Answer by Jason M. Lemkin, Co-founder and CEO of EchoSign, on Quora

First of all, having been through 3 M&A exits, 2 of them as a founder, let me just say that you'll know.

Right or wrong, you'll know. In your gut.

Second of all, let me say after that: I would never, ever sell again unless my company was about to fail. I live the life of Hugo (more on that here: If You Sell Your Company, You'll Either Feel Like A Used Car Salesman--Or Like Hugo by Jason M. Lemkin on SaaStr).

Okay. Now, let me answer the question more directly -- and honestly. I will admit with both my start-ups I had exit amounts in my head that, no matter what happened, had to "clear." Otherwise, just forget it. Don't even bother making an offer, or having the meeting.

I turned away 3 signed terms sheets that didn't meet the clearing amount. It was easy and took about 60 seconds, and one simple email that read "Thank you for the time. We pass."

You can sort of see my calculations here: Jason M. Lemkin's answer to What is the average annual return for a startup founder?. But the basic idea is that beyond everything else, it had to be worth it. It's so hard, especially in the early days. That for me meant I had to make at least 5x my opportunity cost to feel good about what I'd given, irrespective of what that absolute number was. And as more years go by, that calculation goes up.

In both cases, the remuneration exceeded that clearing point by 2x and 3x respectively.

And yet, I would never sell again if I founded another start-up that achieved any real traction.

So why sell? Five main reasons:

  • Failing. Enough said. Selling before anyone knows you are failing is ideal. The used-car salesman deal. If Tumblr really was running out of money with no one willing to write another big check (I doubt it, but if it was), then Sale of the Year.
  • Exhausted, generally 5+ years in. This is more common than you think. Why did the CEO of LivingSocial just step down? Exhausted. Why did oDesk "sell" to eLance? Exhaustion, I suspect. You see it after 5-7 years. Founders that don't have a strong team, and a great wingman -- someone to share the load with -- get too tired. You really don't know what tired is until you've been 5+ years in.
  • Competition that is creating a changing market. You don't want to end up like Blackberry. You can probably see this before anyone, including your prospective acquirers. Sell when you know, and they don't. Kudos to Palm, Mark Cuban, Bebo, Motorola, and Nokia here.
  • Exits are underrated, especially if the economics matter to you. The reality is, most startups only get 1 or 2 M&A good offers that are solid, if any. The press makes it sound like you get 100. You don't. Nibbles, yes. But not dozens of real offers. There are only 30 to 40 solid, profitable M&A Internet exits every year above $100m. Think about the math.
  • Insane offer. Yes, Yammer, Nicira, and Nest did the right thing. All three were great companies. But all three had huge risk ahead of them, and insane multiples were offered.

Having said that, in SaaS at least, I would almost never sell again once you are Post-Scale, say $8-$10m in ARR growing 80%+ YoY.

Why? It just gets better than that. SaaS Compounds. If you are at $10m in ARR, growing 80% a year, even if you screw a lot of things up, you'll get to $40m as long as you are dedicated and committed (see "Exhausted" above). I guarantee it. I just don't know exactly when. And from $40m, an IPO isn't impossible. Nor is a monster acquisition.

At a minimum, I'd definitely roll the dice once you are post-Initial Scale in SaaS.

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