They're already settled for life with the existing business. The feedback they got from the potential buyer is what is missing, the business is too dependent on them and if they're able to remove themselves from the equation more and more it'll be a great lifestyle business where they're set for life.<p>The other factor is the buyer probably looked around at competitors and noticed there was another business less valued that they could pump the same capital into and outgrow this business.
A bit of a flag are the timelines here? 6 months? 7 LOI's?<p>This of course depends on your options, if you must raise funds and have no one else talking with you, take all the time in the world of course.<p>GREAT that the investor provider feedback. Fantastic to take it and improve product (of course, investor could have done this when they had a board seat as well).<p>Not clear that they couldn't have ID'd these issues a LOT earlier.<p>That said, going through this once will have given you HUGE insight into what it will take to go through it again. And you will almost certainly get a better price if the metrics / ARR etc all are going the right way, and your docs are in order.<p>But deals that someone really wants to have happen tend to move a bit quicker (Facebook buying Instagram might be an example?)<p>That said, until the wires hit, nothing is solid.
A deal which stretches on for this long (6+ months) in limbo is almost never getting closed. If you are the party with greater interest (whether buyer or seller), you need to focus on getting a <i>public</i> commitment ASAP. Due diligence, audits and all other details can be worked on after that.
> The buyers were nice enough to give us the precise reason for their drawback:
- churn
- business too dependant on us<p>> About the second point, I was also surprised because we already talked about it a lot.<p>> And this is why we agreed to stay as long as 18 months to train a new team.<p>Wow, that sound so short. When acquiring a business for multiples of the ARR, you <i>need</i> long term success to break even. If the founding team wishes to leave ASAP after selling, barley giving enough time to find a train a replacement, I can understand that the buyer has cold feet. Especially if churn is a concern.<p>I wasn't in the discussion, but I bet you could have closed the deal, by negotiating (potentially bigger) earn outs on a longer period (3 to 5 years), showing confidence in the long term success of the company. But to me, 18 month sounds like a bare minimum where objective can be achieved by aggressively pushing the company potentially even hurting it on the long term.
I've been on the other side as a buyer. Although I work with 'main street' companies, not high tech, I think there's a lot of generalizable lessons. One thing to keep in mind is that some buyers have substantially all of their eggs in your basket and others will constantly have multiple deals in the pipeline. When you enter into the LOI phase with someone, you want them to be very motivated to close in order to make the time / disclosure / trade secrets risk worth it, so I would encourage sellers to attempt to enter LOI only with motivated buyers that have a high likelihood of closing the deal. A few hallmarks of motivated buyers per my experience:<p>- The buyer will also be the CEO: the more the buyer looks like he/she will package your business up and pass it along, the lower the likelihood that they close (and the worse your earn out is likely to perform)<p>- Good buyer / company fit: similar to point one, do not let people tell you they can run this company. Grill them just like you would if you were hiring a CEO to replace yourself. Buyer / company fit is huge and when they say 'the owner is too important to the company' what they often mean is 'I don't think I can run this well'. Someone who knows and is building a portfolio in your space will often be a better buyer than someone looking for 'diversification'.<p>- Avoid tire kickers: Background in your space is good, but being a competitor to you is bad. If they could potentially gain valuable insider information as part of diligence, be wary of moving forward.<p>- Small team size: smaller firms have less in the pipeline and more motivation to close on the deal in front of them. Remember that they have the same KPI (IRR primarily) and runway problems that startups have. For them, no company = no ROI.<p>- Ensure they're well funded: The caveat to the above is that small teams or solo buyers may not have the funds lined up, so be very sure that they actually have the investors / NW to buy the business before moving forward.
Correction: "How we <i>thought</i> wewere a few days away from being settled from life"<p>A healthy dose of pessimism helps a lot in cases like this. Getting your hopes up does nobody any good. Leave the money out of it, and treat it like any other customer transaction. When the money actually comes, then you have something to talk about :)
No evidence for this particular case but can investors or competitors just gain private information about a company by pretending to buy it? It's free and the info is very detailed.
I really like the guys from ScrapingBee, they're completely transparent, how they got to where they are is there for all to see, and the product is quite good too. It's a pity that deal didn't work out for them, but I'm sure a big exit is on the cards for them soon.
This happens way more often than you'd expect.<p>Think of it like dating. How any people did you date before you actually got married. For most, it wasn't the first person.<p>Seller beware.
That’s why you also do due diligence on your prospective buyer. Also when talks are reasonably advanced, ask for a non-refundable advance as a proof of love.