Ask HN: Sell my startup for $14M because I can't raise $2M?
We've done it with a ridiculously small team, however. And it's become impossible to handle the dev and deployment, support and training, security reviews, feature requests, etc. So we are looking at options.
We've been approached by a few large companies in the industry regarding acquisition. It looks like we could sell for $12-14M. Kind of exciting, but also well under the value that's possible (which would probably be something north of $400M in our industry alone, with the possibility to move laterally).
The alternative is to raise money. We've put together a solid deck and model (I think), but the local venture capital scene is not great (think $1M+ ARR).
We think this is a product ripe for SV firms, but those critical "warm introductions" are elusive. We just don't have the network. Only 4% of my cold emails have even been opened (yes, we track it).
It's crazy to me that our industry is jumping up and down for our product, we've got offers to buy the company, but we can't raise a seed. I've failed hard here. I'm open for advice.
335 comments
[ 3.8 ms ] story [ 279 ms ] threadRaising 2M at 14M puts the OP's stake at 87.5%. Long long way to 10%.
Sounds like $14M is a stretch if you have scaling problems. That will come out in due diligence.
But there will be more options that are immediately apparent, been there before.
Regardless:
1. A $14m sale is a huuuge win. You'd be set for life. A 100% likelihood of $14m is something that is difficult to turn down in almost any scenario. Even if you'd eventually make $50m, your life wouldn't change much from a net worth of $14m to $50m. You could buy a nicer jet?
Let's say you take the $14m. Your life would (presumably) change drastically. That's "pay yourself $750k/yr without ever working again" level financial stability. (OK, some of it depends on taxes, but regardless...) If you raise VC, who knows what could happen in the next 5 years? IMO take it if you can.
2. If you want to go bigger, SV isn't the only way to do it. If you have revenue you could potentially raise debt. Hard to do, but perhaps worth it in your scenario.
3. If getting warm introductions is hard, just know that actually raising will be much harder.
OP hasn't mentioned the current ownership structure. It may or may not be a huge win.
I know you're kidding around here, but all kidding aside, whether your net worth is $14M or $50M, you can't afford a jet. (I mean, nominally speaking, you can front the sticker price -- but you'll get eaten alive on fuel and maintenance over the jet's useful lifespan, and the jet as an asset is depreciating all the while.)
I say this almost as a reflex. I used to work in talent management many lifetimes ago, and I'd actually find myself having this talk with people in this specific situation. Explaining to someone who just made $10M on a single movie that s/he can't afford a jet is a surreal experience. Sorry for the tangent!
50k to 150k per plane
https://www.globalair.com/aircraft-for-sale/Cessna-172
Not allowed in US though.
But at 50M you might be looking at fractional jet ownership already.
There is a difference and it's a big one.
You want to be set "forever" and not dependent on working again. You'll probably work, but may not be able to replicate the same financial success you experienced previously, so it's hard to count on future income.
There's a debate around what's called the "Safe Withdrawal Rate" which is financial-market speak for: how much of my nest egg can I spend every year and never run out of money, ever?
There's some debate about the exact number but I'll use 3% net of investment fees as a solid number. 3% of 14 million is $420k. You've got $420k pre tax to spend. Fortunately taxes on capital income are usually lower than taxes on earned income, so your tax rate will decline and probably end up somewhere in the high 20s. You'll end up with about $320k after tax to spend. Not bad. But not what most people think about as rich, either. I wouldn't be buying jet cards at that level.
I'm not saying the money isn't important - to the extent it gives you control over your time in the future (a function of spending habits), it is extremely valuable. But there's often a disconnect between high 7 and very low 8 figure net worth and assumed income/perceived lifestyle that people can live, especially if they stop working or were in a field with one-time exits (some entrepreneurs, retired athletes, etc).
If that is the case, then you should focus on learning how to invest properly and on achieving, say, 10% annual returns yourself (i.e. without having to pay bank fees for subpar investment advice, which is what you usually get).
Just because you made bank doesn't mean you have to get all conservative. Or at least, I wouldn't.
One example: you could make calculated bets when there's "blood on the streets", e.g. wait (for years) until the market crashes, but when it does, leverage up that $14m to $50m and book a nice 20-30-40% gain.
Or acquire an existing company using mostly debt (and a bit of equity), etc
I think that's firmly in what people consider to be rich, and certainly is by any reasonable metric. I may not be 'jet rich', but that's an incomprehensible amount money for 99% of the people on this planet.
Buying a jet, with just that much money for assets, is probably a bad choice.
You're going to want a house, perhaps more than one. You're going to want someone to manage your assets. You're going to want vehicles. You're going to want to do something to increase your security. You're going to want to keep at least one lawyer on retainer. Things like that...
What that money is enough to do is make more money. Once you have a goodly amount of capital, it becomes much easier to make more money.
So, instead of them buying a jet, they should hire a good finance manager and lots of insurance. I'd also recommend living frugally while using the bulk of their newfound wealth to increase their wealth.
$14MM is good money but it's not really 'fuck you' money. If they insist on buying a plane, I'd recommend a used Piper Cub. That's about all they can realistically afford, at least at first.
Not completely bad advice for most rich people that want to stay rich.
(If you own your own jet, it's always where you want it, you can decorate it the way you want, and you can leave your stuff in its bedroom and living room. It's like having a pied-à-terre in a city instead of renting a hotel room each time you visit.)
The operating cost of a jet that's actually ready at your beck and call also includes its crew. That's maybe another $200k/year, or 4% annual interest on $5M principal, so add another ~$5M to the wealth required in order not to go broke this way. (Disclaimer: I unfortunately have neither the practical experience nor finance knowledge to know if I've used the right fully burdened labor costs and multiplier, but it's going to be in that ballpark.)
I reckon it is a good investment for many CEOs. There time is worth FAR MORE to their companies than whatever a jet costs to run, the saved time is invaluable as is the clarity that comes with better conditions when flying.
Many people schedule meetings to end right before they have to leave for the airport and catch the last flight back home for another important meeting the next day. Would prefer that someone making decisions impacting the livelihoods of thousands of people each day is focused on the issue at hand, not catching the next flight.
Being able to show up, in-person, walk around, shake hands, interview the customer, look them in the eye, walk their factory floor or otherwise see things first hand and then still make it home to put the kids in bed is far more impression setting than dialing into a video call.
What little I've used mine for business, being able to be out and back the same day, direct, makes it more likely that I'll bother to show up (vs call or visit annually). Video conferences are better than phone calls, but a poor substitute for an in-person visit.
Not saying every meeting has technical issues, or even most of them, but some do and finding a technology that everyone who needs to be in the meeting can use given different corporate standards is a PITA.
It's still also no substitute for meeting face to face over the long term.
Cuz it was important.
Not a cent of the money is in any way wasted.
I'm reminded of the Maryland luxury tax, which allegedly crippled their boat building industry and put a lot of middle class people out of their jobs. I say allegedly because I remember the story, not the source that confirmed that there weren't other coinciding factors.
Fuel and depreciation is simply wealth being destroyed.
Cash for clunkers is an example of the fallacy, operating a vehicle (be it a car or jet) for work/pleasure is not.
Presuming so would also argue that the majority of human endeavor is also waste; everything from entertaining TV shows to having small animals as pets to music lessons to trips to private space flight to works of fiction.
You're moralizing the issue, which points to the fact that most of what you said is nothing more than a personal subjective judgement. For someone with that wealth, it's not usually going to be a wasteful extravagance at all.
Billionaires are like large corporations unto themselves. Their business interests are of the scale of small companies in the S&P 500.
Take Patterson Companies, an S&P 500 company, among the smallest with a $3.4 billion market cap. $3.4 billion in wealth isn't enough to get you onto the Bloomberg global richest 500 list.
By contrast, Henry Kravis of KKR fame, is worth $5.x billion (merely #345 on the billionaire list). It makes perfect sense for someone with his large business interests to utilize a personal jet for optimization of time. It's about as wasteful as an average person in the developed world owning a car. Oh those average people in the developed world, living that luxurious extravagant life in which they own a car (or a home, gasp!).
Indeed it was, I was offering my own considered opinion, not some absolute universal truth.
No surprise such opinions don't go down favourably on HN though. Amidst all the interesting technical and scientific discussion, there are disappointing overtones of wealth worship, and a weird cult-like following of billionaire entrepreneurs.
There aren't very many of these jobs going around at any given time, and they involve exhaustive security and background clearances. You are also privy to a ridiculous amount of inside info flying these guys around everywhere, and you need to be trustworthy, i.e., come with references from other billionaires and such. It's a very hard world to break into, and if flying commercial paid better than this did, no one would bother trying.
That's worth a lot to a billionaire.
A pilot has your life in their hands. Smaller jets can be very 'shifty' when landing which is scary. Also you want a pilot that can land anywhere.
Obviously the number, length, and complexity of flights would have a big impact as well. For 1 or 2 round-trip domestic flights per week, it should be doable.
Source: Had a friend who worked on several private flight crews that operated like this.
Edit: They mostly worked with clients in the $100MM/yr range, who tended to treat their staff like garbage and consequently had high turnover. Über-rich lurkers, YMMV.
The billionaires I've met, who by and large own and don't rent, have what I'd call three distinct use cases for private air travel: business, social, and family. Business travel can range from more or less daily to at least 3x per week. Family travel is less frequent and generally limited to whole-family trips, but said trips can and do occur a lot more frequently when you have those means. And then there are what I'd call social trips -- a bucket into which I'd lump anything from charity events, to fundraisers in DC, to golf tournaments, to spur-of-the-moment trips to the house in Aspen or the Hamptons.
Said billionaires, if asked, would consider most of the above to be business trips, because their business lives never stop, and some measure of business is usually baked into most trips -- even if it's a quick stop at one city to conduct business before heading on to the vacation spot.
That said, point taken, most people wouldn't buy a jet if their net worth was $15m. I might.
I'm likely to buy one if I ever crack $7MM. $5MM is a bit too snug I think though to contemplate owning a jet personally (unless it's a business enabler).
No one is buying a jet with a $14mm sale
I think people don't recognize how "little" money you need to replicate a big salary. 14M at 3% is $420k/yr. And as long as you don't spend every last dollar, that number keeps going up...forever.
Build whatever you want at that point.
The reason people with $300K household incomes in Boston/NYC/Silicon Valley don't feel rich is because out of that $300K, they're buying housing and saving for retirement/college/rainy day. Take that away, and $300K spendable is a fairly luxurious lifestyle.
If you don't feel rich at that point you need to get your head straight. Obviously there is always someone richer, but you are deep deep into the 1% of the richest country in the world and you need to be thinking about your greater life's purpose.
Live anywhere near Silicon Valley and tell me 300-400k/yr is rich. You'd be lucky to get a nicely located condo at that income level.
You need a minimum of 120k, just for your house. Pre tax you’re looking at a minimum viable salary of 300k.
How is this unfathomable?
The entire row of condos sold in less than a week.
If that situation feels "minimum viable" to someone, I don't think their primary problem is money-related.
Lock your money first, then go out there have fun with your new ideas. You'll be way more focused on your baby and wouldn't even care about all this 'mafia' thing...
I haven't found any aspect of life that this isn't true yet.
Your interpersonal skills are tied to your cohort.
At the end of the day, a competent developer will great communication is a better position to be in than a great developer with so-so communication in most companies. Maybe different in the biggest ones or where you can have very specialized roles.
https://news.ycombinator.com/newsguidelines.html
https://news.ycombinator.com/newswelcome.html
[1] https://arstechnica.com/information-technology/2013/12/gmail...
It probably depends on email clients. If a desktop client fetches email direct from smtp then it will probably also fetch the pixel directly. So tracking all downloads after the first (by google) may yield some signal, albeit not for gmail web users.
I see no way they could do this besides the tracking pixels they embed in email, which means that google does not prefetch, but I'd be happy to be proven wrong.
At least for the MSPs I use, they report the open time accurate to within a minute whether I'm using Gmail or not. I see no way for them to do this besides tracking pixels embedded in the document, since I don't see any other outside resources.
In the gmail web browser client, that is in the general settings:
(*) Ask before displaying external images
Especially in the enterprise market, where requirements are complex and sales cycles are difficult, selling out to a big company that has all the pieces in place already can make a huge difference - not just in your bottom line, but the chances of long-term success for your baby.
Rome wasn't built in a day. Unless you're 75 years old, there's always another idea you can build into something huge.
If you still don't know what to do after that, just watch some more episodes.
Also, and I might be reading this wrong, looks like you haven't got much feedback on your deck and model. Consider getting some feedback including an industry expert.
I'm really happy I'm not in your position but if I were I'd take the $14M. This is probably also why I'm not fabulously wealthy.
As far as the local venture scene is concerned: look abroad. US, UK, DE, FR all have lots (more than 1,000) active VCs in total, if your story is as good as you say then at least one of them should be willing to fund you.
What if it was far less, say half that? How much is too little?
Even $2m would mean you could take a very long sabbatical then come back and bootstrap your next startup idea.
1mm = 40k per year forever
2mm = 80k per year forever
3mm = 120k per year forever
4mm = 160k per year forever
Pretty set with anything past 2mm in most of the US, maybe you would want 3 or 4 if you really like SF.
- Housing $34k annually
- Car $16k annually
- Food $20k annually
- Stuff $20k annually
- Vacation $10k annually
But yeah, forgot medical.
If you're doing half your discretionary on housing, that's going to be tough. I suggest moving.
In this case my "spending habits," as you put them, might include expenses like routine hospital or clinical bills, specialist care, or some sort of domestic help. Double all of that if my child is physically as well as mentally disabled, or if my child exhibits some sort of prodigy that I want to nurture properly.
You have to remember that the price of goods and services in this local economy is largely driven by those earning some significant multiple of our hypothetical $160,000.
* Stop working and live on your 160k per month for life
* Deal with kids special needs
* Live in SF
Pick two
Does this really need stated? Do we need a disclaimer at the bottom of EVERY financial story ( * you may need 10-15% more if your kid has special needs)
I read, and contribute to, quite a few financially oriented threads on HN. I don't see this subject brought up all that often, and certainly not as ubiquitously as you suggest.
I understand what you're trying to say within the narrow context of this thread ('hypothetical: earn $160k and never work again'). It's the whole "Must we hear this every time??? UGH!" aspect of your tone that really bugs me. But this subthread is veering far enough off topic as is, so I'll just leave it at that.