This is a subscriber-only article. Join Entrepreneur+ today for access

Learn More

Already have an account?

Sign in
Entrepreneur Plus - Short White
For Subscribers

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.

By Sam Hogg

Opinions expressed by Entrepreneur contributors are their own.

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.

Editor's Pick

Related Topics

Side Hustle

Anyone Can Start a Passive Income Side Hustle For Easy Money — But Only If You Know These 5 Essential Tips First.

The rise of digital automation technology has made starting a passive income side hustle easier and more accessible than ever before.

Marketing

Don't Just Babble on LinkedIn — You Need to Carve Out Your Own Niche. Here's Why.

To ultimately unlock the full potential of your LinkedIn experience, you need to establish yourself as a thought leader in a specific niche. This is why (and how).

Side Hustle

He Launched His Creative Side Hustle Out of a Garage. Now It's Worth $225 Million.

Tom Humble, CXO and founder of E.C.D. Automotive Design, followed his passion for custom auto design into big business.

Living

How to Start a 'Million Dollar' Morning Routine

Restructure your morning with a few simple steps that may help to amplify your energy.

Growing a Business

How an Executive Coach Can Help You Set Better Goals — And Transform Your Business

Ways to enhance your competitive advantage — and psychological wellbeing — with the assistance of a seasoned, results-focused professional.

Business News

This Company Promised to Transform Drive-Thrus With AI — But the Secret Powering Its Tech? Humans.

Presto Automation Inc., one of several major players in AI-ordering tech, has made headlines for using off-site employees in places like the Phillippines.