One common trend I have seen in the last few months, is entrepreneurs placing a slide in their pitch called “Exit strategy”.
Here are a collection of reasons why someone will be willing to build to exit or thoughts of what can happen with investors.
I think there could be unintended and unwanted consequences when someone is building to exit or actually does sell her company.
1
You can screw investors as Dave McClure mentioned some days ago in his tweets, when a company doesn’t commit to a specific return (2x), the investor can actually lose money in the deal. So building to exit is not good if you are thinking in a selfish way about making yourself money but not making enough money for your investors (or even your employees that dedicated their time and effort). The best deal is the one that creates value for everyone involved (for some money, for some companies).
2
When you are building to exit you are thinking more of who will acquire you than in creating enough value for your customers. You know that there are certain companies that conduct the acquisitions, you also know these acquisitions are not so common. So what do you do? You worry constantly about what they are doing in your space and how you can build to complement their business strategy. You do that instead of listening to your customers and adding value to them.
3
Your competitors make you paranoid that you will lose your “Exit” opportunity of becoming a millionaire and showing off to all your high school friends that you “hit the jackpot”. Mental energy and time are wasted on worrying about other companies strategies or relations with big companies instead of focusing on being the best at what you do. Don’t build half way because you are looking to someone else. Go all in.
4
It makes investors feel that you are in it only for the money. Its OK to hit a homerun and make enough money that you don’t need to worry about financial constraints anymore, but building a startup is not a good way to do it. Most startups fail and doing it for the 1/1538 chances of getting it right doesn't seem very smart. You need to be passionate about what you are building and enough fortitude and be so formidable (PG) that it seems as you will get what you want not matter what obstacle is in front of you.
5
You are playing a numbers game. The fundraising in the industry is hot and you know you can raise money easily so you just want the shortcut into selling fast an cashing out. You are more worried about the valuation and the exit than keeping the cost low and trying to create value (it can be users or revenue). Don’t play a numbers game when its your own time and your employees future.
6
Last, but not least, I think if you are really in the startup game to bring alive your dream you should feel terrible when you have to sell. I actually believe that it needs to hurt to take the decision. You need to be scared about what will happen to your product, your team and your customers. If it was too easy to say yes then you are probably in one of the 5 situations I mentioned before or you don’t have another choice and selling is the best exit. But lets be clear it was not your strategy but your only choice.
Some (or maybe most) investors like to know that entrepreneurs understand how we make the money and that there needs to be a return. But most investors are also very aware that there is a high chance that they will lose their money. So the focus shouldn't be in the exit but in the building, because if we focus on the odds we have already lost, so lets at least spend our time building something we can be proud of. If the team actually creates a company that will last 5–7 years then (and only then) we can think about what we should do if we get an offer.
