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Startups For the Rest of Us

Episode 827 | The Founder's Guide to Selling Your SaaS for What It's Actually Worth

40 min episode · 2 min read
·
Einar Volset

Episode

40 min

Read time

2 min

Topics

Investing, Startups, Fundraising & VC

AI-Generated Summary

Key Takeaways

  • Buyer landscape reality: 70% of B2B SaaS acquisitions between 2 and 20 million ARR are completed by private equity buyers, either as platform acquisitions or tuck-ins to existing portfolio companies. Only 20% are strategic buyers. Founders who only approach competitors miss the dominant buyer pool entirely and typically receive far lower offers as a result.
  • Tuck-in valuation advantage: Private equity tuck-in buyers frequently outbid strategic acquirers because a target company solves a specific capability gap in their existing portfolio. A 5 million ARR business can sell for 15x ARR to a PE-backed platform that paid 3x ARR for its own acquisition, making tuck-in positioning a concrete pricing lever.
  • Growth rate as the primary valuation driver: Annual growth above 25% correlates with multiples of 4 to 6x ARR. Dropping below 25% growth triggers a buyer-type shift toward value and turnaround buyers, compressing multiples to roughly 2x ARR. A larger but slower-growing business can be worth millions less than a smaller, faster-growing one.
  • The over-running trap: Founders who delay selling to reach a higher ARR number often destroy value by exhausting growth channels. A 2 million ARR business growing 100% annually can fetch 10 to 20 million. The same business at 4 million ARR growing 10% annually may only command 4 to 8 million, a potential eight-figure loss in exit value.
  • Churn as downside protection for buyers: PE buyers model 3 to 5x returns in 3 to 5 years and treat churn as their primary risk factor. Monthly churn of 8% cycles through an entire customer base in under a year, making post-acquisition revenue projections unreliable. Low churn signals that revenue will survive founder departure, directly increasing buyer confidence and offer price.

What It Covers

Einar Vollset, co-founder of TinySeed and founder of Discretion Capital, discusses his new book on M&A for B2B SaaS companies between 2 and 20 million ARR, explaining how private equity now dominates this market and why most founders leave significant money on the table.

Key Questions Answered

  • Buyer landscape reality: 70% of B2B SaaS acquisitions between 2 and 20 million ARR are completed by private equity buyers, either as platform acquisitions or tuck-ins to existing portfolio companies. Only 20% are strategic buyers. Founders who only approach competitors miss the dominant buyer pool entirely and typically receive far lower offers as a result.
  • Tuck-in valuation advantage: Private equity tuck-in buyers frequently outbid strategic acquirers because a target company solves a specific capability gap in their existing portfolio. A 5 million ARR business can sell for 15x ARR to a PE-backed platform that paid 3x ARR for its own acquisition, making tuck-in positioning a concrete pricing lever.
  • Growth rate as the primary valuation driver: Annual growth above 25% correlates with multiples of 4 to 6x ARR. Dropping below 25% growth triggers a buyer-type shift toward value and turnaround buyers, compressing multiples to roughly 2x ARR. A larger but slower-growing business can be worth millions less than a smaller, faster-growing one.
  • The over-running trap: Founders who delay selling to reach a higher ARR number often destroy value by exhausting growth channels. A 2 million ARR business growing 100% annually can fetch 10 to 20 million. The same business at 4 million ARR growing 10% annually may only command 4 to 8 million, a potential eight-figure loss in exit value.
  • Churn as downside protection for buyers: PE buyers model 3 to 5x returns in 3 to 5 years and treat churn as their primary risk factor. Monthly churn of 8% cycles through an entire customer base in under a year, making post-acquisition revenue projections unreliable. Low churn signals that revenue will survive founder departure, directly increasing buyer confidence and offer price.

Notable Moment

Vollset traces the "startups are bought, not sold" belief directly to misaligned VC incentives. Venture capitalists need billion-dollar outcomes, so they discourage structured sale processes. For bootstrapped founders, a structured auction targeting 100-plus buyers routinely adds 30 to 300% above initial offers.

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Episode Transcript

This podcast is brought to you by Mercury, the banking solution I use across all of my businesses. You already know traditional banking is broken, slow wires, clunky interfaces, tools that feel like they were built in 2005. Mercury is what banking should feel like in 2026. Everything just works. At TinySeed, Mercury keeps surprising me with features I didn't know we needed, like ACH fraud alerts. We used to manually review every ACH to catch unauthorized polls. Now we have a list of approved vendors, and if an unfamiliar one comes through, we get an email. One click to cancel or let it proceed. We went from checking every transaction to only seeing the ones that matter. Whether it's daily bill pay or wiring large sums to the dozens of companies we invest in each year, Mercury handles it. Simple when I need simple, robust when I need approvals and controls. Over 300,000 entrepreneurs have made the switch. And when founders ask me where to set up their account, I send them to mercury.com. It's free to get started with no in person visits and no minimum balance. Visit mercury.com to apply online in minutes. Mercury is a fintech company, not an FDIC insured bank. Banking services provided through Choice Financial Group and column NA, members, FDIC. Welcome back to another episode of Startups with the Rest of Us. I'm your host, Rob Walling. And in this episode, I sit down with Einar Volset to talk about his new book, the definitive guide to m and a for b to b SaaS between 2 and 20,000,000 ARR. And the entire book is available at discretioncapital.com/guide. You can read it online. Or as you hear, Anar and I bandy around in the interview, he is looking into getting paperback copies printed as well, and I believe they're gonna be hard copies available at MicroConf in Portland if you are hearing this. I think this comes out maybe a week or two before Portland. Speaking of that, MicroConf in Portland is sold out. You can get on the wait list at microconf.com/us in case any tickets open up. It's gonna be an incredible event here in just a week or two after this episode goes live. In addition, MicroConf mastermind matching is open. Masterminds have had a huge impact on my entrepreneurial journey, and we have matched almost 1,800 founders in 64 different countries into these peer groups. These are four, five person groups that are often hard to form, and that's why we started offering matching based on a lot of factors like revenue, location, experience, etcetera. And this isn't just AI. Right? We have a human on our end looking at every single application. I've been part of two or three masterminds over the years, one of which has run for fifteen plus years, and they've had a huge impact on my journey. They are folks that you're gonna go through the trenches with who can help you think …

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Books

  • <UNKNOWN>RecommendedBy guest

    by Einar Vollset

    Einar Vollset, co-founder of TinySeed and founder of Discretion Capital, discusses his new book on M&A for B2B SaaS companies between 2 and 20 million ARR

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