Exits are not just for VC-backed startups. Your side project deserves an exit, too, if you so wish. And so does your nicely bootstrapped, trouble-free micro SaaS startup that has been generating recurring revenue for you for some time. An exit with a hefty paycheck is not the primary goal with a side project or a micro SaaS. But being able to sell your project right away would be nice when you are forced to make that decision for one reason or another:
- The project owner may be in urgent need of cash for a health issue, a down payment for a car or a house, or something else.
- Priorities change, and finding time for the project becomes almost impossible for the project owner.
- The technology changes over time, and the project owner lacks the dedication to invest time and effort to learn new technologies that can keep the project alive.
- The project owner realizes that the project's ceiling is not as high as he previously hoped.
Whether you are trying to sell a micro SaaS startup that you have grown into a legitimate business or salvage whatever you can from a side project you have to quit, micro SaaS marketplaces are where you need to be. There are different marketplaces catering to different market segments, which interestingly creates opportunities for arbitrage, as Eyal Toledano observes. The offers you receive from buyers who ran into your project in a marketplace or vetted parties a brokerage firm found for you or a strategic investor will be significantly different. Therefore, a buyer can buy a project on the cheap from Tiny Acquisitions or MicroAcquire, grow it to an annual recurring revenue that will appeal to more upscale customers, and turn around and sell the project for a much higher multiple.
Here is a quick look at the most popular marketplaces for micro startups and the differences between them:
Founded in 2009, Melbourne-based Filippa is the oldest marketplace for buying and selling e-commerce sites, content websites, SaaS startups, apps, and domains. Today, it stands out as the largest marketplace for web businesses in a segment it single-handedly created. The company raised $11 million in Series A funding in 2021, which was a testament to the effectiveness of its business model.
Flippa boasts 3 million users worldwide and an average of 1.3 million monthly visitors as of June 2022. On top of a subscription fee starting at $29 a month, members pay the platform a success fee of between 5 and 10 percent, which gets lower as the sale price increases in the event of a sale. These figures are low compared to rivals, making Filippa a competitive offering in the market.
Flippa allows you to sell any site or project, making the platform more inclusive than any other in the market. However, this flexibility also lowers the overall quality of the offerings. Shill bidding, lack of vetting for sellers, and the absence of a mechanism to verify the veracity of the sellers' financial claims have hurt the platform's reputation for a long time. Buyers who fell for projects with little to no revenue went on to publicize the scams they were subject to.
Flippa remains the cheaper option in terms of commission fees compared to its rivals, but the hassle involved makes it hardly worth it. Its failure to move upmarket like MicroAcquire managed to do and offer reliable complementary services has condemned the platform to serving the low-end portion of the market.
Founded by Stephen Campbell in May 2021, Tiny Acquisitions fills a big void in the market, giving people a platform where they can buy and sell digital projects for $100,000 or less. Members can have lifetime access to Tiny Acquisitions features for a one-time payment of $997. They may also opt for a subscription model ($149 for a 6-month subscription or $199 for an annual subscription). If the buyer and seller use Tiny Acquisition's services for the transfer of funds and the project, then the company charges 9.5 percent of the sale price.
Tiny Acquisitions had set off as a platform strictly focused on hobby projects selling for less than $5,000. The founder, Stephen Campbell, set his sights on taking his company upmarket, where projects valued at up to $100,000 would be listed. This move targeted a market segment different from hobby projects and necessitated the provision of complementary services that could help reposition the platform. As part of this plan, Tiny Acquisitions partnered with DueDilio to make the due diligence process easier for the buyers. It looks like Tiny Acquisitions is gradually perfecting its business model, creating a winning formula for the buyer, seller, and the community at large.
Andrew Gazdecki has been the face of the micro SaaS segment as of late. His platform, MicroAcquire, has put the micro SaaS marketplaces on the map, publicizing the different needs companies in this particular segment have and solutions that work for them.
Gazdecki's main focus has been to standardize the micro SaaS acquisition process from start to finish. Unlike well-regulated fundraising rounds where a venture capital firm invests in a startup, the deals in the micro SaaS segment were improvised between two usually inexperienced parties. It was a stop-and-go process, starting with a manual outreach and rife with pauses. MicroAcquire's Guided Acquisition Process provides the buyers and sellers with a road map, reducing friction, ensuring the predictability of the whole process, and increasing the chance of success.
MicroAcquire is trying to differentiate itself and hoping to move upmarket with its Platinum service. This option is only available to startups with $1 million in trailing-twelve-month revenue. In return for a 5 percent "success fee" in the event that the project is sold, MicroAcquire vets the potential buyers, offers legal advice during the negotiations, and helps with the due diligence part, where the buyer works to verify the claims by the seller. MicroAcquire is basically trying to reposition itself as a brokerage firm with its Platinum service.
Another ace MicroAcquire has up its sleeve is the partnership it has built with Pipe. Pipe is a fintech firm specializing in revenue-based financing for startups generating recurring revenue. While MicroAcquire takes care of the matchmaking part by bringing together the buyer and the seller, Pipe streamlines the acquisition process by providing the buyer with funds in return for a portion of the future revenue. The partnership helps the buyer avoid taking on debt and dilution and keep its acquisition as a privately-owned micro SaaS project.
FE International is a brokerage firm that stands apart from the rest of the pack in the SaaS marketplaces segment with the way it works. Once hired to manage the sale of your micro SaaS business on your behalf, the company interviews you to learn about your expectations and conducts an audit of your firm to conduct an accurate appraisal of your firm. FE International employees build a file of your firm and reach out to a pool of vetted buyers to find parties that may be interested in buying your startup. The brokerage firm engages in acquisition negotiations with the potential buyers, and the process culminates in the preparation of a formal Letter of Intent by the FE International legal team. Once a contract is signed by both parties, the assets of your business are transferred to the buyer, and you will receive the funds after that.
FE International will charge a 10 to 15 percent commission fee on that sale price. Still, it will help you sell your business at a significant premium compared to other marketplace alternatives. This model seems like a no-brainer considering the completely hands-off approach it affords the founders.
Projects listed on marketplaces are like fancy storefronts. You don't really know what is hidden behind, and it is difficult to vet these startups by just looking at the data made available to you. This sets the stage for scams where misinformed buyers are deceived into buying startups with copyright issues, forged financials, and fake website traffic figures.
A noticeable trend in the micro SaaS marketplaces is the emergence of extra services like legal counseling and brokerage offered to complement the core business. This shift to a more comprehensive service policy is designed to mitigate the risks involved with the acquisition and help buyers with the due diligence process.
That's why brokerage firms and services like FE International are becoming more popular, and marketplaces like MicroAcquire are offering similar services. By verifying the financial data of the startups and taking care of the due diligence on behalf of the buyer, marketplaces and brokerage firms are offering end-to-end services, which reduce the burden on the buyers. This end-to-end approach to matchmaking allows for higher margins for the marketplaces opting for such a business model. It looks like complementary services should become part of the core business if the micro SaaS segment is to fulfill its potential.