The Equity Kicker

tldr: Different buyers will value your company differently for different reasons, and understanding what specifically a buyer values will help you negotiate better.

I suspect the members of the HN community who are at the point of selling their businesses understand this fairly well.

At then end of the day, before someone within a buyer organization (which are typically larger, fairly structured companies) will have to put together a business case, and as with any business case, it will need to include financials, multiples, valuations, etc. - the CFO will have to be convinced it is a good deal. (Unless you are Facebook, Groupon, airbnb, etc. of course, but note that the majority of exits are not of this size and so valuations will not be as "frothy" (see slide #4 of Mark Suster’s recent presentation http://www.theequitykicker.com/2011/06/17/mark-suster-getting-funded-in-a-frothy-market/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheEquityKicker+%28The+Equity+Kicker%29 )
Most businesses sold in the US are not anywhere near as sexy as the latest "Tech Crunch reviewed" or YCombinator startup and the reasons for acquisitions tend to be less driven by speculation and therefore financials, multiples etc. will be more examined more carefully. So, understanding the multiples that exist in your industry is very important.

If you are looking to sell your company, one of the best ways to ensure you are getting the best price is by going through a competitive…

The real significance of this article is related to the inside baseball of how most venture funds work. See this: http://www.theequitykicker.com/2011/01/12/how-does-the-structure-of-the-vc-industry-impact-investment-strategy/ to learn more.

In brief: Most venture funds are closed-end funds, with a certain amount committed up front from LP's, where each dollar can only be invested once. The fund stops making investments after 5-7 years, then closes down entirely after 10 years. After 10 years, the managing partners stop collecting their 2% management fee, and any additional returns aren't typically included in the performance of the fund.

As such, there's a huge incentive for fund managers to invest early, and find an exit within the time horizon of their fund. A VC who pumped a ton of money into an early stage Uber in 2014 in year 6 of their fund, is going to be pretty screwed if Uber decides not to go public for another 5 years from now.

Where this could go sour is that these same fund managers are spending years 9-10 passing the hat to raise money for their next fund. If the typical pool of investors still have a lot of money tied up in previous funds, then they're going to be less likely to ante up for the next fund, since they'd have to double down on VC as a proportion of their portfolio. It's also going to be a tough road show if your story is that you invested millions of dollars in your last fund and it's all still tied up ...

Which person are you projecting yourself onto here?

The CEO doesn't have that choice. He'll get replaced by the investors.

The VC investors don't have that choice. It's not their money they're working with. They've promised their investors, the limited partners, that they'll go after high risk, high reward scenarios. If they don't make those gambles, they won't get the capital needed to run.

The limited partners also don't generally have that choice with this money. They are people who manage large pools of cash, and part of what they need is long-term, high-reward investments, which are necessarily high risk. [1] They have other money in safe, low-return investments. This money is for go-big-or-go-home bets.

This is the devil's bargain people make when they take VC money. There are other ways to build businesses, but they aren't the kind that will let you spend $100m-2b before you get to break-even, which is apparently what it takes to build a social network.

[1] http://www.theequitykicker.com/2010/12/01/where-do-vcs-get-their-money-from/

While there certainly is some overlap, the investors in this round were venture capital most likely funded by institutional capital such as pension funds and endowments, rather than corporations who might be clients: see http://www.theequitykicker.com/2010/12/01/where-do-vcs-get-their-money-from/ . And as of earlier this year they counted 450 unique customers: https://techcrunch.com/2017/04/05/snowflake-rakes-in-100-million-series-d-led-by-iconiq/ So the extent of self-dealing is limited.

IMO, every company in every industry will need data warehousing at some point in their growth, if they are to survive in the modern world. It's difficult to get right, and Redshift is far from a white-glove experience for those attempting to navigate the space. Compared to B2C deals of this magnitude, this is significantly more sane.

Founders can cash out at various funding rounds, so it might be that Sam took some money out during Loopt's funding rounds.

I'm assuming the same for Kevin Rose who's a pretty active angel.

Likely the sums invested are fairly small as well.

The Foursquare guys took $4M home out of a current funding round

http://www.theequitykicker.com/2010/07/15/foursquare-founders-took-cash-out-in-their-recent-series-b-round/

Would tech VC blogs help?

http://www.theequitykicker.com/
http://www.the-accelerator.blogspot.com/
http://maxniederhofer.com/
http://www.freddestin.com/
http://www.avc.com/

Best of luck.