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Ask HN: Sell my startup for $14M because I can't raise $2M?

354 points by thisanonguy 9y ago

I founded an vertical-focused enterprise startup. We signed a few huge customers in the space on a build-and-beta basis, and that led to industry awards and a full pipeline of leads and signed contracts for installation (SaaS pricing with small implementation fee). 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.

kwaldman 9y ago
send me an email giving me more info- karl.waldman@gmail.com
edmanet 9y ago
If you're young, sell now. Then take some time and pursue something more recreational for a while. When you're ready to get back into the grind you'll still have a nice stake to start with.
- godot 9y ago
  I might even argue even if you're old, sell now still. I assume "a ridiculously small team" means 3-4 people. Even assuming an equal split (it sounds like OP is CEO/main founder, so should be even more), that's $3mil a person at least. After tax that's still $1.5mil. It allows OP to live a much improved life, while at the same time optionally pursuing more business ventures if they wanted, or simply spend more time with family and kids.
  - qaq 9y ago
    Why would the tax be 50% ?
    - sneak 9y ago
      OP did not specify their country; some countries tax that high.
    - CalChris 9y ago
      Forgot to file that 83b election?
alain94040 9y ago
Owning 100% of $14M is better than owning 10% of a $100M exit after 5 more years of hard work.
- mseebach 9y ago
  You'll have gone through some pretty insane fundraising rounds and extreme growth then near-collapse to pull those numbers off. Raising 2M at 14M puts the OP's stake at 87.5%. Long long way to 10%.
  - gkoberger 9y ago
    Not really. $14M vs $100M is an order of magnitude difference. By the time you hit $100M, there's a lot more than just dilution. There's early employees, an option pool (~30%), down rounds, advisors, etc. And, there's liquidation preferences – someone with only 10% could have a 2x liquidation preference. I'm not saying it's likely, but it's also not insane to think they'd only end up with $10M out of $100M.
  - codingdave 9y ago
    You are arguing over the wrong details -- taking anything percentage of anything right now is worth more than owning no percentage of a failed startup many years from now. Because if he can't raise money, and can't support the growth without money, that is really what we are talking about here.
codegeek 9y ago
Do you not have enough revenue from current clients to be able to expand your team and hire more people for dev/deployment/support ?
- thisanonguy 9y ago
  The launch cycle is usually about 6 months from signature to first user onboarding. We expect it will take about 12 months to get full organization saturation. We've looked at upfront pricing, but it has been hard to get for a new budget-line product.
  - DenverR 9y ago
    shoot me an email drayburn[at]nvp.com, happy to jump on the phone and discuss
malux85 9y ago
I'm in a similar position, if anyone can help with intros and / or acquirers please reach out
- DenverR 9y ago
  shoot me an email drayburn[at]nvp.com
ridruejo 9y ago
Have you considered applying to YC?
andrewduck 9y ago
Drop me more info andrew.duck@gmail.com 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.
austenallred 9y ago
A few things, though it's hard without much info (re: revenue/growth). 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.
- macspoofing 9y ago
  > A $14m sale is a huuuge win. OP hasn't mentioned the current ownership structure. It may or may not be a huge win.
- nols 9y ago
  It's a team of people, so the $14MM wouldn't all go to a single person. It's certainly a lot of money, but it may not be retire in comfort money.
  - dawnerd 9y ago
    Even if it's a small team and everyone gets an equal split (unlikely), that's still a ton of cash. I'd take it, move somewhere cheap and just work on personal projects for the rest of my life and not worry about trying to please shareholders.
  - marcofiset 9y ago
    Depends on your definition of comfort. I sure would be comfortable for life with such an amount of money, even if I would be left with "only" 2M.
  - chasd00 9y ago
bsvalley 9y ago
Welcome to Silicon Valley, it's all about networking here. I'd suggest you to sell and to update your Resume - "I created company XYZ acquired by ABC in 2017". That alone will help you fund your next venture. Also, you'll gain a lot of credibility in the Valley and you will be seen as a successful entrepreneur. 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...
- have_faith 9y ago
  > Welcome to Silicon Valley, it's all about networking here. I haven't found any aspect of life that this isn't true yet.
  - senatorobama 9y ago
    Wow. I always thought my technical skills would help me.
    - CalChris 9y ago
      For about 10 years. Less so for another 5. Then not at all.
      - senatorobama 9y ago
        I'm about 3 years into my career. Should I focus on developing my technical or interpersonal skills?
        conductr 9y ago
        Not mutually exclusive. Do both
        CalChris 9y ago
        What you think are technical skills is just currency. Your in depth knowledge of this stack or that toolchain will doom you to maintenance when that currency is discarded for the new new. Your interpersonal skills are tied to your cohort.
volkadav 9y ago
Have you considered traditional business loans through a commercial bank, if your revenue and growth projections would support that? Downside: debt is a drag, upside: you don't have to give up ownership stake. Good luck, whatever your path ends up being!
primeblue 9y ago
It's all about talking
- dang 9y ago
  Would you please stop posting unsubstantive comments to HN? https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newswelcome.html https://news.ycombinator.com/newswelcome.html
tgb 9y ago
Off-topic: I thought that tracking email opening was no longer possible in gmail? My memory of it was that you'd insert an image and track whether that was retrieved, but that GMail started caching all images ahead of time for their users so you couldn't tell if/when it was opened. See, eg, [1]. Is that not correct? [1] https://arstechnica.com/information-technology/2013/12/gmail-blows-up-e-mail-marketing-by-caching-all-images-on-google-servers/ https://arstechnica.com/information-technology/2013/12/gmail...
- jaggederest 9y ago
  No, it only caches when they are requested by the user - google acts more like a proxy. Essentially they're preventing the remote server from grabbing HTTP headers/cookies from gmail users but not preventing them from tracking when it is loaded, chronologically.
  - chatmasta 9y ago
    The google servers download every image, regardless of whether or not the user later opens it or not. So since every image is downloaded, and subsequent downloads come from google cache, the pixel becomes an ineffective way of tracking open rate.
    - viraptor 9y ago
      You can only get the image from cache if it's the same URL. You can still vary those between recipients.
      - chatmasta 9y ago
        But if it's a different URL for each recipient then google will fetch each individual URL, for each email. So every URL will be opened exactly once, by the google fetch that happens when the google server receives the email. The user will fetch the pixel from google cache. So how can you track open rates by pixel download when 100% of pixels are downloaded just one time? 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.
Apreche 9y ago
Take $12M. You never have to work again. What the fuck do you need more money than that for?
bklyn11201 9y ago
If you're not in California, you should post your region or state, and see if this post can lead to a solid, local connection.
beat 9y ago
A seed investor/advisor once said to me the biggest mistake he made with his first company was waiting too long to sell. He put in three more years of hard founder-type work on its growth, and with investment dilution, wound up hardly making more than he would have made if he'd sold early to a buyer who was ready to put their own money into scaling. 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.
charlesdm 9y ago
Are you the sole owner? If so, take the $14m. Preferably (if you're not American) move to a country with no capital gains tax before selling. Make sure you make your windfall count. Invest the money well, enjoy life, and start something new in a few years. Rome wasn't built in a day. Unless you're 75 years old, there's always another idea you can build into something huge.
SeoxyS 9y ago
Shoot me an email (see in my profile); I'm an angel and see a lot of deals of that stage. At the very least, I could give you some feedback from an investor's mindset.
runako 9y ago
You don't mention the types of firms that have talked to you about acquisition (e.g. are they they types of "large companies" likely to be your customers, competition, or other). Depending on their motives for wanting to buy you outright, you might be able to suggest they buy part of the firm in exchange for a cash infusion. You might be able to run the same playbook with > 1 of them and solve your capital crunch for a while.
guaka 9y ago
Did you watch Silicon Valley episode 1? If you still don't know what to do after that, just watch some more episodes.
thisisit 9y ago
If you are profitable and you think the industry is ripe for the taking, consider taking a loan. The downside is unlike VC money you will have to pay off the loans slowly. 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.
jacquesm 9y ago
Your hardest decision ever: the balance between $14M in the pocket now which is more than 0.001% of Earths' citizens will ever have or potentially lose it all/win big depending on future uncertainty. 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.
flachsechs 9y ago
take the money and run.
fortythirteen 9y ago
For god's sake, negotiate to $20M and retire early.
MicroBerto 9y ago
What is your revenue and profit margin?
neospice 9y ago
Side question. It seems the conventional advice here is to take the money. What if it was far less, say half that? How much is too little?
- gk1 9y ago
  $7m is still more than most people make _in a lifetime_. There's no material difference in quality of life between a net worth of $7m vs $14m. Even $2m would mean you could take a very long sabbatical then come back and bootstrap your next startup idea.
- brianwawok 9y ago
  So by Mr Money Mustache method, you look at the 4% rule. 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.
  - qaq 9y ago
    160K in SF right that will take you far
    - brianwawok 9y ago
      It will give you a place to live and food to eat without ever having to do work for money again?
      - qaq 9y ago
        If you have no family sure
        brianwawok 9y ago
        Not true at all. If you cannot survive on 160k even with a family even in SF, you may want to look at your spending habits.
sjg007 9y ago
Apply to YC.
kingnothing 9y ago
If $14M is a life changing amount of money for you, if you aren't already monetarily set for life, then take the deal. Having that kind of financial freedom will afford you the opportunity to start other, risker, ventures in the future. On the other hand, if you're already very wealthy, it might not be worth exiting right now.
superdex 9y ago
If you're not profitable enough to hire without borrowing money, then that's something to really look at. You don't have to hire 15 people. And taking on money is giving away your control; you'll have to bow to the VC's wishes because they bankrolled you. If you can go without, I'd go without and keep on chugging. And depending on how you're structured now, $14M is a LOT or it's quite a bit and you can take your time looking for the next thing....
deleted 9y ago
[deleted]
callmeed 9y ago
IMO You need to look into both options until you get at least (a) a letter of intent for acquisition or (b) a term sheet from a VC. If you can, get both, then consider taking the VC money if you can get a significantly higher valuation and good terms. I recall a VC interview recently where he said (paraphrasing) not accepting cold emails and requiring an introduction is a filter that proves you know how to hustle and make some connections. That's a skill you're going to need anyway. If you're willing to do that, start working your network of former classmates, co-workers, bosses, friends, etc. Don't be afraid to make phone calls, ask for favors, etc. If you are in the US, attended a university, and worked in tech there's really no excuse for not being able to get some warm intros to investors. On the acquisition side, definitely pursue that but don't be mistaken thinking "interest" == "sure thing acquisition". 8-figure acquisitions don't happen without a shit-ton of due-diligence. If you feel someone is truly interested, retain an M&A lawyer and get their advice before giving access to anything beyond basic numbers. Good luck and expect to be challenged/busy whichever way you go.
- GrinningFool 9y ago
  Re the "know how to hustle" thing - building a successful business takes a lot of "hustle". If someone succeeds at that, they've proven that they can do it. The notion that someone needs to meet some invisible bar of proof beyond building a successful company is - to me - yet another symptom of the damage SV has inflicted on the minds of a generation of technically inclined enterpreneurs.
  - beambot 9y ago
    Think about how many emails you get. Now imagine yourself in a position where everyone knows you invest big money on a regular basis, and imagine how many orders of magnitude more emails you'd get. Investors trust people in their Network not to waste their time (everyone's most precious asset). It's a sane filter... You just may not empathize.
  - evrydayhustling 9y ago
    Which successful business are you talking about? OP's business is clearly promising, but if it needs $2M to keep going, success is clearly still ahead. For LPs trusting a VC with their cash, successful means the company growing 10x in the next seven years. That VC's conviction that the ability to hustle is between where OP is and 10x is something you could disagree about, but I'd say it's somewhat less arbitrary than forking over $2M at just the data given. Maybe different financing tools would allow for different definitions of success, and different guesses about what the OP needs to get there. I'd like to see someone weigh in on debt financing options, which I don't know enough about. But nobody is abusing young minds here.
lenilsonjr 9y ago
Sell it, and then use the money to start the journey again. It will be more fun.
gk1 9y ago
Well, now that you're on the HN frontpage, you're in front of dozens of VCs. Create an anonymous email account and post it here so investors could contact you for more info.
- thisanonguy 9y ago
  Done. Hopefully not too late. I was working :) thisanonguy1@gmail.com
  - kofejnik 9y ago
    more info => dy@deepmagic.io
chews 9y ago
Great humble brag. Sell and do the next thing.
daxorid 9y ago
We've been in the same boat: a solid, profitable business in an unsexy sector. Our solution was just to continue building slowly from cashflow. I don't have any advice here, just a note of commiseration.
jasonlbaptiste 9y ago
Yes. You will now have a blank Check for the rest of your life: 1- you won’t need to work again. This lets you work on what you want next. 2- you’re very likely to get funded 2m for the next thing. This sale gives you a big stamp. In short, this game is never about just one company. Get the 14m, stay hungry, and go for the 400m sale on the next. Play the fucking long game and play it on your terms.
- sgs1370 9y ago
  PS if you do a "next thing", don't spend very much of your own money on "it". Even though you don't "have" to get outside funding, do the angel/seed/VC thing based on your previous success and the strength of your idea & team... and if any stage fails, bail on "it" and go to the next thing. The investment you can make is not paying yourself a salary for a year while you figure out if the product succeeds during the angel round stage. Just my $0.02, your mileage may vary.
zupreme 9y ago
Learn from my mistake. Unless you're already financially secure (meaning you could stop working and live your current lifestyle for several years) then my advice is to take the money while you can OR to leverage that valuation to pocket a few million $ (by selling equity). I'm doing great with my current startups now but several years ago I founded a very promising startup which almost immediately got many acquisition offers in the high six figures and low seven figures. I, of course, took all of this to mean that we were onto something and were sure to get very wealthy in short order. That didn't happen. What our app did got simply duplicated as a feature by an industry leader in software for our target vertical and that startup rapidly went from extremely profitable to bust. TL;DR: Unless you're financially secure take the money.
- nebabyte 9y ago
  Out of curiousity, what was that first startup?
  - gotbeans 9y ago
    Common. Why do you thing he didn't say in the first place.
    - JungleGymSam 9y ago
      come on
- mosselman 9y ago
  Indeed, never having to work again in order to provide yourself with the basics (home, food, car, education for your kids, etc) is already a huge thing to achieve in life. Don't let multi-billion dollar acquisitions you read about here cloud your appreciation of something as big as this.
  - enraged_camel 9y ago
    Besides, several million bucks can be turned into much more with with relatively little effort. This is the reason why people who receive sizable inheritances get several steps ahead of others.
tommynicholas 9y ago
If you think you could actually sell for $12m-$14m do it and don't look back, even if you get to the $400m sale you may not even make that much personally. But be wary - companies are bought not sold. If you're below $1m in ARR, those approaches you think you're getting at tenuous and possibly totally fake. It may not feel that way to you or even to them, but acquisition are HARD without a revenue number to calculate price on or a really motivated CEO.
arrty88 9y ago
Email tracking is not an exact science. A lot of people (myself included) don't auto download images for that reason. But back to the issue at hand: You could sell it while continuing to be actively part of it, in fact that might be a condition of selling. Plus, with the budget of a larger company and a potentially unlimited supply of talented engineers from said acquirer, sounds like you'll be rich and continuing to build your dream product.
collyw 9y ago
How small is your ridiculously small team? Sounds like you could retire nicely and basically not have anything to worry about for the rest of your life. I would go for that personally.
thejerz 9y ago
AngelList was built to solve this problem. If your revenue and traction are true, you'll be oversubscribed. Create a profile, and message investors. Also -- even if you intend to sell, consider raising a round first. Having an bonafide valuation will let you jack up the sale price 5x, or more.
- daxorid 9y ago
  This isn't even remotely true. Years ago I signed up for AL, and the situation was exactly as the OP described in "real life": you had to be connected to get connected. Revenue does not matter. Or rather, did. I don't know if it's any better now, but I doubt it.
  - zupreme 9y ago
    Same here. If you don't already have a well-connected lead investor or a well-connected board member/advisor then AL will be a ghost town for you.
    - hpcjoe 9y ago
      This +10. AL has not been worth any of the time I'd put into it, attempting to locate potential investors. Wasn't in a "hot" space. High performance unified (file, block, object) scale out storage and compute hardware. Most of the VCs and angels we spoke with were saying "hardware? Why? Everyone just runs everything on Amazon". Which isn't correct, or even nearly correct. One VC who saw us compare ourselves to Nutanix (way back in 2013), decided to then speak to Nutanix and help them. Nice of them to do so. Early in my processes I learned that things like "growth capital" meetings, where you get to pay to present to VCs/investors are a complete waste of time and capital. AL is sort of like that, though you don't have to pay money, just time. Raising capital is all about who you know, and who knows you. There's a mixture of pedigree and other intangibles, and relatively uncorrelated with actual results things in there. Which dominate the "hey, we pulled in $3.3M in revenue at 50%+ gross margin with no external investment, how about some love" discussions. Even funnier to hear them say "but we want to see more traction". Yes, really. Sorry about letting the bitter leak into this. Learn from my many failures. Try not to make them yourself.
secondmod 9y ago
- Outsource non-critical tasks using upwork or odesk for under $1k - Raise some from http://www.indie.vc/ http://www.indie.vc/ and then, upto 30% of your ARR as debt. Repayment done as x% of your rev. If you think, these two steps will charge you up to build & grow this business to 10m or 100m revenue biz, then don't sell. Else, $12m is pretty much FU money. Buy 250 bitcoins, buy bunch of rental properties, invest in your health & fitness. And, travel a bit to come up with the next idea. I have sold two companies in last 5 years. But this time, I'm building bootstrapped business with an aim to remain bootstrapped till we touch $100m ARR i.e. building for long term All the best. There is no right answer to this so, in future, never regret whatever route you pick at this juncture.
- daxorid 9y ago
  > Raise some from http://www.indie.vc/ http://www.indie.vc/ https://raw.githubusercontent.com/indievc/indievc/master/Term%20Sheet%20v.2 https://raw.githubusercontent.com/indievc/indievc/master/Ter... 300% capital payback, at the end of which they still retain half of the equity option. Good Lord, you're better off financing with credit cards.
briholt 9y ago
I'm interested. You should create an anonymous Gmail account for people to reach out to you.
- thisanonguy 9y ago
  Done, contact me at thisanonguy1@gmail.com
ivankirigin 9y ago
Heavily discount offers until you have real termsheets.
erdevs 9y ago
If you don't mind sharing your company name or some anonymized form of contact info if you prefer, there are people here who can help, assuming your biz/opportunity is legit.
mv4 9y ago
Take the money. It will be 100x easier to raise capital next time.
mbesto 9y ago
If you're looking to sell - feel free to get in touch. I work in tech M&A and can help guide you through the process if you're interested (value of the company, prepping biz for sale, negotiating, educating decision not to sell, etc). Contact details are in my profile if you're interested.
wellboy 9y ago
Why not ask the companies that want to acquire you, if they would also be interested in investing, because you think yoi can grow it to $100 within the 3 years. Surely something theyd be interested in.
leesalminen 9y ago
I recently went through a similar scenario. Feel free to reach out (email in my profile) if you'd like to chat.
bspn 9y ago
I know you're framing this as a failure to raise, but believe it or not you're in a very fortunate position that most founders (including VC-backed ones) would kill for. You have complete control of the decision and by the sounds of it relatively firm interest from buyers at a decent price. You can either take-the-money and move onto the next venture secure in life, or double-down and swing for the fences to see if you can achieve that $400m exit. Once you take external money, you lose that flexibility as your investors will usually dictate when and how you exit. If it were me, I'd cash out now but I appreciate it can be difficult to let go of your baby.
gus_massa 9y ago
$12-14M in cash or in equity of the buying company? Is that equity liquid? Can you sell it now? How many vesting years?
hoodoof 9y ago
>> well under the value that's possible The value of something is the amount someone tangibly offers/gives you, at the time. If you are out of time then that is the value. You might destroy all value if you live in the fantasy of what it is "actually worth".
rdlecler1 9y ago
If you get your $400m exit you might own 5-20% ($10m - $80m) of the company at that time. At this point I assume you’re a large shareholder and so you need to price out what your time cost is. That’s a lot of money to take off the table and from then you’ll never have trouble raising another seed round. Do be careful though. Business development people are paid to scour a market and this could be a huge time suck with no exit in the end. If they eat into your runway then you could get to a point where you MUST sell. Be careful. Maybe if they’re serious you can ask for a $100k convertible note to enter the negotiations.
- askafriend 9y ago
  This is an important point. Don't be strung along while you're burning through cash. Make sure the $14m is concrete and not just based on numbers that have been floated in casual conversations.
- mseebach 9y ago
  How do you get to those dilution numbers? The OP is already at 14M, apparently with no significant outside funding. If you assume they'll be at 5-20% ownership at 400M, practically all the "growth" will have been cash from equity sales. Presumably the OP believes that he can actually grow his business to that size, like he grew it to 14M.
  - rdlecler1 9y ago
    He’s at a $14m acquisition number. How much of the company does he own? Does he have one or two other founders? Marching to a $400m valuation is going to dilute you around 20-30% each round to both investors and ESOP. I’m giving an approximation but what I’m pointing out is that you not going to own 100% of the company and you may see a <1x - 20x multiple on your current ownership.
    - mseebach 9y ago
      But he's not "marching to a $400m valuation", that's what he believes he can grow the company to. If you get a 20x multiple on 14M for 400M, you have grown less than 50%, and raised a ton of money. You're not magically getting diluted into the ground because you raise a bit of money.
askafriend 9y ago
What does the cap table look like? Presumably you won't take the full $14m off the table even if the deal does go through (which is uncertain). That context matters a ton when recommending a course of action. If you own 100% of the company that changes what I'd tell you compared to if you only owned 20%.
woodylondon 9y ago
serious life lesson here. Unless you have a lot of money now, take the 14m and run! I am 40+ now, but at 23 I was offered £5m for a business. I tuned if down because I would have to wear a suit and goto a stuffy office in a 2-year lock-in. I turned it down and lost the lot. I was a total idiot looking back on it now. You are better to have something than nothing at all. With £14m you can come up with the next great idea, and you still have a few million left over!
christopherslee 9y ago
Keep in mind that you also can try to sell the company for more money if there's competition. Competition from other buyers, competition from investors. You probably want to try going down both roads to see how hard it is to sell or raise money. At that point you'll know more and you can feel more comfortable with the decision, whichever one you make. Congratulations and best of luck!
- CalChris 9y ago
  You can sell the company for more money if there's more competition. That was one of the lessons of The Hard Thing About Hard Things. This is actually the best book to read about this particular situation.
s73ver_ 9y ago
On the one hand, money today is better than the possibility of more money tomorrow. On the other hand, have you tried getting a business loan from a bank?
ScottBurson 9y ago
Hmm, the consensus here seems to be that you should take the money. But "it looks like we could sell for $12-14M" is not the same as "we have a firm offer". It looks like a few investors have invited you to respond, and one or more of those connections might work out. If none do, however, it sounds to me like your best remaining option would be to continue to bootstrap. A couple of people have suggested bank loans, and that might be worth looking into, but I'd guess your better bet is to explain the situation to some of your customers and ask them to help out by prepaying some amount of their SaaS fees in exchange for a discount on same. Nobody knows better than they do how useful your product is, and they want you to stay in business. Whatever you choose -- good luck!
fuzzieozzie 9y ago
Taking home $12-14MM now is a no brainer! Say you raise $5M at a $14M valuation. The VC will want a 3x return ... so the next sale for you is around $60M. How quickly until you are at $60M. Having been in a similar situation in 2006 I am so glad I sold. With the GFC around the corner the next hurdle would have been very difficult to achieve! Another way to look at it -- until the $$ are in the bank, the $12-14MM is not real!
caseysoftware 9y ago
> I've failed hard here. Stop that. No you haven't. You've built something that is useful, valuable, and that others see massive potential in. That sounds like a win all the way around. Could you scale it bigger and become something more? Maybe. Could you crash and burn and wipe yourselves out? Maybe. Sometimes taking the small win feels like losing but putting a win on your resume will open doors that you didn't know existed and might need next time around for your next venture.
abarrettwilsdon 9y ago
If you have sufficient revenue (or pilots that could lead to it), you could look for alternative financing. Venture debt offerings are increasingly common from firms like Lighter Capital and Landscape Capital. There's also an emerging wave of invoice financing companies like VendorTerm that lend against individual contracts
richardweddle 9y ago
SELL AND GO AGAIN WITH CONTROL Sell and go again because you will have your OWN seed funds out of the $12-14M. CONTROL is key and many of the VC are just THAT short sighted. SMART PEOPLE Please remember that as the old saying goes - "Smart people seem like Crazy people to dumb people." I know it is a radical simplification and a bit cruel, but since it makes you laugh a bit, you know it is a bit true. RICH Richard.Weddle@gmail.com
jrs235 9y ago
>Only 4% of my cold emails have even been opened (yes, we track it). You only know that at least 4% have been opened. If an email client blocks the image used to track opens then you'll never know if it was opened. I'm guessing many SV folks and HNers block their email client from displaying images by default.
cestith 9y ago
Many of the top founders are serial entrepreneurs. If you're the only shareholder and you sell for $14,000,000 now you've got fourteen million dollars (minus whatever your government takes) to live from while starting your next company. You can learn to love again. If you can sell but can't raise funds, consider the option of it being a way to self-fund your next startup.
megamindbrian 9y ago
Yes, then keep doing what you wanted to all along.
lpolovets 9y ago
I'm a seed stage VC. If you want feedback on your pitch or cold email, please email me at leo@susaventures.com. I'd be happy to help. My fund might be a fit as an investor. If not, then I might be able to suggest a few firms that could be a fit. Also, 4% is a low open rate, but that might be misleading. For example, I set gmail to not open images by default, which could affect emails that use tracking pixels. Finally, selling something for $10m+ is a really amazing "last resort." :)
- jon_dahl 9y ago
  I can vouch for Susa as a seed-stage investor. Definitely take this offer - this is a big decision, and it's worth talking to experts on various sides. I also sold my last company for a bit more than what you're describing, but in the same arena. Feel free to get in touch if I can help. (Find me via my profile and/or on social media if you're interested.)
- immad 9y ago
  I also extend the same offer as Leo. Email in my profile. If you can get a $14m acq offer you can almost certainly get funding if the market is big.
- deleted 9y ago
  [deleted]
herewhere 9y ago
Would you mind sharing your contact info?
- thisanonguy 9y ago
  You can reach me at thisanonguy1@gmail.com
late2part 9y ago
Which will you regret more? Selling knowing you could have made more, or losing it all knowing you were a contender and gave it your best short? Do the one you'll least regret if it turns out badly.
faldore 9y ago
Just take the money then start a new startup.
tootie 9y ago
I'm speaking out of complete ignorance, but if you have assured revenue and just need funding to cover operations until all the checks clear, you might try just getting a small business loan. It comes with none of the cachet of venture capital, but also none of the baggage. Just make your payments and they'll stay out of your hair.
Geekette 9y ago
I'd suggest 2 things: 1) Have you incorporated the buyout offers into your deck? Showing that other companies recognize your company's potential even in its early stages should make a positive difference in communicating value. Consider having another go at fundraising and use resources like AngelList and FB groups related to your space to help with identifying investors and getting intros. 2) Research and Apply to YC - By "research", I mean pre-screen by contacting a few partners to ensure the investor contacts relevant to your company type, stage and size are available; and that investment terms would be and whether they're amenable to you (since your company is more advanced than the typical entrants, the standard 120k-for-7% shouldn't apply).
ridgeguy 9y ago
I suggest you simultaneously pursue the buyout and continue trying to raise your funding. Neither event is 100% likely to succeed, hence do both. If it turns out you get to choose which one happens, that's a nice choice to have. And please strongly credit other posters' observations about 'bird in hand vs. two in bush'. If the buyout were 100% probable, my advice would be to do that. There isn't a shortage of opportunities and personal financial security will increase the range of those that are feasible for you.
notadoc 9y ago
> I've failed hard here. I'm open for advice. I would suggest that you have not failed if you have an offer to buy your startup for $14m. Not everyone is Steve Jobs, Bill Gates, Mark Zuckerberg, or Jeff Bezos. That's OK.
jarym 9y ago
It's not just a choice about selling out or not. Do you like being at your current venture or can you see yourself doing something else? Do you want to take it to the next level or not? If you want to walk away and focus your mind on something else then go take the money. If you want to grow this business then start networking and maybe visit your bank (commercial bank loans can often work out cheaper than giving away equity).
bsder 9y ago
Sell and build it again. Once you sell to one company, the other enterprise companies are going to be looking for alternative. Who wants their competitor to control their destiny? Top this off with enterprise tendency to simply kill anything they acquire, and you can probably cycle this 2 or 3 times. Presumably you'll be able to build the company even faster this time around. I see RF wireless startups do this over and over.
fillskills 9y ago
If raising funding would help you help your customers and grow exponentially AND you like what you do, don't even think of giving up. Stay strong. Fundraising is not easy and it takes a lot of dedicated effort to make it happen. I have been through it thrice. Each time is the same - hard.
joeflesh 9y ago
If you actually have written offer for $14M then absolutely take it. Absent that, engaging with potential buyers will take a lot of your time and probably won't result in a sale. The road from interest to sale is long. If you guys have $1M+ ARR, I'm happy to make some warm intros for you to Chicago-area VCs. Not SV but investors here love solid, profitable businesses and not always in "sexy" verticals, and there are real funds based here. I'm an enterprise SaaS founder as well. Would be happy to talk further, just DM me on Twitter: @JosephFlesh
tptacek 9y ago
It's tough to really evaluate this without knowing roughly your headcount, revenue, and growth numbers. 14MM could be a great deal if you barely scratching by with current employees, and a terrible deal if you socking away large amounts cash every month. I was a "no" vote on the acquisition of my company and I regret selling; we would have been substantially more valuable the year after selling (we had just figured a bunch of business model stuff out). But almost everyone regrets selling, because that's when your company gets sold: when things are going well. Be careful about threads like this. Obviously, you want to take people who are talking about how "14MM will leave you set for life" with a huge grain of salt, since that's not what you're going to take home from this deal. Shooting for the moon is probably not a good bet the first time you pony up to the table, to be sure. But getting a company to the point where you're getting random 8-digit acquisition offers is not easy. The idea that you'll take the money this time and roll right back to the same position with a thick bankroll to make it easier is fanciful.
HD134606c 9y ago
I'm curious what ARR is?
- sgs1370 9y ago
  Annual recurring revenue, I'm not sure if monthly subscriptions or even 1-year contracts count but I think multi-year contracts definitely do.
adityakothadiya 9y ago
Maybe this article would be helpful to decide if sell right now vs raise capital and then raise at a higher valuation - https://medium.com/strong-words/meaningful-exits-for-founders-4c3b2baba6b4 https://medium.com/strong-words/meaningful-exits-for-founder...
justin 9y ago
Happy to talk through your options on a phone call if you'd like. You can email me: justin.kan@gmail.com Relevant experience: sold a couple companies, raised a lot of money
- thisanonguy 9y ago
  Wow, thanks Justin. Done.
bjflanne 9y ago
It sounds like it's time for an ICO...just saying.
MrFantastic 9y ago
Sell at $14MM and offer to be an advisor for a small piece of equity in the sold company after you sell.
uptown 9y ago
If you were unemployed and saw $14M on the sidewalk would you pick it up? I suggest you do that.
bjflanne 9y ago
It sounds like it's time for an ICO... all the cool kids are doing it. But in all seriousness one in the hand is not worth two in the bush in these scenarios it's worth a thousand in the bush.
natvert 9y ago
i can give you a warm intro. email me :) edit: you should def. explore all your options and choose the best one. don't discount any yet though
alexasmyths 9y ago
Consider selling the company. There are a million other ideas to work on, and once you've sold a company, you're investable. Ironically, you can't raise anything now - but you'll be able to raise on your next project. You'll have a nice little bank account to get whatever going, and that'll make you considerably more confident as well. There's not reason to be sentimental about your project. 99% chance 'it's just a project'. Think of yourself as a 'Movie Producer' or 'Director' or whatever. You made Jaws. Next you can make Alien. And then whatever. Unless your project is deeply close to your heart, or you are doing something you really and truly find personal and existential meaning in - and you have a high degree of certainty of competitive advantage for whatever reason (high barrier to entry, massive growth etc.) then consider selling. FYI that you're having trouble raising is at least some kind of 'flag' that you might not have a strong competitive position, but don't read hugely into 'not being able to raise' - most companies (and many good ones) can't.
jccooper 9y ago
$2M you may be able to get via debt if you have decent cash flow. If you have a relationship with a bank (and you should), go talk to them.
einarvollset 9y ago
Email me: einar@vollset.com - I suspect that if the numbers your quoting is correct, there should be many more options on the table for you.
rekoros 9y ago
Whatever you do, don't try to sell without the help of a banker. Also negotiate the best possible deal with the banker you choose. I can intro you to ours, he was great (we sold this year): andrei@sameroom.io
kofejnik 9y ago
please send your deck to dy@deepmagic.io, we might work something out
ransom1538 9y ago
Making 14m on a startup is 1/100 shot. Like taking a hundred sided die and nailing it. THEN, you are asking if you should push in all your chips, roll the die again, in another gamble. That is completely insane. The amount of founders that lose big because of greed could fill AT&T Stadium. I know what you are thinking: this isn't luck. Perfect, then you will have no problem doing it again.
shaunrussell 9y ago
yes
vikp 9y ago
I haven't seen this advice in this thread yet, but there is a path other than selling or raising VC. It's focusing and growing your revenue until you get through this crunch. We've been in a similar situation before, that we managed to grow our way out of. It is possible to get through this, keep growing your business, and do it all on your own terms. To resolve the short-term feeling of being overwhelmed, here are a few ideas: * Try to get more $$ upfront by converting customers to annual plans, or raising implementation fees. * Defer some customers until your team is larger (or they pay more). * List out what you're working on, and ruthlessly trim anything non-essential. * Contract out what you can. * Raise some angel or friends and family $$. I don't know what your revenue is, but I'd guess a few hundred k ARR. In the medium term, if you can grow 5-10% a month, you'll double or triple your revenue in a year. This will give you a lot more optionality in the long term: * You can just keep bootstrapping forever if you want. * If you raise, you'll get much better terms with more revenue. * If you sell, you'll get a higher price. Of course, this depends on having solid growth channels, and a reasonably sized market. Taking the time out now to chase VC funding when it's not there will hurt your ability to grow in the short and medium term. If you focus on growing revenue instead, you'll increase your chances at VC funding or a sale in the long term. I'm happy to chat more if you want -- email is in my profile.
- PerfectElement 9y ago
  > I don't know what your revenue is, but I'd guess a few hundred k ARR. Is it normal for a SaaS with a few hundred k in ARR to be worth $14 million?
  - vikp 9y ago
    Not typical, but possible with the right team/tech/connections. OP said that the local VC scene asks for 1M+ ARR to invest, which led me to think that revenue was lower.
  - tedmiston 9y ago
    It depends on the quality of revenue. If the few hundred k is very high quality on a rapid growth trajectory vs if it's heavily services based. Of course unit economics rule in the long run, but in the short term, it's more interesting to look at LTV:CAC.
amorphid 9y ago
I had a company that was profitable, growing, and paying the bills. I had plans to grow it to super huge. I also remember wondering why people wouldn't invest, or lend money to, my business, even though it was doing quite well. One day, someone offered to buy me out, and I honestly hadn't expected that. I sold my stake for way less than I had expected to get at some future date, but don't regret it for a second. I used that money to switch careers, and even though I'm an employee now, I don't have any regrets about selling out.
avifreedman 9y ago
Have you checked whether any of your customers are connected to VCs? Enough of ours are that in our seed, A, and B diligence they found folks to talk about us that I didn't point them to. Re: selling vs raising, I would say it really depends on your fire to change the vertical market you're talking about (or more). The other thing I've seen (in both directions) is that if you get hooked up to a few CEOs, they can make introductions for you. Can you introduce customers to any CEOs that don't compete that have great investors that you'd like to talk to? Get most CEOs I know a solid $100k+ ARR customer into and they'll listen to your story and make intros if I think appropriate. It is a disadvantage to not be in an investor-dense area, and travel costs money. I moved to SF to start Kentik, but I think the same principles would work if I had stayed in Philadelphia. Good luck!
inthewoods 9y ago
Generally I’m in the “sell” camp - but one question I haven’t seen in the answers: do you love this business? Are you passionate about it? If you are, then you may not want to sell.
billphipps 9y ago
i don't know what i'm talking about but i'd take the money and run, it sounds like enough to get by on
ronreiter 9y ago
Did you optimize your bid? If your technology is already up from the ground and you have a solid team that can execute and hire then you very well might be worth 50-100m as well. And send me your deck - ron.reiter@gmail.com
herewhere 9y ago
You only get to live once. The only limited thing that you have is your time. If you wake up every morning with the passion for the work you are doing, then you are lucky. A lot of people work at a job that they don't like; this includes engineers at top companies. If you love your job as founder of a startup, I would suggest that keep doing what you love to do. To be successful, you need following: 1. User/Customer Empathy 2. Move Fast in the right direction 3. Focus on hiring and retaining good/great engineers. When you know that you are failing on any of the above, then you need to think about the exit strategy.
cerealbad 9y ago
not a bubble, not a bubble, not a bubble.
dyeje 9y ago
If you've got pipeline full of leads and signed contracts, why don't you just grow organically with revenue?
drumttocs8 9y ago
I don't understand how you can consider your product to be worth north of $400M, but can't raise half a percent of that. Where is the disconnect here? Sure, that intro would be nice, but if you have that kind of product, you should be able to communicate it to any VC and sell it as such.
presidentender 9y ago
https://www.youtube.com/watch?v=-WCFUGCOLLU https://www.youtube.com/watch?v=-WCFUGCOLLU
glenngillen 9y ago
Email me (me at myusername dot com) and I'll see if I can help.
ohyes 9y ago
A bird in the hand is worth two in the bush. With a few million you can never work again.
sorinn 9y ago
Have you tried https://21.co/vcs/ https://21.co/vcs/ ? Might be worth a few thousand bucks?
acty1 9y ago
What are you after in life? A lifetime of financial security and building great businesses? Or working for someone else / struggling to make ends meet because you thought you could turn 12M into 50M or 200M. But in fact it flopped. If you have more than enough to be financially secure already (and perhaps your children if you choose that path).... then go for the home run. But if this thing comes crashing down (99% of businesses fail within 5 years and 99% of the remaining 1% fail in the next 5)... then what would you think? Sure would be nice to put a million or two in the pocket today. I'm going to get flak for this.... but there's probably a better chance that BTC/ETH will return 10x returns over the next 10 years than turning a business valued at 12M into 120M. Yes, that is speculation. But so is your ability to scale 10x (but at least somewhat within your control).
quickthrower2 9y ago
A bird in the hand.
erikb 9y ago
There are sooo many alternatives, not just two. For instance you could partner with another company, showing them the open contracts and make deals with them to share the price when a project is successful. You could try to put your knowledge into low-thinking-step-by-step guides and raise a team of student workers to support you. You could buy another small, struggling company, taking a bank credit for the buy. (a bank is much more willing in such a case than when you just want to grow) And this is just what I come up with laying in my bed at 7 in the morning. There are dozens more options. As entrepreneur it is your job to find a solution without being limited by common ideas. PS: A profitable, vertical, enterprise solution provider is not a company you raise money from investors with. You don't have the growth factor an investor needs. Grow with increasing profit. Grow with taking on more than you can handle and then keeping your customers continue with you despite you not being able to deliver on time. That's how this business works.
oh_sigh 9y ago
If you're actually confident in your positioning, take the offer and then start up another company in a similar enough field.
gnaritas 9y ago
There's nothing to think about, take the money, consider yourself lucky and don't chase a fantasy 400M that may never happen. The old adage is true, a bird in the hand is worth two in the bush. Then you'll have the money to do the next thing if you're still hungry for it.
razzaj 9y ago
Is raising money from the companies willing to buy you an option? Instead if taking the $12M, you could take the $2M you need and dilute accordingly.
greens231 9y ago
we can help you get more investor responses from firms all over the world. contact us at founders@marquee-equity.com
lookingfj 9y ago
You thought of crowdfunding? These guys just had an American company on www.crowdcube.com
ZenoArrow 9y ago
I'm not a business owner, so this advice might be naive, but is there a reason you couldn't get a business loan from a bank instead of VC money? If you've got a strong enough business (which it sounds like you do), I'm confident they'd be interested, and it's not like they don't have the cash to invest.
lefstathiou 9y ago
Shoot me an email (see profile). I'll introduce you to an NYC based VC who likes businesses like these and has a fantastic network. I promise he will look at it if asked. Include small blurb so I can include some substance in email intro.
yesimahuman 9y ago
You could also pivot into something else. Here’s why: you’re not even at $1M ARR despite seeming to have a compelling business and early traction. It’s not “hard” to get there, which means investors see many companies there and beyond for seed. If this sale locks you up for a few years that’s a huge opportunity cost. I can tell you that I’ve personally witnessed major value changes in less time. I don’t regret saying no to local maximum acquisitions (~20M) in the early days because 1) I didn’t do this just to sell 2) I was confident we could be much more valuable, I just didn’t know what was possible. I was righh! Though if you’re a sole shareholder or own a significant chunk of the company, $14M really is a lot. There’s a post out there showing how, for example, Arrington made more than Huffington on their respective sales despite Huffington Post selling for way more. Something to think about... Finally, you’re in the drivers seat when it comes to customers. Something not scaling? Refuse to do it. You’d be surprised what wiggle room you can get when the buyer is motivated.
tdullien 9y ago
How would one reach out in private via email to you?
buremba 9y ago
If you sell your company: + You will be financially secure + You won't be taking any risk so your life will be easier + It will be dead easy to raise when you start a new company + You will have more reputation thanks to the exit - The potential of the company may be much higher - Your life will no longer be fun if you love what you're doing right now. If you don't sell your company: + If thing go well, you can be the founder of a unicorn + It will be more fun if you love what're doing. - One of the big enterprise companies that wants to buy you may build the same product and try to kill your company - The fundraising may take so much time and stressful for you - Even if you fundraise, things might not go well and lose $14M. I would think about all of them at first and sort them by their priority and then it will be easier for you to decide.
alistproducer2 9y ago
If you come away with several millions, you could live comfortably just off the interest on a 30 year note. Take the money and start another company with the interest. Don't be greedy. You could easily end up with nothing.
csmark 9y ago
You haven't failed, you've founded a successful startup. Now you're looking at options and obstacles to taking the next step up. Big money, and the potential for even more of it, does weird things to people. Look at where you are at in life and where you want to be personally. The problem with "possibly" is how it can change one's perspective of reality. Others have given you the "take the money advice." I agree with the push both fronts advice. The reality is you have the skills to start a company but finding investors is not your gig. Options: Small Business Association - Specifically the 7a Loan which tops out at $5 million. The "Lender Match" program may also be of interest. Find a lawyer or banker with experience - What sgs1370 said. Consulting firm or person - If you don't have contacts flush with cash hire someone who does. Legal council - The cost of a hiring a lawyer is a pittance compared to later realizing you should have done so. Same thing applies to a banker if you sell the company. (Obviously) Things to consider - https://hbr.org/2008/02/the-founders-dilemma https://hbr.org/2008/02/the-founders-dilemma Managing a small team of professionals is a different world from finding and managing competent workers. Your daily duties will change dramatically especially if outside investors have a controlling stake in the company.
16bytes 9y ago
It looks like you've received a lot of good advice and established at least a couple of conversations from this post. A nice way to give back to the HN community would be to write up what you decide and what happens next. I, for one, think that would be really interesting to read.
crabkilla 9y ago
Take the money. The only way you are going to raise money is if you have a VC network or if you are killing it. I mean killing it. You aren't. Take the money. Relax. And do it again. The company that buys you will fuck it up and then you can fill in the gaps later as Newco.
sharemywin 9y ago
Maybe your just not charging enough? --installation (SaaS pricing with --sounds like on site implementation --support and training(outside of basic documentation on a website) --security reviews(part of on site implementation) Shouldn't all that be billable hours? or some kind of add-on fee
wolovepr 9y ago
We provide non-dilutive funding for companies with $1M ARR. Email me - patrick@svcapitalgroup.com if interested. Happy to discuss.
rbur0425 9y ago
Are you not profitable? Why do you need VC money if you are worth 400M? I would start calling the VC firms everyday to set up an appointment. You have revenue and a proven product which is leaps and bounds ahead of most pitches they see. At the very least you can use these term sheets to increase the acquisition offer and give urgency for the acquiring company to act. You do not want to let them come in and learn everything and leave as I have seen this happen with a company I was a contractor for.
widgetic 9y ago
Take the money.

jonnathanson 9y ago

"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?" 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!

mrfusion 9y ago
Would a small helicopter make more sense?
- secondmod 9y ago
  Will bunch of Cessnas do? 50k to 150k per plane https://www.globalair.com/aircraft-for-sale/Cessna-172 https://www.globalair.com/aircraft-for-sale/Cessna-172
  - kevan 9y ago
    You don't even need a $500k net worth to afford a Cessna. Most guys I know that have them are firmly middle class. They have to make some compromises on houses and cars, but it's worth it to them because they love to fly.
    - lphnull 9y ago
      brb, launching cesna uber startup for rich folk.
      - JoeMalt 9y ago
        Somebody was asking about this on Reddit (/r/flying I think) a few months back. Short answer is that the FAA does not take kindly to receiving payment if you don't have a commercial license, and if you do then there's better work out there than Uber-for-cessnas.
      - sheppyc 9y ago
        https://en.wingly.io/ https://en.wingly.io/ Not allowed in US though.
- pfarnsworth 9y ago
  I worked with one of the cofounders of Intuit. He has what he described as the "Honda Accord" of helicopters. If someone worth many hundreds of millions only has an average helicopter, you probably need many tens of millions for a small helicopter.
  - cialowicz 9y ago
    I'd say that an R44 is the "Honda Accord" of helicopters, and they're around $500k brand new. With a net worth of hundreds of millions, I'd expect that he went for something safer (with a turbine), like a Bell Jetranger.
- cialowicz 9y ago
  Maybe a used TBM 850?
- jtraffic 9y ago
  Or this: https://www.iconaircraft.com/home https://www.iconaircraft.com/home
- halbritt 9y ago
  Privately owned aircraft are referred to as "that hole in the sky into which the money goes."
  - MrFantastic 9y ago
    ... and may be your coffin.
samstave 9y ago
I want more of this tangent.
chx 9y ago
At 14M you are already in the territory where a jet card is definitely something you could afford. If I had that sort of money, I would use a jet card for flights within a continent and go first class commercial for intercontinental (and definitely use VIP terminal or at least meet and greet services). But at 50M you might be looking at fractional jet ownership already. There is a difference and it's a big one.
- jonnathanson 9y ago
  Well sure, but OP used the word "buy," and I felt the need to clarify that full ownership of a private jet is really not a great idea until you've got that precious third comma.
- nugget 9y ago
  Let's pretend someone has arrived upon 14 million in after tax net worth (not the case in OP's scenario). 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).
  - xapata 9y ago
    $320k disposable every year is very different from $320k post-tax income. With the latter, you'd probably be stashing nearly half of it away for various reasons. The annual spending of a person drawing $320k post-tax from their investments is more comparable to someone earning about $500k post-tax from work.
weaksauce 9y ago
In a somewhat crude and related note. felix dennis (the week weekly magazine founder) once said, “If it flies, floats or fornicates, always rent it.” Not completely bad advice for most rich people that want to stay rich.
- justboxing 9y ago
  so Felix Dennis is the 'Old Wise Person' refereed to elsewhere in this thread with the same quote? Or is this another one of those quotes like the ones attributed to Einstein i.e. no-one know who said it.
  - weaksauce 9y ago
    It was in his book "how to get rich" or something similar to that title. Half memoir half advice. It's actually a pretty good read... title notwithstanding. I am not sure if he was he originator of that saying though.
    - SyneRyder 9y ago
      The Audible version is extremely good. The narrator makes it sound like Monty Python, which seems to be an accurate tone for the book. It isn't a parody, but it's definitely irreverent and thoroughly entertaining.
      - charlesdm 9y ago
        One of the better books on wealth building I've read. Also very amuzing!
    - jonnathanson 9y ago
      I don't think he coined the phrase, but his book is a strong read for sure.
- jedberg 9y ago
  It's ok to say "fucks" on HN, especially if it's a direct quote (and in this case fairly relevant since he was a fairly crass man).
champagnepapi 9y ago
"If it flies, floats, or fucks rent it." ~ Old wise person.
osteele 9y ago
I dined once with a billionaire and a couple of multimillionaires. The billionaire owned a jet. The multimillionaires were envious of him because they only owned jet timeshares. (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.)
- hexadecimated 9y ago
  Such hideously wasteful extravagance, and how sad that these people who are already absurdly rich are still greedy for more.
  - T2_t2 9y ago
    Not really. Buffett bought a jet, after calling it indefensible for years, and actually named it The Indefensible. 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.
    - dwaltrip 9y ago
      How much time does owning a jet actually save?
      - bilbobagends 9y ago
        Door to door from NYC to NC is about 4hrs best case commercial and 2hrs private (Teterboro). Longer distance saves less as a percentage.
flamedoge 9y ago
Uber for jets... for millionaires?
jrs235 9y ago
Yep. You're better off just chartering private flights when you need to.
austenallred 9y ago
Nah, you can get a small four or five seater jet (eclipse) for pretty cheap these days - https://www.controller.com/listings/aircraft/for-sale/17875507/2008-eclipse-500 https://www.controller.com/listings/aircraft/for-sale/178755.... Maintenance is expensive, but it's doable. Not saying it's a wise purchase, and not a 747, but my very conservative father-in-law is in that realm and loves flying his jet around (he lives in the middle of nowhere and owns a lot of farms, so it's almost a necessity). All in you're probably looking at $1,000/hr to fly it. But then no TSA... That said, point taken, most people wouldn't buy a jet if their net worth was $15m. I might.
sokoloff 9y ago
If you cleared $10MM on the sale, you could absolutely buy and operate a baby jet (a 501, 525, 510, Premiere, etc, maybe even a 560) without going broke. 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).
Eric_WVGG 9y ago
I’m reminded that when Jobs returned to Apple, he had a weekly salary of $1 — and a $90 million corporate jet.

goseeastarwar 9y ago

+1 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.

bilbobagends 9y ago
First, a sale of $14M doesn't get you $14 - you'd get less than 10 - best case. Second, your after inflation return in the current environment may be quite ugly - $300K or $400K a year will not feel rich in any east or west coast city.
- sokoloff 9y ago
  Disagree. $300K/yr with $10MM in the bank will absolutely feel rich. 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.
  - bilbobagends 9y ago
    I suppose it depends on what feels rich. The kinds of places you go when you are actually rich cost thousands or tens of thousands of dollars a day, and they have shops where most of the stuff costs tens or hundreds of thousands, and everyone around you is carrying, flying, driving, or sailing things that cost hundreds of thousands or millions.No one I know who makes 300K (after tax) - unless they have a net worth that is in the 10s of millions - feels rich.
    - dasil003 9y ago
      There's a huge difference between $300k/year and $300k/year with 7 figures in the bank. The latter means you can afford a down payment on decent property anywhere, which means you are actually making an investment instead of pissing everything away on rent. 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.
  - newshorts 9y ago
    Disagree disagree. 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.
    - ryandrake 9y ago
      I live in the Bay Area, and $300-400k/yr is an unfathomable amount of money. Get a grip! You're talking about the top 1% of incomes in the country.
      - newshorts 9y ago
        I live here too. We looked at a condo, near Mountain View two weeks ago and the mortgage would have been 10k/month. 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.
        sokoloff 9y ago
        It's not just $300K/yr of W-2 income being discussed; it's that combined with a net worth of $10MM. You could pay cash for that ~$2 million condo and still have $15K/mo to spend after tax. No need to save for retirement (that's what the $8MM is already covering) or college (break off a bit when that time comes). If that situation feels "minimum viable" to someone, I don't think their primary problem is money-related.
- goseeastarwar 9y ago
  What a silly argument, this is the top one percentile in net worth and income. You're confusing the behavior of billionaires with what rich actually means.

jonnathanson 9y ago

Let's say I have a child with special needs, be it giftedness or disability. If I want to provide my child with decent care and quality of life in the SF Bay Area, a household income of $160k is going to make things very difficult. Not impossible, but certainly very hard, and likely harder than anywhere else in the country. 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.

brianwawok 9y ago
I mean, I guess you can have: * 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)
- jonnathanson 9y ago
  Sorry if you were somehow offended by my considering the needs of those we rarely consider. You're more than welcome to read through my posting history and see that this is possibly the first time I have ever mentioned the subject on HN. It may well be the last time. And in case it wasn't abundantly obvious through subtext, I'm mentioning it out of personal experience. 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.

erex78 9y ago

There is a lot of advice on the thread saying: take the money. Given your personal situation etc. this may very well be the right choice. But you need to realize that just because you've been approached for acquisition and even if somebody tells you straight up "we want to acquire you", it sounds like you are far away from actually getting acquired. The road from casual interest to money in the bank is long and bumpy. Unless you actually have a term-sheet in your inbox, you aren't in the position to make this decision right now. The right tactical approach is for you to push hard on both fronts - push as hard as possible on fundraising as if you have no other option. And if you do want to consider an acquisition, start approach these companies and ask for term sheet. If both go well, then you have a decision to make.. (and more leverage..)

wheelerwj 9y ago
> Unless you actually have a term-sheet in your inbox, you aren't in the position to make this decision right now. even then, its not over till the cash is in your account.
- sebbean 9y ago
  that's after you make the decision oy
- tedmiston 9y ago
  Even then, it's not over completely if part of the cash is attached to milestones or subject to a new vesting schedule. I've seen friends' companies acquired without them ever seeing the full "acquisition price".
  - pc86 9y ago
    If the cash is attached to milestones or vesting, it won't be in your account...
lnanek2 9y ago
Definitely. I've been at startups who got signed letters stating the acquisition will go through from the other company, the other company spends months in due diligence learning every secret we had, then they just stop working on it and leave the deal dead.
- sjg007 9y ago
  Do you add a break up clause to prevent this?
  - osrec 9y ago
    You absolutely should.
  - sgs1370 9y ago
    You should* also be working with a banker who sells companies for a living. They will take some % (10%? Who knows) of the deal, but in my limited experience it seems worth it, since they will also help you make introductions and give advice - maybe not perfect advice but it will be advice that will either raise the price of your sale, make it happen faster, or promote some corrupt agenda the banker has (i.e. work with a banker who comes to you from someone who can vouch for them) There are obviously some things to be very careful in terms of shopping for a deal, but that's also how higher valuations occur. And, if the acquiring company doesn't want to deal with it they can give you a "no-shop" offer that is higher, in addition to the breakup/no-deal fee. *This "should" in addition to everything else above is just an opinion. I've only been in a company once that was acquired successfully and heard stories about other situations, so take it for what it's worth which might be nothing :-)
    - tptacek 9y ago
      I could be wrong, and if I am I'd appreciate informed corrections, but I don't think it's the norm for low-8-figure transactions to use bankers.
      - vostok 9y ago
        Business brokers also exist and they're very similar to investment bankers for small, simple transactions.
      - davenbuster 9y ago
        I've been involved in a few deals of that size (acquiree and acquirer) and to my knowledge, no acquirer ever had an IB. If funded, acquiree could lean on angel or VC who's seen a lot of deals.

zdragnar 9y ago

Buying a jet creates high paying, skilled jobs which support families, their children's education, and so forth. The downstream effect from the purchase includes the pilot, the airport expenses, maintenance crew, and the taxes on the expenses and all of those salaries. 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.

Retric 9y ago
May I suggest you read this: https://en.m.wikipedia.org/wiki/Parable_of_the_broken_window https://en.m.wikipedia.org/wiki/Parable_of_the_broken_window Fuel and depreciation is simply wealth being destroyed.
- mlevental 9y ago
  umm that is literally the opposite of broken window fallacy
  - perl4ever 9y ago
    It certainly seems like an example of the broken window fallacy to me. Invoking the creation of jobs to refute the claim of wasting labor is the same illogical argument. It's just redefining bad as good and pretending it is an argument. Jobs are not a scarce resource. Labor is a scarce resource. Capital is a scarce resource. Instead of making cake for the rich, a baker may instead make bread for the poor.
    - brbsix 9y ago
      Making cake for the rich isn't an example of the broken window fallacy either, and I'm not sure what that has to do with anything. Cash for clunkers is an example of the fallacy, operating a vehicle (be it a car or jet) for work/pleasure is not.
- johnsonjo 9y ago
  No, I don't believe fuel and depreciation are being destroyed. I think that is the difference between this situation and the broken window parable. They are simply being traded for a service to arrive at destinations swiftly. If we judge purely off opportunity cost the billionaire's time is worth a lot more than the average layman. The extra cost in the goods and services of a private jet may very well be worth the expense to the billionaire.
  - Retric 9y ago
    Renting a jet to get from A > B is no slower. But, it's a lot cheaper and the difference in costs is not a net economic benifit.
- zdragnar 9y ago
  Fuel and depreciation are only destroyed wealth if there is no lost opportunity by not purchasing them, and that entertainment alone is not a sufficiently worthy value. 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.

jonnathanson 9y ago

My experience tells me you're lowballing the crew salaries; your pilot alone draws at least $200k. You probably don't pay for the rest of the crew, but you do pay monthly fees for storage, private airstrip clearances, and ad hoc (big) costs each time you fuel it up, 'rent' an attendant, and cater the flight.

AdrianB1 9y ago
A commercial pilot at a regional airline makes less than $50,000 a year, many are closer to $30,000. When you get hired by a big airliner (over 1500 hours of flight time) and eventually you get to captain (not co-pilot) then you increase substantially, but nowhere close to $20,000, unless you fly a drug lord in strange places.
- nugget 9y ago
  I have friends who are pilots at the majors who clear $300,000+ a year. Pay has risen substantially since the round of bankruptcies cleared legacy debts. FedEx and UPS apparently pay the most - although I'm not sure why.
  - SeanBoocock 9y ago
    This is correct (have family in the industry). Pay for pilots at major domestic airlines is based primarily on seniority and equipment you fly. Captains at the end of their careers flying the larger planes - 747, 777, 787, A350 - are easily clearing $300,000 with great benefits.
  - pmorici 9y ago
    Flying cargo is more dangerous than flying people? There is stuff that is banned from being transported in a passenger plane that can be flown in a cargo plane.
    - jonnathanson 9y ago
      I'd also imagine you are logging a lot more hours, facing more intense time pressures, and possibly flying some really irregular or odd-hours routes when you're flying cargo.
- jonnathanson 9y ago
  My gut tells me that calculus goes by the wayside when you're flying Bill Gates around the world, or even just flying your 'garden variety' billionaire and his/her family around the country. I could be totally wrong here, because I'm neither a jet owner nor a pilot. But I've worked around enough uberrich people in my day to know that their domestic staff gets paid really well, and I have to believe a private pilot cracks into the sixes rather handily. Whether or not he/she cracks $200k is another matter, but it seems likely. 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.
  - MrFantastic 9y ago
    You are essentially paying your people to become your confidant and to protect your image. 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.
gervase 9y ago
I think it really depends on what you expect from your crew. Let's say you have a rotating pool of four 1-2K hour pilots, with 2 on deck for each flight on a week-on/week-off schedule. Skip the 'attendant', have the crew fuel up, and I think you could probably get away with $200K/yr for the personnel costs, depending on taxes/benefits. 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.
- jonnathanson 9y ago
  Interesting. The calculus is certainly different among billionaires (personal experience sample size = maybe 3 or 4, and no, sadly, I ain't one of 'em myself!). 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.