I disagree with that.
So, you're one of the last engineers @ foursquare (for ex.), Dens does sell to Facebook, you maybe get a slight raise/ comparable pay, more job security, and your handcuffs are the same as your vesting schedule was anyway. Oh, and you have $200k in the bank. So when you decide to leave FB and start your own thing (or buy a house/ take a year to travel) there is that.
First, if you raise $36M, getting acquired for $100M could very well mean next to nothing for common stock holders.
The odds of a venture-backed startup failing may be 75%, but the odds of a company that's looking at a $100M offer failing are probably more like 10% for real "failure", a high likelihood of not quite being able to match that offer later, and a good chance of a higher exit at some point in the future.
"99.99% of entrepreneurs" include all those companies that never get the first customer, and never get a buyout offer. I can think of a handful of companies that have been successful after turning down an offer. So now I challenge the author of this piece to come up with the tens of thousands of companies he implies got a buyout offer, turned it down and regretted it.
You claim that "the odds of a company that's looking at a $100M offer failing are probably more like 10% for real "failure"" yet the article cites four examples, of which two out of four (50%) peaked at $100M and are now in rough shape. The fates of the other two are still indeterminate.
Admittedly, this is anecdotal, and possibly cherry picked, but at least it's a modicum of evidence. Can you provide alternative data to back up your claim?
The operative word here is "could". It also "could" mean they make $60M.
The same thing goes for a lot of these founders. When you get a substantial buyout offer, you've done something very few people have. Even if you blow it, odds are someone else will fund your next startup. Either way you probably won't have to worry about money. Once a startup is funded, the founder isn't rich but the company usually pays the bills so he can focus squarely on work.
I don't think we should reject the allure of money, it goes against human nature. But the ultimate motivation is freedom. That's what money gives you; freedom to do what you love. If what you love is building a startup the money becomes insignificant, but having enough to let you pursue your passion comfortably is very important.
At some point, the founders are already rich, or are guaranteed to be rich, and are looking for self-actualization or ego. To achieve that, they'll gamble your guaranteed payout by not selling--either because they want to remain "in charge" or they want to shoot for the moon.
This is so true. The best start-ups I've worked at where the ones where the founders had real skin in the game and were working as hard as the developers to get the company off the ground.
The two start-ups I worked that were miserable failures were the ones where rich founders had a lot of private equity and just burned through the money in short order. The most incredible was a CEO I had decided to buy season tickets to each of the professional teams in town (5 teams), and spent hundreds of thousands to remodel our existing office. The office part was surprising considering it used to house a large tech company who had about 80 employees. At our peak, our company had around 20 employees and had plenty of space.
For example, Instagram couldn't have just sold to facebook for $1B then turn around and make the same thing again. Obviously they no longer have rights to the code, but re-creating it wouldn't be that hard if you already did it once. It could be like forking an open source project, except you make a bunch of money.
Is that that in the Dodgeball/Foursquare example, the non-compete was apparently incredibly specific, and this allowed them to make a different location-aware social network?
http://techcrunch.com/2008/07/26/google-walks-away-from-digg...
At the time Microsoft's market cap was around $10 billion (with IBM around $30 billion).
Gates would have lost out on upwards of a hundred billion dollars plausibly.
And if it's a real business whose value is based on, say, an EBITDA multiple, there's even less reason to sell, unless you think earnings are going to tank. (Presumably you will have significant visibility into the factors that determine your revenue and EBITDA growth, and what might cause those to change.)
But if you made a little photo-sharing app that earns no money, and someone wants to buy it for a truckload of money, sell. :)
Raising so much money also runs the risk of ownership dilution and if you have a downround in the future, your ownership will probably get diluted even more to maintain the % ownership of previous investors.
Its logic is also questionable - you do not retroactively assess the correctness of a decision by looking at its outcome.
