A recession-era founder who sold her company for $375 million reveals how a spreadsheet of her own design helped her make smart choices around valuations
Alexa Von Tobel, a venture capitalist, shares a lesson with founders from her days as an entrepreneur.
As the founder of LearnVest, she used a spreadsheet to track all the companies that could acquire her startup, but at different valuations.
A company's ballooning valuation looks like success, but it also shrinks the number of would-be acquirers, von Tobel said.
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As the founder of a hot startup, Alexa von Tobel used to keep a spreadsheet of all the would-be acquirers of her business.
The spreadsheet, she said, parceled up all the publicly traded companies that had billions of dollars in the bank and could make a business case for buying her startup, LearnVest, which created financial-planning tools for the middle class. This was a useful exercise for the first-time founder, because it helped her decide how to value her company.
It made clear that the band of potential acquirers shrunk as her startup's private valuation grew into the many millions.
Von Tobel, who now mentors founders as managing partner of her own venture firm , Inspired Capital, says founders should be mindful of how they price their companies in order to keep their options open for an exit. This can maximize outcomes for their investors, their early employees, and themselves.
To be sure, a founder's goal is to build the biggest company that they can, von Tobel said. That said, the vast majority of startups that had some kind of exit last year were acquired by another company or as part of a private equity-related deal, according to PitchBook.
"As a CEO, only one number really matters which is what the exit number is. And I think sometimes entrepreneurs lose sight of that. Just because you can raise at a $100 million valuation, is that good for the company?" she said.
At age 31, von Tobel sold LearnVest for $375 million to Northwestern Mutual, a financial services firm in Milwaukee. The startup's price tag made it one of the biggest deals to date in the nascent financial tech category back in 2015.
Founded in the worst days of the Great Recession, LearnVest had raised $75 million in funding before the acquisition, but its last valuation was undisclosed.
The spreadsheet of her own design gave her a "sanity-check" at every financing, von Tobel said. She could see plainly that if she raised new funding at, for example, a $10 million valuation, the number of potential buyers were in the thousands. A $100 million valuation narrowed the list, and a $300 million valuation shrunk the list even further.
"By the time you get to a $1 billion, $2 billion valuation, the number of people that can afford to acquire you gets to be very specific and very few," she said.
Startups face another limiting factor in these times. The ongoing recession — and the uncertainty around how long it will last — has large...
