Wojciech Seliga provides advice on selling an IT business based on his experience co-founding and later selling two software companies. He discusses: 1) Reasons founders may want to sell a business, such as needing serious investment, personal issues, founder relations, or fear of the future. 2) Reasons a company may be acquired, such as to grow revenue, acquire talent/intellectual property, or eliminate competition. 3) The timeline of selling a business, from initial conversations through negotiations, due diligence, and closing the deal. 4) Key areas examined during due diligence, including products, customers, finances, employees, intellectual property, and more.

1. Wojciech Seliga, 24.06.2023
Sprzedawanie własnego biznesu IT
Jak nie wtopić i co potem
1

2. About me
Former software engineer, now investor and advisor
• Software engineer by choice; started programming nearly 40 years ago
• Entrepreneur by accident
• Co-founded Spartez in 2007, co-CEO and CEO for ~10 years
• Sold two companies to international global companies
• Participated in a few other acquisitions (IT and non-IT) on a purchaser side
• Shared experience with many fellow founders who also sold their businesses
Skiing, tennis, badminton, mountains (cycling, hiking), building garden
2

3. I cannot tell you everything, but I’ll try to be as informative as possible
NDA
3

4. Spartez x2
TL;DR of our story
• Founded in 2007, born from love of Atlassian and Agile, and hate of a big
dreadful corporation
• Evolved into two separate companies with multi-million dollar revenue, strong
profitability and employing around 250 people
• Spartez - a service company (software house) - key software services
provider for Atlassian, sold to Atlassian in 2020
• Spartez Software - a product company - several products for collaboration,
one of the top vendors in Atlassian ecosystem, sold in 2021 to Appfire
4

5. IANAL
Good intentions, no responsibility taken!
5

6. or give up founders’ control
• serious investments needed to reach another
level, new market or successfully compete
• personal issues: frustration, health problems,
lost energy, lost vision, lost interest, not
enough skills to go bigger, new interests
• founders relations
• fear of the future (new competition, talent,
taxes, global economy, changing technologies,
government)
• founder needs a lot of money
• offer too good to refuse
• the company hit the milestone for selling it
Reasons to sell
6

7. Types of the acquisitions
• to grow own business - revenue (turnover) - non-
organic growth
• for already generated profit (especially bigger and
less risk-averse funds)
• for talent (people) - acqui-hiring or acq-hiring)
• for the know-how (key employees, patents,
business secrets) - eg. AI
• for customer-base - cross-sell, upsell
• for products - complimentary portfolio,
integrations (synergy effect), growth potential,
new markets (e.g. Atlassian -> Microsoft)
• to eliminate future threat (competition)
Reasons to buy
7
https://www.flickr.com/photos/diversey/48171830901 - CC BY SA

8. Timeline
Pre-Termsheet “Funnel”
Spread the
word
(or start
answering
M&A
inquiries)
initial
conversations
NDAs deeper talks
serious
conversations
initial
proposals
negotiations termsheet
Time: usually 1-4 months
8

9. Termsheet (or Letter of Intent)
• Serious commitment from both sides to close the deal, unless a big fuckup found
• Purchase Price (can only go down in case of problems found) and payment conditions
• Main conditions (e.g. role of founders, employee retention)
• Equity awards
• Confidentiality, exclusivity
• Delaware law
• Usually short document (up to a few pages)
• Atlassian made it even open: https://worklifeblog.atlassian.net/wiki/spaces/WLB/pages/196609/
The+Atlassian+Term+Sheet. Big kudos to them!
• Gating moment for Due Diligence to commence!
9

10. Timeline
Post-Termsheet Period
termsheet
Time: usually 1-4 months
Due Diligence
(1 - 2 months)
Deal Documents drafting &
finalisation
Signing
deal
Internal
Comms
Formal approvals
Buy-ins
Closing
Conditions
Closing
amount
of
work
Comms
preparation
10

11. Be prepared for 10x more work & stress than you think
it would involve
Hire good lawyers!
Countless meetings and requests, tens of people involved (on the acquirer’s
side), hot scanner, dozens of documents prepared, hundreds of pages to
review, clarify, negotiate, review one more time …
11

12. Due Diligence
standard focal points
12

13. 10
Products & Customers
13

14. 9
Revenue channels
14

15. 8
Security
15

16. 7
Finance & Accounting
16

17. 6
Licenses, concessions, authorisations
17

18. 5
Taxes
18

19. 4
Personal & Customer data
19

20. 3
Staff
20

21. Employees are your assets
• Org chart (everyone counts!)
• Roles & Responsibilities
• Levels
• Salaries
• Status (e.g. intern, probation, fixed term, leaving)
• Performance issues (and PIPs)
• Bonuses & perks
• Disability, diversity, equal treatment, misclassification
• Attrition, departures, exit interviews, competitors
• Attraction and retention strategy
• Risks and anticipated problems
• Work permits
Staff
21
https://www.flickr.com/photos/102642344@N02/10187142295 - CC BY 2.0

22. 2
Key employees
22

23. People are key assets of software companies - your buyer
knows it!
• buy-in from your leaders and key
employees (difficult: secrecy vs
involvement)
• current R&R and future expectations
• financial & equity expectations
• continuity of the business
• risk diversification
• scalability of the business
Key employees
23
https://www.flickr.com/photos/bcgovphotos/5710663958 - CC BY-NC-ND 2.0

24. 1
Intellectual Property
24

25. cleanness & ownership
• source code ownership
• digital art (e.g. logos)
• patents, trademarks
• 3rd party licenses used (viral licenses or
copyleft)
• StackOverflow snippets
• contracts with employees, contractors,
suppliers, students (civil contracts)
• licenses granted
• founders’ code
IP
25
https://www.flickr.com/photos/arselectronica/13994747444 - CC BY NC ND 2.0

26. 0
Rightful representation
26

27. Absent on the list
Far less important (or perhaps easy for own verification…?)
27

28. Physical
assets
computer hardware, office equipment
28

29. Software
quality
source code, architecture, tests, dev env & processes, known bugs
29

30. Products
functionality
features, limitations, APIs, integrations, resource utilisation
30

31. Product Company Acquisition Scale
Whereas there is some value on the right, far more value is on the left
31
• Costs
• Software quality
• Functionality
• Physical assets
• Processes
• Revenue & trends
• Customers
• Competitive advantage
• Clean IP
• Crew

32. Due Diligence - Summary
• A long, stressful, exhausting and bureaucratic process (especially for the acquired company)
• High costs (lawyers, consultants, time of numerous employees “under the tent”)
• Exclusivity as an obvious thing
• Very difficult for the seller - confidentiality & doing business as usual
• Very long checklists of documents to submit for review
• A lot of stress (finding all old documents) and mundane work (like scanning, translating, explaining)
• Tens of people involved (easily >50) on the acquirer side (and their consultants)
• Relatively few people involved on the seller side (secrecy!)
• Virtual Data Room
• The offline archive
32

33. The anatomy of the agreement (deal documents)
… Or why it’s far more complicated than you think
• Share Purchase Agreement (SPA)
• often surprisingly small (10 - 30 pages)
• Disclosures (Representations and Warranties)
• often several documents - so called schedules
• easily hundreds (!) of pages
• Covenants
• Closing Conditions
• Closing Logistics
• permitted decisions (typically BAU)
• permitted dividends
• payout
• Shares Transfer Agreement
registration
ownership
accounting
real estate
tax
indebtedness
bank
employees
fixed assets
transaction fees
defects
material contracts
contaminants
domains
licenses used
bonuses
privacy
permits & concessions
IP
labour unions
contractors
suppliers
misconduct compensation
employee benefits
insurance
identified risks
major customers
representation
statutory consents
payoff letters
location of the sources
licenses given
33

34. Warranty
Why lying is a very bad idea
• Unlimited warranty for fundamental
representations and warranties
• Several years (usually >5) for other
representations and warranties (e.g.
with tax implications)
• Full responsibility for the fraud
34
• Penalties up to the purchase price
• Earn-out
• Payment with equity & vesting
schedule
• Withholding Amount or Deal
Insurance
What How

35. Closing
The last 100 meters
• corporate structure changes (e.g. transformation)
• paying back any current liabilities
• solving employee problems
• converting employees
• cleaning up company-founders affairs
• paying out allowed dividends
• preparing fresh financial statement
• meeting all other conditions defined by the parties
35

36. How Much?
Long expected question…
36

37. Yours truly
“Your company is worth as much as the
highest serious offer you could get”
37

38. Service company
• profit-based valuation
• stability of the business
• diversification of the customers and/or
the quality of the existing contracts
• staff turn-over
• staff-fit (technology, culture, location,
structure)
• cost structure (e.g. salaries, office costs)
• usual valuation: 4 - 8 x EBITDA
• turnover-based valuation (ARR for
subscription based business)
• ARR (or MAU/DAU) growth dynamics
• potential of the product(s) (TAM size)
• quality and reputation of the product(s)
• customer-base fit
• portfolio fit
• go-to-market strategy fit
• know-how fit
• unusually high (or uncuttable) costs
• usual valuation: 3 - 20 x ARR*
Product company
*but in reality varies crazily and changes dynamically, 50-100 x ARRs are not unheard of (e.g. Figma acquisition by Adobe with >100 multiplier)
38

39. Lessons learnt
• If something is not written down (and signed), it does not exist for the buyer
• The order (written rules, processes, signed documents, consistency!) is your
friend. The chaos is your enemy.
• The order != bureaucracy.
• The order turns into chaos unless you take care of it all the time (refactor!)
• Human factor is a very serious risk
• Selling period is a bad time for fixing your company. First fix, then start selling.
39

40. All these things are important for running
a healthy company, not just selling it!
40

41. Life after exit - what next?
41

42. Large Capital Stress Syndrome
42
10 000 000 PLN 17% inflation 1 700 000 PLN annual loss ~1000 PLN / hour
140 000 PLN / month
LCSS

43. The only person in the room…
43
“
”
You are the average of the five people
you spend the most time with.
Jim Rohn

45. Dealing with post-exit problems
• not selling at all :)
• staying at the acquired company or getting a new role in the acquirer
• starting new businesses (warning: contractual clauses can make it difficult!)
• becoming executive advisors or coaches
• becoming investors
• teaming up with other people in similar situation (e.g. in private equity funds)
• becoming teachers
• becoming travellers or moving to “I can afford living here well for 100 years” countries
46

46. Think about your future post exit
upfront!
47

47. Build and sell your company before you
are 42 years old or as developer you are
screwed…
48
NOT REALLY
• building and selling a company is a flawed goal
• happy & awesome “elderly” developers do exist
• balance the risk/award/fun by joining an early stage company or a startup
• the “post-exit heaven” may not exist or is different what we expect …

48. Parting thoughts and the wrap up
49

49. Having a strong professional network
and good reputation is invaluable
50
Both before and after the exit

50. Build your company as if you were to work
there until the end of your life.
Sell it as if you were to sell it to your best friend.
51

51. Good luck in growing your own businesses
(even if your ownership share is very small)!
Have a great exit and a life afterwards, if it’s your decision.
52
Thank You!