Dear SaaStr: How Do You Know When It’s Time to Sell Your Startup?
First off, the axiom that companies are bought, not sold, is mostly right.
95 times out of 100, you can’t wake up some morning and just go sell your start-up.
Unless there are pre-existing relationships that have expressed a desire to buy (which sometimes there are) … calling up CorpDev at Google isn’t going to work.
So to me the real question is — when you get an offer … how do you know?
I’ve been through this 3x:
- One time, we screwed it up. We sold to first startup to an other hot startup about to IPO — instead of a more complex deal with Amazon. That was an epic failure. It was A Billion Dollars vs. $250m. But that billion was an illusion. We didn’t do the right diligence, not really, not the right way.
- One time, I got it right. I sold my first start-up in ’04 for $50m 12.5 months after funding. That was right because the capital requirements, and the odds for success, were such a challenging mix, that $50m in 12.5 months was clearly, unquestionably, the right outcome. We had 0 doubts then and 0 doubts even now.
- One time, I don’t know. Not very sure I got it right even though it was very logical. The last time seemed like a logicaldecision in the context of where we were, and the capital markets and valuations were, at the time. But not so much today.
My top advice is combine your (x) gut with (y) careful introspection. And understand almost all the advice you get here has so much bias attached to it. And understand that purely rationally, you should take a good deal.
Strong acquisition offers are just so much rarer than people realize. Priorities change. Markets go up and down. A startup a BigCo might desperately want to buy today … might be of little interest next year. Or if the CEO steps down, or the SVP, etc.
In the first deal, we took a deal that was 5x higher than the original offer — but it imploded later. We didn’t do the right diligence on the acquirer, not really.
The second time, our guts were 100.000% clear. Do it. And the logic was totally clear too. We could never raise enough money to serve a big enough market in our space, not really. And we had to sell 80% of the company in the Series A, which meant it was now or never from a dilution perspective.
The third time, logic said do it. The gut was torn. Diligence, 2 years after the big downturn, said it made sense. But by the time we got to that gap between signing and close, I knew it might not have been the best choice.
That third time made sense, but leaves a frustrated after-taste for years to come.
And whatever you do, know this — when you sell, it’s not yours anymore.
It’s theirs. Don’t sell to Do Something Bigger Together, or any nonsense like that. Sometimes that’s actually true, e.g., Android and Google. But very rarely. And even if it’s true, it’s not yours anymore.