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It'd be really interesting to learn about founders' calculus in this sort of situation. What makes $25MM enough? What is it about existing growth that does or d

It'd be really interesting to learn about founders' calculus in this sort of situation. What makes $25MM enough? What is it about existing growth that does or doesn't suggest selling in this fashion? (I mean this in an entirely un-cynical way. Genuinely curious, and not trying to imply anything negative, $25MM ov value in less than two years is pretty amazing.)

immad 12y ago
Ben Horowitz has a good blog post about this subject: http://www.bhorowitz.com/should_you_sell_your_company http://www.bhorowitz.com/should_you_sell_your_company. > So, the judgment that you have to make is a) is this market really much bigger (more than an order of magnitude) than has been exploited to date? b) Are we going to be number 1? If the answer to either a) or b) is no, then you should consider selling. If the answers to both are yes, then selling would literally mean selling yourself and your employees short.
- callmeed 12y ago
  BTW, this is actually laid out in more detail in his book (this chapter is near the end). I just read it and it's quite good. http://www.amazon.com/Hard-Thing-About-Things-Building-ebook/dp/B00DQ845EA/ http://www.amazon.com/Hard-Thing-About-Things-Building-ebook...
smoyer 12y ago
The article says the picture was taken minutes after telling the team they'd been acquired. I don't think I'm seeing fake smiles, so I'd assume that the investors and the employees are happy with the deal. They're only 20 months old so I'll make a couple of guesses before someone answers with fact: a) For a year and a half, most employees would be perfectly happy with a cash-out worth (at the instant) tens of thousands of dollars. b) Those same employees would be happier if they view the deal as potentially expanding the value of their previous work. c) Those same employees would be even happier if they were running out of cash and facing a shutdown versus a buyout. d) Sometimes a marriage creates something stronger than either of the partners ... without the back-story this one is a stretch.
- sbisker 12y ago
  From the techcrunch article: 'the company has set aside $2.7 million of equity retention grants to Perfect Audience employees who stay on.' Given how few people are in the photo, there's probably reason for that to make them smile as well.
  - smoyer 12y ago
    Yeah ... after I posted I did a bit of mental math and decided those "tens of thousands" could push "hundreds of thousands". Not a bad outcome!
callmeed 12y ago
(disclaimer: I don't know what I'm talking about) Well, they only raised a $1.1M seed round [1]. I will guess they gave up 25% in that round [2]. YC got about 7%. At this point, I think AdRoll has become the market leader in the retargeting space. Without raising a huge VC round, there's no way PA could catch them. Marin is a public company, so the cash + stock offer is probably higher than an all-cash offer would be elsewhere. Plus, since they're public the PA people can sell the stock sooner rather than later if they want. So, investors get $5.75M on a 1.1M investment. Not a home run, but definitely a double in the gap with 2 RBI. YC gets $1.6M on a $17K investment (old deal). Founders + employees have 68% remaining, or about $15.6M. Not selling means raising another round, giving up more equity, and still not having a guaranteed exit. [1] http://www.crunchbase.com/organization/perfect-audience http://www.crunchbase.com/organization/perfect-audience [2] http://www.quora.com/What-is-the-average-amount-of-equity-to-give-first-round-seed-investors http://www.quora.com/What-is-the-average-amount-of-equity-to... EDIT: Changed numbers to reflect YC's ownership. Still don't know what I'm talking about.
- nolite 12y ago
  that math actually sounds quite nice..
- balls187 12y ago
  Several unknowns here. Typically seed rounds are for convertible notes, to which no equity is assigned. Standard note terms have conversion during an actual price round, or during transfer of control of the company, or during expiration of the note. Since they're a YC company, they opted to give 7% for $120k. That leaves 93% for the founders/employees. Minus that, they raised ~ $980k, on seed terms, which have a valuation cap at between 3.5-6 million. The valuation cap basically says that the price per share is at most calculated by the capped valuation, not the actual valuation. So investors may have actually bought $980k of stock, at a valuation of ~3.5-6million, instead of the full $25.5 that was purchased. Add to that that convertible notes typically have a discount ~20%, they bought even more shares, leaving them with considerably more ownership, than if they were straight $980k of post-money $25.5m I don't know the details, and it sounds like the employee's, founders, & investors are all happy, but this does underscore that Convertible Notes can be very costly to founders. Had their seed round been priced, the founders & employees would have made a lot more money.

immad 12y ago

Ben Horowitz has a good blog post about this subject: http://www.bhorowitz.com/should_you_sell_your_company http://www.bhorowitz.com/should_you_sell_your_company. > So, the judgment that you have to make is a) is this market really much bigger (more than an order of magnitude) than has been exploited to date? b) Are we going to be number 1? If the answer to either a) or b) is no, then you should consider selling. If the answers to both are yes, then selling would literally mean selling yourself and your employees short.

callmeed 12y ago
BTW, this is actually laid out in more detail in his book (this chapter is near the end). I just read it and it's quite good. http://www.amazon.com/Hard-Thing-About-Things-Building-ebook/dp/B00DQ845EA/ http://www.amazon.com/Hard-Thing-About-Things-Building-ebook...

smoyer 12y ago

The article says the picture was taken minutes after telling the team they'd been acquired. I don't think I'm seeing fake smiles, so I'd assume that the investors and the employees are happy with the deal. They're only 20 months old so I'll make a couple of guesses before someone answers with fact: a) For a year and a half, most employees would be perfectly happy with a cash-out worth (at the instant) tens of thousands of dollars. b) Those same employees would be happier if they view the deal as potentially expanding the value of their previous work. c) Those same employees would be even happier if they were running out of cash and facing a shutdown versus a buyout. d) Sometimes a marriage creates something stronger than either of the partners ... without the back-story this one is a stretch.

sbisker 12y ago
From the techcrunch article: 'the company has set aside $2.7 million of equity retention grants to Perfect Audience employees who stay on.' Given how few people are in the photo, there's probably reason for that to make them smile as well.
- smoyer 12y ago
  Yeah ... after I posted I did a bit of mental math and decided those "tens of thousands" could push "hundreds of thousands". Not a bad outcome!

callmeed 12y ago

(disclaimer: I don't know what I'm talking about) Well, they only raised a $1.1M seed round [1]. I will guess they gave up 25% in that round [2]. YC got about 7%. At this point, I think AdRoll has become the market leader in the retargeting space. Without raising a huge VC round, there's no way PA could catch them. Marin is a public company, so the cash + stock offer is probably higher than an all-cash offer would be elsewhere. Plus, since they're public the PA people can sell the stock sooner rather than later if they want. So, investors get $5.75M on a 1.1M investment. Not a home run, but definitely a double in the gap with 2 RBI. YC gets $1.6M on a $17K investment (old deal). Founders + employees have 68% remaining, or about $15.6M. Not selling means raising another round, giving up more equity, and still not having a guaranteed exit. [1] http://www.crunchbase.com/organization/perfect-audience http://www.crunchbase.com/organization/perfect-audience [2] http://www.quora.com/What-is-the-average-amount-of-equity-to-give-first-round-seed-investors http://www.quora.com/What-is-the-average-amount-of-equity-to... EDIT: Changed numbers to reflect YC's ownership. Still don't know what I'm talking about.

nolite 12y ago
that math actually sounds quite nice..
balls187 12y ago
Several unknowns here. Typically seed rounds are for convertible notes, to which no equity is assigned. Standard note terms have conversion during an actual price round, or during transfer of control of the company, or during expiration of the note. Since they're a YC company, they opted to give 7% for $120k. That leaves 93% for the founders/employees. Minus that, they raised ~ $980k, on seed terms, which have a valuation cap at between 3.5-6 million. The valuation cap basically says that the price per share is at most calculated by the capped valuation, not the actual valuation. So investors may have actually bought $980k of stock, at a valuation of ~3.5-6million, instead of the full $25.5 that was purchased. Add to that that convertible notes typically have a discount ~20%, they bought even more shares, leaving them with considerably more ownership, than if they were straight $980k of post-money $25.5m I don't know the details, and it sounds like the employee's, founders, & investors are all happy, but this does underscore that Convertible Notes can be very costly to founders. Had their seed round been priced, the founders & employees would have made a lot more money.