Startups That Rejected $100M Offers

http://www.businessinsider.com/startups-that-rejected-100-million-offers-2013-5

by mrtbld • 13 years ago

55 54 13 years ago

johnrob2• 13 years ago

Money is just money. It can be squandered, mal-invested, taxed, or simply inflated away. However, the guts that all of those founders showed will forever be a reference point for their careers. Many can claim they would turn down 100M, but few have actually done it.

taytus• 13 years ago

So the goal is to turn down 100MM offers, so you can show off you had the courage to do it?

I disagree with that.

jacoblyles• 13 years ago

It's so much easier to start a new venture once you have had a successful exit. Investors throw money at you. My advice to founders would be to think of the impact that a successful exit can have on your entrepreneurial career. Think of paypal.

johnrob2• 13 years ago

That's the fall back. And it's not as bad is you'd think for those whose companies ultimately failed. The goal is to make the company into something significant.

nickpinkston3• 13 years ago

I'm glad this is the first comment. We should be giving those who reject such offers MASSIVE KUDOS for having the gumption to turn down mere money for their dreams. Do you want to get rich or actually change this world? I hope we still remember why we tell each other tech is world changing - not just "life changing"

minimaxir• 13 years ago

I would imagine that the employees of the startups in question would strongly disagree with you.

cobrausn• 13 years ago

'Change the World'? They were holding out on the 100 million offers mostly because they thought they could become billion dollar companies, if the article is to be believed.

JoeKM• 13 years ago

A business exists for its clients. If you reject an acquisition I hope you did it for your clients and not to feed your own ego.

typpo• 13 years ago

What a negative article. I disagree that any founder is "stupid" for not jumping on their first chance at life-changing money. By BusinessInsider logic, Facebook should have been bought out by Friendster or Microsoft. Dropbox should have been acquired by Apple. There are other examples. This approach just encourages a "get rich quick" mentality, which is probably not the best way to create unique and impactful products.

niggler• 13 years ago

The point is that turning down an acquisition is a gamble (past performance is no guarantee of future results). That's not "positive" or "negative". People remember the success stories but oftentimes don't think of the failures ("survivorship bias")

bryanlarsen• 13 years ago

I found it well balanced. They included several examples of people like Zuckerberg who turned down large amounts of money and were later proven correct.

davefp• 13 years ago

I found that it cast those cases as extremely rare, and that you shouldn't look to them as inspiration to turn down an offer.

kirbyk• 13 years ago

Mark Zuckerberg was offered $1 billion dollars from Yahoo. After offered the money Mark and Peter Thiel (investor) had a talk about the offer. Marks comment was "obviously we're not going to sell here." Peter didn't feel the same way. Today Peter is very grateful Mark didn't sell. Mark had a vision for FB that Yahoo didn't, and he knew that if he sold he would never see his vision come true.

namwen• 13 years ago

It's pretty incredible. I can't imagine many 22 year olds turning down one hundred million, let alone one billion.

pyre2• 13 years ago

If you're driven and have a clear vision, it seems less unlikely. If you're just building things for the sake of building things because you like to build things, that's a little bit different.

smacktoward• 13 years ago

I actually think it's the other way around. When you're 22 it doesn't take a lot of money to feel like "man, I already have all the money I could ever need." You're living cheap, you're probably single, you're probably healthy, you're probably not thinking too hard about retirement. So money's not as big a pressure point in your life as it is when you're (say) 42, with a house payment and two kids you want to send to college someday and an underperforming 401(k). When you've got those worries, I have to think it would be harder to turn away $100mm in hopes of making a billion later on.

stevenj• 13 years ago

I was surprised not to see Digg on this list. Was it ever offered $100+ million?

ttrreeww2• 13 years ago

Digg accepted a $200 million offer from Google. But during due diligence Google chew Digg up and spit them out on the floor. Digg became tainted goods after that.

http://techcrunch.com/2008/07/26/google-walks-away-from-digg...

SurfScore• 13 years ago

Once you reach a certain point money simply doesn't matter. They mentioned Groupon: Andrew Mason knew that whatever happened he was never going to have to worry about money again. When you have that luxury, you go with your heart, and it usually isn't with the money. Even after he was fired he made out like a bandit.

The same thing goes for a lot of these founders. When you get a substantial buyout offer, you've done something very few people have. Even if you blow it, odds are someone else will fund your next startup. Either way you probably won't have to worry about money. Once a startup is funded, the founder isn't rich but the company usually pays the bills so he can focus squarely on work.

I don't think we should reject the allure of money, it goes against human nature. But the ultimate motivation is freedom. That's what money gives you; freedom to do what you love. If what you love is building a startup the money becomes insignificant, but having enough to let you pursue your passion comfortably is very important.

at-fates-hands• 13 years ago

>>>>>>When you have that luxury, you go with your heart, and it usually isn't with the money.

This is so true. The best start-ups I've worked at where the ones where the founders had real skin in the game and were working as hard as the developers to get the company off the ground.

The two start-ups I worked that were miserable failures were the ones where rich founders had a lot of private equity and just burned through the money in short order. The most incredible was a CEO I had decided to buy season tickets to each of the professional teams in town (5 teams), and spent hundreds of thousands to remodel our existing office. The office part was surprising considering it used to house a large tech company who had about 80 employees. At our peak, our company had around 20 employees and had plenty of space.

codex2• 13 years ago

This is why joining a startup as an early employee may not be a good idea. The founders' goals and your goals may be divergent.

At some point, the founders are already rich, or are guaranteed to be rich, and are looking for self-actualization or ego. To achieve that, they'll gamble your guaranteed payout by not selling--either because they want to remain "in charge" or they want to shoot for the moon.

kevinpet• 13 years ago

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.

ttrreeww2• 13 years ago

Go big or go home? Might as well by a lotto ticket.

pbiggar2• 13 years ago

> 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.

rhizome• 13 years ago

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?

codex2• 13 years ago

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?

jamesaguilar4• 13 years ago

Meh. On $100 million the common employees aren't going to see much anyway. Maybe for #1 and #2 it'll be a big deal, but for #10 with his 0.002 of the company, that's going to be a nice bonus and not much else. So I can understand the founders deciding to shoot for the moon.

mindcrime2• 13 years ago

That's still $200,000 if I did my math right. That's a little bit more than "a nice bonus" but definitely not "FU Money". But it might just be enough cushion for somebody to quit and self-fund their own startup for a year or so. That's not a bad thing to have, if you're interested in that sort of thing.

btrautsc2• 13 years ago

Agreed. $200k for in many of these cases, a limited time at the company. Most/ all had raised some VC money, so were likely paying competitive salaries.

So, you're one of the last engineers @ foursquare (for ex.), Dens does sell to Facebook, you maybe get a slight raise/ comparable pay, more job security, and your handcuffs are the same as your vesting schedule was anyway. Oh, and you have $200k in the bank. So when you decide to leave FB and start your own thing (or buy a house/ take a year to travel) there is that.

jamesaguilar4• 13 years ago

200k over four years, less taxes, which will be maxed because you'll realize all of the earnings as income in one year. So around 30k a year take-home. Maybe slightly more than the standard 10-15% salary bonus of an intermediate engineer at BigCo, but it's not why the guy is working at the startup, or at least I hope it isn't for his sake.

crapshoot101• 13 years ago

This is silly to say without knowing the cap table - common could own 90%, or it could 30% - either way, that's a substantial amount of money.

jamesaguilar4• 13 years ago

I'm just going by what I heard people have been getting from some of my friends. Obviously it depends on how a given company is set up. Obviously.

OnyeaboAduba• 13 years ago

I think you cant have an ideology going into your venture whether it be "holdout for the biggest offer" or "shoot for the moon". You should take things as the come and do what you think is right. I also think there is a price that everyone will sell at and thats not a bad thing. Money is very important and they people who downplay its importance often have alot of it

auctiontheory• 13 years ago

The spirit of this article is very negative - more "expected value-maximizing" than entrepreneurial.

Its logic is also questionable - you do not retroactively assess the correctness of a decision by looking at its outcome.

ExpiredLink• 13 years ago

What happened to those who didn't turn down a $100M offer. They are now sitting in their luxury home and watching TV.

bigbang• 13 years ago

Yahoo! turned down an offer of 60M from AOL in early days of internet boom. Facebook turned down Yahoo!'s 1B offer. Google turned down Yahoo!'s 3B offer.

adventured2• 13 years ago

When IBM was melting down at the beginning of the 1990s, they used Thomas Watson Jr. to reach out to Bill Gates and offer to buy Microsoft and make Bill President / CEO of IBM.

At the time Microsoft's market cap was around $10 billion (with IBM around $30 billion).

Gates would have lost out on upwards of a hundred billion dollars plausibly.

dmbaggett• 13 years ago

It's a false dichotomy. If someone's willing to pay $X for your company, you can do a secondary sale at ~.75*$X pre-money valuation to give key employees some liquidity. No, it's not the same, but it's still real money, and certainly alleviates the $100M->zero risk.

And if it's a real business whose value is based on, say, an EBITDA multiple, there's even less reason to sell, unless you think earnings are going to tank. (Presumably you will have significant visibility into the factors that determine your revenue and EBITDA growth, and what might cause those to change.)

But if you made a little photo-sharing app that earns no money, and someone wants to buy it for a truckload of money, sell. :)

jayshahtx• 13 years ago

While raising $100M sounds awesome, its really hard to increase the value of your company. This means unless you raise an even bigger round next time, you are risk de-valuing your company in the future by raising so much money right now (called a downround in VCs).

Raising so much money also runs the risk of ownership dilution and if you have a downround in the future, your ownership will probably get diluted even more to maintain the % ownership of previous investors.

rikacomet• 13 years ago

I know its vague but, how about 500 million? If your company is worth more, would you cash out for 500 ?

mrwhy2k• 13 years ago

Business Insider Sucks. I think they hire teenagers from a local high school newspaper to pump this shit out in 60 seconds.

cllns• 13 years ago

In Dodgeball/Foursquare's case, how do deals like this work? I assume when you sell a company you also sign a non-compete agreement.

For example, Instagram couldn't have just sold to facebook for $1B then turn around and make the same thing again. Obviously they no longer have rights to the code, but re-creating it wouldn't be that hard if you already did it once. It could be like forking an open source project, except you make a bunch of money.

Is that that in the Dodgeball/Foursquare example, the non-compete was apparently incredibly specific, and this allowed them to make a different location-aware social network?

brown9-2• 13 years ago

Those agreements usually are for a certain number of years, not forever. According to http://en.wikipedia.org/wiki/Foursquare, Dodgeball was acquired in 2005 and Foursquare was started in 2009, the same year Google shut down Dodgeball.

Startups That Rejected $100M Offers

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