Know why you are buying
The best acquisitions solve a problem you already have. You have an audience and no product, you need a capability that would take a year to build, or you want a domain and brand that would be unobtainable otherwise.
The worst acquisitions are opportunistic. A cheap product in a category you do not understand is not cheap, because your cost is the years of operating it, not the purchase price.
Diligence that actually matters
Most of the risk in these transactions is ownership and understandability rather than financial. The financials are usually simple, because there usually are not any.
- Confirm the seller owns all the code, including contractor contributions
- Audit dependency licences for copyleft obligations
- Check whether users are active or merely registered
- Establish whether personal data can lawfully transfer to you
- Ask what the true hosting and third party running cost is
- Find out who can answer questions after completion, and for how long
What to pay
Anchor on what it would cost you to build the same thing, then discount heavily for unfamiliarity, undocumented decisions and the work of taking it over. Sellers anchor on what they spent, which is not relevant to you.
Treat the handover period as part of the price. Thirty days of seller availability is worth paying for and is usually cheaper than reverse engineering the system.
Taking over safely
Rotate every credential on day one, take direct ownership of the domain and third party accounts rather than inheriting shared logins, and confirm you can deploy the system yourself before the seller's availability ends.
Deploy from scratch into your own infrastructure early. Nothing else proves the handover was complete, and discovering a missing piece six weeks later is considerably worse than discovering it in week one.
Common questions
Where can I buy failed startups?
On marketplaces built for it, where founders list distressed technology assets directly. Exit.so lists startups for sale with their code, users and data.
What should I check before buying a startup?
Code ownership, dependency licences, whether users are genuinely active, whether data can transfer lawfully, and whether anyone can explain the system after completion.
How much should I pay for a failed startup?
Work from what it would cost you to build, discounted for the risk and effort of taking on someone else's system. Ignore what the seller spent.