As soon as something becomes more valuable the human inclination is to sell it. How many times have we heard;
‘the shares doubled in value, then I sold them’.
‘Our house has gone up in market value by $500k, We’re putting it on the market’.
If an asset has become more valuable, so has the ROI. The interesting thing about ROI, is that your internal ROI is related to what it cost you, not the current valuation. If we ‘Sell the valuable’ the replacement asset can’t have an equivalent ROI. So we lose out.
The same goes for a start up. When we have offers to sell out, maybe we should consider why and hold on.
Shares are a different equation to a startup. The holder of the shares has no impact on future value, and if interested in risk management principles, exercises judgment to protect their primary investment: sell sufficient shares whilst they trade high to cover the buy-in price, keeping the balance of the shares if the long term outlook appears okay, and re-invest the funds in another company where there appears more scope for growth. Houses are different again when the market generally rises, albeit at different rates, meaning that unless you are a developer, or sitting on property about to be rezoned in a favourable way, in all likelihood you are not about to make a killing, because you are going to buy another property that has also appreciated in value. The equation for a startup is fundamentally different. You have a direct, material impact on where the business is now, and where it may be in 5 years. If it’s a grocer’s shop in the suburbs that you have set up with quality suppliers and links to local restaurants and other foodservice users, sell it as a viable entity and do the same thing again and again in other areas, assuming that the payback is beyond where the business in itself could take you. Otherwise, if it is a beverage business where you are breaking new ground, the startup king should get off his arse, make it happen and ride that sucker into the sunset….
Dead pan, you’re forgetting one important thing. In the long run the value of any business is related to earnings. It doesn’t matter if it’s shares, property or a business (even if you run it). If something has gone up in value, so has it’s yield. That’s the thing of value, not ownership.
As far as start ups are concerned, anyone who buys a start up that still depends on its founder isn’t really buying a business are they?
Steve.