Why do searchers go for such large acquisitions?

searcher profile

September 06, 2024

by a searcher from Claremont McKenna College in San Francisco, CA, USA

You can buy profitable micro businesses on acquire.com, microns.io for as little as $5,000. I don't understand why more searchers don't jump at this opportunity?

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Reply by a searcher
from Harvard University in San Juan, Puerto Rico
I don't mean to bash anyone, but frankly I very rarely see a deal on acuire.com that is reasonably valued. Most of them are incredibly overvalued, and as somebody mentioned above, it is essentially VC. Which is fine, you just need to understand that you need to come at it with the VC angle instead, i.e., with your 100k buy 20 5k businesses, invest 50-100k back into them and see which one takes off. Caveat of this is you won't get access to any leverage, and you have to be organized and skilled at resource allocation to ensure you are actually giving the potential businesses oxygen to grow.

Speaking from experience, I've bought probably 7 or 8 of these under -$10k online assets. Most of them end up declining after a couple of years, but one of them has grown to a mid six figure business which has made up for all the other ones (just like VC).

What I've found is that the absolute worst deal size is actually the messy middle, which is low six figures in SDE, mid six figures in EV. At this stage, usually the owner has tapped out on being able to grow themselves and they're doing most of everything. You can get debt financing for the acquisition, but what you'll quickly find is that in order to grow, you'll need to invest in people, processes and systems, but since the business wasn't pumping out a lot of cash in the first place, you'll be hard pressed to find the funds to make those investments without having to go back into your own pocketbook.
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Reply by a searcher
from Emory University in Boston, MA, USA
I acquired a micro-SaaS ~3 years ago (<$100k ARR). It's a totally different ballgame than most of the searchers on this platform and the biggest things for me that made it harder to justify continuing down that path:
1. Deal costs as a % of overall costs. i.e. Lawyers have the same hourly rate so even a $5k or $10k bill can be a significant portion of overall deal size and eat into returns.
2. There is very little additional cash margin to pull any sort of levers in order to grow the business (marketing, additional hires, etc). At least at the beginning, you'll end up putting in more cash rather than reallocating cash flow from the business.
3. As some others have mentioned, it's more risky and unstable than larger companies, and often times it's better to just start something from scratch than fix a bunch of existing problems without much benefit.

With that said, if you have a playbook, a particular expertise, or adding on a specific product feature it can make sense in some scenarios. Again, just totally different than the searcher models that most people on this platform look for.

Feel free to DM and happy to chat though some of my learnings!
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