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How Timing Affects Value

Posted by Joe Vasquez on Jan 12, 2016 12:01:47 PM

145921The holiday season is officially over, and at Runway, things are buzzing back at normal. It’s nice to see so many people working hard and having fun.

I read this weekend that our old neighbor, One Kings Lane, is looking in earnest for an acquirer. The rumor is that they’re going to sell far below the amount of funding which they took on. Which means, barring the lack of any liquidation preferences, investors are going to get pennies on the dollar and the founders and key staff are not going to get anything for their shares from an exit. This is always sad to see. Along with Gilt’s exit, we’re seeing the final chapters of the daily deal saga. Six, seven years ago, we saw this explosion hit the scene. Huge amounts of wealth were created overnight and investors and corporations couldn’t put enough money into the daily deals business. Anyone with a substantial user base saw the opportunity to cash in big. Even Google got involved. Of course, for a variety of reasons, these models crumbled, and no one stays glued to his or her computer anymore to watch each deal come out.

And yet I know a lot of founders who made a fortune during this time. All of them were able to cash out while the prices for their shares were still high, perhaps most famously during Groupon’s later funding rounds.

While I’m not advocating taking money off the table when you know something your shareholders and investors don’t, I do think there’s a lot to be learned about timing. A lot of founders seem to forget that when it comes to value creation, that value is a constantly changing number. It’s not dictated by the latest funding round, it’s dictated by the people buying shares in your company the next time they are liquid.

I have a lot of thoughts on this I could go into, but for now, I think it’s a good opportunity to reflect upon timing and what it means for the success of our businesses. Opportunities always open and close. Just because they are open now doesn’t mean they will be open in a year, and vice versa. So all founders need to be constantly thinking 2-3 years down the road and making sure that they are building for what the business landscape will look like then. Because that’s the world that will exist for the value you are creating today. And keeping an eye on that is the job of a founder.

Joe Vasquez

Written by Joe Vasquez

Joe has a passion for helping entrepreneurs and corporations to innovate. He was an early co-founder of StartX, an accelerator for Stanford entrepreneurs. Prior to joining Runway, Joe taught at the Kauffman Fellows Academy and was a Data Analyst Fellow at LocoMotive Labs. Joe started his career in investment banking at Goldman Sachs and spent two years teaching bilingual math with Teach For America. Joe holds a BS in Atmosphere & Energy Engineering from Stanford University.

Topics: Business