The question we get most often from founders is some version of "when should I sell?" The honest answer is that it depends on who's buying, how fast you're growing, and whether you have the energy to keep pushing. Let's break each of those down.
Understanding your buyer hierarchy
Not all buyers are created equal. We think of acquirers in four tiers, ranked roughly by what they'll pay:
- Search funds and individual buyers
- Small and medium-sized private equity firms acquiring standalone companies
- Larger PE funds purchasing as platform add-ons
- Fortune 500 companies and major strategic buyers
Why the gap? A Fortune 500 buyer has existing customers, a sales team, marketing budget, and distribution — they can plug your product into that machine and extract far more value than a search fund operator starting from scratch. That delta shows up directly in the price they'll pay.
What actually drives valuation
Growth rate is the single biggest factor in your multiple. If you're growing below 20% annually, the pool of interested buyers shrinks fast. Profitability matters too, but a buyer will forgive thin margins if revenue is compounding quickly. Beyond that, ARR size and customer churn round out the picture — larger revenue bases attract higher multiples, and low churn makes buyers confident the revenue will stick around after close.
Market timing is overrated
Founders often tell us they want to "wait for the market to come back." But this ignores what happens after the wire hits. Most founders reinvest their proceeds — often into public SaaS stocks or similar assets — and those assets are priced off the same multiples as private deals. Think about 2021 vs. 2022: if you sold at a 15x multiple in 2021 and parked the cash in a SaaS index, you watched those holdings crater. If you sold at 8x in late 2022 and bought the same index at its lows, you came out ahead. The point isn't that down markets are better — it's that obsessing over peak multiples misses the bigger picture of what you do with the money.
The decay of growth
Here's the thing founders don't want to hear: growth slows down. In our experience, next-year growth is typically about 85% of this-year growth. You grew 50% last year? Expect around 42% this year, then 36%, then 30%. To fight that decay, you need to keep finding new levers — new products, new channels, new partnerships. That takes energy, and after five or eight years of building, most founders are running low.
This creates a trap. Because growth is the biggest driver of your multiple, your company's enterprise value actually peaks before your ARR does. We've seen this play out many times: a founder holds on to cross some round-number ARR milestone, growth declines in the meantime, and the business ends up worth less at $8M ARR growing 15% than it was at $5M ARR growing 40%. The right time to sell is while you still have real growth momentum — and ideally before you're too burned out to sustain it.
Thinking about timing for your exit? Reach out to einar@discretioncapital.com or schedule a call.