How Does Adding Investors Change Your Exit?
Everything changes when angel investors or venture capitalists invest in your company. And, one of the most important changes is what price can you sell your company for.
In this short video, I'll explain how investors think about your exit, and why you can't just sell your company for any price you want. I hope you like it.
Read The Video Transcript Below:
Will your venture capital investors be happy with yoy if you sell your company for the same price that they invested in? Well, let's put it this way. If it's early on and the company's growing and you decide to sell at the same price they invested in guess what's going to happen? They're going to block the deal. It's not going to happen.
The only reason they would do it is because they were tired, and they wanted out of the company, and they would allow it to happen. Otherwise, here's the side of venture investing that you need to understand, which is different. The bar goes up for you. If you are bootstrapping your company, you want to sell it for 30, 40, $50 million. That's a great outcome. However, for a venture capital firm, if they just invested at a 30 or 40 or $50 million valuation and you sell it for the same price, that's not gonna work for them.
So guess what things changed for you? It means you have to think about things differently because if they're investing in a $30 million valuation, guess what their expectations are? Especially if you're an early stage company.
The venture capital firms are expecting to sell your business for $300 million. That's going to be an acceptable return for them. If you sell it for 150 in a couple of years, are they going to be unhappy with that? Probably not. They'll be happy. They're not going to be thrilled with it, but they'll be okay with it, but you sell it for 50. The only reason they're going to do it is because they think you don't have a business and they just want to get out.
So remember this, the bar changes. Everything changes for you and the bar goes up. So if you take on investment, the acceptable returns are different for you than they were previously. It's good to understand this. As you go forward. I'm Brett at BrettJfox.com. Have a great, great day.