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Comment by apu | Hacker News Reader

The expected return is (probability of success) X (value at success). In practice, the probability is what matters far more, and so that's what you optimize for.

It doesn't matter what valuations/etc. are in place if the company tanks.

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But this is a company being sold. It's an exit.

The company might be more profitable in the long run if it has better chemistry with its acquirer, even they didn't make the highest offer.

This is predicated, of course, on investors taking a long term view. I think it's been shown that we don't tend to do that.

I'm under the impression that a lot of large sales have earn out clauses and portions in escrow, and bad chemistry in the sale could cause big problems getting all that cash. That may be a factor.

(I've never personally gone through an acquisition myself, on either side of the table).

great question

go check out the comment thread on the post

great discussion on that exact issue

There is also responsibility toward employees, customers, and partners, and to leave a reputation for building great companies and products. It's only a pure exit if none of those things will carry on and the investors get only cash, which would almost never happen. These other responsibilities are unfortunately not respected by many investors, which is why founders try to keep control, a la Facebook and Google.

It depends on the type of "sale", but for most company sales, the acquisition isn't exactly like jumping out of rocket as it's taking off. (Where you wouldn't care if it makes it to space or not, because you've got your bag of money.)

It's not atypical for every investor at every stage to have to sign something like a 180-day lockup for their stock in the event that an IPO takes place, meaning that no large holder can just go sell everything (which would drive the price way down) for at least 6 months after an IPO occurs. So in the IPO case, which is probably what Fred encourages his companies to shoot for, even the VC's need the company to last a good, long while.

For smaller acquisitions, it's possible that everybody gets instant liquidity, but the founders will always have to hang around at BigCo for a while to make sure the transition is smooth, and most M&A deals probably have vested stock that requires certain growth numbers are met (somebody please correct me if I'm wrong here). In that case, this is good advice for the founders, because 1) life will suck if BigCo doesn't treat you well and 2) you have a financial incentive to make sure things keep going well.

The other case Fred refers to is for a company that is still growing, and doing a financing round, not an acquisition. For a company to ever have a "B" in it's valuation, it probably will have to do multiple large financings along the way, so everybody is in bed with one-another for years.

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