Founder exit guide
Founder exit guide
Overview
The two kinds of buyer pay for different things, structure the deal differently and want different things from you afterwards. Knowing which you are talking to changes how you prepare and what you should ask for.
A trade acquirer buys your business because of what it does for theirs: a product gap filled, a customer base acquired, a competitor removed. A private equity buyer buys it because of what it can become with their capital and a plan, and because they intend to sell it again in three to five years for more than they paid.
Those motives drive everything else. Trade pays for strategic fit and tends to pay in cash, but moves slowly and often intends to integrate the business into something larger. Private equity pays for predictable recurring revenue, structures the deal around it, moves faster once committed, and usually wants the founder to roll part of the proceeds into the new company.
Neither is better. For a founder who wants out entirely and cleanly, trade often suits. For a founder who believes the business is worth more in three years and wants a second bite, private equity can deliver it, provided the structure is understood before it is signed.
The differences
Price is only the first. The structure, the speed and the life afterwards matter as much.
As a multiple of ARR or EBITDA (earnings before interest, tax, depreciation and amortisation), driven by growth, gross and net revenue retention, gross margin, concentration and the share of revenue that is contracted. The multiple reflects what they believe they can sell the business for later, less the return they need. Everything in diligence is a test of that belief (thesis).
Often on the same metrics, but with a premium or a discount for fit: what your product saves them building, what your customers are worth to their sales team, what it costs them if a competitor buys you instead. The premium can be large. It can also vanish if the sponsor inside the acquirer moves on, so trade deals need momentum.
Private equity will usually ask the founder to reinvest part of the proceeds, commonly ten to forty percent, into the new holding company. That rollover is the second bite: if the plan works, the founder sells again at the next exit. It is also at risk, and it sits behind the buyer's own instruments in the capital structure.
In many private equity structures the fund's money goes in largely as preference shares or loan notes with a rolling coupon, with a smaller part as ordinary equity. Those instruments are repaid first, with their accrued return, before the ordinary shares see anything. Where your rollover sits depends on the deal. Rolling pari passu into the same strip of instruments as the fund keeps you alongside them. Rolling only into ordinary or sweet equity puts you behind them. The difference can be large, so model it before heads of terms.
Private equity runs a known process: indicative offer, exclusivity, four to eight weeks of diligence, completion. Trade is less predictable, because the acquirer has a day job and a board to persuade, and can take months to reach a decision and weeks to change its mind. A founder running both in parallel needs an adviser who can manage the timetable.
Under private equity the founder often stays, with a board, a value creation plan, monthly reporting and a fund that wants the number to move. Under trade the founder's role usually shrinks as the business is integrated, and an earn out may be the only reason to remain. Decide which you want before you decide which buyer to favour.
Situations
Trade pays for what you are. Private equity pays for what you could be, and keeps some of the upside.The difference in one line.
FAQ
Sometimes, and sometimes trade pays a strategic premium that no fund can match. Private equity is more consistent and more predictable. Trade has the higher ceiling and the lower floor. The honest answer is that it depends on who needs your business most, which is why a process that reaches both matters.
Rollover is the part of your sale proceeds reinvested into the buyer's new holding company. It gives you a share of the next exit. Whether to take it depends on how much you believe the plan, how much cash you need now, and where the rollover sits in the capital structure relative to the fund's preference shares and loan notes.
A buyout takes control: the fund owns a majority and the founder becomes a minority shareholder, usually with a board seat and a role. A growth investment is a minority stake, the founder keeps control, and the fund expects an exit within a few years at a higher valuation. Both are private equity. They feel very different to live with.
From first meeting to completion, usually four to six months, with diligence taking four to eight weeks of that once exclusivity is granted. Trade sales vary more widely and can take longer, because the decision inside the acquirer is slower and less predictable.
Usually, yes. Private equity is paying for the team and for continuity as much as for the numbers, and the plan it has underwritten assumes the people who built the business are still running it. Most funds will expect the founder to stay for a defined period, and the rollover makes staying attractive, because the founder is an investor in the next phase. Where the founder wants to leave, a fund will want a proven successor identified and in place before completion, which is one of the reasons succession planning belongs in exit readiness.
Yes. Corinium Advisory holds working relationships with trade acquirers, lower mid market private equity, growth funds, deal by deal sponsors, aggregators and family offices, and helps founders read offers from each side by side. It is independent and paid by the founder. Corinium Capital, its parent, is itself a buyer of software businesses, and any potential interest is disclosed at the first conversation.
Read next
The main guide: thinking, preparing and executing a sale, partial liquidity, growth equity or succession, with independent, founder paid help at each stage.
Selling a software businessA full sale ends your ownership. Growth equity extends it with someone else's money and expectations. Between them sit partial liquidity and non-dilutive debt.
Growth equity or a full saleAn earn out defers part of the price and makes it conditional on performance after completion. It bridges a valuation gap, and it is where founders most often lose money they thought they had agreed.
Earn Outs When Selling a Software BusinessContact