Dirk Sahlmer

Acquiring SaaS companies @ saas.group | saas.wtf Newsletter

Engineer turned M&A professional. After 20+ transactions on the buy-side, I'm now helping tech founders run a structured exit process.

Posting regularly here on LI and in my saas.wtf newsletter on SaaS and  M&A topics.

Head of Origination

The cat is dead. You just haven't opened the box yet.


After nearly 6 years in SaaS M&A and hundreds of valuation conversations, I've noticed something fascinating: 

VC-backed founders and their investors can walk around believing their company is worth $50M for years – right up until the moment they try to sell it for $8M.
 
It's not fraud. It's not even really delusion. It's Schrödinger's valuation.

Your Series A was at $40M post-money in 2021. Your investors report this number in their fund updates. You reference it in founder dinners. LinkedIn congratulates you. 

The valuation is real because... well, because someone wrote it down once.
 
Meanwhile:
 
• Growth has dropped from 150% to 25% YoY
• You're barely break-even after painful cuts
• Retention is softer than you admit
• That "strategic interest" stopped returning calls
 
But none of this technically requires anyone to adjust the valuation. Valuation guidelines for fund reporting are loose. Mark-downs are optional until they're not. And as long as nobody tries to sell, the cat stays alive.
 
Then you get a market valuation: 2.5x ARR. Maybe 3x if you've got strong fundamentals.

"But we raised at 20x!" 
"Our competitor sold for 8x to Microsoft!" 
"Our last offer was $60M!"

Yes, in 2021. From a strategic buyer playing with free money. During ZIRP.

The box is now open. The cat was dead the whole time.

I'm not writing this to be harsh – I genuinely empathize with the position. 

The hardest part of my job is delivering this reality check to founders who've poured years into something that's worth far less than they believed.

But here's what frustrates me: all these articles about "value locked up because M&A is down" or "IPO window is closed."

The value isn't locked up. It never existed in the first place.

What actually exists: businesses worth $5-10M being carried on balance sheets at $50M, waiting for a "better market" that won't change the fundamentals.

VCs might complain there are "no buyers" for these businesses.
 
That's not true. There are always buyers. You just don't like the price.

I've seen it myself multiple times. The same company that "can't find a buyer" at $30M gets multiple offers at $8M. Suddenly the market isn't broken – it's just honest.

The problem isn't lack of buyers. It's inability to accept that the number you've been carrying was fiction.

If you're a VC-backed founder considering an exit, I'm happy to give you a real number. 

Just be prepared – opening the box is irreversible.

saas-group

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Talks about #saas, #startups, #venturecapital, #entrepreneurship, and #mergersandacquisitions

I help Tech founders exit | Partner @ FE International | saas.wtf Newsletter

Sneaked into the Top 10 SaaS Voices globally! Not sure anyone cares, but I'll take it :) Thanks for the recognition, Favikon! 🫶

Favikon

Someone offers you $50M for your small SaaS.
Sounds like an incredible deal, right?

Actually, it could be anything from life-changing to a complete disaster.

$49M of it could be earnout. Or only $2M could be earnout.

The earnout could be tied to hitting 300% growth next year. Or to just maintaining current performance.

It could be all-or-nothing. Or staggered with realistic milestones. 

Capped or uncapped if you overperform.

Then there could be an equity component.

You could get shares in a profitable company with 10 years of consistent growth. 

Or equity in a VC-backed scale-up that burns $10M a year and just raised at 100x ARR.

It could be a public company, so you can sell your shares in 6 months. 

Or a private one with no liquidity event in sight.

You might get preferred shares with downside protection. 

Or common shares at the bottom of the capital stack.

There could be a 4-year vesting schedule. Or immediate liquidity.

Don't forget the seller note.

Could be 10% of the deal maturing in 2 years at 7% interest. 

Or 60% of the deal maturing in 5 years at 1% interest.

Huge difference.

What I'm trying to say: Headline numbers mean absolutely nothing.

A $10M all-cash deal could be much better than a $50M deal with a nasty structure.

Start understanding cash at close vs total consideration. Earnout structure and probability. 

Equity quality and liquidity timeline. Seller note terms and interest rates.

I'm running a webinar on Nov 20 where I'll break down real deal structures and their trade-offs, red flags in term sheets, and the questions every founder should ask potential acquirers: https://lnkd.in/eyMhWqhe

Bootstrappers: You need to get your numbers in order no matter what!

Over the last few years, I've reviewed at least 5,000 SaaS businesses. 

Especially bootstrappers without any reporting obligations - even more so highly profitable ones who don't need to care about cash management - tend to have messy numbers. Or don't track numbers at all.

I often think everything has been said about it and people get tired reading my posts about proper SaaS P&Ls and KPI sheets.
 
Until I again find myself spending hours in Excel trying to make sense of the numbers - or read great articles like the recent one from OnlyCFO on annual planning. 

And I realize it remains an important topic.

Like anti-smoking campaigns - everyone knows it's bad, but people do it anyway.

Here is the problem:

Investors and buyers can build your financials themselves. But if they have the choice between an opportunity requiring weeks of data cleaning and one with clean sheets, you'll lose.

I know because I've spent 5+ years on the buy-side. We regularly paused conversations and shifted focus to other opportunities because of it.

And when buyers do the work themselves, it gives them huge leverage. They'll highlight every negative, and you can't argue because you don't know the positives.

Again, speaking from experience here.

The minimum you need is a properly formatted P&L with expected line items and a revenue schedule showing revenue per customer per month.

It allows you (and anyone else) to calculate monthly movements (new, upgrades, downgrades, churn) and all important KPIs (growth, gross/net margins, retention/churn, arpa, magic number, ltv:cac,..)

That's it. Not complicated. But not having it could cost you millions.

You might think I'm exaggerating, but I'm not.

Remember when Net Dollar Retention > 100% was THE sign of a healthy SaaS business?


I've been evaluating SaaS companies for 5+ years. Reviewed thousands of KPIs.

Lately, I keep seeing something weird that would've looked like a tracking error just two years ago:

Gross Revenue Retention below 50%. Net Revenue Retention above 100%.

In my experience, GRR and NRR have always been fairly close together. Sometimes identical if there was no expansion at all.

But with AI SaaS? I get to see this heavy split more often.

Most customers churn quickly or drastically downgrade. The remaining ones 10x their spend over the year.

70% of your customer cohorts disappear. But the 30% who stay expand so aggressively that overall revenue cohort still grows.

I've noticed AI founders building in public love sharing their 150%+ NRR numbers to prove retention is strong.

Like Harry Stebbings who recently shared a cohort chart from their portfolio company Fyxer.

But they conveniently leave out the GRR number.

When someone points out high churn, they deflect: "Look at our NRR though!"

It's technically true - but it's masking the real story.

Why I think this is happening:

1. Experimentation is baked in

AI tools are easy to spin up. Teams try 5-10 simultaneously. Individuals sign up for $20/month just to test.

Most get abandoned within weeks as companies consolidate to 1-2 winners per category.

You get thousands of tire-kickers who churn fast (kills GRR) and a few that become mission-critical and scale to enterprise (drives NRR).

2. Usage-based pricing amplifies volatility

This isn't seat-based SaaS where churn is binary. It's consumption-based.

Casual users spend $10/month, realize it's not valuable, and churn. Power users whose workflows depend on your tool scale to $100k+ in months.

Same we saw with early AWS and Twilio. Low GRR, massive NRR from the winners.

This is new to me, but probably the natural footprint of early AI SaaS: market immaturity, power-law usage concentration, rapid experimentation cycles.

But if you're building an AI SaaS with this dynamic, here are some question you should ask yourself:

• Are you in the "winner" cohort that customers consolidate to?
• Can you identify which customer segments are expanding and why?
• Can you convert more customers into that expansion cohort?

If you see NRR above 100% and think everything's fine while ignoring that 60-70% of customers are leaving, you might just be churning through the market without building something sustainable.

Don't confuse it with durable growth.

Smart retention hack by beehiiv!


Ahead of Black Friday, they offered me an early renewal discount to prevent me from churning.

If your SaaS isn't mission-critical and switching costs are low, there's real risk customers will cancel and either re-sign with your Black Friday promo or jump to a competitor with a better deal.

I know it because I do this myself every year.

Proactive retention beats reactive discounting!

Now I just need to actually start publishing again consistently to justify even the discounted subscription costs. 🙃

Another great M&A story: 


The founder bought back his company. And bought the acquirer too.

Just read Mogens' announcement and had to share it.

February 2022: Drip acquires Sleeknote.

Strategic move - Drip gets Sleeknote's popup tech, Sleeknote gets distribution through Drip's 30,000+ customers.

Fast forward to 2025: Mogens (Sleeknote founder) just acquired both Sleeknote AND Drip with former co-founder Patrick and a new investor group.

Let me repeat that: The founder bought back his original company plus the company that acquired it only 3 years ago.

I don't know the details of the deal or what happened here. But this outcome is extremely rare.

Here's what I do know from years of SaaS M&A conversations: 

Exits don't always work out the way founders expect - regardless of buyer type.

The acquirer pivots. The product gets deprioritized. The team gets absorbed or let go. The founder watches their business become something they don't recognize.

Some founders try to buy their companies back. It rarely works.

The acquirer either won't sell, or the price is absurd, or the business has been gutted beyond repair.

Mogens pulled it off. Saw an opportunity, raised capital, and reversed the whole thing.

Huge respect to everyone involved for making this happen. What a move. 👏

Now gives them the opportunity to celebrate another exit in the future with the same company - how cool is that?!

CEO @ Drip & Sleeknote

Earnout basics: What they are, how they work, and what founders need to consider

Here's what you actually need to know:

An earnout means you get part of the purchase price only if the business hits certain targets after the sale.

Typical structure: 20-30% of total deal value over 1-3 years.

Payment mechanics that matter:

All-or-nothing is bad (95% of target = $0) 
Linear can work ($X earned per $Y above target)
Staggered can work (partial payments as you hit milestones) 

The problem:

Once you sell, you no longer control the business. 

Without proper guardrails, buyers can make your earnout impossible to hit.

Cut your marketing budget → miss revenue targets 
Shift product priorities → miss integration milestones 
Reduce headcount → lose key people

What you need in the contract:
• Budget protection (min/max spend commitments in writing)
• Clear metric definitions (what counts as revenue or EBITDA?)
• Decision rights during earnout period
• Acceleration clauses (if buyer sells, you get paid immediately)
• Dispute resolution process
  
The tax trap:

Earnouts can trigger ordinary income tax vs. capital gains. You should involve an experienced advisor.

Most earnout disasters stem from founders being excited about the headline number without negotiating proper terms. 

The total deal size means nothing if the structure sets you up to fail.

What Founders need to know about Earnouts

Want to stay informed about the latest trends in SaaS and AI? Here are the recent reports I read:

• Meritech Software Pulse: https://lnkd.in/eeY9DYzY
  
• KeyBanc & Sapphire Ventures SaaS Survey: https://lnkd.in/eNSGr8ns

• High Alpha's 2025 SaaS Benchmarks Report: https://lnkd.in/eG33hDSZ

• Coatue Public Markets Update: https://lnkd.in/eF5tgZKJ

• Tidemark's 2025 Vertical & SMB SaaS Benchmark Report: https://lnkd.in/ewwD8FZp
  
• Air Street Capital's State of AI Report 2025: https://lnkd.in/eS3ZtYhd
  
• Morgan Stanley's "More Software and More Developers" Report: https://lnkd.in/eZ2eU_Qr
  
• The 2025 State of GTM by Kyle Poyar Maja Voje: https://lnkd.in/eU8BpVkz

• G2's Insight Report on AI Agents: https://lnkd.in/eE6iK5Sf
  
• ICONIQ's State of Software 2025 Report: https://lnkd.in/eCUzbQjb
  
• The State of AI 2025 by Bessemer: https://lnkd.in/esxBq_Kf

Any publications I missed that should be on the list?

Just wrapped a webinar breaking down exit deal structures - the details that determine what founders actually take home.
 
Covered the mechanics behind:
 
• Earnouts (performance-based payouts)
• Vendor loans (seller financing part of the transaction)
• Equity rollovers (betting on future upside)
• Holdbacks & escrow (protection against breaches)
 
The reality: A $10M "headline valuation" can mean vastly different take-home depending on structure.
 
Examples from the deck: 

→ Deal A: $11M valuation = ~$6M realized over 2 years 
→ Deal B: $10M valuation = ~$8.8M realized over 4 years  
→ Deal C: $9M valuation = $9M realized in 18 months
 
Lower headline number, better actual outcome.
 
Planning the next webinar for Q1/26 and want your input:
 
Which would be more valuable to you? 

A) Exit prep (what to fix 12-18 months before going to market) 
B) Valuation deep-dive (what actually drives multiples in SaaS)

If you have a preference (or would like to suggest another topic), let me know.
 
Also happy to share deck + recording of this one with anyone interested. Just send me a DM, this post is not intended to be engagement bait.

High Alpha's latest benchmark report reveals where SaaS companies are actually winning in 2025..

They just released their annual SaaS benchmarks based on 800+ companies. Here's what stands out:

🏅 Winners are operationalizing efficiency at scale.

ARR per employee jumped 42% for companies at $20-50M ARR and 50% for those above $50M. Top performers now hit $400k per employee.

That's more than incremental improvement.

🏅 Winners rethought their pricing model.

Outcome-based pricing delivers the highest growth (65% median). Hybrid models (subscription + variable) deliver the strongest retention (105% NRR).

Pure subscription? Slowest growth and lowest retention of all models tested.

Your pricing strategy has a bigger impact than most founders realize.

🏅 Winners are monetizing AI (most aren't).

70% launched AI features. Only 41% figured out how to charge for them.

Companies with AI deeply embedded in their product (not just as a feature) grow 2x faster - with slightly lower gross margins though.

🏅 Winners went back to basics on GTM.

The most effective channel across nearly all ARR bands? Events and conferences.
Not paid ads. Not social media. Not influencer marketing.

In-person relationship building is back - and it's outperforming digital channels by a significant margin. Even in a world obsessed with AI and automation, face-to-face still wins.

Outbound remains crucial early on but loses effectiveness as you scale. SEO and content marketing become your scalable levers.

🏅 Winners shift their growth engine as they scale.

Below $1M ARR: 85% of net new ARR comes from new customers. Above $50M ARR: 60% comes from existing customers.

The best performers? High NRR (106%+) + efficient acquisition (CAC payback under 10 months). That combo delivers 71% median growth.

Takeway:

The fundamentals haven't changed — retention, efficient acquisition, and expansion still win. But the bar for operational excellence just moved significantly.

Any finding that surprises you?

You've been talking to a serious buyer? They love the business but asked you to come back when X?

Wanna know something about buyer feedback?

"Come back when..." is usually a polite "no".

(Same in VC if you are trying to raise capital)

I can tell you - when a buyer is genuinely interested, they find ways to make it work now.

Common deferrals sound like: "Come back at $X in revenue" or "We need to see $Y in EBITDA first" or "We're waiting for budget approval next quarter" or "Just need to see a bit more traction in enterprise."

If it's truly the greatest opportunity they've ever seen and they want to do a deal, buyers don't wait.

Nobody wants to be the bad guy. 

Shame on me, but I've done this myself on the buy-side.

Buyers want to keep relationships warm, avoid hurting founders' feelings, and maintain deal flow for future opportunities.

So they dress up a "no" as constructive feedback (question mark on the 'constructive').

When you get this feedback, thank them and move on.

You don't need to burn bridges, but don't restructure your entire roadmap to please one buyer, delay your exit plans waiting for their "perfect timing," or obsess over hitting their arbitrary milestones.

The worst you could do: Building your business around one buyer's stated preferences, only to discover they've moved on, changed strategy, or the goalposts have shifted again.

Real buyer interest looks like rapid follow-ups with urgency, introductions to decision makers, detailed questions about your business, and early discussions around shared strategy.

You think you'll get the best outcome by spending years trying to convince a buyer who's shown lukewarm interest?

Good luck.

Founders, if you're in exit talks, you'll likely encounter seller notes. Know the trade-offs:

Axial analyzed 100 LOIs in 2024 and found that 21% of tech deal size is structured as seller notes.

It's standard in lower mid-market M&A.

Yet most founders I talk to don't fully understand what they're agreeing to.

A seller note is when you receive part of the purchase price as a loan from the buyer. They pay you in installments over time, typically with interest.

The good:

→ Predictable payments. Unlike earnouts where your payout depends on hitting targets you no longer control, a seller note has a predetermined rate and fixed schedule. You know exactly what you're getting and when.

→ You earn interest. Typical rates are 6-10%. That's significantly better than cash sitting in a bank account. You're being compensated for the risk.

→ Higher valuation. Buyers will often pay more when you make financing easier for them. Offering flexible terms can push your total proceeds up.

The bad:

→ You're an unsecured lender. If the business fails and the note defaults, there's likely no collateral to cover it.

→ You're subordinated. Senior debt gets paid first. You're last in line. If the business isn't producing enough cash to cover all obligations, your note gets impaired.

→ Default risk is real. If the buyer mismanages the business or performance drops, you might not receive full payment.

→ You stay tied to the business. Until the note is fully repaid, you're financially connected. If you want a clean break, this isn't it.

How to protect yourself:

• Keep it a small portion of total deal size with a reasonable payout timeline
• Negotiate an attractive interest rate - you're taking real risk, get compensated accordingly
• Request credit reports, financial histories, and the buyer's track record on seller note payouts
• Insist on clear default clauses

A seller note isn't inherently good or bad. It's a financing tool. Your job is to structure it so the risk-reward works in your favor.

We'll talk about this in more depth at my webinar on Exit Deal Structures on Thursday.

Seller Notes

6 weeks ago, I switched from buying tech companies to selling them. Some tips for founders based on my early observations:

After 5+ years on the buy-side, I recently joined FE International, Inc. to help tech founders run a structured exit process.

Here's what I wish more founders knew:
___

1. Talk to advisors earlier than you think

Most founders wait until they're already fielding buyer interest. By then, you've lost preparation time.

Start the conversation 12-24 months before you want to sell. An advisor can help you understand where you stand, what to optimize, and how to position the business.

Even if you're just exploring - that's a perfectly valid reason to reach out.

2. Have honest valuation conversations upfront

On the buy-side, I saw deals fall apart late in the process because of misaligned expectations. Painful for everyone.

A good advisor can get you well above what you'd achieve on your own. But if expectations are way off from market reality, it's better to know early than 4 months into a process.

Ask your advisor to be direct with you. The ones who tell you only what you want to hear aren't doing you any favors.

3. Evaluate advisors beyond fees

You'll always find someone who does it for less. Fees matter - but they shouldn't be your only filter.

Questions worth asking:
→ What's the typical deal size you work on?
→ How many deals have you closed in the last 12mo?
→ Have you sold businesses in my specific niche before?
→ What does your process look like end-to-end?
→ Who else on your team will be involved?
→ What is your success rate?

The cheapest option isn't always the most expensive mistake, but it can be.

4. Be honest with yourself about readiness

An exit process is time-consuming, distracting, and emotionally draining at times. It requires commitment from both sides.

If you're not sure you want to sell, that's completely fine. Uncertainty is normal.

But if you're kicking off a formal process, make sure you're genuinely ready. That's when it works best - for you and for whoever's helping you.

If you just want to understand what your business might be worth, most advisors (myself included) are happy to have that conversation informally.
___

My learning curve is steep. But I'm fortunate to have an experienced team behind me and 1,500+ closed transactions on file to learn from.

I'm genuinely excited about this new chapter. After years of sitting across the table from founders, I now get to be fully in their corner through one of the most important decisions of their entrepreneurial journey.

That's a privilege I don't take lightly. I'm committed to overdelivering.

Still adjusting. Still learning. But fully invested.

If you're thinking about an exit - whether 6 months or 2 years out - I'm always happy to chat. No pressure, just perspective.

SaaS founders: Your sales team is destroying word-of mouth


Every now and then, I find myself in a sales process for a tool I'm evaluating. 

The moment I express objections and the rep senses the deal slipping, it often becomes a sh*tshow.

Delayed responses. Vague answers. Suddenly too busy for calls.

I get it. Time is limited. You need to focus on high-probability deals. So do I.

But here's what a lot of sales teams miss: I recommend products all the time where the sales process was exceptional even though I didn't buy.

Where the rep stayed engaged. Asked smart questions about my objections. Genuinely tried to help me find the right solution, even if it wasn't theirs.

Meanwhile, the ones where I had a bad experience? I never recommend them. 

Every prospect who doesn't buy will have 50+ conversations with other potential buyers over the next year. 

Some might be a perfect fit for your product.

But your sales rep just optimized for their commission this quarter instead of your referral pipeline for the next three years.

Your "lost deal" list should be a lead source, not an active detractor base.

Look, I understand why this happens. Sales reps are incentivized to close deals, not create advocates.

But maybe there is a way to reward great behavior on lost deals?! 

Otherwise, you'll keep bleeding referrals without realizing it.

Before signing an LOI with an acquirer, every founder should understand..


The real risks behind:
 
→ Earnouts — how they’re calculated, what actually triggers them, and how fast they can disappear.  

→ Seller notes — repayment risk, weak/no collateral, and what it means if the buyer slips.  

→ Equity rollovers — dilution, loss of control, and the true odds of ever seeing that second bite.
 
If you can’t confidently assess each of these, you’re negotiating with blind spots — and buyers know it (speaking from experience 😉).
 
I’m breaking these down in my webinar this afternoon, with simple frameworks founders can use to evaluate any offer.

More than 150 people have already signed up. 

Are you joining us?

Wow, LinkedIn now adjusts its ads to my CRM activities!

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