How to Sell a Tech Company - Founder's Exit Guide
How to Sell a Tech Company: Complete Guide for Founders
If you're a tech founder contemplating the sale of your company, you're not alone.
With increasing interest from private equity firms, strategic buyers, and even other tech entrepreneurs, the market for tech company acquisitions is more active than ever. Whether you're planning for retirement, exploring new ventures, or capitalizing on favorable market conditions, selling your tech business requires careful planning and strategic execution.
This guide walks through the full M&A journey for tech companies generating $2M–$20M in annual revenue and $350K+ in EBITDA. These companies fall within the lower middle market—a segment where tailored guidance and smart positioning can yield significantly higher exit multiples.
💡 Learn why SaaS founders are buying brick-and-mortar businesses as part of their growth strategies.
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Why Tech Companies Are Attractive to Buyers
Tech companies possess unique attributes that make them appealing acquisition targets:
Recurring Revenue Models: SaaS and subscription-based models offer predictable income streams.
Scalability: Digital products can often scale without proportional increases in cost.
Intellectual Property: Proprietary technology and software can provide competitive advantages.
High Margins: Tech businesses often operate with higher profit margins compared to traditional industries.
These factors contribute to strong valuations, especially for companies with $1M–$20M in ARR with EBITDA values exceeding $250K.
Step 1: Understand Your Company's Value
Tech companies are typically valued using a multiple of EBITDA, factoring in growth potential and recurring revenue.
One of the biggest mistakes we see from founders is assuming their company is worth 10x EBITDA based on hearsay. While some tech companies command such multiples, most don't.
Here are realistic baseline expectations:
Baseline multiple: 4x–6x EBITDA
Premium multiple: 7x+ EBITDA for companies with strong growth, low churn, and proprietary technology
Companies with $500K+ in EBITDA and solid financials attract the most buyer interest. If you have over $1M in EBITDA along with a scalable product and loyal customer base, you're in an excellent position to receive multiple offers.
Step 2: Prepare Your Company for Sale
Before going to market, focus on these key areas:
Financial Documentation: Ensure clean, accurate financial statements with clear revenue recognition.
Customer Contracts: Document client agreements, especially those with recurring revenue.
Technology Assets: Maintain up-to-date records of your software, code repositories, and intellectual property.
Operational Processes: Standardize procedures and document workflows.
Team Structure: Highlight key employees and implement retention plans.
Buyers will place a premium on predictable, contractually obligated revenue and well-documented operations.
Step 3: Minimize Owner Dependence
Reducing reliance on the founder increases a company's attractiveness to buyers. Begin transitioning:
Client Relationships: Assign account management to senior staff.
Sales Processes: Develop a sales team that operates independently.
Strategic Planning: Empower your leadership team to make key decisions.
Technical Development: If founders handle coding, hire and train senior developers to take over codebase management and future development. Ideally, you are simply in a position of providing high-level product direction decisions and oversight (more easily replaceable by buyers).
The more your company can operate without your daily involvement, the more valuable it becomes to potential buyers.
Step 4: Partner with an M&A Advisor
An experienced M&A advisor can help you:
Position Your Company: Highlight unique value propositions to attract buyers.
Identify Buyers: Leverage networks to find strategic and financial buyers.
Navigate Deal Structures: Understand and negotiate terms that align with your goals.
Manage Due Diligence: Coordinate the information flow and address buyer concerns.
Maximize Valuation: Create competitive tension to achieve the best possible price.
Look for an advisor with experience in tech company transactions who understands current market dynamics and buyer expectations.
Why SaaS Founders Are Exiting and Buying Brick-and-Mortar Businesses
An emerging trend in the M&A landscape is tech entrepreneurs acquiring traditional businesses to diversify revenue streams and leverage operational synergies. This strategy allows tech founders to apply their expertise in automation and scalability to established industries.
Learn more in our article: Why SaaS Founders Are Buying Brick-and-Mortar Businesses
Common Mistakes When Selling a Tech Company
Avoid these critical errors that can decrease your company's value or derail a potential sale:
Inadequate documentation of intellectual property: Failing to properly document and protect your proprietary technology, code repositories, and development processes can significantly reduce buyer interest.
Over-reliance on key technical founders: When technical founders are too deeply embedded in product development or maintenance, it creates succession risk for buyers.
Poor customer data management: Incomplete or disorganized customer data, usage metrics, and churn analytics make it difficult for buyers to evaluate your company's health.
Inconsistent revenue recognition: Tech companies often have complex revenue structures. Unclear or inconsistent revenue recognition practices can raise red flags during due diligence.
Weak cybersecurity measures: Insufficient security protocols or unresolved vulnerabilities can derail deals during technical due diligence.
These mistakes can significantly impact your company's valuation and attractiveness to potential buyers. Address them early in your preparation process to position your company for a successful exit.
Valuation Rules of Thumb (The “Gold Standards”) for Tech Companies
Tech buyers use simple benchmarks to quickly evaluate businesses. There are significant differences between types of tech companies—some are service businesses with tech enablement, while others are hands-off, self-serve SaaS products.
These healthy ranges serve as general guidelines. While every business is unique, these rules of thumb can help with initial assessment. For specific advice, connect with us HERE.
FAQs About Selling a Tech Company
How long does it take to sell a tech company?
Typically, the process takes 6–12 months, including preparation, marketing, due diligence, and closing.
What are common deal structures?
Deals may include cash payments, earn-outs, stock options, or a combination, depending on buyer preferences and company performance.
How can I increase my company's valuation?
Focus on growing recurring revenue, reducing churn, documenting processes, and building a strong management team. Start with downloading our free million dollar exit guide HERE.
Should I tell my employees about the sale?
Timing is crucial. Consult with your M&A advisor to determine the best approach to maintain morale and ensure a smooth transition.
Final Thoughts: Planning Your Tech Company Exit
Selling your tech company represents a pivotal moment that can unlock significant value from your innovation and market presence. Success requires careful preparation across multiple dimensions - from clean financials to scalable operations.
At Breakwater M&A, we specialize in helping technology founders navigate complex exit processes. Whether you're ready to sell now or planning for the future, our team can help you optimize your company's value and secure the right buyer.
Schedule a confidential call with our team HERE.
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