When to Sell Your Company

The Decision: When to Sell?(and how)
Jeff Bussgang
General Partner
Flybridge Capital Partners

Context For My Perspective
General Partner at Flybridge Capital Partners, early-stage VC firm based in Boston
50+ active portfolio companies, Fund III: $280M, 5 GPs
Former entrepreneur
Cofounder Upromise (acquired by SallieMae), VP at Open Market (IPO ‘96)
Entrepreneur-in-Residence at HBS
Author: Mastering the VC Game

Five Considerations
Passion
Belief
Economics
Dilution Risk
Team

Exit Considerations: Who, What, When, and How
Early on, ask yourself, “If we build this, who would buy it?” or, even better, “If we build this, who MUST buy it?”
Get on the radar screen of relevant executives of potential acquirers as early as possible via business development partnerships, competitive wins, & conferences
Have transparency and trust between you and your investors – constant dialog about “your number”
And, transparency and trust between you and your team (professional team and “personal team” – i.e., spouse/family)

Why Sell? Why Wait?
Ultimately, this is a decision based on RELATIONSHIPS, EMOTION, PERSONAL PRIORITIES and other factors…not just economics
Source: HBS Professor Noam Wasserman, Founding Dilemma (2012), forthcoming

M&A Tactics
Have a solid funding alternative when talking to acquirers
Nothing spurs a prospective acquirer like walking away – and it only takes two parties at the table to create an auction
Market windows come and go – valuation inflection points need to be mapped and considered carefully
Negotiate carefully: It can unwind as quickly as it winds – don’t let it distract the company and demoralize the team
“Great companies are bought, not sold.”

Taking Money Off the Table: Aligning Interests
Entrepreneurs have a life-changing, binary outcome and everything at stake, whereas VCs have a portfolio effect
Why does allowing founders to take some money off the table align interests?
Takes enough day-to-day financial pressure off the entrepreneur to allow them to “swing for the fences” alongside the VCs
Otherwise, risk is that founders take the first good offer and don’t have the courage, patience and fortitude to build for the long haul
$2-3 million seems to be the right sweet spot number - enough to pay down the mortgage, tuck away college money, and feel comfortable taking some additional risk, but not enough to be complacent
“Once great entrepreneurs get a taste, they get hungry for more.”

When Not to Take Money Off the Table
The company balance sheet needs the money and fund raising isn't a slam dunk (which is case for most companies)
It’s an early stage round – not enough value has been created
Founders have only been in the company for a few years
The company doesn’t have break-out potential
Founders are unwilling to commit to staying for a certain period of time
Founders are not key employees going forward
The founder has already earned their millions in past (rationale is to align incentives)

Exit Consideration:
IPO
“An IPO is nothing more than a financing event”
We had too much passion around what we wanted to do. Nobody was in a hurry to sell.
Gail joined as CEO in 1999 and led company IPO in 2007
All four of her VCs had different mindset: 2 wanted to put more money in and step on the gas, 2 people were nervous and wanted more proof points
2X revenue to $15m from previous year, and projected to double again in 2006, but still no decision about additional funding
One investor believed company should sell when it has between 25 and 40m in revenue - “That’s when you’re the prettiest, and whole new risk in scaling up to next level.”
In 2007, the business felt like it was at the right scale, mature enough, and had the full executive team
$107m IPO, price jumped 75% next day!
Today: $700m market cap, $200m revenue

Final Thoughts
Is exiting the best thing for the product?
“Only exit if you’re done.” - Jack Dorsey of Twitter
The best entrepreneurs don’t focus on money,
they focus on their passion and dream for the business

The Decision: When to Sell?(and how)
Jeff Bussgang
General Partner
Flybridge Capital Partners

When to Sell Your Company

by Jeffrey Bussgang

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