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Jan 2023: I got a $500K acquisition offer!
...and other updates in January 2023 from me
Hello everyone! 👋 It’s Tony again 😄
Here is another monthly update on my indie hacking journey.
Quick summary of what I’ll share in this issue:
The $500K offer.
My thoughts & learnings.
Other updates at the end.
💵 $500K acquisition offer to buy Black Magic
In case you’re new here, about 1 year ago, I received a $40K-all-cash acquisition offer, which I turned down.
Earlier this month, I was connected with someone who is interested in acquiring Black Magic. This was the 2nd serious offer I’ve got since the $40K offer.
This is how it happened.
We jumped on a quick video call, I shared a few basic numbers like revenue, cost, active users, etc.
In the call, I asked for $1.5M of total acquisition offer value.
That number came out of nowhere, it felt like the right number for me, I didn’t use any formula.
There are a few reasons why I asked that much, mainly it’s because I have no intention of selling, I still love working on Black Magic a lot, and currently, Black Magic doesn’t take too much of my time while providing me a nice sum of “passive” income of ~$14K a month.
After the first call, the buyer gave their first offer, which I declined.
The total deal value was just too low for me. Even if they offered $300K upfront cash, I will still have a hard time considering whether I should sell (and most likely I won’t).
A few days later, the buyer came back with a new offer. They sent me a “Letter of Intent for a Purchase Agreement” - it was my first time seeing this kind of document. Here is the important part:
The offer was increased to $500K, with $100K up front and the rest as debt and revenue sharing.
I also declined the second offer. However, this time, I decided to let go of my imaginary $1.5M number and started to actually evaluate the value of Black Magic seriously.
Here is my analysis of what it’s like to accept vs. decline the offer:
Given that I still love working on Black Magic a lot, this looks like a very bad deal to me.
I get paid $100K, then:
I no longer work on the thing I love
…and my monthly income is reduced
…and also, I no longer own the business.
Why would I ever take $100K to exchange for all that? I can make $100K in about 8 months assuming my MRR keeps at the same as it is today.
After giving it another thought from the buyer’s perspective, I can think of a few reasons why this can be a fair offer.
This can be a fair offer if:
I no longer enjoy working on Black Magic
and I no longer believe Black Magic will grow in the next 2 years
and I need a lot of cash fast.
Unfortunately, none of the above is true for me.
So I concluded that it was just not the right time for the acquisition to happen.
Throughout the process, the buyer was super nice and responded very quickly to my questions.
Unlike me, they have done a lot of acquisitions in the past.
I even asked the buyer if they are open to sharing more about the thought process of coming up with the offer.
We then jumped on another call where they share their calculation spreadsheet and the projections of Black Magic if the acquisition happen, and how it would all make sense financially to acquire Black Magic.
It was fascinating to me to learn about all this. I wish to share the spreadsheet it here, but I haven’t asked their permission yet, so maybe later.
Later on, I let go of my imaginary $1.5M asking price and asked for a more realistic, fairly considered number.
Unfortunately, we couldn’t find a common ground.
No deal was made. I learned a few things:
These acquisition deals are usually backed by a mix of loans and investments. That’s why they often can’t do a lot of upfront cash.
“Cost of operating” is much higher for them compared to me (because I do all roles and I know the business in and out, they don’t), so they’ll likely have to spend more money on that after the acquisition (on training, hiring, etc.), business profit will be affected by this too.
A deal usually consists of upfront cash and debt payments. The debt usually can pay itself using the profit from the business. So, lower upfront cash means a faster return on investment. In this case, a $500K deal with $100K upfront, I think they are expecting to make equal at about 2 years in. After that, it’s all just pure profit.
Overall, it was a great learning experience for me. Now I know a little bit more about what to expect the next time it happens.
Next step for Black Magic
Another reason I didn’t want to sell is that I have recently (and finally) made up my mind about the next step for Black Magic.
Over the last few months, while I was busy taking care of my beloved products (I have… three 😅), I’ve been thinking about how to unlock the next growth level for Black Magic.
Should I make Black Magic yet another social media content scheduling tool?
Should I “transform” Black Magic into a B2B product?
Should I just continue to improve what Black Magic is good at at the moment?
Should I expand Black Magic to other social media like LinkedIn?
My decision is… yet to be revealed 😛
However, I’m hoping this can bring Black Magic to the range of $50K MRR in the next year or two (if Elon doesn’t mess with Twitter too much 😂).
About 1 year ago, I said something similar when I declined the $40K offer:
I also believe I can grow the product to 2-3k MRR within the next year or two. I feel it is way too early to sell at this point.
That was when Black Magic was just a silly tool for Real-time Progress Bar and the Real-time Banner.
I was able to achieve the “2-3K MRR” goal with a killer feature that made Black Magic what it is today - the Magic Sidebar and its powerful analytics.
I was right not to sell back then. Hopefully, I’m right this time too.
Always be selling
This one is not my idea, I don’t remember when or from where I heard about it, but there is this saying related to acquisition: you should always be selling.
The value here is you’ll continuously get offers so that you know how much people want to buy your product/company.
But in order to do that without wasting a lot of time, one has to be prepared to welcome new buyers at any time.
I’m thinking of preparing a spreadsheet for each of my products.
In the spreadsheet will be the full report on revenue, profit, cost, churn, active users, and all important metrics that the buyer may want to know.
I will update it about once a month, maybe once every two months.
Then I will list all of my products on acquire.com (a marketplace) with my asking price, and update with new numbers monthly.
Whenever someone has the interest to buy/negotiate, they can access the spreadsheets right away. I think that will save everyone’s time.
I’ll probably need to paywall the spreadsheet to filter out non-serious buyers, maybe $500 to access the full data. Could be a good income stream?
This will also help me to stay organized I guess. As a one-man business with 3 different products, it gets very messy here. I share a lot of the cost between the two products. Much more efficient, but messy.
Sound like a good plan. Let’s see if I can make my lazy ass actually do it!
Other updates in January 2023
In my previous issue, I announced that Xnapper is nominated for the Golden Kitty Award 2022.
Thanks to all of your support, Xnapper got the 2nd place on the runner-up list.
Not the top spot, but I’m very happy. It drove some traffic and revenue from Product Hunt too. Thank you so much! ❤️
Another thing, recently, Twitter announced that the API will no longer be free.
Will it affect Black Magic and other Twitter 3rd party apps/services?
Nobody knows at this point.
I think it will not be a massive difference for already-profitable businesses (really hope I’m not wrong here 😅), but this will affect the ability of new indie hackers to play with the API in the future, which is sad.
I’m eagerly waiting for the pricing announcement!
That’s all for now!
Thank you for reading, I hope this month’s issue is helpful to you.
If you like it, please share it with your friends. I think I need to promote this newsletter more frequently, just in case Elon kills Twitter 😂
See you in the next one! 👋