$4.1k MRR, profitable, five years old. Signed an LOI at 3.1x annual profit, roughly $150k. Two weeks into diligence the buyer connected to Stripe and worked out that a single account is $2,550 of it - 62%. Month to month, no contract, still on the 2021 price.
Offer went to 1.8x. A day later they withdrew entirely with "come back when it is diversified".
Was that fair or did I get walked?
The structure that survives this is an earn-out. 60% at close, 40% over twelve months contingent on that account still billing. Buyers like it because it moves the risk to the person who actually knows the customer. Sellers hate it for the same reason. It is the honest split.
If a buyer offers you 1.8x flat versus 2.8x with half of it contingent, and you truly believe the big account is stable, take the contingent one. If that sentence makes you nervous, you have learned something about your own estimate.
3.1x annual profit was already near the top of the range for this size. The realistic band is roughly 2.5-4x annual profit, and every risk factor eats into it: concentration, churn, whether the stack is something a buyer can hire for, whether you are the only person who has ever deployed it.
You did not lose $150k. You had a number in your head that assumed no risk existed.
Split the big account into three seats under different names before you list again so it does not read as one customer on the reports.
Diligence connects to Stripe and reads it directly. Three subscriptions on one company domain paid by the same card is more suspicious than one honest big customer, and "I restructured the billing so it would look better" is the kind of discovery that ends a deal and follows you around. Fix the risk. Do not repaint it.
They may have done you a favour. Go and sign that account to a twelve month term, put the other forty on current pricing, come back in a year at $5k with a contract in hand and ask for the same multiple. That is a better twelve months than most people get from a $150k exit anyway.
You did not get walked. You got priced.
@finops_reyna · 3mo ago · 2 replies
Fair, and it would have been the first thing anyone modelled.
Nobody is buying your MRR. They are buying the probability of that MRR existing next year. One customer with no contract, on a stale price, who has never been asked to re-sign anything, is a coin flip - and if they leave, the multiple you applied to the remaining $1,550 was wrong too, because the remainder has to carry all the fixed costs on its own.
Two things worth more than any listing copy: get that account onto a twelve month term before you list again, and disclose the concentration on page one next time. You burned fourteen days of somebody's diligence budget and that gets remembered in a small market.
Reply
Report
@hollis_pike · 3mo ago
The 2021 price is its own red flag, separate from the concentration. It says the account survives because nobody has looked at it. Any buyer who plans to raise prices post-close - which is most of them - is looking at 62% of revenue that might evaporate the first time it gets touched.
Reply
Report