When should you sell your company? It’s hard to think about a more important question. Sometimes you have no choice. If you’re running out of cash, with no hopes of raising more, it’s a simple decision. Hopefully, you do have the choice. If so, here are the times when I think it makes sense to take the exit:
Lack of Direction
Sometimes you just run out of ideas. You have no clear end vision. You don’t know where to take the company next. Maybe the market is moving quickly and you just don’t know how to respond.
You won’t win
Some markets are ‘winner takes all (or most)’. You see this often in highly technical markets and in enterprise, where a market standard is set. The difference between 1st and 3rd place is huge. Forget about being #10. If the market standard has been established already and they’re slowly starting to suck all of the oxygen out of the market, it’s time to sell.
You get a ‘crazy’ price
Should Instagram have sold for $1B? How about How about WhatsApp for $21B? Of course! Both of these exits represented a massive premium for where the company was at when they were sold. Both buys recognized the future value in those assets. i.e. they were wins for both buyer and seller.
When a buyer offers a price that would take you many years and lots of risk to (maybe) achieve on your own it might be worth taking.
Declining Growth Rates
All companies go through a bell curve. Or hopefully multiple bell curves, sparked by new products and new sales channels. Stock markets (public and private) reward growth above all else. If your growth rates are declining your valuation multiple will also decline. If you don’t have a way to change the decline, it’s best to sell before you fall further.
Often a buyer can propel new growth by plugging your product into their large, more established channels.
You can’t raise more capital
This is most common with seed stage companies that can’t raise an A and A funded companies that can’t get to B. According to CB Insights, about 40% of seed stage companies raise an A. About 1/2 of those companies go on to raise a B.
You’re just not having fun
This is an important, but often overlooked reason to sell. The effort required to get your startup to a point where you have something worth buying is huge. Founder/ exec burnout is real. Sometimes you just lose the spark. You could replace yourself and keep the company independent. Or you could consider selling the whole thing.