Definitions for every term you'll encounter in the indie startup acquisition market. From profit multiples to earnouts to platform risk.
The ratio of sale price to annual profit (SDE). The primary valuation metric for sub-$1M acquisitions. Calculated as: Sale Price ÷ (Monthly Profit × 12). A business earning $5K/month that sells for $180K has a 3× profit multiple.
The ratio of sale price to annual recurring revenue (ARR). Less common than profit multiple in the indie market but used when profitability is low or negative. Calculated as: Sale Price ÷ ARR.
The predictable monthly revenue from active subscriptions. MRR excludes one-time payments. It's the most-cited growth metric for SaaS businesses and directly impacts valuation: buyers pay premiums for revenue predictability.
MRR multiplied by 12. ARR provides an annualized view of subscription revenue. Note: ARR is not just total revenue — it specifically refers to the recurring component.
Revenue minus all operating expenses, plus add-backs of the owner's salary and non-recurring costs. SDE represents the total financial benefit to a single owner-operator. It's the standard profit figure for valuing businesses under $5M, including virtually all indie acquisitions.
The percentage of subscribers or customers who cancel in a given period. Monthly churn = customers lost ÷ customers at start of month. High churn compresses multiples because it signals fragile revenue. A SaaS with 2% monthly churn will sell for significantly less than one with 0.5% monthly churn at the same MRR.
Revenue from existing customers at end of period ÷ revenue from same customers at start, including expansions, contractions, and cancellations. NRR above 100% means expansion revenue exceeds churn. This is the single metric most correlated with premium multiples in the FounderSold database.
The total revenue expected from a customer over their entire relationship. LTV = ARPU ÷ Churn Rate. High LTV relative to customer acquisition cost (CAC) signals a healthy business model and supports higher multiples.
An acquisition where the buyer purchases specific assets — code, domain, brand, customer list, IP — without acquiring the legal entity. The most common acquisition structure for indie startups under $1M because it's simpler and limits buyer liability.
An acquisition where the buyer purchases equity in the company, inheriting all assets and liabilities. Less common for sub-$1M indie deals but sometimes preferred when the legal entity holds valuable contracts, licenses, or relationships.
A deal structure where part of the sale price is contingent on future business performance. Example: '$80K upfront + $30K if MRR exceeds $4K for 12 months post-close.' Earnouts align incentives but add complexity and uncertainty for the seller.
An expense that gets added back to profit for valuation purposes because it won't apply to the new owner. Common add-backs: founder salary (replaced by labor cost), non-recurring legal fees, personal expenses run through the business. Buyers scrutinize add-backs carefully — aggressive add-backs reduce credibility.
The price the seller initially lists the business at. In the indie acquisition market, asking prices are typically 10–25% above the expected closing price, leaving room for negotiation. The gap between asking price and sale price is tracked in the FounderSold database.
An acquisition primarily motivated by acquiring the founding team's talent, rather than the product or revenue. Common in tech. In the FounderSold database, we only track acquisitions where the product or business itself was the primary asset — pure acquihires are excluded.
Revenue or user acquisition that depends entirely on a third-party platform (e.g., a Slack app, a Chrome extension, an Airtable integration). Buyers apply a discount to businesses with high platform dependency because a single policy change can destroy the business. In the FounderSold database, platform-dependent SaaS consistently sells for lower multiples.
An acquisition where the founding team built the business without external venture capital or institutional funding. Bootstrapped exits make up the majority of the FounderSold database. The absence of investor liquidation preferences means more proceeds go directly to the founding team.
A non-binding document expressing a buyer's intent to acquire a business at a stated price and terms. The LOI marks the transition from exploratory conversations to formal due diligence. Most deals that reach LOI stage close — the fallout rate post-LOI is low in the indie acquisition market.
The buyer's process of verifying everything the seller has represented — revenue, traffic, expenses, code quality, legal standing, customer contracts. In the sub-$1M indie market, due diligence is typically 2–4 weeks and focuses on Stripe/payment data, Google Analytics, and a code review.