Reading about RelateIQ’s $390 million exit to Salesforce.com reminded me of an idea I heard many years ago: it typically takes an exit greater than $300 million for everyone to do extremely well. For RelateIQ, with their last round less than a year ago valuing them at $245 million (again, amazing to think about considering people estimated their revenues as less than $5 million), one of the drivers that likely lead to the $390 million dollar amount was that their most recent VCs wanted at least a 50% return on investment (50% would be a small target for VCs but the timeframe was super short).
Going back to the $300 million exit target so that everyone makes good money, here’s how it might break down depending on how much capital went into the business:
- Venture capitalists own 50% – $150 million (it’s common for VCs to own the majority of the business after several rounds of financing)
- Founders own 30% – $90 million
- Employees own 18% – $54 million
- Advisors and bank own 2% – $6 million
Even very early employees that might own 1% of the company would make $3 million, which is a life-changing event. Based on my limited experience, this logic of a $300 million exit being the huge target for everyone to earn good money makes sense to me.
What else? What are some other thoughts on the goal of a $300 million exit so that everyone can make good money?