💸💸 Acquisition breakdown ++ THE REALITY of acquisitions
Company I acquired (Encharge):
💰 Revenue: $32k/mo
🤑 MRR: $29,510
💸 Expenses: ~$17,000
💵 Profit: $15,000/mo
✍️ Money paid at signing: $250,000
Now, that's the top-level image
IN REALITY, we signed a deal where we paid an amount upfront ($250k), out of a total valuation: $800k. The deal structure is:
• $250,000 upfront
• $150,000 after 6mo
• $100,000 after 12 mo
• $130,000 after 18mo
• $170,000 after 24mo
Total: $800,000 paid across 2 years. THAT'S really the catch with so many acquisitions. People talk about the total value (e.g. $800k) but the reality is a bit different
I'll give you a more common example:
• You see in the news: Startup founder SELLS for $100M
• Yay, that's great!! Everyone imagines the same image as below: a wire transfer hitting for 9 digits: $100,000,00.00 sent to the founder's account
• More: people imagine themselves in THEIR shoes. People read and imagine $100 MIL sent to THEM
• But the reality is: 4 founders, so in theory $25m across each
• BUT only a % of it was paid upfront, e.g. 15%
• Another chunk (e.g. 25%, so $25M) is sent if X takes place in Y timeframe (e.g. company grows 2x in 2 years)
• Another chunk (and this is very important) - only IF the founders have ⚱️ "golden handcuffs" ⚱️, meaning: they have to work for a boss they prob won't like after 3mo, for about 2-3 years. That's why you see so many founders f'ing off after that clause ends
• BUT tax comes in there too
• BUT bonuses paid to some close people to you along the journey
Sooo for one founder: $3.75M (good luck with tax) + stress about whether 2x growth happens in 2y + golden handcuffs for 3y (towards the 2nd half most are 🧠 brain-ded within the company. Good luck with the conversation about purpose)
If 40% goes to tax, that's $2.25M to one founder
Still great, right? We're talking about millions. But if it's a big city...
And everyone around you reads the news and think "Look at this guy, just got $100m to his name and now he's like this? Pfftch, if I was him......"
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Anyway I digressed with this post, so I'll make another one soon with more about my deal