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.
You seem to have substituted your own guesstimates over examples in the article.
You claim that "the odds of a company that's looking at a $100M offer failing are probably more like 10% for real "failure"" yet the article cites four examples, of which two out of four (50%) peaked at $100M and are now in rough shape. The fates of the other two are still indeterminate.
Admittedly, this is anecdotal, and possibly cherry picked, but at least it's a modicum of evidence. Can you provide alternative data to back up your claim?
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.
Comments
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.
You seem to have substituted your own guesstimates over examples in the article.
You claim that "the odds of a company that's looking at a $100M offer failing are probably more like 10% for real "failure"" yet the article cites four examples, of which two out of four (50%) peaked at $100M and are now in rough shape. The fates of the other two are still indeterminate.
Admittedly, this is anecdotal, and possibly cherry picked, but at least it's a modicum of evidence. Can you provide alternative data to back up your claim?
> 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.
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?
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.
If you raised $36MM on a $300MM valuation I would guess that is possible.
Go big or go home? Might as well by a lotto ticket.