Great post from VC Dave Hornick today about the trend of selling companies earlier in their lifespan. Dave breaks down the risk/reward thinking that entrepreneurs face when someone comes knocking in the first two years of a companies life. The longer you hold on the greater the value could be, but the big risk in my mind is that the big five (AOL, Fox, Yahoo, Google, or MSN) or new startup will take away your value.
The classic example people are using is Friendster, which after being offered significant value by Googl, is now reportedly being shopped at bargain basement prices. They were, of course, wiped out when MySpace, LinkedIn, and Facebook focused in and took their market (you can also look at the social networking offerings from the big five to see how bleak the picture is for them now). Facebook is the latest to hold out, and they are reportedly about to raise big money at a $2B valuation–wow. How brutal would it be if they stumble and can’t sell? $2B in value can turn to $2M in a very short period of time in our world.
The example I always look back on was Pointcast which had massive distribution and a reported half billion dollar offer from Newscorp–and turned it down. They soon got banned from corporate networks because they were clogging up bandwidth with their push technology (think RSS before RSS, but when companies had 5,000 people on one T1). The rest is history.
Frankly, if you’re an entrepreneur the issue isn’t just deal or not deal–it’s how many times you swing the bat.
Holding on is ok, but holding on for too long is bad because you lose the opportunity to take another swing. During the dotcom boom/bust I watched folk hold on to their companies and extra 2-3 years and get nothing for it. They could have started another company from scratch in that amount of time and had another swing. Heck, I held on to my first company too long, and now folks tell me we didn’t hold on to Weblogs, Inc. long enough! Frankly, for a first time entrepreneur there is no such thing as selling too early. And if you sell too late you’ll feel that sting for a long time–trust me on this one. It’s all a learning experience, and the important thing is you don’t give up.
You miss 100% of shots you don’t take.