Selling Your Company

The myth of the bigger pie when you raise big funding

Have you heard investors say, “You can’t make big money unless you raise big money?”

How there is a bigger pie when you raise big VC money and you keep on raising?

As in the seed round that leads to Series A, then Series B, then C, and so on.

Occasionally, there actually is a bigger result for founders when they sell 50%-80% of their company to VC investors.

Occasionally, but not usually. It doesn’t happen that way very often.

Usually, the result is that VCs end up with most of the pie.

On the Practical Founders podcast this week, 2-time SaaS founder Steven Gelley explains EXACTLY how he and his co-founder did their exit math at his self-funded second SaaS venture called wemlo:

“We just did the back of the napkin calculation when we actually had the term sheet to be acquired 18 months after we started the company for a great exit.

“We could sell it now OR we could raise FOUR ROUNDs of funding, we could DILUTE 80%, we could PAY BACK liquidation preferences of hundreds of millions of dollars AND, seven years from now, IF no competitor comes in and wipes us out, and IF the market is okay for the housing market in the mortgage space, we MIGHT be able to walk away with a LITTLE more money than we could walk away with today.

“Then you discount the cash flow back and put that money to work starting now and you’re seven years later with all that RISK?

“That’s the back of the napkin calculation that we did.

“And we’re like, we’re crazy to stay on. LET’S SELL IT NOW.”

Nobody talks about the better math of the “smaller pie” that bakes a lot faster.

Except for the founders who won their whole pies and did it their way, like Steve.

Steve had raised VC investment in his previous SaaS company, but he and his co-founder self-funded wemlo and went from startup to a life-changing exit in 18 months.

These Practical Founder podcast interviews are producing some real gem stories.

Thanks for sharing this and other gems with other practical founders, Steve.

Check out this awesome Practical Founder Podcast interview with Steve Gelley.

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