Imagine a world where you could buy and sell businesses with just a few clicks, all while having the peace of mind that your transaction is protected. Sounds too good to be true? Not anymore, thanks to Flippa’s innovative platform and their new game-changing capability.
In this episode, Blake Hutchison, CEO of Flippa discusses how Flippa is revolutionizing the way individuals buy and sell online businesses by offering a seamless, all-in-one platform with an exclusive new feature that mitigates risk for deal parties.
In this episode, you’ll discover…
- How Flippa’s platform streamlines the process of buying and selling online businesses
- The groundbreaking new capability that sets Flippa apart from the competition
- Why even small deals can benefit from the protection of insurance
- The exciting new categories and features coming soon to Flippa’s platform
- How Flippa’s innovative approach is making mergers and acquisitions more accessible than ever
Mentioned in this episode:
Transcript
Patrick Stroth: Hello there. I’m Patrick Stroth, trusted authority in transactional liability and national practice leader for mergers and acquisitions for Liberty Company Insurance Brokers. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions, and we’re all about one thing here, that’s a clean exit for owners, founders, and their investors.
Today, I’m joined by Blake Hutchison, CEO of Flippa. Flippa is the number one platform dedicated exclusively to helping individuals buy and sell online businesses. Flippa provides the only all-in-one platform for buyers and sellers looking to execute their transactions, and that’s from original listing to closing the deal.
Blake was kind enough to join us today here at M&A Masters to share with us news of Flippa’s new, one-of-a-kind capability that removes a substantial amount of risk for the deal parties that use the platform. Blake, great to have you here. Welcome to the podcast.
Blake Hutchison: Thank you for having me, Patrick. It’s gonna be a fun chat.
Patrick: Yeah, I’m looking forward to this now. And before we get into Flippa and this new capability that is exclusive to the Flippa platform, let’s just start with you. What brought you to this point in your career?
Blake: So, I mean, as you said, I’m the CEO at Flippa. Have had a, I suppose, a long and very much changing career. I’ve worked across many industries. I’ve worked in the accounting software industry. I’ve worked in SaaS businesses. I’ve worked in publishing businesses and e-commerce businesses, and of course, I’ve been a founder myself, building a marketplace.
Which, of course, Flippa is, albeit in a different industry to the one that I originally operated in. That in its own right, kind of makes me a good fit for the role I do today, because I represent business owners and investors all over the world, regardless of the monetization or business model that they’re looking for, and regardless of the category that they’re interested in.
And so you’ve got to have that empathy for where they’ve come from, what they’re trying to achieve. I’ve worked in partnership, growth, business development, sales roles, and then ultimately into executive roles. That has all led me to an opportunity to run this business, which, as you said, is the number one platform worldwide for subscale M&A.
And that was a function of a couple of things. One, I built a great business here in Australia called Luxury Escapes. We’re the fastest-growing company in Australia. And so that I guess, put me on the radar to some extent.
And then the second thing is that I had been a customer of the Flippa platform, and so that gave me a unique insight into what the customer experience is, where the improvements needed to come from, and the types of product that we wanted to ultimately build. So, a combination of the experience plus a unique understanding and empathy with the customer got me to this point.
Patrick: In America, I can’t remember the name of the company, but the CEO was the big spokesman for commercials. His tagline was I love this food so much I bought the company. And so it looks like you went and saw the experience and saw where it can be improved, and you moved up. So with Flippa, for anybody that doesn’t know about it as an online platform for M&A. Exactly what is it, and who’s the audience that you serve?
Blake: It’s a place to buy and sell companies, Patrick. So clearly, we have a particular niche within that, but that’s the easiest way to think about it. And then if you really drill down, the unique aspects of Flippa relate to one, what we represent. So we represent digital and online business owners exclusively and only.
Two, and the fact that it is an end-to-end platform combining both technology, but also world-class advisory. And so the technology is really two parts. One, the matching algorithm, which puts you in front of the world’s largest collection of buyers.
And then two, the service layer, which includes the M&A insurance product that we’ll talk about today, due diligence, data insights, and benchmarking, those types of things that you need to make informed decisions. And then, of course, the advisory. The M&A experts.
They’re accredited, they’re available across the globe, but here in Asia, where I’m based, in Amsterdam, which is our EMEA headquarters, and of course, in Austin, Texas, which is our US HQ. And the US is our biggest market by a very long stretch.
And so those things combined make it a very seamless process for either a seller, so that’s the business owner, that’s the founder, that’s the entrepreneur that runs an e-commerce business, a SaaS business, a publishing business, potentially even a digital agency or something like a YouTube channel.
And then, of course, the investor. The acquirer, who could be just like you or I. We’re looking for something to acquire that we can run, or it could be an institutional investor who is bolting on to for some kind of strategic reason. So it’s there to satisfy all.
We operate sub-scales. So we’re doing small businesses, $100,000 businesses, all the way up to, the biggest business represented on the Flippa platform and successfully sold on the Flippa platform was $35 million.
Patrick: Wow. Well, I mean, and this is the great magic of innovation is if you do something traditionally, and this is as simple as buying and scheduling airline tickets for a vacation, you used to have to go to a travel agent in the old days. Now you can do that yourself. Other simple transactions, I mean buying a car, buying a house, you now do that online.
So why not buying and selling companies? And even though there are more variables to it, and there’s a lot more risk, we got a lot more money at stake, you guys have come up with it. And the concept for us as we look to ensure M&A transactions, the whole idea of ensuring M&A transactions is based on the foundation where the seller puts together a list of disclosures for their company to a buyer.
The buyer goes through a due diligence process, reviews those disclosures about financial conditioning, intellectual property, material contracts, and the lawsuits, things like that. And the buyer is never going to know everything. And the buyer may not ask the seller all the questions, and sellers may not give all the answers because they don’t have all the questions there. And so there’s a little bit of an unknown there.
So what buyers have done is buyers put in a clause in the agreement that says, essentially, hey, seller, we looked at all of these disclosures called reps and warranties, if any of them end up being inaccurate or incomplete, and those inaccuracies cost me money, I have the right to claw back some, or in an extreme case, all of the money back.
And so I looked at everything that’s really nice, but we’re going to have this money-back guarantee built-in, just in case. To which a seller says, wait a minute. I answered all your questions. I bared my soul, you can’t hold me responsible months later for something you never asked about. I shouldn’t be able to do that.
I don’t need to be on the hook for that. To which the buyer says, well, look, I’m betting hundreds of 1000s or millions of dollars that your memory is perfect, and you told me everything, and I’m sorry, we just can’t do it. And so in that, you’ve got the buyers don’t want to get stuck holding a lemon. Sellers don’t want to be on the hook forever.
And that’s where you can have the impasse where unfortunately if there’s no way to transfer that risk, the parties just kind of grit their teeth move forward, and hope for the best, which is not ideal. And so the insurance industry came up with a product called reps and warranties insurance years ago, and it was set up for very large deals and where you had tremendous amounts of real deep due diligence.
I mean, they would do penetration tests, they would do title searches, they would do all these other legal reviews and stuff costing hundreds of 1000s of dollars, which that’s reasonable if it’s a $100 million deal. You’re gonna spend seven, $800,000 doing all that background. Well, if it’s a $200,000 deal, what do you do there?
In those cases, a lot of times you could have a mistake made, and it could be a $25,000 hit, which is a lot of money in there. And so what the industry came up with is they figured out a way to insure these transactions. They would just look at the reps and then tell the parties, okay, we’re satisfied with these reps. I’ll tell you what buyer, if something blows up, don’t sue the seller. Don’t claw back. Come to us.
Seller, if you’ve got a buyer banging on your door, come to us. We will settle this, and we will pay. So instead of the money coming from where the two sides are pointing fingers at each other, just go to a third party and take care of this. And as I mentioned, this has been an elegant solution. It has worked very, very well for 100 million dollar deals.
Well, last five years, that 100 million dollar deal threshold, we’re coming down to 75 to 25 and we just looked and we thought for the volume of deals, and these are hundreds of deals every month that are happening that are otherwise unprotected. How can we find a way to get in there?
And what was great, the innovative people from CFC in London, which I’ll talk about them later, and almost a year ago today, teamed up with your team to say you’re gathering all this data about these companies. You’re setting out the platform for not only the contract terms, the due diligence.
All the material is there. Why don’t we just pull that data, as we do with a lot of other things, and then we could put together terms for coverage for this? And because of volume, these are simple, straightforward deals. They’re not going to be very, very complex. They’re not going to be subject to huge regulatory things.
Why don’t we set up a product that, you know what folks if you want buyer-seller, you could opt-in just it’s an option. It’s not mandatory. You can go ahead and get an insurance policy. And what’s been elegant about this is, when you think about insurance, a lot of times people have to go off and go to a whole other person, fill out applications, forms, shop it around, everything.
A huge, huge hassle. Particularly if you’re not in the insurance industry. This gets really, really cumbersome. And so what is great is Flippa with your innovative team really came forward and made this a seamless process. And so we, like I said, pulled the data down from the information you’re already providing, and now we have an offer for a product.
So on the Flippa platform, exclusively, this is not available anywhere else. We have two products now on the Flippa platform, that Flippa has been kind enough to make accessible to its users. There’s one called Seller Protect. What a seller protect product does is essentially the seller is the policy holder.
The policy in the event the buyer suffers a breach and reaches out to the seller and says, there has been a mistake in your IP we just got an infringement notice, and we’re coming after you for that. The seller simply comes to Flippa and to us, puts in the claim. We will assign counsel to go sit down with the buyer, and we look for two items when we talk about a claim when we go to the buyer.
Show us the breach. And then show us your math. If you say this breach costs you $200,000 that’s fine. Could you just show us how you came to that number? And it is a very simple, straightforward process. Like I said. You’re going to involve attorneys because everything in life involves attorneys when there’s a disagreement, but that’s what happens.
But what’s nice is you don’t have buyer and seller pointing fingers at each other, and seller scrambling to say, oh, my God, my proceeds, they’re off somewhere else. I can’t do this. So it’s a wonderful, elegant response for that. Buyer has assurance, because, hey, you can’t squeeze blood from a stone, so if the seller has insurance up to the purchase price, theoretically, the buyer can get all their money back if the breach is bad enough.
So you’ve got that insurance. So that’s Seller Protect. There is one thing the seller protect doesn’t cover, that is in the event the seller commits fraud, or well, we don’t necessarily say fraud was just they do not materially fully disclose all the information that’s being asked for. So we call it a nondisclosure type coverage. This is Buyer Protect.
This nondisclosure is not covered under seller policy. So we have a separate policy just for buyers, and it protects buyers in the event that a seller materially fails to disclose or withholds key information that the seller knew about and doesn’t share it with a buyer. Okay, there could be innocent situations where the seller is aware of something.
They think it’s nothing, let sleeping dogs lie. I don’t want this to complicate the deal, let’s go. And then all of a sudden it blows up. Buyer, under a seller protect policy that will not be covered because seller is aware of it. Under buyer protect the buyer has assurance that if the seller did not disclose it and the buyer suffered a loss the buyer will collect for that specific loss.
It is important buyers really like this because I’m not going to say they’re cynical. However, you have to understand that not all the documentation from these smaller businesses is as tight as you know, publicly traded companies’ documents are. They may not have all the i’s dotted, the t’s crossed, but it’s close enough.
Okay, well, that little margin can create a situation for a loss. That’s why buyers are saying, well, it’s not that I don’t trust them. I’m just afraid if they didn’t tell me everything. Buyer protect is your solution there. Now it is only available in the event the seller knew about something and failed to disclose it.
So you could have an honest accounting mistake or something else out there that did not relate to fraud. Buyer protect isn’t going to help you there. Therefore we recommend that both sides get a seller protect and a buyer protect. You’re sealed, and airtight across the board in the transaction.
And we see that having this is called the indemnification risk, is where the seller has to indemnify the buyer for the buyer’s loss. Well, once that bridge is cemented between the two sides, a lot of the grief, a lot of the angst, a lot of the pressure, goes away, and suddenly you move forward. And what’s been great is it does not take an act of Congress to sidetrack your deal.
You can go forward on this. And what’s helpful is, and we sincerely believe this, which is great with Flippa is we do believe in humans wanting to speak with humans. And so the facility with Flippa, you have the advisors that are certified advisors that can answer questions to you deal related.
You have within the Flippa platform, my firm, Liberty Company, where we are here to talk insurance for you. So if there are questions about how the insurance works all that is available. Again, we structure this where we have humans talking to humans. One of the things I wanted to make sure for transparency.
Again, this adds to the credibility for the Flippa program is how is this all structured? While Flippa is offering this product, Flippa is not the insurance company. Flippa is not in the business of insurance. We are. So first of all, the insurance company is Lloyds of London. Largest single entity in the insurance universe.
Therefore, you have a solid, AAA-rated insurance company with deep, deep pockets that can pay all of your claims. Now, Lloyds outsources, this is some fun insurance stuff if you wanted to learn this. But Lloyds outsources a lot of the services to what we call underwriting facilities. The underwriting facilities, they’re like the product development D specialists, and then they manage products for Lloyds of London.
Lloyds of London is kind of like a bank. When claims come in, they cut checks. They rely on these outside organizations. The outside organization that set this product up, the whole brainchild behind this is CFC. They are a London-based underwriting facility, working hand in glove with Lloyds of London.
They have worked on billion-dollar M&A transactions, as well as $100,000 deals. Their focus, their commitment, is to this lower middle market, which is fantastic because if you want to engage with a product, you want people that want to be in that space and aren’t dreaming about the billion-dollar deal. So you are going to be top of mind with our clients.
However, both Lloyds and CFC are based in London. These transactions are all made in America and by US statute and all the regulatory guidelines you need a US domicile presence and insurance broker that is answerable to policyholders that will be by their side in the event anything goes wrong, or if they have questions, they don’t have to go over to London, to court.
They have a US presence. That is our role here for Liberty Company. We are the US representative for this program, for Lloyds of London, and our job is to represent your interests or for any coverage, questions, issues that come up with accounting, those types of things. Again, you have a human to reach out.
We have to pay each state for respective things. So those are the things where we’ve got Lloyds, CFC, and then Liberty Company all here and partnered with Flippa to serve you. Why have insurance for these things? Well, when we take that risk away, deals close faster and happier, and that’s what we want. We want you happy to move on for the rest of your life and do that.
And you know, Blake, as we talk about reps and warranties, one of the questions I ask a lot of my audience members is this has been an innovation that’s really streamlined the process. You’ve been involved with mergers and acquisitions before. Good, bad, or different, what has been your experience with rep and warranty insurance?
Blake: Well, I mean, first and foremost, I think, without being flippant, you’d be silly not to at least consider it. Talking about that in the context of subscale. Sometimes it can feel like if you’re spending 100 or 500 or a million dollars on a deal, you’re trying to limit your cost outlay. You’re trying to limit the expense in addition to, obviously, the cost of getting the deal done.
We obviously encourage people to consider rep and warranty insurance. There are a couple of key reasons, and you’ve outlined them. But the first and foremost, it’s peace of mind. Knowing that you’ve got an insurer behind you, if, again, being a bit flippant, but it makes you sleep a bit better at night, knowing that in the event that the disclosures haven’t been as disclosed to the full extent that you would like, you’re going to be protected.
Knowing that in the event that there is a breach, you’re going to be protected. And that’s the same for the seller. At the end of the day, the most important thing for a seller is protecting that check. Because if this is the first exit you’ve ever had, that $500,000 check is genuinely life-changing.
That $500,000 check, that $1 million check, will change your North Star, and as a function of that, you need to de-risk any future litigation, any future disputes. And the reps and warranties insurance gives you that peace of mind. So, I mean, my personal experience with it is one, you need it, even if you’re unlikely to call upon it.
Because, as you said, the vast majority of subscale transactions is actually relatively low risk in the sense that they’re not complex businesses. It’s less likely to be that the business is shrouded in IP secrecy. You’ve got a great deal of transparency, particularly in these digital assets that are just sitting on top of the Google, Amazon, Facebook, Stripe, PayPal platforms.
It generally is there for you to see the performance, and, of course, the things that underline or underpin the performance for a company. So all of that is to say that we’ve had outstanding feedback on the product.
I would always recommend that someone insurers our deal, regardless of being on the buy and sell side, and I think from that standpoint, we’re actually really proud to represent something that gives people a little bit of peace of mind and comfort doing business at this end of the M&A market.
Patrick: Completely agree. We’ve had situations on these very transactions where the seller is all the way up to that last point, and then they have just a sleepless night thing. They’re sincere, honest people and they’re like, what did I miss? What if I missed something? And they just have this naturally guilty conscious where they’re just, okay, there’s something there.
This takes that all away, and I can’t tell you how much more fun that is. And so as we have this program now up and running and moving forward, if you’ve got a second share with us, what other news do we have? What could we look forward to on the Flippa platform coming up?
Blake: Yeah, I’ll go into that because there are some really interesting things we’re working on. But one of the things I just did want to tap into Patrick is just how seamless you have all made this, and we’re really thankful for that. Because Flippa’s platform is designed to make deal-making efficient.
And so I just want to reiterate the fact that not only can you now list something with Flippa, get matched to the world’s largest community of buyers, tap into the data integrations that we connect, utilize our due diligence services. Obviously, communicate, negotiate, receive letters of intent, and ultimately asset purchase and stock purchase agreements within the platform.
But at that point now, you have this almost frictionless opportunity to consider this reps and warranties insurance product. Thanks to you all. So that ease should make deal-making a little more accessible to so many more people. So thank you for that. As it relates to what’s coming next at Flippa.
So there are really two major things. One is an expansion of categories. So today, as I said, Flippa is a place that helps people buy and sell companies. Those companies are digital in nature. They’re typically SaaS businesses, e-commerce businesses, online publishing businesses, and iOS and Android apps.
That’s your typical range of asset types. With category expansion, we will be entering digital agencies. So if you own an agency, an SEO agency, a performance agency, some kind of marketing agency, you’ll be able to list that on Flippa because it’s analogous. It’s the same buying and investing community, and they work with the same client base.
So agencies will come on the Flippa platform very shortly, and we’re excited for that. The second big category for us is obviously AI, because there is a groundswell in entrepreneurs out there building credible, good quality revenue generating AI-based apps, plugins, and or assets, and they will soon be tradable on the Flippa platform.
So that’s super exciting. So that’s category expansion. In addition to that, Flippa will soon announce that you’ll be able to not only buy and sell companies, but you’ll be able to raise and invest. So clearly, as the number one platform to buy and sell. That is our core proposition today.
But in reality, we’re seeing hundreds of 1000s of entrepreneurs come through our front door, and in many cases, they are contemplating what their business might look like in the future. They’re still in growth mode, and they’re looking for capital, and capital is hard to come by, but Flippa sits on a very, very big universe of investors.
We’ve historically termed them buyers because of what they do on the platform, they’re just as likely to be investors. So you can stay tuned, if you will, for the launch of Flippa Invest, which we’re really excited about. And we think we’ll add another use case to our platform and make it again, more accessible to so many more.
Patrick: You can never underestimate the innovative genius as necessity meets invention in a lot of these things, and it’s been fantastic with all of that going on there. So Blake Hutchison from Flippa, how can our audience members either reach out to you or reach out to the Flippa team?
Blake: Yeah, we’re obviously very keen to engage with the Rubicon community who needs our assistance. So you can get me directly, if you like, if you’re a listener, just, just hit me up at blake@flippa.com. B l a k e @F l i p p a.com. Otherwise, definitely jump onto flippa.com you can get a free valuation.
You can, of course, just browse the listings. It’s a free and open marketplace and platform for M&A so until you are actively buying or selling, it’s free to browse. Have a look. It’s much like looking at Zillow and browsing houses. So feel free to check out flippa.com
Patrick: I think it’s exciting. And also one observation I’ll make for your online platform. Folks, you just got the CEO’s email. Try getting that kind of contact information from a lot of these other platforms. It doesn’t exist. You have to opt in and all this other stuff. So Blake, I really appreciate that, and we’re looking forward to a fantastic partnership. And it’s just arrows are pointing up and to the right so let’s keep it going. Thanks again.
Blake: Thank you, Patrick.