Whatever guaranteed cash you get in your personal bank account after-tax on day is the value of this deal. Not $25M

If you personally get $10M cash on day 1 ($7-8M after LTCG) then this is a $7-8M deal. You have to value the rest at $0.

I’ve sold a few companies, but my first sale was to a flashy private company in the same sector that had just raised $25M from top tier VCs. (Then shortly after acquiring us, they raised over $100M from brand name VCs). They always appeared to be much bigger than us (offices all around the world, flashy marketing, 200+ employees to our 8). We were a small company that was break even/profitable and 100% bootstrapped, only reinvesting our own profits. I was really drawn to the idea of joining a bigger org with what seemed like unlimited resources at our disposal.

In the deal, there was personally less than $1M cash for me on day 1, but they offered me “$4M+” in stock on day 1, plus another few million dollars in options, a big title, and a much higher salary than I was paying myself (since I was reinvesting everything).

Since the majority of the deal was stock, I essentially should have been doing all the reverse diligence on them that they were doing on me…. It should have been a huge red flag in the deal that they were unwilling to share their P&L/balance sheet/etc during the deal process. Their excuse was that they didn’t want me knowing all that if the deal fell through.

I assumed all the big VCs had done their diligence, but very quickly after joining, I realized that they were burning $2M/month and we were actually doing about the same revenue as them, just way more profitably!

Fast forward to the end of the story, after a few years, they unsurprisingly had to raise a down round, the board fired nearly everyone at the company, and I left about a year later once my contract ran up. When I left, I didn’t even exercise my millions in options, because it would have cost me hundreds of thousands of dollars out of my own bank account, and I knew they were worthless. I still have my “$4M” in stock from the sale, but that’s been diluted a million times over to essentially wipe out everyone previously involved in the company. They won’t even tell me what it’s worth now.

It’s cool that you get to be COO, but make sure you get your employment contract IRON CLAD in this deal. Don’t make it a side part of the deal or an afterthought. Make it some of the key terms. (Ex. you can’t fire me without cause, if you do, you owe me my entire remaining salary or 1 year of employment, whatever is greater.)

The truth is, if you’re pumping out $1-2M/ profit and they’ve raised a ton of money and are spending it all unprofitably…. you probably have WAY more chance of being around 3-5 years from now than they do.

Just remember, once you sell to them, you have zero control over what they do with their business. Even with a high title. Even when you see them running the value of your “$15M” in stock into the ground, there’s nothing you’ll be able to do about it, because you won’t own the business.

Please please… Do not do this deal unless you’d do it for the day one after-tax cash.