Would you accept a buyout offer that made you rich but you still felt was undervalued?

https://news.ycombinator.com/item?id=140287

by os111 • 18 years ago

37 46 18 years ago

news.ycombinator.com

I.e., would you turn down an otherwise lucrative offer for pride?

Hates_• 18 years ago

Personally I wouldn't. I think a lot of entreprenurs get too emotionally attached to their businesses, which is fine if you plan on being around forever and passing it down through the family. For me though, starting a business is about making money and creating new opportunities. A buyout is an stepping stone to my next success.

fortes• 18 years ago

Depends on the size of the offer & how undervalued it is.

If it's enough to set you for life, then I'd be inclined to take it and move onto the next challenge in life.

Flemlord• 18 years ago

I was in that situation and turned down the offer. The same buyer came back in a couple days with a fair offer and we accepted it. Had the buyer not come back, we would have been caught in the general market crash and the value of our company would have shrunk. But nobody knew that at the time, and I would not have regretted turning the offer down. I wasn't in a hurry to sell and there would have been other opportunities down the road.

Just like buying a house, you shouldn't get too attached to an offer or buyer until the ink is dry on the signatures. Keep your options open and be ready to walk away even at the last minute; if you don't maintain that perspective you lose control of the process and become vulnerable to last-minute deal changes. Don't let buyers put things in terms of how much money you'll make, keep it focused on what the company is worth and whether it's the right strategic move for the company.

goofygrin• 18 years ago

Have you had this conversation with your partners?

This is actually the one sticking point with my partner. He has "mega bucks" on his mind, but if an offer comes through in 6 months for mid 6 figures+, I would be inclined to take it unless we have some serious traction. Not enough to make you rich, but enough to bootstrap you better for the next challenge :)

flashgordon• 18 years ago

well what is the true "economic cost"? :D rather, is it going to set you for a while? how do you define the "true" value (apart form a gut feeling or using made up projection numbers)?

rglullis• 18 years ago

How much is your pride worth?

All transactions are made on the principle that what you are giving is worth (to you) less than what you are receiving in return. All of them. No exceptions.

If you think that the you are rejecting an offer just because of pride, than it your adding the value of it to the transaction price.

If you do however think that what you have really is worth more than the value offered, you'd refuse.

chrisconley• 18 years ago

yes and then off to the races with the next more meaningful endeavor

Unless, of course, you're already working on your life's mission :)

mattmaroon4• 18 years ago

It depends on your financial situation. How much money do you think will make you happy? If you hold out for more, even if you make it, will your life significantly improve? What are the chances of ending up with nothing?

I'm a swing for the fences type of guy, but I'd have a hard time passing up any offer that hit my minimum number. That's why I think investors should let founders of companies take money off the table at a certain point. It gives them more desire to go for the big score, knowing that even if they fail, they're still set.

mrtron• 18 years ago

Matt I was hoping you would give a nice poker analogy here :)

My brother is a pretty good player, but he is quick to 'chop'. In fact I mock him all the time for it, but it really depends on what your comfort level is. At a certain point it is not desirable to take exchange risk for reward. Inevitably whenever you wish to get out of the game, you are going to have to take a discounted rate. In poker, if the final 2 guys chop due to the highly top-heavy prize structure, you are obviously going to take some sort of discount.

mattmaroon4• 18 years ago

Chopping does work similarly. I always had a no chopping policy though, because pretty much any tournament with a life-changing prize is televised, and therefore chopping is banned.

In fact, poker tournaments in general have the concept of chip devaluation, which is fairly similar to how money works in real life.

nazgulnarsil2• 18 years ago

this is the crux. will it make your life any better? I'd say the law of diminishing returns applies here. 1 million will make you happy because you don't have to work anymore, 2 million will make you happier, but not twice as happy.

DaniFong2• 18 years ago

It depends on what you're using it for. When I cash out, I'm considering putting much of my earnings into fusion research.

hhm2• 18 years ago

Do you really think 1 million means you don't have to work any more? 1 million is 10.000 per month for less than ten years. Unless you invest them I'm not sure you can't stop working forever if you have that amount of money.

ericb3• 18 years ago

This goes to an area where economics hasn't caught up to reality yet. If you watch Deal or No Deal, many economists would say contestants are making a mistake (being irrational, unlike the ideal homo economicus) when they accept a deal that is significantly lower than the average value of the cases remaining.

What they miss is that dollars offer diminishing returns at scale, so the decision is rational. Going from 0 to 100,000 dollars is very different life-style wise than 3 million to 3,100,000. Because those first dollars are "worth" so much more, and because the upside of the best outcome is not worth as much proportionally, the decision is rational (although people are often being irrational in other ways in this game).

In your case, I suggest you consider your BATNA (Best Alternative to a Negotiated Agreement) and estimate their interest, then consider countering. You can only negotiate your "best deal" when you're willing to walk away. If you're not willing to walk, you play it safe and "make a deal."

Edit: Keep in mind, if you counter, the worst they can say is no, and you can often still acquiesce to their original offer.

http://en.wikipedia.org/wiki/Best_alternative_to_a_negotiate...

yummyfajitas• 18 years ago

I think economics caught up with reality a long time ago (in this respect). Last time I saw the end of that stupid show, I was yelling at the TV:

"Maximize your utility function, not the money, moron!"

(I'm not an economist, but I talk like one.)

reitzensteinm2• 18 years ago

You're totally right about the phenomenon. But it is well understood in economics - it's called marginal utility and it's in any Economics 101.

ericb3• 18 years ago

"The implicit assumption of conventional economics is that the only relevant metric is the magnitude of the absolute change in expenditure." I'm not the first person to say this:

http://en.wikipedia.org/wiki/Loss_aversion#Can_loss_aversion...

pibefision• 18 years ago

YES

mattmagpayo• 18 years ago

Unless I was dead sure that my company was worth 5x as much, I would take a 'make you rich' offer in a second. Then just rinse and repeat.

anamax• 18 years ago

Are there other people involved whose interests might be worth considering?

I'm thinking of someone with a much smaller share. As someone has pointed out, the 100% increase from 50k to 100k is different than the 100% increase from $1M to $2M.

mynameishere• 18 years ago

It depends entirely on how much you enjoy being a bigshot. Being rich doesn't make you an alpha male, but being an executive, maybe even CEO, of a company does just that.

If it's something you're running out of your mom's basement, well...

aagha• 18 years ago

I think one way to look at this is from an NPV (Net Present Value) perspective. If you work on a project where your cost to implement it is $x, but the reason you decide to undertake the project is because you think it's value is >$x+$1 and someone comes and offers you (exactly) $x+$1, but still less than you thought you would get, would it be a good sale? From a pure NPV perspective, if there were no other, better offers out there, the $x+$1 sale should be made.

The thing that really happens in life is that in addition to NPV, there's this little thing called pride, and when you think something is worth more that what someone else thinks its worth, it's sometimes hard to step back and say maybe they're right and I'm wrong.

Here's the thing to ask yourself: Do you think there's someone out there that will reasonably pay you more than the $x+$1 you have an offer for. If so, hold out. If not, sell.

kingkongrevenge• 18 years ago

Colonel Sanders sold KFC cheap. After he said "If someone puts a million dollars in your hand you close your fist."

jyu• 18 years ago

He was 74 when he sold the franchise. Maybe that had something to do with it? http://www.corbinkentucky.us/sanderscafe.htm

jdavid• 18 years ago

there is only one reason to sell a business, YOU WANT OUT.

if you are profitable and you want out, you have to ask; "will this enable me to do my next activity?" if not, then don't sell yet you are much better off growing your business.

if you are not profitable and you want out, well i would ask; "Will this cover my effort on this project?"

I have a personal number in my head that covers my anticipated yearly expenses, plus has room in there to keep adding to savings. above that amount in wealth i very well may sell my first business, if i will find my next idea more desirable to pursue.

TrevorJ• 18 years ago

No, I think feeling undervalued will be a constant for anybody who's most interested in innovation. Now, if you are in it for money then sure the possibility exists for you to walk away from a deal someday thinking "Damn, I REALLY robbed 'em blind on that one!" But I don't think those of us that do things with passion because we believe in an idea will ever feel that money can every truly put a full value on our vision.

lastdual• 18 years ago

Plenty of people might "feel" their company is undervalued when the offer may in fact be fair. Decisions like this should be based more on the numbers rather than "your gut feeling" - assuming your goal is to maximize wealth. If your life goals are tied up with the mission of your business, then by all means follow your passion.

smook• 18 years ago

Have fun, learn, and make money! If you are doing that with your company, why sell it ? Live long and prosper.

symptic• 18 years ago

With the numbers I tend to play with, if it's enough to live off the interest comfortably for the rest of my life, sure. Then I can work on whatever I want with my time rather than avoiding projects because of the assumed inattention they would receive.

If the company has more potential than the offer, most likely no.

The real question is... will this buyout impact your life they way you want it to? ...or will you be miserable or somehow transformed into someone you don't want to be as a result?

alyx• 18 years ago

I guess it all comes down to one's priorities. If you put your ego and pride above all else then I don't think any amount of money will ever be enough to quench your self-obsession.

On the other hand, if you have the chance to become comfortably rich and essentially free then why not?

Of course there is a third (fourth, fifth and so on) variation. Perhaps it has nothing to do with pride or money, perhaps you enjoy the work that you do so much that being rich is not something you can enjoy with the same amount of passion.

I'd probably take the money though.

Would you accept a buyout offer that made you rich but you still felt was undervalued?

Related Stories