When Your Startup Goes From Doing What You Love to Doing What It Takes

Take the money or run?

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A startup exit is awesome if you can survive the grind. And that can be easier said than done.

Yesterday, I got an email via my website from “Liz”, an engineer at a Software as a Service startup. Liz is concerned because, while her startup is heading to a seemingly inevitable acquisition, no one can pin down a time frame on when the exit will happen. She’s worried that her skills, and her passion, are drying up.

“I‘ve been here for over three years and have gone from senior developer to VP of Engineering in that time. The company is doing really well and is planning on selling, hopefully in 2021, and I will potentially cash out at around $50K before tax.

I love what we do and the journey we have been on, but I feel my personal growth has been stunted recently with my attention being focused on making the business more efficient rather than focusing on the tech (my goal is to become a CTO). This is making me want to look elsewhere for more of a challenge. Should I stick it out and wait for the sale?”

To summarize, this is a good problem for Liz, but everything she has done for the last X months, and everything she will do for the next indeterminate Y months, is going to be focused on getting a better price for the sale.

When I first read her email, I was like “Shit, Liz, take the money.” Then I realized there were a couple of hedge factors in her situation that might be hedge factors in any situation.

Wait for the exit or jump ship? Here’s what you need to ask yourself.

How much is your equity worth?

An exit is a liquidity event and, desperation sales aside, it usually means that everyone in the company with options gets to accelerate and transact those options without having to purchase them. If the event is all cash, that cash essentially hits your paycheck like a bonus.

In Liz’s case, a bonus of $50K is right on the cusp on what I’d consider a no-brainer windfall. Assuming she is in a position in her life to be able to wait a year or more to get paid, that’s a hard number to walk away from. It won’t change her life, but it is her money.

Two things I’d caution for anyone in this situation:

  1. Don’t count the money before you get it. Over the course of a year, the valuation of a company can change for better or for worse. In Liz’s case, the company has shifted focus exclusively to valuation, so the likelihood is that the purchase price will increase.
  2. Not everyone get rich when the startup exits. You might be looking at that $50,000 figure and be thinking it should be more like $500,000 or $5 million. The truth is, outside of the founding team and the earliest employees, most of the startup employees are holding a small percentage of a small percentage of equity in the company.

When you weigh this against years of reduced salary and barebones benefits, the opportunity costs usually mean that most employees break even or do a little better.

You shouldn’t ever get into startup to get rich. You’ll be doing it for the wrong reasons. So I kind of admire Liz’s willingness to walk away for more satisfaction and personal and professional growth. It’s up to her to decide if she wants to leave her money on the table.

What kind of commitment did you make?

I didn’t get into Liz’s personal or professional relationship with the founders and the investors, so I won’t make a call there. I will generally say, however, that there’s a pretty sizable list of people I won’t work with or recommend because I know they’re hopping from potential exit to potential exit, or salary level to salary level, or shiny thing to shiny thing.

Yeah, loyalty is probably a lost art, especially in startup and especially in tech, but each person has their own individual story to consider.

There are limits, of course. If you’re really dragging every day and the payout is turning out to be much less than everyone thought it was going to be, you’re not doing anyone any favors by sticking around because of loyalty.

Have you ever done this before?

  • Be a part of a spectacular failure.
  • Run a startup that doesn’t go anywhere for six months or longer.
  • Be a part of a better-than-average exit, either an acquisition or an IPO.

The reason I picked these particular scenarios is because of the vast amount of hindsight that you get when these things happen. This is experience that will help you with just about any kind of startup scenario in the future. In each situation, you and your company will do a lot of things right and a lot of things wrong, but you won’t know exactly how right or how wrong until you get to the end.

In Liz’s situation, as VP of Engineering, the period from the approach of an acquisition through the first year post-acquisition would be ripe with invaluable experience, even if it isn’t the hands-on-the-keyboard experience that she’s after.

What’s going to happen after the sale?

Obviously, the challenge that Liz’s company presented her when she joined was right for her at the time. And while this buildup to a potential acquisition is certainly no dream job, there are three things to consider:

  1. This cycle is temporary. She doesn’t know how temporary, but one way or another it’s going to end.
  2. This cycle will happen again, in almost any position Liz walks into from here forward, whether it’s another startup looking to exit or a public company looking to make their next quarter.
  3. There will be a brand new challenge at the other end of the acquisition, with a new role at a new company. That can be a good thing or a bad thing, but it’s definitely going to be a new thing.

Different people look at different challenges in different ways. And that brings up probably the most important question.

What’s your endgame?

I ended up not answering Liz’s question, just giving her these questions to think about, because it really comes down to what’s more important to her. I can say that Liz made a decision and that she felt it was the right decision. You have to make the right decision for you — just make sure you take all the variables into account.

Hey! If you found this post actionable or insightful, please consider signing up for my weekly newsletter at joeprocopio.com so you don’t miss any new posts. It’s short and to the point.

Written by

I’m a multi-exit, multi-failure entrepreneur. Building Precision Fermentation & Teaching Startup. Sold Automated Insights & ExitEvent. More at joeprocopio.com

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