[lubos]

> We’re also a company that has purposefully operated right around breakeven for years.

And here is the problem. Take VC money and now you are forced to run company at breakeven point.

This company would be perfectly fine operating with half the staff and generating for the CEO half a million in profits per year - every year.

He could have met his family financial goals long ago and still keep the company.

This is what folks at 37signals figured out years ago and good on them. Do not take VC money unless you are already a millionaire and aiming for the moon.

[ignoramous]

Thankfully lifestyle-business focused "VCs" are a thing: https://tinyseed.com, https://earnestcapital.com, https://indie.vc

[bostonvaulter2]

I wish we could move past using the term "lifestyle-business", it's basically a slur in my mind.

[forgotmysn]

Sift Finance & Vista Equity Partners as well

[texasbigdata]

This Vista (1)? With the 100 point post acquisition operating plan and intelligence tests? Maybe lifestyle means different things...

“ Billionaire’s Secret Buyout Formula: 110 Instructions and an Intelligence Test

Robert Smith’s private-equity firm revamps software companies by following detailed protocols; ‘their process is like a factory’”

https://www.wsj.com/articles/billionaires-secret-buyout-form...

[fairity]

Agreed in general. But, in this specific instance, his outcome is probably comparable to what it would have been had he optimized for profits. Given your 500K/yr estimation, he's selling for 8x earnings - not the best, not the worst.

I've taken the profit optimization route for my own business, and often wonder how much money I'm leaving on the table by not hiring a larger team and chasing (profitable) growth.

[bigiain]

Also, "not the best, not the worst" combined with "securing my families financial future" and "doing the right thing by my team/employees" and "relieving myself of a management and company ownership role I don't enjoy" sound like a totally better outcome _for him_, than spending another ~7 years managing something he's bored with and not starting new things.

For a lot of other people, a half mil a year profit from a successful small company they'll own pretty much in perpetuity might be what they'd choose. I can see why he didn't. (I'd almost certainly have made the same choice myself.)

[orasis]

I suspect in most cases you would have quickly hit a growth ceiling with that larger team. Fantastically fast growing companies have generally growth pulled out of them by the market. Yes, there are things you could probably do to grow faster, but those things are the spontaneous insights that occur in the shower.

[alooPotato]

ha no. do the math on it and you'll see that a sale is far more profitable for equity holders than cashflowing profits for the same nominal amount. I.e. distributing $3.7M in profits yields you personally a lot less than having your equity purchased for $3.7M.

You're comparing apples and oranges - 500K/year of profits first needs to get taxed. Then distributed to shareholders pro-rata, then taxed again at the personal level. Also, you're assuming he could have made 500K year in profit from the very beginning.

[GoRudy]

Pass through entities wouldn't be subjected to the double taxation.

[alooPotato]

Yeah but you pay a higher tax rate and get no benefits of QSBS. Generally there is a lot more opportunity for tax optimization on sales than on income.

[arthurcolle]

> higher tax rate

Isn't this only if the distributions are immediate? Forgive me, not an expert in LLC v. corp structures but I have an LLC so I'm curious to hear your expanded thoughts. Thanks in advance.

[alooPotato]

Income tax rates are usually higher than capital gain tax rates.

[tiffanyh]

> "This is what folks at 37signals figured out years ago and good on them. Do not take VC money unless you are already a millionaire and aiming for the moon. reply"

But 37signals/Basecamp DID take investment money.

They took money from Jeff Bezos investment company named Bezos Expeditions - back in 2006 (14 years ago).

https://signalvnoise.com/archives2/bezos_expeditions_invests...