How Much Do Startups Sell For: $100M Success Stories

How much do startups sell for? The answer might surprise you. Startups typically sell for a lot less than established businesses, but there are still plenty of opportunities to make money from them. With the right planning and execution, your startup could be worth millions in no time.

The recent successes of “unicorn” startups have led to a distorted view of what constitutes entrepreneurial success. The focus on billion-dollar exits has inflated the importance of such outcomes while obscuring the fact that they are actually quite rare.

How much do startups sell for? selling a company for $100 million may be considered a significant event in today’s startup ecosystem, but it is still far from being the norm.

A surprising number of VCs and industry observers are unimpressed with low nine-figure exits. This is not a universal belief, but it is held by enough people to be notable.

This is not surprising In our hype-driven society. Tech journalists also want to write stories about companies that spell million with a B. Investors at billion-dollar funds are looking to invest $50 million in winning companies and $100 million exits are seen as consolation prizes rather than reasons to cheer. A $100 million or more exit is seen as a huge acquisition in this echo chamber.

We took a close look at the backgrounds of some of the most successful VCs in recent decades, those who have experience founding companies. We found that only 63 out of these investors have built enterprises that have either IPO’d or sold for more than $1 billion.

Many of today’s most successful investors have created exceptional startups that, according to today’s distorted standards only look modest in terms of economic results.

Paul Graham, one of the most influential venture capitalists of the past 10 years, sold Viaweb for “just” $49 million. Though it was a success in every realistic way, this didn’t meet today’s standards for a hyped success story or fundraising stockpiles. the company had raised only $2.5 million before it was sold–a remarkable return and great precursor to what was to follow for Paul Graham. Small exits can sometimes lead to big things.

It can be difficult to accurately value some dot-com-era exits, but there are citations available in some cases. For acquisitions where undisclosed amounts were involved, we assume that the acquisition prices were less than the materiality threshold for the buyer.

$100M success stories

VCs often scoff at the idea of selling a company for $100 million, but this figure is often mocked by members of the startup community. Aaron Patzer, best known for his creation of Mint.com, sold his site to Intuit for $170 million – a fortune that many ridiculed him for. There’s even an Urban Dictionary entry that describes how to sell a startup for less than $100 million.

Our portfolio company was recently sold to a tech giant for 100 million dollars. This sale was a huge win for everyone involved and the most realistic outcome that the company could have hoped for. The co-founders made more than LeBron last year, and we were able to acquire a large number of companies in a very short time.

It’s a shame that people are so dismissive of these successes, especially when compared to the hype surrounding startups. These wins represent a much broader and more significant achievement than simply being “unicorn-obsessed.”

Go big or go home

We’re not suggesting that entrepreneurs should look for quick flips or undervalue their company’s potential. We want to fund the next Uber, Google, and Facebook. The reality is that not every business is suited for that. Part of the reason so many VCs had great outcomes at well below unicorn fantasy levels is that they raised the right amount of money for their businesses at valuations that maintained exit options.

If a startup appears to have a billion-dollar business idea in the seed stage but then encounters unexpected problems, this can be devastating for the company.

Most VCs are only interested in investing in startups that have the potential to generate multiple billion-dollar exits, so if a startup doesn’t meet this criterion, it will likely be underfunded. Click To Tweet

This can limit the number of viable exit options for the startup.

the company in question had $10 million in gross revenue last year and was valued at $50 million in its last round of funding. the company is looking to double its revenue and is therefore seeking additional investment. However, the company has weak margins and an insufficient grasp of its unit economics. As such, it would only be able to raise $20 million under normal circumstances on a pre-money valuation of $80 million.

It turns out that even small exits can lead you to great things.

a VC will see signs that there is progress in the current market and convince the founders to “Go big or go home.” He has $20 million in his pocket and convinces the entrepreneur instead to take \$40 million \(with half going to insiders) at a $260 million valuation. the company now needs to be sold for a billion dollars with a $300 million valuation.

the company sold its option to a $500 million exit, but only had $10 million in revenue. a sale for half of a billion dollars would have been ideal, but instead, they will likely increase their burn rate and raise additional money. this promising company may eventually go out of business if they cannot keep up with the high price and VCs lose interest.

What the fund size tells you

If you want to maximize your chances of a lucrative exit, it’s important to raise money strategically. This means selecting investors who will give you the flexibility you need. As David Frankel, partner at Founder Collective, often says: “fund size tells us everything.”

This means that your startup must be able to show that it can exit at least for the same value as the VC’s funds. If you raise $50 million, you can easily sell for $100 million. But if you’re raising money from a billion-dollar fund, you’ll need to aim even higher. Make sure to carefully consider your options and be clear about what you are signing up for.

Conclusion

So, how much do startups sell for? It is difficult to ascertain the precise value of a company during its early stages in the startup world, as its success or failure remains uncertain. There is a saying that startup valuation is more of an art than a science; this is largely accurate. However, some methods can help to make the art a little more scientific.