How I Negotiated the Sale of My Bootstrapped Business

There are probably more articles out there about starting a business and running a business than you can read in a lifetime. But, what about selling a business? If your business is successful, you will eventually want to cash out. For major successes, this can take the form of going public by listing the business in the stock market. For minor ones, you will usually be acquired by a larger competitor or by a company seeking to gain a foothold in your niche.

Selling is thus a crucial part of the success journey. Here is my personal experience with this process.

As I How I Built, Promoted, and Sold a Product with No Investments and No Marketing Budgetwrote previously, I built an online company from the ground up, ran it for a few years, and eventually sold it to a larger competitor. The details are outlined in the other article; for the purposes of today’s topic, the crucial bits are: I built the software myself, registered an LLC to operate the business, did this with no investments and no initial marketing budget, and expanded the user base and features over the course of several years.

Why sell?

There are several valid reasons to sell a business:

You’re shifting your attention to other things
It’s not worth your time anymore
You don’t foresee any substantial growth in the future
Legal or environmental reasons

I sold for the last reason on this list. My product was in the fantasy sports industry, and looming legal changes in the USA were about to shift the ground under my feet. Fantasy sports were classified as a game of skill when I built the software. However, due to the massive success of FanDuel and DraftKings, there was increasing talk about applying gambling regulations and fees to fantasy.

I decided to jump in and sell before this event because I didn’t have the capital to duke it out with the government in court. What further complicated things is that I would have to deal with different laws across different states in the USA, as well as upcoming changes in other parts of the world.

So, I decided to seek a buyer for my product among larger competitors who were prepared to tackle the upcoming adversity.

When to sell?

Timing is all about trends: trends in your industry, trends in your income, and trends in your interests.

You should calculate how much your time is worth periodically. The simplest way to do this is to divide your total income by the total number of hours you worked. Then, if you have several sources of income, try to calculate how much your time is worth in each one, and the trends over time for each one.

My value as a fantasy sports company owner and manager was, at the time, higher than my value as a software developer. However, the trend was strongly in favor of programming:

My hourly rate was growing steadily.
The growth rate of the user base on the fantasy site had been falling in the preceding year.
The legal issues above threatened to destroy the entire value of the fantasy project within 1–2 years.

Fantasy sports, then, held little long-term value to me compared to my other work. It was valuable as diversification of income, but even that had a potential expiry date. It was, thus, an open-and-shut case for me. Time to sell!

Finding buyers

I started looking for buyers in the way everyone starts everything today — by Googling it. A Google search came up with a couple of interesting discussions on the subject, as well as some concrete options. The main takeaways of my research were:

You can list your site on a platform like Flippa and hope someone relevant finds your listing. The first downside of this is that Flippa has thousands of listings, and most of them are cheap and generic. The second downside is that Flippa takes a commission of 5–15% if you manage to sell your app/site there.
There are companies that specialize in this sort of thing. They are basically brokerages for digital companies. The plus here is that a big brokerage of this sort would have access to serious buyers. The downside is that they will take a commission as big as 15–20%. The commission is usually negotiable to an extent, so don’t accept their first offer!
You can seek buyers by searching within your industry. This is the most labor-intensive option, but it also gives you the most control.

I decided to use the following approach: I would mainly use approach #3 because nobody knows my business as well as I do. I would also contact a large brokerage and let them try their hand at finding a buyer as well. I would give Flippa a pass because it seemed a low-percentage bet, and I also didn’t want to let the whole world know the site was going on sale. I still had users to maintain a relationship with, and I didn’t want to spend time fielding questions about the sale once word got out.

So I set out on LinkedIn to compile a list of appropriate contacts at bigger companies in the fantasy sports industry, as well as companies from adjacent industries such as sports statistics and betting. I came up with a list of about 10 potential buyers, and I was almost ready to start contacting them.

But first, I had a huge conundrum: how much should I charge for this thing?

Pricing your company

After discussing the question above with several online communities, I arrived at a conclusion: nobody has a clue.

Some formulas presented to me were:

Anywhere between 3 and 10 years of net earnings based on the current trend.
Anywhere between 10 cents and 10 dollars per active user.
Anywhere between $0 and $100,000.00 for the software itself.

Add industry-specific variables into the mix, and you’ve got a real math problem on your hands. After some deliberation, I came up with my own hybrid way of forming the price. Because of the terms of the sale contract, I cannot share the exact numbers here, but this should give you a good idea of the process.

Value #1: the software. I priced this based on my experience as a software developer.

Value #2: the paying users. For each paying user, I added X dollars to the total price (X being a number between $1 and $10 that I can’t exactly disclose).

Value #3: the active, but not paying users. These have less value than the paying users, but still have potential: some will pay for things eventually, some will click on ads, and so on. For each such user, I added 0.25 * X to the price.

Value #4: the inactive users who have nonetheless confirmed their email addresses. These are worth a lot less, but still not worthless — they can still be emailed about products, offers, and so on. I priced them at 0.1 * X each.

Value #5: SEO. The sites ranked quite high on Google for some very relevant searches. I added roughly the same value as the software itself to this. It’s not an overly competitive arena, so I had arrived at these ratings pretty quickly and the buyers would be aware of that, being from the same industry. Otherwise, I would have priced the SEO much higher.

The overall price was ambitious, but not altogether unrealistic. Given the legal situation, I was willing to accept significantly less, but I wanted a strong starting position for any negotiation.

Having made this decision, I was ready to start talking to people.

The pitch

The text of my email to prospective buyers varied from person to person depending on their market position and personal position. However, all messages followed the same sequence:

Introduction: who I am and what I’ve built.
Why I want to sell: I have other lines of work that I want to focus on.
Why I’m contacting them of all people: I respect their industry position and I think their company would make a good home for what I’ve created.
Why they should consider buying: my loyal users, and my established platform with solid software and solid SEO. Combined with their existing market position and reach, they can extract much more value from my product than I could.
What the next step should be: I recommend having a quick call at their convenience.

There is no mention of the price in this email. I got responses from about half of the people I contacted. Three of them agreed to a call. One was quite enthusiastic. Enter the next phase.

The offers

Out of the three interested parties, two made their offer very clear: they had no interest in the software — they only wanted to buy the users. I tried reasoning against this — the users were users of my software, and new users were organically finding it through Google. Getting rid of the sites made no sense for the buyers.

As for me, this would reduce the value of what I’m selling vastly — instead of an established company with loyal users and solid search engine credentials, I would be selling a glorified email list. In addition to buying my users, one of the two parties requested that I shut down my sites after this. This struck a nerve with me because they were simultaneously tanking my negotiating position and asking me to annihilate what it took me years to build.

Disappointed and mildly annoyed, I asked for an exuberant amount of money — more than twice what I was planning to ask for the whole package, software and company included. Needless to say, they weren’t interested, and I didn’t feel too bad about this.

Then came the third call. The buyer was reasonable, inquisitive, and genuinely interested in what I had built. Their company was about 10x the size of mine, but their game had a different concept. They were intrigued at the prospect of simultaneously diversifying their offering and increasing their market share.

After the introductory call, we exchanged several long emails in which I answered probing questions about the game, the users, the analytics, and the back-end. Then came the hard part.

The negotiations

Just when I was about to bring the price into the conversation, they started the next call with an offer of their own. The offer was laughable: a tiny amount of cash (~3% of the price I had in mind) and a small percentage of continued ownership (in my own company) for me. I interpreted this as an invitation to haggle — and, perhaps, as a probe to see whether I was dumb and/or naive. I flat-out refused that offer and told them I needed to think for a day or two before suggesting a better deal.

I let them wait for 4 days instead, and I would have let them wait a day or two longer but, at this point, they contacted me again. It was a really nice, long email about how much they respect me and how they think that I, personally, am the biggest value in my company. They hinted that they would be interested in hearing a counter-offer from me, as long as it involved my working for them after the sale. Playing hard to get works, as long as the other side has real interest.

I responded with my original cash demand, roughly 33x their offer. My heart was pounding while I prepared this email. We humans are wired to want to be agreeable, especially when the other side is treating us kindly. However, sometimes, being too agreeable means losing. Sometimes you just have to drop that ton of bricks on the other side and show them you mean business.

I broke the price down for them in the same way I broke it down for you in this article. In the end, I had the audacity to tell them how long it should take them to recoup this amount once they put their marketing reach to work. I also mentioned in passing that I had no interest in continued ownership of any portion of the sites.

Their answer came the next day, and it was a very polite, if stern, letdown. I will quote some excerpts here:

I just got back a few hours ago and didn’t even discuss your email with my partner yet but have decided to write to you because I wish you the best and want you to succeed. Frankly, my partner would’ve said “end it now…”

A friendly recommendation: I can tell you no one will come close to that amount but if you get anywhere near that or even more, then I promise I’d be the first to celebrate.

I don’t want to counter offer because I feel we’re far apart and frankly I don’t want to insult your work because I do respect you. I can tell you if we sit down and we ask 3 to 5 neutral businessmen or even people in the fantasy football world, some will feel offended by this.

At first, this seemed like a crushing defeat, but then they gave up the game with:

Texas has come to an agreement with FanDuel and now you and all of us in fantasy football cannot ask for payment & give prizes to those who reside in the state of Texas. I am sure you’re aware of that. As I told you 10+ days ago this was a main concern and imagine if other states, especially NY, do the same thing or worse. You should try to sell your site today, not tomorrow. Laws will likely keep evolving.

Nobody writes an email this long and this persuasive unless they’re playing the long game to drive the price down. They were still interested. I could smell it. This whole thing was about the price.

Getting tough

We exchanged about a dozen friendly emails over the next few days, talking about the industry in general, and only touching on the sale in passing. Then, they came back with a new offer.

The email got better and better with each paragraph.

In the first paragraph, they said they had consulted two experts. One of these experts supposedly said there’s no value to the sites, and the other valued them at about 8% of my demand.

In the second paragraph, they said that the main stakeholder in their company is willing to go with the 8% estimate.

In the third paragraph, they said that, if I would provide some technical support over 4 weeks, they would be willing to pay 10% of my demand upfront and another 5% over the course of 6 months.

So, we were up to 15% of my estimate. We were moving in the right direction, albeit very slowly. Them going from 3% to 15% in days made me even more sure of myself. It was time to get tough again. This is the entire content of my response:

That is so far below the value of the sites that I am finding it hard to respond. I can leave the sites on autopilot and they will make that much in less than a year, with virtually zero effort on my part. With all the work that’s been put into the sites, I’d rather shut them down than sell for such a measly price.

Anyway, thank you for your effort, I appreciate it.

My statement regarding earnings was true for the first year, but I was well aware that I could easily be making $0 the year after that. I was taking a chance.

Getting closer

Their answer came tomorrow and I could breathe a sigh of relief. I hadn’t shot myself in the foot by being overly aggressive the previous day.

He reiterated that it’s in my best interest to sell today, not tomorrow and made an offer consisting of 20% of my demand up-front and another 10% over a year. We were still far from my price, but this seemed like a good moment to concede some ground and start moving towards a compromise.

In my response, I said their offer was a big step forward, but we were still a ways off the mark. I said I was willing to:

Accept the payment in two installments rather than one lump sum, if that’s important to them.
Cut down my initial price by about 20%.

Their response came the next day. After ruminating about the upcoming legal changes for a couple of paragraphs, the counter-offer came: about 18% of my demand up-front, another 16% after 1 year, and some bonuses based on the sites’ performance that would amount to another 2% or so.

I retorted by pivoting back from the topic of legal issues to the loyalty of my users, and the organic growth of the websites. I conceded some more ground on the price.

Then came a period of relative quiet, and I was getting concerned that a deal may not be struck after all. The emails from the other side were too vague. It felt like they were only writing to keep the communication going while having a prolonged discussion among themselves. Then, 2 weeks later, something concrete finally came. The new offer was: 22% of my demand up-front, and another 18–20% in various installments, bonuses, and — this was new — a clause where I have to do work on the software for a year.

The email ended with an indication that this was not just an offer, but the final offer. No offer is ever truly final, but things were getting tense. It was time to close.

The deal

I responded that I’m eager to finalize the deal as well, however, working for a year cannot be part of the deal under any circumstances. I consented to fix any bugs that appear in my original software, but as soon as changes are made, I would no longer be responsible. We could agree on my doing freelance work for them on an hourly basis, but this could not be part of the sale contract.

Then I increased the amount to about 50% of my original estimate and got rid of the complex clauses: half now, half after 1 year. That’s as complicated as I was willing to make it.

I sent the offer, indicating that this is my final offer. While my final offer was 20% higher than their final offer, I was fairly sure of a positive response, for two reasons:

I put off half of the payment for a year from now, thus relieving the immediate pressure the sale would make on their budget.
After drawn-out negotiations during which each side conceded a lot of ground, I would have been very surprised if they didn’t agree to another final bump in the price. In fact, they probably factored it into their “final” offer.

Their response came a day later — they accepted, and the paperwork was finalized within a few weeks.

The aftermath

The sale was bitter-sweet to me. I was letting go of something I built from the ground up. On the other hand, I would have probably watched it slowly die had I not sold it.

As for the price, I had to be content. I was well-aware that my original estimate didn’t take into consideration the upcoming legal apocalypse. The apocalypse did come eventually, and the buyer had to spend a lot of money and energy on lawyers. One of the sites had to be shut down. The business model had to change. I don’t know how they’re doing financially, but I’m glad I didn’t have to deal with that.

That’s my story. I hope it helps some of you navigate the sale of your own companies or digital products. Knowing when to sell and how to conduct the process is just as important a step in the lifecycle of a business as any other.