I like this post by Max Levchin entitled “On ambition.” He discusses the tradeoff between thinking big with your web startup or accepting a smaller exit and return. He is for “going big.”
I guess my thoughts go a little against his position – I believe it is OK to accept a quick, smaller exit if you’ve more modestly financed your company.
I hear his arguments – they are really well articulated. However, I think it can be honorable to sell your startup for a good but not enormous price to a larger company if that company will legitimately help you achiever your vision.
Starting a company – and especially starting a technology company – is about more than making money. I believe that every founder has visions of their target customers massively adopting their technology and using it to change how they do their business or live their lives. Nobody creates a new technology and says, “Wow, I hope barely anyone uses this!” If being part of a big company can help you get there then I don’t think getting acquired when you are small is bad.
I understand the investors may be more money focused. And founders should be thinking about that too, since many of them have the opportunity to make good money doing something less risky (i.e. just having a regular job at a good company for a salary.) And Max correctly points out that a small exit for a correctly capitalized company can really generate a lot of money founder. So that’s not all bad!
My gut is that this burst of angel financing will result in a crop of startup executives who 1) start something cool, 2) sell the company to a larger company, making a little $, 3) work at the acquiror* for a while and learn a lot about scaling a business and running a clean operation and 4) will then go off and found another set of companies, some of which will be very, very “big” ideas that need big venture capital financing.
*I like to spell it this way. But I also think pumpkin should be spelled punpkin, so…
November 30th, -0001 at 12:00 am
My post was not so much about the founders, but about angels and their potentially negative impact on the startup ecosystem. The founders tend to choose exactly the right behavior for their particular situation. But I am seeing more and more angels being quite vocal about how perfectly great it is to sell early, which has the potential of robbing us of the next Google or Facebook because the founder buys into this "it's ok to be average" logic when they normally wouldn't.
November 30th, -0001 at 12:00 am
Max, it was a great post.
I think I had my blinders on and was only thinking of it from the entrepreneur's perspective; now I understand your position better! Ok, I can buy the argument that angels should be willing think big – assuming they have the capital to 1) support the companies as they grow, and/or 2) can put more money in to defend their ownership positions if VCs get involved in later financing rounds. From my VC days I do think that some angels can end up in difficult spots if they company is raising a lot of $ from VCs and the angels don't have the money to play in the later rounds.