If you’re a SaaS founder, your inbox is probably flooded with emails from people you don’t know who say they want to buy your company. It can be time consuming and complicated to sort through which ones are worthy of a response, if any. The key question to ask yourself is what value you might get out of the time invested, which starts by trying to understand who is on the other side.
How Do I Know Who is Worth My Time?
Most of these emails will feel generic and read as if it was sent to the masses. Candidly, most of them are. No matter what your goal is, you’ll want to prioritize those that cared enough to show you what they know (or more accurately think they know) about you, your company and your market.
A few questions to ask yourself:
- Did they put the effort in their email?
- Did they do anything to stand out?
- Did they have a take on your company?
- Does the person reaching out seem to be a decision maker?
These are probably the emails you’ll want to come back to. Even if you’re not interested in selling your business right now, having conversations with these folks can be good to keep a pulse on the industry.
Understanding the Different Types of Buyers
Now that you’ve found the emails that stand out, let’s talk about how to know what kind of investor they are. At the highest level, there tend to be three types of buyers. Each type of buyer tends to offer something different from one another, so it’s important to identify what is right for you.
1. Individual Buyers
An individual typically looks to take over a business for his/herself, without necessarily having to start one from scratch (like handing off a baton to a teammate). They may have had an exit in the past or previous experiences that makes them feel uniquely qualified to add value. While there are numerous reasons for an individual to purchase a business, they will generally be in control of the business and be very involved in running the business and keeping the profits.
The downside of individual buyers for you is they’re more likely than not only looking to purchase one company. When that is the case, they typically “kiss a lot of frogs” to find the right fit, meaning they may not actually be the best use of your time given their lower likelihood of actually completing an acquisition with you.
2. Strategic Buyers
Strategic buyers generally operate a company in the same or related industry as yours. They often look for businesses that can be quickly integrated with its main operations or opportunities where they can expand their product or market offering. Most often, they are thinking of investment opportunities that bolster growth for a longer period of time. Think of Coca-Cola buying Powerade. Coke already has the distribution channels and just needs to acquire additional products to sell through their established channel. In software, the largest strategic acquirers over time have been Oracle, SAP and recently Salesforce.
Since they aim for the same product or industry, they often have deep experience in the industry, but rarely actually know much about your business in particular. That tends to be what leads to the failure of the integration of the business post-acquisition. Many strategics think they can approach every acquisition in a “one size fits all” type of mentality, when in reality, that is often not the case. Founders typically feel a loss when selling to strategic buyers because it most often means their brand, and potentially people, cease to exist. Strategic buyers used to have an edge over our next category of buyers by being able to claim they could pay the highest price, but in recent years, that has not always been the case.
3. Financial Buyers (PE, VC, etc.)
Financial buyers include Private Equity (PE), Venture Capital (VC), family offices and more. Fundamentally, Financial buyers look to generate a return on investment (ROI) for the institutions or individuals that have given them money to form their fund. The financial buyer invests the fund into companies in the hopes that they can one day sell the companies they acquire for more money down the road. How they do this has historically given this general category, specifically Private Equity, a negative reputation.
Within software, the typical Private Equity firm has drastically improved the category’s reputation by being more synonymous with growth, further investment, and professionalization. Those three aspects typically form the Financial buyer’s “playbook”, which is meant to demonstrate their ability to systematically generate returns for their investors. Oftentimes, it’s continuing to invest in what has made the company successful historically. Financial buyers often sell businesses between one another as well.
Reading between the lines when it comes to differentiating buyers
The differences between buyers isn’t always cut and dry. Sometimes you’ll find a financial buyer is also a strategic buyer, called a “sponsor-backed strategic.” These buyers are a financial buyer who has already acquired a company in or around your industry.
After selecting the buyer type that is right for you and their email passes your sniff test, it doesn’t hurt to get on the phone with them. Through these conversations, you’re able to learn more about what they bring to the table that might help shape your plan for the business.
Pro tip: You don’t have to respond to these emails right away. Create a folder in your email where you can store these for the time when you are ready to have these conversations. Most of them will still want to talk to you when it’s right for you, so don’t feel pressured to talk only when it is right for them.
So, Why Should You Answer a Few Emails?
If you’ve considered selling your business at some point in the future, it can’t hurt to get on the phone with buyers sooner rather than later. You can learn a lot from these conversations that will better inform what steps you need to take in order to successfully sell your business when you eventually make that decision.
Asking questions now can help inform the decisions you make about your business in the coming months or years to drive the most value for a potential exit.
Ready to respond to a few of those emails? Check out the 7 Questions You Should Ask a Potential Buyer.