Selling A Startup – Options, Finances, Who Gets How Much?
Techcrunch asks, “What happens when you sell a startup?” and goes on to provide a detailed explanation on how startups are valued and how various categories of investors get a return on their investment when a startup is sold.
Note, that this doesn’t relate to startups as in small (sub £1m businesses) and particularly not to businesses that are pre-breakeven or, worse, pre-revenue. We’re talking much larger businesses, startups with multiple tranches of VC investment and worth in the tens of millions if not the hundreds of millions.
Our position on smaller startups hasn’ changed. A founder looking to sell a startup before that startup has hit breakeven is on a hiding to nothing, particularly if they are looking for a complete exit. No investor wants to take on what is effectively someone else’s failed project (though, we appreciate, founders themselves never think of these projects as failures – “success and huge profits are just around the corner if someone who knows what they ‘re doing takes this over.”)
This article is the fourth in a series of four posts called A Startup Takes Flight, the first of which can be found here. They look at the dynamics of liquidity events and participating versus non-participating stock, alphabet series and who gets what money ie. how the pie is divided.