Rich vs. King in the Real World: Why I sold my company
blog.asmartbear.com
blog.asmartbear.com
a) You are secure. You don't need to worry about funds to pay yourself ramen money.
b) You probably have enough to have people help you build a prototype, so that gets rid of the friends/family cash crunch.
c) You've done it successfully before, so angels+VCs are much more likely to write you a check.
d) You've done it successfully before, so people are likely to join your team. The equity you're offering has value due to past success ie- don't believe me? I've done it once and I made the last guys who believed in me make some damn good money
This post have focused Jason's your inner psychological landscape, I would be interested in other aspects of the deal: how did he prepare employees, who did he pick and why to help you with the negotiations (e.g. attorneys, accountants, sell side M&A, other entrepreneurs, other advisors), how did he manage the two year transition.
Looking back and knowing what he knows now, what are one or two key things he would have done differently, what are one or two key things that he believes really made this decision a success?
Another advantage: Having perfect books. Meaning: Perfectly balanced every month since the company started. Finances were never a problem as a result. Otherwise they wonder what's lurking--not even that you're being dishonest, just that you don't know!
http://blog.asmartbear.com/rich-vs-king-sold-company.html#co...
The difference between a sell-out and a not-sell-out is the presence of a buyer.
:-)
Most of us would take Box A, but the folks at FB or even Twitter are looking at box X, Y and Z.
Of course once you get mid alphabet the possibility of an empty box is probably pretty slim.
As an entrepreneur you are in the best position to change the world after building a profitable, sustainable business (vs initially aiming to change the world). You can do it over and over with the same venture (like Jobs, Zuck, Wolfram, etc) or you can build, sell and then repeat (Andreeson, Thiel, etc). Either way, changing he world is about iteration, persistence and taking advantage of the world changing opportunity when the time is right. Of course you can get very lucky, but statistically, as an entrepreneur the best way to change the world is to build a profitable company and then repeat.
What makes Gates extraordinary in this sense? Just because he kept some shares and stayed on, it doesn't mean that the source of his fortune isn't the Microsoft-shares he sold.
IPOing is also selling out, it's just selling out to a lot of people simultaneously.
(Source: http://philip.greenspun.com/bg/)
234.89B MSFT 112.40B Oracle 170.08B AAPL
I can kinda see why apple is worth so much, although, of all apple consumers, how many hours a day do they spend on Apple vs how many on MS. And I really don't even see how Oracle is in this same race, but they are.
If the company is reliably growing at 100% (which it isn't, there's always a risk), this expectation is reflected in the valuation -- obviously, actually growing it and overcoming the risk is worth something, but it doesn't scale linearly as is suggested.
In all fairness, his following explanation actually takes this into account, my point is just that the replied to a strawman.
"If you look at smaller acquisitions like mine (i.e. not like the $170m Mint acquisition), valuations like "N times revenue" or "N times profitability" is less correlated with sales, where as "N times number of founders" is closer to what happens."
"So then I got a call from him, saying we don't have to worry about money no more. And I said, that's good! One less thing."
which is another reason to sell once you're on top -- to get back to the pursuit of kingship.
Being king means responsibility and headaches. Being rich is nice but once you get past a certain point it all becomes abstract wealth as the author points out.
What's left after that? For a lot of the best engineers I know, reverting to '6 year old w/ big box of legos' mode and just building something to see how high you can go.
Unless I misunderstand the situation in some basic way, there is a math error in the above. (Of course, even if there is indeed a math error above, that does not make the whole blog entry worthless.)
First let me restate what I take the above unambiguously to says: it says that if the company continues to grow 100% year over year, valuation a year from now == 6 times valuation today.
My math: valuation a year from now == 3 times revenue a year from now == 3 times (2 times revenue today) == 2 times (3 times revenue today) == 2 times valuation today.
Am I missing something?
Sometimes the king has been the poorest person in the country, because the national debt is his personal debt as well as the country's. Yes, the crown might try to liquidate its creditors - but they have friends too. And how will the crown borrow more money tomorrow?
<joke>Yeah. Bugger should have taken the deal and bought himself some bling.</joke>