Micro Startup Acquisition: The Definitive Information to Shopping for and Promoting Small Startups
The problem with selling your startup is the long exit time. Sometimes it can take up to seven years before you can sell your business and start with the next idea.
And the investors? You feel the same way.
Who would want to wait almost a decade to buy a startup when the face of technology is moving so quickly? Also, the price tag for these more established companies is often billions.
This is an expensive mistake if you make the wrong investment.
The solution? Micro startup acquisitions.
From Facebook to Microsoft, there is a massive trend towards finding tiny teams of five or less, buying them, and using the technology and talent to gain a competitive advantage.
This guide explains the benefits of buying and selling a micro-startup, the trends that are changing M&R strategy, and the main tools you can use to sell (or buy) your startup.
But before we dive into that, we need to look at what micro-startup acquisitions are and why you need to sit up and take notice.
Micro startup acquisitions: what are they and why should i care?
Micro-startup acquisitions are a move away from buying companies with established products or even proven sources of income.
Instead, larger tech companies like Twitter and Pinterest are investing in small startups. These companies usually consist of 2 to 3 people and companies take bets on their products that have not even been fully implemented.
Why?
Companies are becoming more proactive and want to purchase complementary products earlier in their roadmaps in order to outsmart the competition and attract the best talent in the industry.
What does this mean for startups?
Your exit strategy timeline is MUCH shorter. Gone are the days of waiting 5, 7, or 10 years to sell, which makes it cheaper than ever to boot your startup.
Hike Labs was founded in 2014, and by 2015 Pinterest had taken over the San Francisco-based mobile publishing startup.
Micro startup acquisition trends
In recent years there have been clear trends as to why large companies invest in these small teams and use them as part of their growth strategy.
Other deals are about gaining access to new functions or markets. While this is a cross-industry trend, it is gaining momentum in technology as companies seek to offer more comprehensive solutions to consumers.
These acquisitions, which are focused more on scale than scale, accounted for 90% of tech deals in 2019, up 40% from 2015. This is a clear indicator that companies are looking to expand their offerings and capabilities.
It's harder to create the right product from scratch
Nobody wants to be late to the market.
Yes, the tech giants could develop the software that these micro-startups make, but by the time it's ready for the market, a competitor could have launched a similar product and earned all the credit.
Or you could make the mistake of investing too much in the wrong idea and wasting money, time, and resources. It's usually much cheaper to get a startup that got the job done than to get an idea developed in-house.
By acquiring micro-startups, companies can mitigate both risks and reap the benefits.
For example, Human Resources and Finance SaaS provider Workday bought Scout RFP (a San Francisco startup with a team of 8) for $ 540 million.
The startup set up a cloud-based office procurement system that customers can use to optimize supplier management. The acquisition is a step in the right direction for Workday to survive as a holistic solution for enterprise resource planning.
The Micro Startup Talent Hunger Games
It's no secret that attracting top talent can take your business to the next level.
These micro-startup acquisitions aren't just about products. Sometimes it's talent that attracts the taller people. Microteams can increase a company's productivity while eliminating the new hiring learning curve.
The innovation and ability to bring a startup idea to production means the team has skills and knowledge that are invaluable to an established company.
For example, when Instagram bought Luma (its first acquisition), the tiny team of three was part of the deal. The Luma team's knowledge of video stabilization technology was critical to launching the complementary Instagram app Hyperlapse.
The attractive price for micro startups
A big advantage of buying micro startups is the price.
It is much cheaper to grow small than to fund a large, established business with hundreds of employees.
And the risk of it going under? A much softer hit.
If the investment is the same as the Jay-Z Tidal music streaming app, the depreciation amount is much less. You can also keep the team.
For example:
Microsoft spent $ 200 million on the Accompli acquisition and only $ 100 million on Sunrise. If you compare that to the $ 7.5 billion they spent on acquiring Github or buying Skype for $ 8.5 billion, that's quite a bargain.
The same applies to Google's acquisition of Android for just under $ 50 million in 2005, with key employees joining the company. As of 2020, Android's net worth is estimated to be over $ 2.5 billion.
The race for artificial intelligence with micro-startups
Another important trend in the acquisition of micro-startups is artificial intelligence. Companies in almost all industries want to use machine learning and integrate it into their products.
When you combine this with the lack of AI talent, there is a race to attract startups and their teams that are in the early stages of funding and research.
In 2019, Facebook quickly launched a visual search startup called GrokStyle, which developed an app that could automatically identify décor and home furniture based on a photo. When asked about the acquisition, Facebook replied in a statement that "their team and technology will add to our AI capabilities."
Tools to buy or sell micro-startups and other businesses
Would you like to benefit from the boom in micro-acquisition? Whether you're looking to sell or invest in a small business, there are several tools you can use to swipe right and find the perfect match.
Micro Acquire
Micro Acquire is a marketplace that connects startups with buyers. The platform is free, private and has no intermediaries.
When you sign up, you get instant access to 10,000+ trusted buyers with complete anonymity.
The marketplace is designed to cut the time it takes to sell your business and find startups to invest in. Once you've found a buyer or seller, you will receive a Letter of Intent (LOI) within 30 days or less.
For whom is that?
Micro Aquire is intended for startups with an annual recurring revenue (ARR) of less than $ 500,000. It's one of the best platforms for serial entrepreneurs to invest in small businesses and grow them into booming successes.
main features
- 30-day embargo.
- Filter the listings to find a startup that meets all of your criteria.
- Sell your startup by following a quick and easy sales process.
- Each seller provides key metrics to give buyers an accurate idea of the sustainability of their business.
- No middlemen. The sale takes place directly between seller and buyer.
How much does it cost?
- Free: Micro Aquire is free to sellers and buyers with basic functionality.
- Bonus: For $ 290 a year, get the latest deals delivered to your inbox before other buyers get the free version. It gives you the opportunity to review, negotiate, and close a deal before anyone else. In addition, Micro Acquire does not charge any commission on the sale.
Flippa
Flippa is a marketplace for buying and selling websites, apps, domains, and online businesses.
While it helps streamline the negotiation and transaction process, there is a history of fraud listings.
If you choose Flippa, do your due diligence and scrutinize the offers to make sure these rough diamonds are legitimate to find.
For whom is that?
Flippa is an ideal marketplace for small and medium-sized businesses. You can find a number of sellers at any cost.
You can buy or sell online businesses and products such as:
- Blogs
- E-commerce stores
- Affiliate sites
- SaaS companies
- Apps
- Shopify stores
- Amazon FBA stores
- Domains
main features
- The user-friendly site navigation makes it easy to list your business in less than 10 minutes.
- There are tons of filtering options to help you find a company that suits your needs and budget.
- Select the auction function to sell your company within 30 days or set it for a fixed price. Selling fixed price offers usually takes 3-5 months.
- The "Broker Matching Service" connects you with a personal broker who manages the entire sales process from marketing to closing the deal on your behalf. You must have net income of at least $ 100,000 annually to qualify.
- With the "Self Service" function, you get a Flippa account manager who will support you in the sales process.
- Use Flippa's free online valuation tool to get an idea of how much your business is worth.
How much does it cost?
Flippa's listing fees depend on what you're selling:
- Starter / template websites: $ 15
- Domains: $ 10
- iOS and Android apps: $ 15
- Established Websites: $ 49
There is also a 10% success fee on each sale and you can upgrade your listing with different packages starting at $ 295.
Tiny capital
Tiny Capital is a different breed in the micro-acquisition space. Unlike some of the other tools mentioned above, it is a traditional venture capital company with a twist.
Rather than buying businesses and becoming a micromanaging nightmare, Tiny takes a hands-off approach.
Aside from the monthly and quarterly reports required, founders rarely have contact with the company. Some companies only speak to Tiny Capital founder Andrew Wilkinson once every six months.
For whom is that?
Tiny Capital is committed to investing in profitable internet companies in the information technology space.
Do you think your company would be a good fit?
You must meet the following requirements:
- 3-5 years in business.
- An annual profit of at least $ 500,000 per year.
- A highly qualified team.
- You have a simple, high margin online business that doesn't require complex technology or large teams
- Your company has a competitive advantage.
This is the perfect micro-acquisition option for founders who want quick sales turnaround (most deals close in 30 days) and for an investor who is seen and not heard.
main features
- There is a simple sales structure that allows you to receive full or partial cash payment in advance.
- Tiny Capital has a simple 30-day sales cycle that includes a 15-day due diligence process.
- Founders can stay or leave.
- No culture change required.
- No face-to-face meetings before or after the sale.
How much does it cost?
With Tiny there are no upfront costs. All you have to do is contact the team and they will get an answer within 48 hours. If Tiny likes your business, we will provide you with a quote within 7 days.
FE International
FE International is an acquisition advisory team for companies earning five or more numbers. With a sales success rate of 94.1%, it is one of the top tools for small business acquisitions.
As a full-service M&A (merger and takeover service), the platform has integrated solutions for all important elements of a successful acquisition. Everything is handled under one roof, from evaluation to exit planning and post-sale considerations.
For whom is that?
FE International specializes in the sale of websites in the SaaS, content and e-commerce industries. It's an excellent choice for 5 to 8 digit startups who want world-class support throughout the sales process.
main features
- FE has a high sales success rate compared to its competitors.
- The company has a verified investor network of 50,000 employees, ensuring that only qualified, experienced professionals view information about your company.
- There are always several brokers available to minimize disruptions in the sales process.
- To help you get the best deal possible, FE International creates a thorough sales plan and marketing materials to attract qualified buyers.
- FE brokers will reach out to several pre-screened and vetted investors and negotiate the best deal on your behalf.
How much does it cost?
There are no listing fees for sellers or joining fees for investors. Brokers are paid a 15% commission on all sales, and there is a 2.5% buyer transaction fee with a maximum threshold of $ 1,000.
Empire Flippers
Since opening in 2013, Empire Flippers has sold over $ 93,000,000 worth of websites and online businesses with an impressive 88% sales success rate.
For whom is that?
Empire Flippers is interested in websites in the following categories:
There is an intensive vendor review process in place to ensure that only quality lists come out and there is a dedicated team for every step of the process.
To be eligible for listing on Empire Flippers, you must meet the following requirements:
- Your business or website must have a solid 6-month track record of at least $ 1000 in profit per month.
- You must have been using Google Analytics in the past 6 months.
main features
- Empire Flippers has a dedicated migration team to take care of moving your new business to you.
- Get an estimate of your business's worth to Empire Flippers before starting the review process.
- New listings are emailed to a list of over 45,000 people.
- When listing on Empire Flippers you must agree that you will not be listing your business anywhere else for 2 months. Sellers must also sign a 3 year non-compete agreement.
How much does it cost?
Empire Flippers has a listing fee of $ 297 for first-time sellers. However, if your listing is rejected, it will be 100% refunded.
If you're a repeat seller, pay just $ 97 to get your website listed.
Prospective buyers must pay a 5% refundable deposit fee to get access to a listing URL, income statement and Google Analytics.
Depending on the final sales price, commission fees between 8% and 15% apply.
Conclusion
The race to acquire micro-startups is on.
Companies that understand the benefits of expanding their scope by adding complementary products and talent to their portfolio will benefit.
Companies that forego adding micro-acquisitions as part of their merger and acquisition strategy will find themselves in the dust of competitors and struggling to find high-caliber talent.
In short, there is no better time to be a desirable small startup.
Have you ever sold or bought a micro startup? What was your experience