Tuesday, March 22, 2011

Startups And The Art Of Selling

Image representing YouTube as depicted in Crun...Image via CrunchBaseI for one think Facebook should have been forced to go public at a billion dollar valuation, or 10 billion max. But the company continues to be privately held. I could argue it has had several private IPOs.

There are several forms of exits. IPO is the rare exit. It is for the best of the breed. By definition most startups are not there, will never get there. Getting bought by a bigger company is a respectable, lucrative exit.

And there's the non exit exit. You don't go IPO. You don't get bought. But you become profitable. You start minting money. What's there to complain? I'd hope the vast majority of startups out there would go for this "exit."

The Art of Selling a Business . Reality check: Your business is only worth what someone is willing to pay for it ...... Buy lunch for a mergers and acquisitions professional or business broker and ask them for a guesstimate of what a business like yours is fetching these days. ..... Take a week-long vacation and disconnect completely to see how well your business runs when you’re not there. The next time try two weeks. When you can take a three-month sabbatical without your business' performance suffering, that’s when you’ll know you’re ready to sell. ...... The more predictable your revenue, the higher the multiple you’ll get for your company. So look for ways to lock in revenue for the long term. ..... Let your broker play bad cop while you play good cop by quickly fielding any questions would-be buyers have about your business. ...... During diligence, you lose negotiating leverage. .. Expect the offer price to drop by 10-20 percent after you sign the LOI and be pleasantly surprised if it doesn’t. ..... Your employees’ morale will likely dip to an all-time low the day you announce the sale of your company. .... a long process with many emotional highs and lows that will likely leave you drained. .... a lot of drudgery that takes time and sucks energy. ..... As soon as you accept a Letter of Intent (LOI), you’re in for 60-90 days of tough slogging as the buyer does his due diligence. You'll have to find and explain every detail of your business from customer lists to your lease agreement, which pretty much ensures your mood will darken with each day. Come closing day, expect another big spike in mood as the satisfaction of closing the deal brings an adrenalin high unlike any other...... Most entrepreneurs are not cut out to work for other people — it's like putting a cheetah in a cage — which is why your mood will likely plummet soon after the high of closing day wears off. ..... Get your creative juices flowing again and start plotting your next business idea

Startup Marketing Vs. Art connecting with customers is very, very important. I’m trying to tell them stories that make them believe we can do what we say we can do. I use humor every chance I get because I know that people like to be entertained and share entertaining things

Startup Strategy: Grow and Harvest Your Business Many entrepreneurs struggle to develop a great product, and even after building a great product the road to significant market share may be difficult and take longer than expected. When businesses finally start to clear hurdles and gain momentum, you must be prepared to maximize returns through harvesting. ...... Your overall strategic plan should reflect opportunities for harvesting. In product development, are you building features and benefits that match the needs of the market? Can you get a few steps ahead of the competition? Do you have the funds necessary to impress market insiders? ..... With each step, you must build on the next. As you gain momentum, you can grow by leaps. When you finally get your opportunity, you must be prepared to harvest. ..... The goal is to reach the point where there’s some harvesting going on. The first sales might cost you a hundred or thousand dollars each to make. At some point, though, you want sales to happen for free, people to show up with money. At some point, you want word of mouth to replace promotion and to earn back the money you invested up front

The Art of Selling Out Cashing out privately is the fastest road to riches in technology. Is the IPO a quaint thing of the past? ..... In February 2005 two PayPal pals of his started a video Weblet called YouTube. Botha put up $8.5 million in Sequoia cash for a 30% stake. In November Google bought YouTube for $1.65 billion in stock. Sequoia will reap a 65-fold return, catapulting Botha onto the Forbes Midas List of top tech dealmakers ...... Yet Botha is comically tortured by the sellout: If YouTube had stayed independent, how much more could it be worth? PayPal went public in 2002 but sold itself months later to Ebay for $1.5 billion; on its own it could be worth $10 billion by now. "In retrospect, selling it for $1.5 billion seems like a mistake," he says. ...... Last year 56 new tech firms went public, but more than 400 got acquired, often at better prices. ...... Vonage, the Internet phone company, went public in May and raised $531 million, but since then its stock is off by 60%. ...... VC firms raised $25 billion in new money last year, and they cashed out $35 billion from private sales and a few stock offerings--the biggest year for tech since 2000. In selling out, VC firms reaped an average of $77 million per deal, in return for an investment of $20 million. Companies that went public brought in an average of $66 million in their IPOs, in return for an initial investment of $50 million. ..... Moritz put Sequoia into PayPal and Google, reaping huge payoffs by ignoring buyout offers and letting the companies make it through public offerings. "The [Sequoia] companies that have eventually become large," says Moritz, "have all started with an idea which, at first, seemed small and tenuous." Assuming no one sold too soon. ...... You don't need a massive sales force if you know you can sell out to Cisco. ..... Some startups try to line up big partners, or sell wares to them, as a way to invite a takeover offer.

Monetizing A Startup
Venture Capitalists And Their Thesis
Patrick Chen's Entrepreneur Exchange Summit
Idea to Initial Execution
March 25: Stern: Entrepreneurs Exchange Summit
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