(And Why Founders Deserve a Clear Explanation)
Most acquirers describe their criteria in language broad enough to mean nothing. “Great companies with strong fundamentals in attractive niches.” A founder reads it, learns nothing, and sends the email anyway. We’d rather be specific, because a founder deserves to know where they stand before spending six months finding out.
Continuum acquires vertical market software for businesses serving financial institutions, educational institutions, and government bodies. Almost every conversation starts on our side: we research a company, decide it looks fit, and reach out. Even after that filtering, once the financials arrive, we walk away from roughly half of them.
This article is about half of that.
What disqualifies a business?
It isn’t narrow enough. We look for companies that are an integral part of a well-defined business community. The clearest way to explain it is one product sold to two different buyers. A learning management system for universities and schools is a business we would look at seriously. The same system sold to corporations in general is not, even though the code may be nearly identical. The difference isn’t the software. It’s whether the company sits inside one community deeply enough to know it better than anyone else.
It isn’t spinal. We invest in software that runs something core, the system of record a customer builds their operations around. Core banking, loan servicing, student information systems, and case management. Not reporting layers, not dashboards, not add-ons. That distinction has always driven pricing power and retention. In an era where a capable customer can generate a lightweight tool in an afternoon, it matters considerably more.
The revenue isn’t stable enough. We want at least 60 to 70 percent of revenue to be genuinely recurring, whether software subscriptions or managed services are delivered repeatedly. Project-based consulting revenue, won and lost by bid, is a pattern we struggle to underwrite. Customer concentration is related, though more nuanced. Many buyers decline reflexively the moment one customer represents too large a share. We prefer to dig in, because a customer who has been in place for fifteen years is a different risk from a relationship that could end next quarter.
There is a fourth factor, less comfortable to write down: we have to want to work with the people. We hold what we buy, and holding means working alongside the same leadership for years. If that doesn’t feel right on either side, the price won’t fix it.
What founders think disqualifies them but doesn’t…
Not being pure software. We like service businesses, provided the revenue is stable and repeatable. Financial aid processing is a good example: a service, but a scalable and recurring one.
Not being very profitable. Profitability is secondary for us, including for valuation. If there’s a sensible path to stronger margins, we’d rather work it out together after closing than penalize a founder for having reinvested.
Not being ready to leave or not being ready to stay. Owners staying on is welcome, and many do. But transition is frequently the reason a company is for sale in the first place. A founder does not need a successor identified before talking to us; we will help find one. What matters is being open about intentions early, so we can plan around them.
When the answer is no, we tell you why
This is the part we would ask any founder to hold us to. We do not send polite answers. We give the actual reason: the product is a point solution, the revenue is too project driven, and the concentration is a risk we can’t get comfortable with.
There is nothing to be gained by withholding it, and often the reason is something a founder can act on. If a business isn’t acquirable today but could be in three years, we would rather say so and talk through what would need to change. A no from us is meant to be useful.
The same principle applies when the answer is yes, and it has cost us deals. We have lost processes to buyers offering roughly fifteen percent more while staying vague about what would happen after closing. In one case we said plainly that we could reach that number too. If we cut the costs, the other buyer appeared to be quietly planning to cut. The seller had a higher price. We would say it again, because a number that depends on undisclosed cuts is not really a number. It’s a bill that arrives later.
What it takes to get an answer
Less than most founders expect. A thirty-minute conversation, so we understand the business and its history. Then standard financials: an income statement and balance sheet, ideally five years, with revenue streams broken out if they’re complex. No custom analysis. Once we have that, we come back within a business day with a clear view of interest and on how we might value the company.
Anything shared stays inside our corporate development team, which is deliberately separate from the CEOs running our operating companies. Those CEOs are involved only when a seller wants them to be involved.
If your business serves banks, schools, universities, or government bodies, we will welcome a confidential conversation. You will get a straight answer quickly, and if it’s no, you will know exactly why.