David Cummings on Startups

Entrepreneurs Deciding to Sell Their Company

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David Cummings

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Several weeks ago an entrepreneur reached out and said he wants to sell his company. After having grown the business from nothing to a good size (> $10 million revenue) he’s tired and ready to move on to the next adventure. I’ve had a number of similar conversations over the years, and here are a few reasons entrepreneurs decide to sell their company:

  • Boredom – The journey is the fun part, and when it’s no longer fun, it can be time to sell
  • Financial freedom – Many entrepreneurs set out to make FU money — say $20 million — and when the first offer comes along that meets their goal, they sell
  • Incredible offer – My favorite response to someone asking “is your company for sale?” is to answer “no, but how much are you offering?” such that sometimes an offer so incredible comes along that you can’t say “no” (this was the case with selling Pardot to ExactTarget)
  • Industry shift – Technology moves fast and sometimes you’re on the wrong side of the curve, so it’s important to get out before things get even worse

Selling a company is a very personal and emotional decision. Deciding to sell is just the first step in a long process and there are many reasons to exit.

What else? What are some other reasons why entrepreneurs decide to sell their company?

Comments

4 responses to “Entrepreneurs Deciding to Sell Their Company”

  1. stephenfleming Avatar
    stephenfleming

    After taxes and inflation, $20 million is pretty low for FU money.

    Reply
  2. Bill Scott Avatar
    Bill Scott

    One thing that many entrepreneurs don’t realize is that once you take in outside investors, there are legal fiduciary responsibilities that must be kept in mind. This is particularly true if the company in question has gone public, but can also be a factor when a company is private.
    Another reason not mentioned is that venture capitalists more often than not have time horizons on their funds. Venture capitalists get nervous that the hold time on investment might require extension of the fund or distribution of shares to shareholders at a less than full valuation. They can put pressure on entrepreneurs who might not wish to sell their company or who might think a higher valuation can be realized by waiting.

    Reply
  3. Dave Williams Avatar
    Dave Williams

    Ultimately, there are lots of reasons, but when you sell you need to be emotionally ready for the sale process and prepare for the detachment of losing something so meaningful to you. It is a process that all entrepreneurs should aspire to achieve at least once, but to be smart in the timing, preparation and execution as it can be one of the most intense and important professional experiences you will ever have.

    1- To allow the business and those that work there to achieve their potential
    2- financial capital requirements of the rapidly growing business and partial or full. liquidity for the owners, employees, advisors, investors and other equity holders.
    3- Piggy back on another company’s capability where 1+1 = 3+
    4- Geographic and product line depth and breadth expansion
    5- industry becomes too competitive to go at it alone
    6- Gain experience in the sale and integration process for future business opportunities
    7- Marketshare opportunities that far exceed what the startup can achieve solo
    8- Retire and focus on being the CEO of your life vs your business 🙂

    Reply
  4. pescatello Avatar
    pescatello

    sometimes you just doing believe the hype. My first company (Qloud) was a music service and while we were growing fast and had over 20 million users, we weren’t confident that it could be a successful standalone business. Thus, when an offer came along we took it to secure a “win”.

    Note: I’m still skeptical about Spotify, Rdio and others. (here’s why if you’re interested: http://loo.me/2013/07/youll-never-make-money-with-a-music-app/#_ts=1402935288757 )

    Reply

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