How to Prepare Your Fintech to Attract Business Buyers & Maximise Value

Article author: Foundy

Scaling up a fintech and growing your valuation is no easy task as a founder but, when the time comes to plan your exit, the hard work isn’t over. It is vital not to overlook the importance of properly planning for an exit and, even more critically, not overvaluing a company that you are viewing through rose-tinted glasses. There is a balance to be had between trying to maximise valuation and attracting the right business buyers, all of which we will discuss below.

Keep on top of your finances

Clear and consistent finances are key if you want to attract buyers and secure the highest valuation for your business. Discrepancies in financial records are one of the biggest red flags for buyers, whereas a good balance sheet and reputation speak for themselves.

Getting your finances in order should be one of the first things you do if you’re considering selling your startup. Look to automate finances where possible using software; this not only removes the potential for human error, but also ensures that you are able to monitor cash flow effectively, meet tax deadlines and won’t have any gaps in financial records.

Ensure you have protected your intellectual property

Many fintechs will have built their business, and created value, through the use of innovative software that differentiates them from competitors; this is considered intellectual property (IP). A potential buyer who does any due diligence will almost certainly flag if this is at risk of being copied or stolen by competitors. Ideally, you should have applied for patents to protect your IP at the point of creation; you should definitely ensure these are in place before preparing your fintech for valuation to ensure you can get the best price.

Get your fintech valuation right

Overvaluation is one of the biggest reasons revenue-generating startups fail to attract acquisition offers; every founder wants to get the best price for their startup and there’s nothing wrong with being ambitious. However, any prospective buyer will want to see a fair price, and it’s important that this process of valuation is standardised with any emotion removed.

Here are 3 common methods that can be used to value your fintech:

• Comparable transactions method – this method uses valuations for similar companies that have sold recently. You can find details about sold companies by accessing publicly available M&A transaction data.
• Revenue or profit multiple method – this method multiplies revenue or profit by a multiple (depending on factors such as industry and market conditions). In Q4 2022, FinTech companies in the SEG Index recorded a median value/revenue multiple of 5.4x.
• Discounted cash flow method – this method takes into account the company’s market potential, expected cash flows, risk and growth prospects. Due to the number of moving parts in a fintech company, this is sometimes not the most appropriate method.

Keep in mind that market variables (such as consumer demand, competition, and USPs) will also influence your fintech valuation; an M&A advisor can also help you determine a fair fintech valuation based on the current market.

Leverage the strengths of your management team

Your management team is vital to the success of your exit; a strong management team will have the skills and experience to drive growth in your fintech and make your exit strategy a success.

Business buyers look for companies that have a strong management team in place, along with efficient business processes that can easily be replicated. Be sure to highlight the strengths of your management team to potential buyers, as this is another valuable way to strengthen your position at the negotiating table if your business has been run well.

Decide how to sell your fintech startup

Choosing how to sell your fintech startup is a big decision. Consider the options carefully and choose the best route for your business. These are the three most common routes that founders take when selling a fintech:

• Privately: Selling privately is the cheapest option, but it will require a lot more time and effort on your part. If you’re not knowledgeable about all the steps in the acquisition process or confident negotiating, another option may be preferable.
• Broker: A business broker can help you attract more buyers to your business and manage the acquisition process for you. However, they typically take a commission fee of between 7 and 15% which can be substantial depending on the sale price.
• Selling platform: Digital marketplaces like Foundy have revolutionised the M&A market and made selling a fintech startup faster, easier, and more cost-effective.

Fintech exits are complex and even the most experienced founders can find the process daunting. There are plenty of acquisition experts who can guide you through the end-to-end M&A process, helping you sell your fintech business quickly and for the highest price.

You wouldn’t sell your home to the first person that knocks on your door, and the same should apply when selling a business. Don’t rush the valuation and exit process, and be sure to balance sentiment and emotion with a clear approach to how you value your company.