I’ve been learning more about start-ups recently and have noticed a lot of them want to be acquired. Why is this? Could they also choose to grow their business?
In: Other
Why do they want to be acquired? Money/profit. That’s the simplest answer. People start businesses like “start-ups” to enrich their lives as the main reason. You start with very little money or all your money gets tied up into the start-up, and you build out your product/service. It’s tough going, you have a pauper’s life for a bit as most businesses hemorrhage money at first… sometimes for years you just lose lose lose.
So you hope some bigger company comes along and acquires your startup before you run bankrupt, and because you own the company so you get the money if you do sell. Usually these startups sell for many millions of dollars, and most of that goes right into your pocket. Well, you and the other owners/investors in the original startup.
Could they decline to sell and keep growing the business? Absolutely! Of course, happens all the time. If the start up grows enough, and turns a profit, you can finally start to pay yourself a bit and you can keep your company growing.
It’s risk vs reward. Do you want to sell now to speculative investors and exit? Maybe you can retire with tens or hundreds of millions depending on the business. Sounds pretty good and you no longer have to do shit! Or if you believe you can make billions and you love your work you keep going!
However, those offers aren’t always there. So you could turn down millions of dollars to sell your business in 2018, then a new larger competitor comes in in 2020 and starts stealing your market share, and by 2023 you are begging anyone to buy you out before bankruptcy but no one is buying now… that’s the risk. You want to sell while the hype is high, sell an inflated value based on that.
Latest Answers