Great post from VC Dave Hornick today about the trend of selling companies earlier in their lifespan. Dave breaks down the risk/reward thinking that entrepreneurs face when someone comes knocking in the first two years of a companies life. The longer you hold on the greater the value could be, but the big risk in my mind is that the big five (AOL, Fox, Yahoo, Google, or MSN) or new startup will take away your value.
The classic example people are using is Friendster, which after being offered significant value by Googl, is now reportedly being shopped at bargain basement prices. They were, of course, wiped out when MySpace, LinkedIn, and Facebook focused in and took their market (you can also look at the social networking offerings from the big five to see how bleak the picture is for them now). Facebook is the latest to hold out, and they are reportedly about to raise big money at a $2B valuation--wow. How brutal would it be if they stumble and can't sell? $2B in value can turn to $2M in a very short period of time in our world.
The example I always look back on was Pointcast which had massive distribution and a reported half billion dollar offer from Newscorp--and turned it down. They soon got banned from corporate networks because they were clogging up bandwidth with their push technology (think RSS before RSS, but when companies had 5,000 people on one T1). The rest is history.
Frankly, if you're an entrepreneur the issue isn't just deal or not deal--it's how many times you swing the bat.
Holding on is ok, but holding on for too long is bad because you lose the opportunity to take another swing. During the dotcom boom/bust I watched folk hold on to their companies and extra 2-3 years and get nothing for it. They could have started another company from scratch in that amount of time and had another swing. Heck, I held on to my first company too long, and now folks tell me we didn't hold on to Weblogs, Inc. long enough! Frankly, for a first time entrepreneur there is no such thing as selling too early. And if you sell too late you'll feel that sting for a long time--trust me on this one. It's all a learning experience, and the important thing is you don't give up.
You miss 100% of shots you don't take.
The issue is not just "To Deal or Not to Deal," but rather how many shots you take.
Recent Posts
Reader Comments
(Page 1 of 1)2. >> I wonder what your take is on craigslist, a
>> company that has held out, held out, and
>> held out some more but is largely respected
>> by the net community, and they get customer
>> loyalty back in spades because of it.
I think Craigs list is amazing. It's the best example of a "hot coals" business. Built slowly, over time, and with great care the embers get really hot and the thing burns brighter and brighter.
The result is a highly profitable business that throws off so much profit every year that selling it doesn't seem to make much sense.... if you extend your real estate analogy this would be like owning an amazing rental property in a prime location.
The only reason to sell it is that you were tired of running it. Frankly, it seems to me that Craig is addicted to running the business so the chances of him selling are probably low. Of course, at some point he might want to move on to another adventure... sometimes that is the motivation to sell too. Sometime you want to move on to another house. :-)
3. Missing your turn at bat can be a very costly mistake.
Back during the boom, I started a company by lashing together as many trends as I could, and managed to raise $6 million while I was still in business school full-time.
While I was pretty pleased with myself for pulling this off, my glee turned to horror when I was unable to sell before the market crashed.
Then the problem was that I was stuck. The market had fundamentally changed, but I couldn't in good conscience tell my investors that in three months, things were so different that I thought we'd be better off shutting down.
So we slugged it out for another 18 months. I'm proud of how my team stuck it out, but it didn't result in any major value creation. And had we been free to do something else, maybe we would have built something remarkable.
As an entrepreneur, you might have 20 good years. If you get tied down for 4-5 years, you're wasting a quarter of your career. Don't keep the bat on your shoulder for too long!
4. Jason: "The classic example people are using is Friendster, which after being offered significant value by Googl, is now reportedly being shopped at bargain basement prices. They were, of course, wiped out when MySpace, LinkedIn, and Facebook focused in and took their market."
The "classic example" is simply wrong. First of all, Friendster has as big a traffic rank and reach today as it has ever had:
http://traffic.alexa.com/graph?a=2&w=640&h=480&r=3y&y=r&u=www.friendster.com&u=www.myspace.com&u=www.linkedin.com&u=www.facebook.com&u=www.orkut.com
http://traffic.alexa.com/graph?a=2&w=640&h=480&r=3y&u=www.friendster.com&u=www.myspace.com&u=www.linkedin.com&u=www.facebook.com&u=www.orkut.com
Secondly, if you look at the universe of social network sites (excluding MySpace) they all soon plateau at their own (fairly modest) natural active community size which does not fluctuate in response to the activity of new market entrants.
If Friendster is a failed business model, it has failed on its own merits, and would have failed with or without the market entry of MySpace, Friendster, or Facebook.
Posted at 8:56PM on Mar 21st 2006 by Michael Robinson
5. P.S. That should be, "...with or without the market entry of MySpace, LinkedIn, and Facebook".
P.P.S. When do you think would have been a good time for first-time enterpreneurs Brin and Page to sell?
Posted at 9:05PM on Mar 21st 2006 by Michael Robinson
6. Microsoft Announces Major Restructuring to Compete Against Google. Writely was very smart to sellout quickly. They would have been DOA.
http://www.mrwavetheory.com/2006/03/microsoft-announces-major.html
Posted at 1:02PM on Mar 23rd 2006 by Mr Wave Theory
7. All comments about social networking are completely wrong. Friendster failed due to Friendster, not any other site, period. I'd urge readers to view a much more informed analysis here: http://www.zephoria.org/thoughts/archives/2006/03/21/friendster_lost.html
Also the comment that Facebook is raising a round at a $2B valuation is simply untrue. I and anyone else in the know will bet you any amount of money that Facebook is not raising a round even at a $1B valuation.
Posted at 8:25PM on Mar 26th 2006 by Critic
8. Viviparous Offer!there is a gaining of restful life,change your life existence,its Free & Clear Real Estate System.Apply with confidence!
Posted at 1:56AM on May 21st 2007 by michel
Add your comments
Please keep your comments relevant to this blog entry: inappropriate or purely promotional comments may be removed. Email addresses are never displayed, but they are required to confirm your comments. To create a live link, simply type the URL (including http://) or email address and we will make it a live link for you. You can put up to 3 URLs in your comments. Line breaks and paragraphs are automatically converted — no need to use <p> or <br> tags.
1. Funny how this sounds strangely similar to house-flipping in a hot real estate market. Maybe it boils down to if you really care about the company you're building or if you just want to make the most money possible. I wonder what your take is on craigslist, a company that has held out, held out, and held out some more but is largely respected by the net community, and they get customer loyalty back in spades because of it.
Posted at 12:09PM on Mar 21st 2006 by Mr. K.