I believe this self-righteous attitude regarding acquisitions comes from being a bootstrapped startup. When you bootstrap your company starts with a valuation of zero. The only way to increase your company's valuation is to start making a profit. For the bootstrapped guys an acquisition offer means that your company has grown to the point where competitors feel threatened. When you are in this position the only reason to sell is if your company is no longer growing (why sell now when your company will be worth more next year?). That is a tragic situation.
The founders who raise money start with an expected valuation greater than zero. Usually these guys can sell well before they ever meet the expected valuation. I mean shit, the startup SocialThing! sold to AOL for $7 million while they were in private beta. In other situations these companies fail to meet the expected valuation and have to sell in order to protect the reputation of the investors and founders. For example Slide sold to Google for $183 million. My company Quiz Monster (bootstrapped) is a competitor to Slide, has a larger userbase, and is worth $1.5 million at best.
TL;DR: Bootstrapped companies have to work harder than venture backed companies in order to receive acquisition offers and thus feel very self-righteous.
> When you are in this position the only reason to sell is if your company is no longer growing
False. Valuation is not based on a point-in-time analysis of your current revenue run rate or total size of your userbase, it tends to rely much more on first and second derivatives, such as how fast you are growing revenue.
There is a point in a company's lifetime when, if you stop growing as fast (even though your revenues are still growing), you may be worth less while making more money.
Also, there is a lot of risk in running a startup. The landscape can shift under anybody, and evaporate value in a heartbeat.
If a deal is above your target threshold, and you find that is fairly or over values your company, an acquisition can be something you seriously consider, even while you're still growing.
Nitpick: This may just be som ecrabby old guy's opinion, but it would be nice if this community didn't become so dumbed down that we can't read two paragraphs. Please don't encourage this with the "tl;dr" comments.
Solid analysis. I suspected as much thanks to their series on bootstrapped companies.
I say cut the crap, though. If bootstrapping is the better way, awesome – 37signals will enjoy the bathtubs full of money they get at the end of the rainbow, etc.
Life is too short to spend your time with a chip on your shoulder. Or, at least to write like you have one.
"If bootstrapping is the better way, awesome – 37signals will enjoy the bathtubs full of money they get at the end of the rainbow, etc"
That's the problem. 37 Signals says it's the better way, but not obviously better for the founders. You won't get rich, but the world will be better off for having a better company.
Some estimates peg 37Signals as being profitable to the tune of $6 million per year. Divided equally between the 12 employees that's $500k each. Not bad for a year's work.
But also not the kind of exit and FU money that entrepreneurs often seek.
This is just my understanding of their argument, though. Better to grow a company slowly and keep running it, than to grow a company and get bought. They think you should be in the game to keep running the company, not get rich. Getting rich while running the company is also possible, but that's a nice side-effect as far as they're concerned.
I believe this self-righteous attitude regarding acquisitions comes from being a bootstrapped startup. When you bootstrap your company starts with a valuation of zero. The only way to increase your company's valuation is to start making a profit. For the bootstrapped guys an acquisition offer means that your company has grown to the point where competitors feel threatened. When you are in this position the only reason to sell is if your company is no longer growing (why sell now when your company will be worth more next year?). That is a tragic situation.
The founders who raise money start with an expected valuation greater than zero. Usually these guys can sell well before they ever meet the expected valuation. I mean shit, the startup SocialThing! sold to AOL for $7 million while they were in private beta. In other situations these companies fail to meet the expected valuation and have to sell in order to protect the reputation of the investors and founders. For example Slide sold to Google for $183 million. My company Quiz Monster (bootstrapped) is a competitor to Slide, has a larger userbase, and is worth $1.5 million at best.
TL;DR: Bootstrapped companies have to work harder than venture backed companies in order to receive acquisition offers and thus feel very self-righteous.