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Exiting a Company
Overview
Companies are bought, not sold. The best exits happen when a strategic or financial buyer identifies you as the solution to their problem — not when you announce a sale. This skill covers valuation drivers by buyer type, diligence-ready metrics, and the 12–24 month runway most exits require.
Not legal or tax advice. Use qualified counsel for transactions, earnouts, and cap table mechanics (equity-management, legal-for-founders).
When to Use
- "How do I prepare my company for acquisition?"
- "What's my company worth to PE vs strategic?"
- "Build an exit strategy"
- "Prepare for due diligence"
- "Maximize acquisition value"
- "Sell my bootstrapped SaaS"
- "Negotiate earn-out" / "earnout terms" / "retention bonus vs earn-out"
- "Walk away from LOI" / "seller note" / "rollover equity in acquisition"
Do not use for path choice (bootstrap vs VC) — use saas-outcomes first. Do not use for metric calculation — use saas-metrics-calculator.
Authoritative Foundations
- David Skok. Unit economics gate every exit. LTV:CAC <3x or payback >18
months compress multiples in diligence — fix before process.
- Jason Lemkin (SaaStr). Burn multiple and growth efficiency matter as much
as ARR scale; inefficient growth gets discounted at LOI.
- Nathan Latka (GetLatka). Sub-$10M ARR bootstrapped SaaS has real
acquisition liquidity; weight churn, growth, and clean books over VC headline multiples.
- Ben Murray (The SaaS CFO). PE buyers model EBITDA and FCF; bridge from
unit economics → P&L → EBITDA multiple (financial-modeling/references/unit-economics-exit-bridge.md).
- KeyBanc SaaS Survey. Private ARR multiple bands by growth tier — use as
range, not quote.
Step-by-Step Process
Phase 0: Exit Optionality Gate
Score whether exit is realistic vs distraction before M&A prep. Load saas-outcomes/references/exit-potential-scorecard.md:
- <3.0 avg: Fix retention and concentration — exit is distraction
- 3.0–3.9: Passive readiness only (metrics pack, relationships)
- ≥4.0: Proceed with Phase 2–4 readiness
Phase 1: Valuation Drivers by Buyer Type
Load references/valuation-drivers.md and saas-outcomes/references/exit-metrics-matrix.md.
| Buyer type | Metrics they weight | Red flags |
|---|---|---|
| Strategic | Product fit, customer overlap, talent | Customer concentration; IP gaps |
| PE | EBITDA, NRR >110%, predictable renewals, efficient GTM | High burn; founder dependency |
| Acqui-hire / small M&A | Team, tech (Latka sub-$10M ARR) | No product velocity |
| Bootstrap acquirer | Profitability, clean cap table, low churn | Messy books; cap disputes |
Scale thresholds (planning): $1M ARR acqui-hire possible; $5M strategic interest; $10M+ serious conversations; $20M+ banker-led if inbound.
Multiples (indicative): Strategic 5–15x ARR; PE 8–12x ARR or 15–25x EBITDA; bootstrap 4–8x ARR or 3–6x SDE. See templates/valuation-sensitivity-table.md.
Phase 2: Due Diligence Package
Prepare before anyone asks. Load references/due-diligence-metrics-pack.md.
Financial: 36 mo P&L; ARR bridge; cohort NRR/GRR; fully loaded CAC/LTV Legal: Cap table; IP assignments (contractors critical); material contracts Technical: SOC2 or equivalent; architecture; DR Commercial: Concentration; churn reasons; documented playbook
Phase 3: 12–24 Month Runway
Load references/buyer-readiness-checklist.md and templates/exit-readiness-scorecard.md.
| Phase | Focus |
|---|---|
| Months 1–6 | Cap table, IP, metrics pack, concentration plan |
| Months 7–12 | NRR trend, GTM repeatability, founder dependency ↓ |
| Months 13–18 | Market signals, partnerships, data room 80% |
| Months 19–24 | Counsel, LOI, diligence (60–90 days), close (30–60 days) |
Phase 4: Exit Options
| Option | Valuation basis | Typical timeline |
|---|---|---|
| Strategic acquisition | ARR × growth + synergy | 6–12 months |
| PE (majority) | EBITDA + ARR growth | 4–8 months |
| Bootstrap sale (MicroAcquire/GetLatka) | ARR/SDE, churn | 3–6 months |
| Acqui-hire | Team value | 2–4 months |
| IPO | $100M+ ARR, Rule of 40 | 12–18 months |
Cross-ref: saas-outcomes/references/bootstrap-vs-vc-paths.md for hold vs sell.
Phase 5: Deal Structure — Earn-Outs & Deferred Consideration
When LOI includes earn-out, seller note, or rollover — model cash at close first, not headline EV. Load references/negotiating-earn-out.md:
| Topic | Founder sensibility |
|---|---|
| When fair | Real diligence gap; metrics you already run; want to stay 18–24 mo |
| When trap | >40% at risk; buyer controls OpEx; vague metrics; at-will + forfeiture |
| Typical at risk | 15–40% mid-market; bootstrap sales often lower earn-out % |
| Walk | Cash at close below floor; >50% at risk without audit/carve-outs |
Negotiation artifacts: templates/earn-out-term-sheet-review.md (worksheet), templates/valuation-sensitivity-table.md (hold vs sell + deferred scenarios).
Related structures (high level):
- Retention bonus — time-based; prefer separate from performance earn-out
- Rollover equity — upside alignment; understand liquidation prefs
- Seller financing — only with security, market interest, clear subordination
Legal handoff: Contract language → M&A counsel. Commercial velocity → deal-desk/references/legal-gtm-playbook.md (Pattern 29). Not legal advice in this skill.
Reconcile structure norms → references/benchmark-reconciliation.md (Earn-Out vs Upfront Cash).
Output Format
Exit readiness assessment with: buyer-type fit, valuation range (low/base/high with method named), diligence gaps, 24-month timeline, scorecard summary.
Quality Check
- [ ] Buyer type identified (strategic vs PE vs bootstrap)
- [ ] Valuation method matches buyer (ARR vs EBITDA vs SDE)
- [ ] Metrics pack items mapped to gaps
- [ ] No guaranteed valuation claims — ranges and assumptions only
- [ ] Cross-refs to
saas-metrics-calculator,financial-modeling,saas-outcomes
Common Pitfalls
- Missing IP assignments. Contractor IP gaps kill deals — fix in month 1–6.
- Customer concentration. One logo >20% ARR → un-acquirable or deep discount.
- Founder dependency. Acquirer buys key-person risk, not a company.
- Optimizing ARR before NRR. Diligence strips low-quality revenue.
- Shopping the company. Inbound from relationships beats outbound "for sale."
- Headline EV without cash-at-close math. Earn-out traps look like big deals. Fix:
earn-out-term-sheet-review.mdbefore signing. - Accepting EBITDA earn-out without carve-outs. Buyer can cut marketing and void payout. Fix:
negotiating-earn-out.mdgovernance section.
Execution Artifacts
references/framework-notes.md— named frameworks and agent routingtemplates/output-template.md— deliverable shellscripts/check-output.py— lightweight validatorreferences/valuation-drivers.md— strategic vs PE criteria, EBITDA vs ARR, adjustment tablereferences/buyer-readiness-checklist.md— 24-month prep timelinereferences/due-diligence-metrics-pack.md— standard metrics export for M&Areferences/negotiating-earn-out.md— earn-out playbook, levers, decision tree, anti-patternstemplates/exit-readiness-scorecard.md— 1–5 scoring worksheettemplates/valuation-sensitivity-table.md— ARR, EBITDA, DCF, hold vs selltemplates/earn-out-term-sheet-review.md— founder worksheet for LOI/term sheet
Cross-skill artifacts: saas-outcomes/references/exit-potential-scorecard.md, saas-outcomes/references/exit-metrics-matrix.md, saas-outcomes/references/bootstrap-founder-playbook.md, financial-modeling/references/unit-economics-exit-bridge.md, references/benchmark-reconciliation.md
Related Skills
saas-outcomes— path choice, exit-metrics matrix, bootstrap vs VCsaas-metrics-calculator— formulas and benchmarksfinancial-modeling— unit-economics-exit-bridge, DCFfundraising-strategy— alternative to exit if metrics support raisesoc2-compliance— enterprise diligence readinessequity-management— cap table cleanup
⚠️ Disclaimer
This skill provides general informational guidance based on publicly available frameworks and operator experience. It is NOT legal advice, accounting advice, tax advice, or financial advice.
Consult qualified professionals for your specific situation — attorneys for legal and M&A matters, CPAs for tax and accounting. This skill does not create a professional-client relationship.
