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Would you accept a buyout offer that made you rich but you still felt was undervalued?

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Re: Would you accept a buyout offer that made you rich but you still felt was undervalued?

#11

Post by mattmaroon »

It depends on your financial situation. How much money do you think will make you happy? If you hold out for more, even if you make it, will your life significantly improve? What are the chances of ending up with nothing?

I'm a swing for the fences type of guy, but I'd have a hard time passing up any offer that hit my minimum number. That's why I think investors should let founders of companies take money off the table at a certain point. It gives them more desire to go for the big score, knowing that even if they fail, they're still set.

Re: Would you accept a buyout offer that made you rich but you still felt was undervalued?

#12

Post by ericb »

This goes to an area where economics hasn't caught up to reality yet. If you watch Deal or No Deal, many economists would say contestants are making a mistake (being irrational, unlike the ideal homo economicus) when they accept a deal that is significantly lower than the average value of the cases remaining.

What they miss is that dollars offer diminishing returns at scale, so the decision is rational. Going from 0 to 100,000 dollars is very different life-style wise than 3 million to 3,100,000. Because those first dollars are "worth" so much more, and because the upside of the best outcome is not worth as much proportionally, the decision is rational (although people are often being irrational in other ways in this game).

In your case, I suggest you consider your BATNA (Best Alternative to a Negotiated Agreement) and estimate their interest, then consider countering. You can only negotiate your "best deal" when you're willing to walk away. If you're not willing to walk, you play it safe and "make a deal."

Edit: Keep in mind, if you counter, the worst they can say is no, and you can often still acquiesce to their original offer.

http://en.wikipedia.org/wiki/Best_alternative_to_a_negotiate...

Re: Would you accept a buyout offer that made you rich but you still felt was undervalued?

#15

Post by anamax »

Are there other people involved whose interests might be worth considering?

I'm thinking of someone with a much smaller share. As someone has pointed out, the 100% increase from 50k to 100k is different than the 100% increase from $1M to $2M.

Re: Would you accept a buyout offer that made you rich but you still felt was undervalued?

#16

Post by mynameishere »

It depends entirely on how much you enjoy being a bigshot. Being rich doesn't make you an alpha male, but being an executive, maybe even CEO, of a company does just that.

If it's something you're running out of your mom's basement, well...

Re: Would you accept a buyout offer that made you rich but you still felt was undervalued?

#17

Post by aagha »

I think one way to look at this is from an NPV (Net Present Value) perspective. If you work on a project where your cost to implement it is $x, but the reason you decide to undertake the project is because you think it's value is >$x+$1 and someone comes and offers you (exactly) $x+$1, but still less than you thought you would get, would it be a good sale? From a pure NPV perspective, if there were no other, better offers out there, the $x+$1 sale should be made.

The thing that really happens in life is that in addition to NPV, there's this little thing called pride, and when you think something is worth more that what someone else thinks its worth, it's sometimes hard to step back and say maybe they're right and I'm wrong.

Here's the thing to ask yourself: Do you think there's someone out there that will reasonably pay you more than the $x+$1 you have an offer for. If so, hold out. If not, sell.

Re: Would you accept a buyout offer that made you rich but you still felt was undervalued?

#19

Post by mrtron »

mattmaroon wrote: post #11

It depends on your financial situation. How much money do you think will make you happy? If you hold out for more, even if you make it, will your life significantly improve? What are the chances of ending up with nothing? I'm a swing for the fences type of guy, but I'd have a hard time passing up any offer that hit my minimum number. That's why I think investors should let founders of companies take money off the tab…

Matt I was hoping you would give a nice poker analogy here :)

My brother is a pretty good player, but he is quick to 'chop'. In fact I mock him all the time for it, but it really depends on what your comfort level is. At a certain point it is not desirable to take exchange risk for reward. Inevitably whenever you wish to get out of the game, you are going to have to take a discounted rate. In poker, if the final 2 guys chop due to the highly top-heavy prize structure, you are obviously going to take some sort of discount.

Re: Would you accept a buyout offer that made you rich but you still felt was undervalued?

#20

Post by jdavid »

there is only one reason to sell a business, YOU WANT OUT.

if you are profitable and you want out, you have to ask; "will this enable me to do my next activity?" if not, then don't sell yet you are much better off growing your business.

if you are not profitable and you want out, well i would ask; "Will this cover my effort on this project?"

I have a personal number in my head that covers my anticipated yearly expenses, plus has room in there to keep adding to savings. above that amount in wealth i very well may sell my first business, if i will find my next idea more desirable to pursue.

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