How to Sell Your SaaS Business: The Ultimate Guide

As a SaaS company founder, you’ll eventually find yourself at a pivotal crossroads: Should you continue to grow your business, or should you exit the company and turn the reins over to a new owner? If you choose to sell your SaaS business, get ready for an adventure like no other—one that could pay off handsomely if you approach the process thoughtfully and strategically.

As former tech entrepreneurs and company founders, the principals at ScaleView Partners have walked this road. And in the process of selling our own SaaS company, we learned a lot about what buyers look for in a quality tech company. In this guide, we share our experiences, insights, and best practices for selling a SaaS business. Read on to discover a blueprint for your own success as you prepare to sell your successful SaaS business. 

Table of Contents

Why Sell Your SAAS Company

There are many reasons SaaS entrepreneurs like you decide to sell their businesses.

  • You’re ready to retire. After working tirelessly as a founder for years, investing your own money, and taking on countless risks, your sacrifices are now paying off. You might feel the time is right to sell the company so you can retire and focus on personal pursuits. 
  • You want to cash out and invest in a new venture. After all, you are an entrepreneur, and other innovations and markets are starting to call your name. Unlocking the value that you’ve created in your current business may be the best way to fund your next venture.
  • You want to diversify your net worth. If you’re like many SaaS company founders, the value of the business makes up the lion’s share of your net worth. As the company grows, you might feel there is just too much money locked up in one asset. You’d like to diversify by selling the business and using the payout to invest in other assets.  
  • You prefer to build the product, not the business. SaaS companies often are built by founders who started life as technical professionals. But while you may have been the mastermind behind your tech solution, you may not enjoy leading teams, courting customers, balancing budgets, and reporting to investors. 
  • You need help taking the business to the next level. Hitting that major milestone of your first $1 million in annual revenue is tough enough – so is getting to $5 million, $10 million, and so on. As you’ve surely experienced over time, each successive milestone can be more difficult and more complex to attain—often requiring capabilities and other resources you don’t have. At some point it may be time to turn the business over to a buyer that can invest in what it takes to move the business forward to the next big milestone.

Setting Your Exit Strategy Goals

As you consider whether to sell your company, you have some important questions to ask yourself:

Giving careful thought to the answers will help you envision what an optimal deal looks—beyond just a specific headline number—before you begin a competitive sale process.

In setting your exit goals, you might also be wondering whether this is a good time to sell your SaaS business. Since the decision to sell a company is personal and complex, involving both financial and non-financial considerations, there is no one-size-fits-all answer. However, two factors make it a good time to consider selling your SaaS company.

  • The SaaS industry is expanding. According to industry data, the SaaS industry is projected to grow by more than 17% in 2022. Companies with more than 1,000 employees typically use 150 or more SaaS applications, with SaaS products making up approximately 70% of total company software use, and the value of annual SaaS contracts is rising rapidly.
  • SaaS applications are highly valued. There are good reasons so much corporate spending is going into SaaS technology. Cloud hosting enables companies to optimize their agility, scalability, and velocity, while realizing tremendous economies of scale. As a result, those that deploy SaaS applications bring innovation to market 20 to 40% faster than companies that don’t, according to a McKinsey study.

While external factors like the state of your industry should never be the sole driver of the decision to sell the business (as we explore in this blog), the fact that the SaaS industry is growing means your business may be more likely to attract investor attention than a company in an industry that’s contracting due to inflationary pressures or other headwinds.

Determining the Value of Your SAAS Business

You’ve probably noticed that big publicly traded SaaS companies often command high P/E or revenue multiples on Wall Street, even in today’s volatile stock market. But what does that mean for your SaaS company’s market value? 

Determining what your SaaS business is worth to investors—your company’s valuation—often involves examining two types of data:

  • Public comps. Investors often look at public companies that are similar to your business as a starting point for valuation. Seeing how comparable companies (“comps”) are trading can help you get an idea for how investors might consider valuing your business – it is easy to look at how publicly traded SaaS companies are being traded as a multiple of revenue or EBITDA.
  • Precedent transactions. The other common way to value a SaaS business is to look at investments in or acquisitions of companies similar to yours. This is sometimes public market data, such as when a public company is acquired or when a public company acquires another business and reports the financial details in its filings. Often however, private market data is the richest source for precedent transaction analysis. Private equity funds and other investors are likely to utilize proprietary data sources to understand where similar deals have been completed.

Understanding Who Might Buy Your SAAS Business

Prospective buyers for your SaaS business come in various forms.

  • Strategic buyers are typically companies that operate in your industry and could even be direct competitors. This type of buyer is likely looking at an acquisition as a pathway for expanding its market footprint and product offering. 
  • Private equity (PE) firms often buy out privately held companies, infuse them with cash from their partnering investors, and resell them down the road at a profit. If you sell to a PE firm and roll forward some of your equity, you might get a second payout (often called a “second bite of the apple”) when the PE firm sells the company later. 

  • Family offices manage the investments of high-net-worth individuals and often take a majority share in privately held companies they believe will deliver a healthy return on investment.

Optimizing Your Business Valuation

Before you approach the capital markets as a seller, you’ll want to ensure you’re increasing and optimizing your business value so you can attract the strongest offers possible. It’s all about quantifying your business’s success in a way that tells a compelling story about your current and future performance.

To strengthen your story for potential buyers, pay close attention to the key criteria buyers look at when evaluating a potential target company. 

This is probably the most widely used metric to determine a business’s potential. Strong revenue growth speaks to your company’s innovation, stability, and brand affinity among customers.

How well your company can generate earnings by managing costs against revenue is a key indicator of its current health and future potential. 

As a SaaS company owner, you understand the power of innovation and the value of delivering that innovation through a strong and growing product line. A well-planned and well-executed product roadmap is the foundation for ongoing success and a key consideration for potential buyers.

Even if you plan to exit the company post-sale, investors might want assurance that the operation will be left in the capable hands of an experienced leadership team, both during the transition and ongoing. Be sure to articulate which managers are key assets to the organization and document their roles.

Investors will evaluate how diversified your customer base is in determining how much revenue concentration your business is exposed to. For example, does a single customer or small number of customers have a substantial hold on your revenue stream? Or do you have a broad, stable customer base that demonstrates strong adoption in the marketplace? Investors are likely to put a premium on a business with a diversified set of high quality customers.

The churn rate is a measure of the number of customers (or revenue) that leave your company during a given period.  A low churn rate tells investors that your business is healthy and stable, while an excessive churn rate signals there are problems, either internally or externally. 

Investors prefer SaaS businesses with a relatively low cost to obtain new customers and a high lifetime value of each customer, as this implies that you can profitably acquire new customers through sales and marketing channels. 

Preparing Your Company for Due Diligence

If you’ve decided it’s the right time to sell your SaaS company and you’ve taken steps to optimize your valuation, you should now begin to prepare for the rigors of due diligence before you begin a competitive sale process. The most interested buyers will scrutinize every aspect of your business, and the more prepared you are for their close examination, the smoother that process will go. Better preparation also greatly improves the odds that you’ll get a successful deal over the finish line.

Steps like these will help you get ready for due diligence as a seller.

Get Your Financials in Order

You’ll need to compile the financial statements and reports investors expect to review. Be prepared even to show past tax returns, along with several years of income statements, balance sheets, cash flow statements. Make sure your internal controller or CFO or external CPA or audit group is on top of all the data and can quickly present information in an organized and digestible way to a potential buyer.

Be Sure You’re Tracking Relevant KPIs

According to EY, there are additional key performance indicators (KPIs) that every tech company should track (beyond those noted earlier), and most are high on investors’ priority list when evaluating SaaS companies. These include: 

  • Number of active users and metrics on their engagement with your product
  • Burn rate (the rate at which you’re spending to fund your operations)
  • Conversion rate (the percentage of leads that turn into customers)
  • Customer lifetime value (the value that a customer represents to your business, expressed in dollars, over their entire lifecycle of doing business with you) 
  • Number of new leads and new customers generated over various time periods
  • Operating costs as a percentage of revenue
Gather Key Documentation

Investors will ask to see your contracts with key customers, vendors, distributors, and other significant partners, along with documents (including patents) that show your intellectual property is secured. Gather all certifications related to industry standards as well, such as ISO, and any documentation that verifies your compliance with regulatory requirements.

Bolster Your Strategic Plan

Now is the time to update your strategic plan and ensure it provides investors with good visibility into what it will require to take your business to the next level based on the building blocks you already have in place. Include a SWOT (strength, weaknesses, opportunities, and threats) analysis and a product roadmap and identify the resources required to drive future innovations and accelerate growth.

Why You Need an Investment Banker to Sell Your SAAS Business

As a business owner you may be used to going it alone, but you also recognize the value of an experienced advisor, especially when they bring expertise outside your own skillset. When it comes to a transaction as complex and life changing as selling your SaaS business, it’s to your advantage to enlist the help of an experienced investment banker. 

Founders are often tempted to handle the sale process themselves, especially if a potential buyer comes knocking on the door unprompted. But taking on the unfamiliar and complicated process of selling a company yourself comes at a high price. At a minimum, this arduous process will take your time and attention from the all-important responsibility of running your business and can cause you to miss hitting your numbers in the short term. In the worst case, you might feel compelled to follow through with a deal that isn’t ideal simply because you’ve invested so much time and effort, or a deal in the making may fall through entirely.  

Partnering with an investment banking firm allows you to keep your focus on running and growing the business while experienced professionals who understand the nuances (and land mines) of selling a company manage the entire competitive sale process. Your investment banker will be involved in everything from creating demand for your business and showcasing your compelling story, to identifying and attracting the ideal buyers, determining and increasing your company’s valuation, negotiating the best terms, and helping you navigate the due diligence process. 

In addition, teaming up with an investment banker positions you to achieve a better outcome. Typically, an investment banker will be able to secure a higher sale price and better deal terms that meet your financial and personal goals. And working with an investment banker greatly improves the odds that the transaction will actually close, as these professionals know how to keep the process moving forward on a timeline that reduces the risk of unforeseen issues thwarting the deal.

For more details on why it pays to work with an investment banker and what to expect of the process, download The Founder’s Guide to Working with an Investment Banker.

Finding the Right Trusted Advisor

As you evaluate investment bankers to handle the critical task of selling your SaaS business, you want to be sure you’re choosing the best partner for the job. For the optimal results, look for an investment banker that meets the following criteria:

  • Is well versed in both the SaaS industry and the M&A market
  • Brings a proven track record of selling businesses, especially technology companies
  • Has led, scaled, and sold their own entrepreneurial ventures, perhaps even their own SaaS businesses
  • Possesses a strong network of contacts with buyers of various types (including strategic acquirers and PE groups)
  • Is the right sized firm for your needs (ensuring you don’t get lost in a big bank environment and your deal gets the attention it deserves)
  • Employs a proven process for getting a successful deal done, customized to each seller’s needs and goals
  • Can guarantee that your transaction will be handled by experienced partners, not just passed off to junior employees once you have signed an engagement letter
  • Is adept at helping businesses enhance shareholder value prior to a sale

Preparing for Exit

Once you’ve made it through the competitive sale price, accepted an offer that meets your personal and financial goals, and signed on the dotted line, you must be prepared to exit the business smoothly. That requires a strategy and a plan that reflects your own objectives post-sale and those of the new owners. 

As this is the company you built, you have a personal and reputational interest in seeing it continue to thrive under its new leadership. So, make sure you come to a formal agreement with the buyers about how much involvement, if any, you’ll have in the company going forward. You also need to consider the transition period and how new ownership will impact employees and customers. Preserving the value you have delivered to stakeholders all these years should be a strong focus for everyone involved.

For instance, you’ll want to make sure the news of the sale is disseminated in a way that answers questions for all stakeholders, speaks to how the transaction will benefit them, and provides assurance that impending changes will help drive more innovation, create new opportunities, and deliver greater value to employees, customers, and other stakeholders.  And if you’re contractually obligated to serve in an operational or advisory role for some period, be prepared to fulfill this commitment in earnest, knowing that your support will help ensure all your past work translates into future company success.

Why ScaleView is the Right Partner for SAAS Businesses

As former SaaS company founders who have since helped owners of tech companies and other ventures achieve successful sale outcomes, ScaleView is the ideal investment banking partner to guide the sale of your SaaS business. 

We bring the unique perspective of founding, scaling and selling a SaaS company, as well as completing deals as investment bankers, sourcing and closing investments at PE firms, and executing technology M&A at a strategic acquirer. That means we understand the challenges you’ve faced in starting and growing your business and how life-changing the sale of that business can be. You might only start and sell only one company in your lifetime, so it’s vital to get it right.  

ScaleView works closely with the founders of top companies who are eager to achieve optimal sale outcomes. To learn how our proven approach can help you achieve your goals in selling your SaaS business, contact us to schedule an introductory call.