Rich vs. King in the Real World: Why I sold my company
In this 2009 acquisition retrospective, @dmytton reflects on the journey of bootstrapping and successfully selling their business.
Core Principles for Independent Builders:
Unsolicited buyer inquiries versus running a deliberate auction process require very different negotiation leverage.
Bootstrapping for years without external capital provides extreme freedom, but exits are often triggered by energy depletion as much as financial gain.
Retaining ownership of code and operations creates pride, but transitioning to an acquirer requires letting go of absolute autonomy.
Community Debate Themes:
Hacker News peers debated transaction structures (cash vs earnout), founder tax strategies, and life after liquidating a long-term indie asset.
CATEGORY Startup Exits →
HISTORICAL ERA Web 2.0 Genesis (2007–2013)
COMMUNITY SCORE ★ 195 points
TOTAL DISCUSSIONS 33 comments
I can't find any mention of the transaction or who the new CEO is on the Smart Bear site. Jason doesn't say who purchased the company. It would be interesting to read the full story. There was probably a two year earnout provision on the sale which is coming to an end (Dec-07 to Dec-09) which is why he is talking about it now. Perhaps in January 2010 more of the story will come out.
This post have focused Jason's your inner psychological landscape, I would be interested in other aspects of the deal: how did he prepare employees, who did he pick and why to help you with the negotiations (e.g. attorneys, accountants, sell side M&A, other entrepreneurs, other advisors), how did he manage the two year transition.
Looking back and knowing what he knows now, what are one or two key things he would have done differently, what are one or two key things that he believes really made this decision a success?
Your company is growing 100% year over year. It's profitable and throwing off cash. Why not wait another year and let revenues double again, which will make the company six times more valuable (assuming 3x revenue valuation, a reasonable ballpark for a growing software company).
Unless I misunderstand the situation in some basic way, there is a math error in the above. (Of course, even if there is indeed a math error above, that does not make the whole blog entry worthless.)
First let me restate what I take the above unambiguously to says: it says that if the company continues to grow 100% year over year, valuation a year from now == 6 times valuation today.
My math: valuation a year from now == 3 times revenue a year from now == 3 times (2 times revenue today) == 2 times (3 times revenue today) == 2 times valuation today.
Am I missing something?
One other saying is: Get rich to get wealthy. If you can get enough in the bank to not worry about money, and at a young age that's not a whole lot, you can focus on going for the homerun next time. A successful first time exit could be considered a "blank check" in this industry:
a) You are secure. You don't need to worry about funds to pay yourself ramen money.
b) You probably have enough to have people help you build a prototype, so that gets rid of the friends/family cash crunch.
c) You've done it successfully before, so angels+VCs are much more likely to write you a check.
d) You've done it successfully before, so people are likely to join your team. The equity you're offering has value due to past success ie- don't believe me? I've done it once and I made the last guys who believed in me make some damn good money
[his friends were saying] Your company is growing 100% year over year. It's profitable and throwing off cash. Why not wait another year and let revenues double again, which will make the company six times more valuable
If the company is reliably growing at 100% (which it isn't, there's always a risk), this expectation is reflected in the valuation -- obviously, actually growing it and overcoming the risk is worth something, but it doesn't scale linearly as is suggested.
In all fairness, his following explanation actually takes this into account, my point is just that the replied to a strawman.
This story makes guys like Zuck and Gates seem extraordinary. They didn't' set out just to be rich or even rich-enough, they're aiming to change the world. The former is still working on that, and the later is already there.
Most of us would take Box A, but the folks at FB or even Twitter are looking at box X, Y and Z.
Of course once you get mid alphabet the possibility of an empty box is probably pretty slim.