{"id":5204,"date":"2023-02-23T10:00:41","date_gmt":"2023-02-23T18:00:41","guid":{"rendered":"https:\/\/berkonomics.com\/?p=5204"},"modified":"2023-02-13T13:53:49","modified_gmt":"2023-02-13T21:53:49","slug":"sell-at-the-top-avoid-the-race-to-zero","status":"publish","type":"post","link":"https:\/\/berkonomics.com\/?p=5204","title":{"rendered":"Sell at the top? Avoid the race to zero!"},"content":{"rendered":"

When do you sell your company?\u00a0 <\/strong><\/p>\n

Obviously, we all want to sell at the top.\u00a0 And there is the problem.\u00a0 How do you know\"\" when you are at or near that right point to sell for maximum value?\u00a0 Those of us in the business of calculating (guessing) this mythical peak in value often make the same mistake as our entrepreneurs.\u00a0 We hang on just a little bit longer, expecting continued or accelerating growth and value as in previous periods of the same.<\/p>\n

But there are wolves in the woods.<\/strong><\/p>\n

Yes, there are – when it comes to entrepreneurial growth.\u00a0 Companies sometime run out of cash in the midst of their increasing success, and often find that sources of loans or investment are not freely flowing at the moment of need.<\/p>\n

Growth brings financial issues. <\/strong><\/p>\n

Young companies have been known to outgrow the abilities of management to focus and direct them, failing to make the transition to organized, stable growth.\u00a0 Competitors, seeing a successful development of a niche, flock into the competitive void with products or services built with a fresh view of the current environment.<\/p>\n

[Email readers, continue here…]\u00a0<\/em><\/span> \u00a0Think of major companies, public and private, that have lost their shiny appeal over time, including Zinga, LivingSocial and Fisker in this generation \u2013 and Alta Vista in the last.<\/p>\n

So, the question: load up with more equity and dilution? Or sell now?<\/strong><\/p>\n

\"\"For young companies, often the question is whether to suffer a new round of dilution to stimulate growth, or to sell earlier and not share the (presumably) increased proceeds with additional investors.\u00a0 Not so long ago, Basil Peters wrote his book, \u201cEarly Exits,\u201d<\/em> after analyzing 150 young companies and their exits.\u00a0 He concluded that the sweet spot for valuation was in the $20\u201330 million sales price range, and that many, many times more deals were completed in that range than above $100 million in valuation at exit.\u00a0 Adjusting these numbers to fit your circumstance, the conclusion is that waiting for higher value after sustained growth becomes more and more of a risk in the majority of early stage cases.<\/p>\n

What about those unicorns?<\/strong><\/p>\n

There are only a few Uber or AirBnB investments to point to \u2013 where the street value of the company may ultimately validate that amount of investment.\u00a0 LivingSocial took in $583 million in capital in 2010 and 2011 with little left in time to show for the investment and tremendous dilution to the founders.<\/p>\n

And some of us know from experience that, in a retrospective view, some of our entrepreneurs and their boards of directors pay the ultimate price of erasing all economic value by waiting too long.\u00a0 In such instances, the phrase, \u201crace to zero,\u201d perfectly describes the result of a miscalculation in the name of either optimism or greed.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

When do you sell your company?\u00a0 Obviously, we all want to sell at the top.\u00a0 And there is the problem.\u00a0 How do you know when you are at or near that right point to sell for maximum value?\u00a0 Those of … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"footnotes":""},"categories":[6,11,9,13],"tags":[],"class_list":["post-5204","post","type-post","status-publish","format-standard","hentry","category-finding-your-ideal-niche","category-growth","category-hedging-against-downturns","category-the-liquidity-event-and-beyond"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/posts\/5204","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/berkonomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=5204"}],"version-history":[{"count":0,"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/posts\/5204\/revisions"}],"wp:attachment":[{"href":"https:\/\/berkonomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=5204"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/berkonomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=5204"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/berkonomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=5204"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}