Or factors other than money matter. If you really just want to make money, I think startups are a crazy idea.
Why I decided to take the money and sell my startup
21–26 of 26 posts
Re: Why I decided to take the money and sell my startup
#22Ok, so here's a question I've had for a while. I was wondering if I should do a Ask HN for it, but I'll ask it here for now. What do you do when offered money for a slightly profitable service that has a small but loyal customer base ? This is in the event that your service will be shut down after acquisition. The math points to taking the deal but it doesn't seem a very nice thing (to me at least) to pull the rug on…
It is a personal question: which is more important to you? Keeping the loyal customers happy or the thrill or the exit, the money, etc.
The important thing to remember is that there is no right answer. This is real life, you aren't required nor expected to be altruistic, but you can be if you'd like.
Re: Why I decided to take the money and sell my startup
#23This analysis makes a few assumptions which are wrong. The consideration of 20% VC back startup success rate is an pure investment analysis. This is the consideration if you are Sequoia, not if you are the founder.
As a founder you have far more intimate understating of your company and would be far better positioned to determine what the probability of success is. While founders may seem overly optimistic, they are not a stupid bunch and should be able to make objective analyses, especially if they were able to build a company that has attracted VCs.
So if you change the 20% success probability to 35% based on the founders understanding, the risk adjusted return would be 852K. Additionally a 10% probability of selling at $10 million would increase the founder’s share by another 500k on top of the 852K. For these reasons the author is simply wrong in his financial analysis. Statistical averages are inappropriate for one off situational analysis. Why would a founder use the 20% industry average success rate when they would be far more informed than an outside investor?
Additionally an entrepreneur has other considerations such as ability to start another valuable company, how much they enjoy the work, if they are in a new technology space and have a 0.1% chance of building a billion dollar company, or the social perception for a CEO of a startup. These are considerations that a VC does not really care about and will not model.
The author sounds more like a VC making a routine investment analysis than an entrepreneur that was betting their future trying to build a company that they are passionate about.
Re: Why I decided to take the money and sell my startup
#24"When logic clouds reason" Lets take this up a notch. If a open a startup today, statistically my chances of a $500K exit in two years (like his) are pretty slim. Lets say 20% ? So, if I go for it I have a projected $50K/year for next two years. Or, I can go work somewhere and get $100K/year. Ergo, starting a startup is foolish. Anyone hiring ?
Is doing a startup foolish? If you're doing it as a way to earn a better living, it certainly is!
It's all about thresholds. With anything between a decent and really good salary (say 75k to 200k), your life is pretty much the same except for the level of luxury in what you own. You still have a mortgage to pay and if you lose your job, you need to find a new one very soon or you'll be draining your savings and defaulting on debt payments within a few months.
If someone offers to buy your startup and that would get you over a major threshold (eg. clear the mortgage and debts, enough cash left to carry on current rate of spending for a couple years), it would be foolish not to take it, especially if you have kids. Get a bit of rest and aim for the higher thresholds on your next startup.
Re: Why I decided to take the money and sell my startup
#25"When logic clouds reason" Lets take this up a notch. If a open a startup today, statistically my chances of a $500K exit in two years (like his) are pretty slim. Lets say 20% ? So, if I go for it I have a projected $50K/year for next two years. Or, I can go work somewhere and get $100K/year. Ergo, starting a startup is foolish. Anyone hiring ?
You're looking at it purely from a money perspective. There is more to it than just that.
Yes, you can make $100k/year at a "job" but you may be living a miserable life delegated as a gear in a gear box with no freedom of creativity.
On the other hand, yes, your chances of having a $500/k exit are slim, but how is your quality of life effected? Are you happier? Are you able to spend quality time with the people in your life instead of bitching about your shit head manager?
IMHO I believe your view is a bit narrow minded.
Re: Why I decided to take the money and sell my startup
#26Earlier quoted context omitted.
Well, if you're so inclined you could use part of the 500k to bootstrap another projcet and continue your happy startup existence only with less Ramen. (Unless you just really like Ramen, of course).
This is true, but a live one in the hand may be worth more than $500K in the bank. It all depends on your own estimation of the probability of eventual success, and your ability to accurately make that estimation in the first place.
Exactly - at least for me. Emotion has to enter into it because it's about whether you're ready to move on when the money makes it a fairly close decision like this.