Should we acquire BrightLedger for $18M if revenue is growing 42% year over year

Acquiring BrightLedger for $18M is not advisable under the current conditions. While the 42% year-over-year revenue growth is attractive, the doubling of churn from 7% to 14% is a critical red flag that significantly undermines the business's sustainability and valuation.

Key Concerns:

• Churn Impact: A 14% churn rate (especially if monthly, which would be catastrophic) means a substantial portion of new revenue is likely just replacing lost customers, not driving net growth. This severely erodes Customer Lifetime Value (CLV) and indicates potential issues with product-market fit, customer satisfaction, or competitive pressure.
• Valuation: The $18M price is likely based on the previous, lower churn rate. High churn significantly reduces the acceptable valuation multiples for SaaS companies. Without understanding the root cause and potential for mitigation, the current price is not justified.

Critical Information Needed (Due Diligence):

• Churn Type: Is 14% monthly or annual? This is the most crucial piece of missing information.
• Root Causes: Why did churn double? Investigate product issues, competition, onboarding, customer support, or sales misalignment.
• Financials: What is the current ARR? What are the Customer Acquisition Cost (CAC), CLV, and Net Revenue Retention (NRR)? NRR below 100% indicates the business is shrinking from its existing base.
• Customer Segments: Is churn concentrated in specific customer groups?

Recommendation:

Pause the acquisition. Do not proceed with the $18M valuation without extensive due diligence. If the churn is annual and fixable, renegotiate the price significantly downward (potentially to $6-12M) and consider structuring the deal with an earn-out tied to achieving churn below 8% within 12-18 months. If churn is monthly or the root cause is a fundamental product-market fit issue, walk away from the deal.