I like how detailed this story is - you rarely have a chance to be a "fly on the wall" during the acquisition process. Especially being able to know the exact numbers is very uncommon. One thing I found the most surprising is the valuation. The company seemed to have a strong PMF in a niche market, reflected by getting to #1 spot on HN, and selling out all products right away. He shared benchmarks for other companies in that category and apparently his valuation has fallen within that range. Yet - from purely financial standpoint - he'd probably make +/- same amount of money working at Google.
> he'd probably make +/- same amount of money working at Google. > The company seemed to have a strong PMF in a niche market, reflected by getting to #1 spot on HN The reality is much harsher than the crypto hype bullshit we're used to. He says that validation was a 3x multiple of annual revenue, which probably makes sense because I imagine that's how long he took to build the product for a specific price, so valuation factors in that risk as in "how much Am I willing to pay for that company so that, in the worst case, I can exit all my investments," and it happens to be that most people's answer is "3 years." Also consider this: In 3 years, someone can probably build a competing company and take all the market's revenue. Also, if you look at current market multiples, you can clearly see that this way of thinking has yielded to mania. E.g. Nvidia's earnings to valuation multiple is 25x. But remember, back 25 years ago, graphics weren't even really a thing, so how can people take the risk that is 25 years in advance? I guess one answer is that Nvidia is a liquid stock so exiting is quite easy. That's, most likely, also the answer to why crypto valuations are so high. Still, it just shows how ridiculous it is.
We definitely live in a bubble. I have friends in "traditional PE," where they buy factories, commercial real estate, power plants, and so on, and they are always amazed by the tech valuations. Some of that comes from the fact that tech is more scalable, which means it can theoretically grow exponentially at some point. So, e.g., SaaS businesses often have 5-10X multiples compared to 3-5X for (still pretty high-margin) service companies. But crypto and AI seem to be playing in a different valuation league. This suggests that if a founder optimizes for a fast and juicy exit, they should build in this space.
what a great and detailed story! I think in general, SaaS tool is not easy to sell, in certain region, such as Asia. But the story is very different in the U.S or potentially in Europe. But I think the most valuable thing from selling the SaaS biz is the talent, okay maybe not the founder, but employees followed the tiny SaaS's grow would be extremely valuable for the acquiring company.