When Should You Sell Your Startup?
"But even if you can go do another start-up ā¦ you can only do so many."
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Having been through the acquisition process 4x ā twice as a founder, twice as a start-up exec, hereās my list of when and if to sell.Ā Donāt take it literally.Ā Most startups never get a single good acquisition offer, ever.Ā So logic does state, take the best, good offer you get.Ā It may be your last.Ā But we are founders.Ā We arenāt always wired that way.
So just to spur some thinking, my list of When A Start-Up Should Get Acquired:
1.Ā Before You Fail / Run Out of Money / Etc.Ā If you are slightly hot but with few revenues, or have something but not enough, sell while you still have time. Donāt wait until you have 30 days of cash. Way, way too many start-ups wait too long in this scenario.
2.Ā When the Team Isnāt Good Enough. Even if you are growing nicely and even cash-flow positive, and all the quantitative metrics look good ā¦ if the team isnāt good enough,Ā andĀ canāt fix itself ā sell if and when you can. Bad teams kill start-ups. Every day. Sell before then if you canāt fix it. Sometimes great individuals just donāt make great teams, and it canāt be fixed. Itās sad. But not uncommon.
3.Ā When the Economics, to Everyone, Exceed Your Magic Number. I donāt know what your Magic Number is. But you will. It may be $19 billion. It may be $1 million. The Magic Number isnāt rational, really, and canāt be 100% explained on a spreadsheet. It is something that makes it all right. Sometimes, there is No Magic Number. Which is great, too.Ā Sometimes, youāll never sell.Ā But often, there is a magic number.
Ryan Smith, co-founder and the CEO of Qualtrics, and I discussed this math around their $8 Billion acquisition here:
This edition of the SaaStr Insider is sponsored byĀ Secureframe.
OK thatās the easy part.Ā The more interesting part is When Not to Sell. My Learnings:
1.Ā Usually āĀ Do Not Sell If You Are At Scale and Have a Committed Team. This is pretty much it for me. E.g., in SaaS, if you are at $10m+ ARR, and growing nicely, and the team is killing it ā just donāt sell. You donāt have to listen to me. But once you are at Scale in SaaS, you canāt be killed. Why sell? Really.Ā Youāll keep adding value every year.
2.Ā Do Not Sell Because of the Competition, Unless They Are Truly Decelerating You and You Canāt Stop Them. There is always competition. Google threatens to kill you if you donāt sell? Whatever. They canāt kill you if you are growing. A hot start-up nipping at your heels? Thatās the way it should be. As long as you can hit your plan, it doesnāt really matter.
3.Ā Do Not Sell Because You are Tired.Ā Or At least ā Try To Fix This First. This is the dirty āsecretā of M&A. If you look at a lot of successful start-ups that seem to get acquired out of nowhere ā¦ that have traction, great customers, and all that ā¦ thereās often a story. Itās called the 5 Year Walk of Death. You get so tired after 4 years, then you stumble through the 5th, and then, you take an offer. Donāt let it happen. Bring in fresh blood, fresh capital, whatever it takes. I know of one Top Tier VC Fund that specifically targets Exhausted Founders After 5 Years, makes crappy offers but with a lot of secondary liquidity ā¦ they know itās a weak moment.
My learnings.
You only get so many at-bats.Ā Money is good. Take it. It gives you options. And makes you braver, maybe, next time.
But even if you can go do another start-up ā¦ you can only do so many. If you have something real, something good, something self-sustaining, something unkillable. Which is hard. But then, you did something magical. You brought something real into the world. Probably, donāt sell. Period.
This edition of the SaaStr Insider is sponsored byĀ SAP.