Alternate Endings for Start Ups

November 25, 2013
Startup questions

Volano likes to be around the start-up community for a lot of good reasons and Omaha, though not without its challenges, has become an increasingly friendly place for entrepreneurs to pursue their ideas.  As a software company, we are particularly interested in how technological innovation can solve problems and make money.  Start-ups are often warned about the rigors and risks involved in going out on their own, pursuing capital, investing in an idea, people, infrastructure and staying in the money during the early growth years.  It would seem that most start-up companies get into business to eventually cash out or forfeit some measure of control and go public.    But this isn’t always the case and a recent blog by the NY Times explores start-ups who chose less conventional paths.

Last week’s NY Times blog explores alternative methods of gaining liquidity without an IPO or selling to a larger company, but these decisions can be tough.  Whether it’s the eyeglass e-com Warby Parker allowing “early employees sell shares to new investors” or the decision that some boot-strapped companies make to stay small enough where they are never beholden to outside investors and remain autonomous.  Other entrepreneurs seek partnership with larger companies or investors in order to reach loftier goals.  The challenge then is seeking the right relationships.  Andrew Dreskin, the cofounder of TicketWeb sold his company for 35 million to Ticketmaster and regrets today that he didn’t hold onto it longer, believing it could have been a multi-billion dollar company.

Other start-up entrepreneurs have opted to sell their concepts in order to finance retirement or projects and companies  to which they are more passionate.  Seattle entrepreneur Dan Shapiro sold his comparison shopping tool “Sparkbuy” to Google which helped finance his passion project, Robot Turtles, a  board game that teaches computer programming to preschool age kids.  This writer is interested in any board game that is not “Sorry” and actually teaches applicable concepts.

It’s hard to pass up the advantages of taking your company public.  First there is the obvious financial benefit of raising capital.  This allows business owners to pay off debt, fund initiatives and invest in research and development.  The prestige factor can also lead to a greater level of awareness through the publicity generated by the IPO.  Taking your company public can also help increase market share and in many cases, lead to profitable exit by the founder who may not be interested in continuing on with the business, especially given the loss of total freedom.  However, going public also leads to increased scrutiny, regulation and added transparency for investors.  These changes may be tough for entrepreneurs to stomach given their focus on growing their concept.