Why I Walked Away From a $12M Acquisition Offer 18 Months After Our Launch

However, bear in mind that as time goes on, and there's more data about monthly run rate, that multiple will likely go down.

First, as time goes on, it will become increasingly less likely that you will "pop", or have a huge hockey stick of growth. Part of the multiple is designed to get you out of the game before you hit that inflection point.

Second, many companies fall down once they try to scale their business. It requires a different set of skills, often different employees, and makes it a lot more likely that you'll miss on execution. Once you have a few quarters in a row of ~2% growth instead of 5%, your valuation will drop dramatically.

Third, the market moves around you. Even if you're continuing to grow, what your competitors do can influence your valuation, to your betterment or detriment.

I'm not saying that the author made the wrong decision, only that it's always easier to say, "Well, if we keep growing, and wait another year, we can get acquired for 2X more!". Heck, a year from now, that acquirer themselves might not exist anymore.

I think that if you expect you'll want to exit the business at some point in the next few years, if you are fortunate enough to get a more than fair offer where all of your employees and investors would see it as a win financially, you need a really compelling argument not to take it.

Twelve months ago I accepted 7-figure acquisition offer for my company. Members of our team thought the offer was too low. It was a struggle for me to get everyone on board for the deal.

In the past twelve months, the market conditions and competitive landscape have changed dramatically. Had we not accepted the acquisition offer, we'd be out of business, and we would have lost all of our investors' money. This would have had little to do with our execution, and much to do with exogenous factors out of our control.

Just one data point though.

"past performance is not indicative of future performance"

You need to give credence to the fact that you could have competitors offer your exact product for much less than you do. That a newer, better product could offer more for less. Or also that your product just becomes less good over time and your customers leave. Ecosystems change as does business.

You need to account for the fact that you could be left with nothing also. This isnt to say not taking the money was the right/wrong thing. Thats your call alone to make.

The author already had a successful exit, so they have their money. Now they want to make a difference.

He chose to pass and went on to sell the company for $300M to Newscorp. Of which he owned a significant portion.

I'm curious, why would you let them do a thorough technology review of your startup in the first place? (Edit: Because it can be dangerous)

Two comments IMHO:

- Would you have said yes and looked into the details of their offer, you would have realized that the $12M are not upfront. Through retention packages and revesting, most of the price is typically paid over 3 or 4 years. So the offer was probably less attractive than it initially looks.

- $12M is never a good outcome for investors (at least big angels and VCs). They make their returns only on big exits.

Congratulations to the company for the growth after only a handful of months. Very impressive.

Using multiples always seems a bit odd for me in super high growth early stage companies. If a product really takes off the early small numbers can really skew things in comparison to later big ones. It's like seeing a 10,000 percent growth rate in the first month on a tiny base.

Also, smart to talk about this publicly. Of course, it's good reading. But also many people like buying from those who care about the product they build than from a faceless bigcorp. You can't buy that sort of credibility.

I wonder why.

EDIT: The original title said "Why Groove walked away...".