Great content and perspective. I would say (and fair warning, this is obviously biased as I run one of the investment banks that specialize in B2B SaaS M&A between $2-20M ARR - Discretion Capital), this:

"Now should you hire a banker when there is no actionable inbound interest and you have no prior relationships? I would recommend no, as in such a case bankers would typically rely on their network of Corp Devs and present your company to a laundry list of potential companies that likely have nothing to do with your space or business or you have no interest working for."

..is not how a great banker that actually does deals in the revenue size and market you're in would act. I can see how a "too large" a bank where you're small fry, would do this, but eg in my space ($2-20M ARR), the key job of your banker is to reach out to whomever would pay the most for your business, not just their corp dev buddies they happen to have existing relationships with.

That's not easy - there are 1000+ repeat software buyers with various portfolios and all kinds of timing constraints, and that's even before considering true strategics (in my range, the buyer mix is 70% PE or PE owned, 20% strategics and 10% other).

Typically, for a proper process, you'd want to see 100-150 (well sourced and properly targeted) potential acquirers. If they're just sending you to a handful of corp devs then they're not taking your business seriously and you should get another banker.

What does it take to get a good outcome in the 2-20m ARR exit space?

When I read PE multiples in the 3-5x ARR range, it seems like a fire sale compared to valuation prices. At 3x, you might just be giving it all back in liquidation preferences.

Am I missing something, or is this just founders who are sick of running the business and want to do something else, or are there lots of capital efficient companies in this range where 3-5x revenue is a good deal?

So transaction multiples for us tend to be 5-8x (higher over $10M ARR), with outliers to 15-20x+

But the bigger issue is what you’re alluding to - lots of founders don’t really understand what doors they’re closing when raising a shit ton of cash. If you’ve raised $100M and are worth $50M, not a lot of good outcomes come easily (though I have helped a couple of founders navigate those waters too. Not always successfully)

Fact is - there are many more $50-200M outcomes than $1bn outcomes and if you’ve raised yourself into a corner where you don’t make any money unless you hit $1bn, well then better hope you took some secondary during fundraising.

The disconnect between these and venture multiples is still kinda crazy. Selling secondaries looks quite attractive in comparison.

Thanks for that perspective, Einar.

I agree that good bankers are hard to come by and unfortunately most simply forward decks to a broad list, and they won’t get founders the outcome they deserve. My point was more about readiness for a sale. Having gone through it, I’ve come to believe there are certain prerequisites for even kicking off a process, primarily business fundamentals and pre-existing relationships.

In my experience, a banker can amplify an existing market, but they can’t create one from scratch (at least not easily).

For example, in our case we had roughly six serious inbound inquiries before engaging bankers. While our bankers (and they are great) ran a broad discovery process and put us in front of many potential acquirers, the eventual buyer was one that reached out to us unsolicitedly rather than being introduced through the process.

Yep couldn’t agree more that prep is important. And yeah often someone coming inbound is the most keen (though they still need managing to get the biggest outcome in my experience).

I’m actually working on a “Definitive Guide to M&A to B2B SaaS between $2-20M ARR” (first few chapters on discretioncapital.com/guide), would love your feedback on the draft of the rest given your experience. Email me if you want to take a look: einar@discretioncapital.com

The problem I’ve heard about small deals is that the bankers want a larger percentage. Can you comment on that aspect?

Depends on who you talk to, 3-5% of total deal size plus a retainer is the norm

Yep. More the smaller the deal. Sub $1M ARR, it can be 10-20%

I do deals a fair bit larger than this, and so am obviously biased, but while this sounds appealing, the fact is that only once or twice out of the couple of dozen times I’ve heard back from founders that decided to DIY their M&A have I not thought to myself “you got taken to the cleaners”.

The buyers on the other side are professional buyers. They get promoted by buying great companies for as little as possible. Most founders will only ever sell one business, if that. Buyers don’t care about their reputation with you, they do care about their reputation with a banker they may interact with multiple times.

Agree with this. Been on quite large deal teams in non-tech. We always made fun of the lawyers and merchant banks. They bring dozens of teens to do chores, sit in on meetings where serious business is conducted (best one was 2x4 people talking in a room with 60! people in silence in Teams) and generally do nothing that is of any value to us serious business people considering the deal. At the end of the period where we’ve worked our asses of creating possible avenues of value, both the contracts and financial arrangements materialize out of thin air. This is boring paperwork of course, so we keep on joking about the absence of value added and the fact that we pay them hundreds to thousands of euros per hour to get us coffee. (This started out as a cynical post, but this is I think how it is. They add unseen value, transactions are closed without legal and financial snags, and we deal-makers should be thankful for that. You can’t spend a week pissing on commas in a contract if someone hasn’t written it first.)

This is cool, but it is not obvious to me if this is a web app or a native Mac or what - some screenshots, a video or at least a description of how and where this runs would be helpful to get people over the hump of doing the signup I suspect.

Thanks! And gotcha, apologies that it was unclear! DryMerge is a web app that runs in the browser, here's a demo video of it: https://youtu.be/S4L3B21vXGY.

I’m one of the co-founders of TinySeed (and a YC alumn). Happy to answer questions - we’re opening applications Sept 4th

My question: why was my application denied (twice)? I'd love to get more detailed feedback.

We get a lot of applications so it’s impossible to give detailed feedback to every rejection unfortunately. The main reason we reject are: 1. not B2B SaaS 2. No revenue 3. Churn 4. Atrocious cap table.

You know, if you don’t understand something, it’s totally fine to not immediately comment with whatever your political instincts tell you something might mean.

Or perhaps you have some fresh insight on how the Section 174’s changes (only passed to make the 2017 tax bill revenue neutral) on amortization rules meaning only being able to deduct 20% of salaries in the year paid is in fact totally fair and how maybe all salary deductions should work like this?

That is amazingly cool.

Hey, I'm the co-founder of TinySeed (and also a YC alumn), would be happy to connect: einar@tinyseed.com

For the same reason PG proposed turning HN off “during office hours” several years back

Main one missing from Norwegian is “harry” in my view.

It means. Ehm.. not cool, specifically in a sort of crass/low brow kind of way. Like I said, hard to explain.