Lessons from my First Exit

  33-minute read
  tinypilot • bootstrapping

In April of this year, I sold TinyPilot, the bootstrapped hardware company I founded and ran for four years.

I wrote a post in May that told the story of the sale, but I’d like to share more about the practical lessons I learned from the experience.

In this post, I’m sharing what went well, what I want to improve in the future, and what surprised me about selling my business.

Table of contents 🔗︎

Details of the sale 🔗︎

  • Sale price: $598,000 (2.4x annual earnings)
  • Broker commission: $88,900
  • Legal fees: $18,297
  • My profit from the sale: $490,803
  • Payment terms: Full cash payment at closing (no earnout, no seller financing)
  • Seller obligations: 30 days of free consulting (max of 80 hours total)
  • Lifetime profit from business (including final sale): $920k over four years

What I’m glad I did 🔗︎

Invested heavily in documentation 🔗︎

Before I started my first business six years ago, I read the book Built to Sell by John Warrilow. It encourages founders to build businesses that run smoothly without the founder actively managing day-to-day activities. An effective company should have a set of well-defined processes and a team that knows how to execute them.

I’ve always loved reproducible processes, so when I started building the team for TinyPilot, I invested in documentation. Rather than train people in person or on video calls, I wrote playbooks in our Notion workspace. If we ran into issues with our playbooks, we’d revise them to reduce errors in the future. When new team members joined, they’d onboard via the same playbooks, and we’d continuously improve them.

After I sold TinyPilot, the contract called for a 30-day transition period, during which I would provide up to 80 hours of consulting time. The buyer only needed about 25 hours. The team already knew how to run the day-to-day of TinyPilot, and the buyer had access to all of our documentation. Most of my time post-transition was just introducing the new owner to the team and our key vendors.

Created a transition checklist 🔗︎

As I prepared the company for sale, I started a checklist of everything I wanted to do before selling. It included things like deleting obsolete playbooks and ensuring that all of our account credentials were in the company Bitwarden account.

As we entered due diligence, I expanded this checklist to include things that would need to happen during the transition. I split the checklist into four categories:

  • Things that must happen before closing
  • Things that must happen a day or two after closing
  • Things that should happen within the first week after closing
  • Things that should happen within the first month after closing

The checklist turned out to be extremely valuable, especially the week of the closing. So many accounts were changing hands, and processes needed tweaking for the new owner, so it was helpful to have a checklist I created in calmer times.

Worked with a broker I trusted 🔗︎

I used to have a negative view of M&A brokers. When I thought “broker,” I imagined someone who just wanted to close deals as quickly as possible and didn’t care about anything else. I imagined them saying things like, “Let’s bottom line this,” or “Time for Jäger bombs!”

When I attended Microconf in 2023, I met Chris Guthrie, an advisor at Quiet Light Brokerage. He immediately came across as laid-back, low-pressure, and founder-focused. He was a former founder, and he emphasized the importance of finding the best deal for the founder, not necessarily the quickest payout.

I appreciated working with Quiet Light because our incentives felt aligned throughout the process. The pool of bootstrapped founders looking for M&A brokers is small and relatively tight-knit, so Quiet Light has natural pressure to maintain a positive reputation.

In discussions about the sale, some people balked at Quiet Light’s $89k fee, as it represented 15% of the sale price. I still think that was a fair commission, as they found me a buyer I couldn’t have found on my own and kept the deal on track throughout the process.

Avoided seller financing 🔗︎

I didn’t need cash desperately, so I was initially open to a buyer paying me in installments over several years. When I spoke to other founders, they warned me away from seller financing. As one founder put it:

If you finance the purchase yourself, you now work for the buyer.

I was puzzled. How does financing the sale mean I work for the buyer?

The founder explained that you don’t get paid unless the business makes money, and the new owner knows that. The new owner can push management responsibilities onto you, knowing that if the business fails, you can’t collect your debt.

The other risk of seller financing is that I, as a small lender, don’t have tools or experience to collect a loan if a buyer defaults. The buyer might decide they simply don’t feel like paying me even if they have the cash on hand. For a deal that’s under $1M, I’d probably spend more in legal fees than I could hope to collect from an unscrupulous buyer.

I would have been open to seller financing had there been no other options available, but it would be a red flag to me that the buyer couldn’t secure a loan from a bank. Further, I’d need to charge well above prevailing interest rates because my risk would be higher than a bank’s.

Assumed I’d get nothing after closing 🔗︎

From talking to other founders about their exits, most people seemed disappointed with the payments they were supposed to receive after closing. In some cases, the buyer failed to honor the contract, but it was too small an amount to litigate. In other cases, the new owner used creative bookkeeping to avoid paying performance-based bonuses.

The advice I heard consistently was to structure the deal so that if I got nothing after closing, I’d still be happy. I should treat anything after closing as an unexpected bonus.

The buyer and I did send some money back and forth after closing to account for little costs that we forgot to include in the deal, and that went smoothly. These amounts were a tiny part of the overall transaction, less than $5k. Had the buyer refused to pay, I would have been frustrated, but it would have been easy to move on.

Recognized the limits of my influence on the business post-close 🔗︎

One of the most important criteria for the sale was finding a new owner who wanted to continue investing in the product, the team, and our customers.

I asked other founders for advice on avoiding a buyer who’s out to gut the company and squeeze everything for short-term profits. Their advice was that I can’t control what the new owner does after closing, so I shouldn’t think about it.

It’s true that I can’t control how the new owner runs their business, but it’s possible to screen out risky buyers. For example, if a private equity company like Idera approached me, I’d notice that they have a history of buying companies and laying off their staff, so I’d have a good guess about their plans for TinyPilot.

I looked for buyers whose vision for the company aligned with mine, but I also recognized that my influence over the company ended on closing day.

The new owner runs the business his own way, but his approach matches what we discussed about his vision for the company. I didn’t guarantee this outcome, but I think screening buyers increased my odds to some degree.

Revised the broker agreement so that the broker gets paid when I get paid 🔗︎

The first draft of Quiet Light’s broker agreement said that their fee is a percentage of the purchase price, and it’s due at closing.

The problem was that I, as the seller, may not receive the full purchase price at closing. I sign with the broker well before I know the terms of any deal they might find for me.

If the purchase agreement involved deferred payment, I’d have to pay Quiet Light upfront and wait several years until I received my full payout. Worse, if the buyer failed to make payment after closing, I’d have paid a broker commission on money I never received.

I requested that Quiet Light revise their broker agreement to say that they only get paid when I get paid, and they quickly agreed.

I was relieved that they were willing to adjust the contract, as the new payment terms kept incentives aligned between me and Quiet Light. They’d have just as much desire to push back against deferred payments as I would.

Discussed contentious issues without lawyers first 🔗︎

The buyer’s attorney drafted the asset purchase agreement for the sale rather than using a pre-made template from the broker. For the most part, we agreed on the initial draft, but there were a few key terms where we had different expectations.

We could have each told our lawyers what we wanted and had them hash it out, but lawyers get expensive fast — mine was $550/hr.

Lawyers also slow down the process. The buyer and I could usually arrange to meet within one business day, whereas it would have taken a week to arrange a meeting with both of our lawyers. For a process that already felt long at three months, every day mattered.

When the buyer and I ran into disagreements in the contract, we’d first talk one-on-one. In these conversations, my goal was to go past the contract terms and find out the underlying need.

For example, the first draft of the contract called for tight restrictions on discussing the sale publicly. I spoke with the buyer about why the clause was there, and it turned out that there were only a few things the buyer cared about keeping private. We adjusted the wording from “you can’t discuss anything publicly” to “you can’t discuss these two specific things publicly,” and we both felt good about the compromise.

Used dedicated accounts for the business 🔗︎

Part of what made TinyPilot’s ownership handoff smooth was that its accounts and infrastructure were totally separate from my other business and personal accounts:

  • I always sent emails related to the business from my @tinypilotkvm.com email address.
  • I always used @tinypilotkvm.com email addresses whenever signing up for services on behalf of TinyPilot.
  • I kept TinyPilot’s email in a dedicated Fastmail account.
    • This wasn’t true at the beginning. TinyPilot originally shared a Fastmail account with my other businesses, but I eventually migrated it to its own standalone Fastmail account.
  • I never associated my personal phone number with TinyPilot. Instead, I always used a dedicated Twilio number that forwarded to my real number.
  • All account credentials were in Bitwarden.

After closing, handing over control was extremely straightforward. I just added the new owner to Bitwarden, and they took over from there. There were a few hiccups around 2FA codes I’d forgotten to put in Bitwarden, but we worked those out quickly.

What I’ll do differently in the future 🔗︎

Offer incentives for a cash buyer 🔗︎

The last time I bought a house, I requested a 10-day inspection period. I wanted to do standard checks with an inspector and an electrician before completing the purchase.

The homeowner pushed back and asked me to limit the inspection period to seven days. They were worried about the cost of keeping the house off the market for an extra three days.

And that’s a house! Its price is far more stable than a small business.

I didn’t realize how much it would cost to take my business off the market for three whole months.

Three months of due diligence meant three months where I was distracted from the business and spent 50% of my time on the sale itself. It also disincentivized long-term investments, as they’d reduce short-term profits and deflate the company’s valuation.

One of the biggest factors for closing time is how the buyer finances the purchase. In TinyPilot’s case, the buyer used a loan from the US Small Business Administration (SBA), which typically involves three to five months of paperwork and approvals. For TinyPilot, the time from signing the letter of intent to closing day was three months, so we were on the quicker side, but it still felt dreadfully slow.

The other subtlety of a bank loan is that it complicates the closing contract, which means you spend more on lawyers. Working through the requirements from the bank and the SBA probably consumed $10k in lawyer time on each side, so even if I accepted a lower price from a cash buyer, I’d make some of it back by reducing closing costs.

Cash deals involve fewer decision-makers and require less paperwork and bureaucracy. I’ve heard of cash deals closing in 30 days or less.

If I sell another business, I plan to offer incentives that make it easier for the buyer to purchase in cash. I could offer a discount for a cash purchase or make other accommodations to attract buyers who can purchase in cash and make a fast close.

Discuss key contract terms earlier in the process 🔗︎

The most stressful part of the sale was the contract negotiations, and I’m still not sure how to do it better.

I didn’t see the first draft of the contract until five weeks into due diligence. By that point, I felt like I was already in a terrible negotiating position. I’d invested so much time and revealed so much during due diligence that I felt exhausted and afraid of starting the whole process over with a new buyer.

It would be wonderful if the buyer had to present the entire purchase agreement at the letter of intent stage. That way, if I saw terms I didn’t like, I could request adjustments before ever taking TinyPilot off the market or participating in due diligence.

The problem is that buyers don’t want to spend thousands of dollars of lawyer time drafting a purchase agreement before they’ve gotten some commitment from the seller.

What I’ll try next time is to negotiate a few terms I care about at the letter of intent stage. I’d want to include things like:

  • Short transition time
  • Limited restrictions on confidentiality
  • Seller liability is limited to 50% of the sale price

Begin working with a lawyer earlier 🔗︎

When I started talking with a broker, I also found an M&A law firm to represent me in the sale. The lawyer reviewed the broker agreement, but I didn’t reach out to them again until I had the purchase agreement from the buyer.

I never asked my lawyer to review the letter of intent, as I figured there wasn’t much value in paying a lawyer to review something that wasn’t legally binding in the first place.

In retrospect, it would have been helpful to involve my lawyer at that stage, as the letter of intent sets a baseline for the purchase agreement.

Had I met with my lawyer earlier, they also would have helped me with other due diligence tasks like reviewing my existing contracts and gathering documents the buyer or lender would request later.

Working with a lawyer at the letter of intent stage also would have been a good opportunity to find out if I liked working with my lawyer. I ended up feeling dissatisfied with mine, but by the time I saw the issues, it was too late to replace him.

Create an unofficial “small stuff agreement” with the buyer 🔗︎

TinyPilot had a physical office that was a short drive from my house but a plane ride from the buyer, so they didn’t want to keep it.

We had about $1k worth of equipment in the office, but the value was spread over so many small items that the cost of liquidating it would cancel out whatever proceeds we’d collect. For example, we could sell our printer for $40, but the cost of interrupting an employee’s normal work to sell a printer is higher than $40.

Still, the stuff in TinyPilot’s office was a business asset, so the buyer and I felt like we had to define in the asset purchase agreement what should happen to it. We spent several hours enumerating everything of value in the office, working out a timeline of when the buyer would clear it from the office, and how long I’d extend the lease to facilitate that. The buyer and I probably spent $2k on lawyer hours trying to work out how to handle $1k worth of stuff that neither of us wanted.

If I were to do this again, I’d propose to the buyer a “small stuff agreement.” This would sit outside of the official legal documents and maybe have some header at the top saying, “Nothing in here is a real legal agreement.” And that’s where we could define things where we need to decide something, but the stakes are so small that if one side breaches the agreement, it wouldn’t matter.

Announce the sale to my team later 🔗︎

When should an owner announce a potential acquisition to their team?

If you keep the sale a secret until the deal closes, you’re effectively lying to your team.

If you’re completely transparent about the sale, you bear enormous risk. Members of the team might threaten to leave unless you offer them bonuses or promotions. Or the looming sale might kill their motivation and tank their job performance.

I had a good relationship with every member of TinyPilot’s team, so I didn’t think anyone would use my candor against me in bargaining. That said, people do unexpected things when a relationship is about to end.

I chose to reveal the sale to the team at the earliest formal step of the process: when I signed the agreement to begin working with my broker. That ended up being six months before closing.

I regret that decision slightly.

Nothing catastrophic happened, but announcing the sale affected management dynamics in certain cases and made it harder to work with employees on performance issues.

To the team, an acquisition meant the new owner could fire them or drastically change their role. If they wanted to interfere with the sale, they could scare off a buyer and slice $50-100k off the valuation. Worse, they could delay the sale and leave me in a position where I’m managing the company, trying to prepare it for sale, and caring for a newborn all at the same time.

I didn’t want a bad outcome for anyone, but the worst case for me was significantly worse than the worst case for any other member of the team.

If I do this again, I’d wait to tell my team about the sale until it’s a done deal, but I’d also make sure the team knows that an acquisition is always a possibility. I’d explain before I even start looking for a buyer that an acquisition might happen, and that the team won’t necessarily know it’s happening. If it did, I’d prioritize a buyer whose vision aligns with the team’s interests, as I did with TinyPilot.

This strategy is not ideal or fair to everyone, but it feels like the least bad of many flawed options.

Don’t catastrophize every setback 🔗︎

I found the due diligence process quite stressful and demoralizing, but I made it even harder on myself by catastrophizing everything.

Every time there was even a potential obstacle in negotiations, I began imagining exactly how this obstacle would ruin everything. I’d ruminate about the bad outcome so much that I’d feel like it already happened, and the deal was dead.

For example, TinyPilot uses the H.264 video encoding algorithm. It’s patented, so we had to get a license from the patent holder before we shipped that feature. During due diligence, we discovered that the patent license forbade me from transferring the license in an asset sale.

I immediately started imagining the worst possible outcome. What if the patent holder realizes they can block the sale, and they demand I pay them $100k? What if the patent holder just can’t be bothered to deal with a tiny business like mine, and they block the sale out of sheer indifference?

I played out negative scenarios all day, and it kept me awake for hours that night.

The next morning, the buyer emailed to say they’d already heard back from the patent owner. The wheels were in motion for a new license. I’d freaked out when there was no evidence of a problem in the first place.

If I sell a company in the future, I hope to worry less about potential disasters. I need to remember to sleep on things and see how they feel in the morning.

Reveal vendors earlier, but put tighter restrictions in the LOI 🔗︎

An experienced founder advised me to withhold the names of TinyPilot’s critical vendors until after the deal closed. They explained that you can force the buyer to sign something promising not to use the information if the deal falls through, but it’s hard to enforce that on small-scale deals. The only way to protect the information is not to share it at all.

I withheld the names of my vendors, but I wouldn’t do it again.

As part of due diligence, I had to share the last two years of TinyPilot’s bank statements. Our vendor’s names appeared frequently in the statements, so I had to go through a hundred PDFs searching for each vendor’s name, manually drawing black rectangles over them, and rasterizing the PDF to prevent leaks in the metadata.

A few days later, I sent an inventory report to the buyer and was horrified when he replied, “Who’s FooCorp?”

“FooCorp” (not their real name) was the very web-searchable name of TinyPilot’s electrical engineering vendor. I forgot that the report mentioned them, so I didn’t redact it before sending.

And then just a few weeks later, the buyer’s bank firmly insisted on seeing vendor names, so I had to reveal everything anyway.

If I sell a business in the future, my strategy will be to create a contract that forbids the buyer from acting on insider secrets they learn in due diligence. I’d guard trade secrets more carefully if I were selling to a competitor, but my default would be to rely on the contract to discourage bad behavior.

Hiding the names of key vendors makes due diligence so much harder. On top of all the contortions to withhold information, missing a single redaction can undo hours of tedious work.

Eliminate inventory from the broker’s commission 🔗︎

My only regret about my broker agreement with Quiet Light was that their commission included the value of TinyPilot’s inventory at the time of the sale.

The value of TinyPilot’s inventory could vary by a factor of four depending on where we were in the manufacturing cycle. It makes no sense to pay the broker $20k if my inventory happens to be high vs. $5k if my inventory is low.

Worse, I was selling my inventory to the buyer at cost. It’s not like the broker can negotiate a great price on my unsold inventory and earn their commission that way. If I have $100k in inventory, I only receive $90k for it after paying the broker their commission. The more inventory I had, the more money I’d lose in the sale.

That said, I got lucky, and the deal closed when TinyPilot’s inventory was at its ideal level for the sale. On closing day, we were a couple of weeks away from placing our next manufacturing order for the subsequent eight months. That was perfect because we were low but not so low that the new buyer was coming in understocked. On top of that, there’s wiggle room in calculating inventory value for the broker fee, and Quiet Light calculated it in a way that was especially generous to me.

Still, the broker fee on inventory was one more layer that made timing stressful. If the deal had stretched out another month, I’d have lost $10k on additional broker fees for the inventory.

If I do this again, I’ll push the broker to eliminate inventory from the fee, even if it means giving them a higher percentage of the sale price.

Assume from the start that nothing written is private 🔗︎

The acquisition was for TinyPilot’s assets, including all company emails. This seemed reasonable, as a lot of institutional knowledge is buried in old emails.

As I started thinking more about the sale, I realized that some of my email would be complicated to hand over. What if an employee had said something that was personal and private?

As a fictional example, imagine I had an email from an employee that said, “Ever since my father died, I’ve been struggling with anxiety and depression, and I’ve been feeling unproductive.” That email would be to Michael, their human co-worker, not Michael, the corporate owner of TinyPilot’s email assets. It felt strange and cold to sell that email to the new buyer.

Fortunately, I worked out an agreement between the buyer and the team that before closing, anyone could flag private, personal emails, and I’d purge them before closing.

There were also other sensitive emails, like conversations with my lawyer about the acquisition itself. I didn’t want the buyer to see our private discussions even after the sale was complete, so the purchase agreement excluded those emails from the sale.

In the future, I’d make two changes in how I approach emails in my business:

  • Make sure everyone on the team understands that in the case of an acquisition, any emails and meeting notes will transfer to the new buyer.
  • When working with lawyers and brokers on the sale itself, do it from a separate email account from the business I’m selling.

Define what happens to money flows around the time of closing 🔗︎

When we reached closing day, we realized the contract left a lot of ambiguity around who’s entitled to money flowing in and out of the business around the time of the closing:

  • How do you split bills for services that straddle the closing (e.g., a monthly charge that will be billed again a week after closing)?
  • What happens to money in PayPal or Shopify that hasn’t yet transferred to your bank?
  • Who pays when a customer purchases before closing but requests a refund after closing?
  • Who receives revenue from sales on closing day?
  • Who pays employees for work on closing day?
  • Who pays fees associated with closing (e.g., escrow fees)?

The buyer and I found amicable resolutions for everything after the fact, but I wish we had answered these questions more explicitly in the closing contract.

In the transition agreement, value calendar days more than work hours 🔗︎

Most acquisitions have terms around how much work the seller agrees to do after the sale to help the buyer with the post-close transition.

My initial offer to the buyer was that I’d do free consulting for two weeks after the closing for up to 40 hours per week. After that, he could purchase consulting hours from me at $180/hr for up to 10 hours per week.

The buyer counteroffered 30 days of free consulting with a maximum of 80 hours total. That is, the same total hours stretched over a longer period.

I knew a longer transition period would be a better deal for the buyer, but I didn’t realize how much it would cost me.

Even though I was available for 40 hours per week, the buyer couldn’t really use all of those hours. He’s taking over a team of six employees and learning to run everything, so it’s hard for him to direct my time enough to fill 40 hours per week right out of the gate.

I ended up only working about 10 hours per week, but there was still a high cost to me being available every workday for 30 days. There was nothing in the contract about how quickly I had to respond to emails, but I checked my TinyPilot inbox every hour or so. If I did two hours of transition work in a day, it was often spread into several 30-minute chunks, so I didn’t get much else done.

Disconnect non-transferable accounts from business email before closing 🔗︎

Sales below $1M are usually asset sales, meaning that the buyer is purchasing assets from the business but not the business itself. So, I technically still own a company called TinyPilot, but I transferred all of its physical and intellectual property to the new owner.

The few assets I kept were TinyPilot’s banking and payroll accounts, as they’re bound to the LLC itself. The problem was that I forgot to change the email address on those accounts before I handed over control of TinyPilot’s email to the new buyer, so they still had @tinypilotkvm.com emails.

I worked with the new owner to fix the email address on those accounts, but I wish I’d done it myself before transferring TinyPilot’s email.

Take even fewer dependencies on Google 🔗︎

All of TinyPilot’s account credentials were in Bitwarden, so transferring ownership of accounts was smooth. I just added the new owner as an admin in our Bitwarden organization, and he took possession of all the accounts.

The one account that couldn’t transfer over was Google. I used Google Cloud Platform for some TinyPilot services, and I had a dedicated TinyPilot GCP project, but it was within my personal Google account.

There’s a big “Migrate” button at the top of the GCP project settings page, so I naïvely thought pushing that button would let me — I don’t know, migrate the project to the new owner’s GCP account.

When the sale closed, I finally clicked that button and immediately saw this error message:

GCP’s project migration docs are a maze of confusing and incorrect instructions. The gist seemed to be that the new owner and I would each need to create paid Google Workspace accounts and go through some complicated process from there. We had a similar issue with some notes and old documents that I’d stored in Google Drive.

The new owner decided it was too much hassle to do the official migration, so I exported what I could, and we deleted the rest.

In general, I’ve tried to minimize my dependencies on Google, both personally and professionally. Google frequently burns me on corner cases like these, so this is a further reminder to depend on them even less.

What surprised me 🔗︎

Due diligence is unbounded, high-stress work 🔗︎

I greatly underestimated how labor-intensive the due diligence process would be.

At the start, I thought due diligence would be somewhat tedious but still straightforward. The buyer had already seen two years of profit and loss statements before they even signed the LOI. Maybe they’d spot-check a few bank statements to verify that my numbers were real. Perhaps I’d have an opportunity to show off my immaculate bookkeeping ledger, of which I was quite proud.

It turned out that the due diligence process required me to share all of my bank statements from the last two years. And that was just part of the first round of requests.

As we proceeded further into the due diligence process, I needed to create lots of one-off reports to demonstrate different aspects of my business, like how frequently our customers make repeat purchases or which platforms account for what percentage of our revenue.

I didn’t want to expose customer data, so I did custom processing on our reports to avoid leaking customer details. But the more I customized the reports, the more I risked introducing errors into my records. And if I made an error, the buyer would have grounds to sue me later for selling the company based on fraudulent data. So, even for simple reports, I felt stressed about doing them perfectly.

A non-cash buyer makes it harder to push back on due diligence requests. The buyer was presenting me with requests from both himself and the bank. The bank was hard to negotiate with because they didn’t care if the deal fell through. I was more comfortable pushing back against the buyer because he had skin in the game and was motivated to make a deal. But I can’t ask the buyer, “Is this request coming from you or from the bank? Because if it’s you, I’m going to say no; if it’s the bank, I’ll say yes.”

As you prepare to sell, everything costs 4x as much 🔗︎

When you sell a small business, the sale price is usually some multiple of your profit or revenue.

If your annual profit was $100k and businesses like yours sell at 3x annual profit, then you could sell your business for roughly $300k.

Now, imagine you decided to give one of your employees a $10k bonus. Your profit drops to $90k, so your business is only worth $270k. Giving your employee their $10k bonus costs you $40k: the initial $10k you paid plus another $30k in deflated valuation.

It’s not just bonuses — everything you spend money on is 4x as expensive as you’re preparing to sell. If you need to buy someone a new laptop, that $1k laptop now costs $4k.

You don’t strictly need a broker to sell 🔗︎

I liked Quiet Light and have no regrets about using them as the broker to sell TinyPilot, but I was surprised to see that I didn’t strictly need a broker.

My only frame of reference for a deal of this size is buying or selling a house. In that process, the broker does a lot of things I don’t understand or know how to do like listing on MLS or ensuring we’re following municipal regulations for the sale.

Quiet Light’s main contribution was finding a buyer, as that’s something I couldn’t have done on my own. After that, they’re outside of the critical path of the deal. Once we found a buyer, the heavy lifting of getting the deal to close was on my M&A lawyer to prepare and negotiate all the legal documents.

The M&A broker should provide guidance to keep the deal on track, which Quiet Light did. They even found a new lender when the buyer’s lender backed out. But if my broker had disappeared after the LOI, we could have completed the sale without a broker, whereas I couldn’t have closed without a lawyer.

If I sell a business in the future, I may forego a broker if I can find a buyer independently. As a first-time seller, it was worth 15% of the sale price to have an advisor on my side from start to finish. Now that I have more experience, I’d feel more comfortable going through the process on my own, but I valued the broker enough that I’d always keep the option open.

If the non-compete is too restrictive, you’re screwed 🔗︎

If a big tech company hires me as a developer, and the 500th page of my contract says I can never write software for any other company, a judge would likely reject that non-compete as unfair and unenforceable.

If, however, I sell my company, and the purchase agreement says that I agree to never work in software again, a judge might hold me to that promise. My lawyer warned me that judges are stricter in acquisition agreements, as they assume I had reasonable bargaining power and awareness of the agreement. If I signed a bad deal, it’s on me.

When reviewing TinyPilot’s purchase agreement, my lawyer carefully reviewed the non-compete clause with me to ensure that I was only agreeing not to work in the domain of KVM over IP devices rather than software or technology in general.

If there’s no cap on liability, you’re screwed 🔗︎

When you run a business in the US as a corporation or an LLC, the most you can ever lose is the value of the business itself.

If your business is worth $100k, and someone sues you for $5M, the worst that can happen is that they take your business. They can’t take your house, car, or first-born child — only the assets under the business itself. That’s what “limited liability” means in limited liability company (LLC).

My lawyer warned me that when I sell my business, I lose limited liability protection. If the purchase agreement didn’t limit my liability to the buyer, the buyer could later sue me for any amount, even if it exceeds what they paid in the acquisition.

The buyer’s lawyer originally wanted my liability to be uncapped. My lawyer pushed back and said I absolutely shouldn’t sign anything that exposes me to liabilities above the sale price, and the buyer’s lawyer eventually relented.

Buyers have incentive to keep the seller happy 🔗︎

One of my fears in the process was that after I handed over all of TinyPilot’s accounts and domains to the seller, they’d lose incentive to cooperate with me. What if the buyer forgets to update the billing information on one of the accounts, and I get hit with a $2k credit card charge? What leverage would I have to make the buyer reimburse me?

I trusted the buyer, but you also never know how people will behave when power shifts.

It turns out that even if a buyer wants to cheat, the seller still holds the leverage of institutional knowledge. The buyer doesn’t want to screw over the seller for $2k only to realize a month later that they need the seller’s help to access some critical account. So, a nice balance of power keeps both sides on their best behavior.

Resources that helped me prepare 🔗︎

One of the hardest things about the acquisition was how much of it was completely new to me. It’s hard to practice for an acquisition, as even experienced founders only go through a few acquisitions per lifetime.

The most valuable things I did were to read about small business acquisitions and to ask other founders about their experiences selling their businesses.

The following were the resources I found most helpful in approaching my exit:

  • John Warrilow’s books and podcasts
  • Privately telling other founders I’m thinking of selling
    • I didn’t know many people who had been through acquisitions, but I discovered that I knew people who knew people. A few friends put me in touch with people they knew who had experience going through acquisitions, and those were some of the most informative conversations I had.
  • Microconf, an indie-focused founder conference
    • I met Quiet Light at Microconf. It was helpful to meet several brokers in person and choose who felt like the best match.
    • The conference attracts a lot of founders who have been through acquisitions, so it was helpful to ask attendees about their experience selling companies.
  • Blog posts

Cover image by Piotr Letachowicz.

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