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When Selling Is A Startup’s Best Option

Imagine this scenario: You were an early bird in an untapped market segment. Now your growth is exponential. And, your startup company is worth a few million rupees on the market today. One day, a major player comes to you with an offer to sell your startup baby to him; an offer so irresistible that you just can’t refuse. Or, maybe you are looking to sell, but the  investors in your company feel you should hold out for a bigger and more profitable exit. How do you make an informed decision then? Because, although selling the startup might be a purely financial decision for most of the people involved, it could be a very emotional decision for you. How to make such a complicated decision: to sell or not to sell?business selling

Here are a few things you should take into account while considering selling your startup:

Is this your first startup?

If you are a first-time startup founder, selling is the way to go. Since it’s your first company, there are a lot of mistakes you have made and a number of lessons that you have learned. This experience will help you in all your future ventures. And a couple of millions in your bank account can be hard to pass up after the initial hardships of founding and running your startup. Selling could change your life for the better.

What your investors think?

Big venture capitalists or startup funds will want big profits that make a splash in their pond. If your investors are a big fund worth crores, and they invest a few lakhs in your startup, after a couple of years, even if you have tripled that amount it won’t make much of a difference to the fund. It’s just that, over a period of time the amount of a million or two, which you made out of profit is not much bigger for the investors. So they might want you to hold out on the selling offer.

Related Article: What Is The Right Time To Sell Startup?

What growth stage is your startup at?

Often there is a clear point of time when you can either sell your startup or raise more funds to build it into a bigger company with dedicated marketing and sales teams. Startup founders are usually too late to recognize this stage. Ideally, you should take the decision to sell, or to build it further, when your company is still growing and shows growth in the near future too. Being bought by a bigger company might help your company to solidify your position in the market by providing you with an in-place and ready-to-go marketing and sales team. Recently, Verizon bought Yahoo, a move which will help Verizon consolidate its position with the extended advertising reach of Yahoo. But if you wait to sell until the growth has slowed, then you will have waited too long like it happened with Yahoo in this case.Verizon

Is it better to cut your losses?

Your startup is your dream, your passion, and your baby. And you wouldn’t want to part with it. But, if your startup ends up being a black hole, eating up your funds and not giving much in return. It’s definitely time for you to think of cutting your losses. Consider Uber’s recent buyout of its Chinese business by its local rival Didi Chuxing. Uber invested $2 billion into the business but severely lagged behind Didi. Thus, its inability to compete with Chuxing in China prompted it to move out.uber and didi

Are there other buyers with offers for you?

Typically, if your startup has a good track record, major players will start showing interest in your venture. Offers to buy your company will start trickling in slowly but surely. This is a good time to shop around for other offers and generate some buzz in the market regarding your intention to sell. Don’t sell to the first one who comes knocking at your door. If you get a good offer, very well, if not, wait a little longer.

How much are they offering?

An offer will reflect how much value your company holds for the buyer. But you have to look at it from your point of view too. How much do you expect your company to be worth in one, two or three years from now? If the offer comes within what your company will be worth in the next one year, give the offer a pass. A good offer should match the estimated worth of your company in two or three years. Take Redbus for example. Redbus sold its online bus ticketing service to Ibibo for over $130 million. Phanindra Sama, RedBus co-founder found the proposition attractive and the valuation fair.redbus and goibibo

Consult an investment banker

Get some professional advice from an investment banker. They might offer some advice for free. You didn’t spend so much time and effort to build your company to sell it at the wrong time or wrong price. Just as you wouldn’t hire a chef to do a programmer’s job, do not rest on the advice of your friends or fellow founders alone. Get an opinion from an expert. Then proceed according to what you find reasonable.ask the expert

Selling or holding on to your startup is a very emotional decision. It involves a lot of factors, the most important being your faith in yourself and your view of the future. Knowledge about your company and the market and buyers is the key to making a decision that will affect not just you and the buyer, but also your employees and your reputation.

Also Read: Groupon To Sell Its Indonesia Business To A Startup

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The Author

Nikita Kumawat

Bussiness consultant by profession, Avid reader by soul , a friend in need and super passionate about the startup bandwagon!

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