IT Businesses – To Grow & Scale Or To Cash In & Sell?
Dave Kauppi of Mid Market Capital looks at the dilemma faced by many tech businesses – should you sell the business or hold on to it and grow / scale the business for a later sale?
Owners of software businesses are often frustrated by an inability to grown beyond a certain level. If you’ve reached that stage, argues Dave, you should consider extracting value by selling the business.
It may be that the tech side of the business is an offshoot of an existing business and lacks the sales or other talent to propel it forward. Or it could be that the founders / owners have reached their limits and need external capital / skills to take the business “to the next level”. They are faced with two choices – a strategic partnership or an outright sale of the business.
Often the best approach is to seek to be acquired by a larger software or information technology company that has the client base and sales resources to leverage with your hot new product. It is important that you manage your expectations, however. If you are below $50 million in revenue, Microsoft, Google, IBM, Oracle and the other multibillion dollar software firms are not going to buy you. There is the occasional outlier that defies this rule, but large corporate development people do not even blink unless you are big enough to move their needle. So if you are a $3 to $25 million in revenue firm, your buyer is most likely a $25 million to $300 million software or IT services firm.
Read the full article here.