From 0 to an Award-Winning Fintech Startup - Startup Stories with Jan-Philipp Peters
Anton Oparienko (COO, Upsilon): Today, I'm pleased to talk to Jan-Philipp Peters, the co-founder at BitsForDigits. Tell us a little bit about your background. Have you always wanted to launch a startup?
Jan-Philipp Peters (Co-Founder, BitsForDigits): I'm originally from Germany, from a small town. I always knew I wanted to found a business someday, but before that, I felt there was still a long path to go. I studied business both in Germany and Denmark. Later, I moved to Ireland to work for two American tech companies. After a while, I felt ready to get going with my own path. My co-founder and I decided to quit our jobs, move to Berlin, and launch a startup.
Anton: Did you think it was easier for you to launch a startup in Germany?
Jan-Philipp: My co-founder was living in London. I was living in Dublin. Both are expensive cities and less hospitable to two people on a budget. We were looking for a cheaper option, which Berlin was. Besides, the German government supports startups quite a bit. We could get substantial funding that gave us enough runway to build a product. Moreover, Berlin is a fairly international city. You can go by even without speaking any German.
Anton: You and your partner Laurits Just are not technical founders. Do you think having a technical background when building a Fintech product is essential?
Jan-Philipp: Laurits and I have done a bit of coding here and there, but mostly only for fun. Starting this business, we assumed we needed to find a third person, a CTO co-founder. For the MVP development, we considered paying someone to develop it until we discovered no-code solutions that were easy enough to work with and to develop something independently. So, we kept on building everything out of no code. Although there are limits to what you can do without coding, it enabled us to create something without real technical expertise.
Anton: Do you regret going for the no-code solution? Would you do it the same way now? Did you stumble upon significant startup mistakes that you would love to avoid?
Jan-Philipp: We don't regret going with a no-code solution. Some regrets lie around our chosen platforms, which you realize only after implementation. For a non-validated idea, I would never spend much time on resources to build something nobody needs. Even for developers, I recommend going the easy and cheap route of a no-code MVP type.
About nine complementary tools are plugged into our platform to cover all the necessary functionality. At times, it becomes complicated. If we had to start from scratch, we would choose another tech stack. We are currently rebuilding the back-end to reach the desired functionality.
We are rebuilding some functionality in Bubble, as they offer more flexibility in one place, but the long-term goal is to hire an individual or a team to rebuild everything more natively. Bubble is an excellent middle step to enhance functionality.
Anton: How does BitsForDigits work? What is the technology at the center of the product?
Jan-Philipp: BitsForDigits is an acquisition marketplace for founders and business owners of bootstrapped internet companies with more than $100K in annual revenue. Imagine you're a founder of a small to medium size SaaS business. You want some liquidity event like a complete acquisition or selling a piece of your ownership to take some chips off the table. You can list it on our marketplace anonymously for free and engage with potential acquirers about the terms. It could be a micro private startup equity fund, a family office, or an acquisition entrepreneur.
At the moment, we only allow for the handshake on the platform. We introduce the parties, but we don't touch on the actual transactions. Our core focus is bringing buyers and sellers together.
Anton: Where did the idea for BitsForDigits come from? Has it changed somehow during the development stage?
Jan-Philipp: Laurits comes from the finance world, and I have a tech background. I worked with a lot of internet startups before. This space was always top of mind for us.
The original inspiration for the platform comes from one of the co-founders of Basecamp. David Heinemeier Hansson and his co-founder sold a piece of their business in a secondary transaction to Jeff Bezos and took some chips off the table. They were safe for life, having peace of mind to run Basecamp to the present. We viewed it as a super cool transaction we hadn't heard of before, especially in this bootstrapped internet company space. We wanted to build a platform around it. It was the original idea behind it. Afterward, we tagged on full acquisitions as well.
Today, BitsForDigits allows for these partial buyouts and for folks who want to sell their entire company.
Anton: Was the shift from the MVP and proof of concept (POC) to the final product driven by your client's desires, research, or something else?
Jan-Philipp: I think the first advice everyone gives you in the early stages of building a company is to be super focused, do one thing and do it well. That's exactly what we wanted to do. We tried to work narrowly in the market of these partial buyouts, such as small businesses, family offices, etc. They kept asking us if we could find some companies that they could acquire fully. And we kept saying, 'No, we only do partial buyouts.'
Then we kept turning down other businesses that wanted to sell a hundred percent. We kept sending them to other marketplaces until we thought, 'Okay, we're just shooting ourselves in the foot here. We're just turning down business left and right to stay focused.' That's how we decided to include full acquisitions as well. At the end of the day, the customer doesn't change. It's just the expanded deal flow they can expect.
Anton: How do you fund your startup? Was it bootstrapping or fundraising? Why did you go for this option?
Jan-Philipp: When we first started BitsForDigits, we had an incredible amount of venture capital firms reaching out to us to offer investments. The option is always there. But we obtained funding from the European Union that paid us a fairly good salary to build everything out from a technical perspective. We decided to wait to take on venture capital money until we needed it. Because once you go down the venture route, you commit to the venture game. We wanted to wait and see how far we could get with bootstrapping. If we hit a wall, we would probably go for raising money. We haven't hit that wall yet. It just kept on going. It seems to be working with bootstrapping. Fundraising is not a necessity. It doesn't mean it won't change in the future, but it's okay to bootstrap for now.
Anton: Was it hard to get support from the European Union? What does this process look like?
Jan-Philipp: Surprisingly easy. I don't know if it's easy for everyone. I think the backgrounds that both Laurits and I have were instrumental. It's a crazy amount of unnecessary paperwork to fill out that might also be a hurdle for some. But it was manageable. If anyone else is within the vicinity, maybe in Germany or a neighboring country, it's worth checking out.
Anton: You charge the acquirers on your platform a subscription fee, while BitsForDigits is completely free to use for business owners. Why did you choose to monetize this way?
Jan-Philipp: Charging acquirers and not business owners has two main benefits. First of all, it eliminates those people from the platform who are not serious about acquiring a business and would thus waste a founder's time. Secondly, most other platforms and brokers charge sellers very steep commission fees - so the cost of listing their business is very high. Given that we are free, more and higher quality businesses choose to list with us.
Anton: On your website, you have a lot of comparisons of BitsForDigits (e.g., Flippa) and other services. How do you stand out?
Jan-Philipp: In the broader scope of competitors, we have other marketplaces and brokers who we are competing with. We stand out because there are no middlemen on our platform, we do not offer a white glove and we positioned ourselves more upmarket.
You need at least a hundred thousand dollars in annual revenue to list with us. Most businesses are somewhere in the seven-figure range. We feel there are a lot of immature companies out there, the side projects or startups that never went anywhere. And many marketplaces are focusing on acquisitions of those projects. We wanted to focus on actual companies with real revenue to appeal to the more sophisticated buyers. That is the one side, the size of the acquisitions. The other is still partial buyouts. We were the first to focus on this, and we're still doing it today.
Anton: How did you attract your first users? And how do you attract your current users to your platform? How do acquirers and companies get there?
Jan-Philipp: We acquired our first users differently from how we do it today. On the acquisition side, we started before we had a product by reaching out to private equity funds, family offices, etc. That was a lot of cold emailing or outreach on LinkedIn to build a list for the initial interviews to find the right target customer. When we created the product, we sent them a link saying, 'Hey, sign up here.'
As for the other end, we officially launched in December on Product Hunt. Fortunately, we managed to become #2 of the day. We were also nominated for the Golden Kitty Award. That's how we did it initially.
Today, on the business owner side, especially in communities, we find users on social platforms and entrepreneur groups, such as Indie Hackers or Twitter. They are great spaces to find people on the acquirer side, too. Fortunately, there is a lot of word of mouth at this point because it's a relatively tight-knit industry. A lot of people speak to each other about us.
Anton: What is the portrait of BitsForDigits' acquirers? Are they serial entrepreneurs or companies?
Jan-Philipp: On the one hand, I can say they are professional or sophisticated buyers, such as private equity funds. They don't always raise external money, and they are usually successful former entrepreneurs who now want to buy or invest in similar businesses. They look for a rich deal flow and make multiple acquisitions every year.
On the other hand, since we launched full acquisitions, we have many acquisition entrepreneurs on the platform. They are search funds, be it using their own money, or money from external investors. They tend to only look for one business. These acquisition entrepreneurs want to acquire a business to run it themselves. Instead of founding a startup, their path to entrepreneurship is to purchase a company with substantial revenue, take product-market fit risk off the table, and go from there.
Lastly, we have a few strategics. These are strategic buyers or companies looking for similar businesses on our platform to buy and grow faster by hiring a good team or obtaining new technology.
Anton: What are your plans for BitsForDigits?
Jan-Philipp: The short-term goal is to successfully build more features. We have had many features on the waitlist for quite a while. In the long run, we want to replace many brokers. If you run a company of a significant size, you currently have to go with a broker. They are expensive. We will offer an alternative for people to meet the buyers we will eventually sell to anyway and do so at a lower cost.
Anton: Which startups are most often sold via BitsForDigits (industry, region, etc.)? Do you see any trends in selling and buying online businesses?
Jan-Philipp: We're a global platform, but almost half of the businesses are now from North America. As a European startup, we wish Europe would be the first and not second here. However, the US is at the forefront, especially regarding software businesses. Many acquirers on our platform look for software-as-a-service companies, the most popular category.
It is difficult to categorize them into specific industries because many serve diverse niches. For example, we have marketplaces running for remote assistance that you can hire as a company and a software business specifically targeted at animal breeders. With new businesses coming, we see the craziest small companies and the wild amounts of money they make.
So, half of the platform is in the US. The second is the UK/Europe, and the third is the rest of the world, such as Australia and some Asian countries.
Anton: Do you have African startups using your platform? From what I know, the region is growing fast in tech and online startups.
Jan-Philipp: We had African startups in the marketplace. I don't know if any are listed right now. We also get a lot of inbound requests, especially from Nigeria. There are many Nigerian startups. The hurdle for them is to reach $100K in annual revenue, which is much easier to hit in North America.
Anton: You wrote in one of your articles that you conduct a manual verification process. What's it like?
Jan-Philipp: We try to verify both sides of the platform because we learned from other marketplaces where fraud is a big issue.
On the business side of things, we make sure that the business owner is who they say they are. They have to sign up with their business email address. We usually have a call with them to make sure it's the real person and the real deal. Sometimes we also ask for financials to ensure the numbers are correct. Revenue verification happens through Stripe. People can put in the API key from their Stripe account for us to retrieve the data from their existing account.
On the acquirer side, we verify some details as well. If someone signs up from a private equity fund, we want them to sign up from their official email address. We verify everyone through LinkedIn. If we're not entirely sure, we always have a call with them. This type of verification limits the number of people on the platform. But quality is essential here. Once you have a few scammers on the platform, the reputational damage goes a long way.
Anton: Can you share some best practices for online business buying and selling?
Jan-Philipp: For buying one, if you've never purchased a business before, start by buying a small business, maybe not even on our marketplace. Pick another one, a little side project, to understand what technical diligence looks like, what the buying process looks like, what is an LOI (Letter of Intent), purchase agreement, etc. Then migrate to a more significant acquisition or have someone who has gone through it before guide you with the process. Alternatively, we try to create as many resources around the process as possible on our website. However, there is always an individual setting.
For the sellers, the single biggest issue is valuation. Many people read the news and see some companies sold for 50 times ARR (Annual Recurring Revenue). They think this is the price of their company, too. It is not how things work. Many private buyers on our platform expect more reasonable revenue or profit multiples. Try to understand a fair valuation and manage your expectations during the conversations. If a business sets a crazy valuation, they do this to set the anchor high and then go down. But some of these anchors are so high that they are complete show-stoppers and won't get approached at all.
Anton: When you go through the verification process, do you consult people that the price might be too high or low?
Jan-Philipp: We have a valuation calculator on our website that people can use. We always redirect them to it. From a legal perspective, we must be careful about what we can do because we can't give financial advice. A big challenge is figuring out what we can and cannot do with our lawyers. You'd be surprised how many other marketplaces operate in a gray zone. Unfortunately, we cannot advise on startup valuation. We can only give them an idea and refer them to our calculator. It's their choice what valuation they list eventually.
Anton: Thank you, Jan-Philipp, for the expert talk on how to sell and buy businesses online and how to make a successful startup out of this!