Some background on venture orphans and the opportunity in distressed startups here.
We recently bought Prolifiq out of bankruptcy, an enterprise Salesforce platform with Fortune 500 customers. Revenue-share with the senior creditor, with upside for them and the team rebuilt in weeks with my staffing firm South. The business is now cash-flow positive and growing.
We want to do more of these. This post lays out exactly what we look for, how we think about pricing, why you should (or shouldn't) sell to us, and what founders can do to maximize their outcome.
What Does Our Ideal Venture Orphan Buyout Look Like?
We're looking for startups that have reached the point where the founders, the board, or the lenders are willing to engage on a realistic transaction.
Industry: Software. We're open to IT services. No e-commerce or non-Internet businesses.
Revenue: At least $1 million in ARR, ideally more to justify the effort. Our sweet spot is $1–10M ARR. Above that, it gets competitive with growth equity and larger PE firms.
Growth: Flat to slow. Companies growing quickly tend to outrun their problems and don't have realistic price expectations. We want the ones where growth stalled, but the product is still sticky.
Location: United States strongly preferred. We've done deals in Canada. Most of Europe and elsewhere is in the too-hard bucket for now.
Last Fundraise: More than two years ago. If they raised recently, they're much less likely to sell at a price that works. Time and dwindling runway are what create deal motivation.
Founding Date: Older is better. Newer companies haven't had the time to build truly sticky revenue and are less likely to have exhausted their options.
The ideal in a sentence: A solid software business with loyal customers and a broken cost structure, often heading toward or already in debt trouble. We'd rather catch them before bankruptcy court, but we'll buy out of it too.
Why We Win These Deals
The natural question from a lender or board is: why hand this to you instead of liquidating or running a broader process?
Speed. We can close right away. I tried to close Prolifiq the next day. We already have skilled people ready to take over. We don't have a financing contingency. We don't need to raise funds or get investment committee approval. Often these companies just die if they get dragged out. Employees move on. Customers immediately head to the doors when they hear about distress. You can guarantee all are in the process of ripping your software out. It would be irresponsible of them not to find an alternative.
Operational capability. We have a team of 10+ recruiters on staff at South that can rebuild a team overnight and trusted developers and operators at our other software companies ready to step in. We run a "mullet" model with US-based for most customer-facing roles, and Latin America for engineering, finance, marketing, and ops at 50–70% of US costs. Happy to chat if you’re hiring!
Customer continuity. Enterprise customers care about stability. We have a public track record of acquiring software companies and operating them for the long term. We're not flipping these. We're building them. Prolifiq, for example, is now cash-flow positive with a full team, an active product roadmap, and growing.
Track record. I've been writing and podcasting for years on buying and running internet companies. You can listen to hundreds of hours of us talking about it. The Prolifiq case study, the operating manuals, and the podcast all build trust with jittery customers, employees, and creditors. Most buyers in this space operate in the dark. We don't.
How We Price Venture Orphan Buyouts
Every deal is different, but here's the framework.
Zero-upfront deals: Some companies can be acquired from lenders who take ownership after a default, with no upfront cash. We structure a revenue share with the debt provider where we operate: they get repaid from cash flow, and we split the upside. This is how we bought Prolifiq.
Low-multiple cash deals: Others sell for a fraction of ARR in cash or for the assumption of existing debt. The purchase price comes down to what the business can actually generate under new ownership.
Founder bonus deals: Some look more like a traditional sale but with a carve-out bonus for the founders, who typically wouldn't receive anything based on the preference stack. This aligns incentives and keeps the people who know the product engaged through transition.
A Simple Valuation Framework
For a long-term hold, we estimate the company's value based on the cash flow it can generate under our cost structure, not the current one.
If a company is steady-state and converts roughly 20% of revenue to free cash flow (think 0% growth + 20% margin), the present value of 10 years of that cash at a 15% required return is approximately 1.0× revenue. This assumes no terminal value, so you're ignoring the exit multiple entirely.
Most buyers target north of 15% IRR to account for risk and execution difficulty, which means paying less than 1x ARR unless there's growth, higher margins, or strategic upside.
At a 25% IRR hurdle, the 10-year present value drops to roughly 0.7x revenue. That's your ceiling unless you're underwriting real growth or margin expansion.
For example, a $3M ARR company, 20% FCF margin under our cost structure, 15% required return = we'd pay up to $3M, at a 25% hurdle, that drops to $2.1M.
These are the deals that work. If a seller wants 3–5x ARR or more, they're not a venture orphan; they're a healthy company with healthy expectations. Move on.
When We Walk Away
Not every venture orphan is worth saving.
Not enough revenue. There is a meaningful amount of effort involved in any turnaround. If the business doesn't have the revenue to justify it, it's not worth doing. Many of these companies never truly found product-market fit and should just wind down.
Toxic litigation. Bankruptcy technically resolves most litigation since plaintiffs become unsecured creditors and get in line. But if the situation is genuinely messy, with active lawsuits, customer disputes, or regulatory issues, the distraction cost is too high. People can make your life miserable even if you are technically in the right.
Broken unit economics. We look at what a company can be under our ownership, not its current cost structure. Software companies are almost always salvageable: cut the bloated team, run lean with our LatAm operation, and the margins appear. But some businesses, especially non-software ones, have unit economics that were never going to work. No restructuring fixes a fundamentally unprofitable product.
Unrealistic sellers. If the founders or board members can't accept where the company actually is, the deal dies in negotiation. We're flexible on structure, but we need counterparts who are honest about the situation. Often, this requires a forcing function like a looming bankruptcy.
Advice for Venture Orphan Founders
If you're a founder reading this and recognizing your situation, here's how to maximize your outcome.
Be honest about where you are.
If you're looking at flat growth and no path to profitability, acknowledge it and act accordingly. Optimize for cash, customer retention, and simplicity. Don't keep spending like a hyper-growth business when you're not one. The longer you wait, the fewer options you have.
Protect the business for a sale.
Avoid long-term vendor obligations. Multi-year leases and hosting contracts reduce enterprise value more than the opex discount is worth. Buyers will discount your price dollar-for-dollar for obligations they inherit.
Reduce third-party COGS. Pass-through costs act like a dollar-for-dollar hit to revenue in a buyer's model. Renegotiate or eliminate them before going to market.
Watch deferred revenue. Multi-year prepaid contracts can lower your purchase price. The buyer inherits the service obligation while you already spent the cash. It can be fine for a simple plug-in and a mess when real costs are involved.
Tighten your contracts. Don't agree to unlimited liability, refunds of pre-paids on convenience cancellations, or non-transferable agreements. Buyers will price in every risk they find. Use a standard contract template and make sure all agreements are transferable in an acquisition.
Fix cash conversion now. Improve collections before a sale. Better cash cycles increase value directly.
Don't gut the team to inflate margins.
Slashing sales, marketing, and customer success to boost trailing profitability is one of the most common mistakes we see. Buyers aren't fooled. They'll question whether retention and upsell rates will hold without those people. A business with a lean team and honest metrics is worth more than one with inflated EBITDA and obvious cuts.
Make diligence easy.
Your numbers need to tie to your contracts. Every metric should be verifiable. If information is missing, delayed, or inconsistent, buyers assume the worst. The fastest way to kill a deal is to make a buyer feel misled or lied to.
Don't over-lawyer small deals.
For small deals, accept a fair purchase agreement with reasonable back-and-forth. Excessive legal negotiation kills too many deals especially when the clock is ticking.
Make sure your attorney works regularly in small-business acquisitions, not something random like real estate. This can be very painful for everyone involved otherwise.
Reach Out
If you're a founder with a venture orphan, a VC looking to wind down a portfolio company, or a lender sitting on a non-performing loan, we'd love to talk. colin@colinkeeley.com
We move fast, we're flexible on structure, and we've done this before.