Few business decision provoke as much second-guessing as timing the sale of a company.
Sell too early and you leave money on the table. Sell too late and you’re ridiculed for your arrogance.
Yahoo is a textbook example of the latter. The internet pioneer, which peaked in 2000 with a market cap around $125 billion, was already well past its prime when co-founder Jerry Yang turned down Microsoft’s $44.6 billion buyout offer in 2008, dismissing it as inadequate. Investors were furious. As it turns out, they had reason to be. Today (July 25) the company announced the sale of its core internet assets to Verizon for $4.8 billion.
Groupon is another notorious example of founders overestimating a company’s future value. The daily-deal site rejected a $6 billion buyout from Google in 2010, after internal auditing told its leadership “we’re the best company in the world,” as CEO Andrew Mason once explained it to the Wall Street Journal. After a 2011 IPO, Groupon’s market cap is now $2.2 billion.
It’s harder to find examples of companies that sold too early, in part because we’ll never know how they would have fared if they never had sold. Paypal sold to Ebay for $1.2 billion in 2002; given Ebay’s subsequent troubles, and the track record of Paypal’s then-leadership (which included entrepreneurs Peter Thiel and Elon Musk), it’s possible the payments business would have grown faster as an independent company.
It’s a lot easier to find entrepreneurs whose decision to cash out looks prescient. In 2005, MySpace, a social network that rivaled Facebook, sold to Rupert Murdoch’s News Corp. for $580 million. News Corp. wound up selling it for $35 million in 2011. Mark Cuban today is best known for owning the Dallas Mavericks and starring on Shark Tank, but he made his fortune selling Broadcast.com, an Internet radio service, to Yahoo for $5.7 billion in stock.
Knowing when to sell is more art than science. Entrepreneurs who accept outside funding are under pressure to craft an exit that enriches their investors, but others may have a harder time knowing when to pull the trigger. Anthony Tjan, a venture capitalist, recommends weighing several factors when considering a sale, including whether it’s worth holding out for every last dollar, and understanding if a reluctance to sell is for emotional reasons. He wrote in Harvard Business Review:
“Will you be happy selling because you will be able to go on to a new venture? Or will you feel like you have “sold out” — that you not only could have done more with this business but that it is what you love doing? Are you confusing selling with wanting a different role? That is, do you want to get out of the day-to-day but still be an owner? If that is the case, then hire someone.”
On occasion, selling at the right time still might not be the right decision. Markus Persson sold Mojang, maker of the game Minecraft, to Microsoft for $2.5 billion, but became miserable without the company that gave his life purpose.
Big companies like Yahoo don’t have the luxury of hanging on to satisfy their search for meaning. LinkedIn, facing increasing competition and a declining share price, chose to take Microsoft’s $26.2 billion rather than forge ahead alone.
In 2013, Evan Spiegel, the 23-year-old CEO of Snapchat, a messaging service, rolled the dice and turned down a reported $3 billion from Facebook. Maybe he was inspired by stories of Facebook’s own Mark Zuckerberg, who rejected an early offer from Yahoo of $1 billion. But perhaps he should consider the wisdom of an earlier tycoon, Wall Street wizard Bernard Baruch, who once said “I made my money by selling too soon.”