Exit Strategies
Hands down this is one of the best reads on exit scenarios. Understanding the exit is akin to knowing how to win at sports. Its why we play the game.
Think about it. You are either bought for stock or for equity. Let’s say you target LinkedIn to buy you. They’re worth $11 billion as of today. So $200 million would represent 2% of the entire company’s value. Is your crappy little 12-person company really worth they and their shareholders diluting by 2% given more than a decade they’ve put in building one of the Internet’s most solid business social networks? You better be a very clear improvement to their bottom line to pull this off.
Oh, I know – we’ll just ask them for cash!
Doh. Just checked their balance sheet. They have $339 million in cash on their balance sheet. Your $200 million “small acquisition” is a cool 60% of all of their cash. Uh… yeah.
The right VC is critical. If they don’t have the ability to help negotiate a sale, make an introduction that leads to a sale or if they have never done a sale - then pass on them.
Play to win it.
Amazing that the default for many entrepreneurs is the acquisition. There are very few companies that have the wherewithal to buy a company for $200 million or even $50 million whether it is stock or cash. You do not hear about most acquisitions because they are small potatoes (<$10 million) and usually are not a win for the entrepreneurs. Even if the acquisition is not an acqui-hire and is a value add for the acquirer, most of these deals are not all that lucrative. They are certainly not the magical windfalls that most entrepreneurs think exist out there in startupland.
If you put in a ton of hardwork and sacrificed your life and everything you had to make your thing successful, why sell for a hill of beans? My stance is that if you are not playing to win, you are simply playing to lose.
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