Back in 2006, Facebook stood on the verge of a $1bn acquisition by Yahoo. However, Mark Zuckerberg pulled out of the deal at the last minute when Yahoo reduced its offer for the then fledgling social media startup. “Today Facebook is a $250-300bn company but it’s not as if they were not tempted [to sell],” says Davor Hebel, managing partner at Eight Roads Ventures, the VC firm.
Certainly there can be no greater dilemma for an entrepreneur than receiving a lucrative offer for their business. “Just like taking an investment is a massive step in a company’s development, selling a company is a potentially life-changing event for a founder,” says Hebel.
On the one hand, an entrepreneur could be looking at early retirement and a tidy sum to support their loved ones. But on the other, they will face having to cede control of something they have built from scratch. “The consideration has to be firstly financial and secondly it needs to be: ‘Who are you selling to?” says Hebel. “A lot of people set up companies so that they can be independent but, by selling, there will be a fundamentally new arrangement. They are likely to get a new boss.”
And, quite often, there’s more than one person’s perspective to take into account. “The tension between entrepreneur and investors is real,” says Hebel. “Even when you are raising your Series A, you should be thinking about whether your investors are aligned with your vision.” This will help when an offer does eventually land on the table. “Sometimes it’s a really difficult decision to make because you are trading off money today for a potentially significant upside tomorrow,” he adds.
Saying no to $100m
In December 2015, Guy Mucklow and Jamie Turner were offered $100m for their postcode-lookup company PCA Predict, previously Postcode Anywhere. It wasn’t the first time they’d been approached by a potential buyer. “We’ve had a lot of interest over the years from lots of different quarters, which is very flattering,” says Mucklow. “I suppose we are reasonably attractive because we have no external investors and 15 years of very solid growth.”
At the time of the latest offer, Mucklow and Turner were on the verge of launching their new product, a big-data tool called Triggar. As such, it seemed prudent to wave goodbye to PCA Predict and inject the capital from the sale into their new project. But it wasn’t quite that simple. “We found ourselves at this strategic crossroads,” says Mucklow. “We didn’t know whether to drive a wedge between the two businesses or try and bring them more closely together.”
Realising that the success of Triggar hinged on a rich pool of customer data, the pair decided they couldn’t afford to let go of PCA Predict just yet. “In the big data world, it’s a chicken and egg situation,” says Mucklow. “You need the data to get the customers but then you need the customers to get the data. On the one hand, we had Postcode Anywhere’s customers – 10,000 to 11,000 of them – but we had none with the Triggar business.”
They were also reluctant to part ways with something they’d put everything into building. “If you’re selling a business that you have grown from nothing, it’s quite different to selling a publicly-quoted business where there are lots of external investors,” Mucklow says. “There is much more emotion involved.” That in itself made it a little easier to turn down a nine-figure offer. “For me, it’s about growing a world-class business that is going to create a bit of wow factor,” he adds. “The money is just a measure of success and that’s why we can walk away from a large number.”
Mucklow is now focused on cracking America, which will involve giving away some equity. “We only have a token presence over there,” says Mucklow. “To really accelerate our growth, we need someone that can get us where we want to be more quickly than doing it the hard way.”
If all goes to plan, Mucklow and Turner should be looking at an even more attractive offer down the line. “We have set the objective of doubling our EBITDA,” says Mucklow. “If we can do that in three years, there is a very good chance we will be able to double the value of the business.”
It was only four years after launching Crunch Accounting, the online accountancy firm, that the company’s founder and CEO Darren Fell was given the option to sell up. “It’s hard not to be flattered when an offer comes along,” he says. “You work long days and weekends for years on end to build something, so it’s hugely gratifying for a much larger multinational company to say ‘we like what you’re doing so much that we want to buy it from you.’”
But while the money on the table might have been attractive, Fell wasn’t comfortable with the thought of handing over the reins so early in Crunch’s journey. “I know many entrepreneurs who are building purely for the big exit,” he says. “[But] when the offer was made, we were just getting started on our next phase of growth and I didn’t want to throw all of that away.”
The fact that Crunch would have had no future following the deal was the clincher. “We would have been more receptive if somebody had wanted to acquire our intellectual property but let us continue operating as a standalone business,” he says. “But the suitor in this case purely wanted our technology for use in another unrelated – and actually very boring – division of their business.”
The decision to turn down the offer also had the backing of Crunch’s investors and shareholders, which included a number of its employees. “Luckily everyone involved in the decision had the same thoughts on it,” says Fell. “We all recognised that the business has so much more potential and room for growth that it’d be criminal not to pursue all our other ideas.”
Crunch has since expanded its product range to include an online marketplace, which gives clients easy access to essential and affordable services like business insurance and legal advice. “We’ve been in this industry long enough that we know the best providers,” says Fell. “So we put them all under one roof to save business owners some time and money.”
Suffice to say, he isn’t looking to sell up anytime soon. “We have so many exciting projects going on at the moment,” he concludes. “We’d be mad to sell to someone else.”