About this episode
In 2015, Michia Rohrssen co-founded a SaaS business called Prodigy to help car dealerships sell online. He grew the company to $3.3M in annual revenue when he faced a difficult decision.
Rohrssen thought he could sell Prodigy for around 4-6 times revenue, but after paying off his investors, there wouldn’t be much left over for the founders. That’s when he decided to make a risky pivot to his business model. The change meant a short-term drop in Prodigy’s revenue, while also making it more attractive to strategic acquirers. Ultimately Rohrssen and his co-founder sold the smaller version of his company for a staggering $110 million, or around 65 times revenue.
In his first interview since announcing the incredible deal, Rohrssen shares how to:
- Maximize your company’s attractiveness to a strategic acquirer.
- Avoid the $4 million mistake Rohrssen made
- Apply an intriguing filter to compile a shortlist of strategic acquirers
- Attract an acquisition offer higher than your industry’s standard valuation multiple
- Implement a “Manhattan Project” inside your company
- Streamline the due diligence process with a specific meeting strategy
Show Notes & Links
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Letter of Intent (LOI): A letter of intent (LOI) is a document declaring the preliminary commitment of one party to do business with another. The letter outlines the chief terms of a prospective deal. Commonly used in major business transactions, LOIs are similar in content to term sheets. One major difference between the two, though, is that LOIs are presented in letter formats, while term sheets are listicle in nature.
Earn-out: Earnout or earn-out refers to a pricing structure in mergers and acquisitions where the sellers must “earn” part of the purchase price based on the performance of the business following the acquisition.
Due-Diligence: Due diligence is an investigation, audit, or review performed to confirm facts or details of a matter under consideration. In the financial world, due diligence requires an examination of financial records before entering into a proposed transaction with another party.
Churn: Churn is a measurement of the percentage of accounts that cancel or choose not to renew their subscriptions. A high churn rate can negatively impact Monthly Recurring Revenue (MRR) and can also indicate dissatisfaction with a product or service.
Churn is the measure of how many customers stop using a product. This can be measured based on actual usage or failure to renew (when the product is sold using a subscription model). Often evaluated for a specific period of time, there can be a monthly, quarterly, or annual churn rate.
Waterfall: A distribution waterfall describes the method by which capital is distributed to a fund’s various investors as underlying investments are sold for gains. Essentially, the total capital gains earned are distributed according to a cascading structure made up of sequential tiers, hence the reference to a waterfall.
LTV:CAC Definition: The Customer Lifetime Value to Customer Acquisition Cost (LTV:CAC) ratio measures the relationship between the lifetime value of a customer and the cost of acquiring that customer. The LTV:CAC ratio is calculated by dividing your LTV by CAC.
Vesting: A vesting schedule is an incentive program for employees that gives them benefits, usually stock options, when they have contractually fulfilled a specified term of employment with the company. The benefits can also be other assets, such as retirement funds. Vesting is a way for employers to keep top-performing employees at the company.
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About Our Guest
Michia is a serial entrepreneur who has transformed his life through successful startups. Now, his focus has shifted to empowering others to achieve similar success by imparting essential skills. He is the founder of Prodigy, an initiative aimed at cultivating entrepreneurial talent.
In terms of personal values, Michia embodies qualities like hard work, data-driven decision-making, and unwavering dedication to his mission. He is resourceful and constantly pushes to exceed performance goals, driven by an unrelenting ambition.
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