What Is An Acceptable Sale Price For Your Investors? - Brett J. Fox

What Is An Acceptable Sale Price For Your Investors?

One of the things many entrepreneurs fail to realize is that selling your company gets much more complicated when you take outside funding from professional investors. Now, it's not just about what you want, it's about what your investors want too.

I'll explain what you need to look out for in this short video.  I hope you like it.

 

Read The Video Transcript Below:

Will your venture capital investors be happy withyou 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, and 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 going to work for them.

So guess what things change 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 million 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 milion. 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 BrettJ fox.com. Have a great, great day.

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