Buying a micro-SaaS product in Canada

A small software product may not need a licence, a college approval or a landlord’s consent to buy, which leaves more of the judgement to you; confirm with a lawyer what applies to the product in front of you. This guide is for someone weighing a first or second acquisition of a self-serve product with modest revenue per customer: what to look for, what to ask the seller, and what you take on personally on the day you become the owner. It does not say whether any particular purchase is a good idea.

What to look for

Look for customers who stay for a long time, who found the product through channels tied to the product, such as search results or a directory, and few of whom need help. Check whether the code runs on common frameworks with documented hosting and billing, whether the founder’s name appears in the product, and whether the terms of service and privacy policy are written down and match what the software does. Points that call for a closer look include revenue that jumps with a launch or a promotion, customers who arrived through the founder’s personal following, a codebase only its author can build, and a product so tied to its creator that customers think of it as that person’s service.

Questions to put to the seller

• How many hours did the product take in its worst month, not its average one?
• Which customers are on legacy prices, free extensions or lifetime deals, and what happens to revenue when those end?
• Which accounts are in the founder’s personal name, and has any provider ever restricted or questioned one?
• Which outside services are billed per use, and what happens to the margin if their prices change?
• What has gone wrong before: outages, security incidents, chargebacks, refund waves, complaints?

Can you run it?

With no licence to qualify for, the test of fitness is practical. Ask honestly whether you can fix the product when it fails, in the language and framework it was written in, or whether you will rely on a contractor. If you will, plan the paperwork from the first day. The Copyright Act makes the author the first owner of a work, with an exception for work an employee makes in the course of employment, and makes an assignment valid only if it is in writing and signed by the owner or the owner’s duly authorized agent, so every contractor you engage should sign one. Check the brand as well. CIPO notes that you do not have to register a trademark and that use over time can create common-law rights, so a product name may be unregistered, and it is worth searching the Register of Trademarks to learn what, if anything, you are being sold. CIPO says trademark rights can be sold or transferred through an assignment, and advises telling the Registrar about changes in ownership.

Privacy duties arrive with the product

Buying a product with users means becoming responsible for their personal information. Subject to the exceptions the Act sets out, PIPEDA applies to every organization, a term the Act defines to include a person, that collects, uses or discloses personal information in the course of commercial activities, and the Privacy Commissioner’s guidance says an organization remains responsible for information it has passed to a third party for processing. Your hosting provider, email service, analytics tool and support desk all count, so ask for the list. The Act also lets the government exempt organizations from it for activity that occurs within a province whose own law is substantially similar, which means the governing regime can depend on where data is collected and used.

If the product has users in Quebec, the Commission d’accès à l’information’s French-language summary of Law 25 makes whoever operates an enterprise responsible for the personal information it holds. It expects a plain-language privacy policy published on the website or by another suitable means, along with the title and contact details of the person in charge, requires incidents that carry a risk of serious injury to be reported, and notes the Commission can impose monetary penalties. A buyer should ask a lawyer which rules reach a given product rather than guess.

Buying the company or its assets

Ask whether the product sits inside a company or is held personally by the founder. If the founder holds it personally, there are no shares to buy and the deal is a purchase of assets; if a company holds it, either structure may be open. The guide on asset sale versus share sale explains the trade-offs. Either way, make sure the thing you are paying for is the thing that actually transfers: the repository, the domain, the billing and hosting accounts and the customer data, not only the name.

Who you are bidding against

You cannot see what other bidders value. Someone running a product alongside other commitments and a company assembling a portfolio could look at the same product differently, and neither can be assumed to share your priorities, so consider who else might be looking before deciding what to bid for and what to ask the seller to provide. Deavo lists businesses and does not represent either side of a deal. The guide on due diligence for a micro-SaaS product covers the checks to run once you have a deal in view.