The big decision: should you go big or sell early?

This week, Dell picked up venture-backed Equalogic for $1.4B in cash. As I thought about how many ways $1.4B can be divided, it reminded me of the decision all startups & founders face at some point: do you take it all the way or do you sell out early?

There’s no right answer to this. It’s a highly personal decision, based on many variables. Let’s look at this from a founder/ management perspective:

Go big

Let’s look at Equalogic: This was a solid, well run and well-backed company with a clear market niche and robust product line. The company had raised $53M in capital. As a result, it’s investors owned 85% of the company. Many founders might bristle at the notion of “giving up” so much of their company. But look at the value that was created here. The non-VC shareholders still split $210M between them. In the process, they built a real company and significant value.

Sell out

The chance of a sure thing now, vs. a potential bigger thing down the road is a tough one. At my last startup we faced this dilemna. Weeks before closing a $10M ‘B’ round, we received an offer to sell the company for $47M. This was a relatively small transaction. But, having raised only $4M, the founders/ management stood to make real money. In our case, the temptation was too much to pass up, and so we sold.

So, what should you do when it comes to building out your own company? That’s for you to decide, but here are some points to consider:

Stakeholders: Your VCs are (likely) in this for the big win. If they are early into their own fund, they’ll probably want you to ride it out and go for it. If they are winding down this fund or if they’re raising a new one, an exit now might be very timely. You need to consider what they want and where they see this company going. These discussions should take place well in advance of an exit opportunity. Continue reading The big decision: should you go big or sell early?

Acquisition revisited

About a year ago while at my last startup, we were approached by the investment banker of a company (Rackable Systems) that ultimately ended up acquiring us. At the time, they were worth about $1B. They have gone through some turmoil in the last year and today they’re worth less than $400M.

There are three lessons for me as I look back on this deal: Continue reading Acquisition revisited