71–80 of 104 posts
The Berkshire Hathaway of The Internet https://awilkinson.medium.com/the-berkshire-hathaway-of-the-...
Is this true? I don't think so. When they buy a public company, both sides surely have investment banks that help them to correctly value the deal.
Also, "pays below market prices" is probably commentary about his value strategy.
> I was advised that 50% of signed LOIs actually close. I bet it’s less. You will see the LOI and dream of trading stress for riches. Remember: Less than 50% chance of closing. 100% Which is why I hate that exclusivity is industry standard. It feels exploitative that acquirers can demand exclusivity in a deal when the chances of it closing are less than 80%. Imagine selling a house and taking it off the market becaus…
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Sounds like the US and UK housing markets, as well as startup M&A, suffer from similar problems. In a free market, you should be able to market what you’re selling until the moment it’s officially sold.
That’s not fair though because it takes a few weeks for a broker to close on a mortgage whereas a cash buyer can pay immediately.
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The second one the author had in mind is almost certainly IPO. Your (1) isn't a pot of gold in the colloquial sense of "suddenly finding a life-changing amount of money". Running a profitable business is ideal, especially in a post-ZIRP world, but it almost never culminates in a single "all my hard work has paid off, I can take it easy now" moment like IPO or acquisition.
> Running a profitable business is ideal, especially in a post-ZIRP world, but it almost never culminates in a single "all my hard work has paid off, I can take it easy now" moment That first time you pay yourself $20MM sure feels like that, and repurchasing from your employees or paying out large bonuses sure can for them too. > like IPO or acquisition. Have you been through either? "Take it easy now" is the opposit…
acquisition is also "long term". Usually there's months involved before hand, and months, if not years, hitting targets after acquisition to actually get the fully agreed-to payout.
Equally, sure, I agree, there's seldom a "can take it easy" moment running a profitable business, but over the same sort of time frames as IPO and acquisition you can certainly "wake up" and realize that all that hard work is now paying off. Once a company is in the black, for multiple years, and has accumulated "large enough" reserves, and you're not putting out fires three times a week, it can certainly feel like retirement (financial independence) is getting closer...
The Berkshire Hathaway of The Internet https://awilkinson.medium.com/the-berkshire-hathaway-of-the-...
It's tough as a founder who only ever expects to sell one company though. You don't really know how much you're potentially giving up for that easy deal if you haven't tried to solicit other offers. But you can't know of any offer is really real without spending months working on it. I'm really not sure what I'll do when I'm ready to sell. Maybe the perfect offer will just drop into my lap someday; that'd be nice.
Be profitable. It’s implied when OP says “run a good business”, but as someone who’s been on the acquiring side - it becomes a lot harder to be the advocate to buy a company when it’s losing money. (The business case math gets hard fast, with unprofitable companies & introduces a lot more risk)
You can't sell "potential" but you can buy it. In other words a "good" company, with a "good" product, but running really inefficiently (and thus making a loss) can be very attractive to a buyer, if they can get it cheap. They might see that AWS line, or that Google marketing spend, or the giant sales team, or whatever and realize that by refactoring that part of the business they can extract a lot of value in the short term.
But this "potential" is not reflected in the price. You can't sell a business saying "oh, you just have to make AWS go away..." etc.
Ultimately any seller is saying "you're offering me a price where I think I get more cash now than waiting for later". Usually with time commitments built in.
The buyer is saying "you have something interesting, but I can get a lot more profit out of it than you are currently doing." Often by doing things you have specifically rejected (downsizing staff, cutting expenses, maximizing revenue etc)
Be aware that any _principles_ you have, which are suppressing your profit (open-source licenses, fair wages, pride in customer service, reasonable price increases, employee benefits, whatever) are all _almost certainly_ going to be changed after the sale. Those things are exactly where the purchaser is going to get their return from.
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The concept of profit itself means you are beating the market by taking advantage of someone else or extracting value through arbitrage. In a perfectly competitive market with zero barriers to entry, profit margins will converge on zero as new entrants capture market share or competitors leave overcrowded markets. Edit: this is classical economic philosophy, not my personal opinion https://en.m.wikipedia.org/wiki/Pro…
This is more like, a gross oversimplification of the first chapter of a freshman intro to economics. This is to economics what "assume the cow is a perfect sphere moving on a frictionless surface without wind resistance" type of problem is to physics. In the real world, profit absolutely does not correspond to "taking advantage" or "extracting value through arbitrage".
Edit: also keep in mind that literally all of economics up until relatively recently relied on broad assumptions like the rational consumer. Kepler thought the sun was the center of the universe, does that invalidate his laws of planetary movement?
> Your post-money valuation is a hard floor on your sale price > Punctuated by fielding calls from confused angel investors. Can someone ELIE - explain it like I’m an engineer?
I am mooching that. Great phrase!
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These are definitionally the most sophisticated buyers and sellers in the entire economy. Organic market norms dictate what the industry standard is; it doesn't make much sense to think about protections. If you're selling, and you want some kind of protection, structure the dealmaking or negotiate the deal to get what you want.
> it doesn't make much sense to think about protections Why? If I’m going to put my business on hold for 3 months to entertain your offer to buy my company, why would it not make sense to make sure the buyer is serious enough to offer something they shouldn’t need to ever pay out if they are serious about their offer? > structure the dealmaking or negotiate the deal to get what you want. You usually have lawyers doin…
That sounds like a great way to cause your biz to not sell at all.