Should You Sell or Close Down Your Startup?
Facing the tough choice of what to do with your startup — sell it or shut it down — is a crossroads moment filled with emotion and hard decisions. You’ve poured your heart, soul, and endless hours into building something special, so have any partners or team members involved. When the path forward seems unclear, be it due to financial hurdles, the allure of new ventures, or simply the lifecycle of your business, remember: you’re not at a dead end. You have options, each with its own set of considerations.
Timing Is Everything
Don’t wait until you’re on your last leg — financially or mentally — to consider and execute your plan. In the best-case scenario, your startup is growing, you have a good team and a competitive advantage, and you are in a strong position to sell. In the worst-case scenario, you are about to run out of cash or have already run out, the team is imploding, or you are burnt out, and your only option will be to close down, more or less painfully.
As Jason M. Lemkin outlines in his newsletter SaaStr Insider! “Before You Fail / Run Out of Money / Etc. If you are slightly hot but with few revenues or have something but not enough, sell while you still have time. Don’t wait until you have 30 days of cash. Way, way too many startups wait too long in this scenario.”
You Are Not Alone
A Sifted survey found that 49% of founders are considering quitting their startup this year (source). As a founder, you should consider exiting when building your business is taking too much of a toll on you — 53% of founders surveyed told Sifted they’d experienced burnout. On its side, Startups Magazine reported that 72% of early-stage startup founders have grappled with adverse mental health impacts since launching their business, with a further 37% contending with severe problems such as anxiety, depression, bipolar disorder, or substance abuse (source). Of course, there are other reasons to consider exiting your business through acquisition or closure. Whatever your reason, you should have a clear and honest assessment of your situation, your alternatives, and your expectations before selling or closing your startup.
Valuing Your Business
First, don’t sell yourself short by thinking your business lacks value if it isn’t making a profit. Your company’s true worth isn’t just in current profits but also in assets like your client list, brand reputation, potential future earnings, software, intellectual property, and the talented team you’ve built. Potential buyers value these assets for many reasons, including reducing competition. Unsure about your business’s value? Speak with your investors, hire a freelancer with M&A experience, or speak with UNWIND.
Selling vs. Closing: Weighing Your Options
Deciding whether to sell or close your business involves carefully evaluating the pros and cons of each option.
Selling could mean:
- Creating value/liquidity for you, your team and your investors
- Seeing your business legacy continue
- A possible ongoing role or revenue for you
- An immediate release from business responsibilities
- Providing security for your team
But, it also comes with:
- Potential lock-up periods and non-compete clauses
- Lengthy and stressful negotiations
- The risk of a deal falling through
Closing, on the other hand:
- It is quicker and maybe more straightforward
- Ends the chapter on your terms
- Frees you from non-compete restrictions
- It lets you potentially repurpose or sell some assets
Yet, it involves:
- Paperwork and potential personal liability
- The task of settling up with creditors and informing customers
- Impacting your employees and business relationships
Making the Choice
Consider each path carefully, envisioning the personal impact and consulting with trusted friends, family, and advisors. If partners or stakeholders are involved, discussing a sale’s viability and the implications of closing is critical. If you raised some money under S/EIS, both options have potentially different tax implications for your investors (source).
Ultimately, choosing between selling or closing your startup is profoundly personal and complex. It’s about balancing emotional, financial, and practical considerations. Whether you decide to close this chapter and start fresh or hand over the reins to someone new, know that both paths are steps on your entrepreneurial journey. And remember, at UNWIND Ventures, we’re here to support you through these pivotal moments, providing guidance and understanding as you navigate the future of your business venture.
Why close a business? Consider closing if the company is no longer sustainable, you’re ready for new challenges, or the commitment outweighs the rewards.
What’s the difference between selling and closing? Selling transfers ownership and operations in exchange for compensation, while closing means ending the business’s operations entirely.
Is selling a business stressful? Yes, selling involves complex legal, financial, and operational considerations, requiring careful planning and execution to ensure a smooth transition.
