Ask HN: Sell my startup for $14M because I can't raise $2M?

[thisanonguy]

I founded an vertical-focused enterprise startup. We signed a few huge customers in the space on a build-and-beta basis, and that led to industry awards and a full pipeline of leads and signed contracts for installation (SaaS pricing with small implementation fee).

We've done it with a ridiculously small team, however. And it's become impossible to handle the dev and deployment, support and training, security reviews, feature requests, etc. So we are looking at options.

We've been approached by a few large companies in the industry regarding acquisition. It looks like we could sell for $12-14M. Kind of exciting, but also well under the value that's possible (which would probably be something north of $400M in our industry alone, with the possibility to move laterally).

The alternative is to raise money. We've put together a solid deck and model (I think), but the local venture capital scene is not great (think $1M+ ARR).

We think this is a product ripe for SV firms, but those critical "warm introductions" are elusive. We just don't have the network. Only 4% of my cold emails have even been opened (yes, we track it).

It's crazy to me that our industry is jumping up and down for our product, we've got offers to buy the company, but we can't raise a seed. I've failed hard here. I'm open for advice.

[zupreme]

Learn from my mistake. Unless you're already financially secure (meaning you could stop working and live your current lifestyle for several years) then my advice is to take the money while you can OR to leverage that valuation to pocket a few million $ (by selling equity).

I'm doing great with my current startups now but several years ago I founded a very promising startup which almost immediately got many acquisition offers in the high six figures and low seven figures. I, of course, took all of this to mean that we were onto something and were sure to get very wealthy in short order.

That didn't happen. What our app did got simply duplicated as a feature by an industry leader in software for our target vertical and that startup rapidly went from extremely profitable to bust.

TL;DR: Unless you're financially secure take the money.

[erex78]

There is a lot of advice on the thread saying: take the money. Given your personal situation etc. this may very well be the right choice.

But you need to realize that just because you've been approached for acquisition and even if somebody tells you straight up "we want to acquire you", it sounds like you are far away from actually getting acquired. The road from casual interest to money in the bank is long and bumpy.

Unless you actually have a term-sheet in your inbox, you aren't in the position to make this decision right now.

The right tactical approach is for you to push hard on both fronts - push as hard as possible on fundraising as if you have no other option. And if you do want to consider an acquisition, start approach these companies and ask for term sheet.

If both go well, then you have a decision to make.. (and more leverage..)

[hpcjoe]

This +100

One day I'll write my story. A few acquisition offers, some investment offers. Foolishly we rejected them.

Company when bust with the help of a bank last year.

Same rules as in baseball. Don't swing for the fences. Many singles and doubles win you the game.

Homers and grand slams are infrequent and elusive.

Had the same sort of capital issues. Same problem with VCs... I'll write my thoughts on them some day as well.

Take the money and run. Rinse and repeat.

[kbenson]

Without any relevant startup experience to back it up my opinion, I concur. It's a hard pill to swallow, but unless you are working at the top of your software area with mostly theoretical bits that you've worked out, it's not really all that hard to copy most things in software (unless you have contracts in that give you an advantage, sort of like a mini monopoly).

It's bad enough that a few years ago here people were complaining that they would do a Show HN submission, and find a few weeks after that someone had taken their mostly completed idea, assigned a whole team of cheap developers to it and executed on it not only faster, but better. The question here is whether the business he's got running has aspects that can't be easily copied (and assessing this realistically might be hard), and if it can be copied, can it be done so without taking too long or taking more than the ~10 million plus the submitter thinks someone will offer?

[thisanonguy]

Wow, hijacking the top comment since this blew up. If you want to contact me, email [email protected] with the details.

This is why I love HN - it's an amazing community when you are willing to put your heart on your sleeve.

[mosselman]

Indeed, never having to work again in order to provide yourself with the basics (home, food, car, education for your kids, etc) is already a huge thing to achieve in life. Don't let multi-billion dollar acquisitions you read about here cloud your appreciation of something as big as this.

[reilly3000]

I'll ditto the take the money message. Great pain and suffering awaits those who don't whose company then becomes less valuable. But, life is pain. Take the money because the next idea, the one you really wanted to do, that can happen. Once you've sold a company fundraising is 10X easier.

[tinus_hn]

It's a gamble and it's easier to manage the risk of gambling if you're rich already.

Is this the chance of a lifetime? Or is it just a good idea that may make a lot of money?

[PerfectElement]

Can you give more details about your startup? Were you a single founder bootstrapping?

[nebabyte]

Out of curiousity, what was that first startup?

[john_moscow]

Curiosity question: why didn't you patent some key element of your value proposition to protect against someone copying it?

[bsvalley]

Welcome to Silicon Valley, it's all about networking here. I'd suggest you to sell and to update your Resume - "I created company XYZ acquired by ABC in 2017". That alone will help you fund your next venture. Also, you'll gain a lot of credibility in the Valley and you will be seen as a successful entrepreneur.

Lock your money first, then go out there have fun with your new ideas. You'll be way more focused on your baby and wouldn't even care about all this 'mafia' thing...

[have_faith]

> Welcome to Silicon Valley, it's all about networking here.

I haven't found any aspect of life that this isn't true yet.

[callmeed]

IMO You need to look into both options until you get at least (a) a letter of intent for acquisition or (b) a term sheet from a VC. If you can, get both, then consider taking the VC money if you can get a significantly higher valuation and good terms.

I recall a VC interview recently where he said (paraphrasing) not accepting cold emails and requiring an introduction is a filter that proves you know how to hustle and make some connections. That's a skill you're going to need anyway.

If you're willing to do that, start working your network of former classmates, co-workers, bosses, friends, etc. Don't be afraid to make phone calls, ask for favors, etc. If you are in the US, attended a university, and worked in tech there's really no excuse for not being able to get some warm intros to investors.

On the acquisition side, definitely pursue that but don't be mistaken thinking "interest" == "sure thing acquisition". 8-figure acquisitions don't happen without a shit-ton of due-diligence. If you feel someone is truly interested, retain an M&A lawyer and get their advice before giving access to anything beyond basic numbers.

Good luck and expect to be challenged/busy whichever way you go.

[sah2ed]

I think you were referring to Marc Andreessen's AMA with Stripe Atlas founders [0] which was as recent as July:

"Getting a warm introduction to a VC is a basic test of networking skills.

VCs are dying for interesting qualified referrals from people in their network—angel investors, other VCs, advisors, coaches and mentors, lawyers, and customers. All of those people love giving qualified referrals to their favorite VCs. VCs are some of the easiest people in the world to reach via their networks.

It turns out that the skill required to network into a VC is the same as the skill required to network into a customer, into a supplier, into a distribution partner, into the press, into an executive search firm.

And so if a founder can’t navigate a network into a VC firm, it is unlikely that founder has the skills to navigate the other networks required to succeed in building a company."

[0] https://stripe.com/blog/marc-andreessen-ama

[GrinningFool]

Re the "know how to hustle" thing - building a successful business takes a lot of "hustle". If someone succeeds at that, they've proven that they can do it.

The notion that someone needs to meet some invisible bar of proof beyond building a successful company is - to me - yet another symptom of the damage SV has inflicted on the minds of a generation of technically inclined enterpreneurs.

[Smerity]

Whilst it might be a general concept, the most recent time I heard your paraphrased notes on warm introductions was Marc Andreessen at Startup School.

Both the video and the transcript (with the warm introduction question first) are available at:

http://blog.ycombinator.com/marc-andreessen-at-startup-schoo...

[mijustin]

My recommendation is to get a broker. FE International is particularly good: https://feinternational.com/

A good broker should be able to tell you if an offer is fair, and also protect you from the risk of them just doing due diligence to steal your secrets.

[vikp]

I haven't seen this advice in this thread yet, but there is a path other than selling or raising VC. It's focusing and growing your revenue until you get through this crunch.

We've been in a similar situation before, that we managed to grow our way out of. It is possible to get through this, keep growing your business, and do it all on your own terms.

To resolve the short-term feeling of being overwhelmed, here are a few ideas:

* Try to get more $$ upfront by converting customers to annual plans, or raising implementation fees.

* Defer some customers until your team is larger (or they pay more).

* List out what you're working on, and ruthlessly trim anything non-essential.

* Contract out what you can.

* Raise some angel or friends and family $$.

I don't know what your revenue is, but I'd guess a few hundred k ARR. In the medium term, if you can grow 5-10% a month, you'll double or triple your revenue in a year. This will give you a lot more optionality in the long term:

* You can just keep bootstrapping forever if you want.

* If you raise, you'll get much better terms with more revenue.

* If you sell, you'll get a higher price.

Of course, this depends on having solid growth channels, and a reasonably sized market.

Taking the time out now to chase VC funding when it's not there will hurt your ability to grow in the short and medium term. If you focus on growing revenue instead, you'll increase your chances at VC funding or a sale in the long term.

I'm happy to chat more if you want -- email is in my profile.

[PerfectElement]

> I don't know what your revenue is, but I'd guess a few hundred k ARR.

Is it normal for a SaaS with a few hundred k in ARR to be worth $14 million?

[beat]

A seed investor/advisor once said to me the biggest mistake he made with his first company was waiting too long to sell. He put in three more years of hard founder-type work on its growth, and with investment dilution, wound up hardly making more than he would have made if he'd sold early to a buyer who was ready to put their own money into scaling.

Especially in the enterprise market, where requirements are complex and sales cycles are difficult, selling out to a big company that has all the pieces in place already can make a huge difference - not just in your bottom line, but the chances of long-term success for your baby.

[alain94040]

Owning 100% of $14M is better than owning 10% of a $100M exit after 5 more years of hard work.

[mseebach]

You'll have gone through some pretty insane fundraising rounds and extreme growth then near-collapse to pull those numbers off.

Raising 2M at 14M puts the OP's stake at 87.5%. Long long way to 10%.

[jasonlbaptiste]

Yes. You will now have a blank Check for the rest of your life:

1- you won’t need to work again. This lets you work on what you want next.

2- you’re very likely to get funded 2m for the next thing. This sale gives you a big stamp.

In short, this game is never about just one company. Get the 14m, stay hungry, and go for the 400m sale on the next.

Play the fucking long game and play it on your terms.

[sgs1370]

PS if you do a "next thing", don't spend very much of your own money on "it". Even though you don't "have" to get outside funding, do the angel/seed/VC thing based on your previous success and the strength of your idea & team... and if any stage fails, bail on "it" and go to the next thing. The investment you can make is not paying yourself a salary for a year while you figure out if the product succeeds during the angel round stage. Just my $0.02, your mileage may vary.

[lpolovets]

I'm a seed stage VC. If you want feedback on your pitch or cold email, please email me at [email protected]. I'd be happy to help.

My fund might be a fit as an investor. If not, then I might be able to suggest a few firms that could be a fit.

Also, 4% is a low open rate, but that might be misleading. For example, I set gmail to not open images by default, which could affect emails that use tracking pixels.

Finally, selling something for $10m+ is a really amazing "last resort." :)

[jon_dahl]

I can vouch for Susa as a seed-stage investor. Definitely take this offer - this is a big decision, and it's worth talking to experts on various sides.

I also sold my last company for a bit more than what you're describing, but in the same arena. Feel free to get in touch if I can help. (Find me via my profile and/or on social media if you're interested.)

[immad]

I also extend the same offer as Leo. Email in my profile.

If you can get a $14m acq offer you can almost certainly get funding if the market is big.

[tptacek]

It's tough to really evaluate this without knowing roughly your headcount, revenue, and growth numbers. 14MM could be a great deal if you barely scratching by with current employees, and a terrible deal if you socking away large amounts cash every month.

I was a "no" vote on the acquisition of my company and I regret selling; we would have been substantially more valuable the year after selling (we had just figured a bunch of business model stuff out). But almost everyone regrets selling, because that's when your company gets sold: when things are going well.

Be careful about threads like this. Obviously, you want to take people who are talking about how "14MM will leave you set for life" with a huge grain of salt, since that's not what you're going to take home from this deal.

Shooting for the moon is probably not a good bet the first time you pony up to the table, to be sure. But getting a company to the point where you're getting random 8-digit acquisition offers is not easy. The idea that you'll take the money this time and roll right back to the same position with a thick bankroll to make it easier is fanciful.

[tgb]

Off-topic: I thought that tracking email opening was no longer possible in gmail? My memory of it was that you'd insert an image and track whether that was retrieved, but that GMail started caching all images ahead of time for their users so you couldn't tell if/when it was opened. See, eg, [1]. Is that not correct?

[1] https://arstechnica.com/information-technology/2013/12/gmail...

[jaggederest]

No, it only caches when they are requested by the user - google acts more like a proxy. Essentially they're preventing the remote server from grabbing HTTP headers/cookies from gmail users but not preventing them from tracking when it is loaded, chronologically.

[gvb]

I configure all my email clients to not display external images and ask for confirmation if a RR is requested.

In the gmail web browser client, that is in the general settings:

(*) Ask before displaying external images

[kalehrishi]

This is possible. We are doing it at https://www.mailtag.io. Shameless plug though.

[elif]

IIRC they made a specific exception for tracking pixels, because 1x1 are pretty easy to separate from actual images.

[superdex]

If you're not profitable enough to hire without borrowing money, then that's something to really look at. You don't have to hire 15 people. And taking on money is giving away your control; you'll have to bow to the VC's wishes because they bankrolled you. If you can go without, I'd go without and keep on chugging.

And depending on how you're structured now, $14M is a LOT or it's quite a bit and you can take your time looking for the next thing....

[rdlecler1]

If you get your $400m exit you might own 5-20% ($10m - $80m) of the company at that time. At this point I assume you’re a large shareholder and so you need to price out what your time cost is. That’s a lot of money to take off the table and from then you’ll never have trouble raising another seed round. Do be careful though. Business development people are paid to scour a market and this could be a huge time suck with no exit in the end. If they eat into your runway then you could get to a point where you MUST sell. Be careful. Maybe if they’re serious you can ask for a $100k convertible note to enter the negotiations.

[askafriend]

This is an important point. Don't be strung along while you're burning through cash.

Make sure the $14m is concrete and not just based on numbers that have been floated in casual conversations.

[mseebach]

How do you get to those dilution numbers? The OP is already at 14M, apparently with no significant outside funding. If you assume they'll be at 5-20% ownership at 400M, practically all the "growth" will have been cash from equity sales. Presumably the OP believes that he can actually grow his business to that size, like he grew it to 14M.

[jrs235]

>Only 4% of my cold emails have even been opened (yes, we track it).

You only know that at least 4% have been opened. If an email client blocks the image used to track opens then you'll never know if it was opened. I'm guessing many SV folks and HNers block their email client from displaying images by default.

[joeflesh]

If you actually have written offer for $14M then absolutely take it. Absent that, engaging with potential buyers will take a lot of your time and probably won't result in a sale. The road from interest to sale is long.

If you guys have $1M+ ARR, I'm happy to make some warm intros for you to Chicago-area VCs. Not SV but investors here love solid, profitable businesses and not always in "sexy" verticals, and there are real funds based here.

I'm an enterprise SaaS founder as well. Would be happy to talk further, just DM me on Twitter: @JosephFlesh

[justin]

Happy to talk through your options on a phone call if you'd like. You can email me: [email protected]

Relevant experience: sold a couple companies, raised a lot of money

[thisanonguy]

Wow, thanks Justin. Done.

[SeoxyS]

Shoot me an email (see in my profile); I'm an angel and see a lot of deals of that stage. At the very least, I could give you some feedback from an investor's mindset.

[acty1]

What are you after in life?

A lifetime of financial security and building great businesses?

Or working for someone else / struggling to make ends meet because you thought you could turn 12M into 50M or 200M. But in fact it flopped.

If you have more than enough to be financially secure already (and perhaps your children if you choose that path).... then go for the home run.

But if this thing comes crashing down (99% of businesses fail within 5 years and 99% of the remaining 1% fail in the next 5)... then what would you think?

Sure would be nice to put a million or two in the pocket today.

I'm going to get flak for this.... but there's probably a better chance that BTC/ETH will return 10x returns over the next 10 years than turning a business valued at 12M into 120M.

Yes, that is speculation. But so is your ability to scale 10x (but at least somewhat within your control).

[thejerz]

AngelList was built to solve this problem. If your revenue and traction are true, you'll be oversubscribed. Create a profile, and message investors.

Also -- even if you intend to sell, consider raising a round first. Having an bonafide valuation will let you jack up the sale price 5x, or more.

[volkadav]

Have you considered traditional business loans through a commercial bank, if your revenue and growth projections would support that? Downside: debt is a drag, upside: you don't have to give up ownership stake. Good luck, whatever your path ends up being!

[gk1]

Well, now that you're on the HN frontpage, you're in front of dozens of VCs. Create an anonymous email account and post it here so investors could contact you for more info.