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YC Help: I need Acquisition Advice

news.ycombinator.com

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Re: YC Help: I need Acquisition Advice

#11

Post by webwright »

As a guy who sold his last business to the first offer (which was a good one, but not a great one), I would encourage you to think VERY hard about what happens after the sale. Are they hiring you? If so, how are you going to like that? I hated it.

If they're NOT going to hire you, what are you going to do next? It doesn't sound like you'll have enough money to retire, which means you get a job or start something new.

You have an incredibly unique opportunity RIGHT NOW. Many entrepreneurs try multiple times and NEVER make something people want-- you may never do it again (there's a helluva lot of luck involved).

So, if I were you, I'd keep growing it unless you think it's a short term play or that it's going to quickly plateau.

Even if you ARE going to accept the offer, COUNTER. Say, "We think we're worth a lot more than that-- we'd like to see a better offer."

Re: YC Help: I need Acquisition Advice

#13

Post by mixmax »

webwright wrote: post #11

As a guy who sold his last business to the first offer (which was a good one, but not a great one), I would encourage you to think VERY hard about what happens after the sale. Are they hiring you? If so, how are you going to like that? I hated it. If they're NOT going to hire you, what are you going to do next? It doesn't sound like you'll have enough money to retire, which means you get a job or start something new.…

If I could upmod you twice I would.

From a man who has actual experience in the field.

Re: YC Help: I need Acquisition Advice

#14

Post by nextmoveone »

webwright wrote: post #11

As a guy who sold his last business to the first offer (which was a good one, but not a great one), I would encourage you to think VERY hard about what happens after the sale. Are they hiring you? If so, how are you going to like that? I hated it. If they're NOT going to hire you, what are you going to do next? It doesn't sound like you'll have enough money to retire, which means you get a job or start something new.…

I'm 21! Retirement!?

Points taken. Very much appreciated.

Re: YC Help: I need Acquisition Advice

#15

Post by Flemlord »

With a more mature company, the valuation method is fairly straightforward. The ratio depends on your industry. Find a few equivalent companies and average their PE ratios. Then subtract somewhere between 20-40%, depending on how new/mature your product and customers are. Multiply it by your current earnings (on a run-rate basis). That's the fair price.

If you aren't profitable yet, you can do the same thing with the Price/Sales ratio, although that's more subjective and less accurate. It sounds like you may be new enough that all of these methods are out the window, and your valuation is based purely on your hotness and growth potential. In that case, I don't really know what you're worth. The only way to establish a fair value is to get a bidding war going.

Actually, if you are truly on an exponential growth vector then 3-4x earnings sounds low. Why would you even consider it? In a year, you would have earned more than you would have made by selling the company. Is there any reason to think your earnings have leveled off? Also, is this a cash or stock deal? Is the payout no-strings-attached or is there an earn-out requirement with target revenues?

Re: YC Help: I need Acquisition Advice

#18

Post by [deleted] »

nextmoveone wrote: post #14
webwright wrote: post #11

As a guy who sold his last business to the first offer (which was a good one, but not a great one), I would encourage you to think VERY hard about what happens after the sale. Are they hiring you? If so, how are you going to like that? I hated it. If they're NOT going to hire you, what are you going to do next? It doesn't sound like you'll have enough money to retire, which means you get a job or start something new.…

I'm 21! Retirement!? Points taken. Very much appreciated.

[deleted]

Re: YC Help: I need Acquisition Advice

#19

Post by Flemlord »

nextmoveone wrote: post #10
rms wrote: post #9

Do you really want to sell? It sounds like you could make more money if you stay around and try to keep scaling. But if you really want to focus your attention somewhere else, sure, sell for whatever you can get. How long do you think you can keep the exponential growth up? Another couple of months? Or do you think your company can really dominate the travel (or whatever area you're in) marketplace?

I say growth will peak in 6-9 months.

Peak, or level off?

Re: YC Help: I need Acquisition Advice

#20

Post by asdf333 »

nextmoveone wrote: post #8
daniel-cussen wrote: post #5

The deal sucks. You're getting screwed. Net present value is a lot more than 3-4x profits. You could get a much better deal almost anywhere. BTW, I haven't heard of anyone doing this, but you could look into NASDAQ portal. It's about 8 grand to register and is pretty similar to an IPO, but without Sarbanes-Oxley requirements. But, again, I know very little about this process.

Thanks for that one!

Having sold two sites: the first a website and the second a company.

At your size its all about how much they want you ans how much you want them. Step into their shoes for a while and see what they see. Do they see a 10 million dollar a year business if they roll it out throught their sales channels? What value do they see? Position it from that angle. Don't fall for pe ratios or crap like that. Its one thing if you are a solid stable company w/ predictable revenues but you are not. Be polite but firm. Don't let them pressure you. If you need more time, tell them you are taking more time. They'll try to rush you.

Finally, as you are doing this, think HARD about involving some professionals. Lawyers to help you get favorable terms, tax ppl to help you understand the tax implications (there is a GAINORMOUS DIFFERENCE between long term capital gains and short term). I know its difficult since they cost an arm and a leg but you can me losing out on a lot if you don't get some advice. Reach out to you uncles cousins buddy. Everyone likes helping the young kid trying to fight the corporation. They'll give you some free advice esp if its a favor.

Don't be afraid to ask for help and advice! We live in a society. People will help you out.

Finally, if they really want you, they will be back, no matter what they say. Think hard if this is really what you guys want. But as hard as it is, also be stone cold and make some probabilistic calculations. I'm sure it is a passion, but its also a business transaction. The irrational guy loses.

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