Recently I met with a founder about 7 years into his startup journey, and we discussed a number of things, but his final question hit home: How does a founder know when it's time to sell? How does a founder decide when it's time to quit?
Most founders I talk to say they left their startup "for personal reasons," including me, but what are some of those personal reasons? The founders with big exits are the ones we hear most about, but even for them, was it only financial?
That decision is complex, as you can imagine. Founders get deeply invested in their companies, not just financially but also emotionally and intellectually. The decision to sell or leave often comes down to a combination of factors that can vary widely from one individual to another. Here are some insights into these critical junctures for founders (with assistance from ChatGPT):
When It's Time to Sell
Market Conditions: A founder might recognize that market dynamics are shifting in such a way that it’s an opportune time to sell. This could be due to increased competition, technological changes, or consolidation within the industry that makes a lucrative offer more likely.
WJ: We noticed changes in the solar cell manufacturing market, but we couldn't quite pinpoint what was up. And then Solyndra defaulted on their $500M government loan, drastically affecting the market.
Strategic Fit: If a larger entity shows interest in the startup, and the founder believes that this entity could scale the product or service in ways that the startup couldn't achieve independently, it might be the right time to sell.
WJ: One of the suitors for our novel CIGS thin film deposition process control monitors--a multi-national enterprise--abruptly stopped communicating. We found out months later they were in the midst of a $400M sector write-off, and our tech would have served it. Poof.
Personal and Professional Goals: Founders may feel they’ve achieved what they set out to do and wish to pursue new challenges or opportunities. The sale can provide the financial resources and freedom to explore these.
WJ: In 2011 our startup won numerous awards, and by 2013, I felt I'd achieved almost everything I could achieve by winning numerous personal awards. I started to get the itch.
Financial Reasons: Reaching a financial peak where the founder believes the sale could maximize their return on investment is a strong motivator. Additionally, if the startup requires more capital to grow than can be raised, selling might be the best path forward.
WJ: Sadly, we never reached what I would consider "our financial peak". Rather, by 2014 it became abundantly clear we needed a lot more capital, and cap-intensive companies like mine were well below the faster to ROI, higher-multiple SaaS companies competing with us.
Burnout: The intense demands of running a startup can lead to burnout, prompting founders to sell when they feel they cannot continue at the same pace or intensity.
WJ: OMG yes. The constant fundraising, travel, missed deadlines, partner disagreements, everything...it takes a toll.
When It's Time to Quit
Personal Health and Well-being: Physical or mental health issues can make continuing in a high-stress role untenable, necessitating a step back for the sake of personal well-being.
Family Reasons: Major life events, such as the birth of a child, a divorce, or the need to care for a family member, can shift a founder’s priorities away from the business.
WJ: In the end, in combination with a need to put my mental health first--largely due to issues with my partner--this was what caused me to sell.
Misalignment with the Company’s Direction: Founders might find that their vision no longer aligns with the company’s direction, especially as other stakeholders (investors, boards) exert influence.
WJ: This is the primary reason I left another startup where I was the 3rd employee. Eventually they sold to a foreign company, but the investors had very distinct and very different ideas about how to run the company.
Exhaustion of Passion: If a founder loses passion for the startup’s mission, it can be difficult to maintain the energy and enthusiasm required, making it a potential time to step away.
New Opportunities: The lure of a new venture or opportunity that aligns more closely with a founder's evolving interests and goals can motivate a departure.
Dynamics within the Leadership Team: Sometimes, conflicts or differences in vision among the leadership team can lead a founder to exit, especially if it becomes a hindrance to the company’s progress.
WJ: When I mentor startups now, I remind them it's always lovely in the beginning when there's boundless enthusiasm. But when it's rough--and it will be at times, especially near the end--have a rock solid operating agreement in place. Same goes for your investors--it's like a marriage. Know what you're getting into, and set forth up front as much about company operations, vision, day-to-day as you can.
Each founder's journey is unique, and the decision to sell or step away involves weighing multiple factors, including personal fulfillment, the startup's trajectory, market conditions, and the wellbeing of both the founder and the company. Founders contemplating these decisions often benefit from discussions with mentors, peers, and advisors who can provide diverse perspectives and insights.
What was it for you?
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