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The upside potential is exactly why they offered 14x revenue - they had to sweeten the pot and make sure that they incentivize you to move now as opposed to lat

The upside potential is exactly why they offered 14x revenue - they had to sweeten the pot and make sure that they incentivize you to move now as opposed to later. They are willing to pay a little more now in exchange for insuring that they don't miss out, or miss a huge inflection point. However, bear in mind that as time goes on, and there's more data about monthly run rate, that multiple will likely go down. First, as time goes on, it will become increasingly less likely that you will "pop", or have a huge hockey stick of growth. Part of the multiple is designed to get you out of the game before you hit that inflection point. Second, many companies fall down once they try to scale their business. It requires a different set of skills, often different employees, and makes it a lot more likely that you'll miss on execution. Once you have a few quarters in a row of ~2% growth instead of 5%, your valuation will drop dramatically. Third, the market moves around you. Even if you're continuing to grow, what your competitors do can influence your valuation, to your betterment or detriment. I'm not saying that the author made the wrong decision, only that it's always easier to say, "Well, if we keep growing, and wait another year, we can get acquired for 2X more!". Heck, a year from now, that acquirer themselves might not exist anymore. I think that if you expect you'll want to exit the business at some point in the next few years, if you are fortunate enough to get a more than fair offer where all of your employees and investors would see it as a win financially, you need a really compelling argument not to take it.

wmeredith 12y ago
TL;DR: A bird in the hand is better than two in the bush.
- electic 12y ago
  Agreed, the more data you have the harder and harder it is to command a 14x multiple. I have now made that mistake 2 times in my previous startups.
- ThrustVectoring 12y ago
  That, and you have to actually go into the bush to get them. If you can successfully start businesses, a year of founder work is itself worth a significant amount of money.
sliverstorm 12y ago
However, bear in mind that as time goes on, and there's more data about monthly run rate, that multiple will likely go down. Are there any astrophysicists around? This reminds me of the bit about how an asteroid might be at 5% chance of hitting Earth, then tomorrow as it gets closer it's now at 4% chance, then a week from now it's only 1% chance... It's not what you expect, but it makes sense when you understand that the uncertainty of the asteroid's trajectory shrinks with time, dramatically changing the prediction. (Similarly, it could be 5% today, 20% tomorrow, and 99% a week from now)
- mattzito 12y ago
  Yeah, the picture comes into focus. I think this is one of the reasons why a big chunk of the companies that pivot post-series A do so. You raise some money, and you don't see that revenue growth arc improve (or it flattens). Now, as time goes on, it becomes harder and harder to argue that if you only have a little more: - Time - Money - Talent That you can adjust the curve - the curve is reality. So the only way to justify greater upside/multiple/investment is to change the discussion. Change sales strategy, change product focus, etc. etc.
- vkjv 12y ago
  That's because yesterday, it wasn't really 5%, it was 5±4%.
  - SEMW 12y ago
    In this context, putting error bars on a probability doesn't really make sense. Your uncertainty about the probability is already encapsulated in the probability itself. In other words, 'more uncertain than 5%' wouldn't be 5±x% , it's be, say, 6%. If you have no information at all -- you're as uncertain as you could possibly be -- the probability would just be your prior for this event, and the more data you get pointing to the event either happening or not, the more the probability will move away from your prior towards either 0% or 100%.

wmeredith 12y ago

TL;DR: A bird in the hand is better than two in the bush.

electic 12y ago
Agreed, the more data you have the harder and harder it is to command a 14x multiple. I have now made that mistake 2 times in my previous startups.
ThrustVectoring 12y ago
That, and you have to actually go into the bush to get them. If you can successfully start businesses, a year of founder work is itself worth a significant amount of money.

sliverstorm 12y ago

However, bear in mind that as time goes on, and there's more data about monthly run rate, that multiple will likely go down. Are there any astrophysicists around? This reminds me of the bit about how an asteroid might be at 5% chance of hitting Earth, then tomorrow as it gets closer it's now at 4% chance, then a week from now it's only 1% chance... It's not what you expect, but it makes sense when you understand that the uncertainty of the asteroid's trajectory shrinks with time, dramatically changing the prediction. (Similarly, it could be 5% today, 20% tomorrow, and 99% a week from now)

mattzito 12y ago
Yeah, the picture comes into focus. I think this is one of the reasons why a big chunk of the companies that pivot post-series A do so. You raise some money, and you don't see that revenue growth arc improve (or it flattens). Now, as time goes on, it becomes harder and harder to argue that if you only have a little more: - Time - Money - Talent That you can adjust the curve - the curve is reality. So the only way to justify greater upside/multiple/investment is to change the discussion. Change sales strategy, change product focus, etc. etc.
vkjv 12y ago
That's because yesterday, it wasn't really 5%, it was 5±4%.
- SEMW 12y ago
  In this context, putting error bars on a probability doesn't really make sense. Your uncertainty about the probability is already encapsulated in the probability itself. In other words, 'more uncertain than 5%' wouldn't be 5±x% , it's be, say, 6%. If you have no information at all -- you're as uncertain as you could possibly be -- the probability would just be your prior for this event, and the more data you get pointing to the event either happening or not, the more the probability will move away from your prior towards either 0% or 100%.