Early exits are typically defined as those in the $15-$30M range. The average Web startup exit is in that range. Entrepreneurs and angel investors generally love early exits. Venture capitalists generally do not. And the reason is simple — If a startup manages to exit in that range with only a small amount of capital invested ($3M or less), the founders and investors make very good returns. And early exits are faster, generally targeted in the 3-5 year range (vs. exits that take on bigger amounts of venture capital, which creep into the 7-10+ year range.) So a founder exits for $15M, owns a big piece of the company, and does it quickly. They walk away with life changing money. Not enough to build a rocket ship to visit space perhaps, but life changing nonetheless. And the early investors also see good, quick returns.
Venture capitalists are less excited about early exits because they typically invest more money over the lifetime of a startup and need the exits to be much, much higher. You can’t put in $5-$10M or more and be super happy with an early exit. VCs can still make money on that type of a deal but it won’t be hugely significant to their overall fund. As a result, there’s a stigma around early exits. The stigma is about “building something to flip it.” Investors generally don’t like that notion, and so entrepreneurs are scared about speaking in those terms. It can sound cheaper, cheesier and a bit on the slimier side. But it doesn’t have to be.
Very few companies are true game changers. That’s OK. Startups don’t have to be game changers. They do need to create value. But it doesn’t have to be “Google-esque value”. To assume otherwise is shortsighted and silly since so few startups ever reach those heights. And most simply aren’t designed to.
“Swinging for the fences” is a great notion. Everyone loves seeing a home run flying over the fence four hundred feet away with a single swing of a bat. But some of the best baseball players in the world weren’t about home run derbies and grand slams, they were playing a game of averages, hitting better, more consistently than everyone else. And winning. You don’t have to swing for the fences to be successful; not by any definition of success that I know of (financial, personal, value creation, etc.)
First-time entrepreneurs can benefit a great deal from “base hit successes” and early exits. For starters, they can walk away with a couple million dollars. There’s also an intense amount of experience to be gained. This is true whether founders are going after a huge win or a smaller win. Small startups aren’t easy. They’re more common than big, game changing startups, but they’re nowhere near easy. So instead of first-time entrepreneurs focusing on how to “game the system” into believing their startup is a $100M company, they should be focused on how to build a $15M company as quickly as possible. Founders should feel comfortable focusing on what makes sense (assuming there’s even a $15-$30M potential for the startup in the first place!) rather than fabricating numbers, ballooning expectations and stressing over things that don’t need one’s attention. And there’s a significant reputation boost from exiting at any level. That should never be dismissed for opportunistic founders.
In 2007 when I started Standout Jobs I wrote the following statement, “Go big or go home.” In hindsight that was a silly thing to say, although there’s still some truth to that. For most entrepreneurs an early exit is “going big” considering the affect it can have on a person’s life. Trust me, I’d be quite happy had I walked away with a few million dollars from the Standout Jobs exit!
Context changes. Times change. In 2007-2008 we were able to raise a significant amount of money (given the stage we were at), and it felt like we were going to conquer the world! That felt big. In many ways it was. But looking back I see the holes in my approach and strategy, which may have been rectified had I focused more on the potential of an early exit, with a disciplined lean startup mentality. The early exit stigma wasn’t the primary influencer for how we developed Standout Jobs, but it did influence our early thinking and the path we chose.
For future endeavors, including a startup I’m now working on, as well as another significant project (to be announced soon I hope!) the focus is much more on early exits. This doesn’t mean there’s a lack of vision. It doesn’t mean I’m not obsessed with creating value and changing the status quo. Quite the opposite. But it does mean that I’m ignoring the early exit stigma.