I sold ReferralHero
Exactly 6 weeks ago I sold a business I've worked on for 5 years.
5 years is a long time for everything but for an online business is almost eternity.
It's been a hell of a ride.
Started as a side project while working on another startup, I saw it scale to thousands of customers and million of $$$ generated for them. But I almost gave up many times and often struggled with the stress of being a solopreneur.
I'm immensely proud of this journey. This business helped me travel the world, buy my first house and it has become, to some extent, part of my identity. In many ways it has made me the man (and entrepreneur) I am today.
Folks have asked me a few questions about the process of selling a business, my emotional state and what I'm going to do next so I'm collecting the most common ones here in an FAQ format, starting from the most popular one...
How much did you sell ReferralHero for?
ReferralHero was sold for... just kidding, I can't share it publicly. The sale price is sealed under an NDA and it will stay a secret :)
Who did you sell it to?
I'm afraid this is also something I can't disclose. What I can say is that the new owner is an individual with 3 other companies in the ecommerce space.
Why did you sell it?
Two reasons: first, after 5 years it was time to move on; second, my other business SparkLoop (more about it later) was taking off and running two businesses at the same time while also juggling a newborn was simply too much.
Did you try to sell the business directly?
I did!
I listed the business on MicroAcquire and got a lot of interest. Unfortunately MicroAcquire doesn't have any built-in way to filter out time wasters (which is the vast majority of people) and so since I didn't have much time (my son was only a few weeks old) I decided to go with a broker.
Who did you sell it with?
The business was sold through FE International, a globally renowned M&A advisor that specialises in SaaS businesses. I was invited to the LTV Conference in London (run by FE) back in 2018 and there I met Thomas Smale (the CEO).
Fast forward two years I start thinking about selling the business and FE is the first option that comes to mind (talk about the power of networking!)
I reached out to them in January (2021) and after sharing my financials I immediately got a professional valuation of the business.
What does the process of selling a business through a broker look like?
After signing a "Letter of Intent" I was sent a link to a thorough survey that went through every aspect of the business, including listing all the expenses, marketing channels, number of customers, financials, tech stack, legal, etc. Completing that survey probably took me around 3 hours.
They also asked me to send bank statements for the last 12 months and access to various services to verify numbers, like revenues in Stripe and traffic in Google Analytics. The due-diligence process took about 10 days. They were extremely thorough and every single entry in the last 12 months was scrutinised.
Once the due-diligence was over, they created the marketing prospectus using the info from the survey. The prospectus was sent to their email list of almost 100K verified investors.
Dozens of people showed an interest and FE vetted each of them ensuring I only spoke to the most qualified buyers. At the end, there were 3 offers on the table. One was clearly better than the others but still not quite what I wanted (I wanted more upfront money and less support).
My advisor at FE recommended I negotiated on only one thing so I asked for more money upfront. The buyer was very easy-going and agreed right away. All in all it was a very quick and smooth negotiation.
Once we agreed on the numbers we moved to the buyer due-diligence phase where the buyer had 2 weeks to review all the financials and make sure everything was correct.
After the buyer gave the green light it was show time.
We used Escrow.com to coordinate the exchange: the buyer sent the money and I transferred the domain (more on this later). Once the money was deposited and the domain transferred (this can take up to 10 days), I started handing over all the assets, like the source code and login details to the various services, to the buyer. This took another 10-ish days. It could have taken much less but it turns out that transferring a Stripe account that is setup with a UK company to a US company is a massive pain in the butt. After all this was done and the buyer was happy, Escrow transferred the money to my bank account.
Finally there was the training period.
It's quite common for these sales to include a couple of weeks of training for the new buyer. In my case it was up to 7 hours a week for 4 weeks. I actually ended up doing way less than that because the buyer felt comfortable after only a couple of weeks.
Would you use FE International again?
FE takes a 15% commission on the sale price which is significant (depending on the size of your business could be several tens to hundreds of thousands of $$$) but in their favour they made the whole process super smooth and, most importantly, took care of the most time consuming part of selling a business: dealing with interested buyers.
I instructed them I wouldn't entertain conversations below a certain amount and they vetted each interested buyer, sent them the prospect and checked their financials to make sure they actually had the money.
In the end I only talked to 3 interested buyers. If you don't have much time like I did, this thing alone is probably worth the premium money they charge.
(PS: I was not paid by FE International to say this. This is the honest account of my personal experience)
What were the terms of the sale?
85% cash upfront and 15% over 12 monthly installments.
4 weeks of support to the new owner capped at 7 hours per week.
During the 12 months the domain is held in escrow. If the buyer fails to send the monthly payment the domain is automatically sent back to me which is pretty neat.
Were you happy with the terms?
I wasn't overly enthusiastic about the 12 monthly installments but this seems to be the norm. Some of the less serious buyers offered an earn-out period tied to revenue milestones which I was not interested in. As far as SaaS deals go, the terms of my deal were not too bad.
How was the business valuation calculated?
FE uses a proprietary valuation model and then a team who manually work on it to calculate the multiple for each business based on dozens of factors such as your MRR, churn rate, growth rate, number of customers, etc. ReferralHero's multiple was calculated at 4x the trailing 6 months of Seller Discretionary Cashflow (if you're interested in learning more check out this article).
How did you prepare the business for a sale?
The best thing you can do to prepare the business for a sale is to make it as independent from you as possible through automation or delegation. Many buyers will only consider businesses with a team in place (that will stay post-acquisition).
Luckily for me I had already automated the vast majority of the business operations over the years. Indeed, I could easily go weeks without even looking at the business and everything just kept working.
The only exception was customer support. I was still replying to all tickets myself so I hired a person to take care of that for 1 hour a day.
How does it feel to sell your business?
It feels... weird.
On the one hand, I'm glad I sold it. I've split my time and focus on two businesses for too long. Also, family is important to me and I want to be a present dad for my son.
On the other hand, it's strange not to have to think about something I've literally spent the last 5 years worrying about every single day.
The money aspect is also interesting. While I didn't sell ReferralHero for a life-changing amount of money, it's still enough not to have to worry about money for a long time and for someone like me who doesn't come from a rich family it's basically the same :)
What was the first thing you bought with the money?
The first thing I bought was a weekend away in a luxury Spa hotel for me and my wife. She has been the best partner an entrepreneur can hope for, my emotional rock through all the ups and downs. This exit is as mine as it is hers.
What now?
Now I will finally be able to dedicate 100% of my time and attention to my other business, SparkLoop. If you want to grow your email list 20-50% faster you should really check it out.
What's next for ReferralHero?
I left ReferralHero in very good hands and I'm fully confident the new owner will take it to new heights. If you're an existing customer there's nothing you need to worry about: everything will keep running exactly as before. If you are an ecommerce watch this space because exciting things are going to happen... 👀
Coulda/Shoulda/Woulda/Buddha?
Yes, there are a gazillion other things I could have done. I could have hired an operator to take care of the day-to-day. Or I could have automated everything and enjoyed the profits.
But ultimately there's a time and place for everything in life and my time with ReferralHero was over.
Now, let's get back to work.