
Startups That Rejected $100M Offers - mrtbld
http://www.businessinsider.com/startups-that-rejected-100-million-offers-2013-5
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kevinpet
What an astounding lack of mathematical understanding.

First, if you raise $36M, getting acquired for $100M could very well mean next
to nothing for common stock holders.

The odds of a venture-backed startup failing may be 75%, but the odds of a
company that's looking at a $100M offer failing are probably more like 10% for
real "failure", a high likelihood of not quite being able to match that offer
later, and a good chance of a higher exit at some point in the future.

"99.99% of entrepreneurs" include all those companies that never get the first
customer, and never get a buyout offer. I can think of a handful of companies
that have been successful after turning down an offer. So now I challenge the
author of this piece to come up with the tens of thousands of companies he
implies got a buyout offer, turned it down and regretted it.

~~~
pbiggar
> First, if you raise $36M, getting acquired for $100M could very well mean
> next to nothing for common stock holders.

The operative word here is "could". It also "could" mean they make $60M.

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rhizome
I'm not a finance guy, are you saying that the funders of the $36MM could have
done so for a basically even money return on exit?

~~~
pbiggar
The terms could be literally anything. The grandparent was assuming that the
VCs have 3x participating preferred. I won't say that's unlikely, since I've
never seen a Series B or C term sheet, but those are gone from decent Seed
Term sheets and I believe good Series A term sheets.

So you have to ask, how could a sale happen for $100M with a $36M investment.
There are two options: the VCs agreed, or they didn't need the VC's
permission. In the latter case, the common would almost certainly do well. But
there are situations where the former could happen too: if the company was
worth much less and they just felt now was the time to sell.

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SurfScore
Once you reach a certain point money simply doesn't matter. They mentioned
Groupon: Andrew Mason knew that whatever happened he was never going to have
to worry about money again. When you have that luxury, you go with your heart,
and it usually isn't with the money. Even after he was fired he made out like
a bandit.

The same thing goes for a lot of these founders. When you get a substantial
buyout offer, you've done something very few people have. Even if you blow it,
odds are someone else will fund your next startup. Either way you probably
won't have to worry about money. Once a startup is funded, the founder isn't
rich but the company usually pays the bills so he can focus squarely on work.

I don't think we should reject the allure of money, it goes against human
nature. But the ultimate motivation is freedom. That's what money gives you;
freedom to do what you love. If what you love is building a startup the money
becomes insignificant, but having enough to let you pursue your passion
comfortably is very important.

~~~
codex
This is why joining a startup as an early employee may not be a good idea. The
founders' goals and your goals may be divergent.

At some point, the founders are already rich, or are guaranteed to be rich,
and are looking for self-actualization or ego. To achieve that, they'll gamble
your guaranteed payout by not selling--either because they want to remain "in
charge" or they want to shoot for the moon.

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johnrob
Money is just money. It can be squandered, mal-invested, taxed, or simply
inflated away. However, the guts that all of those founders showed will
forever be a reference point for their careers. Many can claim they would turn
down 100M, but few have actually done it.

~~~
nickpinkston
I'm glad this is the first comment. We should be giving those who reject such
offers MASSIVE KUDOS for having the gumption to turn down mere money for their
dreams. Do you want to get rich or actually change this world? I hope we still
remember why we tell each other tech is world changing - not just "life
changing"

~~~
cobrausn
'Change the World'? They were holding out on the 100 million offers mostly
because they thought they could become billion dollar companies, if the
article is to be believed.

~~~
pyoung
I think it goes both ways. Some founders actually believe in their companies
and their vision, whereas others are just holding out for a bigger payday.
While it is nice to hear stories about founders cashing out, we should also
celebrate those who are actually trying to make a long lasting impact,
regardless of whether they succeed or fail.

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kirbyk
Mark Zuckerberg was offered $1 billion dollars from Yahoo. After offered the
money Mark and Peter Thiel (investor) had a talk about the offer. Marks
comment was "obviously we're not going to sell here." Peter didn't feel the
same way. Today Peter is very grateful Mark didn't sell. Mark had a vision for
FB that Yahoo didn't, and he knew that if he sold he would never see his
vision come true.

~~~
namwen
It's pretty incredible. I can't imagine many 22 year olds turning down one
hundred million, let alone one billion.

~~~
smacktoward
I actually think it's the other way around. When you're 22 it doesn't take a
lot of money to feel like "man, I already have all the money I could ever
need." You're living cheap, you're probably single, you're probably healthy,
you're probably not thinking too hard about retirement. So money's not as big
a pressure point in your life as it is when you're (say) 42, with a house
payment and two kids you want to send to college someday and an
underperforming 401(k). When you've got those worries, I have to think it
would be harder to turn away $100mm in hopes of making a billion later on.

~~~
ipedrazas
So true, 22 yo don't have wives who will skin them off if they reject that
much money :)

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jamesaguilar
Meh. On $100 million the common employees aren't going to see much anyway.
Maybe for #1 and #2 it'll be a big deal, but for #10 with his 0.002 of the
company, that's going to be a nice bonus and not much else. So I can
understand the founders deciding to shoot for the moon.

~~~
mindcrime
That's still $200,000 if I did my math right. That's a little bit more than "a
nice bonus" but definitely not "FU Money". But it might just be enough cushion
for somebody to quit and self-fund their own startup for a year or so. That's
not a bad thing to have, if you're interested in that sort of thing.

~~~
jamesaguilar
200k over four years, less taxes, which will be maxed because you'll realize
all of the earnings as income in one year. So around 30k a year take-home.
Maybe slightly more than the standard 10-15% salary bonus of an intermediate
engineer at BigCo, but it's not _why_ the guy is working at the startup, or at
least I hope it isn't for his sake.

~~~
mindcrime
Sure, I definitely agree that - in general - "employee number 10" and later
aren't going to get rich from their startups. And hopefully they aren't
expecting to. Better, yet, hopefully the company goes public are more like a
billion dollar valuation, so that they _do_ get rich even if they only own
0.002 worth. :-)

~~~
jamesaguilar
Yep, and good on 'em if so. :)

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dmbaggett
It's a false dichotomy. If someone's willing to pay $X for your company, you
can do a secondary sale at ~.75*$X pre-money valuation to give key employees
some liquidity. No, it's not the same, but it's still real money, and
certainly alleviates the $100M->zero risk.

And if it's a real business whose value is based on, say, an EBITDA multiple,
there's even less reason to sell, unless you think earnings are going to tank.
(Presumably you will have significant visibility into the factors that
determine your revenue and EBITDA growth, and what might cause those to
change.)

But if you made a little photo-sharing app that earns no money, and someone
wants to buy it for a truckload of money, sell. :)

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mrwhy2k
Business Insider Sucks. I think they hire teenagers from a local high school
newspaper to pump this shit out in 60 seconds.

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cllns
In Dodgeball/Foursquare's case, how do deals like this work? I assume when you
sell a company you also sign a non-compete agreement.

For example, Instagram couldn't have just sold to facebook for $1B then turn
around and make the same thing again. Obviously they no longer have rights to
the code, but re-creating it wouldn't be _that_ hard if you already did it
once. It could be like forking an open source project, except you make a bunch
of money.

Is that that in the Dodgeball/Foursquare example, the non-compete was
apparently incredibly specific, and this allowed them to make a different
location-aware social network?

~~~
brown9-2
Those agreements usually are for a certain number of years, not forever.
According to <http://en.wikipedia.org/wiki/Foursquare>, Dodgeball was acquired
in 2005 and Foursquare was started in 2009, the same year Google shut down
Dodgeball.

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stevenj
I was surprised not to see Digg on this list. Was it ever offered $100+
million?

~~~
ttrreeww
Digg accepted a $200 million offer from Google. But during due diligence
Google chew Digg up and spit them out on the floor. Digg became tainted goods
after that.

[http://techcrunch.com/2008/07/26/google-walks-away-from-
digg...](http://techcrunch.com/2008/07/26/google-walks-away-from-digg-deal/)

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jayshahtx
While raising $100M sounds awesome, its really hard to increase the value of
your company. This means unless you raise an even bigger round next time, you
are risk de-valuing your company in the future by raising so much money right
now (called a downround in VCs).

Raising so much money also runs the risk of ownership dilution and if you have
a downround in the future, your ownership will probably get diluted even more
to maintain the % ownership of previous investors.

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typpo
What a negative article. I disagree that any founder is "stupid" for not
jumping on their first chance at life-changing money. By BusinessInsider
logic, Facebook should have been bought out by Friendster or Microsoft.
Dropbox should have been acquired by Apple. There are other examples. This
approach just encourages a "get rich quick" mentality, which is probably not
the best way to create unique and impactful products.

~~~
bryanlarsen
I found it well balanced. They included several examples of people like
Zuckerberg who turned down large amounts of money and were later proven
correct.

~~~
davefp
I found that it cast those cases as extremely rare, and that you shouldn't
look to them as inspiration to turn down an offer.

~~~
pyre
The chance that you are 'Facebook' good is slim, even if you have a $100M
offer. If you're ever in the position of deciding to accept/decline a $100M
offer on your company, then you probably want to be realistic about your
options, even if you decide to go with your heart.

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OnyeaboAduba
I think you cant have an ideology going into your venture whether it be
"holdout for the biggest offer" or "shoot for the moon". You should take
things as the come and do what you think is right. I also think there is a
price that everyone will sell at and thats not a bad thing. Money is very
important and they people who downplay its importance often have alot of it

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ExpiredLink
What happened to those who didn't turn down a $100M offer. They are now
sitting in their luxury home and watching TV.

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auctiontheory
The spirit of this article is very negative - more "expected value-maximizing"
than entrepreneurial.

Its logic is also questionable - you do not retroactively assess the
correctness of a decision by looking at its outcome.

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bigbang
Yahoo! turned down an offer of 60M from AOL in early days of internet boom.
Facebook turned down Yahoo!'s 1B offer. Google turned down Yahoo!'s 3B offer.

~~~
adventured
When IBM was melting down at the beginning of the 1990s, they used Thomas
Watson Jr. to reach out to Bill Gates and offer to buy Microsoft and make Bill
President / CEO of IBM.

At the time Microsoft's market cap was around $10 billion (with IBM around $30
billion).

Gates would have lost out on upwards of a hundred billion dollars plausibly.

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rikacomet
I know its vague but, how about 500 million? If your company is worth more,
would you cash out for 500 ?

