The Case for an Early Buyout Being acquired by a bigger company early in your venture's life cycle can be a sweet deal in its own right.
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I know everyone dreams of being the next Mark Zuckerberg, fending off huge buyout offers on the way to becoming a billionaire. But the faster alternative--being acquired by a bigger company early in your venture's life cycle--is a sweet deal in its own right.
Case in point: Mobile e-mail manager Mailbox was acquired last spring by file-sharing service Dropbox for a reported $50 million-plus in cash and stock, a mere one month after the Mailbox app was made available to the public. The 13-member Mailbox team is continuing to build out the app as its own product under the Dropbox umbrella. In acquisition terms this is a win-win: They enjoy a nice payday and get to work on a product they're passionate about. Plus, they no longer have to worry about cash flow and can instead tap into the financial and operational strength of their parent company.
There's an even better reason for company founders to consider an early acquisition: They usually end up with more dough than they would if they'd cycled through several investment rounds. This has to do with the dynamics of "pre-money" and "post-money" valuations. A company worth $5 million pre-money that raises $5 million of outside capital has a post-money valuation of $10 million, but the original shareholders won't get any of that additional value. The new owners will take it. Meanwhile, the founders have to continue along, hoping for a bigger payday, which will now be more complicated and smaller, percentage-wise, than before.