Stop wasting your life — know when to sell your company

Following our $1B Think3 fund announcement at SaaStr Annual (TechCrunch LINK) — Founders that couldn’t make our session have asked for us to post our material and describe our model further. Appreciate the interest and here was our talk:

The talk opened by discussing how the raw dollars invested by VCs hit a 10 year high in 2017 (Pitchbook) — $84.2B in the US alone.

Yet — in parallel — the number of exits in the US are down dramatically over the last several years (down 30% from 1065 in 2014 to 769 in 2017). IPOs alone are down 50% over the past 2 decades.

The result, of course, is that companies are staying private longer. Which is fine if you are growing revenues at a pace needed to get to an exit — 3x/3x/2x (as Jason Lemkin states LINK) or beating the SaaS Mendoza line (as Rory O’Driscoll states LINK). But for the rest of us growing at a modest rate — the additional time isn’t a benefit as the odds are slim of a company running at 20% growth to magically start growing at 200%. The opposite is actually the norm — for recurring revenue SaaS companies — growth rates decay by 15% Y/Y over time (LINK). So not only does this extended time not increase the company’s odds to reach exit velocity — it also eats into the opportunity costs of the entreprenuers to start their next venture.

In fact — for a vast majority of Founders (and their teams) — this extended time KILLS THEIR CAREERS. Nearly 70% of companies in a VC portfolio return 0–1x (LINK) — yet most of these Founders hang on to continue to pivot and invest for years after they (and the VCs) have realized that exit is unlikely. When, in reality, the right answer is actually to take the learnings and go take another shot…

The lifespan of a typical entrepreneur is approximately 15 years. Basically at that point — you’re sick of eating ramen noodles, sick of getting paid way below market value and perhaps you now have a family to support. If you’re hanging onto your company for 7–8 years — you really only have 2 shots to develop your unicorn. 2 shots on goal isn’t very many tries to do something incredibly difficult (ever try to making a blind-folded hook shot from half court?)…

VCs obviously know it’s incredibly difficult to create a unicorn — so they take an intelligent portfolio-based approach. Knowing that a majority of the companies they invest in won’t reach exit velocity — they place bets on hundreds of startups — hoping that a few of these will make their fund returns. They spread their capital to increase their odds. As a Founder, however, your bet is on your ONE company. And though I’m a 5-time Founder myself and I always love betting on Founders — if I were to bet on 100s of shots vs 1 — I like the VC odds to find a unicorn…

As a Founder — we can actually create our own portfolio approach — but we have to use TIME as the way we create our portfolio. Meaning — if you think of that same 15 year time horizon — the goal is to maximize the number of shots you can take in this time period thus increasing the odds that one of the 5 become your unicorn. But to do so — Founders need to be relentless about evaluating their exit velocity needs and make the decision within 3 years on if the company is growing fast enough. Three years, turns out, is the sweet spot where both Founders and VCs both know if the company is going to break-out or if it’s a good-but-not-10x’r. The name ‘Think3’ was chosen to have Founders visualize exactly that — to think about your shots on goal as 3 year increments — and take 5 shots in your 15 year startup career.

Aileen Lee from Cowboy Ventures did a great analysis a few years back (LINK) on the charateristics of unicorns. What struck me was that 90% of the teams had worked together previously and the average age of the Founders wasn’t still using fake IDs to get into bars. These were seasoned Founders that brought together a team that they were familiar with to make magic happen. I fundamentally believe there are a lot more of these great Founders and teams out there — but they are fighting the wrong fight and pivoting (again) vs taking their learnings and moving onto create the next great company. Also interesting from the unicorn analysis was that 90% of them had never pivoted…

As Founders — we start our companies under the continual assault from everyone you know (including grandma) of ‘your idea is stupid’ and ‘your idea will never work’ and ‘you’re stupid for trying that’. As a result, we grow to be perpetual optimists as we constantly sell our idea to our friends, investors, potential customers, staff and basically anyone at Whole Foods that will listen to us. I think we even start to believe it at some point — and we wrap our identities around it. This makes it incredibly hard for us to make objective decisions on the real status of the company and exit potential. We all have hockey stick growth charts that say ‘next year — wow — that’s when this thing goes to the moon!’

Above are 2 quotes from companies we’ve bought this year — and their stories are identical to many Founders we encounter. Both of these companies were founded by smart, ambitious and well-respected Founder/CEOs — but both had market shifts that didn’t quite fit with their current companies. But in classic Founder mentality — both CEOs went for yet another pivot, spent more money and time — just to realize that the precious years should have been spent growing their new idea instead. I don’t believe either of these CEOs were at fault since the SaaS world changes rapidly — particularly if you’re looking at 7–8 years per company (Google AdWords integrates a new feature, Apple makes something free, AWS integrates another tool for free, etc). And hindsight is always 20:perfect — but think of the amazing companies we can create by freeing up ‘stuck’ Founders faster…

After speaking to dozens of Founders in the situation above — we’ve come to the realization that Founders do really want another shot. But they’ve always felt ‘stuck’ since they have so many people relying on them — current team members, investors, customers, their family, etc etc. And they feel like it would be a failure unless everyone makes millions and millions of dollars off their idea and hard work.

This is where Think3 comes in. We want these Founders realize that hitting a double is still a great outcome — and to go take those learnings to your next startup. Take 5 shots in your career vs 1 or 2 to maximize your potential opportunity. You don’t have to hit the homerun on your first time facing a Major League pitcher. And unlike the AAA ball-player that ages out of getting to the Major League — you get to take your knowledge and start again. And extra bonus that your angel or VC also gets to take their money and reinvest in your next one.

At Think3 — we buy your SaaS company (for typically 1–2x revenue — regardless if you are making or losing money) after a quick 4 week diligence. We then setup a 100 day knowledge transfer model to enable you to take your team to go start your new venture (unlike most PE firms that will want you and your team to stay on after acquisition). We also provide you $500k to get a head start on the new venture through a no-strings/no-equity seed round (and if you need more — we’re happy to do up to a $1M but we’ll then need to discuss an equity stake in your new company).

The 100 day knowledge transfer is a critical component to make Think3 successful and to ensure your company continues to run smoothly after you and your team depart. We’ve built this ‘product’ from acquiring 50 companies over the last decade and it involves deep ‘peer programming’ for the various components of your company. We peer program engineers, finance, support, marketing, sales, operations, etc. All of this is to help ensure we drive customer success after you depart. After the blood-sweat-tears you put into building your company and putting your reputation on the line with customers — we use our product to ensure the company not only continues but thrives.

Think3 was developed by Founders for Founders. And if we can change the dialogue for Founders to realize that TIME is their portfolio — we feel we can unlock a tremendous social and economic value. Three years really is enough time to determine velocity — so let’s enable Founders to take the key learnings and take more shots…

For Founders that want to confidentially discuss options and VCs or Angels that want to redeploy capital — please feel free to contact the email above or shoot me an email directly. We have a quick 48 hour evaluation framework that can give you an initial valuation and we can discuss the model further.

Founders — take more shots on goal…