Do Buyers of Businesses Pay for Potential?
I own a promising small business with considerable untapped potential. Our intellectual property portfolio, including valuable patents and closely guarded trade secrets, stands as a testament to this potential for growth. Will prospective buyers recognize and invest in this inherent capacity, or will their valuation primarily revolve around the current cash flow generated by my business?
Let’s delve into the essence of what buyers truly seek and why.
We’ll commence by setting down some undeniable facts:
- Fact #1: The nearer potential is to realization, validation, and revenue generation, the greater the value attributed to it by buyers.
- Fact #2: Buyers lean towards established businesses with proven revenue streams and cash flow, where potential has already materialized, rather than remaining in the realm of the “unrealized.
- Fact #3: Virtually every business carries latent potential. The more proximate your business’s potential is to fruition, the higher the chances of it translating into value.
- Fact #4: Nascent ideas hold minimal value in the eyes of potential buyers.
Let’s illustrate this with a few scenarios of potential:
- Targeting a New Customer Segment: Acme Corporation envisions a significant expansion by reaching a previously untapped customer segment. However, this notion remains in its infancy, lacking any history of successful sales within this segment.
- Introducing a Novel Product or Service: Acme Corporation believes introducing a fresh product could lead to substantial revenue growth. Presently, this product is confined to conceptualization, devoid of development, user testing, validation, or revenue generation.
- Pioneering a Revolutionary Product Idea: Ralph conceives a groundbreaking product idea with the potential to combat cancer. While equipped with a comprehensive business plan, progress stalls at the idea stage, devoid of validation or sales.
- Embarking on an Innovative Business Idea: Roger has launched a visually promising business, investing over a million dollars. However, despite breaking even, revenue remains absent. Roger believes in the untapped potential, yet profitability remains elusive.
While these might appear as potential avenues, the reality of selling a business unveils a different perspective. Most buyers, you’ll discover, are disinclined to allocate substantial value to such potential. So, under what circumstances do buyers actually recognize and pay for potential? How can you position your business’s potential to command its deserved worth? Keep reading to unearth whether and when buyers are inclined to invest in potential, and if so, the specific conditions that facilitate it.
Over a decade of advising on iGaming mergers and acquisitions has taught me one thing: buyers love potential, but they rarely pay for dreams. They pay for momentum that is evidenced, modelled, and—above all—bankable. Below you will find a structured look at how sophisticated acquirers evaluate upside, how to present yours credibly, and when you can expect to be rewarded for it.
1. Why “Potential” Matters—but Only When It Converts
Current cash flow is the anchor of every valuation model, yet latent upside is the lever that moves multiples. In a sector where 79 percent of enterprise value is tied to intangible assets still lurking off the balance-sheet, acquirers must gauge not only what you have built but how near it is to producing incremental EBITDA.
Recent deal flow underscores this point. In Q1 2025 alone, 42 gaming transactions closed for a combined $6.6 billion, but the premium prices were reserved for targets whose IP had already begun converting into paying users or new regulated markets.
2. Degrees of Readiness—And How They Price In
| Stage of Opportunity | Evidence Typically Required | Typical Price Impact* | Seller Actions to Maximise Value |
|---|---|---|---|
| Concept only (idea, slide-deck) | Vision statement; no MVP | Negligible—buyers treat as option value | Build prototype or secure proof-of-concept partnership |
| Validated prototype | Alpha/Beta users, KPI benchmarks | Up to 0.5×–1× incremental EBITDA multiple | Collect cohort data; document regulatory pathway |
| Revenue-generating pilot | Paying customers, retention metrics | 1×–2× incremental EBITDA multiple | Scale pilot; lock-in early adopters under LOI |
| Scalable product line | Year-on-year growth, unit economics | 2×–4× incremental EBITDA multiple | Codify playbook; demonstrate marketing ROAS |
| Contracted future cash flow | Signed B2B or B2C contracts | Direct DCF uplift; sometimes stand-alone valuation | Time sale post-recognition to boost trailing EBITDA |
*Price impact expressed as the premium a buyer typically layers onto the core multiple of existing EBITDA. Actual results vary by jurisdiction, licence footprint, and competitive tension.
3. What Sophisticated Buyers Actually Want
Most strategic operators and private-equity sponsors scouting iGaming assets tell us variations of the same three requirements:
Forecastable Revenue
Anything that can be underwritten—whether a fixed-odds contract with a state lottery or recurring B2B platform fees—has line-of-sight to the P&L and therefore commands real capital.Demonstrated Product-Market Fit
A sportsbook feature or slots mechanic that is already live in one market proves not only technological feasibility but regulatory acceptance—two hurdles that can dwarf build cost.Unlockable Synergies
Larger groups will pay for synergies (shared wallets, cross-selling, tax pooling), but only when multiple bidders force them to quantify those benefits. Your adviser’s job is to engineer that competition.
4. Myth-busting: “Investors Buy Ideas”
Venture capital occasionally funds ideas, yet it really funds teams. Even then, VCs seldom purchase a controlling stake—they buy a minority share and leave founders in place precisely because the risk of non-execution is so high. Trying to “sell” a napkin sketch to a strategic acquirer rarely produces more than a courtesy NDA and a polite decline.
5. Action Plan for Sellers
Evidence Every Assumption. Convert hopes into data. A/B-test new retention features; pilot the RNG you patented; secure an LOI from a state regulator.
Package Upside Clinically. Present a two-page “Upside Dossier” detailing TAM, KPI lift, cost-to-launch, and projected payback.
Sequence the Process. Take the company to market when upside has just begun producing cash—late enough to be credible, early enough that acquirers can still claim value creation post-deal.
Run a Managed Auction. In a competitive sale, synergistic buyers bid against each other, not against your existing cash flow baseline.
6. Pros and Cons of Highlighting Potential
Pros
Can stretch headline multiple when backed by data.
Attracts strategic buyers seeking platform plays rather than pure earnings yield.
Generates competitive tension if upside dovetails with buyer roadmaps.
Cons
Invites heavier due-diligence scrutiny and extended exclusivity.
Unvalidated potential may be carved out of the price via earn-outs, deferring proceeds.
Over-promising can backfire, eroding trust and leverage at the eleventh hour.
7. Frequently Asked Questions
Q1: Will buyers pay extra for my patents if they are not yet licensed?
Only if you can show a clear path to monetisation—e.g., existing royalty discussions, or proof that the IP will accelerate a buyer’s time-to-market in a regulated state.
Q2: How do earn-outs typically work in iGaming deals?
Earn-outs tie a slice of consideration to future revenue or EBITDA targets, often over 18–36 months. They let the buyer hedge execution risk while giving you a shot at full value.
Q3: Does a strong management team really matter if I plan to exit completely?
Yes. Even a short transition period with credible domain experts smooths licensing approvals and reassures acquirers that the knowledge transfer risk is contained.
Q4: I have early traction in unregulated markets—does that help or hurt?
It depends on the buyer’s risk tolerance. Some will discount that revenue entirely; others may value the database but haircut cash-flow multiples to offset regulatory uncertainty.
Q5: Should I delay a sale until new legislation (e.g., German iGaming tax reform) is finalised?
Not necessarily. If you can model upside credibly, a pre-legislation sale can still work—especially if multiple parties covet first-mover advantage and will price that option value in.
8. Key Takeaway
Buyers of iGaming businesses do pay for potential—but only after it crosses the threshold from possibility to probability. Structure your narrative around verifiable progress, not aspiration, and engage the market when validation and growth momentum intersect. That is where strategic acquirers reach for their wallets, and where well-prepared sellers capture premiums rather than concessions.
