How does one sell a startup?

To value the company you need to look at a variety of things. Generally, a company gets bought for 1) it's technology, 2) it's customers, or 3) it's revenue. ...or some combination of those. The value of your company is what someone is willing to pay for it. So, the value will be different depending on why another company wants to acquire your company.

Think about your intellectual property. Do you have any patents? Is the code you developed unique in any way? Is there a large barrier to entry for others to get into this space? It's very difficult to place a value on intellectual property. But think of it this way. Would someone buy you to get access to your technology? If so, there is some value to it. If not, don't add this into the value of your company.

Where does your revenue come from? Do you sell products? Services? Do you have subscription revenue? Advertising revenue? Do you have long term contracts? In general the more stable your revenue stream, the more value you can place on it. If you have a great revenue stream, someone may buy you to get access to that revenue. If your revenue is tenuous or requires a lot of effort to maintain, then this component of your business will be valued lower.

Do you have some premium clients? If so, another company might buy you to get access to your customers. Or maybe you have a lot of clients in a certain vertical market. In that case a company might buy you to get access to a new market. Client base base only has value to a company who would otherwise pay more to acquire those clients themselves.

You can see that there are a lot of factors that may drastically change your valuation, but here are some general rules of thumb:

• A service company may be valued at around the value of its annual revenue +/- ~30%.

• A company that sells a product may be valued at anywhere from two to eight times its annual revenue.

• A company that sells subscriptions (such as a SaaS company) could have valuations of anywhere from about two to four times its revenue.

There really isn't a good generic answer to this question because there are so many variables that play into what someone would pay for a company. But this is my best attempt at an answer. How did I do? Was this helpful?

Del has some good points about the rules of thumb. Evaluations can be all over the map. Do your homework and look at other companies like yours to see what they were sold for or how much they do in revenue.

As for finding a buyer, the typical buyer is usually a competitor that you are taking customers or market share away from. Do some research on who those companies are. Then, start to target their customers. You do need to be more "visible" in the market place by getting your name and products out there.

By doing marketing and branding, you can create more buzz around your company and that will attract buyers. You typically don't approach buyers, they come to you so make sure they know you are out there.

I think another good question is "why sell?" If you are profitable with around $3M revenue annually, what's your goal in selling? It's not because you're running out of money.

Assuming you're tired of running it and just want to cash out... do you anticipate that the business can grow a lot larger? If it can, maybe you should get it on that growth path, which will greatly increase the valuation (if you're going to sell, you may as well sell for a lot). If you need an infusion of capital to get to the next level, then you may want to start looking for VC's, not only will they raise money, but they'll also get you on the path to an eventual liquidity event (that's their business).

If it's "maxed out" at $3M, it may be a different kind of buyer you're looking for (VC's will never be interested, for example). Maybe a competitor will want to absorb you.

Ask around. Your best prospects are going to be finding a buyer through your social network. Cold calling and approaching potential customers is going to be a long, hard, uphill slog.

Figure out who might be interested in your company (complimentary services, competing services, similar customer base), and see if you can make contact with someone you know inside the company, or someone your contacts know. Linkedin can be good for this if used judiciously.

Don't shove yourself in the face of a potential buyer, and accept a "no we're not interested" with good grace. Work on your exposure, and if it seems appropriate, indicate somewhere discrete on your website that you might be interested in being acquired.