Don’t Make This Billion Dollar Mistake
Would you turn down a $3 billion acquisition offer for your real estate start-up? CEO Evan Spiegel of Snapchat reportedly turned down an offer from Facebook valued in the billions. So will a rejection of this magnitude haunt him forever, or is it a smart business move? This is something real estate entrepreneurs need to consider when the same questions are directed at them. Is turning down $1 billion ever a smart move? Why would anyone ever consider such a snub? What Southern California Thinks about a Billion Dollars According to a survey regarding Southern California investors and start-up entrepreneurs published on Business Insider, the overwhelming majority thought Evan was absolutely nuts to turn down the billion dollar acquisition offer. One respondent even questioned whether the founder “had any concept of money.” Most Southern California entrepreneurs and real estate investors would jump at the shot of a few million. However, there were those who thought Spiegel’s snub was the best choice. Some have debated whether it was a well calculated strategy to create a bidding war over the start-up or an attempt by the 23 year old founder to become the next Mark Zuckerberg. The journalist covering the story questioned whether or not the young entrepreneur was just able to see the big picture. The co-founders could reportedly cash out for $20M to $40M if they wanted to. That’s enough to retire modestly or make some good real estate investments that would see them through their rest of their lives. Raising $3 billion might be more than many dream of, but it would certainly be an accomplishment for the ages. Holding out, on the other hand, could yield a lot more money. More than that; it has the potential to allow the founders to do something far bigger, be a part of a legacy project they really believe in. That’s priceless. The Hunt for the Money Ironically, millions of individuals continue to make the excuse that they can’t even get started working towards their dreams via real estate investing because they don’t have enough money. Many more real estate investors and CEOs are stalled out; taking endless detours looking for the money before getting started or growing, instead of just getting to investing and making money. Raising money is getting easier in real estate. Between venture capital, loosening lending, and crowdfunding, it’s far easier to borrow and get funded. Why Not to Take the Money There may be great advantages to leverage. In fact; leverage alone and sheer money volume power can be enough to force success; at least temporarily. However, taking venture capital or raising funds at the cost of giving up part of the business can be equally responsible for an epic failure. One of the major drawbacks, which catches most by surprise, is that extra money actually isn’t always a helpful thing. It can bring a lot of distraction and inefficiencies. In many cases, it completely destroys ROI compared to that of leaner start-ups and boot-strappers. Ultimately, that can be poisonous. Look at how some bootstrapped real estate investors have made millions out of nothing, while most of those that have been given six figures to drop out of college to launch start-ups still haven’t turned in a penny in profit. Before you do anything else, think carefully about whether having more money at any cost is really worth it. If so, what’s your price? If not, how are you going to define your legacy project beyond just dollars in revenues?