

Does Price Matter?  - cwan
http://www.avc.com/a_vc/2010/10/does-price-matter.html

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bretpiatt
Summary: More great advise from Fred, you're adding somebody to your family
when you take on an investor not just getting a silent pile of money. So
consider what else comes along with the money and don't always just take the
highest offer -- look at the value of each. The same applies for a sale
transaction.

Opinion: While this is somewhat self serving for him to get people thinking
this way it is true. Consider this example: Investor A offers you 5M at 20M
for 25% of the company but doesn't know or understand your market and investor
B offers you 4M at 16M for 25% of the company but has built a successful
business in your market before and can help you avoid costly mistakes.

The same applies on a sale transaction. If you think the acquirer doesn't
understand your business then the maximum value you'll see from that
transaction is on the day of it. If you believe they understand it and it'll
continue to grow you can stay on board and create much more value of which
you'll be rewarded for.

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zaidf
I'm sure the opposite also holds true: just because as an investor you can
squeeze a low valuation, there can be such a thing as _too low_. So sure you
may have won the round of negotiations, but you both lose when the founders
lose interest and the co tanks.

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ssp
I'm not sure I get it. From the perspective of the investors, the 300 million
sale seems better. Are they not trying to maximize the return on their money?

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apu
The expected return is (probability of success) X (value at success). In
practice, the probability is what matters far more, and so that's what you
optimize for.

It doesn't matter what valuations/etc. are in place if the company tanks.

~~~
ssp
But this is a company being sold. It's an exit.

~~~
psawaya
The company might be more profitable in the long run if it has better
chemistry with its acquirer, even they didn't make the highest offer.

~~~
Dylanlacey
This is predicated, of course, on investors taking a long term view. I think
it's been shown that we don't tend to do that.

