| Hear hear. I've been saying a similar thing for a long time. If the business is so great why sell? The act of selling implies you think it's worth less than what someone else is willing to pay which is dishonest. If you thought it was worth more you wouldn't sell (under most situations, there are always exceptions). Why shouldn't a VC hold on to the great business they've built for the sake of future cash flow? A great business should be able to get funding. It also drives the wrong behavior. Instead of building a real business that lasts better build the appearance of a business that will fetch a good price. Such and such multiple of sales (what about profit? future cash flow?). Such and such many users (who may never pay you a cent). This behavior doesn't stop at the first exit, it perpetuates throughout the lifetime of many public companies; focus on looking good rather than being good. I always thought the original purpose of the stock market was for companies to raise money to go after bigger things- it seems the purpose today is to "exit". EDIT with another thought:
To me, build a business vs. build an exit strategy should be orthogonal to VC vs. bootstrap. You can bootstrap and work towards an IPO and you should be able to VC without selling the business. I think everyone would benefit from a frame of mind that is about building successful, sustainable, long lasting businesses. |
>> If the business is so great why sell? The act of selling implies you think it's worth less than what someone else is willing to pay which is dishonest.
There are a lot of reasons to sell any asset. Life changes, changing locations, or simply want to move on to some other area of interest after building a business for many years. Or since you've been sleeping at the office the last few years at the behest of your VCs, you just want to take a few years off. All of these factors affect how much your business is worth to you. (And only you; whether you have to sleep at the office has no bearing on the value of your company to a buyer, but it might make you receptive to a lower price). Ask a founder during one of the highs, she'll tell you her business is worth 10x-100x the price she'd quote you during one of the lows.
Second, a company's value is relative to its owner. For example, The Coca-Cola Company can sell a lot more Vitaminwater in a year than its prior owners due to its global scope, relationships, etc. So Vitaminwater is worth more to Coca-Cola than to the previous owners (who would be able to extract less value from it in a given timeframe). Another example: Vitaminwater would be worth a lot less to IBM than it is to Coca-Cola. So when the company sold, it should have priced somewhere between the expected amount its owners could derive and the (higher) amount Coca-Cola could derive in the same timeframe. There's absolutely nothing dishonest about this.
>> Why shouldn't a VC hold on to the great business they've built for the sake of future cash flow?
This isn't the VC's business. Their LPs didn't provide them capital for this purpose, so operating companies in this fashion might be a breach of fiduciary duties etc. More to the point, they will likely be bad at it over the long term because their core business is essentially banking (and not operating tech or whatever businesses).