Are investors always a priority when a startup is acquired or goes IPO? Do founders gets something from it?

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JASON LEMKIN

I know this topic confuses a lot of folks. The legal terms are long and lengthy. The stories on the internet make it all seem like a big us-vs.-them thing. And sometimes, yes it is. But …

Let me try to simplify:

  • If you sell for less money than you raise, the founders will make little-to-nothing. At least, usually. This means you failed. In some scenarios, if the founders are important to the acquirer, they will still make some money. In others, they will get nothing. But the amounts in any event are usually quite small when there isn’t even enough money to repay the investors 1x their investment.
  • If you sell for >= 3x the money you raise, the founders should make a bunch of money. How much of course varies.
  • If you sell for >=10x the money you raise, the founders should make a ton of money. In most scenarios, at least.

So worry less about the stories you read on the internet, and more about having confidence you can sell your company for 3x-10x more than the amount of capital if you raise.

If you do, it should all work out reasonably well.

If you sell for less than you raise, it won’t work out well. And there shouldn’t be a reasonable expectation that you will make any money in this scenario. This is a disaster from an investment perspective. You didn’t deliver for your investors. It happens. It’s OK. Your investors will move on. But you didn’t make anyone any money.

More here: https://www.saastr.com/what-is-y…

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Published on October 26, 2017
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