Monthly Archives: October 2010

How to sell your startup (Hint: hire a banker)

Dean Takahashi wrote an interesting story in SocialBeat describing a fireside chat with Jay Adelson the former Digg CEO. In light of the company’s recent decline and hopeful restart Jay was asked if he regretted not selling Digg when he had the chance. It was widely reported that Digg received offers to sell between $80-100 million at the height of their popularity. Interestingly, Jay argued that Digg never actually received a formal offer from any of the rumored acquirers including Fox, Yahoo and Microsoft. He explained, “Talk is cheap”.

I would agree with Jay – talk IS cheap. Half a dozen major internet companies have knocked on ShopSavvy’s doors and kicked the tires. Three of the six floated potential numbers and in one case we thought the deal made a lot of sense. But at the end of the day without a process and a timer it is in the interest of ALL acquirers to wait and see before actually buying the company. Once we had interest we seriously considered hiring an investment bank to put a process and time line in place, but once a startup takes that step it really limits your options – you will be selling your business.

Regardless of whether it is your first or fifth startup, the decision to exit is an emotional one. The reason most entrepreneurs start a business is to ‘build a business’ not to ‘sell a business’. It is easy to let prospective suitors in the door and offer them a tour of your ‘baby’. The hard part is when you have to sign the engagement letter and write a check to the investment banker. It is the farthest thing from ‘comfortable’ for most entrepreneurs. In ShopSavvy’s cases I couldn’t bring myself to sign the letter (also, not wanting to write the check made it easier not to sign). If you have interest and you want to sell you have to start a process and set a time line – most entrepreneurs suck at this and should hire an investment banker.

Jay explained, “it’s easy to advise entrepreneurs to maintain a professional distance from their companies, but it’s hard to do it in practice.” I agree it is easy, but I am not sure it would be the best advice to give. I believe that passion and emotion are why startups succeed when they should fail. I think professional distance is why startups fail when they should fail.