen, you know,
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have had maybe two, three exits in in their life cycles. Uh, you know, our job
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is to negotiate these deals on a daily basis. We have a lot of data points, a lot of tips and tactics. And it’s just
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kind of also the mutual understanding of you know having an advisor on on a
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client side on a on a founders side signals we are also talking with others there are other parties interested in
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the business and they cannot be get a good deal out put their low speed out
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there and expect that that deal will you know transact we have our own databases of transactions and multiples and and so
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you know I I honestly disagree and I would look for him to you know expl explain and articulate like where is
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that argument coming from. What you can see on my for example LinkedIn is if you
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scroll down you’ll see a number of founders and CFOs that I worked with in the past kind of putting public the
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available testimonials of kind of the added value they’ve seen on having us on their process. Yeah. And what would
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people find in terms of the added value? Like what do you think the actual added value that you have brought to the deal
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outside of you know the point that you shared in terms of an investment banker
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broker through running a process and bringing the experience and knowledge of essentially the equivalent of a
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corporate development team of a potential buyer. Obviously you know that’s recognized but just curious what
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what will founders find in terms of the added value outside of that? Yeah, just
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having kind of so there are different phases and we add value I would say from the entire you know entire process from
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start to finish but like starting off with like the preparation phase there is
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the equity story buildup and kind of yes the founder is intimately close with the
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business and he might have a perception of the business today but having us as a third party coming in making an
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assessment comparing it to other companies that have been worked within past and have data on gross margins and
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all the other kind of financial line items as well as or kind of continuous
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intelligence from speaking with buyers out there and what people are looking for today and will be looking for in the
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next 6 to 12 months. We can tweak some of the kind of strategies going forwards
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to to maximize the value in in 6 12 24 months from now. So I I have clients
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right now who are asking us to work on their budget for rest of 2025 and 216
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and we’re helping them think through sales and marketing span have team buildups etc to prime them for an exit
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or access to the potential buyer universe. Again, even if you might have an offer from your potential buyer
25:40
today, we can quickly hit, you know, a handful, if not, you know, a long list
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of buyers really quickly speak with them and get them up to speed so that you’re
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not kind of exclusively negotiating with one party. You would be surprised how fast there can be a turnaround and other
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parties might be in the mix. that again increases your your power. A founder’s
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primary objective is running the business healthily and staying you know focused and delivering revenues and you
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know and this whole process takes so much time that we take that distraction
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away from them as well so that the business doesn’t get impacted. I hear on the other flip side stories of founders
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getting inbounded and they spend significant amount of hours and leg work to prepare the diligence answers and
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spend time with that buyer to then only realize there’s a huge gap between where the perceived value is and where they’re
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willing to trade. So like we take all of that away from a buyer and we have from
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a client and we handle all those discussions on behalf of them in a kind of mutually collaborative way. you know
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those are just some high level things you know again this is a full-time job for for us
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it’s you know and it’s kind of involves weekends holidays so there’s a lot of work that goes in from an good advisor
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point of view again you know I don’t know his personal experience from his his deal again the people that I’ve
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worked with in my career have good things to say that’s publicly available yeah I’ll have to send you the post I’m
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curious what your thoughts are on it It was an interesting post to read. I I mean I read it and I was like I
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disagreed personally and essentially the point of the post was like oh anything a broker can do
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essentially the lawyer can do as well and if I were to go through a process again I wouldn’t use a broker because
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you know the lawyer is responsible for actually like consummating the deal. And
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I’m a lawyer and I read it and I was like I disagree of value. I have huge respect
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to lawyers like yourself and I’ve worked with some great lawyers uh in my career
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and having a good legal counsel is key to also getting a good M&A transaction in my opinion in my experience it’s a
27:58
complimentary efforts you know lawyers investment bankers and as I said third party accounting firms to the extent the
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company doesn’t have a strong CFO or you you know I’m sometimes talking with
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companies even 10 millionaire are following chesh accounting not kind of
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accural accounting and you know we need to convert those numbers obviously to a cural to make it more apples to apples
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with potential buyers. So the advisory team surrounding a transaction works
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pretty complimentarily together and add value to different aspects. So that’s all all
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I can say about that. No I agree with you. I think that each role needs to be filled and where
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each role is fully operating in the way that they should be operating adds a lot
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of value to the deal. The broker has a function and I would say that one of the
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most important functions of the broker is access to a process around preparing
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the company having access to you know the pool of buyers. You know being able
29:04
to tell that story and actually the broker is a great intermediary as well.
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you know the where the broker is an intermediary, the lawyer can often, you
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know, be essentially tough the tougher part of the of the team in terms of you
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know really defending and fighting for the things that uh the client’s looking for and then as well like obviously the
29:28
lawyer is responsible for the closing of the deal as well. The closing of the deal isn’t going to happen without the lawyer. So I think that you know it’s
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like definitely the the merger agreements are you know at a minimum 100page long document a lot of legal
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language my personal experience on those situations is kind of investment bankers
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focus on the commercial terms of the merger agreement kind of the things that are related to the purchase price the
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calculation of the earnout networking capital calculation kind of the employment retention packages etc. So
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anything that’s kind of tied to dollar amounts, you know, typically the investment bankers um would review in
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great detail and weigh in with their commentary and help negotiate and then
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you know the lawyers would review everything else which is like 75% maybe 80% of the the actual document itself.
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they can add a lot of good protections surrounding the founders and kind of make that process a lot of a lot more
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streamlined especially good lawies like you know yourself who is more of solution oriented um versus you know
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I’ve been also in rooms where the discussion takes really long on on a very you know minor point so like having
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constructive a smart individual surrounding the business is key uh to
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yeah also not get stuck on kind of, you know, again, you need to weigh in. You you’re not going to win all the battles.
30:54
You you’ll look at it more from a holistic approach. That’s my my advice to my clients because there are so many
31:00
details that surrounds an M&A transaction that if you get stuck on one point, we need to be aware of that. So
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maybe let’s fight to win that. But we might then be trading of chips on somewhere else because the buyer also
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needs to feel like they’re having a good deal and they’re they’re getting a good transaction and the right protection
31:18
surrounding them in terms of the future. Yeah, it’s such a human process. I think
The Human Element in M&A Transactions
31:24
that’s something that people don’t realize is how much of a human and relationship process it is. And people
31:31
are often surprised when Yeah. like the humanness of the the transaction is
31:38
really felt in terms of like personalities and so on and so forth or
31:43
yeah just like often times in in the compromise process understanding how the
31:49
other side might you know feel or receive or you know how they might be
31:55
impacted by you know certain actions that are taken or even certain words that are used or certain things that are
32:02
said you know all these a good level of of importance. You said something though that I think is really important to
32:08
address here. How long do the majority of transactions in your experience take
32:14
from, you know, taking the business to market or a client essentially coming to you and you’ve identified that they are
32:22
a client that’s a fit to work with and you help them prepare. I know you said 12 to 18 months, you know, in terms of
32:29
that’s the best time for them to talk to you about starting a process. And then,
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you know, during that 12 to 18 months, you’re probably helping them prepare, as you mentioned, for example, taking them
32:40
from, you know, a cash basis to an acral basis. That’s probably part of the process, running these sort of like
32:47
waterfall analyses and so on and so forth. But that’s everything pretty much prior to
32:52
taking to market I would imagine in that 12 to 18month period
32:58
or and or is it yeah how long does how long does it take for them to actually
33:04
sell the business? So long story short I’ve I’ve had clients where from us
33:11
signing the ink of engagement letter with us to money in their bank account was about 40 for zero days. Uh but that
33:18
was kind of they already had a inbounded party on the table. They wanted to make
33:23
sure kind of a you know if they have somebody representing them on that
33:28
negotiation table with experience steady hands on the deck to make sure we maximize the outcome and
33:35
b help push a sumo closing closing phase.
33:41
You got to realize and I think you know you as lawyers have a lot of experience with this but after an LOI is signed
33:48
comes the the confirmatory due diligence phase and it involves not just legal
33:54
diligence but HR tax finance accounting diligence and other topics IP diligence
34:00
tech diligence and that process is kind of quite kind of time consuming yet
34:05
alone very you know unorganized occasionally so us as bankers is, you
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know, and my team is great at kind of coming in and kind of putting more organization into that kind of process
34:18
to make that as smooth as possible. Um, I wouldn’t want anyone listening to this
34:24
to set the expectation of 40 days, but I thought that that that was the fastest in my career. Typically on average from
34:31
start to finish if there’s no inbound and it’s just proactively we’re going to start thinking about the potential
34:37
parties and reaching out to them. It used to be more of 6 to 9 months but
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nowadays because of the buyers being more sophisticated and they want to do their diligence a lot more deeper. I
34:50
would say that timeline is more like 9 to 12 months is where I can comfortably say we can look to get a premium deal uh
34:58
for our clients. Going back to Walcom you made which I you know 100% agree
35:03
about the the human element and the emotional journey kind of an M&A process is like a roller coaster ride. There is
35:11
ups and there is downs and kind of I almost feel like we act as occasionally
35:17
psychologists to our clients kind of delivering those tough to hear news in a
35:23
way that kind of we can survive from it and have a still premium outcome and and and also the good news um you know and
35:31
end up spending so much time with our clients significantly more than our significant
35:37
others and build that bound. So, which is why I think when you’re picking up an
35:42
M&A advisor or or a lawyer, I would say it’s good to it’s healthy to have a
35:48
couple options and see who fits your style and your personality better and
35:53
who’s going to be there when you have an urgent question on a Saturday or you know or a holiday and who would you like
36:00
to spend that kind of intense 20 hour 30 hour a week period for a significant
36:06
amount of time of like six months to 12 months So those all come into play. Awesome.
36:12
Love it. So I want to ask you, what’s a tool or a tip that you can give to SAS
Final Thoughts and Market Trends
36:21
founders right now on the show that would help
36:27
them in their exit process? Like something that maybe you would you like to see from SAS founders outside of
36:34
under you know understand your metrics, understand your KPIs, that sort of thing. What’s something that SAS count
36:39
founders can do right now today? Let’s say they hit, you know, the 5 to 10 million ARR mark know that you want to
36:47
see this thing from SAS founders before they come to see you because it would help them with their exit process.
36:53
You know, I would say just having a data room, you know, the the one aspect that
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slows us down is kind of and you would be surprised how even companies that
37:04
much beyond 10 million are not having, you know, a wellprepared data room. So, I think it’s always healthy, you know,
37:12
when you start crossing the 5 million mark to start building a data room. they
37:17
can, you know, feel free to reach out to me and I would be more than happy to share what a kind of a level one data
37:23
room would look like in terms of pre-offer stage and what would they offer
37:32
materi. So I think having that data room prepared to the extent they have a legal
37:38
council kind of having all those contracts organized making sure they have the signed copies for from both
37:45
parties because yeah I’ve I’ve been involved in situations whereby kind of a lot of the documents were missing and
37:52
kind of obviously the buyer wants to make sure that they they see that before they they quiet the business and like
37:58
that that slowed us down uh significantly. So like being well prepared from a data point of view is
38:04
important and for all your listeners I would be more than happy to
38:10
give the ones that are kind of getting close of that 10 million era range and
38:16
or beyond like happy to give them a free valuation estimate if they reach out and kind of we can get some data from them
38:23
in terms of under NDA kind of their profile financially you know etc and
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come back to them with our holds on what’s the current state of their valuation. Awesome. Love that. Yeah.
38:37
Interesting. And um what’s like a harsh truth that people in your industry maybe
38:44
don’t talk about or what critical thing do people skip over when they try to
38:50
reach their result? I think that goes back to the Adam’s comment about kind of
38:56
sometimes kind of what value would an investment banker bring in you know and
39:02
you know whether they can handle especially when they have an inbounded party on the table you know whether it
39:08
makes sense to handle it themselves versus bringing us on the table what I would say is you know you’re having a
39:15
lot of of discussions with that potential buyer pre-acquisition some
39:20
involve all good comments, but some does definitely involve hard to difficult to hear comments and there are comments
39:26
that you want to give to the buyer as well that might might be perceived negatively by them. So again, having an
39:33
intermediary like us in the middle kind of listening to all your thoughts and
39:38
then delivering it to the buyer in a way that kind of they can digest it and as
39:45
well you know occasionally we can be the bad cop for you so that you can continue being positive about the synergies and
39:52
the future with them and excited I think maximizes the outcome because you don’t
39:57
want to damage the relationship from both parties. We very much occasionally become the bad cops in those discussions
40:03
where our client always continues to be a boot cup. Can you give me an example?
40:10
Yes. So let me think about which one would be appropriate because I’ I’ve
40:16
heard many comments uh in my career obviously but say that it’s it’s a very
40:21
technical founder. I’ve had this once situation where very technical founder
40:27
proud of what he’s built the technology stack and kind of all the tech surrounding the business and the buyer
40:34
does believe the tech is outdated and the tech is kind of they want to acquire
40:40
the business and they do see great fit here but they do believe there’s going to be a ton of investment post
40:46
acquisition to the technology to take it up to the same level as the buyer stag
40:52
stack mm M so obviously that would have been a very tough thing to hear if it
40:57
was directly from the buyer’s mouth to to the sellers uh in a in a onetoone discussion scenario but you know we were
41:04
in the middle we heard that feedback we you know there’s different ways to tell the
41:10
same thing someone you changing the facts. So like we delivered that we took his feedback which was kind of
41:16
disappointed but at the same time understand to certain degree and we work with them to get a deal done. So like
41:22
this is just one example. There can be many there is always many other things that happens positively and negatively.
41:29
So you know sometimes you know our clients initial reaction to an offer is
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you know no way you know this is insulting we want to walk away from this discussion tomorrow and ends up kind of
41:42
maybe that party being the ultimate buyer and you know yes with certain negotiations and weeks. Yeah. Yeah. So
41:49
you don’t want that kind of initial reaction to be just in front of them at the moment kind of. So we do a lot of
41:56
site discussions with our clients. Give them context, give them data to support maybe the buyer’s argument, you know,
42:02
etc. This is the psychologist piece probably that you’re uh like
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psychologist, PR, communications expert, uh best friend,
42:15
confidant, all of those things. Exactly. that that’s yeah we become really good
42:20
friends after transaction. So we what we do is you know and very often lawyers uh
42:25
would be also invited to those dinners. We do closing dinners and we share kind of stories from the process and you know
42:31
we celebrate together and you know and this is a lifelong friendship afterwards you know I totally agree.
42:39
Yeah. Yeah. I mean, if they’re at 10 million ARR exiting at a four to five to
42:45
potentially as much as 9x multiple, that’s, you know, a life-changing exit event. So I’m always curious to ask at
42:52
that dinner table what was the impulse buy they make kind of exit and kind of
42:59
one interesting uh thing that I heard it was I think four founders two of which
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bought the same dinner table which was kind of I found very very funny without knowing each other buying the same
43:10
dinner table that was kind of a high-end uh wood dinner table they ended up paying the same thing and we bought the
43:16
closing dinner which is funny yeah how many of your clients bought a yacht. I’m just curious. Well, one bought a, you
43:23
know, a ticket to the space um kind of I think it was like a million dollar ticket or something. He sold that
43:29
business for about 100 million. Two brothers. So, yeah, that that was No
43:35
yachts yet though. It sounds like I haven’t heard of a yacht. I heard houses and you know, again, the most
43:41
interesting one was dinner table. Dinner table. Huh. Interesting. Yeah, I love I love that question. I think I’m going to
43:46
start asking that on the show like um yeah, what’s the most interesting thing that you what’s your impulse buy? I
43:52
think that’s going to be the question. I love that actually. Um me as an advisor, mine is a little you know a good cigar
43:59
and a good glass of whiskey, you know, that’s celebrate the nice transaction.
44:05
Do you guys do deal toys? Have you heard of these deal toys before? We do deal toys. We we we share it, you know, with
44:12
our clients and advisor surrounding the transaction as well to kind of memorize
44:19
uh the the good the good deal more physically in the future. Yeah. Like a
44:24
little trophy case essentially. What are some other mistakes that you
44:29
see founders making that you think is important to to call out specifically
44:35
and especially, you know, mid deal? It goes back to kind of to be stayed focused on
44:42
on revenues and delivering kind of the on the budget. You know what I’ve you
44:48
tried to avoid uh from my client’s perspective and obviously it’s outside of our control is the business momentum.
44:55
In an ideal scenario, you would be hitting if not beating the budget that
45:01
you projected at least for the next 12 months. You know, in my approach, I
45:07
don’t really focus on the next 3 to 5 years. I I I think it’s really hard to predict. It almost became more of an
45:13
academic exercise to forecast 3 to 5 years. But the next 12 months is key in
45:19
an M&A process. And you know, I recommend all my clients to just be
45:24
ready to just purely focus on the business for those 12 months and beat your budget that we mutually communicate
45:30
to potential parties. um and ideally avoid any negative press um and any kind
45:39
of surprises along the journey. By surprise, what I mean by is I I had a
45:44
mobile gaming client and kind of um despite our advice, they they decided to
45:50
launch a new mobile game in the midst of a process. M and obviously whenever there’s a new product coming into the
45:57
market in the midst of a process all the buyers are interested in its performance
46:02
it’s like and in mobile gaming it’s more closer to like you know entertainment like a movie can be a blockbuster movie
46:09
or you know it cannot have the same results that you anticipate. So it
46:15
just long story short the the app the new app didn’t perform as well as the
46:21
previous apps. So it kind of took away from the credit of the previous success story of the previous
46:27
games and such. We ended up kind of housing the process and like relaunching
46:33
it in about kind of 12 months once that kind of time has passed. So any key
46:38
product launches etc ideally would be either before the process or kind of are
46:45
planned for after the exit. That’s a great piece of advice right there. Just as a last question to conclude the show,
46:52
really appreciate you coming on. You’ve shared a lot of really valuable information and I’m I’m looking forward to having, you know, people be able to
47:00
connect with you as a result of the show. One of the things that you mentioned is one of the benefits of
47:06
working with you as you know a banker and an advisor is you see what’s coming
47:12
in the market, you know, in the next 6 to 12 months essentially in terms of what buyers are looking for. I’d love
47:18
you to just speak, you know, to that a little bit and what are you seeing in terms of market trends for the next 6 to
47:25
12 months? Yeah, definitely. That’s one aspect that a lot of funers I think
47:31
actually are not paying as much attention to. So like yeah, you know, one common perception that I’m seeing is
47:38
everybody’s focused mostly on what’s good timing for me and like when I want to transact. But what you need to
47:45
realize is it’s equally important what’s a good time for the buyer because you
47:51
your most likely acquire let’s say you know our handful of them out there. What
47:59
if they are in the midst of acquiring another business and their hands are tied in the time that you want to hit
48:05
the market or they just acquired one of your competitive. So like there’s a lot
48:10
of and I hear this all the time where we we we launch a process and you know
48:17
reach out to potential parties and one of the most common decline rationale is not actually an this is this product or
48:23
this company is not a fit to us. It’s mostly hey we do agree this company fits
48:30
well to us but we’re just timing wise is not a good time for us. are they open to kind of opening up the dialogue again in
48:37
about six months or nine months. So that is why I I suggested earlier to reach
48:44
out to us or advisors kind of maybe 6 12 months in advance of the ultimate exit time frame
48:51
that you want to kind of get there so that we have enough time to pre-market what I would describe pre-market the
48:57
business without pre-communicating the businesses on sale but like introducing
49:02
you to the potential acquirers because you know large organizations it’s really
49:08
difficult to get all of the key decision makers into a room to meet here for 60 minutes. So very occasionally we break
49:16
that discussion into a series of meetings. One meeting with their CFO and corp dev team, another meeting with
49:22
their kind of CTO and the product team, another meeting with their CEO. So like
49:27
those meetings getting those calendar you know takes time and effort. So like the the sooner the earlier someone kind
49:35
of engages with us and and start those efforts at the the highest likely high
49:40
likelihood of success we can expect to have. Great piece of advice. Love that. And I think that’s where we’re going to
Conclusion and Contact Information
49:48
conclude the show. So Okan everyone Okan and Nate at
49:53
Comap Broker advisor banker works with SAS businesses. Really
50:00
pleased to have you on the show Okan. Thanks so much for joining. You’ve shared a lot of really valuable information. Thanks for having me and
50:07
yeah, great talking with you. Absolutely. And for everyone out there, this has been another episode of the SAS
50:13
Buyers Club. Thanks so much for watching. Okan’s contact information
50:18
will be in the show notes below. I’ll be linking his LinkedIn. I’ll link comap’s website and you’ll be able to
50:26
reach out to him that way. As always, thanks so much for joining. Make sure you like, subscribe, comment, let us
50:33
know what you got from the episode. Let me know if there’s anyone that you would like to see on the show and we’ll see
50:40
you next week.