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Exiting as a founder is tough. Is a $150m-$300m exit awkward?
CJ Gustafson wrote recently in the Mostly Metrics newsletter about the Awkward Exit
His take is that at $150m-$300m the exit is awkward because investors won’t be happy. I think it really depends on a lot of factors. What did the founder tell the initial investors? How much money did they raise? How fast did they exit? What are the terms and type of exit?
At Social Leverage, we invest typically at a sub $10m valuation. If we own 20% and the company exits for $300m, then we return 60% or more of our fund. Not bad. Is it a grand slam? No. But if the founder was disciplined in his capital raising, didn’t raise the last round above $20m-$30m, then the investors, especially those below $10m, should be pretty happy. The details are what matter. What was the vision? Was this a $10B company type vision or was this we are building something interesting that we think one day is worth $200m-$500m and maybe along the way we explode with growth or a pivot or a new product and this becomes a multi-billion dollar idea, but if not, no big deal because my cofounders, investors, and everyone on the cap table know that I am very happy to take a $300m exit and return them multiple of their money. Investors and founders need to be aligned. Everyone needs to understand the math.
The devil is in the details. Not every company needs to raise $50m-$5B in capital to be successful. And not every company needs to exit for over $1B.
The key is keeping the initial valuation and total capital raised low enough to have optionality.
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