Rich vs. King in the Real World: Why I sold my company

http://blog.asmartbear.com/rich-vs-king-sold-company.html

by dmytton • 17 years ago

195 33 17 years ago

blog.asmartbear.com

josefresco• 17 years ago

This story makes guys like Zuck and Gates seem extraordinary. They didn't' set out just to be rich or even rich-enough, they're aiming to change the world. The former is still working on that, and the later is already there.

Most of us would take Box A, but the folks at FB or even Twitter are looking at box X, Y and Z.

Of course once you get mid alphabet the possibility of an empty box is probably pretty slim.

jonmc12• 17 years ago

Twitter was started by an already successful founder (Biz Stone); Facebook was a profitable company that did sell itself (through further investment) to re-position as a world-changing company.

As an entrepreneur you are in the best position to change the world after building a profitable, sustainable business (vs initially aiming to change the world). You can do it over and over with the same venture (like Jobs, Zuck, Wolfram, etc) or you can build, sell and then repeat (Andreeson, Thiel, etc). Either way, changing he world is about iteration, persistence and taking advantage of the world changing opportunity when the time is right. Of course you can get very lucky, but statistically, as an entrepreneur the best way to change the world is to build a profitable company and then repeat.

jfarmer• 17 years ago

Yeah, Zuckerberg is almost certainly rich, and not just on paper. Also, I know more than a few FB employees who sold their stock through Facebook's stock sale program and are sitting pretty.

mseebach2• 17 years ago

> This story makes guys like Zuck and Gates seem extraordinary.

What makes Gates extraordinary in this sense? Just because he kept some shares and stayed on, it doesn't mean that the source of his fortune isn't the Microsoft-shares he sold.

IPOing is also selling out, it's just selling out to a lot of people simultaneously.

dataman85• 17 years ago

Not to take anything away from Bill Gates, but he always had a million dollar trust fund to fall back on.

(Source: http://philip.greenspun.com/bg/)

mistermann• 17 years ago

You're entirely correct, but what always amazes me, is the amount of time I spend on MS software, but if you look at the market cap of MS vs Oracle vs Apple, something seems out of whack.

234.89B MSFT 112.40B Oracle 170.08B AAPL

I can kinda see why apple is worth so much, although, of all apple consumers, how many hours a day do they spend on Apple vs how many on MS. And I really don't even see how Oracle is in this same race, but they are.

rokhayakebe• 17 years ago

I believe Zuck took out $40 millions under the table a few years back.

nitrogen2• 17 years ago

Don't forget that Gates started Traf-O-Data before making it big with Microsoft.

dschobel2• 17 years ago

How does the Rich vs King dichotomy account for the serial entrepreneurs who have fairly big exits (and guaranteed comfort for life) and do it all over again minus the branding/prestige of their previous venture?

dkokelley• 17 years ago

A change in personal goals. If you're 25 and have the opportunity to sell your startup for $5M, you would most likely take it. Now at 27 you're bored, and have millions in the bank. You don't necessarily need to be rich any more, but being king is fun. You start another company.

noodle• 17 years ago

i don't even know if being king is fun. i think the process of becoming king might be where the fun is. for me, at least. ymmv.

which is another reason to sell once you're on top -- to get back to the pursuit of kingship.

mseebach2• 17 years ago

[his friends were saying] Your company is growing 100% year over year. It's profitable and throwing off cash. Why not wait another year and let revenues double again, which will make the company six times more valuable

If the company is reliably growing at 100% (which it isn't, there's always a risk), this expectation is reflected in the valuation -- obviously, actually growing it and overcoming the risk is worth something, but it doesn't scale linearly as is suggested.

In all fairness, his following explanation actually takes this into account, my point is just that the replied to a strawman.

bdurette• 17 years ago

It's not exactly reflected in the valuation and Jason recognized that in the comments in the article:

"If you look at smaller acquisitions like mine (i.e. not like the $170m Mint acquisition), valuations like "N times revenue" or "N times profitability" is less correlated with sales, where as "N times number of founders" is closer to what happens."

daniel-cussen• 17 years ago

Wasn't the king usually also the richest person in the country?

mblakele• 17 years ago

I don't think life has ever been quite that simple, unless the population of the country is close to one. In any reasonably large society there is a complex dynamic between the king, various holders of political power, and various holders of economic power.

Sometimes the king has been the poorest person in the country, because the national debt is his personal debt as well as the country's. Yes, the crown might try to liquidate its creditors - but they have friends too. And how will the crown borrow more money tomorrow?

areaMan2• 17 years ago

There's an apocryphal story here in Dubai (most such stories are that or rumours but you couldn't help but wonder the veracity of such 'truths') that the owner of Majid Al Futtaim group (http://www.majidalfuttaim.com) is richer than Shiekh Mohammed - the ruler of Dubai, and on the surface it looks like it might be true.

donaq2• 17 years ago

Well, yes, but sometimes the king can become richer (and more secure) by making his kingdom the vassal of an empire.

gaius• 17 years ago

That is the deal Xerxes offered Leonidas, who turned it down :-)

davidu• 17 years ago

Just remember everyone...

The difference between a sell-out and a not-sell-out is the presence of a buyer.

:-)

skmurphy2• 17 years ago

I can't find any mention of the transaction or who the new CEO is on the Smart Bear site. Jason doesn't say who purchased the company. It would be interesting to read the full story. There was probably a two year earnout provision on the sale which is coming to an end (Dec-07 to Dec-09) which is why he is talking about it now. Perhaps in January 2010 more of the story will come out.

This post have focused Jason's your inner psychological landscape, I would be interested in other aspects of the deal: how did he prepare employees, who did he pick and why to help you with the negotiations (e.g. attorneys, accountants, sell side M&A, other entrepreneurs, other advisors), how did he manage the two year transition.

Looking back and knowing what he knows now, what are one or two key things he would have done differently, what are one or two key things that he believes really made this decision a success?

skmurphy2• 17 years ago

Jason gives a detailed answer to these questions in the comments at http://blog.asmartbear.com/rich-vs-king-sold-company.html#co... he mentions one key advantage that some startups ignore in the early going: keeping books up to date:

Another advantage: Having perfect books. Meaning: Perfectly balanced every month since the company started. Finances were never a problem as a result. Otherwise they wonder what's lurking--not even that you're being dishonest, just that you don't know!

brown9-2• 17 years ago

He also explains in another blog post that he is no longer an employee (which I found as news, I was under the impression he was running the place always), and that he'll post more about it soon.

http://blog.asmartbear.com/rich-vs-king-sold-company.html#co...

jasonlbaptiste• 17 years ago

One other saying is: Get rich to get wealthy. If you can get enough in the bank to not worry about money, and at a young age that's not a whole lot, you can focus on going for the homerun next time. A successful first time exit could be considered a "blank check" in this industry:

a) You are secure. You don't need to worry about funds to pay yourself ramen money.

b) You probably have enough to have people help you build a prototype, so that gets rid of the friends/family cash crunch.

c) You've done it successfully before, so angels+VCs are much more likely to write you a check.

d) You've done it successfully before, so people are likely to join your team. The equity you're offering has value due to past success ie- don't believe me? I've done it once and I made the last guys who believed in me make some damn good money

johnrob• 17 years ago

In econ terms: optimize for expected utility, not for expected return.

megamark16• 17 years ago

I'd love to be a king, my wife would love to be rich :-) But she supports me in my quest for the crown.

lkozma• 17 years ago

His chart has log scale on the x axis. I suspect it would be in fact close to linear if we stretched the axis.

selven• 17 years ago

I think the money vs happiness equation is pretty logarithmic. Going from $8000 per year to $16000 is about the same increase in quality of life as $80000 to $160000.

jjs• 17 years ago

The diminishing marginal utility of money leads me to prefer Forrest Gump's philosophy on the matter:

"So then I got a call from him, saying we don't have to worry about money no more. And I said, that's good! One less thing."

sielskr• 17 years ago

Your company is growing 100% year over year. It's profitable and throwing off cash. Why not wait another year and let revenues double again, which will make the company six times more valuable (assuming 3x revenue valuation, a reasonable ballpark for a growing software company).

Unless I misunderstand the situation in some basic way, there is a math error in the above. (Of course, even if there is indeed a math error above, that does not make the whole blog entry worthless.)

First let me restate what I take the above unambiguously to says: it says that if the company continues to grow 100% year over year, valuation a year from now == 6 times valuation today.

My math: valuation a year from now == 3 times revenue a year from now == 3 times (2 times revenue today) == 2 times (3 times revenue today) == 2 times valuation today.

Am I missing something?

areaMan2• 17 years ago

you are missing the fact that the last "(3 times revenue today)" factor which you just dropped means you are expecting the company to triple its revenues next year, which means the normal rules won't apply (to that extent) so you can charge a premium today for potentially growing more than 100% YoY. On re-reading I guess you've managed to confuse me as well and my brain is about to explode from cognitive dissonance its experiencing right now.

Rich vs. King in the Real World: Why I sold my company

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