Of course, you should not be too much focused on discussing exit scenarios when you do not even have a product market fit for your start-up. On the other hand, I recommend that you start early to talk about the exit expectations each shareholder has. It can be very painful if you learn too late that the shareholders have very different expectations regarding a potential exit. Once you are successful, a typical tough discussion is if you should take the first serious offers that you get or continue to grow the business and hope that the valuation increases further.
Many of us read the stories of founders who turned down big offers from Google, Microsoft or the like and then sold the company years later for billions. Yes, these stories exist and this can happen, but I’m sure there are many more stories that do not make the news headlines, where founders turned down offers and then ended up with nothing or much less than they could have got by taking one of the first serious offers.
The issues that you should discuss in such a phase are:
• What are the risks to continue the business?
• What will the potential buyer do when I turn down his offer? Will he buy one of my competitors and what does this mean for my business?
• What’s the value to your private life to get a known amount of money now instead of an unknown amount in the future?
Founders tend to be very optimistic about the future of their own business. This is in the nature of the game and most likely you would not have started the business in the first place without that optimism. But if you get your first serious offers, it’s time to sit down in a shareholder meeting and be realistic about the risks involved with continuing the business – especially as you know now that there are buyers out in the market, which changes your market definitely. If these buyers are large companies with a lot of money and big distribution channels or very close partners of yours, then this can dramatically change your market position. Hopefully – as mentioned above – this is then not the first time that you discuss an exit amongst the shareholders and, in the best cases, you have already discussed thresholds where the shareholders agree that they are ready to sell for those amounts. I would recommend that if you are close or above those thresholds then you should not fall too much in love about the bright future of your business and you should take one of these offers. It’s nasty if you take the money now and in five years find you could have got much more – but it’s a nightmare if you do not take a serious junk of money now and in five years you are left with nothing, because your market has changed dramatically.
Note: I recommend reading the earlier blog post about Pebble. This fit nicely to this blog post.
Update May 3, 2017: Aaron Montemayor Walker posted the following article: “Where Are They Now: Startups That Declined Major Acquisitions“