Ask HN: What's my profitable startup worth? (detailed stats provided)

[throwawayValue]

I've been running a US-based real estate related startup for a few years. I handle all aspects of the business myself from coding thru customer service and I've set it up so that it can run on auto-pilot for long periods of time (ie. months) while I focus on other interests. It's never been marketed, doesn't have a blog or any social presence. It does however have some great clients & industry partners who view my business as being more than a one person show. I have previously received multiple buyout offers, but until now I haven't seriously considered selling and I'm not sure if I actually will or not.

TRAFFIC

2013: 1.4M sessions, 5.4M pageviews & 33% bounce (60% desktop, 32% mobile & 8% tablet)

2014: 1.7M sessions, 6.2M pageviews & 54% bounce (42% desktop, 48% mobile & 10% tablet)

2015: 2.5M sessions, 10.8M pageviews & 54% bounce (28% desktop, 64% mobile & 6% tablet)

Source of traffic: 50% organic, 37% referral, 13% direct & 0% social

REVENUE

2013: $135k revenue - $2k expenses = $130k profit

2014: $105k revenue - $5k expenses = $100k profit

2015: $140k revenue - $5k expenses = $135k profit

Source of revenue: 30% AdSense, 20% users & 50% affiliate marketing

Expenses: hosting & credit card processing fees

2014 revenue reduction: caused by affiliate marketer closing their program

For obvious reasons, I’m using a throwaway account, but I will answer followup questions. However, I won’t disclose the name of my startup or it's address.

So what do you think my startup is worth?

[dsacco]

Congratulations on your success thus far.

There are several pricing models one can use for small business valuation. In this case, your company earns revenue using advertising (AdSense and affiliate). Companies like this are priced differently from e.g. SaaS startups which are in turn priced differently from companies selling enterprise desktop software.

The industry standard for ad revenue companies is a 20-24x multiplier on the most recent (sustained, not outlying) monthly profits. Specifically, it would be the following:

(20..24(135/12)) = 225 - 275

There is your answer. Your company would likely fetch between 225k (cheap) to 275k (expensive). Most folks on marketplaces like Flippa (which is where predominantly ad-revenue companies like yours are brokered) would value it as such.

There are other factors which can inflate the price of your company to maybe a 30x monthly profit valuation, but in general that will be the range. It's good that most of your traffic comes from organic searches, advertising arbitrage is risky and often results in a downgrade.

[hospes]

Can you please explain where 20-24x multiplier industry standard number comes from?

[throwawayValue]

Thank you for taking the time to respond.

So far all of the offers that I've received, some from "known" companies, value the business based upon it's traffic, users, brand & future potential within the real estate industry. And surprisingly, none have shown much interest in the ad revenue.

So this is really why I'm seeking outside advice on what others think based upon the little information that I've provided. I'm really at a crossroads where I need to decide if I want to truly focus on it or sell it so I can focus on another startup that's unrelated to the real estate industry.

[nicholas73]

Serious question: why do you need to sell to focus on another startup, when you say this one is pretty much autopilot?

It seems whatever time you save on upkeep will be used by income anxiety instead.

If I were in your shoes I'd never sell unless I get a multiple that approaches S&P. Which already pays rather poorly for income considering how low interest rates are. This is only if your business is forecast to be steady though.

[throwawayValue]

That's basically what I've been doing the past few years and the reason why I've rejected previous offers. My thought process has been, why accept $XXXk when I'll just earn it anyway within X years and I'll still have the business.

I have launched a few things during the past few years which are also generating revenue, but my latest idea will require a lot more time, focus & marketing spend to get off the ground. Also, it would be very nice to be able to pay off my mortgage & have a decent cushion in the bank.

[iheartmemcache]

It's absolutely no surprise that they're not factoring ad-revenue in. If you have a market with people who have the intent to purchase (a la Zillow) as well as the means, that traffic is worth about as much as commercial insurance leads or recruiter leads for a good candidate. The estimate made by the grand-father poster is right in terms of how startups are traditionally valued; however, I'd argue that you're not a traditional SaaS (that tends to see explosive growth).

Grow it like a small business or find someone who's a professional real estate agent with extensive experience in the online markets, and figure out an edge. Whether it's selling insurance affiliate services or something else along the lines of that, what you have right now is a very valuable entity that's being severely under-capitalized.

The fact that you have paying users is indicative that youve generated trust and deliver value. Right now you're in a powerful position. I'm assuming most of that affiliate marketing is for creditkarma credit checks/mortgage prequalification leads. I'm not sure what your numbers are in terms of conversions but I can tell you definitively with the traffic youre pushing you're at the point where you can call up those agencies and threaten to take your business elsewhere unless they make an offer to increase your rate. If you're going through an affiliate marketing program, they're taking a cut between you and the lender. You have the power in that relationship (that is, you leave and he loses all his revenue without any recourse; if he leaves you, you can just sign up with someone else who'll happily take your leads). Alternatively, I've seen deals go through where mid-sized regional banks offer a massive rate for exclusivity.

Those numbers are great especially for mobile. If you do sell it, sell a chunk of it (~30%, no more than 49%, you want to retain ownership on this trust me. He might want majority, in which case the middle-ground is to structure the deal with buy-out terms that are amenable to both parties, allowing you to essentially defer the large decision of selling a potentially profitable, under-utilized business until you see how it develops) for _significantly_ more than that 270k-350k estimate. The reason Zillow/Redfin/etc are making an offer right now (whatever they're offering, ask for 3x) is because they know how valuable your traffic is and are aware that you're undercapitalizing that traffic. If you find the right person who has experience in that market and offer him that 30% ownership with a huge incentive bonus for any revenue growth that's beyond the estimated growth curve.

Think about it this way: 250k is the price of a moderately decent house in a non-major city. If a real estate agent manages to close 20 deals over the course of 3 years at a little over 6 houses a year at 250k, he has already passed your one-time revenue cash out at 250k. I can safely say that at least 20 agents are making their 6% rip a week because of your site with those numbers.

Those SEO numbers are insanely good, especially since mobile is so important in housing sales (e.g., 100k will get you a fantastic app that someone can turn on when they're driving through a neighborhood they like, and you can sell those listings to agents for premium access for 200-300/mo. Compare that to reddit where mobile-aware doesn't add much to the value proposition).

Email me if you want to chat more. Contact information is in my profile.

[nicholas73]

Your startup is worth whatever it is worth to the buyer. This is a serious statement.

Unlike S&P stocks, a small startup does not have many buyers looking into your valuation. What one buyer is willing to pay will vary widely from another.

A prospective buyer will consider things besides your revenue history. Such as operation risk, potential synergy, possible changes for growth, if you are a competitor, etc. Then there is their own financial situation, and the form you are willing to take payment (like stock vs. cash).

As a poor example, if I were to buy your site, I'd take your profit and discount taxes I would owe plus some salary for my time to upkeep it (another buyer could be more or less depending on their resources). So the profit would be down to say 80k.

From there, I note that there virtually is no growth in revenue despite the growth in pageviews. Assuming no way to fix the CPM, my worry would be whether I could get my money back, especially if there could be a real estate peak.

So average Joe like me might be willing to pay a paltry 1-3x multiple of profit* (and mostly because I don't have much money to risk). A collector of web businesses might go up to 5x, as a guess, more if there is growth.

The best companies in the world (like S&P companies) fetch anywhere between 10x to 20x+ so it's highly unlikely you get that without exploding growth.

* By profit I mean after taxes and the acquirer's expenses.

[throwawayValue]

You are correct - different buyers will value the business differently based upon their intentions for it. Some would be more interested in growing the SaaS side, so far all of the offers I've received are related to this, whereas others might be more interested in growing the AdSense & affiliate revenue.

Important to note, my business provides a service which will always be in demand no matter if real estate is booming or busting.

I think if I could get a 5x sale price I would take it. Best so far has been 4x and none have been below 3x.

[hanniabu]

While it's true that the value to certain buyers will vary, if you do decide to sell, then it is your job to sell it to them. They'll only pay as much as they'll see it's worth. If they're not the most business savvy or entrepreneurial person, they will obviously not see much value and therefore would not be willing to pay a lot. However, if you explain the value and potential additional revenue streams as well as adjusted growth estimates, then they'll see past the current basic revenue stream. Take a look above at iheartmemcache's answer (the really long one). He does a great job at pointing out the possibilities to maximize revenue.

If this angle doesn't work, then try growing the business a little more in the direction of the aforementioned comment for a bit. Once you've succeeded in growing the business a bit and proving the model, go and start selling it again to people whom have contacted you previously.

[throwawayValue]

You're right - it is my responsibility to sell it and so far I've just been listening to offers and haven't countered because I wasn't interested in selling at those times. However, I now would counter all offers with a reasonable asking price and detail the reasons for that price as well as my thoughts on where the growth potential is.

I agree that iheartmemcache's response really hit it on the head and I was waiting to see if it generated any other responses. The strategy he laid out is exactly in line with what I've been thinking.

[davismwfl]

First, congrats, you did something that many of us fail at more than once. But in the end, you have a hobby business that is not really growing but only teetering so far, likely because as you said you aren't putting in a lot of time and using it only as a side thing.

I really am not trying to be an ass, but I am trying to be honest based on my own experiences. Your business isn't worth as much as you would like, although it is quite valuable in many ways. Simply put, you don't have a $135k profit on revenue of $140k because you are discounting the real cost to run and grow the business which someone else will have to hire out at least a portion of, pay taxes on, pay state fees etc. So in reality, assuming the person is willing to assume at least 2-3 of the hats (business, finance and customer service) and hire out the technical then they may net $10-80k depending on if they hire contractors or a full time person.

At the same time like others already pointed out, it will boil down to how much is someone willing to pay. But outside of a corporation that finds your project attractive because of market fit, or leads or something along those lines, sophisticated individuals with cash will not pay major multiples for a business that is essentially only mildly profitable after they factor in costs to maintain and grow it. So your best bet is to sell to a corporation that has sunk costs already that is happy to take the extra revenue and leads and run.

Not saying you couldn't get $150k to even at the high end $300k, but it will take a special set of circumstances. Otherwise, I'd say you are looking at more like a $60k-150k type of sale being far more likely.

No matter what, good luck and I hope you can maximize your benefit.

[throwawayValue]

You're exactly right - different buyers will value my business in different ways and selling to a buyer like the one you described would make no sense. At a minimum, I'd be better off keeping it on auto-pilot.

[santa_boy]

Just trying to understand the context better. What does your startup do in real estate? What is the revenue model? What is the affiliate revenue that you are able to generate?

[throwawayValue]

Great questions and for obvious reasons I don't want to be very specific about the site's niche within the real estate industry, but the service that it provides will always be in demand by the general public & industry professionals.

The intent was that the majority of revenue would come from paid users (SaaS model), but AdSense & affiliate brings in more. I could probably change that by marketing, which I've never done, and I might do just that if I decide to keep it.

[someotheridiot]

I had 16M pageviews in 2015 and a hell of a lot less adsense earnings than you :( What's your CPM?

[merqurio]

16M ! That's amazing ! Can I ask you what is your page about ?

[someotheridiot]

https://rebrickable.com - A LEGO database that shows you which sets you can build from your existing collection, also includes thousands of fan-submitted designs.

My adsense earnings are terrible though, I've always assumed because the site is more image heavy than text.

[fratlas]

What's your CPM? I average around $1, and that's just for a simple webgame (almost no text).

[someotheridiot]

$0.20 to $0.30 :(

[fratlas]

Assuming a %1 click rate (seems to be the rate on my site), that's still $48k (optimistic); not bad!

[merqurio]

I love your site, I've been all the day around !

[throwawayValue]

AdSense RPM, which I assume is the same as CPM, was $4 for 2015 and for about 6 months in 2013 it jumped up to $12. Would be very nice if that happened again.

[soneca]

patio11 sold his business through this site and said only positive things about it: http://feinternational.com/

Considering that it is worth how much someone is willing to pay, might be a great place to some benchmarking.

[throwawayValue]

I've heard of them and might contact them, but I'm not really interested in paying a broker fee unless they could get a premium price.

[andersthue]

I have attended a few MicroConf's where patio11 is a regular speaker, and from his "selling BCC" talk it sounded like feinternational will help you figure out if it is a good deal to work with them.

What's to loose other than a few hours of work filling out their questionaire about your business?

[soneca]

I understand, but what I am suggesting is looking in their "sold listings" to get a benchmark on how much your startup is worth.

IMO it answers your post question much better than any HN commenter might do (except if a HN commenter is willing to actually buy your startup)

[throwawayValue]

Excellent idea - you sir/ma'am are a genius!!

[codegeek]

I will be careful about SOLD listings there. They never list the actual selling price but only the asking price. So you don't know what the final sale price was.

[brianwawok]

Sold price is a good ceiling best case number, which is somewhat useful still.

[kohanz]

Did you include any hours you spent working on the business in the expenses?

[throwawayValue]

Business was created prior to 2013 and apart from a few tweaks here & there, it's pretty much on auto-pilot.

[kilroy123]

I'm just curious, how long did it take you to get up to 5M page views?

[throwawayValue]

It took a few years of working on it evenings & weekends while I had a 9-5. During that time I always thought of my salary as VC money.

[hatred]

Wondering how you go about achieving dramatic bounce rate reductions?

[throwawayValue]

For the past 30 days the bounce rate has averaged 43% and traffic has roughly doubled.

[tmaly]

you might need a few more years of data to get a decent discounted free cash flow valuation.

[huac]

eh, you can run a DCF on monthly data if you wanted. but no idea what relevant discount rate would be.