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Comment by pg | Hacker News Reader

Yes, it's true a lot of VCs will encourage you to spend faster than you should. I warn about this in essays and in a lot of individual conversations with founders. But fortunately they can never do more than encourage, because founders almost never give up board control in funding rounds nowadays, at least not in the US.

As for marginal exits, I think the biggest reason they're rare is that there is not that much demand on the buyer side. There's lots of demand for HR acquisitions of failed companies, and there's demand for high fliers, but Facebook and Google et al are not looking for small, moneymaking businesses.

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"but Facebook and Google et al are not looking for small, moneymaking businesses."

There are for sure many companies (that are not google and facebook) out there that would be interested in acquiring "small, moneymaking businesses".

A business that makes money can be sold. Period.

I've both owned and sold (both that I've owned and for others) "small, moneymaking businesses".

Part of the issue really is most likely:

a) lack of effort in trying to sell the business (making the assumption that nobody will really buy it or that it's not worth the trouble) or

b) the people who work at the business that we are referring to here (startup lottery) perhaps won't stick around after the company is acquired. So the asset has dubious value since the most important employees won't be there post acquisition possibly.

I tend to think that it's more "a" than "b". People are lazy and are looking for an easy route and if they don't find that easy route or have no evidence that others have done it any other way (because of their lack of experience in general business) they assume it's not even worth it to try.

Of course if you want to remove the word moneymaking from the statement....

As a recent example I was trying to help someone sell their "small moneymaking business" so I sent a cold email to the head of Rackspace. I got a reply the same day and they assigned people at Rackspace to consider the request (can't say what obviously). It didn't take investment bankers it didn't take business brokers it simply took identifying an obvious target and sending an email. If the email didn't get answered (it did) I would have sent a postal letter or fedex stating the opportunity. Did the same with a reality tv star presenting an opportunity. Same thing got a reply and a deal was done. (I guess I write good emails?) And that didn't even take effort. Of course there are emails that have not resulted in anything obviously but that didn't make me stop trying to do deals. Most people get rejected and don't understand the value of plugging away.

> A business that makes money can be sold. Period.

This should be further constrained to "a business that makes money in excess of market-rate salaries for all personal and merger overhead can be sold".

Solid programmers in the Bay Area pull over $250k annually in total comp (salary, bonus, and equity); however, only a few companies can or are willing to pay that.

You can easily find yourself getting better acqi-hire offers (HR hires) from Google,Facebook, et al. than offers to actually buy your company by other players. And since you need to "stick around after the company is acquired", it is not uncommon for the acqui-hire to be the best exit for for companies pulling < $1M/year rev (esp. true with VC backed companies where liquidation preferences are present).

Don't see your email address in your profile. Are you open to being contacted? Would love to connect for advice as we are looking into options for sale of our small profitable business (~$3M revenue in 2013; $5M revenue run rate). Please email me at libertatis at gmail dot com if you wouldn't mind having a quick chat!

This is something I've wondered about - I hear people warning about investors pushing them toward an end they don't want, but what leverage do they have?

They don't have the same kind of board power they used to, but they're still very influential. They are often more experienced than founders, and also, being older, more authoritative. And much of their advice is good. Especially the best investors, some of whom are really smart. So founders rightly start to rely on their advice.

The catch is that founders' and investors' interests are not always aligned, and when they aren't you can't trust investors' advice quite as much. But the two types of cases aren't sharply differentiated. Which means to avoid being misled by investors you have to be able to judge precisely how misaligned your interests are in each situation, and discount their advice by exactly that amount. It's a subtle problem.

> but what leverage do they have

I thought he meant "what leverage do the founders have?". Not sure though....

However, assuming that he did mean "what leverage do the founders have?", I would say that they are the boots on the ground and can very much scuttle anything that the investor wants them to do. The moment founder's interests are not aligned with the startup, it is doomed. I guess an investor can help them succeed but can't stop them from ruining it.

Disclaimer: pure speculation, I have no experience of being on either side of the table.

So the leverage is either official (maybe they have a board seat) or (more often) social - founders feel either that they SHOULD listen to their investors because they're older and more experienced or that they have to for various reasons. Makes sense.

One thing I always forget about being a founder is that you're constantly reaching places where you have absolutely no experience - and yet you're still in charge. The Collison's for example are younger than me, and I'm pretty young, yet they continue to run a company that is growing at an extraordinary rate. Must be pretty interesting.

They have a lot of unofficial leverage, particularly when it comes to future fund raising, venture debt, and even acquisitions. It's much, much easier to raise an A-round when seed investors are helping, and presumably the B-round is much smoother when the A-round firm is actively helping.

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