Personal Finance

I'm in my mid-30s and at a crossroads - Sell my business now for $10 million or wait to potentially make $25 million?

Rich Duprey

Published: December 27, 2024 6:17 pm

Bigger companies or private equity firms often approach startups about buying them out. Company founders are faced with the difficult decision of giving up control of a company they built from the ground up in exchange for a lucrative payout, or holding on and building the business into something more for an even bigger payoff down the road.

That’s the situation a Redditor on the r/fatFIRE subreddit is confronted with. He has a company growing at 50% to 100% a year and is looking for a big payoff in about five years time. But he was just offered $10 million for his business, keeping him on for five years with a $350,000 salary, and the potential to earn $1 million to $2 million more each year based on performance. Ultimately, he could walk away with anywhere from $10 million to $20 million.

But he sees the potential for bigger returns by keeping control. Although he understands nothing is guaranteed, he believes that if his company grows even just 35% to 50% over the next five years, he could walk away with $25 million to $30 million. 

Is this a classic case of “a bird in the hand is worth two in the bush,” or should he hold fast to his plan?

24/7 Wall St. Key Points:

• Starting a company from the ground up is a labor of love, and it is never an easy decision to choose between accepting a buyout offer now or holding on for a bigger payout later.
• History is replete with examples of both cases where rejecting an offer was a mistake while holding on was a wildly successful choice. Yet it is a little more than only a coin toss about which decision to make.
• Also: Take this quiz to see if you’re on track to retire (Sponsored)

A history of missed opportunities

It’s never an easy decision to make as history is replete with examples on both sides of the equation.

For example, in 2008, Microsoft (NASDAQ:MSFT) offered to buy Yahoo for $47.5 billion, but co-founders Jerry Yang and David Filo turned down the offer as undervaluing the company. Microsoft ended up walking away from the deal and Yahoo was subsequently bought out by Verizon (NYSE:VZ) eight years later for just $4 billion.

On the other hand, Mark Zuckerberg was approached by Yahoo in 2006 with a buyout of Meta Platform (NASDAQ:META) (then just called Facebook) for $1 billion. The social media platform was only two years old, had 8 million to 9 million users, and was generating only $20 million in revenue. Zuckerberg rejected the offer. Today, Meta has 3.3 billion active users across its family of applications including Facebook, Instagram, and WhatsApp, and reported $40.6 billion in revenue for just the third quarter.

There are good arguments to be made in making either case.

A sure thing vs. seeing it through

In the Redditor’s case, the decision is complicated by the fact that he’s in his mid-30’s, married, and has three young children. He enjoys the freedom and flexibility his current position gives him to spend time with his children, and he fears working for the new owners will become a grind and the five-year earnout will be an eternity.

That is certainly a possibility. The new company may be far more demanding of his time and leave him with much less freedom to be with his kids. Yet business conditions can change rapidly, as Yahoo found out. What may seem like a relative sure thing now can result in very different results — and a much lower valuation — soon after.

Zuckerberg’s situation with Facebook was different. He had a clear vision of where he wanted to go, new products he wanted to introduce, and didn’t think Yahoo had a good understanding of social media. MySpace previously rejected Zuckerberg’s demand for a $75 million price tag, Friendster also wanted to buy Facebook, and Google had considered investing when it had a $15 billion valuation, but never did.

Key takeaway

It is never an easy choice on whether to accept a buyout offer or to stay the course. If the owner has a roadmap of growth and a plan to achieve it, keeping control could be the right choice. But if you’re coasting along just to run out the clock in hopes of a better payday coming, selling now is likely the better decision to make.