Rather than the traditional approach of financing their start-up through rounds of dilutive funding, Lorge asked his customers to pre-pay, allowing the founding team to retain 80% of the equity in their business.
By March 2022, Premonition had grown to $3 million in Annual Contract Value (ACV) which is when it was acquired by Shippit for $20.5 million — an implied valuation of just under 7 times ACV.
In this episode, you’ll learn how to:
Calculate the difference between ARR and ACV and how each impacts the value of your business.
Use customer pre-payments to finance your growth.
Identify a short list of potential strategic
Approach an acquirer without appearing desperate.
Utilize an unconventional strategy for accelerating an M&A transaction.
Know when to accept equity in lieu of cash when selling your business.
More About Brad Lorge
Brad is an entrepreneur, computer scientist, software engineer, and Co-Founder of Premonition. He is also a passionate advocate for businesses to achieve positive social impact.
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. Source.
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 listicles in nature. Source.
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. Source.
Put Option: A put option gives you the right, but not the obligation, to sell a stock at a specific price (known as the strike price) by a specific time – at the option’s expiration. For this right, the put buyer pays the seller a sum of money called a premium. Unlike stocks, which can exist indefinitely, an option ends at expiration and then is settled, with some value remaining or with the option expiring completely worthless. Source.