

Rich vs. King in the Real World: Why I sold my company - tyn
http://blog.asmartbear.com/rich-vs-king-sold-company.html

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auggierose
A good friend of mine (actually back then, my boss) decided to roll the dice
in that situation instead of just cashing in 15mill. He lost that game, and he
only told me a long time later that he was offered that choice.

I think this is one reason why VCs want young entrepeneurs, because VCs need
people who think that they get many more opportunities to cross that line in
case the current startup tanks. Because VCs will ALWAYS pick box B if the
expected value of B is larger than that of A, even if A is a 100% thing.

~~~
Alan01252
My Dad did exactly the same thing. He ran a steel company with profits of
around £600,000 was offered ~£2 mill for the company and turned it down. The
recession of the 1990's came and completely wiped out the steel/construction
industry and his company went under.

In the highly unlikely event I'm ever given that opportunity I'll definitely
pick Box A, I've seen first hand just how hard it can be when Box B doesn't
work out.

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agsamek
2M for 600k profit was just a very poor offer and your father chose right
regardless of what happened next. (Judged by the limited information provided)

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kansface
Considering the company went bankrupt shortly thereafter, the offer actually
reflected the actual value of the company. Its hard to know that at the time.

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StavrosK
Then it didn't reflect the actual value of the company. It was a low offer,
and the unpredictable events are just that: unpredictable.

The winning lottery ticket still costs $1, because you don't know if it's
going to win.

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auctiontheory
I think the most telling line in the article is "100% of the negative
reactions were from people who had never started their own company."

If working for myself has taught me one thing, it is to be much less
judgmental of other people's choices. Those who've never done it just cannot
understand.

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DividesByZero
It might be a small niggle, but the author is pretty dismissive of
microeconomic theories of risk.

Despite what the author writes - "Of course statistically there’s no
difference, so this isn’t a question of math or economics or intelligence;
it’s a measure of your attitude towards risk.", risk aversion _is_ a well
studied concept in economics.

<http://en.wikipedia.org/wiki/Risk_aversion>

Most people have a preference curve that is risk averse, and for these actors
it makes perfect economic sense to take the 10 and not the 20. 'Statistically
identical' they most definitely aren't, just the expected value.

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rabble
I faced a choice like this as I went through M&A of my most recent company. We
were doing well, growing like a weed, but also because it was a consulting
services company it was very cyclical and dependent on a few large clients.
There was a real risk that we could lose both key clients and staff at the
same time and eat up our capital reserve. Growth was also dependent on us
reinvesting the profits of the business while maintaining working capital.
Each time i took money out of the company, it was taking out of it's capital
reserves.

The earnout comes in a stages as is norm when you're expected to stay
involved. So it hasn't changed my life much except for paying off all of my
debts.

While i think the rich vs king thing might have some truth, I ran my company
this time to be king. To enjoy doing good work with smart people and build
interesting products. Have an awesome office, run a good conference, and the
like. It was a lifestyle business and i wasn't looking to sell it. But i'm
happy to have gotten the offer, happy with the arrangement, and happy with my
new role as CTO of the acquiring company. It's not perfect, but neither was
everything perfect running a company all on my own.

The really ironic part is that i've been involved in many startups, which were
very intentionally about making money and value. Odeo became Twitter, and
really was worth a lot of value, but left after 2 years & sold my options,
long before it was clear Twitter would become, well, twitter. With my most
recent company, it was about creating a place i wanted to work myself, with a
team i liked, doing great work. Sometimes you make money where you intended to
change the world, and change the world where you intended to make money.

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michaelochurch
I'd take Rich. I hate that I would, but I would.

I'd make that call not so I can quit working full-time. I'm only 29. I'd take
it so I can _start_ working full-time. So I can guarantee that I focus on
_real_ work for the rest of my active life. Liberate the cognitive 1% from
subordination, and creation (real work) happens. (Humility is not a virtue in
people like me. If we don't raise up our confidence to overwhelm Authority's
much more toxic arrogance, with the intent of the latter's decisive and
irreversible demolition, the world loses.) It'd be selfish for me not to take
Rich, with that option. Then I could go off and be as King as I want.

That said, I think this selfish mentality (Rich > King) is, on the whole,
really bad for startups. Rational people will close out lifestyle businesses
(and walk away, wealthy) because they aren't likely to get another one if a
competitor takes theirs down. That's a shame. The build-to-flip mentality has
created a VC-istan ecosystem no longer worth caring about.

In VC-istan, we have an array of dumb ideas and shitty cultures, and no one
cares for shit about the future. We have a lot of well-connected VC-funded
Founders who are just glorified PMs with the mentalities of dinosaur
executives that "startups" were supposed to kill off.

We need to bring back the lifestyle business and make it a viable lifestyle
and career (even if individual business shall fail, which is inevitable). A
Fleet of 50,000+ small companies doing interesting things and working toward
Real Technology. We won't get there as things are now. There needs to be a
reliable path for technical minds to find safety and capital. Given that
there's no real source of capital for small, lifestyle businesses-- at least,
not yet-- it doesn't exist yet. But the world fucking needs it.

~~~
ChuckMcM
Two comments, one actual and one meta :-)

So your statement is that you'd take 'rich' so that you could work on 'king.'
(trust me working full time on " _real_ work" has King written all over it).
Tom Lyon (emp #7 at Sun) told me early on in my years there that you really
needed 3 startups, one paid for by VC's that taught you about what startups
were all about. Then you need one that you founded but was VC funded that let
you exit with enough money so that you could fund #3 without any outside
investment and run it the way you wanted to run it. Sort of the three step
plan to becoming a "king." Of course that middle one needs a "successful" (aka
lucrative) exit :-)

The meta-comment is on the term you've coined "VC-istan" which seems to
characterizes VC funded companies as a dysfunctional collection of feudal
enterprises in the way that the various former provinces of the USSR were in
many ways dysfunctional feudal states (and now nation states). I bugs me. I
cannot help but read it as a put down on both groups and like other
generalizations I find that by grating on my sensibilities it makes it more
difficult for me to see the points you are trying to make (which are generally
reasonable, well argued points). I can fully accept that I'm the only person
who gets that vibe from the term but I don't really have any way to test that
(except by calling it out :-)

~~~
hkarthik
From a timeline perspective, let's see how the rule of 3 startups would work
out to become King.

Ages 22-25: Fresh out of college, work for a startup as an employee and learn
the ropes, build connections, and level up with the right skills.

Ages 25-30: Strike out on your own with Startup #1. Work at it for 5 years
(because the VCs totally own you) and then bail.

Age 30-33: Start another startup with VC funds, but negotiate better terms.
Work at it for 3 years to get the 7 figure exit.

Age 33+: A full 13 years after you began your career, you're finally ready to
bootstrap a business with no VC at all. Maybe now you can actually slow down
enough to get married, have a family, and put down some roots. Well hmm, now
with all those responsibilities on the line, it seems foolhardy to risk your
own cash from the previous ventures when VCs are willing to give you money
again...

~~~
ChuckMcM
There is another path, marry an engineer and delay starting your family for a
few years. It worked out pretty well for me. While she was working we always
tried to balance risk between the two jobs so that either one of us having our
job go poof would still have enough runway to recover.

I certainly agree doing it all yourself is going to be a challenge.

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FollowSteph3
The key is that your selling point has to pass that line. If you're 75% there,
how many people would take it?

~~~
gyardley
75% of the way to never having to work again? A whole lot of people would take
that deal, and they'd be smart to do it.

Here's the thing about accumulating money - the more you have, the easier it
is. Going from zero to 25% of 'never having to work again' has got to be an
order of magnitude harder than going from 75% to 100%.

By the time you get to 75% of your personal 'never have to work again' figure,
you'll have access to a better class of financial advisors and more investment
opportunities. Your bank will start to kiss your ass. At even a modest rate of
return, you'll be making large sums each year with zero effort on your part.
You can be much more choosy about the opportunities for paid employment you
decide to accept - it's a lot easier to optimize for your own pleasure instead
of raw salary.

In short, it's a very nice place to be.

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nugget
I'm curious what the author and others think is a reasonable "freedom line".
Silicon Valley is pretty expensive and it's hard to know exactly what's
implied when someone says "never have to work again". Of course everybody is
different and has different expenses, but it's a worthwhile data point.

~~~
w3pm
I believe it's about the money your money will earn that buys you the freedom.
Consider having $5 million in the bank. You buy some conservative Pimco bonds
earning 5% per year and bam, you've got $250k in yearly income (pre-tax) doing
literally nothing and never spending a dime of that 5 million. If that's not
freedom in any city in the world then I don't know what is.

~~~
mhb
What are these conservative bonds that return 5%?

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majani
I think alot of the angst that comes towards people who sold their companies,
is simply using the term "sell." That gives the impression that you went out
and shamelessly hawked your product to the highest bidder.

I personally find that if you instead say that so and so was "bought out" by a
bigger company, then that's much easier to come to terms with for most people.
That phrase gives the impression that a bigger company saw much value in your
company and just had to have it for themselves, leaving you little choice in
the matter.

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nicholassmith
If you think you've got a business that will absolutely, no bullshit, leave a
dent in the world be a king and enjoy it, after all when is a King ever poor?

However, the majority of businesses won't leave a dent in the world and that's
okay, and taking the money is fine because you start a business to make money.
It's great being a king, but someone is always waiting with a guillotine, or a
sharp dagger, or a poisoned glass. Take the cash, move on, hope next time you
leave that dent.

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rdouble
What does "never have to look at the right side of a menu" mean?

~~~
w3pm
Prices are on the right side of a menu in America. It means you never have to
care how much you're spending on a meal.

~~~
rdouble
Oh... thanks. "Derp" on my part.

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jedberg
There is a viable middle ground. Sometimes these days, when you build a solid
business, an investor is willing to let you cash out with some of their
investment. Essentially, they are moving you from the left of the line to the
right, so you can be rich and then focus on "king".

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pressurefree
we watch game of thrones and we want to give everyone a sword

