Timing of exit is very important

Having run a venture firm for 5-6 years now, some of our portfolio companies are at interesting stages of the company life cycle - proven technology, early leadership, strong management with a lot of further room for growth. And not surprisingly, a few of these companies have recevied strategic interest from buyers globally. Potential buyers always want to catch a company early enough before it becomes too expensive for them to buy.

For first time founders in their late 20s and early 30s, a buyout offer where they can make a few million dollars can be very tempting. And this is even more tempting in India where the dollar or rupee goes a longer way. The risk of turning the millions down and continuing with the company can be daunting. Many founders feel that they are young, and it may be better to sell, build a cash cushion, and then start another company in the future.

I have tried to counsel many founders within my fund and outside, that building a successful enterprises is a non trivial task and just because they have been successful once, that is no gaurantee that will be able to pull it off again. In fact, the odds are low that they will be able to pull off another successful company which requires executing the right idea at the right time with the right team.

If a founder feels that there is a threat to the continuing the business independently and that a strategic can add value, then I think that selling the company may be the right thing to do. Or if the founder feels that the value being offered today is the value he or she can hope to create many years out, then financially it may be a good move to sell the company today. However if the founder feels that there is a lot more value could be created, and that they are in a strong leadership position, then I would suggest that the founder not sell even if they are getting a reasonable cash out, because creating similar value again may not happen and most likely will not happen.

Timing of exits is very critical. It can change the outcome of the company by many multiples if done right.