November 21, 2013

When selling a startup, determining value can be difficult

For social media startups and other small companies, it is hard to deny the allure of selling to larger businesses. After all, making a living as a scrappy digital business can be difficult. But pooling resources with some of the most successful and profitable entities on the web can be a ticket to financial success. Just ask Instagram, a small photo sharing app that was bought by Facebook for $1 billion, or Vine, a video sharing app that was bought by Twitter for only slightly less.

Following those technology acquisitions, both startups are doing just fine, and now have the resources to expand their user base and offer new services. It's a win-win for both parties.

But not everyone jumps at the chance to sell. As this blog has already covered, photo sharing service Snapchat recently turned down Facebook's $3 million buyout offer. Some have suggested that this was because Snapchat would have had to make too many changes to its service. Others believe the company felt that it was worth even more. 

The truth is that many social media companies feel that they are undervalued. According to a recent article on, a recent survey of 230 such companies found that most plan to sell their businesses, but want more money for them.

It can be difficult, however, to determine a fair company valuation

"[M]any entrepreneurs are stumped when it comes to adding value to their companies and about what the proper company price should be," the article read. "Most businesses get stuck at a growth inflection point, requiring knowledgeable managers who can push growth to the next level."

With help from the right mergers and acquisitions advisor, this process can be a little easier.