Build and Exit

Proof required

Submit: (1) a financial record showing $500,000+ ARR — a Stripe MRR screenshot, subscription billing export, or P&L report with the annualised calculation shown — and (2) a churn or retention figure covering the most recent 6 months (monthly churn rate, net revenue retention %, or a cohort chart showing customer survival). Include a 100-word note on how ARR was calculated and what the primary revenue driver is.

What gets checked

• ARR figure is calculated and labelled correctly — a Stripe screenshot showing $41,700 MRR with a note 'MRR × 12 = $500,400 ARR' passes; a screenshot showing 'total revenue this year' without distinguishing recurring from non-recurring does not; revenue from one-time services or project work is not ARR even if it is large
• Retention data accompanies the ARR figure — ARR without retention data cannot be evaluated by an acquirer; a monthly churn rate above 5% or a net revenue retention below 90% is a signal that the $500k ARR will not sustain; include this data honestly even if the numbers are imperfect
• Revenue is from real customers, not related parties — a business where 80%+ of ARR comes from companies connected to the founder, investors, or advisors is not independently validated at $500k ARR; describe the customer base briefly (number of customers, average contract value, industry) to contextualise the ARR figure

Common mistakes

• Conflating GMV or bookings with ARR — a marketplace with $500k in gross merchandise value has not necessarily reached $500k ARR; ARR refers specifically to the annualised value of recurring contracts the business holds today, not the total money that has ever flowed through it; calculate ARR as: (current active recurring contracts × contract value) annualised
• Reaching ARR through one large enterprise contract rather than distributed revenue — a business with $500k ARR concentrated in one customer (>50% of ARR) is at high acquisition risk from customer concentration, which most buyers will heavily discount or walk away from; the ARR milestone is stronger when spread across 10+ customers each representing under 20% of total ARR
• Optimising the ARR number for the milestone rather than for the business — founders who cut deals that inflate ARR temporarily (prepaid annual plans offered at steep discount to show a higher MRR figure) are creating ARR that will deflate at renewal; acquirers look at renewal rates and discount behaviour; an ARR figure that cannot be defended in due diligence is a liability

Resources

Arena

What a verifier looks for

• Open the financial evidence and verify the ARR calculation — confirm MRR × 12 (for SaaS) or sum of annual contract values (for enterprise); if the figure includes non-recurring revenue, ask how it was separated
• Check the churn or retention data — ask 'what is your monthly churn rate?' and 'what percentage of revenue renews each year?'; a business with 3%+ monthly churn at $500k ARR is losing roughly a third of its revenue base annually, which will affect acquirer interest significantly
• Ask about customer concentration — 'how many customers make up the $500k ARR, and what is the largest single customer as a percentage of ARR?'; concentration above 30% in one customer is a standard acquisition risk flag

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Proof required

Submit: (1) written evidence of acquisition conversations with at least two distinct potential acquirers — email chains, signed NDAs, or an LOI (redact confidential terms, but the names of parties and the expressed interest must be visible) — and (2) a 100-word note describing the type of buyers approached (strategic vs. financial, and why this type was chosen for this business).

What gets checked

• Two distinct parties with written evidence of expressed interest — a single interested buyer and one unanswered cold email do not pass; 'written evidence' means the acquirer has responded in writing indicating they want to proceed with a conversation, receive materials, or sign an NDA
• Evidence is redacted for confidentiality without removing the key elements — acquirer name and evidence of mutual interest must remain visible after redaction; a fully blacked-out email is not evidence; standard redaction covers financial terms and proprietary business details, not the fact of the conversation
• Note explains the buyer type rationale — strategic buyers (companies that could integrate the product) and financial buyers (PE firms or acqui-hire buyers) evaluate businesses differently and negotiate on different terms; the note should name which type was approached and why, demonstrating the founder has researched the acquisition landscape

Common mistakes

• Treating inbound acquisition interest as a conversation — unsolicited acquisition inquiries from investors who want to buy the equity at a discount, or vague 'would you ever sell?' messages from competitors, are not acquisition conversations; a real conversation is one where a specific buyer has agreed to receive financial information and discuss terms
• Entering acquisition conversations before reaching the $500k ARR milestone — conversations initiated before the business reaches a defensible ARR level usually result in lowball offers or stalled deals; the typical advice from M&A advisors is to let inbound interest drive the timing, not to push for conversations based on trajectory alone
• Not engaging an M&A advisor for a first exit — founders attempting their first exit without experienced legal and financial representation routinely leave significant value on the table; most M&A advisors for companies in the $500k–$5M ARR range charge success fees (typically 5–10% of deal value) rather than upfront retainers; the cost of advice is almost always recovered in improved deal terms

Resources

What a verifier looks for

• Open the written evidence and verify two distinct parties — check that the email chains or NDAs are from two different organisations; if they are both from subsidiaries of the same parent company, that may still count as one buyer
• Verify the evidence shows mutual expressed interest — an email sent by the founder without a reply is outreach, not a conversation; the evidence must show the acquirer has responded indicating interest in proceeding; ask to see the response if the submitted evidence only shows sent messages
• Ask about legal representation — 'have you engaged an M&A advisor or lawyer for this process?' and 'do you have an advisor reviewing the terms?' A founder entering acquisition conversations without representation is a significant risk to getting a fair deal; note it if representation is absent

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Proof required

Submit: (1) the signed purchase agreement with parties, asset description, and closing date visible (financial terms may be redacted), and (2) a 200+ word post-exit reflection covering the deal structure, what drove the valuation outcome, what the founder would change in hindsight, and what advice they would give to a founder starting this journey today.

What gets checked

• Purchase agreement is a real signed document — a letter of intent or term sheet is not a closed deal; the document must show signatures from both parties and a closing date that has passed; for asset purchases, the asset description must be visible; for stock purchases, the transferring parties must be named
• Financial terms are redacted, not the evidence of closing — the goal of redaction is to protect confidential deal terms; the closing itself — that a deal was signed, that parties agreed, that a transfer occurred — should remain visible after redaction; a document where the fact of closing is unclear after redaction needs to be re-redacted differently
• Post-exit reflection addresses all four prompts with specificity — reflection that says 'I am happy with the outcome' without addressing valuation drivers, deal structure, hindsight changes, and advice does not pass; each of the four points must be addressed in at least two substantive sentences

Common mistakes

• Conflating signing a term sheet with closing a deal — a term sheet is a non-binding expression of intent; it begins the due diligence process, which can last 3–6 months and during which the deal may fall through; the deal is closed when both parties have signed the final purchase agreement and funds have been received; the milestone is not met until that point
• Not completing the transition obligations before claiming the milestone — most acquisition agreements include a transition period (typically 3–12 months) during which the founder continues to support the business; if the founder claims the milestone at signing but abandons the transition obligations, the earnout and any deferred consideration may be at risk
• Not doing the post-exit reflection while the details are fresh — the 200+ word reflection is not optional and is not best done years later; the most valuable post-exit insights come from writing the reflection within 6 months of closing while the deal dynamics, negotiation leverage, and diligence process are fresh

Resources

What a verifier looks for

• Open the purchase agreement and check the three visible elements: parties named, asset or company described, and closing date; if any of these are redacted, ask the founder to re-redact leaving only the financial terms covered
• Read the post-exit reflection against all four prompts — 'deal structure' (cash/equity/earnout split), 'what drove the valuation' (specific revenue multiples or strategic premium), 'what the founder would change' (specific decisions in hindsight), 'advice for someone starting now' (actionable, specific advice); any prompt answered in one generic sentence has not been addressed
• Ask one clarifying question specific to the reflection — if the founder says 'the valuation was driven by our growth rate', ask 'what was the multiple on ARR and how did you benchmark it against comparable acquisitions?'; a specific answer demonstrates the founder understands their own deal; a vague or deflecting answer suggests the post-exit analysis has not been done

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