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“The protectors of our industries”. Cartoon showing Cyrus Field, Jay Gould, Cornelius Vanderbilt, and Russell Sage, seated on bags of “millions”, on a large raft, and being carried by workers of various professions. Date 7 February 1883

Exit Strategies are the new Gilded Age, Build Value Instead

Real growth is often slow, boring, and non-obvious.

An exit strategy is a poor benchmark to create meaningful value, for both yourself and anybody involved with you.

Exit strategies also involve venture capital or outside cash that want to either

  1. inflate valuation. (so they make more money)
  2. find more investors to provide capital for additional funding rounds. (so they further inflate valuation, and, again, make more money)
  3. find an investment bank to provide even more outside capital and draft IPO documents. (so they further inflate valuation, and, again, again, make more money)

At every step, the gap between what you’re capable of bringing to the table and what the table is valuing you at is widening.

That widening is sometimes okay. Sometimes, a very large company might see you as a threat, and then they’ll try to purchase you out, effectively making a win on all three steps above. This is exactly what happened when CreditKarma started offering free tax returns and Intuit bought them out for $7.1 billion. Up to the acquisition, CreditKarma had around $900 million in funding over seven funding rounds over seven years.

In that case, it’s likely that Intuit doesn’t care how CreditKarma pans out. If anything, you can see the acquisition as a competitive headache that has been erased and can be diluted away slowly over a decade. This kind of thing has happened during the dot-com boom, with dumb companies such as Mark Cuban’s AudioNet being acquired by Yahoo! for $5.7 billion. It instantly made Cuban a billionaire, but the integration of AudioNet to the Yahoo! platform was killed within a year.

However, we know the story of the dot-com bubble well now.

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Venture capital investments, 1995 onward. Partitioned by quarter. Source: PWC.

We know that many of the valuations ended up benefiting the insiders who sold at record rates that caused the company valuations to pulverize into non-existence. And we know that those who did exit out into larger companies were primarily lucky, not skillful. If Mark Cuban was offered no money from anybody, his company would have died and he wouldn’t be a billionaire — and might not even be a millionaire.

Exit strategies are a fundamentally flawed way of thinking. If you want to give your investor(s) a great plan, tell them about how that company or investment fits into the world in a better way than anything else. Be realistic about what you’re growing, because growth is often slow and boring. At least, real growth is often that way. If you get bought out, look at a strategy in which you integrate with the buyers and fulfill a role you believe is absent.

Otherwise, you’re not looking to explain a strategy at all. You’re looking to pump and dump, but you’re disguising and warmly wrapping it in gilded words.

Written by

UC Berkeley, mathematics. Los Angeles. Long-time runner. Top writer on Quora, 100M+ total content views. New to Medium. Inquiries: Moumj@berkeley.edu

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