Successful Exits

By Tom Fedro

Most of us have the dream, right?  We imagine taking our company public or selling it for a dramatic windfall.  A great many of us saw at the height of the Internet boom when a successful exit didn’t necessarily require anything resembling fundamental business health.  We watched companies that were giants merging with companies less than a decade old.  We watched kids become millionaires with stock options and public offerings.  In many ways fundamental business planning gave way to product development intended not for profit but for eventual sale to someone else.

There are still some examples of this kind of attitude, but the opportunities to sell non-monetized companies have faded significantly.  The days of impossible valuations are numbered if not already gone.  Take Bebo for example.  It sold for $850 million to AOL and almost immediately tanked.  AOL’s CFO lost his job and when the founders bought it back for 1/85th of its sales price, the fiasco finally ended.  This isn’t to say AOL was cheated or that the founders of Bebo didn’t deserve an exit.  However, it was AOL’s desperate attempt to remain relevant in the world of social media that led to overpayment and then a complete loss of more than three-quarters of a billion dollars’ worth of shareholder value.

If you’re looking at this and seeing an $850 million exit strategy, you’re looking wrong.  For all intents and purposes, the purchase of Bebo signaled the end of insane valuations. The key to business is and always has been valuations, and the slap in the face to each of AOL’s shareholders illustrated that far more effectively than anything I could ever write.  My advice?  It’s absolutely appropriate to build a company with the intent to sell, but  you have to be in for the long haul with genuine value creation and profitability over time because you never know if or when that buyer will actually show up with the big check.