Looking to potentially buy or sell a small business? Bizdaq, a new online marketplace, is seeking to help. I certainly see a need for this type of online marketplace -- but I also see plenty of potential holes with the model.
First, the big picture: Bizdaq just raised 1 million pounds (US$1.54 million) to expand its UK-based business. The company claims it has helped more than 1,200 entrepreneurs to sell their businesses so far. I've reached out to Bizdaq to see if there are any plans to expand into the U.S. and other markets (stay tuned).
Now, the business model: Bizdaq charges a monthly subscription fee to business owners who want to list their companies for sale. In stark contrast, UK-based companies can typically pay 15 percent commission to brokerage companies that manage a sale, TechCrunch says. For potential buyers, Bizdaq lets you search for companies based on price, business type, location, etc.
I'm intrigued for a few reasons. First, I get calls and emails all the time from...
- Potential Sellers: Tech business owners asking me if I know of any potential brokers who can help them line up potential buyers. Or if I can introduce them to potential buyers.
- Potential Buyers: Existing owners and/or private equity firms that are looking to roll up a few small tech firms in specific verticals and/or geographies.
Yes, there are are consultants in the SMB IT market who help broker such deals -- but I've heard mixed results. Often, the brokers try to be "match making" services but they typically don't have a critical mass of buyers or sellers...
So, in some cases, I think a platform like Bizdaq could really help to accelerate the M&A process -- especially among small businesses.
Now, the Challenges
Still, an online marketplace has its limitations. When Amy Katz and I sold a previous company in 2011, we hired a financial advisor to assist with the deal. The high-touch consultant offered timely guidance -- on such items as:
- The book: Organizing the exact information we wanted to share with prospective buyers.
- The targets: Companies that would potentially be good suitors.
- First contact: We didn't reach out to any potential suitors. Our financial advisor did.
- The negotiations: The back-and-forth can last for months. Using an advisor gave us a great buffer to ensure we could remain focused on our business during ongoing discussions with multiple parties -- about 10 to start, narrowed down to three in the late stages. And even with he advisor in place, Amy was working overtime to juggling the day-to-day business needs plus the sale process.
- The fee: For all that, a financial advisor typically charges about 6 percent of the sale price here in the U.S. -- far lower than the 15 percent that TechCrunch mentions for the U.K.
While 6 percent can be a big chunk of change, a good financial advisor more than pays for him or herself by bringing multiple bids to the table -- and then leveraging each bid against the other to maximize a company's valuation, and get it sold to most qualified buyer.
Of course, you could wind up with a lousy advisor... or perhaps your business simply isn't as valuable as you assumed. But from my vantage point, the personal guidance from an advisor offers far more value than an online marketplace.
Coming Next: Blended Model
Still, I can certainly imagine a new model emerging -- a blended model that combines an online marketplace with qualified advisors. Basically, the advisor would manage, control and optimize your online marketplace presence -- and then deal with potential suitors who find you through the marketplace...
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